<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CABLEVISION SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies: Class A
Common Stock, par value $0.01 per share, of Cablevision Systems
Corporation; Class B Common Stock, par value $0.01 per share, of
Cablevision Systems Corporation
-----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
Up to 43,869,824 shares of Cablevision Class A Common Stock and
Cablevision Class B Common Stock
-----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $89 per share of Cablevision Common
Stock representing the average of the high and low reported prices of
the Cablevision Class A Common Stock on January 12, 1998
-----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction: $3,904,414,336(1)
-----------------------------------------------------------------------
5) Total fee paid: $780,882.87 equaling one-fiftieth of one percent of the
value of the Parent Common Stock to be issued in the Transactions and
in the Partnership Contribution
-----------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C> <C>
(1) For purposes of calculating the filing fee only. Upon consummation of
the Transactions, (i) in the Merger, each outstanding share of
Cablevision Class A Common Stock, par value $0.01 per share, and share
of Cablevision Class B Common Stock, par value $0.01 per share, will be
converted into the right to receive one share of Parent Class A Common
Stock, par value $0.01 per share, and one share of Parent Class B
Common Stock, par value $0.01 per share, respectively, (ii) in the
Issuance, Parent will issue in consideration of receiving the Con-
tributed Businesses from Tele-Communications, Inc. or its designated
transferors an aggregate amount of 12,235,543 shares of Parent Class A
Common Stock and (iii) in the Partnership Contribution, Parent will
issue in consideration for the RPE Aquired Interests an aggregate
amount of up to 54,000 shares of Parent Class A Common Stock. The
proposed maximum aggregate value of the transactions described in the
preliminary proxy materials is equal to $3,904,414,336 calculated based
on (i) the sum of the number of shares of Cablevision's Common Stock
outstanding as of January 6, 1998 and issuable upon exercise of
outstanding Cablevision options and upon conversion of outstanding
Cablevision Series I Preferred Stock as of January 6, 1998, the number
of shares of Parent Class A Common Stock to be issued in the Issuance
and the approximate number of shares of Parent Class A Common Stock
that may be issued in the Partnership Contribution multiplied by (ii)
the average of the high and low reported prices of the Cablevision
Class A Common Stock on January 12, 1998.
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $805,011.27
-----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.: Preliminary Schedule 14A
Proxy Statement; Amendment No. 1 thereto; and Amendment No. 2 thereto
-----------------------------------------------------------------------
3) Filing Party: Cablevision Systems Corporation
-----------------------------------------------------------------------
4) Date Filed: November 14, 1997; December 24, 1997; January 20, 1998
-----------------------------------------------------------------------
</TABLE>
<PAGE>
[LOGO]
CABLEVISION SYSTEMS CORPORATION
One Media Crossways
Woodbury, New York 11797
January 20, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the Stockholders of
Cablevision Systems Corporation, a Delaware corporation, ("Cablevision") to be
held at 10:00 a.m. local time, on February 18, 1998 at the principal executive
offices of Cablevision, One Media Crossways, Woodbury, New York 11797. I hope
that you will be present or represented by proxy at this important meeting.
Cablevision has entered into a Contribution and Merger Agreement dated as of
June 6, 1997 (the "Original Contribution and Merger Agreement"), as amended and
restated by the Amended and Restated Contribution and Merger Agreement, dated as
of June 6, 1997 (the "Contribution and Merger Agreement"), with TCI
Communications, Inc. ("TCI"), a Delaware corporation and a subsidiary of Tele-
Communications, Inc., CSC Parent Corporation, a Delaware corporation and a
wholly owned subsidiary of Cablevision ("Parent"), and CSC Merger Corporation, a
Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"),
pursuant to which Merger Sub will be merged with and into Cablevision, resulting
in Cablevision becoming a wholly owned subsidiary of Parent (the "Merger").
Thereafter, Parent will change its name to Cablevision Systems Corporation and
will be a new publicly traded holding company. In addition, pursuant to the
Contribution and Merger Agreement, TCI will transfer or cause to be transferred
(the "Contribution") to Parent all of the partnership interests and capital
stock in certain entities owned by TCI (the "Contributed Subsidiaries") and all
of the assets (the "Asset Contributed Systems") related to the business of
certain cable television systems owned and operated by TCI. The cable television
systems of TCI contained within the Contributed Subsidiaries and included within
the Asset Contributed Systems are located in New Jersey, on Long Island and in
New York's Rockland and Westchester counties and served approximately 822,000
subscribers as of September 30, 1997. (In connection with securing certain
regulatory approvals to the Merger and the Contribution, Cablevision has agreed
to divest certain cable television system assets of the Contributed Businesses
that are located in Paramus and Hillsdale, New Jersey. The assets to be divested
served approximately 5,200 subscribers as of September 30, 1997 and are not
believed by Cablevision to be material to Cablevision or the Contributed
Businesses.) In the Contribution, Parent will issue (the "Issuance") to TCI or
its designees an aggregate of 12,235,543 shares of Class A Common Stock, par
value $0.01 per share, of Parent ("Parent Class A Common Stock"), subject to
certain adjustments specified in the Contribution and Merger Agreement, and will
assume certain liabilities (including an aggregate amount of indebtedness not to
exceed $669 million) relating to the cable television systems being contributed
by TCI.
The purpose of the Special Meeting is to approve and adopt the Contribution
and Merger Agreement and to approve the Merger and the Issuance. Your Board of
Directors has determined that the Contribution and Merger Agreement, the Merger
and the Issuance are fair and in the best interests of Cablevision and its
stockholders. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CONTRIBUTION
AND MERGER AGREEMENT, THE MERGER AND THE ISSUANCE AND RECOMMENDS THAT YOU VOTE
FOR THE APPROVAL AND ADOPTION OF THE CONTRIBUTION AND MERGER AGREEMENT AND THE
APPROVAL OF THE MERGER AND THE ISSUANCE.
At the Special Meeting you will also be asked to consider and approve the
adoption of the Parent Employee Stock Plan and the Parent Long-Term Incentive
Plan (together, the "Plans"). These Plans being
i
<PAGE>
adopted by Parent are substantially identical to Cablevision's First Amended and
Restated 1996 Employee Stock Plan (which was approved by Cablevision's
stockholders at their 1996 Annual Meeting and Cablevision's 1997 Long-Term
Incentive Plan (which was approved by Cablevision's stockholders at their 1997
Annual Meeting), respectively). Consummation of the transactions contemplated by
the Contribution and Merger Agreement is not conditioned on approval of the
adoption of the Plans, but the adoption of the Plans is contingent on the
consummation of the Merger. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
ADOPTION OF THE PLANS AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE ADOPTION
OF THE PLANS.
The Contribution and Merger Agreement, the Merger, the Contribution, the
Issuance and the Plans and related matters are described in greater detail in
the accompanying Proxy Statement/Prospectus, which you are urged to read
carefully and in its entirety.
Approval and adoption of the Contribution and Merger Agreement and approval
of the Merger to be voted on at the Special Meeting, which will be deemed to
constitute approval of the issuance of shares of Parent Class A Common Stock in
the Issuance and approval of the stock options, conjunctive rights, bonus award
shares and incentive awards to be issued by Parent in replacement of outstanding
Cablevision stock options, conjunctive rights, bonus award shares and incentive
awards pursuant to the Contribution and Merger Agreement, requires the
affirmative vote of the holders of a majority of the total voting power
represented by the outstanding shares of Class A Common Stock, par value $0.01
per share, of Cablevision ("Cablevision Class A Common Stock") and Class B
Common Stock, par value $0.01 per share, of Cablevision ("Cablevision Class B
Common Stock"), voting together as a single class. Stockholders are entitled to
vote all shares of Cablevision Class A Common Stock and Cablevision Class B
Common Stock held of record by them on January 6, 1998, which is the record date
for the Special Meeting. Approval of the adoption of the Parent Employee Stock
Plan and the Parent Long-Term Incentive Plan requires the affirmative vote of a
majority of the shares of Cablevision Class A Common Stock and Cablevision Class
B Common Stock present at the Special Meeting in person or by proxy and entitled
to vote, voting together as a single class. CABLEVISION STOCKHOLDERS HAVING A
MAJORITY OF CABLEVISION'S VOTING POWER HAVE AGREED THAT THEY WILL VOTE FOR
ADOPTION AND APPROVAL OF THE CONTRIBUTION AND MERGER AGREEMENT AND APPROVAL OF
THE MERGER AND THE ISSUANCE. ACCORDINGLY, APPROVAL OF THOSE MATTERS IS ASSURED.
I URGE YOU TO CONSIDER THESE IMPORTANT MATTERS, WHICH ARE DESCRIBED IN THE
ENCLOSED PROXY STATEMENT/ PROSPECTUS. In order to ensure that your vote is
represented at the Special Meeting, whether or not you plan to attend the
Special Meeting, PLEASE INDICATE YOUR CHOICE ON THE ENCLOSED PROXY CARD, DATE
AND SIGN IT, AND RETURN IT IN THE ENCLOSED ENVELOPE. Your prompt response will
be greatly appreciated. If you are able to attend the Special Meeting, you may
revoke your proxy at any time before its exercise and may, of course, vote your
shares in person.
Sincerely,
[LOGO]
<TABLE>
<S> <C> <C>
By: Charles F. Dolan
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
ii
<PAGE>
------------------------
THE BOARD OF DIRECTORS OF CABLEVISION RECOMMENDS THAT STOCKHOLDERS VOTE FOR
EACH OF THE PROPOSALS TO BE PRESENTED AT THE SPECIAL MEETING.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER IN
WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO ITS
EXERCISE.
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
iii
<PAGE>
[LOGO]
CABLEVISION SYSTEMS CORPORATION
One Media Crossways
Woodbury, New York 11797
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 18, 1998
------------------------
NOTICE HEREBY IS GIVEN that a special meeting of the Stockholders (the
"Special Meeting") of Cablevision Systems Corporation, a Delaware corporation
("Cablevision"), has been called by the Board of Directors of Cablevision and
will be held at the principal executive offices of Cablevision, One Media
Crossways, Woodbury, New York 11797 at 10:00 a.m. local time on February 18,
1998 to consider and vote upon the following matters (collectively, the
"Proposals") described in the accompanying Proxy Statement/ Prospectus:
1. To consider and vote upon a proposal to adopt and approve a
Contribution and Merger Agreement, dated as of June 6, 1997 (the "Original
Contribution and Merger Agreement"), as amended by an Amended and Restated
Contribution and Merger Agreement, dated as of June 6, 1997 (the
"Contribution and Merger Agreement"), by and among TCI Communications, Inc.
("TCI"), a Delaware corporation and a subsidiary of Tele-Communications,
Inc., Cablevision, CSC Parent Corporation, a Delaware corporation and a
wholly owned subsidiary of Cablevision ("Parent"), and CSC Merger
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent
("Merger Sub"), pursuant to which (i) Merger Sub will be merged with and
into Cablevision, with Cablevision being the surviving corporation (the
"Merger"), and each share of Class A Common Stock, par value $0.01 per
share, of Cablevision ("Cablevision Class A Common Stock") and Class B
Common Stock, par value $0.01 per share, of Cablevision ("Cablevision Class
B Common Stock") (other than shares, beneficially owned by Cablevision or
any direct or indirect subsidiary of Cablevision) will be converted into one
share of Class A Common Stock, par value $0.01 per share, of Parent ("Parent
Class A Common Stock") and one share of Class B Common Stock, par value
$0.01 per share, of Parent ("Parent Class B Common Stock"), respectively;
(ii) TCI will transfer or cause to be transferred (the "Contribution") to
Parent all of the partnership interests and capital stock of certain
entities owned by TCI (the "Contributed Subsidiaries") and all of the assets
(the "Asset Contributed Systems") related to the business of certain cable
television systems owned and operated by TCI (the cable television systems
of TCI contained within the Contributed Subsidiaries and included within the
Asset Contributed Systems are located in New Jersey, on Long Island and in
New York's Rockland and Westchester counties and served approximately
822,000 subscribers as of September 30, 1997) .(In connection with securing
certain regulatory approvals to the Merger and the Contribution, Cablevision
has agreed to divest certain cable television system assets of the
Contributed Businesses that are located in Paramus and Hillsdale, New
Jersey. The assets to be divested served approximately 5,200 subscribers as
of September 30, 1997 and are not believed by Cablevision to be material to
Cablevision or the Contributed Businesses.) ; and (iii) in connection with
the Contribution, Parent will issue (the "Issuance") to TCI or its designees
an aggregate of 12,235,543 shares of Parent Class A Common Stock, subject to
certain adjustments specified in the Contribution and Merger Agreement, and
will assume certain liabilities (including an aggregate amount of
indebtedness not to exceed $669 million) relating to the cable television
systems being contributed by TCI;
i
<PAGE>
2. To consider and vote upon a proposal to adopt and approve the Parent
Employee Stock Plan and the Parent Long-Term Incentive Plan (together, the
"Plans") described herein; and
3. Such other business as may properly come before the meeting or any
adjournments or postponements thereof.
Notwithstanding stockholder approval of the Proposals, Cablevision reserves
the right to abandon the Merger and the Contribution at any time prior to their
consummation, subject to the terms and conditions of the Contribution and Merger
Agreement and applicable law.
Only holders of Cablevision Class A Common Stock and Cablevision Class B
Common Stock of record at the close of business on January 6, 1998 are
entitled to notice of and to vote at such meeting or any adjournments or
postponements thereof.
Approval and adoption of the Contribution and Merger Agreement and approval
of the Merger, which will be deemed to constitute approval of the issuance of
shares of Parent Class A Common Stock in the Issuance and approval of the stock
options, conjunctive rights, bonus award shares and incentive awards to be
issued by Parent in replacement of outstanding Cablevision options, conjunctive
rights, bonus award shares and incentive awards pursuant to the Contribution and
Merger Agreement, requires the affirmative vote of the holders of a majority of
the total voting power represented by the outstanding shares of Cablevision
Class A Common Stock and Cablevision Class B Common Stock, voting together as a
single class.
Approval of the adoption of the Parent Employee Stock Plan and the Parent
Long-Term Incentive Plan requires the affirmative vote of a majority of the
shares of Cablevision Class A Common Stock and Cablevision Class B Common Stock
present at the Special Meeting in person or by proxy and entitled to vote,
voting together as a single class.
CABLEVISION STOCKHOLDERS HAVING A MAJORITY OF CABLEVISION'S VOTING POWER
HAVE AGREED THAT THEY WILL VOTE FOR ADOPTION AND APPROVAL OF THE CONTRIBUTION
AND MERGER AGREEMENT AND APPROVAL OF THE MERGER AND THE ISSUANCE. ACCORDINGLY,
APPROVAL OF THOSE MATTERS IS ASSURED.
In accordance with Section 262 of the General Corporation Law of the State
of Delaware, holders of Cablevision Common Stock will not be entitled to
appraisal rights in connection with the Merger.
A proxy card and a Proxy Statement/Prospectus containing more detailed
information with respect to the matters to be considered at the Special Meeting
(including the Contribution and Merger Agreement attached as Appendix A thereto,
the Parent Employee Stock Plan attached as Appendix E thereto and the Parent
Long-Term Incentive Plan attached as Appendix F thereto) accompany and form a
part of this notice.
By Order of the Board of Directors,
[LOGO]
ROBERT S. LEMLE
SECRETARY
Woodbury, New York
January 20, 1998
ii
<PAGE>
------------------------
THE BOARD OF DIRECTORS OF CABLEVISION RECOMMENDS THAT STOCKHOLDERS VOTE FOR
EACH OF THE PROPOSALS TO BE PRESENTED AT THE SPECIAL MEETING.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER IN
WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO ITS
EXERCISE.
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
iii
<PAGE>
PROSPECTUS FOR UP TO 32,773,115 SHARES OF CLASS A COMMON
STOCK OF CSC PARENT CORPORATION, PAR VALUE $0.01 PER SHARE,
AND UP TO 11,096,709 SHARES OF CLASS B COMMON STOCK
OF CSC PARENT CORPORATION,
PAR VALUE $0.01 PER SHARE,
AND
PROXY STATEMENT FOR STOCKHOLDERS MEETING
OF CABLEVISION SYSTEMS CORPORATION
TO BE HELD ON FEBRUARY 18, 1998
This Proxy Statement/Prospectus is being furnished to holders of Class A
Common Stock, par value $0.01 per share ("Cablevision Class A Common Stock"),
and holders of Class B Common Stock, par value $0.01 per share ("Cablevision
Class B Common Stock" and, together with Cablevision Class A Common Stock,
"Cablevision Common Stock"), of Cablevision Systems Corporation, a Delaware
corporation ("Cablevision"), in connection with the solicitation of proxies by
its Board of Directors for use at Cablevision's special meeting of stockholders,
and any adjournments or postponements thereof (the "Special Meeting"). The
Special Meeting is being called to consider and vote upon, among other things,
the following proposals: (i) proposals to approve and adopt the Contribution and
Merger Agreement, dated as of June 6, 1997 (the "Original Contribution and
Merger Agreement"), as amended and restated by the Amended and Restated
Contribution and Merger Agreement, dated as of June 6, 1997 (the "Contribution
and Merger Agreement"), among TCI Communications, Inc. ("TCI"), a Delaware
corporation and a subsidiary of Tele-Communications, Inc.
("Tele-Communications"), Cablevision, CSC Parent Corporation, a Delaware
corporation and a wholly owned subsidiary of Cablevision ("Parent"), and CSC
Merger Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent (the "Merger Sub"), in the form attached hereto as Appendix A, and the
transactions contemplated thereby and (ii) proposal to approve and adopt the
Parent Employee Stock Plan in the form attached hereto as Appendix E and the
Parent Long-Term Incentive Plan in the form attached hereto as Appendix F.
The Contribution and Merger Agreement provides for, among other things, the
merger of Merger Sub with and into Cablevision, with Cablevision as the
surviving corporation (the "Merger"). Upon consummation of the Merger, the
separate existence of Merger Sub will automatically cease and each issued and
outstanding share of common stock, par value $0.01 per share, of Merger Sub will
be converted into one share of Cablevision Common Stock. Each outstanding share
of Cablevision Class A Common Stock will be exchanged for one share of Class A
Common Stock, par value $0.01 per share, of Parent ("Parent Class A Common
Stock") and each outstanding share of Cablevision Class B Common Stock will be
exchanged for one share of Class B Common Stock, par value $0.01 per share of
Parent ("Parent Class B Common Stock" and, together with Parent Class A Common
Stock, "Parent Common Stock"). Subsequent to the Merger, Parent will change its
name to Cablevision Systems Corporation and Cablevision will change its name to
CSC Holdings, Inc. As a result, Cablevision will become a wholly owned
subsidiary of Parent. Substantially simultaneously with and immediately after
the consummation of the Merger, TCI will transfer or cause to be transferred
(the "Contribution") to Parent all of the partnership interests and capital
stock of certain entities owned by TCI (the "Contributed Subsidiaries") and all
of the assets (the "Asset Contributed Systems") related to the business of
certain cable television systems owned and operated by TCI. The cable television
systems of TCI contained within the Contributed Subsidiaries and included within
the Asset Contributed Systems (all such systems being collectively referred to
herein as the "Contributed Businesses") are located in New Jersey, on Long
Island and in New York's Rockland and Westchester counties and served
approximately 822,000 subscribers as of September 30, 1997. (In connection with
securing certain regulatory approvals to the Merger and the Contribution,
Cablevision has agreed to divest certain cable television system assets of the
Contributed Businesses that are located in Paramus and Hillsdale, New Jersey.
The assets to be divested served approximately 5,200 subscribers as of September
30, 1997 and are not believed by Cablevision to be material to Cablevision or
the Contributed
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<PAGE>
Businesses.) In connection with the Contribution, Parent will issue (the
"Issuance") an aggregate of 12,235,543 shares of Parent Class A Common Stock to
TCI or its designees and will directly or indirectly assume certain liabilities
(including an aggregate amount of indebtedness not to exceed $669 million)
relating to the business of the cable television systems of TCI to be
contributed in the Contribution.
In accordance with the Contribution and Merger Agreement, the certificate of
incorporation of Cablevision will be amended, effective as of the consummation
of the Merger, to reflect the change in name to CSC Holdings, Inc. and to
provide that CSC Holdings, Inc. shall be authorized to issue the following
shares of stock: (a) 1,000 shares of Common Stock, par value $1.00 per share;
(b) 10,000,000 shares of Preferred Stock, par value $0.01 per share, 200,000
shares of which shall be designated as Series A Cumulative Convertible Preferred
Stock and 200,000 shares of which shall be designated as Series B Cumulative
Convertible Preferred Stock.
Cablevision has issued options to acquire Cablevision Class A Common Stock,
conjunctive rights and bonus award shares with respect to Cablevision Class A
Common Stock and incentive awards with respect to Cablevision to certain
employees and non-employee directors under its existing plans. After the
consummation of the Merger, (i) persons who exercise such options will receive
the same number of shares of Parent Class A Common Stock as the Cablevision
Class A Common Stock they would have received under the existing plans if they
had exercised such options immediately prior to the consummation of the Merger
and (ii) each of such Cablevision conjunctive rights, bonus award shares and
incentive awards will be deemed to constitute a conjunctive right, bonus award
share and incentive award with respect to Parent on the same terms and
conditions as in effect immediately prior to the Merger.
Cablevision will not redeem any stock or receive any property from its
stockholders in connection with the Merger, Contribution or Issuance
(collectively, the "Transactions"). Cablevision will not distribute any property
to its stockholders in connection with the Transactions. The consummation of the
Transactions will take place on the third business day following the
satisfaction of certain customary conditions (set forth in Article VII of the
Contribution and Merger Agreement), including, among others, approval by the
stockholders of Cablevision and the receipt of required third-party and
regulatory approvals.
CABLEVISION STOCKHOLDERS HAVING A MAJORITY OF CABLEVISION'S VOTING POWER
HAVE AGREED THAT THEY WILL VOTE FOR ADOPTION AND APPROVAL OF THE CONTRIBUTION
AND MERGER AGREEMENT AND APPROVAL OF THE MERGER AND THE ISSUANCE. ACCORDINGLY,
APPROVAL OF THOSE MATTERS IS ASSURED.
Parent has filed a registration statement on Form S-4 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "1933 Act"), of which this Proxy
Statement/Prospectus is a part, relating to the shares of Parent Class A Common
Stock and Parent Class B Common Stock that are proposed to be issued in the
Merger and in the Issuance. This Proxy Statement/Prospectus also constitutes the
prospectus of Parent with respect to up to 32,773,115 shares of Parent Class A
Common Stock and up to 11,096,709 shares of Parent Class B Common Stock to be
issued in the Merger (with the Parent Class A Common Stock being increased and
the Parent Class B Common Stock being decreased on a one-for-one basis to
reflect any conversions of Cablevision Class B Common Stock into Cablevision
Class A Common Stock between the date of this Proxy Statement/ Prospectus and
the effective time of the Merger) in the Issuance and up to 54,000 shares of
Parent Class A Common Stock (of which Parent currently anticipates issuing
approximately 52,000 shares) that may be issued in the Partnership Contribution
(as hereinafter defined). For a description of the Parent Class A Common Stock
and Parent Class B Common Stock, see "Description of Parent Capital Stock."
All information contained or incorporated by reference herein concerning
Parent and Cablevision and their affiliates has been furnished by Cablevision,
and all information contained herein concerning the Contributed Businesses and
Tele-Communications and their affiliates has been furnished by Tele-
Communications.
ii
<PAGE>
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DESCRIPTION OF CERTAIN FACTORS
RELATING TO PARENT, CABLEVISION AND THE CONTRIBUTED BUSINESSES AND TO THE SHARES
OF PARENT COMMON STOCK TO BE ISSUED HEREUNDER.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of Cablevision on or about January 20, 1998.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is January 20, 1998.
iii
<PAGE>
AVAILABLE INFORMATION
Cablevision is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the following regional offices: Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048, and are also available on the Commission's World Wide
Web site at http://www.sec.gov. Copies of such reports, proxy statements and
other information may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports, proxy statements and other information also may be
inspected at the offices of the American Stock Exchange (the "AMEX"), 86 Trinity
Place, New York, New York 10006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Cablevision hereby incorporates by reference into this Proxy
Statement/Prospectus the following documents or information filed with the
Commission:
1. Cablevision's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (which incorporates by reference certain information from
Cablevision's Proxy Statement relating to the 1997 Annual Meeting of
Stockholders (the "1997 Proxy Statement")), as amended by Cablevision's Form
10-K/A for the fiscal year ended December 31, 1996 (collectively, the "Form
10-K") (Commission File Number 1-9046);
2. Cablevision's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997 (the "Form
10-Qs") (Commission File Number 1-9046);
3. Cablevision's Current Reports on Form 8-K filed February 18, 1997,
March 12, 1997, April 18, 1997, June 10, 1997, July 10, 1997, August 30,
1997, September 9, 1997 and December 8, 1997 (the "Form 8-Ks") (Commission
File Number 1-9046); and
4. All documents filed by Cablevision or Parent pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of this
Proxy Statement/Prospectus and prior to the termination of the offering made
hereby.
Any statement contained herein or in any document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for the purpose of this Proxy 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
Proxy Statement/Prospectus.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement filed by Parent, certain portions of which
have been omitted pursuant to the rules and regulations of the Commission, and
to which portions reference is hereby made for further information with respect
to Parent, Cablevision, the Transactions, the securities offered hereby and
related matters. Statements contained herein concerning any documents are not
necessarily complete and, in each instance, reference is made to the copies of
such documents filed as exhibits to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
REPRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST FROM THE CORPORATE SECRETARY OF CABLEVISION AT
i
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CABLEVISION'S PRINCIPAL EXECUTIVE OFFICES AT ONE MEDIA CROSSWAYS, WOODBURY, NEW
YORK 11797, TELEPHONE NUMBER (516) 364-8450. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FEBRUARY 13, 1998.
------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/ PROSPECTUS IN CONNECTION WITH THE OFFERING AND THE SOLICITATIONS MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY CABLEVISION. THIS PROXY STATEMENT/
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OR A PROXY, IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY INFERENCE THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH
HEREIN OR IN THE AFFAIRS OF CABLEVISION SINCE THE DATE HEREOF.
------------------------
The term "Cablevision Consolidated Financial Statements" refers to
Cablevision's Consolidated Financial Statements and the notes thereto
incorporated by reference from the Form 10-K and the term "Cablevision
Management's Discussion and Analysis" refers to the Management's Discussion and
Analysis of Financial Conditions and Results of Operations of Cablevision
incorporated by reference from the Form 10-K or the Form 10-Qs, as applicable.
------------------------
THIS PROXY STATEMENT/PROSPECTUS CONTAINS OR INCORPORATES BY REFERENCE
STATEMENTS THAT CONSTITUTE FORWARD LOOKING INFORMATION WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). INVESTORS
ARE CAUTIONED THAT SUCH FORWARD LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE OR RESULTS AND INVOLVE RISKS AND UNCERTAINTIES AND THAT ACTUAL
RESULTS OR DEVELOPMENTS MAY DIFFER MATERIALLY FROM THE FORWARD LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT MAY HAVE CAUSED SUCH
DIFFERENCES TO OCCUR INCLUDE BUT ARE NOT LIMITED TO (I) THE LEVEL OF GROWTH IN
CABLEVISION'S AND THE CONTRIBUTED BUSINESSES' REVENUES, (II) SUBSCRIBER DEMAND,
COMPETITION, THE COST OF PROGRAMMING AND INDUSTRY CONDITIONS, (III) WHETHER
EXPENSES OF CABLEVISION AND THE CONTRIBUTED BUSINESSES CONTINUE TO INCREASE AT A
RATE FASTER THAN EXPECTED, (IV) WHETHER ANY UNCONSUMMATED TRANSACTIONS ARE
CONSUMMATED ON THE TERMS AND AT THE TIME SET FORTH (IF AT ALL), (V) NEW
COMPETITORS ENTERING CABLEVISION'S AND THE CONTRIBUTED BUSINESSES' FRANCHISE
AREAS AND (VI) OTHER RISKS AND UNCERTAINTIES INHERENT IN THE CABLE TELEVISION
BUSINESS. SEE "FORWARD LOOKING STATEMENTS" AND "RISK FACTORS."
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TABLE OF CONTENTS
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AVAILABLE INFORMATION..................................................................................... i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................................................... i
SUMMARY................................................................................................... 1
General................................................................................................. 1
The Companies........................................................................................... 1
The Special Meeting..................................................................................... 2
The Transactions........................................................................................ 3
Risk Factors............................................................................................ 6
Certain Related Agreements.............................................................................. 6
Potential Related Transactions.......................................................................... 7
The Plan Proposals...................................................................................... 8
SELECTED HISTORICAL FINANCIAL DATA........................................................................ 9
Cablevision Systems Corporation......................................................................... 9
Contributed Businesses.................................................................................. 12
UNAUDITED SUMMARY CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF PARENT........................ 14
UNAUDITED COMPARATIVE PER SHARE DATA...................................................................... 15
MARKET PRICES............................................................................................. 16
FORWARD-LOOKING STATEMENTS................................................................................ 17
RISK FACTORS.............................................................................................. 18
Substantial Indebtedness and High Degree of Leverage.................................................... 18
Net Losses and Stockholders' Deficiency................................................................. 18
Possible Noncompletion of Certain Transactions.......................................................... 18
Need for Additional Financing........................................................................... 19
Future Capital Expenditures and Commitments............................................................. 20
Intangible Assets....................................................................................... 20
Voting Control by Majority Stockholders; Disparate Voting Rights........................................ 20
Restrictive Covenants................................................................................... 21
Risks Related to Regulation............................................................................. 21
Risk of Competition..................................................................................... 21
Competition from Telephone Companies.................................................................... 22
Risk of Non-exclusive Franchises and Franchise Renewals................................................. 22
THE SPECIAL MEETING....................................................................................... 23
General................................................................................................. 23
Time, Date and Place of the Special Meeting............................................................. 23
Matters to be Considered at the Special Meeting......................................................... 23
Record Date; Shares Entitled to Vote.................................................................... 23
Votes Required.......................................................................................... 23
Voting and Revocation of Proxies........................................................................ 24
Solicitation of Proxies................................................................................. 24
THE COMPANIES............................................................................................. 25
Parent.................................................................................................. 25
Cablevision............................................................................................. 25
The Contributed Businesses.............................................................................. 29
THE TRANSACTIONS.......................................................................................... 30
Background of the Transactions.......................................................................... 30
Reasons for the Transactions; Recommendations of the Boards of Directors................................ 30
Description of the Transactions......................................................................... 32
Conversion of Cablevision Common Stock.................................................................. 36
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Interests of Certain Persons in the Transactions........................................................ 37
Effect on Stock and Benefit Plans....................................................................... 38
Capital Stock and Debt; Dividends....................................................................... 38
Accounting Treatment.................................................................................... 39
Certain Federal Income Tax Consequences of the Transactions............................................. 39
Certain Regulatory Matters.............................................................................. 40
Resales of Parent Common Stock.......................................................................... 40
AMEX Listing............................................................................................ 41
Appraisal Rights........................................................................................ 41
POTENTIAL RELATED TRANSACTIONS............................................................................ 42
The Restructuring....................................................................................... 42
The Dolan Partnership Transaction....................................................................... 42
The Partnership Contribution............................................................................ 43
THE CONTRIBUTION AND MERGER AGREEMENT..................................................................... 44
Consideration to be Received in the Transactions........................................................ 44
Corporate Matters....................................................................................... 44
Representations and Warranties.......................................................................... 44
Conduct of Business Pending the Transactions............................................................ 45
Certain Covenants....................................................................................... 47
Certain Conditions...................................................................................... 48
Modification or Amendment; Waiver of Conditions; Extension.............................................. 51
Termination............................................................................................. 51
Expenses................................................................................................ 52
Stock Options; Conjunctive Rights....................................................................... 52
CERTAIN RELATED AGREEMENTS................................................................................ 53
The Stockholders Agreement.............................................................................. 53
The Voting Agreement.................................................................................... 58
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF PARENT................................. 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE TCI NEW
JERSEY AND NEW YORK SYSTEMS............................................................................. 69
General................................................................................................. 69
Results of Operations................................................................................... 69
Liquidity and Capital Resources......................................................................... 71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE TKR NEW
JERSEY / NEW YORK SYSTEMS............................................................................... 72
General................................................................................................. 72
Results of Operations................................................................................... 72
Liquidity and Capital Resources......................................................................... 73
DESCRIPTION OF PARENT CAPITAL STOCK....................................................................... 75
Parent Class A Common Stock and Parent Class B Common Stock............................................. 75
Parent Preferred Stock.................................................................................. 76
OWNERSHIP OF CABLEVISION AND PARENT....................................................................... 77
Cablevision............................................................................................. 77
Parent.................................................................................................. 81
COMPARISON OF CERTAIN RIGHTS OF HOLDERS................................................................... 82
Rights of Holders of Parent Common Stock Compared to Cablevision Common Stock........................... 82
MANAGEMENT................................................................................................ 82
Board of Directors...................................................................................... 82
Executive Officers...................................................................................... 85
THE PLAN PROPOSALS........................................................................................ 87
The Parent Employee Stock Plan.......................................................................... 87
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The Parent Long-Term Incentive Plan..................................................................... 89
CERTAIN LEGAL MATTERS..................................................................................... 92
EXPERTS................................................................................................... 92
STOCKHOLDER PROPOSALS..................................................................................... 92
CERTAIN FINANCIAL INFORMATION
CSC Parent Corporation and CSC Merger Corporation:
Independent Auditors' Report.......................................................................... F-1
Consolidated Balance Sheet as of November 21, 1997.................................................... F-2
Note to Consolidated Balance Sheet.................................................................... F-3
TCI New Jersey and New York Systems:
Independent Auditors' Report.......................................................................... F-4
Combined Balance Sheets as of December 31, 1996 and 1995.............................................. F-5
Combined Statements of Operations and Parent's Investment for the years ended December 31, 1996, 1995
and 1994............................................................................................. F-6
Combined Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994................ F-7
Notes to Combined Financial Statements................................................................ F-8
Condensed Combined Balance Sheets as of September 30, 1997 and December 31, 1996 (unaudited).......... F-15
Condensed Combined Statements of Operations and Parent's Investment for the nine months ended
September 30, 1997 and 1996 (unaudited).............................................................. F-16
Condensed Combined Statements of Cash Flows for the nine months ended September 30 1997 and 1996
(unaudited).......................................................................................... F-17
Notes to Condensed Combined Financial Statements (unaudited).......................................... F-18
TKR New Jersey/New York Systems:
Independent Auditors' Report.......................................................................... F-21
Combined Balance Sheets as of December 31, 1996 and 1995.............................................. F-22
Combined Statements of Earnings for the years ended December 31, 1996, 1995 and 1994.................. F-23
Statements of Changes in Combined Deficit for the years ended December 31, 1996, 1995 and 1994........ F-24
Combined Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994................ F-25
Notes to Combined Financial Statements................................................................ F-26
Condensed Combined Balance Sheets as of September 30, 1997 and December 31, 1996 (unaudited).......... F-36
Condensed Combined Statements of Operations and Combined Equity (Deficit) for the nine months ended
September 30, 1997 and 1996 (unaudited).............................................................. F-37
Condensed Combined Statements of Cash Flows for the nine months ended September 30, 1997 and 1996
(unaudited).......................................................................................... F-38
Notes to Condensed Combined Financial Statements (unaudited).......................................... F-39
APPENDIX A: Contribution and Merger Agreement
APPENDIX B: Form of Stockholders Agreement
APPENDIX C: The Voting Agreement
APPENDIX D: The Parent Employee Stock Plan
APPENDIX E: The Parent Long-Term Incentive Plan
APPENDIX F: The Terms of the Restructuring Agreement
APPENDIX G: The Certificate of Incorporation of Parent
APPENDIX H: The Bylaws of Parent
APPENDIX I: The Delaware Statute Governing Appraisal Rights
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v
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SUMMARY
THE FOLLOWING IS A SUMMARY OF INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, THE APPENDICES HERETO
AND THE DOCUMENTS REFERRED TO HEREIN. REFERENCES IN THIS PROXY
STATEMENT/PROSPECTUS TO PARENT AFTER THE MERGER REFER TO AND INCLUDE THE
COMBINED OPERATIONS OF PARENT AND CABLEVISION; AND REFERENCES IN THIS PROXY
STATEMENT/PROSPECTUS TO PARENT AFTER THE CONTRIBUTION REFER TO AND INCLUDE THE
COMBINED OPERATIONS OF PARENT, CABLEVISION AND THE CONTRIBUTED BUSINESSES.
CAPITALIZED TERMS USED IN THIS CAPTION "SUMMARY" AND NOT OTHERWISE DEFINED
HEREIN SHALL HAVE THE RESPECTIVE MEANINGS ATTRIBUTED TO THEM ELSEWHERE IN THIS
PROXY STATEMENT/PROSPECTUS. CERTAIN STATEMENTS IN THIS PROXY
STATEMENT/PROSPECTUS CONSTITUTE "FORWARD-LOOKING" STATEMENTS UNDER THE REFORM
ACT. SEE "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" AND
"FORWARD-LOOKING STATEMENTS." STOCKHOLDERS OF CABLEVISION ARE URGED TO REVIEW
THIS ENTIRE PROXY STATEMENT/PROSPECTUS CAREFULLY, INCLUDING SUCH APPENDICES AND
SUCH DOCUMENTS.
GENERAL
This Proxy Statement/Prospectus is being provided to stockholders of
Cablevision in connection with the Contribution and Merger Agreement, pursuant
to which, in the Merger, Merger Sub will merge with and into Cablevision and
Cablevision will become a wholly owned subsidiary of Parent. In the Merger, each
outstanding share of Cablevision Class A Common Stock and Cablevision Class B
Common Stock will be converted into one share of Parent Class A Common Stock and
Parent Class B Common Stock, respectively. The Merger will be effected pursuant
to the Contribution and Merger Agreement, a copy of which is attached hereto as
Appendix A. See "The Transactions."
Substantially simultaneously with and immediately after the consummation of
the Merger, Parent will issue in the Issuance an aggregate of 12,235,543 shares
of Parent Class A Common Stock, subject to certain adjustments pursuant to the
Contribution and Merger Agreement, in exchange for the receipt by Parent in the
Contribution of all of the Contributed Businesses, which are located in New
Jersey, on Long Island and in New York's Rockland and Westchester counties and
served approximately 822,000 subscribers as of September 30, 1997. (In
connection with securing certain regulatory approvals to the Merger and the
Contribution, Cablevision has agreed to divest certain cable television system
assets of the Contributed Businesses that are located in Paramus and Hillsdale,
New Jersey. The assets to be divested served approximately 5,200 subscribers as
of September 30, 1997 and are not believed by Cablevision to be material to
Cablevision or the Contributed Businesses.) As a result of the Transactions,
Cablevision will become a wholly owned subsidiary of Parent and Parent will
become a new holding company owning the Contributed Businesses and Cablevision.
See "The Transactions."
Contemporaneously with the Merger, Parent may issue an anticipated
approximately 52,000 shares of Parent Class A Common Stock and may pay
approximately $2.8 million in cash to Network Capital Company, Communications
Resources Company and Programming Capital Company (collectively, the "RPE
Minority Partners") as consideration for the approximately 2% of the outstanding
limited partnership interests in Rainbow Program Enterprises, L.P., an indirect
subsidiary of Cablevision ("RPE"), that are held by the RPE Minority Partners.
See "Potential Related Transactions--The Partnership Contribution."
THE COMPANIES
PARENT. Parent is a Delaware corporation formed on November 21, 1997.
Parent has not, to date, conducted any activities other than those incident to
its formation, its execution of the Contribution and Merger Agreement and
related agreements and its participation in the preparation of this Proxy
Statement/Prospectus. Parent has its principal place of business at One Media
Crossways, Woodbury, New York 11797, and its telephone number is (516) 364-8450.
<PAGE>
Parent has not conducted any business activities to date. Following the
Merger and the Contribution, the current business of Cablevision and its
subsidiaries and the current business of the Contributed Businesses will become
the business of Parent as the holding company of Cablevision and its
subsidiaries and of the entities owning and operating the Contributed
Businesses. See "The Companies -- Parent."
CABLEVISION. Cablevision is a Delaware corporation formed on December 3,
1985. Cablevision has its principal place of business at One Media Crossways,
Woodbury, New York 11797, and its telephone number is (516) 364-8450.
Cablevision is one of the largest operators of cable television systems in
the United States, with approximately 2,899,000 subscribers in 19 states as of
September 30, 1997, based on the number of basic subscribers in systems which
are currently majority owned and managed by Cablevision. 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 and in Madison Square Garden, L.P. ("MSG"), a sports
entertainment company. See "The Companies--Cablevision."
CABLEVISION RECENT DEVELOPMENTS. For a description of recent developments
concerning Cablevision, see "The Companies--Cablevision--Recent Developments."
THE CONTRIBUTED BUSINESSES. The Contributed Businesses are those cable
television systems currently owned and operated by TCI that are located in New
Jersey, on Long Island and in New York's Rockland and Westchester counties.
Those systems served approximately 822,000 subscribers as of September 30, 1997.
(In connection with securing certain regulatory approvals to the Merger and the
Contribution, Cablevision has agreed to divest certain cable television system
assets of the Contributed Businesses that are located in Paramus and Hillsdale,
New Jersey. The assets to be divested served approximately 5,200 subscribers as
of September 30, 1997 and are not believed by Cablevision to be material to
Cablevision or the Contributed Businesses.) See "The Companies--The Contributed
Businesses."
THE SPECIAL MEETING
TIME, PLACE AND DATE. The Special Meeting will be held on February 18,
1998, at the principal executive offices of Cablevision, One Media Crossways,
Woodbury, New York, 11797, commencing at 10:00 a.m., local time.
RECORD DATE; SHARES ENTITLED TO VOTE. Cablevision has established January
6, 1998 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Special Meeting. Only
holders of record of Cablevision Common Stock at the close of business on the
Record Date are entitled to vote at the Special Meeting.
On the Record Date, Cablevision had outstanding and entitled to vote
13,983,496 shares of Cablevision Class A Common Stock, each of which is entitled
to one vote per share on matters properly submitted at the Special Meeting, and
11,096,709 shares of Cablevision Class B Common Stock, each of which is entitled
to ten votes per share on matters properly submitted at the Special Meeting. On
such date, there were approximately 735 holders of record of Cablevision Common
Stock.
VOTES REQUIRED. Approval and adoption of the Contribution and Merger
Agreement and approval of the Merger to be voted on at the Special Meeting,
which will be deemed to constitute approval of the issuance of shares of Parent
Class A Common Stock in the Issuance and approval of the stock options,
conjunctive rights, bonus award shares and incentive awards to be issued by
Parent in replacement of outstanding Cablevision stock options, conjunctive
rights, bonus award shares and incentive awards pursuant to the Contribution and
Merger Agreement, requires the affirmative vote of the holders of a majority of
the total voting power represented by the outstanding shares of Cablevision
Class A Common Stock and Cablevision Class B Common Stock, voting together as a
single class. Approval and adoption of the Parent Employee Stock Plan and the
Parent Long-Term Incentive Plan requires the affirmative vote of
2
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a majority of the total voting power of the shares of Cablevision Class A Common
Stock and Class B Common Stock present at the Special Meeting in person or by
proxy and entitled to vote, voting together as a single class. As of September
30, 1997, directors and officers of Cablevision beneficially owned approximately
35.3% of the outstanding Cablevision Common Stock and 66.8% of the total voting
power of the outstanding Cablevision Common Stock. CABLEVISION STOCKHOLDERS
HAVING A MAJORITY OF CABLEVISION'S VOTING POWER HAVE AGREED THAT THEY WILL VOTE
FOR ADOPTION AND APPROVAL OF THE CONTRIBUTION AND MERGER AGREEMENT AND APPROVAL
OF THE MERGER AND THE ISSUANCE. ACCORDINGLY, APPROVAL OF THOSE MATTERS IS
ASSURED. See "The Special Meeting."
THE TRANSACTIONS
RECOMMENDATIONS OF THE CABLEVISION AND THE PARENT BOARD OF DIRECTORS. The
Cablevision Board of Directors, by unanimous vote of directors present, approved
and has subsequently ratified and approved, among other things, the Contribution
and Merger Agreement and the Merger and Issuance as contemplated thereby and
determined that the Merger and Issuance is in the best interests of the
Cablevision stockholders. The Cablevision Board of Directors did not obtain an
independent fairness opinion in connection with its approval of the
Transactions, because the management of Cablevision had conducted a review of
the Contributed Businesses and, based on, among other factors, the market value
of Cablevision Class A Common Stock as of June 6, 1997, the values for
Cablevision implied by the Contribution and Issuance and the experience of
Cablevision's management in evaluating cable properties, determined that the
Transactions were in the best interests of the Cablevision stockholders. Each of
the Cablevision Board of Directors and the Parent Board of Directors has also
unanimously approved the Plans. THE CABLEVISION BOARD RECOMMENDS THAT HOLDERS OF
CABLEVISION COMMON STOCK VOTE FOR THE APPROVAL AND ADOPTION OF THE CABLEVISION
AND MERGER AGREEMENT AND APPROVAL OF THE MERGER AND THE ISSUANCE AND FOR
APPROVAL OF EACH OF THE PLANS. See "The Transactions--Reasons for the
Transactions; Recommendations of the Boards of Directors."
THE MERGER. At the Effective Time (as defined below), Cablevision will be
merged with and into Merger Sub with Cablevision as the surviving corporation.
As a result, Cablevision will become a wholly owned subsidiary of Parent. See
"The Transactions--Description of the Transactions."
THE CONTRIBUTION AND ISSUANCE. Substantially simultaneously with and
immediately after the Merger, in the Contribution, the Contributed Businesses
will be transferred by TCI to Parent and Parent will assume up to $669 million
in outstanding indebtedness (the "Assumed Debt") for borrowed money (including
in such $669 million of indebtedness, all principal, interest, fees and other
amounts payable thereon) of the Contributed Businesses and will also assume
certain other liabilities relating to the business of the Asset Contributed
Systems and, in the Issuance, Parent will issue to TCI in exchange for the
transfer of the Contributed Businesses an aggregate of 12,235,543 shares of
Parent Class A Common Stock, subject to certain adjustments. At the consummation
of the Contribution, the Assumed Debt will, in accordance with the Contribution
and Merger Agreement, be payable in full and will have to be refinanced within
Parent or its designees in the Refinancing. See "The Transactions--Description
of the Transactions."
EFFECT ON CABLEVISION COMMON STOCKHOLDERS. At the Effective Time, each
share of Cablevision Common Stock will be converted into one share of a like
class of Parent Common Stock. See "The Transactions--Conversion of Cablevision
Common Stock."
CONVERSION OF CABLEVISION COMMON STOCK CERTIFICATES. At the Effective Time,
each certificate formerly representing outstanding shares of Cablevision Common
Stock will be deemed for all purposes to represent the number of shares of
Parent Common Stock into which such shares of Cablevision Common Stock are
converted as a result of the Merger. CABLEVISION STOCKHOLDERS ARE NOT REQUIRED
TO SURRENDER THEIR SHARE CERTIFICATES FOR EXCHANGE. See "The
Transactions--Conversion of Cablevision Common Stock."
3
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EFFECT ON CABLEVISION PLANS. At the Effective Time, Parent will assume each
stock option, conjunctive
right, bonus award share and incentive award outstanding under the existing
Cablevision Stock Plans and Cablevision Incentive Plans and each outstanding
option to purchase Cablevision Common Stock will be deemed to constitute an
option to acquire the same number of shares of Parent Common Stock and each
outstanding conjunctive right, bonus award share and incentive award of
Cablevision will be deemed to constitute a conjunctive right, bonus award share
and incentive award of Parent, in each case on the same terms and conditions as
applied immediately prior to the Effective Time. See "The Transactions--Effect
on Stock and Benefit Plans."
EFFECT ON CABLEVISION PREFERRED STOCKHOLDERS AND CABLEVISION DEBT. As a
result of the Merger, each share of Cablevision Preferred Stock will remain
unchanged and outstanding as Preferred Stock of Cablevision (as the surviving
company in the Merger); provided, however, that in accordance with the terms of
their respective certificates of designation in effect as of the Effective Time,
after the Merger, the outstanding 8 1/2% Series I Cumulative Convertible
Exchangeable Preferred Stock, par value $0.01 per share, of Cablevision (the
"Cablevision Series I Preferred Stock") will become exchangeable for Parent
Common Stock instead of being convertible into Cablevision Common Stock. On
December 3, 1997, in accordance with the certificate of designation for the
Series C Cumulative Convertible Preferred Stock, par value $0.01 per share, of
Cablevision (the "Cablevision Series C Preferred Stock"), Cablevision issued a
notice of redemption for all of the outstanding Cablevision Series C Preferred
Stock at a price calculated to be approximately $85.06 per share in cash (or
approximately $9 million in the aggregate for all shares of Cablevision Series C
Preferred Stock). Such redemption was consummated on January 2, 1998.
Accordingly, as of the Effective Time, Cablevision will not have outstanding any
shares of Cablevision Series C Preferred Stock. As a result of the Merger, all
of the Cablevision Debt will remain unchanged and outstanding as debt of
Cablevision (as the surviving company in the Merger). See "The Transactions--
Capital Stock and Debt; Dividends."
COMPARATIVE RIGHTS OF STOCKHOLDERS OF CABLEVISION AND STOCKHOLDERS OF
PARENT. The rights of holders of Cablevision Common Stock are currently
governed by Delaware law and the Restated and Amended Certificate of
Incorporation (the "Cablevision Certificate") and Bylaws of Cablevision (the
"Cablevision Bylaws"). Upon consummation of the Merger, holders of Cablevision
Common Stock will become holders of Parent Common Stock, and their rights as
holders of Parent Common Stock will continue to be governed by Delaware law and
will be governed by the Certificate of Incorporation of Parent (as may be
amended from time to time, the "Parent Certificate") and the Bylaws of Parent
(as may be amended from time to time, the "Parent Bylaws") as in effect at the
Effective Time, current copies of which have been filed as Appendices G and H
hereto, respectively. There are not any material differences between the rights
of Cablevision stockholders and the rights of Parent stockholders, except that,
after the Effective Time, Parent will have authorized for issuance 280,000,000
shares of Parent Common Stock under the Parent Certificate as compared to the
70,000,000 shares of Cablevision Common Stock that are authorized for issuance
under the Cablevision Certificate. The purpose of the additional authorized
capital stock of Parent is to provide adequate authorized shares for, among
other things, the Issuance and a stock split that Parent may complete following
the Transactions. See "Description of Parent Capital Stock" and "Comparison of
Certain Rights of Holders."
EFFECTIVE TIME OF THE MERGER. Assuming approval of Cablevision
stockholders, the Merger will be consummated promptly after receipt of the
required regulatory approvals and the satisfaction or waiver of the other
conditions to the Merger and will become effective at the time and date that a
certificate of merger is filed with the Delaware Secretary of State or at such
later time as specified in the certificate of merger (the "Effective Time"). It
is presently anticipated that the Effective Time will occur promptly after the
requisite stockholder approvals have been obtained and all other conditions to
the Merger specified in the Contribution and Merger Agreement have been
satisfied or waived. See "The Contribution and Merger Agreement--Certain
Conditions."
4
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CERTAIN REGULATORY MATTERS. The consummation of the Merger and the
Contribution is conditioned on the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"),
as well as the receipt of various approvals from cable regulatory and other
regulatory entities. Applications for such approvals and the approvals of the
National Basketball Association and the National Hockey League have been filed.
There can be no assurance that any such approvals will be obtained. On January
16, 1998, Cablevision and the Federal Trade Commission (the "FTC") announced
that Cablevision has entered into a consent degree providing for the divestiture
of certain cable television system assets of the Contributed Businesses that are
located in Paramus and Hillsdale, New Jersey. The assets to be divested served
approximately 5,200 subscribers as of September 30, 1997. Until the time of such
divestiture, Cablevision has agreed to certain hold separate and related
arrangements with regard to the assets to be divested. By approving on January
15, 1998 the consent decree for public comment, the Federal Trade Commission has
terminated the waiting period under the HSR Act with respect to the
Transactions. Cablevision does not believe that the assets to be divested, or
the hold separate and other arrangements relating thereto, are material to
Cablevision or to the Contributed Businesses. See "The Transactions--Certain
Regulatory Matters."
CONDITIONS TO THE MERGER AND THE CONTRIBUTION. The obligation of
Cablevision to effect the Merger and the obligation of Parent and TCI to effect
the Contribution are subject to various conditions, including obtaining the
requisite stockholder and regulatory approvals, the absence of any order or any
other legal restraint or prohibition preventing the consummation of the Merger
or the Contribution, receipt of the opinions of counsel in respect of certain
federal income tax consequences of the Merger and the Contribution and the
listing of Parent Class A Common Stock on the AMEX. In addition, the
satisfaction or waiver of the conditions to the Contribution is a condition
precedent to the Merger. See "The Contribution and Merger Agreement--Certain
Conditions."
TERMINATION OF THE MERGER AND CONTRIBUTION AGREEMENT. The Contribution and
Merger Agreement may be terminated, and the Merger and Contribution abandoned,
at any time prior to the Closing Date, whether or not stockholder approvals have
been obtained, (i) by the mutual written consent of Parent, Cablevision and TCI
or (ii) by the Board of Directors of either Cablevision or TCI if the
Transactions are not completed by December 31, 1998 or under certain other
circumstances. See "The Contribution and Merger Agreement--Termination."
FEES AND EXPENSES OF THE TRANSACTIONS. Cablevision or Parent, on the one
hand, and TCI, on the other hand, will share equally all expenses related to the
preparation of financial statements for the Contributed Businesses and all fees
and expenses associated with New York State and New York City real property
transfer taxes, or other transfer taxes relating to the Contribution and the HSR
Act filing. All other expenses will be borne by the party incurring such
expenses. In addition, Parent will reimburse Cablevision for all charges and
expenses paid by Cablevision in connection with the Merger. See "The
Contribution and Merger Agreement--Expenses."
APPRAISAL RIGHTS. Pursuant to the provisions of Section 262 of the Delaware
General Corporate Law (the "DGCL"), Cablevision stockholders will not be
entitled to appraisal rights with respect to the Transactions. See "The
Transactions--Appraisal Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. In general, the Merger, the
Contribution and the Issuance have been structured to qualify as tax-free
transactions under the Code. The respective obligations of Merger Sub, Parent
and Cablevision to consummate the Merger and of TCI and Parent to effect the
Contribution (and, therefore the Issuance) are conditioned upon the receipt by
Parent of an opinion by Sullivan & Cromwell, counsel to Parent, and by TCI of an
opinion by Sherman & Howard L.L.C., counsel to TCI, to the effect that the
Merger and the Contribution (together with the Issuance), respectively, qualify
as a tax-free exchange. See "The Transactions--Certain Federal Income Tax
Consequences of the Transactions."
5
<PAGE>
RESALE RESTRICTIONS. All shares of Parent Common Stock received by
Cablevision stockholders in the Merger will be freely transferable, except that,
based on share ownership as of September 30, 1997, approximately 420,557 shares
of Parent Class A Common Stock and all of the shares of Parent Class B Common
Stock received in the Merger by persons that may be deemed to be "affiliates"
(as defined under the Securities Act of 1933, as amended (the "1933 Act")), of
Cablevision at the Effective Time may be resold by them only in permitted
circumstances. In addition, the shares of Parent Class A Common Stock to be
received by TCI and its subsidiaries in the Issuance may be resold only in
permitted circumstances. See "The Transactions--Resales of Parent Common Stock."
INTERESTS OF CERTAIN PERSONS. Certain directors and executive officers of
Cablevision may have interests in the Transactions in addition to the interests
of other Cablevision stockholders. See "The Transactions-- Interests of Certain
Persons in the Transactions."
ACCOUNTING TREATMENT. Parent will account for the Merger and the
Contribution under the purchase method of accounting. Parent will record at its
cost the acquired assets less liabilities assumed, with the excess of such cost
over the estimated fair value of net assets reflected as goodwill; provided,
that the conversion of Cablevision Common Stock into Parent Common Stock in the
Merger will be treated as a reorganization with no change in the recorded amount
of Cablevision's assets and liabilities. See "The Transactions--Accounting
Treatment."
BOARD OF DIRECTORS AND MANAGEMENT. Upon consummation of the Merger, the
Board of Directors of Parent will consist of the Board of Directors of
Cablevision immediately prior to the Effective Time, with certain changes to the
Class B Directors of Parent prior to the Effective Time pursuant to the
provisions of the Contribution and Merger Agreement and the Stockholders
Agreement in order to reflect the appointment of two Investor Directors. See
"Certain Related Agreements--The Stockholders Agreement." Upon consummation of
the Merger, the management of Cablevision will remain as the management of
Parent. See "Management."
TRADING MARKET. The Cablevision Class A Common Stock is currently traded on
the AMEX under the symbol "CVC" and the Cablevision Series I Preferred Stock is
currently traded on the AMEX under the symbol "CVC+". Cablevision and Parent
will use their best efforts to delist the Cablevision Class A Common Stock from
the AMEX and their reasonable best efforts to have the Parent Class A Common
Stock approved for listing on AMEX upon official notice of issuance. It is
anticipated that prior to the Special Meeting the Cablevision Class A Common
Stock will be delisted from the AMEX and the Parent Class A Common Stock will be
traded on the AMEX under the symbol "CVC." The Cablevision Series I Preferred
Stock will continue to trade as securities of Cablevision (as the surviving
company in the Merger) on the AMEX after the consummation of the Transactions.
Prior to the consummation of the Merger, there has been no public market for the
Parent Common Stock, which is currently owned by Cablevision, or the equity
securities of the Contributed Subsidiaries or of the entities directly owning
the Asset Contributed Systems, which securities are directly or indirectly owned
by TCI. See "The Transactions-- AMEX Listing" and "The Transaction--Capital
Stock and Debt; Dividends."
RISK FACTORS
The information set forth under "Risk Factors" should be reviewed and
carefully considered in evaluating the Transactions and the ownership of Parent
Common Stock to be issued in the Merger and the Issuance.
CERTAIN RELATED AGREEMENTS
STOCKHOLDERS AGREEMENT. It is a condition to the Contribution that Parent,
Tele-Communications, the designated transferors of the Contributed Businesses
receiving Parent Class A Shares in the Issuance (Tele-Communications and such
transferors being collectively referred to herein as the "Investor") and the
6
<PAGE>
Class B Stockholders enter into a Stockholders Agreement (the "Stockholders
Agreement") providing, among other things, for: (i) limits on the Investor's
ability to acquire Parent Class A Common Stock other than pursuant to the
Issuance or in other limited circumstances, if, following such acquisition, the
Investor would beneficially own 10% or more of the Parent Class A Common Stock
in excess of that Parent Class A Common Stock issued in the Issuance; (ii)
limitations on the Investor's ability to transfer Parent Class A Common Stock to
any person who after such transfer would beneficially own 10% or more of the
outstanding Parent Class A Common Stock or 5% or more of all the outstanding
Parent Common Stock, except for transfers of all of the Investor's Parent Class
A Common Stock to a single purchaser who agrees to become a party to the
Stockholders Agreement, transfers to certain Tele-Communications' subsidiaries
and transfers in connection with a bona fide pledge to secure a borrowing; (iii)
consultation rights among Parent, Tele-Communications and the Class B
Stockholders regarding sales of Parent as a whole or significant Parent assets,
certain sales of Parent Class A Common Stock owned by the Investor and certain
sales of Parent Class B Common Stock owned by the Class B Stockholders; (iv)
certain tag-along rights of Tele-Communications and drag-along rights of the
Class B Stockholders upon certain sales of Parent Common Stock by the Class B
Stockholders; (v) preemptive rights for the Investor on new issuances of Parent
Common Stock so that Tele-Communications may maintain beneficial ownership of
33% of the outstanding Parent Common Stock, with certain limited exceptions;
(vi) the Investor's right to designate two Class B Directors as Investor
Directors for so long as certain ownership of Parent Class A Common Stock is
maintained; (vii) the right of the Investor Directors to membership on a
committee of the Parent Board of Directors to approve certain transactions with
Class B Stockholders and their family members that will give such Investor
Director a veto over such transactions; (viii) the Investor's agreement to vote
in proportion with the public holders of Parent Class A Common Stock for the
election of the 25% of the Parent directors which the Parent Class A Common
Stock is entitled to elect under the Parent Certificate and any increase in
authorized shares; (ix) Parent's agreement not to effect acquisition
transactions that would cause the debt to cash flow ratio of Parent (calculated
as described in the Stockholders Agreement) to exceed a specified ratio
(initially 8.0 : 1.0, and declining to 7.5 : 1.0 after December 31, 1999); and
(x) certain registration rights under the 1933 Act for shares of Parent Class A
Common Stock owned by the Investor. See "Certain Related Agreements--The
Stockholders Agreement."
VOTING AGREEMENT. Cablevision, Parent, Tele-Communications and the Class B
Stockholders have entered into the Voting Agreement dated as of November 21,
1997 (the "Voting Agreement") pursuant to which, among other things, the Class B
Stockholders, which collectively own Cablevision Common Stock having a majority
of Cablevision's total voting power, have agreed to vote to approve and adopt
the Contribution and Merger Agreement and to approve the Merger and the Issuance
and have agreed to vote against any matter that would compete or interfere with
such adoption and issuance. See "Certain Related Agreements--The Voting
Agreement."
POTENTIAL RELATED TRANSACTIONS
THE RESTRUCTURING. After the Transactions, Parent may effect the
Restructuring (i) to combine the cable systems of the Contributed Businesses
with the cable systems currently held by Cablevision in a sub-group in and under
Cablevision and (ii) to separate under Parent the cable systems operations
sub-group and the telecommunications businesses currently conducted by
Cablevision from the cable programming businesses conducted by Cablevision and
its subsidiaries. See "Potential Related Transactions--The Restructuring."
THE DOLAN PARTNERSHIP TRANSACTION. Pursuant to a letter agreement dated as
of November 25, 1997 (the "CNYC Letter"), Charles F. Dolan ("Dolan") and
Cablevision agreed (i) to defer the commencement of the period during which
Dolan could elect, pursuant to Cablevision's pre-existing obligations under the
Purchase and Reorganization Agreement, dated as of December 20, 1991, as
amended, between Dolan and Cablevision (the "CNYC Agreement"), to require
Cablevision to purchase his remaining partnership interests in Cablevision of
New York City, L.P. ("Cablevision of NYC"), from December 1, 1997 to the date
7
<PAGE>
of the consummation of the Merger and the Contribution and (ii) to provide for
cash payment for such partnership interests of approximately $190 million (the
"Dolan Partnership Transaction"). If the Merger and Contribution are not
consummated on or prior to July 1, 1998, the CNYC Letter will terminate and the
CNYC Agreement will remain in full force and effect in accordance with its
terms, except that the initial period during which Dolan is permitted to elect
to have Cablevision purchase his partnership interests (the "First Put Period")
will commence on July 1, 1998 and end on October 31, 1998. See "Potential
Related Transactions--The Dolan Partnership Transaction."
THE PARTNERSHIP CONTRIBUTION. Contemporaneously with the Merger, in the
Partnership Contribution Parent may issue an anticipated approximately 52,000
shares of Parent Class A Common Stock and may pay approximately $2.8 million in
cash to the RPE Minority Partners as consideration for the approximately 2% of
the outstanding limited partnership interest in RPE that is held by the RPE
Minority Partners. See "Potential Related Transactions--The Partnership
Contribution."
THE PLAN PROPOSALS
At the Special Meeting, the stockholders of Cablevision will also be asked
to consider and vote upon the Plan Proposals. The Parent Employee Stock Plan and
the Parent Long-Term Incentive Plan, both of which have been adopted by Parent
in connection with the Transactions, are substantially identical to the Restated
1996 Stock Plan and the Cablevision Long-Term Incentive Plan, respectively,
which have previously been approved by Cablevision's stockholders. The Plans are
being submitted to stockholders in connection with the Transactions to ensure
their continued compliance with Section 162 (m) and 422 of the Internal Revenue
Code of 1986. See "The Plan Proposals."
Approval of the Merger Proposal will be deemed to constitute approval of the
Issuance and of the stock options, conjunctive rights, bonus award shares and
incentive awards to be issued by Parent in replacement of outstanding
Cablevision options, conjunctive rights, bonus award shares and incentive awards
as of the Effective Time pursuant to the Contribution and Merger Agreement. The
Cablevision and Parent Board of Directors has approved the Plan Proposals and
recommended that the Cablevision stockholders vote for the approval of the Plan
Proposals. See "The Special Meeting--Votes Required," "The Transactions--Reasons
for the Transactions; Recommendations of the Boards of Directors" and "The Plan
Proposals."
8
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
CABLEVISION SYSTEMS CORPORATION
The historical consolidated statement of operations data (except for book
value per common share and deficiency of earnings available to cover fixed
charges) and consolidated balance sheet data for each year ended and as of
December 31 in each year in the five-year period ended December 31, 1996,
included in the following selected financial data, have been derived from the
Cablevision Consolidated Financial Statements audited by KPMG Peat Marwick LLP,
independent certified public accountants. The historical consolidated statement
of operations data and balance sheet data for the periods ended as of September
30, 1997 and 1996 included in the following selected financial data have been
derived from financial statements of Cablevision that have not been audited, but
that, in the opinion of the management of Cablevision, reflect all adjustments
necessary for the fair presentation of such data for the interim periods. The
results of operations for the nine-month period ended September 30, 1997 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,
1997 excluding the gain associated with the redemption of A-R Cable's Series A
Preferred Stock and any gain associated with the consummation of the
transactions contemplated in the Formation Agreement. Such data are qualified by
reference to the Cablevision Consolidated Financial Statements and the Forms
10-Q and Form 10-K, which are incorporated by reference herein. See
"Incorporation of Certain Information by Reference."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA(1):
Revenues........................... $1,314,995 $ 955,618 $1,315,142 $1,078,060 $ 837,169 $ 666,724 $ 572,487
Operating expenses:
Technical........................ 568,259 392,076 538,272 412,479 302,885 241,877 204,449
Selling, general and
administrative................. 347,405 226,940 313,476 266,209 195,942 172,687 120,356
Restructuring charge............. -- -- -- -- 4,306(2) -- --
Depreciation and amortization.... 363,023 262,741 388,982 319,929 271,343 194,904 168,538
--------- --------- --------- --------- --------- --------- ---------
Operating profit................. 36,308 73,861 74,412 79,443 62,693 57,256 79,144
Other income (expense):
Interest expense, net............ (258,898) (194,072) (265,015) (311,887) (261,781) (230,327) (193,379)
Provision for preferential
payment to related party....... (4,200) (4,200) (5,600) (5,600) (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 interest
and financing costs(5)......... (13,710) (34,341) (37,784) (5,517) (9,884) (1,044) (12,284)
Gain on redemption of subsidiary
preferred stock................ 181,738(6) -- -- -- -- -- --
Loss on redemption of
debentures..................... -- -- -- -- (7,088 (5) -- --
Share of affiliates' net
losses......................... (32,243) (59,403) (82,028) (93,024) (82,864) (61,017) (47,278)
Gain (loss) on sale of
programming and affiliate
interests, net................. -- -- -- 35,989 -- (330) 7,053
Minority interest................ 14,145 (7,385) (9,417) (8,637) (3,429) 3,000 --
Gain on sale of marketable
securities, net................ -- -- -- -- -- -- 733
Settlement of litigation and
related matters................ -- -- -- -- -- -- (5,655)
Miscellaneous, net............... (7,059) (7,444) (6,647) (8,225) (7,198) (8,720) (6,175)
--------- --------- --------- --------- --------- --------- ---------
Net Loss........................... (83,919) (232,984) (332,079) (317,458) (315,151) (246,782) (250,503)
Dividend requirements applicable to
preferred stock.................. (110,324) (92,596) (127,780) (20,249) (6,385) (885) (885)
--------- --------- --------- --------- --------- --------- ---------
Net loss applicable to common
stockholders..................... $(194,243) $(325,580) $(459,859) $(337,707) $(321,536) $(247,667) $(251,388)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per common share.......... $ (7.81) $ (13.12) $ (18.52) $ (14.17) $ (13.72) $ (10.83) $ (11.17)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Average number of common shares
outstanding (in thousands)....... 24,858 24,823 24,827 23,826 23,444 22,859 22,512
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Book value per common share........ $ (102.92) $ (90.19) $ (95.59) $ (76.61) $ (76.93) $ (64.61) $ (55.28)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Deficiency of earnings available to
cover fixed charges.............. $ (83,919) $(232,984) $(332,079) $(317,458) $(315,151) $(246,782) $(250,503)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
9
<PAGE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE MONTHLY REVENUE DATA)
CONSOLIDATED BALANCE SHEET DATA(1):
Total assets......................... $ 4,872,763 $3,034,725 $2,502,305 $2,176,413 $1,327,418 $1,251,157
Total debt........................... 5,111,512 3,334,701 3,157,107 3,169,236 2,235,499 2,004,452
Redeemable preferred stock........... 1,092,921 1,005,265 257,751 -- -- --
Stockholders' deficiency............. (2,566,036) (2,374,285) (1,891,676) (1,818,535) (1,503,244) (1,250,248)
STATISTICAL DATA(1):
Homes passed(7)...................... 4,484,000 3,858,000 3,328,000 2,899,000 2,240,000 2,019,000
Basic service subscribers............ 2,899,000 2,445,000 2,061,000 1,768,000 1,379,000 1,262,000
Basic penetration(8)................. 64.6% 63.4% 61.9% 61.0% 61.6% 62.5%
Number of premium television units... 4,204,000 3,862,000 3,990,000 3,208,000 3,003,000 2,802,000
Average number of premium units per
basic subscriber................... 1.5 1.6 1.9 1.8 2.2 2.2
Average monthly revenue per basic
subscriber(9)...................... $ 38.36 $ 36.71 $ 37.07 $ 36.33 $ 36.59 $ 37.64
</TABLE>
- ------------------------
(1) The consolidated statement of operations, balance sheet and statistical data
reflect (i) the acquisition of Cablevision of NYC, effective as of July 10,
1992, and (ii) various acquisitions of cable television systems and other
businesses during the periods presented. See "Business--Cable Television
Operations" in the Form 10-K and "Unaudited Condensed Pro Forma Consolidated
Financial Statements of Parent" 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 Dolan and entities
affiliated with him, which were recorded at 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.
(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 million loss in connection with
Rainbow Media'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 reorganization of V Cable, Inc. ("V Cable"),
Cablevision redeemed the redeemable preferred stock of A-R Cable Services,
Inc. ("A-R Cable"), incurring a loss of $20 million.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
10
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(5) In connection with the 1992 reorganization of V Cable, Cablevision wrote off
approximately $7.5 million of deferred financing costs related to the debt
of V Cable, and 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
(the portions relating to Cablevision of NYC and Cablevision of New Jersey
amounting to $3.2 million were written off in 1995) and charges of
approximately $2.0 million in redemption fees, $4.5 million in deferred
financing costs and $0.6 million in unamortized discount were recorded in
connection with the redemption of the reset debentures. In January 1995,
Rainbow Media amended its credit agreement to refinance its existing
borrowings and to provide funds for the acquisition of the third-party
interest in SportsChannel New York and Rainbow News 12, resulting in an
approximately $2.3 million write-off of deferred financing costs. In April
1996, Cablevision wrote off approximately $24.0 million of deferred interest
and financing costs in connection with the refinancing of all indebtedness
of V Cable and VC Holding, Inc. and formation of Cablevision of Ohio. In
September 1996, Cablevision wrote off approximately $10.3 million of
deferred financing costs in connection with the refinancing of the Credit
Agreement, and in the fourth quarter of 1996, an additional $3.1 million of
deferred financing costs relating to Cablevision's MFR subsidiary were
written off in connection with a reorganization and refinancing of
Cablevision MFR, Inc. In July 1997, Cablevision paid a premium of
approximately $8.4 million to redeem its 10 3/4% Senior Subordinated
Debentures due 2004 and wrote off deferred financing costs of approximately
$5.3 million in connection therewith.
(6) In July 1997, Cablevision redeemed the Series A Preferred Stock of A-R Cable
and recognized a gain principally representing the reversal of accrued
preferred dividends in excess of amounts paid.
(7) 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.
(8) Basic penetration represents basic service subscribers at the end of the
period as a percentage of homes passed at the end of the period.
(9) Based on recurring service revenues, excluding installation charges and
certain other revenues such as advertising, pay-per-view and home shopping
revenues, for the month of September or December, as the case may be,
divided by the average number of basic subscribers for that month.
11
<PAGE>
CONTRIBUTED BUSINESSES
TCI NEW JERSEY AND NEW YORK SYSTEMS. The following table sets forth
selected historical financial data for the TCI New Jersey and New York Systems
(as defined in note 1 to the September 30, 1997 Condensed Combined Financial
Statements of the TCI New Jersey and New York Systems, included elsewhere in
this document) (i) as of September 30, 1997 and as of December 31 for each of
the years in the five-year period ended December 31, 1996 and (ii) for the nine
month periods ended September 30, 1997 and 1996 and for each of the years in the
five-year period ended December 31, 1996. The following data as of December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1996, is derived from the audited combined financial statements of the TCI
New Jersey and New York Systems for the corresponding periods. The data for the
other periods presented has been derived from unaudited information. The data
for the nine months ended September 30, 1997 and 1996 has been derived from the
TCI New Jersey and New York Systems' unaudited financial statements also
appearing herein and, which, in the opinion of management, includes all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results for the unaudited periods. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the TCI New Jersey
and New York Systems", is qualified in its entirety, and should be read in
conjunction with the accompanying combined financial statements, including the
notes thereto, of the TCI New Jersey and New York Systems, included elsewhere in
this document.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------
1997 1996 1995 1994 1993 1992
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
SUMMARY BALANCE SHEET DATA:
Property and equipment, net................ $ 154,670 166,827 175,302 185,484 191,233 158,241
Franchise costs, net....................... $ 451,973 443,745 456,270 468,731 481,882 494,714
Total assets............................... $ 613,209 622,802 641,133 662,122 682,407 661,956
Debt....................................... $ -- 17,815 18,590 21,036 24,625 25,954
Parent's investment........................ $ 422,412 403,515 415,612 429,279 446,815 424,227
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
SUMMARY OPERATING DATA:
Revenue............................ $ 158,294 146,096 199,798 180,601 162,688 169,151 164,590
Operating income................... $ 43,305 34,640 45,883 45,605 37,885 47,371 52,944
Net earnings....................... $ 28,590 21,213 28,166 28,316 21,346 28,224 31,797
</TABLE>
12
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS. The following table sets forth selected
historical financial data for the TKR New Jersey/New York Systems (as defined in
note 1 to the September 30, 1997 Condensed Combined Financial Statements of the
TKR New Jersey/New York Systems, included elsewhere in this document) (i) as of
September 30, 1997 and as of December 31 for each of the years in the five-year
period ended December 31, 1996 and (ii) for the nine month periods ended
September 30, 1997 and 1996 and for each of the years in the five-year period
ended December 31, 1996. The following data as of December 31, 1996 and 1995,
and for each of the years in the three-year period ended December 31, 1996, is
derived from the audited combined financial statements of the TKR New Jersey/New
York Systems for the corresponding periods. The data for the other periods
presented has been derived from unaudited information. The data for the nine
months ended September 30, 1997 and 1996 has been derived from the TKR New
Jersey/New York Systems' unaudited financial statements also appearing herein
and, which, in the opinion of management, includes all adjustments, consisting
only of normal recurring adjustments, necessary for the fair statement of the
results for the unaudited periods. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the TKR New Jersey/New York Systems", is qualified
in its entirety, and should be read in conjunction with the accompanying
combined financial statements, including the notes thereto, of the TKR New
Jersey/New York Systems, included elsewhere in this document.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------------
1997 (1) 1996 1995 1994 1993 1992
------------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
AMOUNTS IN THOUSANDS
SUMMARY BALANCE SHEET DATA:
Property and equipment, net.............. $ 298,032 310,490 187,816 118,579 98,892 100,414
Franchise costs, net..................... $ 429,687 222,099 66,787 68,992 71,192 73,272
Total assets............................. $ 751,629 552,718 267,018 197,160 180,444 179,221
Debt..................................... $ 573,988 583,988 324,488 284,000 298,000 328,000
Combined equity (deficit)................ $ 154,918 (68,060) (91,348) (197,160) (131,320) (171,393)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- -----------------------------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AMOUNTS IN THOUSANDS
SUMMARY OPERATING DATA:
Revenue............................ $ 158,334 136,718 185,974 135,719 126,373 123,653 117,159
Operating income................... $ 47,806 42,013 53,590 41,688 40,306 43,008 38,869
Net earnings....................... $ 18,151 17,686 19,050 20,734 21,246 31,236 15,969
</TABLE>
- ------------------------
(1) The summary balance sheet data at September 30, 1997 and the summary
operating data for the nine months ended September 30, 1997 reflect the
effects of the acquisition by Tele-Communications of the TKR New Jersey/New
York Systems (as described in note 1 to the September 30, 1997 Unaudited
Condensed Combined Financial Statements of the TKR New Jersey/New York
Systems, included elsewhere in this document).
13
<PAGE>
UNAUDITED SUMMARY CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION OF PARENT
The following unaudited condensed pro forma consolidated balance sheet
information as of September 30, 1997 presents Parent's financial position as
adjusted to give effect to the Merger and the Contribution, in each case as if
they had occurred as of September 30, 1997. The following condensed pro forma
consolidated statement of operations information for the year ended December 31,
1996 gives effect to (i) the NBC Transaction, (ii) the MSG Redemption, (iii) the
1997 Warburg Transactions, (iv) the 1996 acquisitions of U.S. Cable and
Cablevision of Newark (the "U.S. Cable/Newark Acquisitions") and (v) the Merger
and the Contribution, in each case as if they had occurred at the beginning of
the period presented. The following condensed pro forma consolidated statement
of operations information for the nine months ended September 30, 1997 gives
effect to (i) the NBC Transaction, (ii) the MSG Redemption, (iii) the 1997
Warburg Transactions and (iv) the Merger and the Contribution, in each case as
if they had occurred at the beginning of the period presented. The Contribution
will be accounted for under the purchase method of accounting. The Merger will
be treated as a reorganization with no change in the recorded amount of
Cablevision assets and liabilities. See "The Transactions--Accounting Treatment"
and "The Transactions--Certain Federal Income Tax Consequences of the
Transactions." The unaudited condensed pro forma consolidated financial
statements are prepared for illustrative purposes only and are not necessarily
indicative of the financial position or results of operations that might have
occurred had the applicable transactions actually taken place on the dates
indicated, or of future results of operations or financial position of the
stand-alone or combined entities. The unaudited condensed pro forma consolidated
financial statements are based on the historical consolidated financial
statements of Cablevision and Parent and on the financial statements of the
Contributed Businesses and the unaudited condensed pro forma consolidated
financial information should be read in conjunction with such financial
statements. See "Unaudited Condensed Pro Forma Consolidated Financial Statements
of Parent."
<TABLE>
<CAPTION>
AT OR FOR NINE MONTHS FOR TWELVE MONTHS
ENDED SEPTEMBER 30, 1997 ENDED DECEMBER 31, 1996
------------------------ -----------------------
<S> <C> <C>
(AMOUNTS IN THOUSANDS) (AMOUNTS IN THOUSANDS)
Unaudited Pro Forma Consolidated Statement of Operations
Information:
Revenues..................................................... $ 1,912,765 $ 2,406,344
Net loss..................................................... $ (65,712) $ (390,643)
Net loss applicable to common shareholders................... $ (176,036) $ (518,423)
Net loss per common share.................................... $ (4.75) $ (13.99)
Unaudited Pro Forma Consolidated Balance Sheet Information:
Total assets................................................. $ 6,057,917
Total liabilities............................................ $ 7,014,820
Redeemable preferred stock................................... $ 1,092,921
Total shareholders' deficiency............................... $ (2,068,049)
</TABLE>
14
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth the historical net losses per share, cash
dividends per share and book value per share data for Cablevision and historical
and combined pro forma per share data for Parent for the nine months ended
September 30, 1997 and for the twelve months ended December 31, 1996. The
information presented herein should be read in conjunction with the "Selected
Historical Financial Data" and the "Unaudited Condensed Pro Forma Consolidated
Financial Statements of Parent" appearing elsewhere in this Joint Proxy
Statement/Prospectus.
For purposes of calculating equivalent per share data, it has been assumed
that each share of Cablevision Class A Common Stock and each share of
Cablevision Class B Common Stock is converted in the Merger into one share of
Parent Class A Common Stock and one share of Parent Class B Common Stock,
respectively, and that Parent will issue 12,235,543 shares of Parent Class A
Common Stock in the Issuance.
<TABLE>
<CAPTION>
AT OR FOR
AT OR FOR TWELVE MONTHS
NINE MONTHS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, 1997 1996
------------------ --------------
<S> <C> <C>
CABLEVISION PER SHARE EQUIVALENT--HISTORICAL
Net loss per common share(1)................................................ $ (7.81) $ (18.52)
Cash dividends per common share............................................. -- --
Book value per common share(2).............................................. $ (102.92) $ (95.59)
PARENT--ADJUSTED PRO FORMA (3)
Net loss per common share (4)............................................... $ (4.75) $ (13.99)
Cash dividends per common share............................................. -- --
Book value per common share(5).............................................. $ (55.64) $ (50.61)
</TABLE>
- ------------------------
(1) Calculated based on the weighted average common shares of Cablevision
outstanding during the periods presented. Common stock equivalents were not
included in the calculation as their effect would be antidilutive.
(2) Calculated by dividing the historical stockholders' equity by the number of
outstanding shares of Cablevision Common Stock. The outstanding shares of
Cablevision Common Stock do not include shares issuable upon exercise of
Cablevision options or conversion of outstanding Cablevision Series I
Preferred Stock or Cablevision Series C Preferred Stock.
(3) Adjusted to give effect to the Merger and the Issuance.
(4) Calculated based on 37,094,000 and 37,063,000 pro forma weighted average
common shares outstanding of Parent at September 30, 1997 and December 31,
1996, respectively.
(5) Book value per share at September 30, 1997 and December 31, 1996 gives
effect to the Merger, the Contribution and the Issuance (see the "Unaudited
Condensed Pro Forma Consolidated Financial Statements of Parent" included in
this document).
15
<PAGE>
MARKET PRICES
Cablevision Class A Common Stock is listed on AMEX under the symbol "CVC".
It is anticipated that, prior to the Special Meeting, the Cablevision Class A
Common Stock will be delisted from AMEX and the Parent Class A Common Stock will
be approved for listing on the AMEX under the symbol "CVC" upon official notice
of issuance. The Contributed Subsidiaries' equity securities and the capital
stock of the entities that directly own the Asset Contributed Systems are not
listed on any securities exchange or otherwise publicly traded and are owned
directly or indirectly by TCI. The Cablevision Class B Common Stock is not
listed on any securities exchange or otherwise publicly traded. The following
table sets forth the high and low closing prices per share of Cablevision Class
A Common Stock as reported by the AMEX Composite Tape for the periods indicated.
<TABLE>
<CAPTION>
CABLEVISION CLASS A
COMMON STOCK
----------------------
HIGH LOW
---------- ----------
<S> <C> <C>
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............................................................... 61 49 3/4
1996
First Quarter................................................................ 60 3/8 52 3/4
Second Quarter............................................................... 58 44
Third Quarter................................................................ 46 1/4 38 7/8
Fourth Quarter............................................................... 43 3/4 25
1997
First Quarter................................................................ 35 29 3/4
Second Quarter............................................................... 55 28
Third Quarter................................................................ 62 3/4 49 3/4
Fourth Quarter............................................................... 95 3/4 63 15/16
1998
First Quarter (through January 16, 1998)..................................... 94 3/8 88 5/8
</TABLE>
On June 6, 1997, the last trading day before public announcement of the
execution of the Original Contribution and Merger Agreement, the closing price
of Cablevision Class A Common Stock as reported by the AMEX Composite Tape was
$34 5/8 per share. On January 16, 1998, the last trading day before the date of
this Proxy Statement/Prospectus, the closing price of Cablevision Class A Common
Stock as reported by the AMEX Composite Tape was $91 13/16 per share.
CABLEVISION STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
THE CABLEVISION CLASS A COMMON STOCK.
No equity securities of Parent were publicly traded prior to the Effective
Time. It is anticipated that the Parent Class A Common Stock will be approved
for listing on the AMEX upon consummation of the Merger under the symbol "CVC"
upon official notice of issuance.
Cablevision has never paid any dividends on the Cablevision Common Stock and
does not intend to declare any dividends prior to the Effective Time. The
payment of future dividends on the Parent Common Stock will be a business
decision made by the Parent Board of Directors from time to time based upon the
results of operations and financial condition of Parent and such other factors
as the Parent Board of Directors considers relevant.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement/Prospectus, including
any forecasts, projections and descriptions of anticipated synergies referred to
therein, and certain statements incorporated by reference from documents filed
with the Commission by Cablevision, including any statements contained herein or
therein regarding the development or possible assumed future results of
operations of Cablevision businesses and the Contributed Businesses, the markets
for Cablevision's and the Contributed Businesses' services and products,
anticipated capital expenditures, regulatory developments and the effects of the
Contribution or the Merger, any statements preceded by, followed by or that
include the words "believes," "expects," "anticipates," or similar expressions,
and other statements contained or incorporated by reference herein regarding
matters that are not historical facts, are or may constitute forward-looking
statements (as such term is defined in the Reform Act). Because such statements
are subject to risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. All
subsequent written and oral forward-looking statements attributable to
Cablevision or Parent (or persons acting on either of their behalf) are
expressly qualified in their entirety by the cautionary statements set forth or
referred to above in this paragraph. Investors are cautioned not to place undue
reliance on such statements, which speak only as of the date hereof. Neither
Parent nor Cablevision undertakes any obligation to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events. See
"Incorporation of Certain Information by Reference."
17
<PAGE>
RISK FACTORS
THE FOLLOWING ARE CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY THE HOLDERS
OF CABLEVISION COMMON STOCK IN EVALUATING THE MERGER AND THE INVESTMENT IN
PARENT COMMON STOCK. REFERENCES IN THIS CAPTION "RISK FACTORS" TO THE BUSINESS
OF CABLEVISION ARE DEEMED TO BE REFERENCES TO THE BUSINESS OF PARENT AND
CABLEVISION AFTER THE MERGER AND TO BE REFERENCES TO THE BUSINESS OF PARENT,
CABLEVISION AND THE CONTRIBUTED BUSINESSES AFTER THE CONTRIBUTION. CERTAIN
STATEMENTS UNDER THIS CAPTION "RISK FACTORS" CONSTITUTE FORWARD-LOOKING
STATEMENTS UNDER THE REFORM ACT. SEE "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE" AND "FORWARD-LOOKING STATEMENTS."
SUBSTANTIAL INDEBTEDNESS AND HIGH DEGREE OF LEVERAGE
Cablevision has incurred substantial indebtedness and issued substantial
amounts of mandatorily redeemable preferred stock, primarily to finance
acquisitions and expansion of its operations, to refinance outstanding
indebtedness and, to a lesser extent, for investments in and advances to
affiliates. Cablevision's consolidated debt plus Cablevision's 11 3/4% Series H
Redeemable Exchangeable Preferred Stock (the "Cablevision Series H Preferred
Stock") and 11 1/8% Series M Redeemable Exchangeable Preferred Stock (the
"Cablevision Series M Preferred Stock") aggregated approximately $6.2 billion at
September 30, 1997. As a result of Cablevision's high level of indebtedness and
the significant amount of redeemable preferred stock, Cablevision has
significant cash requirements to service indebtedness and to pay dividends and
redemption amounts on redeemable preferred stock, increasing Cablevision's
vulnerability to adverse developments in its business and adverse economic and
industry conditions. Based on currently outstanding obligations, Cablevision's
quarterly cash obligations for the first, second, third and fourth quarters of
1998 are currently expected to be (i) for debt service, approximately $64.9
million, $107 million, $68 million and $116.1 million, respectively, and (ii)
for dividends on the Cablevision Series I Preferred Stock, approximately $7.3
million per quarter. Cablevision also has outstanding cash redemption
obligations for 1998 (i) if Cablevision elects to pay in cash, of approximately
$151 million in respect of the repayment of the Senior Subordinated Notes due
1998/2003 of Cablevision MFR, Inc. when due in the third quarter of 1998 and
(ii) if the Transactions are consummated, of approximately $190 million in
respect of the Dolan Partnership Transaction.
NET LOSSES AND STOCKHOLDERS' DEFICIENCY
Cablevision reported net losses applicable to common stockholders for the
nine months ended September 30, 1997 and 1996 of $194.2 million and $325.6
million, respectively, and for the years ended December 31, 1996, 1995 and 1994
of $459.9 million, $337.7 million and $321.5 million, respectively. At September
30, 1997, Cablevision had a stockholders' deficiency of $2.6 billion. The net
losses primarily reflect high levels of interest expense and depreciation and
amortization charges relating to the depreciation of assets obtained through,
and debt incurred to finance, acquisitions. Interest expense and depreciation
and amortization charges remained at a high level throughout 1994, 1995 and 1996
and will continue at high levels throughout 1997 and future years as a result of
previously completed, pending and future acquisitions, expected capital
expenditures and additional investments in Cablevision's programming operations.
Cablevision expects to continue incurring substantial losses for at least the
next several years.
POSSIBLE NONCOMPLETION OF CERTAIN TRANSACTIONS
There can be no assurances that Cablevision's pending transactions referred
to in "The Companies-- Cablevision--Recent Developments" will be consummated in
a timely manner or at all. See "The Companies--Cablevision--Recent
Developments." Cablevision does not believe that the failure to consummate such
pending transactions would be reasonably likely to have a material adverse
effect on Cablevision as a whole. Furthermore, there can be no assurances that
the refinancing of the Assumed Debt in the Refinancing, the Restructuring, the
Dolan Partnership Transaction or the Partnership Contribution will be
consummated in a timely manner or at all or on what terms such transactions may
be consummated.
18
<PAGE>
Cablevision does not believe that the failure to consummate the Restructuring,
the Dolan Partnership Transaction or the Partnership Contribution would be
reasonably likely to have a material adverse effect on Cablevision as a whole.
With respect to the refinancing of the Assumed Debt in the Refinancing, the
aggregate amount of Assumed Debt that will be assumed by Parent in the
Contribution is expected to be approximately $669 million. All of the Assumed
Debt will, in accordance with the Contribution and Merger Agreement, be payable
upon consummation of the Transactions. The refinancing of the Assumed Debt is
included as part of the Refinancing. Cablevision is in discussions with
commercial lenders with respect to a separate credit facility (the "New Credit
Facility") in the aggregate amount of $800 million to provide funds for the
refinancing of the Assumed Debt in the Refinancing, for additional working
capital needs for the Contributed Businesses and for other corporate purposes.
Cablevision currently expects that the New Credit Facility will be in place at
or prior to the consummation of the Transactions. However, there can be no
assurances that the New Credit Facility will be obtained or upon what terms the
New Credit Facility will be obtained. If the New Credit Facility is not
obtained, Cablevision would need additional capital in order to refinance the
$669 million in Assumed Debt upon consummation of the Transactions and for any
additional working capital needs for the Contributed Businesses. That additional
funding could be obtained by amending Cablevision's existing facility to
increase borrowings available to refinance the Assumed Debt and by issuing debt
in the public markets (including issuing up to $500 million currently available
under Cablevision's existing shelf registration facility). However, there can be
no assurances that any such amendments would be obtained or any such issuance
could be effected or upon what terms such amendment could be obtained or such
issuance could be effected. If the New Credit Facility is not obtained and
additional capital was not available for Cablevision to assume and pay the
Assumed Debt, Cablevision would not be able to comply with the terms of the
Contribution and Merger Agreement and could be held to be in breach thereof. If
such breach were to give rise to a judgment that Cablevision was unable to
satisfy, then such breach could cause a material adverse effect on Cablevision
and a default under the Cablevision Debt and in such circumstances could cause
defaults under other outstanding obligations of Cablevision. See "The
Transactions--Description of the Transactions--The Contribution and Issuance"
and "Potential Related Transactions."
NEED FOR ADDITIONAL FINANCING
Cablevision's businesses require substantial investment on a continuing
basis to finance capital expenditures and related expenses for, among other
things, upgrade of cable plant, offering of new services and the further
participation in existing services, the funding of costs of cable programming
services prior to their becoming cash-flow positive, and the servicing,
repayment or refinancing of its indebtedness and mandatorily redeemable
preferred stock. Cablevision will require significant additional financing,
through debt and/or equity issuances, to meet its capital expenditure plans and
to pay the principal of and interest on its debt and to pay dividends and make
redemption payments on its preferred stock. Cablevision also intends to incur
additional costs to facilitate the startup of such adjunct businesses as high
speed data service, digital video service and residential telephony. Depending
upon the timing and scope of the rollout of these businesses, as to which
Cablevision has not made any definitive decision, Cablevision may require
significant additional capital. Depending on the scope of Cablevision's
participation in personal communications services and direct broadcast satellite
("DBS") ventures, as to which Cablevision has not made any definitive decision,
significant additional capital may also be required for these businesses.
Cablevision is not currently able to estimate the amounts of such capital
expenditures, which would depend highly upon, among other factors, the timing
and scope thereof. In addition, Cablevision may require additional capital (i)
if it elects to pay cash to acquire ITT Corporation's remaining interest in MSG
following an exercise by ITT Corporation of its put rights at approximately $188
million in cash or by Cablevision of its call rights with respect to such
interests, (ii) in order to make the payment of approximately $190 million in
cash to Dolan due pursuant to the Dolan Partnership Transaction, (iii) if it
elects to pay cash of up to $151 million in order to repay the Senior
Subordinated Notes due 1998/2003 of Cablevision MFR, Inc. when due in August
1998 or (iv) if the New Credit Facility is not obtained in order to pay the
approximately $669
19
<PAGE>
million in Assumed Debt that will be payable upon consummation of the
Transactions. There can be no assurance that Cablevision will be able to raise
additional capital on satisfactory terms, or at all, to meet its future
financing needs.
FUTURE CAPITAL EXPENDITURES AND COMMITMENTS
Cablevision intends to make substantial capital expenditures, including
major system upgrades, with respect to its cable television systems over the
next several years. In addition, Cablevision, through Rainbow Media Holdings,
Inc. and its subsidiaries ("Rainbow Media"), 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. For further commitments, see
"--Need for Additional Financing."
INTANGIBLE ASSETS
Cablevision had total assets at September 30, 1997 of $4.9 billion, of which
$2.3 billion were intangible assets, consisting of franchises, affiliation
agreements, excess cost over fair value of net assets acquired and deferred
financing, acquisition and other costs. It is possible that no cash would be
recoverable from the voluntary or involuntary sale of these intangible assets.
VOTING CONTROL BY MAJORITY STOCKHOLDERS; DISPARATE VOTING RIGHTS
As of September 30, 1997, Dolan beneficially owned and possessed sole voting
power with respect to 7,805 shares or approximately 0.1% of the Cablevision
Class A Common Stock and 4,859,281 shares or 43.7% of the Cablevision Class B
Common Stock. In addition, as of September 30, 1997, an aggregate of 1,240,000
shares or 11.2% of the outstanding Cablevision Class B Common Stock were held by
a Grantor Retained Annuity Trust (the "GRA Trust") established by Dolan for
estate planning purposes. Dolan may be deemed to have beneficial ownership of
the shares of Cablevision Class B Common Stock held by the GRA Trust due to his
right to reacquire the Cablevision Class B Common Stock held by the GRA Trust by
substituting other property of equivalent value, but, until such event, the GRA
Trust, through its co-trustees (who are Dolan and his spouse) has the power to
vote and dispose of the shares of Cablevision Class B Common Stock held by it.
As a result of his beneficial ownership of the shares held by the GRA Trust, as
of September 30, 1997, Dolan beneficially owned 7,805 shares or approximately
0.1% of the outstanding Cablevision Class A Common Stock and 6,099,281 shares or
54.9% of the outstanding Cablevision Class B Common Stock. On a combined basis,
these shares represented 24.5% of the total number of shares of both classes of
Cablevision Common Stock and 48.8% of the total voting power of the Cablevision
Common Stock. Other trusts established by Dolan for the benefit of certain Dolan
family members, and as to which Dolan disclaims beneficial ownership, owned, as
of September 30, 1997, an additional 39,000 shares of Cablevision Class A Common
Stock or 0.3% of the Cablevision Class A Common Stock and 5,006,928 shares of
the Cablevision Class B Common Stock or 45.1% of the Cablevision Class B Common
Stock and 40.1% of the total voting power of all classes of the Cablevision
Common Stock. As a result of this stock ownership, Dolan family members have the
power to elect all the directors subject to election by holders of the
Cablevision Class B Common Stock (the "Class B Directors"), which directors
constitute 75% of the entire Cablevision Board of Directors. Moreover, because
holders of Cablevision Class B Common Stock are entitled to ten votes per share
while holders of Cablevision Class A Common Stock are entitled to one vote per
share, Dolan family members may control stockholder decisions on matters in
which holders of Cablevision Class A and Cablevision Class B Common Stock vote
together as a class. These matters include the amendment of certain provisions
of the Cablevision Certificate and the approval of fundamental corporate
transactions, including mergers. In addition, because the affirmative vote or
consent of the holders of at least 66 2/3% of the outstanding shares of the
Cablevision Class B Common Stock, voting separately as a class, is required to
approve (i) the authorization or issuance of any additional shares of
Cablevision Class B Common Stock and (ii) any
20
<PAGE>
amendment, alteration or repeal of any of the provisions of the Cablevision
Certificate which adversely affects the powers, preferences or rights of the
Cablevision Class B Common Stock, Dolan family members also have the power to
prevent such issuance or amendment. If the Transactions are consummated, the
Cablevision Common Stock of the Dolan family members will be converted into the
same number of shares of a like class of Parent Common Stock and the Dolan
family members will continue to maintain the voting rights set forth above
(including the voting rights resulting from the ownership of a majority of the
total voting power of the outstanding Parent Common Stock), subject to reduction
for the 12,235,543 shares of Parent Class A Common Stock to be issued by Parent
to TCI in the Issuance and to TCI's right to designate two of the Class B
Directors under the Stockholders Agreement. Subsequent to the Issuance, the
Class B Stockholders, which include the Dolan family members, will be party to
the Stockholders Agreement with Tele-Communications, which agreement provides
for certain rights of and limitations on the Class B Stockholders,
Tele-Communications and Parent with the respect to the Parent Common Stock and
Parent. See "Certain Related Agreements--The Stockholders Agreement."
RESTRICTIVE COVENANTS
Cablevision's principal bank credit facility (the "Credit Agreement") and
certain of the indentures governing the Public Debt (as hereinafter defined)
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. Cablevision currently
expects that the New Credit Facility, if obtained, would have covenants of the
same type contained in the Credit Agreement. If the New Credit Facility is not
obtained, Cablevision may be required to agree to additional and/or more
restrictive covenants under the Credit Agreement if Cablevision were to seek an
amendment of the Credit Agreement in order to obtain additional funds to
refinance the Assumed Debt upon consummation of the Transactions. Violation of
the covenants in the Credit Agreement or in the indentures governing the Public
Debt could result in a default under the Credit Agreement which would permit the
bank lenders thereunder (i) to restrict Cablevision's ability to borrow undrawn
funds under the Credit Agreement and (ii) to accelerate the maturity of
borrowings thereunder. Consummation of the Transactions would not result in a
violation of any provisions of the Public Debt or the Credit Agreement.
RISKS RELATED TO REGULATION
Cablevision's cable television operations may be adversely affected by
government regulation, the impact of competitive forces and technological
changes. In 1992, Congress enacted the 1992 Cable Act, which represented a
significant change in the regulatory framework under which cable television
systems operate. In 1993 and 1994, the Federal Communications Commission ("FCC")
ordered reductions in cable television rates. In 1995, a Federal appeals court
upheld the material aspects of the FCC's rate regulation scheme. Congress
subsequently enacted legislation (the "Telecommunications Act of 1996") that
relaxes the regulation of cable television rates; however, the most significant
rate regulation relaxation affecting Cablevision will not occur until after
March 31, 1999.
RISK OF COMPETITION
Cable operators compete with a variety of distribution systems, including
broadcast television stations, DBS, multichannel multipoint distribution
services ("MMDS"), satellite master antenna systems ("SMATV") and private home
dish earth stations. For example, four DBS systems are now operational in the
United States, some with investment by companies with substantial resources such
as Hughes Electronics Corp., AT&T Corp. and News Corporation. The 1992 Cable Act
prohibits a cable programmer that is owned by or affiliated with a cable
operator (such as Rainbow Media) from unreasonably discriminating among or
between cable operators and other multichannel video distribution systems with
respect to the price, terms and conditions of sale or distribution of the
programmer's service and from
21
<PAGE>
unreasonably refusing to sell service to any multichannel video programming
distributor. Cable systems also compete with the entities that make videotaped
movies and programs available for home rental. The 1992 Cable Act regulates the
ownership by cable operators of MMDS and SMATV. Under the Telecommunications Act
of 1996, the cross-ownership provisions do not apply to any cable operator in a
franchise area in which a cable operator faces competition from video
programming distributors meeting certain statutory requirements. The
Telecommunications Act of 1996 gives telephone companies and other video
providers the option of providing video programming to subscribers through "open
video systems" ("OVS"), a wired video delivery system similar to a cable
television system that would not require a local cable franchise. Several OVS
operators have sought to enter New York City, Boston and Westchester County, New
York. Additional video competition to cable systems is possible from new
wireless local multipoint distribution services ("LMDS") authorized by the FCC,
for which spectrum will be auctioned by the FCC in late 1997.
COMPETITION FROM TELEPHONE COMPANIES
The 1984 Cable Act barred co-ownership of telephone companies and cable
television systems operating in the same service areas. The Telecommunications
Act of 1996 repeals this restriction and permits a telephone company to provide
video programming directly to subscribers in its telephone service territory,
subject to certain regulatory requirements, but generally prohibits a telephone
company from acquiring an in-region cable operator, except in certain small
markets under certain circumstances. Telephone companies (Ameritech Corp. in
Ohio and Southern New England Telephone Co. in Connecticut) have obtained or
applied for local franchises to construct and operate cable television systems
in several communities in which Cablevision currently holds cable franchises,
and in certain locations have commenced offering service. Neither the 1984 Cable
Act nor the 1992 Cable Act bars a telephone company from acquiring cable systems
outside its telephone service area. Several Regional Bell operating companies
have purchased or made investments in such cable systems.
RISK OF NON-EXCLUSIVE FRANCHISES AND FRANCHISE RENEWALS
Cablevision's cable television systems are operated primarily under
non-exclusive franchise agreements with local government franchising
authorities, in some cases with the approval of state cable authorities.
Cablevision's business is dependent on its ability to obtain and renew its
franchises. Although Cablevision has never lost a franchise as a result of a
failure to obtain a renewal, its franchises are subject to non-renewal or
termination under certain circumstance. In certain cases, franchises have not
been renewed at expiration and Cablevision operates under either temporary
operating agreements or without a license while negotiating renewal terms with
the franchising authorities.
22
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to the holders of
Cablevision Common Stock in connection with the solicitation of proxies by the
Cablevision Board of Directors for use at the Special Meeting, and at any
adjournments or postponements thereof, to consider and vote upon the Proposals.
Each copy of this Proxy Statement/Prospectus mailed to holders of Cablevision
Common Stock is accompanied by a proxy card for use at the Special Meeting.
TIME, DATE AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held on February 18, 1998, at the principal
executive offices of Cablevision Systems Corporation, One Media Crossways,
Woodbury, New York, 11797, commencing at 10 a.m., local time.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of Cablevision Common Stock will consider
and vote upon the following proposals (the "Proposals"): (i) the approval and
adoption of the Contribution and Merger Agreement and the approval of the Merger
(the "Merger Proposal"); (ii) the approval of the Issuance (the "Issuance
Proposal" and, together with the Merger Proposal, the "Transaction Proposals");
(iii) the approval and adoption of the Parent Employee Stock Plan and the Parent
Long-Term Incentive Plan (the "Plan Proposals"); and (iv) such other matters as
may properly be brought before the Special Meeting and any adjournments or
postponements thereof.
Approval of the Merger Proposal will be deemed to constitute approval of the
Issuance Proposal and approval of the stock options, conjunctive rights, bonus
award shares and incentive awards to be issued by Parent in replacement of
outstanding Cablevision stock options, conjunctive rights, bonus award shares
and incentive awards pursuant to the Contribution and Merger Agreement. The
Issuance Proposal and the Plan Proposals are conditioned on the approval of the
Merger Proposal, but the Merger Proposal is not conditioned on the approval of
the Plan Proposals.
RECORD DATE; SHARES ENTITLED TO VOTE
Cablevision has established January 6, 1998 as the Record Date for the
determination of stockholders entitled to notice of and to vote at the Special
Meeting. Only holders of record of Cablevision Common Stock at the close of
business on the record date are entitled to vote at the Special Meeting.
VOTES REQUIRED
On the Record Date, Cablevision had outstanding and entitled to vote
13,983,496 shares of Cablevision Class A Common Stock, each of which is entitled
to one vote per share, and 11,096,709 shares of Cablevision Class B Common
Stock, each of which is entitled to ten votes per share on matters properly
submitted at the Special Meeting. On such date, there were approximately 735
holders of record of Cablevision Common Stock.
As of September 30, 1997, the executive officers and directors of
Cablevision as a group beneficially owned approximately 8,804,725 shares of
Cablevision Common Stock (representing approximately 35.3% of the outstanding
Cablevision Common Stock and 67% of the total voting power of the outstanding
Cablevision Common Stock).
The presence in person or by proxy of the outstanding shares of Cablevision
Common Stock representing a majority of the vote which could be cast by the
holders of all Cablevision Common Stock, voting together as a single class, is
necessary to constitute a quorum for the transaction of business. For the
purposes of the Merger Proposal, abstentions and broker non-votes will be
counted as present for the purposes of determining whether a quorum is present
but will be counted as a vote against the Merger Proposal and, therefore, the
Issuance Proposal and the Plan Proposals. For the purposes of the Issuance
Proposal and the Plan Proposals, abstentions and broker non-votes will be
counted as present for the
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purposes of determining whether a quorum is present. HOLDERS OF SHARES OF
CABLEVISION STOCK ARE REQUESTED TO COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD IN THE POSTAGE PAID ENVELOPE PROVIDED FOR THIS PURPOSE IN
ORDER TO ENSURE THAT THEIR SHARES ARE VOTED.
Approval and adoption of the Contribution and Merger Agreement and approval
of the Merger to be voted on at the Special Meeting, which will be deemed to
constitute approval of the Issuance and approval of the stock options and
conjunctive rights to be issued by Parent under the Parent Stock Plans in
replacement of outstanding Cablevision stock options and conjunctive rights
pursuant to the Contribution and Merger Agreement, requires the affirmative vote
of the holders of a majority of the total voting power represented by the
outstanding shares of Cablevision Class A Common Stock and Cablevision Class B
Common Stock, voting together as a single class. Approval and adoption of the
Parent Employee Stock Plan and the Parent Long-Term Incentive Plan requires the
affirmative vote of a majority of the total voting power of the shares of
Cablevision Class A Common Stock and Cablevision Class B Common Stock present at
the Special Meeting in person or by proxy and entitled to vote, voting together
as a single class. CABLEVISION STOCKHOLDERS HAVING A MAJORITY OF CABLEVISION'S
VOTING POWER HAVE AGREED THAT THEY WILL VOTE FOR ADOPTION AND APPROVAL OF THE
CONTRIBUTION AND MERGER AGREEMENT AND APPROVAL OF THE MERGER AND THE ISSUANCE.
ACCORDINGLY, APPROVAL OF THOSE MATTERS IS ASSURED.
BOARDS OF DIRECTORS' RECOMMENDATIONS. EACH OF THE CABLEVISION BOARD OF
DIRECTORS AND THE PARENT BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED EACH OF THE
PROPOSALS. THE CABLEVISION BOARD RECOMMENDS THAT CABLEVISION'S STOCKHOLDERS VOTE
FOR THE APPROVAL AND ADOPTION OF EACH OF THE PROPOSALS.
VOTING AND REVOCATION OF PROXIES
A proxy card for the Special Meeting accompanies this Proxy
Statement/Prospectus. A stockholder may use the proxy card if he or she is
unable to attend the Special Meeting or wishes to have his or her shares voted
by proxy even if he or she does attend the Special Meeting. A proxy may be
revoked by the person giving it at any time before it is exercised by providing
written notice of such revocation to the Secretary of Cablevision, by submitting
a proxy having a later date or by appearing at the Special Meeting and electing
to vote in person. Presence at the Special Meeting of a stockholder who signed a
proxy does not in itself revoke the proxy. Any proxy validly submitted and not
revoked will be voted in the manner specified therein by the stockholder. IF NO
SPECIFICATION IS MADE, SHARES OF CABLEVISION COMMON STOCK REPRESENTED BY PROXIES
RECEIVED BY CABLEVISION PRIOR TO OR AT THE SPECIAL MEETING WILL BE VOTED FOR THE
APPROVAL OF EACH OF THE PROPOSALS.
The Cablevision Board is not aware of any matters to be presented at the
Special Meeting other than those described in this Proxy Statement/Prospectus.
If other matters are properly brought before the Special Meeting, it is the
intention of the persons named in the proxies, or their substitutes, to vote the
shares to which such proxies relate in accordance with their judgment.
Stockholders of Cablevision will not be entitled to present any matter for
consideration at the Special Meeting.
SOLICITATION OF PROXIES
Cablevision will bear the cost of soliciting proxies from its stockholders.
In addition to solicitation by mail, the directors, officers and regular
employees of Cablevision and its subsidiaries, who will receive no compensation
in excess of their regular salaries for their services but may be reimbursed for
their out-of-pocket expenses in connection with the solicitation, may solicit
proxies by telephone, telegram, in person or otherwise. Cablevision will also
reimburse brokers and other custodians, nominees and fiduciaries for their
reasonable expenses in communicating with the persons for whom they hold
Cablevision Common Stock.
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THE COMPANIES
PARENT
Parent was incorporated in the state of Delaware on November 21, 1997.
Parent has not conducted any business activities to date, other than those
incident to its formation, its execution of the Contribution and Merger
Agreement and related agreements and its participation in the preparation of
this Proxy Statement/Prospectus. Immediately following the consummation of the
Merger and the Contribution, Parent will become a holding company for
Cablevision and its subsidiaries and for the Contributed Businesses.
Accordingly, after the Transactions, the business of Parent through its
subsidiaries will be the same as the business currently conducted by Cablevision
and its subsidiaries and by the Contributed Businesses.
Parent is authorized to issue 200,000,000 shares of Parent Class A Common
Stock, 80,000,000 shares of Parent Class B Common Stock and 10,000,000 shares of
Preferred Stock, par value $0.01 per share ("Parent Preferred Stock").
There is currently outstanding one share of Parent Class A Common Stock,
which is owned by Cablevision. No other shares of Parent Common Stock or Parent
Preferred Stock are issued or outstanding. Upon consummation of the Merger, all
the Parent Class A Common Stock currently owned by Cablevision will be canceled
and will no longer be outstanding.
The directors and executive officers of Parent will be substantially the
same as the directors and executive officers of Cablevision with certain changes
in the Class B Directors to reflect the Contribution and Issuance pursuant to
the Contribution and Merger Agreement and the Stockholders Agreement. See
"Management" and "Certain Related Agreements--The Stockholders Agreement." The
directors and executive officers of Parent after the Effective Time as a group,
based on ownership as of September 30, 1997, are expected to beneficially own
approximately 34.1% of the outstanding shares of Parent Common Stock and 66.8%
of the total voting power of outstanding Parent Common Stock after the Merger
and, excluding the effects of any deemed beneficial ownership together with
Tele-Communications by virtue of being a party to (or affiliated with a person
who is a party to) the Stockholders Agreement, approximately 23.9% of the
outstanding shares of Parent Common Stock and 61.1% of the total voting power of
outstanding Parent Common Stock after the Transactions. Tele-Communications will
beneficially own, excluding the effects of any deemed beneficial ownership by
virtue of being a party to the Stockholders Agreement, approximately 46.7% of
the outstanding shares of Parent Class A Common Stock, 32.8% of the outstanding
shares of Parent Common Stock and 8.9% of the total voting power of outstanding
Parent Common Stock after the Issuance. See "Ownership of Cablevision and
Parent" for the number of shares of Cablevision Common Stock beneficially owned
by each director and the executive officers of Cablevision.
The principal executive offices of Parent are located at One Media
Crossways, Woodbury, New York 11797. Parent's telephone number is (516)
364-8450.
CABLEVISION
For a description of Cablevision's businesses and recent developments
concerning Cablevision and its businesses, see the Form 10-K, the Forms 10-Q and
the Forms 8-K, each of which is incorporated by reference herein. The following
description is qualified in its entirety by reference to such incorporated
documents. See "Incorporation of Certain Information by Reference."
DESCRIPTION OF CABLEVISION; CABLE OPERATIONS. Cablevision is one of the
largest operators of cable television systems in the United States, with
approximately 2,899,000 subscribers in 19 states as of September 30, 1997, based
on the number of basic subscribers in systems that are currently majority owned
and managed by Cablevision (after giving effect to the closing of certain
pending transactions as described under "--Recent Developments"). 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 and in MSG, a sports entertainment company.
Cablevision's strategy has been to concentrate its cable television systems
in and around three major metropolitan areas: New York City, Boston and
Cleveland, with a view to being a significant cable provider
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in each of these markets; to maximize its revenue per subscriber by marketing
premium services; to develop and promote niche programming and entertainment
services; and to remain an industry leader in upgrading the technological
capabilities of its systems.
Cablevision believes that its cable television systems on Long Island, New
York comprise the largest contiguous group of cable television systems under
common ownership in the United States (measured by number of subscribers). By
developing systems in and around major metropolitan areas, including expansion
through acquisitions in areas in which Cablevision has existing systems,
Cablevision has been able to realize economies of scale in the operation and
management of its systems and to capitalize on opportunities to create and
market programming of regional interest.
Through the current and planned upgrade of its cable plant, including the
utilization of fiber optic cable and associated electronics, Cablevision is
seeking to increase significantly its channel capacity so to accommodate more
analog and add new digital channel capacity, which will facilitate the startup
of such adjunct businesses as information services, interactive services
(including Internet access), near video on demand, video on demand, residential
telephony and commercial telephony. To successfully roll out these adjunct new
businesses significantly beyond the initial development phases, Cablevision will
require additional capital. See "Risk Factors--Need for Additional Financing."
PROGRAMMING AND ENTERTAINMENT. Cablevision conducts its programming and
entertainment activities through Rainbow Media, its 75% owned subsidiary, and
through subsidiaries of Rainbow Media in partnership with certain unaffiliated
entities, including Liberty Media Corporation. The remaining 25% interest in
Rainbow Media is owned by a subsidiary of National Broadcasting Company, Inc.
Rainbow Media's businesses include MSG, seven regional SportsChannel networks,
five national entertainment networks (American Movie Classics Company ("AMC"),
Bravo Company ("Bravo"), MuchMusic, Romance Classics and the Independent Film
Channel ("IFC"), Rainbow News 12 (regional news networks serving suburban areas
surrounding New York City)) and the sports network of Prime Sports-Channel
Network. MSG is a sports entertainment company that owns and operates the
Madison Square Garden arena and the adjoining Theater at MSG, the New York
Knickerbockers professional basketball team, the New York Rangers professional
hockey team, the Madison Square Garden Network and SportsChannel Associates. MSG
and Rainbow Media's SportsChannel networks provide regional sports programming
to the New York, New England, Chicago, Cincinnati, Cleveland, San Francisco and
Florida areas. AMC is a national entertainment network featuring classic,
unedited and non-colorized films from the 1930s through the 1970's. Bravo is a
national entertainment network offering international films and performing arts
programs, including jazz, dance, classical music, opera and theatrical programs.
Romance Classics is a national entertainment network featuring classic, unedited
and non-colorized films with romantic themes from the 1930s through the 1970's.
MuchMusic is a music network featuring a diverse mix of new and established
musical artists. IFC is a national entertainment network that airs independent
films made outside the traditional Hollywood system.
ADVERTISING SERVICES. Rainbow Advertising Sales Corporation ("Rainbow
Advertising") sells advertising time to national, regional and local advertisers
on behalf of Cablevision's cable television systems and the SportsChannel and
Rainbow News 12 programming networks, as well as on behalf of unaffiliated cable
television systems. Under the agreement with Fox Sports Net, LLC ("Fox Sports")
described under "-- Recent Developments," Rainbow Media would contribute the
national advertising assets of Rainbow Advertising relating to its SportsChannel
programming networks to National Advertising Partners.
RECENT DEVELOPMENTS. On February 19, 1997, Cablevision announced that it
was pursuing a plan to dispose of certain nonstrategic cable television systems
representing an aggregate of up to 478,000 basic subscribers. As described
below, Cablevision has completed the sale of cable television systems in Maine
and in Allen and Gibsonberg Township, Ohio and has entered into definitive
agreements covering the sale of regional cable television systems in Alabama,
Florida, Kentucky, Missouri, North Carolina and neighboring states, as well as
individual cable television systems in Windsor, New York; New Milford,
Pennsylvania; and Rockford, Illinois. Cablevision is actively pursuing the sale
of other nonstrategic systems. There can be no assurance that Cablevision will
enter into agreements covering other asset sales or that any asset sale
transactions will be consummated.
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On October 31, 1997, A-R Cable Services-ME, Inc., an indirect Cablevision
subsidiary, completed the sale of cable television systems in Maine (which
served approximately 53,000 subscribers as of September 30, 1997) to
Frontiervision Operating Partners, L.P. for approximately $78 million in cash.
In November 1997, A-R Cable entered into an agreement with Adams CATV, Inc.
("Adams") to sell to Adams the cable television systems in Windsor, New York and
New Milford, Pennsylvania owned by
A-R Cable (which served approximately 4,100 subscribers as of September 30,
1997) for approximately $4.8 million in cash. The transaction is subject to the
receipt of regulatory and other customary approvals. The transaction is
currently expected to be consummated in the first quarter of 1998. There can be
no assurance that the transaction will be consummated in a timely fashion, or at
all.
On August 13, 1997, A-R Cable, entered into an agreement with Insight
Communications Company, L.P. ("Insight") to sell to Insight the cable television
systems in Rockford, Illinois owned by A-R Cable (which served approximately
66,000 subscribers as of September 30, 1997) for approximately $97 million in
cash. The transaction is subject to the receipt of regulatory and other
customary approvals. The transaction is currently expected to be consummated by
January 31, 1998. There can be no assurance that the transaction will be
consummated in a timely fashion, or at all.
On December 23, 1997, Cablevision of the Midwest, Inc. ("Cablevision of the
Midwest"), which is a Cablevision subsidiary, completed the sale to TWFanch-one
Co. ("'TWFanch") of the cable television system in Allen and Gibsonberg
Township, Ohio owned by Cablevision of the Midwest (which served approximately
6,900 subscribers as of September 30, 1997) for approximately $10.7 million in
cash.
On August 29, 1997, Cablevision and its wholly owned subsidiaries U.S. Cable
Television Group, L.P. ("U.S. Cable"), ECC Holdings Corporation ("ECC Holdings")
and Missouri Cable Partners, L.P. ("Missouri Cable") entered into an agreement
with Mediacom LLC ("Mediacom") to sell to Mediacom a number of cable television
systems owned by U.S. Cable, ECC Holdings and Missouri Cable (which served
256,000 subscribers as of September 30, 1997) for approximately $315 million in
cash. The transaction is subject to the receipt of regulatory and other
customary approvals. The transaction is currently expected to be consummated in
the first quarter of 1998. There can be no assurance that the transactions will
be consummated in a timely fashion, or at all.
On May 10, 1996, Cablevision entered into an agreement with Warburg Pincus
Investors, L.P. ("Warburg") to acquire from Warburg the interests that
Cablevision did not already own in A-R Cable, A-R Cable Partners, Cablevision of
Newark and Cablevision of Framingham Holdings, Inc. ("CFHI"). See the Form 10-K
for a description of these affiliates. On June 11, 1997, Cablevision acquired
from Warburg the equity interests that Warburg owned in A-R Cable Partners and
CFHI for $41 million in cash and on July 2, 1997, the Company acquired from
Warburg the equity interests the Warburg owned in A-R Cable for $112 million in
cash (collectively, the "1997 Warburg Transactions"). A-R Cable, A-R Cable
Partners and CFHI collectively served approximately 387,000 subscribers as of
September 30, 1997.
In August, 1996, Cablevision acquired the remaining approximate 80%
partnership interest in U.S. Cable that it did not already own for approximately
$4 million and repaid the debt owed by U.S. Cable to General Electric Capital
Corporation of approximately $154 million with proceeds from a new $175 million
credit facility. On September 27, 1996, Cablevision acquired from Warburg the
equity interests that Warburg owned in Cablevision of Newark (which served
approximately 48,000 subscribers as of September 30, 1997) for $37 million in
cash.
On June 17, 1997, Cablevision and ITT Corporation ("ITT") and certain of
their affiliates completed the redemption by MSG of a portion of ITT's 50%
interest in MSG (the "MSG Redemption"). As a result of the MSG Redemption and
the contemporaneous contribution by Rainbow Media of SportsChannel New York to
MSG (described below), Rainbow Media's interest in MSG increased from 50% to
89.8%. ITT received $500 million from MSG and maintains a 10.2% equity interest
in MSG. MSG financed the redemption with borrowings under an $850 million senior
secured credit facility. ITT has the right to require Cablevision to repurchase
one-half of its remaining equity interest in MSG on June 17, 1998 for $75
million (or $94 million if ITT contributes to MSG ownership of an aircraft used
to transport professional sports teams) and its remaining equity interest in MSG
on June 17, 1999 for $75 million (or
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$94 million if the aircraft is contributed to MSG) and its remaining equity
interest in MSG on June 17, 1999 for $75 million (or $94 million if the aircraft
is contributed). If ITT does not exercise its put right, the purchase price for
its entire remaining equity interest in MSG on June 17, 1999 will be $150
million (or $188 million if the aircraft is contributed). Cablevision has the
right to satisfy any or all of its put obligations by having MSG redeem the
equity interests being put by ITT in cash. Cablevision also can satisfy its put
obligation in cash or, subject to certain conditions, shares of the Cablevision
Class A Common Stock.
On April 1, 1997, Rainbow Media consummated a transaction (the "NBC
Transaction") in which Rainbow Programming Holdings, Inc. merged with and into
Rainbow Media, a newly formed subsidiary of Cablevision. In addition, NBC Cable,
Inc. (a subsidiary of National Broadcasting Company, Inc. ("NBC")) received a
25% equity interest (which interest may be increased up to 27% under certain
circumstances) in non-voting Class C common stock of Rainbow Media in exchange
for NBC's contribution of its partnership interests in certain of Rainbow
Media's programming networks. Cablevision owns the remaining 75% equity interest
in Rainbow Media.
On June 22, 1997, Rainbow Media Sports Holdings, Inc. ("Rainbow Sports"), a
wholly owned subsidiary of Rainbow Media, entered into an agreement (the
"Formation Agreement") with Fox Sports, a subsidiary of Fox/Liberty Networks,
LLC, to organize three partnerships: Regional Programming Partners (a
partnership that will own the interest in regional sports programming businesses
currently owned by Rainbow Media), National Sports Partners (a partnership that
will own and operate a national sports programming network) and National
Advertising Partners (a partnership that will manage and sell national
advertising for certain of the regional sports networks to be owned by Regional
Programming Partners and certain regional sports networks owned by Fox/Liberty
Sports). In connection with the formation of Regional Programming Partners, upon
the closing of the transactions contemplated thereby, Rainbow Media will
contribute or cause to be contributed to Regional Programming Partners in
consideration for the issuance of a 60% general partnership interest in Regional
Programming Partners certain equity interests in Cablevision's sports
programming properties (including MSG). A subsidiary of Rainbow Media will be
the managing general partner of Regional Programming Partners. In consideration
of an issuance of a 40% general partnership interest in Regional Programming
Partners, at the closing, Fox Sports will contribute $850 million in cash to
Regional Programming Partners. Regional Programming Partners intends to use the
majority of such proceeds to repay a portion of the MSG bank credit facility.
The remaining portion of the Fox Sports' contribution may possibly be loaned by
Regional Programming Partners to Rainbow Media and used by Rainbow Media to
repay an equal amount of borrowings under Rainbow Media's revolving credit
facility. There can be no assurances that Regional Programming Partners will use
the $850 million cash contribution to repay a portion of the MSG credit facility
or to make the loan to Rainbow Media described above. In connection with the
formation of National Sports Partners, (i) Rainbow Media will contribute or
cause to be contributed in consideration for the issuance of a 50% general
partnership interest in National Sports Partners certain equity interests in
certain of Cablevision's sports channels and (ii) Fox Sports will contribute or
cause to be contributed in consideration for the issuance of a 50% general
partnership interest in National Sports Partners certain assets pertaining to or
used in the business of Fox Sports and a 50% general partnership interest in
Prime SportsChannel Networks Associates. A subsidiary of Fox Sports will be the
managing general partner of National Sports Partners. In connection with the
formation of National Advertising Partners, (i) Rainbow Media will contribute or
cause to be contributed in consideration for the issuance of a 50% general
partnership interest in National Advertising Partners certain assets relating to
the national advertising of the regional sports programming services in which
Rainbow Media has an interest and (ii) Fox Sports will contribute or cause to be
contributed in consideration for the issuance of a 50% general partnership
interest in National Advertising Partners certain assets relating to the
national advertising of the regional sports programming services in which Fox
Sports has an interest. A subsidiary of Fox Sports will be the managing general
partner of National Advertising Partners. This transaction was consummated on
December 18, 1997.
On October 2, 1997, Cablevision entered into an agreement with At Home
Corporation ("@Home") and certain of its shareholders, pursuant to which
Cablevision agreed to enter into agreements for the distribution of the @Home
service over Cablevision's cable television systems on the same terms and
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conditions as @Home's founding partners, Tele-Communications, Comcast
Corporation and Cox Communications. Cablevision received a warrant to purchase
7,875,784 shares of @Home's Series A common stock at an exercise price of $.50
per share, and, in addition, a warrant to purchase up to 3,071,152 shares of
@Home's Series A common stock at $0.50 per share under certain conditions (the
"Contingent Warrant"). The Contingent Warrant is not immediately exercisable and
will become exercisable as and to the extent certain cable systems, including
the Contributed Businesses, are transferred from TCI to Parent or its designees.
@Home Network distributes high-speed interactive services to residences and
businesses using its own network architecture and a variety of transport
options, including the cable industry's hybrid-fiber coaxial infrastructure.
On December 4, 1997, MSG acquired from Radio City Productions, Inc. and
Rockefeller Group, Inc. for approximately $70 million in cash all of the
membership interests in Radio City Products LLC, the production company that
presently operates Radio City Music Hall in New York City and produces The Radio
City Christmas Spectacular and shows featuring the Radio City Rockettes.
Simultaneously, MSG agreed to enter into a 25-year lease for Radio City Music
Hall. Radio City Productions LLC has announced plans to invest in excess of $25
million for the refurbishment and technological modernization of Radio City
Music Hall.
THE CONTRIBUTED BUSINESSES
The following discussion should be read in conjunction with the TCI New
Jersey and New York Systems' and the TKR New Jersey/New York Systems' historical
financial statements, including the notes thereto, included elsewhere in this
document. The Contributed Businesses to be contributed to Parent in the
Contribution include the cable television systems contained in the Contributed
Subsidiaries. No equity securities of the Contributed Subsidiaries or of any
entity which directly owns the Asset Contributed Systems are publicly traded on
a national securities exchange or otherwise.
THE TKR NEW JERSEY/NEW YORK SYSTEMS. The TKR New Jersey/New York Systems own
and operate cable television systems in New Jersey and New York, with
approximately 416,000 subscribers as of September 30, 1997. The TKR New
Jersey/New York Systems are located in Union, Mercer, Monmouth, Somerset,
Middlesex, Morris, Sussex, Bergen and Passaic counties in New Jersey and in
Rockland County in New York. Substantially all of the TKR New Jersey/New York
Systems' revenue is earned from subscriber fees for primary and premium
subscription services, the rental of converters and remote control devices, and
installation fees. Additional revenue is derived from the sale of advertising,
pay-per-view programming fees and payments received from revenue-sharing
arrangements for products sold through home shopping services. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
TKR New Jersey/New York Systems."
THE TCI NEW JERSEY AND NEW YORK SYSTEMS. The TCI New Jersey and New York
Systems own and operate cable television systems in New Jersey and New York,
with approximately 406,000 subscribers as of September 30, 1997. In connection
with securing certain regulatory approvals to the Merger and the Contribution,
Cablevision has agreed to divest certain cable television system assets of such
systems that are located in Paramus and Hillsdale, New Jersey. The assets to be
divested served approximately 5,200 subscribers as of September 30, 1997 and are
not believed by Cablevision to be material to Cablevision or the Contributed
Businesses. The TCI New Jersey and New York Systems are located in Suffolk and
Westchester counties in New York and in Bergen, Passaic and Morris counties in
New Jersey. Substantially all of the TCI New Jersey and New York Systems'
revenue is earned from subscriber fees for primary and premium subscription
services, the rental of converters and remote control devices, and installation
fees. Additional revenue is derived from the sale of advertising, pay-per-view
programming fees and payments received from revenue-sharing arrangements for
products sold through home shopping services. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the TCI New Jersey
and New York Systems."
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THE TRANSACTIONS
BACKGROUND OF THE TRANSACTIONS
During March, 1997 representatives of Tele-Communications contacted
representatives of Cablevision to determine whether Cablevision would have any
interest in a transaction whereby Cablevision would acquire an ownership
interest in, and management of, certain cable television systems owned
indirectly by Tele-Communications and located in New Jersey, Long Island and New
York's Rockland and Westchester counties. Cablevision and Tele-Communications
entered into a confidentiality agreement dated March 26, 1997. Executives from
Cablevision and Tele-Communications met on several occasions during March and
April 1997 to discuss the possible structure for such a transaction. The parties
discussed, among other things, transaction structures that would permit
completion of a transaction on a tax-free basis for Tele-Communications, the
consideration to be received by Tele-Communications in exchange for the
contributed systems and corporate governance issues that would arise as a result
of Tele-Communications' ownership of Cablevision equity securities.
Cablevision management had been considering the creation of a new holding
company even prior to Tele-Communications' contact concerning a possible
transaction. As discussions with Tele-Communications developed, the creation of
a new holding company appeared attractive as a way to permit Tele-Communications
to contribute the Contributed Businesses in the transaction to the new holding
company in exchange for equity securities of the new holding company on a
tax-free basis to Tele-Communications.
In early May, 1997, representatives of Tele-Communications and Cablevision
agreed to seek to negotiate the terms of a transaction and began negotiation of
the proposed Contribution and Merger Agreement and related agreements.
Negotiations were completed on June 6, 1997, and the Original Contribution and
Merger Agreement was signed by the parties thereto, subject to Cablevision's
receipt of Board approval prior to 9:00 a.m. on Monday, June 9, 1997. The
Cablevision Board of Directors met and approved the Original Contribution and
Merger Agreement on Sunday, June 8, and the transaction was announced on Monday,
June 9, 1997.
After the execution of the Original Contribution and Merger Agreement,
Tele-Communications representatives contacted Cablevision to request that
certain changes be made to the structure of the transactions contemplated by the
Original Contribution and Merger Agreement. After representatives of Cablevision
and Tele-Communications discussed these changes, on November 21, 1997 the
Contribution and Merger Agreement was signed by the parties thereto.
REASONS FOR THE TRANSACTIONS; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
At a meeting held on June 8, 1997, the Cablevision Board of Directors, by
unanimous vote of those directors present, among other things, (i) determined
that the terms of the Original Contribution and Merger Agreement and the
transactions contemplated thereby are in the best interest of Cablevision and
its stockholders and (ii) approved the Original Contribution and Merger
Agreement and the transactions contemplated thereby, including the merger and
the issuance of Parent Class A Common Stock contemplated thereby. At such
meeting, the Cablevision Board of Directors also recommended that Cablevision
stockholders approve and adopt the Original Contribution and Merger Agreement
and approve the merger and the issuance contemplated thereby. Subsequent to such
June 8, 1997 meeting, the Cablevision Board of Directors, by unanimous vote of
those directors present, among other things, ratified and approved the
Contribution and Merger Agreement and recommended that Cablevision stockholders
approve and adopt the Contribution and Merger Agreement and approve the Merger
and the Issuance as contemplated thereby.
The Cablevision Board of Directors did not obtain an independent fairness
opinion in connection with its approval of the Transactions, because the
management of Cablevision had conducted a review of the Contributed Businesses
and, based on, among other factors, the market value of Cablevision Class A
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Common Stock as of June 6, 1997, the values for Cablevision implied by the
Contribution and Issuance and the experience of Cablevision's management in
evaluating cable properties, determined that the Transactions were in the best
interests of the Cablevision stockholders.
By unanimous written consent dated as of November 21, 1997, the Parent Board
of Directors, among other things, (i) determined that the terms of the
Contribution and Merger Agreement and the transactions contemplated thereby are
in the best interest of Parent and its stockholders and (ii) approved the
Contribution and Merger Agreement and the transactions contemplated thereby,
including the merger and the issuance of Parent Class A Common Stock
contemplated thereby. By written consent of the sole shareholder of Parent dated
as of November 21, 1997, Cablevision, as the sole holder of all of the
outstanding Parent Common Stock, approved and adopted the Contribution and
Merger Agreement and approved the Merger and the Issuance as contemplated
thereby.
In determining to approve the Original Contribution and Merger Agreement and
approve and ratify the Contribution and Merger Agreement and recommend it to
Cablevision stockholders, the Cablevision Board of Directors and the Parent
Board of Directors considered a number of factors, including those discussed
above and the following:
(a) Consummation of the Transactions will advance Cablevision's and,
after the Merger, Parent's objective of focusing Cablevision's cable system
business in its core business areas, including New York City metropolitan
area, and facilitate the more rapid introduction of enhanced cable
technologies not only in the Contributed Businesses' systems but in the
existing Cablevision cable systems as well;
(b) Consummation of the Transactions will reduce the cash flow leverage
of Cablevision's and, after the Merger, Parent's cable system business by
adding the Contributed Businesses and the Assumed Debt, which debt is at
lower levels in relation to the cash flow of the Contributed Businesses than
is the case for Cablevision and its cable systems subsidiaries. Cablevision
has calculated that Cablevision's total cable and telephony debt to cash
flow ratio (including all outstanding indebtedness for borrowed money and
redeemable preferred stock) as of September 30, 1997 was approximately 8:1
and, after giving effect to the Transactions, is expected to be, on a pro
forma basis, approximately 6.8:1;
(c) Consummation of the Transactions will increase the amount of
dividends and other restricted payments Cablevision is entitled to make
under the terms of the indentures governing the Public Debt, giving Parent
greater flexibility to separate Cablevision's cable systems and Rainbow
Media's cable programming businesses should it choose to do so. Cablevision
has calculated that, as a result of the consummation of the Transactions,
the amount of restricted payments that Cablevision would be entitled to make
under the terms of the indentures governing the Public Debt is expected to
increase by at least approximately $1.4 billion;
(d) The terms and conditions of the Contribution and Merger Agreement
and related agreements (including the Stockholders Agreement), including the
fact that Tele-Communications would have only limited board representation
and veto rights and that such rights were not anticipated to limit
materially Cablevision's or Parent's ability to conduct its business as it
planned;
(e) The reports of management of Cablevision on the results of their due
diligence investigation of the Contributed Businesses; and
(f) The regulatory approvals necessary to complete the Transactions.
In connection with approving the Transactions and with entering into each of
the transactions referenced in "The Companies--Cablevision--Recent
Developments," the Cablevision Board of Directors and, in the case of the
approval of the Transactions, the Parent Board of Directors also each considered
the effects of the Transactions and such other transactions on the operations
and financial condition of
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Cablevision and, after the Merger, Parent. In such regard, Cablevision has
calculated that (after taking into account the net inflows of cash resulting
therefrom, the reduction of debt with the proceeds of such cash and any
anticipated elimination of duplicate operations) total consolidated debt (i.e.,
cable and telephony plus programming) to cash flow (including all outstanding
indebtedness for borrowed money and redeemable preferred stock) as of September
30, 1997 was approximately 9.1:1 and, after giving effect to the Transactions
and such other transactions, is expected to be, on a pro forma basis,
approximately 6.5:1.
The foregoing discussion of the information and factors that were given
weight by the Cablevision Board of Directors and the Parent Board of Directors
is not intended to be exhaustive, but is believed to include all the material
factors considered by the Cablevision Board of Directors and the Parent Board of
Directors. Neither the Cablevision Board of Directors nor the Parent Board of
Directors assigned specific weights to different factors.
FOR THE REASONS DESCRIBED ABOVE, THE CABLEVISION BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT CABLEVISION STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE CONTRIBUTION AND MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE APPROVAL OF THE MERGER AND THE ISSUANCE. THE
CABLEVISION BOARD OF DIRECTORS ALSO UNANIMOUSLY RECOMMENDS THAT CABLEVISION
STOCKHOLDERS VOTE FOR APPROVAL OF THE PLAN PROPOSALS.
DESCRIPTION OF THE TRANSACTIONS
GENERAL. The purpose of the Transactions is to combine the geographically
complementary cable television operating systems of Cablevision and TCI in the
New York City greater metropolitan area under one corporation. This is expected
to benefit Parent, Cablevision, TCI and the stockholders of all three
corporations, because the resulting combined operations will be of a
sufficiently large scale to permit investment in new technology and development
of advanced telecommunications and entertainment systems. The new technology
will in turn enhance the Parent's channel capacity services and provide a
platform for delivering new products, services and businesses, including a wide
range of news, sports and editorial programming and video on demand, cable
modem, residential telephone and other services. The combined operations are
also expected to achieve certain operating efficiencies, primarily in the area
of general and administrative costs.
The Contribution and Merger Agreement contemplates several transactions,
including (i) the Merger, in which Merger Sub will merge with and into
Cablevision, with Cablevision (as the surviving corporation) becoming a wholly
owned subsidiary of Parent; and (ii) the Contribution, in which the Contributed
Businesses will be transferred by TCI or certain designated entities of TCI to
Parent or its designees in exchange for the issuance by Parent of 12,235,543
shares of Parent Class A Common Stock in the Issuance, subject to adjustment in
certain events, and in which Parent or its designees will assume the Assumed
Debt and certain other liabilities and obligations arising out of the business
of the Asset Contributed Systems after the Closing. In the Merger, as of
immediately prior to the Contribution and the Issuance, each share of
Cablevision Class A Common Stock will be exchanged for one share of Parent Class
A Common Stock and each share of Cablevision Class B Common Stock will be
exchanged for one share of Parent Class B Common Stock. As a result, Cablevision
will become a wholly owned subsidiary of Parent in the Merger. Immediately
following the Merger, the Contributed Businesses will be transferred in the
Contribution to Parent or to certain wholly owned direct or indirect
subsidiaries of Parent. After the Merger and the Contribution, Parent will be a
new publicly traded holding company that is the parent corporation of an
affiliated group in which Cablevision and the Contributed Businesses are
included. The closing (the "Closing") of the Transactions will take place on the
third business day (the "Closing Date") following the satisfaction of certain
customary conditions (which are set forth in Article VII of the Contribution and
Merger Agreement), including that all required stockholder, regulatory and
third-party approvals and consents have been obtained. A copy of the
Contribution and Merger Agreement is attached as Appendix A hereto and any
description of the Contribution and Merger Agreement, the Merger, the
Contribution or
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the Issuance in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the text of the Contribution and Merger Agreement. For a more
detailed description, see "The Contribution and Merger Agreement."
Each of Cablevision, Parent, TCI and Tele-Communications has agreed in the
Contribution and Merger Agreement to vote in favor of the Transactions. The
Class B Stockholders, which collectively own a majority of the total voting
power of Cablevision, have also agreed in the Voting Agreement, among other
things, to vote their Cablevision Common Stock in favor of the Transactions. In
addition, the Class B Stockholders, Cablevision and Tele-Communications have
agreed in the Voting Agreement, among other things, to execute and deliver the
Stockholders Agreement at the closing of the Contribution. The Stockholders
Agreement provides for certain rights and limitations with respect to
Tele-Communications, the Class B Stockholders and Parent. Copies of the
Stockholders Agreement and the Voting Agreement are attached hereto as Appendix
B and Appendix C, respectively, and any description of the Stockholders
Agreement or the Voting Agreement in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the text of the Stockholders Agreement
or the Voting Agreement, as the case may be. For a more detailed description,
see "Certain Related Agreements--The Stockholders Agreement" and "Certain
Related Agreements--The Voting Agreement."
Cablevision is preparing to submit a request for a ruling from the IRS to
permit it to combine the cable operations of Cablevision and the Contributed
Businesses in and under Cablevision in the Restructuring immediately after the
Closing and to establish Rainbow Media as a programming subsidiary of Parent
that is separate from the other operations of Cablevision. None of the
Transactions is conditioned on the Restructuring. If such ruling is not
obtained, the Contribution and Merger Agreement would permit Cablevision to
effect the Restructuring more than one year after Closing. Any combination of
Cablevision's cable systems and the Contributed Businesses in and under
Cablevision and any separation of Rainbow Media as a programming subsidiary of
Parent that is separate from the other operations of Cablevision is also
dependent upon compliance with Cablevision's debt covenants and upon receipt of
any required regulatory approvals. There can be no assurance that any or all of
such transactions will be effected. A copy of certain of the terms of the
Restructuring is attached hereto as Appendix F, and any description of the
Restructuring in this Proxy Statement/Prospectus is qualified in its entirety by
reference to the text of the terms of the Restructuring. See "Risk
Factors--Possible Noncompletion of Certain Transactions" and "Potential Related
Transactions--The Restructuring."
THE MERGER. Pursuant to the Contribution and Merger Agreement, Merger Sub
will be merged with and into Cablevision, with Cablevision as the surviving
corporation. The separate existence of Merger Sub will automatically cease and
the name of Cablevision will be changed to CSC Holdings, Inc. Each issued and
outstanding share of common stock, par value $0.01 per share, of Merger Sub (all
of which will be owned by Parent) will be converted into one share of common
stock of Cablevision, all of which will thereupon be held by Parent.
Each share of Cablevision Class A Common Stock and Cablevision Class B
Common Stock (other than shares, in either case, beneficially owned by
Cablevision or any direct or indirect subsidiary of Cablevision) will be
converted into one share of Parent Class A Common Stock and one share of Parent
Class B Common Stock, respectively. All of the shares of Cablevision Class A
Common Stock and Class B Common Stock so exchanged, as well as any such shares
owned by Cablevision or its subsidiaries, will thereupon be canceled and retired
and each certificate formerly representing Cablevision Class A Common Stock or
Cablevision Class B Common Stock shall thereafter be deemed to represent an
equal number of shares of Parent Class A Common Stock or Parent Class B Common
Stock, as the case may be.
As a result of the Merger, each of the classes of Cablevision Preferred
Stock will remain unchanged and outstanding Preferred Stock of Cablevision (as
the surviving company in the Merger), without any change in their terms, except
that the Cablevision Series C Preferred Stock and the Cablevision Series I
Preferred Stock will, by their terms, become exchangeable into Parent Common
Stock instead of being
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convertible for Cablevision Common Stock. As a result of the Merger, the
Cablevision Debt will remain unchanged and outstanding debt of Cablevision (as
the surviving company in the Merger).
In accordance with the Contribution and Merger Agreement, the certificate of
incorporation of Cablevision will be amended, effective as of the consummation
of the Merger, to reflect the change in the company's name and to provide that
the company shall be authorized to issue the following shares of stock: (a)
1,000 shares of Common Stock, par value $1.00 per share; (b) 10,000,000 shares
of Preferred Stock, par value $0.01 per share, 200,000 shares of which shall be
designated as Series A Cumulative Convertible Preferred Stock and 200,000 shares
of which shall be designated as Series B Cumulative Convertible Preferred Stock.
After the Merger, Parent, which will then own all of the outstanding common
stock of Cablevision, will change its name to Cablevision Systems Corporation;
Cablevision, which will then be a wholly owned subsidiary of Parent, will change
its name to CSC Holdings, Inc.
Cablevision has issued options to acquire Cablevision Class A Common Stock,
conjunctive rights and bonus award shares with respect to Cablevision Common
Stock and incentive awards to certain employees and directors. Persons who
exercise such options immediately after the Merger will receive the same number
of shares of Parent Class A Common Stock as shares of Cablevision Class A Common
Stock that they would have received if they had exercised the options
immediately prior to the record date for the Merger. Such conjunctive rights,
bonus award shares and incentive awards from and after the Merger will
constitute Parent conjunctive rights, bonus award shares and incentive awards on
the same terms and conditions as applied immediately prior to the Merger.
Cablevision will not redeem any stock or receive any property from its
stockholders in connection with the Transactions. Cablevision will not
distribute any property to its stockholders in connection with the Transactions.
THE CONTRIBUTION AND ISSUANCE. Substantially simultaneously with and
immediately following the Merger, TCI will in the Contribution contribute or
cause its subsidiaries to transfer to Parent all of the Contributed Businesses
in exchange for 12,235,543 shares of Parent Class A Common Stock to be issued by
Parent in the Issuance. In contemplation of the Contribution, Parent will form
five wholly owned subsidiaries (the "Transferee Subsidiaries"), and, at the
effective time of the Contribution, TCI will contribute the Asset Contributed
Systems and the Contributed Subsidiaries to Parent and immediately thereafter
Parent will contribute the Asset Contributed Systems and the Contributed
Subsidiaries (other than UA-Columbia Cablevision of Westchester, Inc.
("UA-Columbia")) to the Transferee Subsidiaries. The Assumed Debt and certain
other liabilities and obligations of the Contributed Businesses will also be
transferred to Parent by TCI in the Contribution and by Parent to the Transferee
Subsidiaries immediately thereafter. The number of shares of Parent Class A
Common Stock to be issued in the Issuance is subject to certain anti-dilution
adjustments as provided for in the Contribution and Merger Agreement.
The Contribution and Issuance will take place substantially simultaneously
with and immediately after the Merger, on the third business day following the
satisfaction or waiver of certain customary conditions (set forth in Article VII
of the Contribution and Merger Agreement), including that all requisite
shareholder, regulatory and third-party approvals and consents have been
obtained.
The Contributed Businesses:
The Contributed Businesses are comprised of the TKR New Jersey/New York
Systems and the TCI New Jersey and New York Systems. In connection with securing
certain regulatory approvals to the Merger and the Contribution, Cablevision has
agreed to divest certain cable television system assets of the Contributed
Businesses that are located in Paramus and Hillsdale, New Jersey. The assets to
be divested served approximately 5,200 subscribers as of September 30, 1997 and
are not believed by Cablevision to be material to Cablevision or the Contributed
Businesses. The TKR New Jersey/New York Systems, which are owned and operated
within TKR Cable Company, a partnership that is indirectly wholly owned by TCI
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("TKR"), and its subsidiaries, include systems in Elizabeth, Hamilton, Metuchen,
Morris, New Brunswick, Ramapo and Rockland, New Jersey and in Warwick, New York.
The TCI New Jersey and New York Systems include systems in Oakland and Paterson,
New Jersey and in Brookhaven and Mamaroneck, New York. The advertising sales
business relating to the TKR New Jersey/New York Systems is owned and operated
within KRC/CCC Investment Partnership, a Colorado partnership that is indirectly
wholly owned by TCI ("KRC/CCC"), and its subsidiaries. The Westchester New York
system is owned and operated within UA-Columbia. UA-Columbia, TKR and KRC/CCC
collectively constitute the Contributed Subsidiaries (as defined in the
Contribution and Merger Agreement). The TCI New Jersey and New York Systems in
Oakland and Patterson, New Jersey and in Brookhaven, New York are owned and
operated within certain subsidiaries of TCI and collectively constitute the
Asset Contributed Systems. See "The Companies--The Contributed Businesses."
In the Contribution, TCI will contribute or cause to be contributed to
Parent all the capital stock of UA-Columbia and will cause (i) the other
Contributed Subsidiaries to be transferred to Parent and (ii) the assets of the
Asset Contributed Systems to be transferred to Parent. In addition, in the
Contribution, Parent will assume (i) no more than $669 million in aggregate debt
for borrowed money (i.e., the Assumed Debt) owned by and relating to the
Contributed Businesses (approximately $574 million of which is currently
outstanding under existing credit facilities of the Contributed Businesses and
the remainder of which is currently owed to subsidiaries of TCI) and (ii)
certain other liabilities and obligations arising out of the businesses of the
Asset Contributed Systems after the Closing. Immediately after the Closing,
Parent will contribute the Asset Contributed Systems and the Contributed
Subsidiaries (other than UA-Columbia) and the Assumed Debt and such other
liabilities and obligations to the Transferee Subsidiaries. Accordingly, after
the Contribution, all of the Contributed Subsidiaries and their subsidiaries
will become direct or indirect subsidiaries of Parent and all of the Asset
Contributed Systems will be owned by and operated within wholly owned
subsidiaries of Parent.
Consideration Adjustment:
Pursuant to the Contribution and Merger Agreement, the consideration to be
paid by Parent in the Issuance is subject to adjustment in two circumstances:
(i) the number of Parent Class A Shares to be issued in the Issuance would be
adjusted (up or down) according to a customary anti-dilution formula as a result
of certain issuances of Cablevision Common Stock or Parent Common Stock above or
below a designated price (set initially at $116 per share of Cablevision Common
Stock) prior to the Closing; and (ii) a balancing payment will be made in cash,
by either of TCI or Parent to the other, if the Net Adjusted Working Capital (as
defined in the Contribution and Merger Agreement) of the Contributed Businesses
at the time of the TCI Contribution does not equal zero. If shares of
Cablevision Common Stock or Parent Common Stock are issued prior to closing of
the Contribution at a price below the designated price (initially $116 per
share), other than in certain excepted issuances pursuant to Cablevision Stock
Plans and other identified obligations, the amount of shares issuable to TCI in
the Issuance would be increased to reflect that "dilutive" issuance and the
designated price would be reduced to reflect such issuance. If shares of
Cablevision Common Stock or Parent Common Stock are issued at a price above the
designated price (initially $116 per share), other than in certain exempted
issuances pursuant to Cablevision Stock Plans and other identified obligations,
the amount of shares issuable to TCI in the Issuance would be decreased to
reflect that "accretive" issuance and the designated price would be increased to
reflect such issuance. There is no maximum or minimum to such anti-dilution
adjustment. Neither Cablevision nor Parent currently anticipates any issuances
for which an adjustment would be made. If the Net Adjusted Working Capital is
above zero, Parent will pay such amount to TCI; if the Net Adjusted Working
Capital is less than zero, TCI will pay to Parent the amount by which the Net
Adjusted Working Capital is less than zero. Any such payment will be made within
five business days following the final determination, in accordance with
procedures outlined in the Contribution and Merger Agreement, of the Net
Adjusted Working Capital, and will include interest from the date of the
Contribution to the date of payment. See "The Contribution and Merger
Agreement--Consideration to be Received in the Transactions."
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The Refinancing:
Pursuant to the Contribution and Merger Agreement, after the Contribution
the Assumed Debt will be payable in full by Parent and such Assumed Debt will
have to be refinanced (the "Refinancing") within Parent or its subsidiaries.
Cablevision is in discussions with commercial lenders with respect to the New
Credit Facility in the aggregate amount of $800 million to provide funds for the
refinancing of the Assumed Debt in the Refinancing, for additional working
capital needs for the Contributed Businesses and for other corporate purposes.
Cablevision currently expects that the New Credit Facility will be in place at
or prior to the consummation of the Transactions. However, there can be no
assurances that the New Credit Facility will be obtained or upon what terms the
New Credit Facility will be obtained. If the New Credit Facility is not
obtained, Cablevision would need additional capital in order to refinance the
$669 million in Assumed Debt upon consummation of the Transactions and for any
additional working capital needs for the Contributed Businesses. That additional
funding could be obtained by amending Cablevision's existing facility to
increase borrowings available to refinance the Assumed Debt and by issuing
additional debt in the public markets (including issuing up to $500 million
currently available under Cablevision's existing shelf registration facility).
However, there can be no assurances that any such amendments would be obtained
or any such issuance could be effected or upon what terms such amendment could
be obtained or such issuance could be effected. If the New Credit Facility is
not obtained and additional capital was not available for Cablevision to assume
and pay the Assumed Debt, Cablevision would not be able to comply with the terms
of the Contribution and Merger Agreement and could be held to be in breach
thereof. If such breach were to give rise to a judgment that Cablevision was
unable to satisfy, then such breach could cause a material adverse effect on
Cablevision and a default under the Cablevision Debt and in such circumstances
could cause defaults under other outstanding obligations of Cablevision. Neither
the Contribution nor the Merger is conditioned on closing the Refinancing.
To the extent that such borrowings would involve commitments for future
loans, such commitments may be conditioned on continued compliance by the
borrower with the terms of the loan agreement and the absence of any material
adverse changes in the borrower's businesses. Cablevision expects that any new
borrowings under the New Credit Facility or otherwise in the Refinancing would
contain covenants that limit, among other things, sales of assets, the making of
acquisitions and other investments, the incurrence of additional debt and liens
and the payment of dividends, and that require, among other things, the
borrowers to comply with certain requirements with respect to financial ratios,
in each case with respect to the cable operations of the borrowers. If the New
Credit Facility is not obtained, Cablevision may be required to agree to
additional and/or more restrictive covenants under the Credit Agreement if
Cablevision were to seek an amendment of the Credit Agreement in order to obtain
additional funds to refinance the Assumed Debt upon consummation of the
Transactions. See "Risk Factors--Restrictive Covenants."
CONVERSION OF CABLEVISION COMMON STOCK
In the Merger, all outstanding shares of Cablevision Common Stock will be
canceled and each certificate theretofore representing any such shares, without
any action on the part of the holder thereof, shall be deemed to represent an
equivalent number of shares of the same class of Parent Common Stock. From and
after the Merger, all shares of Cablevision Common Stock converted into shares
of Parent Common Stock will no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of such shares
shall cease to have any rights with respect thereto, except for the right to
receive Parent Common Stock in accordance with the terms of the Contribution and
Merger Agreement. See "--Description of the Transactions--The Merger."
CABLEVISION STOCKHOLDERS ARE NOT REQUIRED TO SURRENDER THEIR SHARE
CERTIFICATES FOR EXCHANGE.
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INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendations of the Cablevision Board of Directors,
stockholders should be aware that certain members of management and the
Cablevision Board may be deemed to have interests in the Transactions that are
in addition to their interests as stockholders generally.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. From and after the
Effective Time, until successors are duly elected or appointed and qualified in
accordance with applicable law, the Board of Directors of Parent will consist of
the Board of Directors of Cablevision immediately prior to the Merger with
certain changes in the Class B Directors to add two Investor Directors as
nominees of TCI in accordance with and pursuant to the Contribution and Merger
Agreement and the Stockholders Agreement. See "Certain Related Agreements--The
Stockholders Agreement" and "Management--Directors and Officers."
ASSUMPTION OF OPTIONS, CONJUNCTIVE RIGHTS, BONUS AWARD SHARES AND INCENTIVE
AWARDS. The Contribution and Merger Agreement provides that, at the Effective
Time, all outstanding options to acquire Cablevision Common Stock and
conjunctive rights, bonus award shares and incentive awards of Cablevision will
be assumed by Parent and will be converted into options to acquire Parent Common
Stock and conjunctive rights and bonus share awards with respect to Parent
Common Stock and incentive awards of Parent. As of September 30, 1997, the
directors and executive officers of Cablevision hold outstanding options to
purchase approximately 677,325 shares of Cablevision Common Stock. See "--Effect
on Stock and Benefits Plans" and "The Contribution and Merger Agreement--Stock
Options; Conjunctive Rights" and "Ownership of Cablevision and
Parent--Cablevision."
THE STOCKHOLDERS AGREEMENT. The Class B Stockholders, some of whom are (or
are affiliates of) directors and officers of Cablevision, have entered into the
Stockholders Agreement, which provides, among other things, certain rights and
limitations with respect to Tele-Communications, Parent and the Class B
Stockholders and with respect to the Parent Common Stock, including certain
rights of consultation regarding transfers of Parent Common Stock by the Class B
Stockholders and Tele-Communications. See "Certain Related Agreements--The
Stockholders Agreement."
THE VOTING AGREEMENT. Under the Voting Agreement, the Class B Stockholders,
some of whom are directors and officers of Cablevision (or their affiliates),
have agreed with Tele-Communications, Cablevision and Parent, among other
things, to vote in favor of the Transactions. See "Certain Related
Agreements--The Voting Agreement."
REGISTRATION RIGHTS. Certain stockholders of Cablevision, some of whom are
directors and officers of Cablevision (or their affiliates), have registration
rights with respect to Cablevision Common Stock that will be applicable to the
Parent Common Stock issued in exchange therefor in the Merger. See "Ownership of
Cablevision and Parent--Cablevision--Registration Rights."
THE DOLAN PARTNERSHIP TRANSACTION. The Dolan Partnership Transaction is
conditioned on the consummation of the Transactions. Dolan, who is Chairman of
Cablevision, a Class B Director and an affiliate of certain other directors and
officers of Cablevision, is a party to the Dolan Partnership Transaction. See
"Potential Related Transactions--The Dolan Partnership Transaction."
INDEMNIFICATION AND INSURANCE OF CABLEVISION DIRECTORS AND
OFFICERS. Pursuant to the Contribution and Merger Agreement, from and after the
Effective Time, Parent will indemnify and hold harmless, to the fullest extent
permitted under applicable law, each present and former director and officer of
Cablevision and its subsidiaries against any and all costs or expenses
(including the advancement thereof), judgments, fines, losses, claims, damages
or liabilities incurred in connection with any matters existing or occurring at
or prior the Effective Time to the fullest extent that Cablevision or any such
subsidiary would have been permitted as of the date of the Contribution and
Merger Agreement to indemnify such person. Cablevision
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(as the surviving corporation) or Parent also will maintain for six years after
the Effective Time Cablevision's officers' and directors' liability insurance on
substantially the same terms as in existence on the date of the Contribution and
Merger Agreement so long as such insurance can be obtained on commercially
reasonable terms. See "The Contribution and Merger Agreement--Certain
Covenants--Indemnification of Directors and Officers."
EFFECT ON STOCK AND BENEFIT PLANS
Pursuant to the Contribution and Merger Agreement, each outstanding option
to purchase shares of Cablevision Common Stock and each Cablevision conjunctive
stock appreciation right, bonus award share and incentive award, whether vested
or unvested, will be deemed to constitute, as the case may be, an option to
acquire, on the same terms and conditions, the same number of shares of Parent
Common Stock and at the same exercise price as in effect immediately prior to
the Effective Time and a conjunctive right, bonus award share and incentive
award of Parent on the same terms and conditions as in effect immediately prior
to the Effective Time. At the Effective Time, Parent will assume each
Cablevision option, conjunctive stock appreciation right, bonus award share and
incentive award in accordance with the terms of the Cablevision First Amended
and Restated 1996 Employee Stock Plan and the Cablevision 1996 Non-Employee
Direct Stock Option Plan (collectively, the "Cablevision Stock Plans") and the
Cablevision 1997 Long Term Incentive Plan as in effect immediately prior to the
Effective Time.
In connection with the Merger, Parent will assume the Cablevision 1997 Long
Term Incentive Plan and the Cablevision Management Performance Incentive Plan
(together, the "Cablevision Incentive Plans"), the Cablevision Stock Plans and
the other health, welfare and other benefit plans of Cablevision (collectively,
the "Cablevision Plans").
Approval of the Contribution and Merger Agreement will constitute approval
of the stock options, conjunctive rights, bonus award shares and incentive
awards of Parent to be issued in replacement of outstanding Cablevision options
and conjunctive rights, bonus award shares and incentive awards pursuant to the
Contribution and Merger Agreement.
CAPITAL STOCK AND DEBT; DIVIDENDS
CAPITAL STOCK AND DEBT. In the Merger, all outstanding shares of
Cablevision Common Stock will be exchanged for an equivalent number and a like
class of Parent Common Stock. See "--Conversion of Cablevision Common Stock." As
a result of the Merger, each share of outstanding Cablevision Series I Preferred
Stock, Cablevision Series M Preferred Stock and Cablevision Series H Preferred
Stock (collectively, the "Cablevision Preferred Stock") will remain unchanged
and outstanding as Preferred Stock of Cablevision (as the surviving company in
the Merger), except that the outstanding Cablevision Series I Preferred Stock
will, in accordance with the terms of its certificate of designation in effect
as of the Effective Time, become exchangeable for Parent Common Stock instead of
being convertible into Cablevision Common Stock. On December 3, 1997, in
accordance with the certificate of designation for the Cablevision Series C
Preferred Stock, Cablevision issued a notice of redemption for all of the
outstanding Cablevision Series C Preferred Stock at a price calculated to be
approximately $85.06 per share in cash (or approximately $9 million in the
aggregate for all shares of Cablevision Series C Preferred Stock). Such
redemption was consummated on January 2, 1998. Accordingly, as of the Effective
Time, Cablevision will not have outstanding any shares of Cablevision Series C
Preferred Stock. As a result of the Merger, in accordance with the terms of
their respective indentures, Cablevision's 8 1/8% Senior Debentures due 2009,
9 7/8% Senior Subordinated Notes due 2006, 9 1/4% Senior Subordinated Notes due
2005, 9 7/8% Senior Subordinated Debentures due 2013, 9 7/8% Senior Subordinated
Debentures due 2023, 10 1/2% Senior Subordinated Debentures due 2016 and 7 7/8
Senior Notes due 2007 (collectively, the "Public Debt") will remain unchanged
and outstanding as debt of Cablevision (as the surviving company in the Merger).
As a result of the Merger, Cablevision's senior bank debt (such debt, together
with the Public Debt, the
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"Cablevision Debt") will remain unchanged and outstanding as debt of Cablevision
(as the surviving company in the Merger).
DIVIDENDS. Cablevision has never paid any dividends on the Cablevision
Common Stock in the past. The payment of future dividends on the Parent Common
Stock will be a business decision made by the Board of Directors of Parent from
time to time based upon the results of operations and financial condition of
Parent and such other factors as the Board determines are appropriate.
ACCOUNTING TREATMENT
Parent will account for the acquisition of the Contributed Businesses under
the purchase method of accounting in accordance with the provisions of
Accounting Principles Board Opinion No. 16, "Business Combinations."
Accordingly, Cablevision will record at its cost the acquired assets less
liabilities assumed, with the excess of such cost over the estimated fair value
of such net assets reflected as goodwill. Additionally, certain costs directly
related to the acquisition will be reflected as additional purchase price in
excess of the net assets acquired. The actual allocation of amounts may differ
from that reflected in the pro forma consolidated financial statements after an
appropriate review of the fair values of the assets and liabilities of the
Contributed Businesses has been completed. Amounts allocated will be based upon
the estimated fair values at the time of the Transactions, which could vary
significantly from the amounts assumed in the Unaudited Pro Forma Combined
Condensed Financial Statements of Parent included elsewhere herein. Until
independent appraisals are obtained and the audit contemplated by the
Contribution and Merger Agreement is performed on the Contributed Businesses
following the consummation of the Transactions, Cablevision cannot determine
with certainty any adjustments to the purchase price paid in the Contribution or
the allocation to identifiable tangible and intangible assets. Upon completion
of such appraisals and audit, the purchase price and allocation will be
determined and reflected in future filings with the Commission made by Parent to
the extent applicable. The conversion of Cablevision Common Stock into Parent
Common Stock in the Merger will be treated as a reorganization with no change in
the recorded amount of Cablevision's assets and liabilities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS
The following discussion is a summary of the material U.S. federal income
tax consequences of the Merger, the Contribution and the Issuance to Cablevision
stockholders who are U.S. citizens or residents or domestic corporations and
hold the Cablevision stock as a capital asset. It does not apply to Cablevision
stockholders (such as dealers in securities, insurance companies, financial
institutions, and tax-exempt organizations and trusts) that are subject to
special tax regimes, or to Cablevision stockholders who acquired Cablevision
shares pursuant to the exercise of employee stock options or rights or otherwise
as compensation. Cablevision stockholders are urged to consult their own tax
advisors as to the specific tax consequences to them of the Transactions,
including the effect of any state, local or foreign tax laws.
The Merger, the Contribution and the Issuance are expected to constitute a
tax-free exchange within the meaning of Section 351 of the Internal Revenue Code
of 1986, as amended (the "Code"). As a result, for federal income tax purposes,
(a) no gain or loss will be recognized by Cablevision or Parent in the Merger,
the Contribution and the Issuance and (b) Cablevision stockholders who exchange
their shares of Cablevision Common Stock solely for Parent Common Stock will not
recognize any gain or loss. The tax basis of the Parent Common Stock received by
such Cablevision stockholder will be the same as the Cablevision stockholder's
tax basis in the shares of Cablevision Common Stock surrendered therefor, and
the holding period of the Parent Common Stock received by a Cablevision
stockholder will include the holding period of the Cablevision Common Stock
surrendered therefor.
From and after the Merger, the outstanding Cablevision Series I Preferred
Stock and any outstanding Cablevision Series C Preferred Stock will each become
exchangeable for Parent Common Stock instead of being convertible into
Cablevision Common Stock. The exchange of Cablevision Series I Preferred Stock
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or any Cablevision Series C Preferred Stock for Parent Common Stock would be a
taxable event to a holder of such Preferred Stock, and such holder would
recognize gain or loss equal to the difference, if any, between such holder's
adjusted tax basis in the Cablevision Series I Preferred Stock or Cablevision
Series C Preferred Stock exchanged and the fair market value of the Parent
Common Stock received in the exchange. Any such gain or loss would be capital
gain or loss. Long-term capital gain of a non-corporate stockholder is generally
subject to a maximum tax rate of 28% in respect of property held for more than
one year and to a maximum rate of 20% in respect of property held in excess of
18 months.
Consummation of the Merger and the Contribution is dependent upon, among
other conditions, receipt by Parent and TCI of opinions of their respective
counsel to the effect that the Merger and the Contribution (together with the
Issuance), respectively, will be treated as a tax-free exchange within the
meaning of Section 351 of the Code. Opinions of counsel are not binding on the
Internal Revenue Service or the courts, and the parties do not intend to request
a ruling from the Internal Revenue Service with respect to the Merger and the
Contribution. However, Cablevision and TCI are preparing to submit a request for
a ruling from the Internal Revenue Service to the effect that, based upon the
parties' representations that the Merger, the Contribution and the Issuance
qualify as a tax-free exchange under Section 351 of the Code, the consummation
of the Restructuring at Closing or shortly thereafter will not affect such
tax-free treatment. If such a ruling is not obtained, the Contribution and
Merger Agreement would permit Cablevision to undertake the Restructuring more
than one year after the Closing. The Merger, the Contribution and the Issuance
are not conditioned on the Restructuring, and neither Cablevision nor Parent is
obligated to undertake the Restructuring.
REPORTING REQUIREMENT. Each Cablevision stockholder will be required to
retain records and file with such holder's U.S. federal income tax return a
statement setting forth certain facts relating to the Transactions.
CERTAIN REGULATORY MATTERS
The closing of the Transactions is conditioned, among other things, upon
expiration or termination of the waiting period under the HSR Act, the approval
of the Company's stockholders and the receipt of various approvals. On January
16, 1998, Cablevision and the FTC announced that Cablevision has entered into a
consent degree providing for the divestiture of certain cable television system
assets of the Contributed Businesses that are located in Paramus and Hillsdale,
New Jersey. The assets to be divested served approximately 5,200 subscribers as
of September 30 1997. Until the time of such divestiture, Cablevision has agreed
to certain hold separate and related arrangements with regard to the assets to
be divested. By approving on January 15, 1998 the consent decree for public
comment, the Federal Trade Commission has terminated the waiting period under
the HSR Act with respect to the Transactions. Cablevision does not believe that
the assets to be divested, or the hold separate and other arrangements relating
thereto, are material to Cablevision or to the Contributed Businesses.
Applications for approval with respect to the Transactions from the National
Basketball Association and the National Hockey League have also been made.
Before the Transactions can be effected, approvals must be obtained from certain
local franchise authorities having rights of approval over changes of control
with respect to certain of the Contributed Businesses and over deemed changes of
control with respect to the cable television systems of Cablevision in such
authorities' jurisdictions. In addition, the FCC must approve under the
Communications Act the transfer of control of the FCC licenses used in the
operation of the Contributed Businesses. Under the FCC's rules, third parties
may have an opportunity to file objections to the transfer or the FCC may
examine regulatory issues raised by the transfer on its own motion. Parent will
be filing with the FCC transfer of control applications with respect to the
Contributed Businesses. There can be no assurance that the requisite FCC
approvals will be obtained, or that they will be obtained in a timely manner or
without conditions adverse to Parent. There can be no assurance that the other
necessary approvals will be obtained in a timely manner or at all or that
governmental agencies or others may not take legal action to prevent the
consummation of the Transactions.
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RESALES OF PARENT COMMON STOCK
The shares of Parent Common Stock to be issued in the Transactions have been
registered under the Securities Act by the Registration Statement and therefore
may be resold without restriction by all persons who are not deemed to be
"affiliates" of Cablevision. An affiliate of a specified person is defined in
the rules and regulations of the Commission as a person that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, the person specified. Based on share ownership
as of September 30, 1997, approximately 11,526,266 shares of Parent Common Stock
will be received in the Merger by persons that may be deemed to be affiliates of
Cablevision at the Effective Time. In addition, the shares of Parent Class A
Common Stock to be received by TCI and its subsidiaries may be resold only in
permitted circumstances. Certain of such affiliates, including Dolan and TCI,
will have registration rights with respect to the shares they will receive in
the Transactions. See "-- Interests of Certain Persons in the Transactions,"
"Certain Related Agreements--The Stockholders Agreement" and "Ownership of
Cablevision and Parent--Cablevision--Registration Rights."
AMEX LISTING
Prior to the Effective Time of the Merger, the Parent Class A Common Stock
will be approved for listing on AMEX upon official notice of issuance. Parent
and Cablevision will use their best efforts to de-list subsequent to the Merger
the Cablevision Class A Common Stock from AMEX.
APPRAISAL RIGHTS
Holders of Cablevision Common Stock or Cablevision Preferred Stock will not
be entitled to any dissenters' or appraisal rights under Section 262 of the
Delaware General Corporate Law (the "DGCL") in connection with the consummation
of the Transactions. The DGCL provides appraisal rights in the case of certain
mergers and consolidations. Section 262 of the DGCL provides that appraisal
rights are not available to holders of shares listed on a national securities
exchange or held of record by more than 2,000 holders unless the holders of such
shares are required to accept, pursuant to the terms of a merger or
consolidation, anything other than (1) shares of stock of the surviving
corporation or (2) shares of stock of another corporation which shares are at
the effective time of the merger, listed on a national securities exchange or
held of record by more than 2,000 persons. The foregoing description and any
other description of Section 262 of the DGCL in this Proxy Statement/Prospectus
is qualified in its entirety by reference to Section 262 of the DGCL, which is
attached hereto as Appendix I and incorporated by reference herein.
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POTENTIAL RELATED TRANSACTIONS
THIS CAPTION DESCRIBES CERTAIN ASPECTS OF THE RESTRUCTURING, THE DOLAN
PARTNERSHIP TRANSACTION AND THE PARTNERSHIP CONTRIBUTION. THIS CAPTION IS NOT A
COMPLETE DESCRIPTION OF THE RESTRUCTURING, THE DOLAN PARTNERSHIP TRANSACTION OR
THE PARTNERSHIP CONTRIBUTION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE TERMS OF THE RESTRUCTURING AGREEMENT ATTACHED AS APPENDIX F TO THIS PROXY
STATEMENT PROSPECTUS IN THE CASE OF THE RESTRUCTURING AND TO THE CNYC LETTER AND
THE CNYC AGREEMENT FILED AS EXHIBITS TO THE REGISTRATION STATEMENT IN THE CASE
OF THE DOLAN PARTNERSHIP TRANSACTION, EACH OF WHICH IS INCORPORATED HEREIN BY
REFERENCE. NONE OF THE MERGER, THE CONTRIBUTION OR THE ISSUANCE IS CONDITIONED
ON CONSUMMATION OF THE RESTRUCTURING, THE DOLAN PARTNERSHIP TRANSACTION OR THE
PARTNERSHIP CONTRIBUTION. ALL STOCKHOLDERS OF CABLEVISION ARE URGED TO READ THE
TERMS OF THE RESTRUCTURING AGREEMENT AND THE CNYC LETTER AND THE CNYC AGREEMENT
IN THEIR ENTIRETY.
THE RESTRUCTURING
If completed, Cablevision currently anticipates that the Restructuring would
(i) combine the cable systems of the Contributed Businesses with the cable
systems currently held by Cablevision by forming a sub-group in and under
Cablevision and (ii) separate under Parent the programming businesses of
Cablevision and its subsidiaries from the other businesses conducted by
Cablevision and its subsidiaries. It is currently anticipated that the
Restructuring would consist of the following steps and would occur after the
Contribution:
(1) Parent would contribute or transfer to Cablevision the Contributed
Businesses by contributing or transferring the capital stock of the Transferee
Subsidiaries, which will have received certain of the Contributed Businesses in
the Contribution, and all of the capital stock of UA-Columbia.
(2) Cablevision would distribute the stock of Rainbow Media to Parent.
(3) Cablevision anticipates that it will arrange for a senior credit
facility for its cable operations, which facility would refinance the existing
Cablevision credit facility under the Credit Agreement as well as the New Credit
Facility expected to be obtained in the Refinancing.
As a result of these transactions, the stock of Rainbow Media and
Cablevision would be held directly by Parent and all of the programming assets
of the Parent group would be held directly or indirectly by Rainbow Media and
all of the other assets of the Parent group would be held directly or indirectly
by Cablevision. Accordingly, the separate lines of business would have been
separated into sub-groups under Parent.
Under the terms of an agreement with respect to the Restructuring pursuant
to which the Restructuring would be undertaken (the general terms of which are
set forth in Exhibit A to the Contribution and Merger Agreement and Appendix F
hereto), the Restructuring may be effected one year after the Contribution, or
earlier if the required tax regulatory rulings are received. There can be no
assurances when, or whether, the Restructuring will be effected.
There can be no assurance that the Restructuring will occur or that it will
necessarily occur as described above. Cablevision and Parent reserve the right
to abandon or change the terms of the Restructuring.
THE DOLAN PARTNERSHIP TRANSACTION
In the Dolan Partnership Transaction, pursuant to the CNYC Letter, among
other things, Cablevision and Dolan agreed that (i) Dolan will defer the
commencement of the period during which Dolan could elect, pursuant to
Cablevision's pre-existing obligations under the CNYC Agreement, to require
Cablevision to purchase his remaining partnership interests in Cablevision of
NYC, from December 1, 1997 to the date of the consummation of the Merger and the
Contribution and (ii) Cablevision will make a cash
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payment to Dolan for such partnership interests of approximately $190 million.
If the Merger and Contribution is not consummated on or prior to July 1, 1998,
the CNYC Letter will terminate and the CNYC Agreement will remain in full force
and effect in accordance with its terms, except that the First Put Period will
commence on July 1, 1998 rather than December 1, 1997 and will end on October
31, 1998.
THE PARTNERSHIP CONTRIBUTION
The Contribution and Merger Agreement contemplates, among other things,
that, after the execution and delivery of the Contribution and Merger Agreement
and in connection with the Merger, Parent and certain equity holders in
subsidiaries of Cablevision may enter into a partnership contribution agreement
(the "Partnership Contribution Agreement") relating to the acquisition by Parent
of such equity interests in subsidiaries of Cablevision and pursuant to which
Parent would issue shares of Parent Class A Common Stock to such holders in
exchange for the contribution to Parent or its designees of such equity
interests in subsidiaries of Cablevision. Cablevision has reached an
understanding with certain of the RPE Minority Partners that, contemporaneously
with the Merger, the approximately 2% of the outstanding limited partnership
interests held by the RPE Minority Partners in RPE (the "RPE Acquired
Interests") will be contributed (the "Partnership Contribution") to Parent or a
direct or indirect wholly owned subsidiary of Parent in exchange for an
anticipated approximately 52,000 shares of Parent Class A Common Stock and
approximately $2.8 million in cash. The Partnership Contribution Agreement has
not been finalized and executed as of the date of this Proxy
Statement/Prospectus. This understanding, and the amount of Parent Class A
Common Stock to be issued, assumes a per share valuation of Cablevision of
$119.50 per share and an aggregate valuation of the RPE Acquired Interest of
approximately $9 million. Although Parent and Cablevision expect the Partnership
Contribution to be consummated contemporaneously with the Merger and Parent is
registering on the Registration Statement the shares of Parent Class A Common
Stock that would be issued in the Partnership Contribution, there can be no
assurances as to when, or whether, the Partnership Contribution Agreement will
be finalized and executed or when, or whether, the Partnership Contribution will
be effected.
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THE CONTRIBUTION AND MERGER AGREEMENT
THIS CAPTION DESCRIBES CERTAIN ASPECTS OF THE CONTRIBUTION AND MERGER
AGREEMENT. THIS CAPTION IS NOT A COMPLETE DESCRIPTION OF THE CONTRIBUTION AND
MERGER AGREEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
CONTRIBUTION AND MERGER AGREEMENT, WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. ALL CAPITALIZED
TERMS USED IN THIS CAPTION "THE CONTRIBUTION AND MERGER AGREEMENT" AND NOT
OTHERWISE DEFINED IN THIS PROXY STATEMENT/PROSPECTUS HAVE THE MEANINGS
ATTRIBUTED TO THEM IN THE CONTRIBUTION AND MERGER AGREEMENT. ALL STOCKHOLDERS OF
CABLEVISION ARE URGED TO READ THE CONTRIBUTION AND MERGER AGREEMENT IN ITS
ENTIRETY.
CONSIDERATION TO BE RECEIVED IN THE TRANSACTIONS
Pursuant to the Contribution and Merger Agreement, upon consummation of the
Merger each share of Cablevision Class A Common Stock and Cablevision Class B
Common Stock then issued and outstanding will be converted and will become
exchangeable for one share of Parent Class A Common Stock or one share of Parent
Class B Common Stock, respectively. At the Effective Time, all previously
outstanding Cablevision Common Stock will be canceled and retired, and each
certificate formerly representing Cablevision Common Stock will be deemed to
represent an identical number of shares of a like class of Parent Common Stock.
At the Effective Time, each share of common stock of Merger Sub then issued and
outstanding will be converted into one share of common stock of the Surviving
Corporation. Each share of Cablevision Preferred Stock will remain issued and
outstanding and with the same rights, preferences, limitations and restrictions
as provided for by the Cablevision Certificate.
In addition, the Contribution and Merger Agreement provides that at the
Contribution Closing TCI will transfer to Parent or its designated wholly owned
subsidiaries all of the Acquired Assets and the Contributed Subsidiary Capital
Stock in exchange for an aggregate consideration of 12,235,543 shares of Parent
Class A Common Stock, subject to certain adjustments to prevent dilution. Within
90 days of the Contribution Closing, Parent will prepare a Closing Balance Sheet
which will set forth the Net Adjusted Working Capital. In the event the Net
Adjusted Working Capital is not equal to zero, either Parent is obligated to
make an offsetting payment to TCI to the extent of the amount greater than zero
or TCI is obligated to make an offsetting payment to Parent to the extent of the
amount less than zero.
CORPORATE MATTERS
Pursuant to the Contribution and Merger Agreement, at the Effective Time of
the Merger, the Cablevision Certificate as in effect prior to the Effective Time
will remain the certificate of incorporation of the Surviving Corporation except
that such certificate will be amended so that the name of the Surviving
Corporation will be changed to CSC Holdings, Inc. and the Surviving Corporation
will be authorized to issue 1,000 shares of Common Stock, par value $1.00 per
share and 10,000,000 shares of Preferred Stock, par value $0.01 per share,
200,000 shares of which will be designated as Series A Cumulative Convertible
Preferred Stock and 200,000 shares will be designated as Series B Cumulative
Convertible Preferred Stock. In addition, the Bylaws, officers and directors of
Merger Sub will remain unchanged as the Bylaws, officers and directors of the
Surviving Corporation.
REPRESENTATIONS AND WARRANTIES
The Contribution and Merger Agreement contains various customary
representations and warranties of TCI, Cablevision, Parent and Merger Sub,
certain of which are qualified by a Contributed Systems Material Adverse Effect
standard (as defined below) with respect to TCI and a Parent Material Adverse
Effect standard (as defined below) with respect to Cablevision, Parent and
Merger Sub. Pursuant to the Contribution and Merger Agreement, TCI represents
and warrants to Cablevision, Parent and Merger Sub and Cablevision, Parent and
Merger Sub represent and warrant to TCI regarding, among others, the following
matters: (i) corporate existence and capitalization; (ii) corporate power and
authority; (iii) the execution, delivery and performance of the Contribution and
Merger Agreement and the Stockholders
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Agreement, and the consummation of the Merger, the Contribution and the other
transactions contemplated by the Contribution and Merger Agreement and the
Stockholders Agreement, not violating any law, permit, license or the
organizational document; (iv) financial statements; (v) conduct of businesses;
(vi) pending or threatened actions, investigations or proceedings; (vii) bonus,
deferred compensation, pension, retirement, profit-sharing, thrift, savings,
employee stock ownership, stock bonus, stock purchase, restricted stock, stock
option, employment, termination, severance, compensation, medical, health or
other plan, agreement, policy or arrangement ("Compensation and Benefit Plans");
(vii) compliance with all Laws and all necessary Permits; (viii) the absence of
any action that would prevent the Merger, the Contribution or the Partnership
Contribution from qualifying as an "exchange" within the meaning of Section 351
of the Code; (ix) tax matters; (x) labor matters; (xi) adequacy and maintenance
of insurance coverage; (xii) exemption of the Parent acquisition of the
Contributed Subsidiary Capital Stock from registration under the Securities Act;
(xiii) environmental matters; (xiv) intellectual property rights; (xv) absence
of any brokers' or finders' fees; (xvi) existence and reasonable likelihood of
renewal of cable franchise agreements and compliance in all material respects
with the Communications Act and rules and regulations of the FCC; (xvii) conduct
of all system and microwave performance tests and all Cumulative Leakage Index
("CLI") related tests and compliance in all material respects with all
applicable CLI rules and regulations; (xviii) filing of all statements of
account with the United States Copyright Office and the payment of all required
copyright royalty payments; and (xix) compliance in all material respects with
the FCC's rules and regulations pertaining to maximum permitted rates.
"Contributed Systems Material Adverse Effect" is defined in the Contribution
and Merger Agreement to mean a material adverse effect on the financial
condition, properties, business or results of operations of all of the
Contributed Systems taken as a whole, excluding any such effects proximately
caused by Cablevision or Parent or any of their respective Subsidiaries.
"Parent Material Adverse Effect" is defined in the Contribution and Merger
Agreement to mean a material adverse effect on the financial condition,
properties, business or results of operations of Cablevision and Parent and
their Subsidiaries taken as a whole, excluding such effects proximately caused
by any of the Contributed Entities, TCI or any of its Subsidiaries.
CONDUCT OF BUSINESS PENDING THE TRANSACTIONS
CABLEVISION INTERIM OPERATIONS. The Contribution and Merger Agreement
provides that during the period of time from the date of the Original
Contribution and Merger Agreement until the Contribution Closing, each of
Cablevision and Parent covenants and agrees that it will not: (a) issue, sell,
pledge, dispose of or encumber any capital stock owned by it in any of its
Significant Subsidiaries to an Affiliate of Cablevision or of Parent, except in
certain limited circumstances; (b) amend its certificate of incorporation or
Bylaws, except for the Charter Amendments and for amendments to the Parent
Certificate that conform to the Cablevision Certificate and amendments to the
Parent Bylaws that conform to the Cablevision Bylaws and to the Stockholders
Agreement; (c) split, combine or reclassify its outstanding shares of capital
stock or declare, set aside or pay any dividend or make any distribution payable
in cash, stock or property in respect of any capital stock, except for dividends
payable by any Subsidiary of Cablevision to its direct or indirect Subsidiaries
or on the Cablevision Preferred Stock; (d) repurchase, redeem or otherwise
acquire any shares of its capital stock or any securities convertible into or
exchangeable or exercisable for any shares of its capital stock, except in
connection with any mandatory sinking funds or certain previously disclosed
possible issuances of shares; (e) sell any of its property or assets to an
Affiliate; (f) engage in an Acquisition Transaction (as defined in the
Stockholders Agreement) that would cause the conditions to the Contribution not
to be satisfied; and (g) authorize or enter into any binding agreement or make
any binding commitment (whether oral or written) to take any of the types of
action described in the foregoing paragraphs.
CONTRIBUTED SYSTEMS INTERIM OPERATIONS. The Contribution and Merger
Agreement provides that during the period of time from the date of the Original
Contribution and Merger Agreement until the Contribution Closing, TCI covenants
and agrees that, from and after the execution and delivery of the
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Contribution and Merger Agreement until the consummation of the Contribution
Closing: (a) the business of each of the Company and its Subsidiaries with
respect to the Contributed Systems will be conducted in the ordinary and usual
course of business, and TCI will use all reasonable best efforts to preserve
each of the Contributed Entities' and each of the Contributed System Entities'
business organization intact and maintain the Contributed Systems' existing
relations and goodwill with customers, suppliers, distributors, subscribers,
creditors, lessors, employees and business associates; and (b) TCI will, and
will cause each of its Subsidiaries to, operate in all material respects in
accordance with the 1997 operating and capital budget plan relating to the
Contributed Systems (the "1997 Budget") and, in calendar year 1998, the 1998
operating and capital budget plan relating to the Contributed Systems (which
will be the same in all material respects as the 1997 Budget, unless Parent will
otherwise approve in writing).
TCI has further covenanted and agreed that it will cause each of its
Subsidiaries not to, with respect to the Contributed Systems or the Contributed
Entities, except as otherwise expressly contemplated in the Contribution and
Merger Agreement: (a) sell, lease, transfer or otherwise dispose of any material
assets or property of any of any of the Contributed Entities or of any of the
Company or its Subsidiaries relating to the Asset Contributed Systems, waive or
release any rights of material value related to the business of any of the
Contributed Entities or of any of the Company or its Subsidiaries relating to
the Asset Contributed Systems, or cancel, compromise, release or assign any
material debt or claim relating to the business of any of the Contributed
Entities, or related to the business of the Asset Contributed Systems, in each
case except in the ordinary and usual course of business; (b) subject to or
suffer to exist any Lien on any of the assets of any of the Contributed Entities
or on any of the assets of any of the Company or its Subsidiaries related to the
Asset Contributed Systems outside of the ordinary and usual course of business,
except for certain Contributed Systems Permitted Liens; (c) institute, settle or
agree to settle any litigation, action or proceeding before any court or
Governmental Entity that could impose any material obligations or restrictions
on any of the Contributed Entities or on any of the Acquired Assets or Assumed
Liabilities following the Contribution Closing or prevent or materially burden
or materially impair the ability of TCI to consummate the Contribution and the
other transactions contemplated by the Contribution and Merger Agreement; (d)
make any material change in the overall selling, pricing, advertising,
distribution, marketing, programming, affiliation, warranty or personnel
practices relating to any Contributed System; (e) except for bonuses that will
not be the responsibility of or require any payment by Parent or any of its
Subsidiaries, grant any increase in compensation or fringe benefits, or pay or
agree to pay any pension or retirement allowance, life insurance premium or
other benefit payment not required by any existing employment agreement or
Compensation and Benefit Plan to any such Employees or other person, commit
itself to make variations in or waivers with respect to, or amend in any
respect, any employment agreement or Compensation and Benefit Plan with or for
the benefit of any Employee or other person, or institute or adopt any
compensation or benefit program, plan or arrangement for Employees or other
persons; (f) issue, sell, pledge, dispose of or encumber any capital stock owned
by it in any of the Contributed Entities, or amend its or any of the Contributed
System Entities' certificate of incorporation, Bylaws or similar organizational
documents, or engage in a recapitalization or repurchase of its outstanding
shares of capital stock or any securities convertible into or exchangeable or
exercisable for any shares of any Contributed Entities' capital stock; (g)
issue, sell, dispose of or otherwise subject to a Lien any shares of, or
securities convertible into or exchangeable or exercisable for, or options,
warrants, conversion rights, calls, commitments or rights of any kind to
acquire, any shares of any of the Contributed Entities' capital stock of any
class or any other property or assets of any of the Contributed Entities or the
Asset Contributed Systems or give any person a right to subscribe for or acquire
any shares of capital stock or other equity interest of any of the Contributed
Entities; (h) by any means, make any acquisition of, or investment in, stock or
equity of any other person or, other than in the ordinary course of business,
acquire or invest in any assets of any person other than a Contributed Entity or
a Contributed System Entity; (i) permit any insurance policy naming it as a
beneficiary or a loss payable payee to be canceled or terminated or any of the
coverage thereunder to lapse, unless simultaneously with such termination or
cancellation, replacement policies providing substantially the same coverage are
in full force and effect; (j) in any material respect, amend or modify the 1997
Budget or the operating and capital budget plan for
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1998; (k) enter into any Contracts that would be binding upon or otherwise
restrict the business or operations of any of the Contributed Entities or any of
the Asset Contributed Systems after the Contribution Closing other than
Contracts that are fair to and on commercially reasonable terms for such
Contributed Subsidiary; (l) declare or distribute any cash dividend or other
distribution of the Fibertech Cash other than to a Contributed Entity; or (m)
authorize or enter into any binding agreement or make any binding commitment
(whether oral or written) to take any of the types of actions described in the
foregoing paragraphs.
CERTAIN COVENANTS
INDEBTEDNESS; TCI RESTRUCTURING. Prior to the Contribution Closing, TCI
will take any and all actions necessary or appropriate so that the Contributed
Entities will have no, and the Asset Contributed Systems will not be subject to
any, outstanding Indebtedness as of the Contribution Closing, other than (a) an
aggregate amount of debt for borrowed money not to exceed $669,000,000 (i.e.,
the Assumed Debt) at the consummation of the Contribution Closing, (b) any debt
obligations or other liabilities solely among the Contributed Entities and (c)
other not material liabilities. The Assumed Debt will be due and payable in full
as of the Contribution Closing.
Prior to the Contribution Closing, TCI will take certain actions so that,
immediately prior to the Contribution Closing, all of the Asset Contributed
Systems will be owned by the Contributed System Entities, all of the Included
Contributed Systems will be owned by the Contributed Subsidiaries and all of the
outstanding capital stock or other equity interests of the Contributed
Subsidiaries will be owned by TCI or one or more of its Subsidiaries.
BENEFITS; EMPLOYEES. Parent or Cablevision may, but will have no obligation
to, employ or offer employment to any employee engaged in the business of a
Contributed System, including employees engaged in advertising sales for a
Contributed System. Pursuant to the Contribution and Merger Agreement, TCI will
pay or cause to be paid to all employees employed in the Contributed Systems all
compensation, including salaries, commissions, bonuses, deferred compensation,
severance, insurance, pensions, profit sharing, vacation, sick pay and other
compensation or benefits to which they are entitled for periods prior to the
Contribution Closing.
TCI will remain solely responsible for, and will indemnify and hold harmless
Parent and Cablevision from and against all losses arising from or with respect
to, all salaries and all severance, vacation, medical, sick, holiday,
continuation coverage and other compensation or benefits to which its employees
may be entitled, whether or not such employees may be hired by Cablevision, as a
result of their employment by it prior to the Contribution Closing, the
termination of their employment prior to the Contribution Closing, the
obligation, if any, to notify and/or bargain with any labor organization, the
consummation of the transactions contemplated hereby or pursuant to any
applicable legal requirement (including without limitation WARN) or otherwise
relating to their employment prior to the Closing Time.
The Contribution and Merger Agreement provides further that Parent will,
after the Contribution Closing, provide employee benefit plans, programs and
policies to Hired Employees that, in the aggregate, will provide benefits to
such employees that are no less favorable in the aggregate than those provided
to similarly situated employees of Parent and its Subsidiaries. TCI will retain
all obligations for payment of long- or short-term disability claims arising
from disabilities that occurred prior to the Contribution Closing and up until
such time as the employee returns to work with one of the Contributed Entities.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Pursuant to the Contribution and
Merger Agreement, Parent will indemnify and hold harmless, to the fullest extent
permitted under applicable law (and Parent will also advance expenses as
incurred to the fullest extent permitted under applicable law), each present and
former director and officer of Cablevision and its Subsidiaries against any
costs or expenses, judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed
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prior to, at or after the Effective Time to the fullest extent that Cablevision
or such Subsidiary would have been permitted as of the date hereof to indemnify
such person.
The Surviving Corporation or Parent will maintain Cablevision's officers'
and directors' liability insurance on substantially the same terms as in
existence on the date hereof for a period of six years after the Effective Time
so long as such insurance can be obtained on commercially reasonable terms.
BOARD RECOMMENDATION, STOCKHOLDERS MEETING AND VOTING. Pursuant to the
Contribution and Merger Agreement Cablevision will take all applicable actions
in accordance with Delaware law and its certificate of incorporation and Bylaws
to convene and hold a stockholders meeting promptly after the Registration
Statement has been declared effective. Subject to their fiduciary obligations
and applicable law, each of Cablevision's and Parent's Board of Directors has
agreed to recommend the approval of the Merger and the Issuance.
Cablevision, Parent and Tele-Communications have also agreed to vote or
cause to be voted any shares of capital stock of Merger Sub, the Surviving
Corporation and Parent, respectively, in favor of the adoption and approval of
the Contribution and Merger Agreement and the related transactions.
AMEX LISTING; DE-LISTING OF CABLEVISION CLASS A COMMON STOCK. Pursuant to
the Contribution and Merger Agreement, Cablevision and Parent will use their
respective best reasonable efforts to cause the shares of Parent Common Stock to
be issued in the Merger and pursuant to the Stock Contribution (including any
shares of Parent Common Stock issuable upon conversion, exercise or exchange of
securities of Parent) to be approved for listing on AMEX subject to official
notice of issuance, prior to the closing date. Parent will use its best efforts
to cause the Cablevision Class A Shares to be de-listed from AMEX and
de-registered under the Exchange Act as soon as practicable after the effective
time.
CERTAIN CONDITIONS
MERGER CONDITIONS. The respective obligations of Cablevision, Parent and
Merger Sub to effect the Merger are subject to the satisfaction or waiver by
Cablevision at or prior to the Effective Time of each of the following
conditions: (i) the Contribution and Merger Agreement having been duly approved
and adopted by holders of Cablevision Common Stock constituting the relevant one
of the Parent Requisite Votes and having been duly approved by the sole
shareholder of Merger Sub in accordance with applicable law and the certificate
of incorporation and Bylaws of each such corporation; (ii) the shares of Parent
Common Stock issuable to the Cablevision stockholders pursuant to the Merger
having been authorized for listing on the AMEX upon official notice of issuance;
(iii) all notices, reports and filings required to be made prior to the
Effective Time by Cablevision or any of its Subsidiaries with, and all consents,
registrations, approvals, permits and authorizations required to be obtained
prior to the Effective Time by Cablevision or any of its Subsidiaries from, any
Governmental Entity having been made or obtained, as the case may be; (iv) no
court or Governmental Entity of competent jurisdiction having enacted, issued,
promulgated, enforced or entered any law, statute, ordinance, rule, regulation,
judgment, decree, injunction or other order (whether temporary, preliminary or
permanent) that is in effect and that restrains, enjoins or otherwise prohibits
consummation of the Merger; (v) the Registration Statement having become
effective under the Securities Act and no stop order suspending such
effectiveness having been issued, and no proceedings for that purpose having
been initiated or be threatened, by the Commission; (vi) Parent having received
all state securities and "blue sky" permits and approvals necessary to
consummate the Merger; (vii) Cablevision having obtained the consent or approval
of each person whose consent or approval will be required in order to consummate
the Merger under certain Contracts; (viii) Cablevision having obtained the
consent or approval of each person whose consent or approval will be required
under any Contract to which Cablevision or any of its Subsidiaries is a party,
except those for which the failure to obtain such consent or approval,
individually or in the aggregate, is not reasonably likely to have a Parent
Material Adverse Effect or is not reasonably likely to prevent or to materially
burden or materially impair the ability of Cablevision, Parent or Merger Sub to
consummate the Merger; (ix) Parent having received the opinion of Sullivan &
Cromwell, counsel to Parent, dated the date of the Merger Closing, to the effect
that the Merger will be treated for federal income tax purposes as an exchange
governed by Section 351 of
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the Code; and (x) all of the conditions precedent to the obligations of Parent
and TCI to effect the Contribution having been fulfilled or irrevocably waived
or will be capable of being fulfilled promptly following the Effective Time or
at the Contribution Closing.
PARENTS AND TCI'S CONDITIONS TO THE CONTRIBUTION. The respective
obligations of Parent and TCI to effect the Contribution are subject to the
satisfaction or waiver at or prior to the Contribution Closing of each of the
following conditions: (i) the issuance of the Parent Common Stock in connection
with the Contribution having been approved by the relevant one of the Parent
Requisite Votes; (ii) all required filings under the HSR Act having been made
and any applicable waiting period under the HSR Act having expired or having
been terminated; (iii) all notices, reports and other filings required to be
made prior to the Contribution Closing by Cablevision, Parent or TCI or any of
their respective Subsidiaries with, and all consents, registrations, approvals,
permits and authorizations required to be obtained prior to the Contribution
Closing by Cablevision, Parent or TCI or any of their respective Subsidiaries
from, (a) the franchise authorities with respect to 100% of the total
subscribers in the Contributed Systems and the Parent Systems in connection with
the execution and delivery of the Contribution and Merger Agreement and the
consummation of the Contribution having been made or obtained, as the case may
be, and (b) any Governmental Entity, which non-franchise authority reports,
filings, consents, registrations, approvals, permits and authorizations are
required, having been made or obtained, as the case may be. Notwithstanding the
condition precedent in the foregoing clause (iii)(a), in the event that
consents, approvals and authorizations are obtained with respect to at least 90%
of the total subscribers in the Contributed Systems and the Parent Systems,
Parent may, in its sole discretion, waive such condition, which will then be
deemed satisfied and fulfilled, and Cablevision, Parent and TCI will cooperate
with each other and use all reasonable best efforts to minimize any adverse
effects that may result from consummating the Contribution Closing without
having obtained all consents, approvals and authorizations from franchise
authorities and in furtherance thereof will negotiate in good faith to
implement, if necessary, a transaction structure so that after the Contribution
Closing the aggregate net economic benefit of all of the Contributed Systems
inure to the benefit of and accrue to Parent with requisite control of
Contributed Systems remaining with TCI or its Subsidiaries. The following
conditions are also conditions to the obligations of TCI to effect Contribution:
(a) all notices, reports and filings required to be made prior to the
Contribution Closing by Cablevision, Parent or TCI or any of their respective
Subsidiaries with, and all other consents, registrations, approvals, permits and
authorizations required to be obtained prior to the Contribution Closing by
Cablevision, Parent or TCI or any of their respective Subsidiaries from, any
Governmental Entity in connection with the execution and delivery of the
Contribution and Merger Agreement and the consummation of the Contribution
having been made or obtained (as the case may be), except those that the failure
to make or to obtain are not, individually or in the aggregate, reasonably
likely to have a Parent Material Adverse Effect or a Contributed Systems
Material Adverse Effect or to provide a reasonable basis to conclude that the
parties hereto or any of their affiliates or respective directors, officers,
agents, advisors or other representatives would be subject to the risk of
criminal liability; (b) no court or Governmental Entity of competent
jurisdiction having enacted, issued, promulgated, enforced or entered any Order
that restrains, enjoins or otherwise prohibits consummation of the Contribution,
and no Governmental Entity having instituted any proceeding seeking any such
Order; (c) the Merger Closing having been consummated contemporaneously with the
Contribution Closing; (d) the Parent Class A Common Stock issuable to TCI or the
relevant transferor(s) in the Issuance having been authorized for listing on the
AMEX upon official notice of issuance; and (e) the Stockholders Agreement having
been executed and delivered by the parties thereto.
PARENT'S CONDITIONS TO THE CONTRIBUTION. The obligations of Parent to
effect the Contribution are subject to the satisfaction or waiver by Parent at
or prior to the Contribution Closing of the following conditions: (a) the
representations and warranties of TCI set forth in the Contribution and Merger
Agreement being true and correct and Parent having received a certificate signed
on behalf of TCI by the President or any Vice President of TCI to such effect;
PROVIDED, HOWEVER, that such conditions will be deemed satisfied even if such
representations or warranties are not so true and correct unless the failure of
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such representations or warranties to be so true and correct, individually or in
the aggregate, has had, or is reasonably likely to have, a Contributed Systems
Material Adverse Effect or is reasonably likely to prevent or to materially
burden or materially impair the ability of TCI to consummate the Contribution;
(b) TCI having performed in all material respects all obligations required to be
performed by it under the Contribution and Merger Agreement at or prior to the
date of the Contribution Closing, and Parent having received a certificate
signed on behalf of TCI by the President or any Vice President of TCI to such
effect; (c) TCI having obtained the consent or approval of each person whose
consent or approval is required in order to consummate the Contribution under
certain identified Contracts; (d) TCI having obtained the consent or approval of
each person whose consent or approval is required in order to consummate the
Contribution under any other Contract to which the Contributed Entities, TCI or
any of its Subsidiaries is a party, except those for which the failure to obtain
such consent or approval, individually or in the aggregate, is not reasonably
likely to have a Contributed Systems Material Adverse Effect or is not
reasonably likely to prevent or to materially burden or materially impair the
ability of TCI to consummate the Contribution; (e) Parent having received an
opinion of Sherman & Howard L.L.C., counsel to TCI, dated the date of the
Contribution Closing, in a form reasonably satisfactory to Parent; (f) Parent
having received: certificates representing all of the Contributed Subsidiary
Capital Stock, duly endorsed in blank for transfer or accompanied by stock
powers duly executed in blank, with signatures properly guaranteed and with any
requisite stock transfer and other documentary stamps attached, and any other
documents that are necessary to transfer to Parent good title to all of the
Contributed Subsidiary Capital Stock; certificates representing all of shares of
capital stock for any Subsidiaries of the Contributed Subsidiaries; all of the
minute books and any corporate seals of the Contributed Entities, true and
complete up to the date of the Contribution Closing; a "long form good standing"
or similar certificate or telegram for each of the Contributed Entities,
certified by the Secretary of State or similar authority of the jurisdiction of
organization for each such person, each dated as of a date that is not more than
10 business days prior to the date of the Contribution Closing; a certificate
signed on behalf of TCI by the President or any Vice Present of TCI certifying
to certain matters; all necessary deeds, bills of sale, assumption agreements
and other instruments required for the effective transfer and assignment of the
Acquired Assets; and the resignations of each director and officer of the
Contributed Entities designated in writing by Parent within one business day of
the date of the Contribution Closing; and (g) all of the transactions
contemplated by the TCI Restructuring having been consummated in all material
respects.
TCI'S CONDITIONS TO THE CONTRIBUTION. The obligation of TCI to effect the
Contribution is subject to the satisfaction or waiver by TCI at or prior to the
Contribution Closing of the following conditions: (a) the representations and
warranties of Cablevision, Parent and Merger Sub set forth in the Contribution
and Merger Agreement being true and correct and TCI having received a
certificate signed on behalf of Cablevision, Parent and Merger Sub by the
President or any Vice President of Parent to such effect; PROVIDED, HOWEVER,that
such condition will be deemed satisfied even if such representations or
warranties are not so true and correct unless the failure of such
representations or warranties to be so true and correct, individually or in the
aggregate, has had, or is reasonably likely to have, a Parent Material Adverse
Effect or is reasonably likely to prevent or to materially burden or materially
impair the ability of Parent to consummate the Contribution; (b) each of
Cablevision, Parent and Merger Sub having performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the date of the Contribution Closing, and TCI having received a certificate
signed on behalf of Cablevision, Parent and Merger Sub by the President or any
Vice President of Parent to such effect; (c) Parent and Cablevision having
obtained the consent or approval of each person whose consent or approval is
required in order to consummate the Contribution under certain identified
Contracts; (d) Parent and Cablevision having obtained the consent or approval of
each person whose consent or approval is required in order to consummate the
Contribution under any other Contract to which Cablevision or Parent or any of
its Subsidiaries is a party, except those for which failure to obtain such
consents and approvals, individually or in the aggregate, is not reasonably
likely to have a Parent Material Adverse Effect or is not reasonably likely to
prevent or to materially burden or materially impair the ability of Cablevision
or Parent to consummate the Contribution; (e) TCI having received an opinion of
Sullivan & Cromwell, counsel to
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Parent, dated the date of the Contribution Closing, in a form reasonably
satisfactory to TCI; (f) TCI having received the opinion of Sherman & Howard
L.L.C., counsel to TCI, dated the date of the Contribution Closing, to the
effect that the Contribution will be treated for federal income tax purposes as
an exchange governed by Section 351 of the Code; (g) the Cash Flow Ratio (as
defined in the Stockholders Agreement) of Parent, on a pro forma basis after
giving effect to the Contribution, not being in excess of the Cash Flow Ratio
Threshold (as defined in the Stockholders Agreement); and (h) the receipt by TCI
of an Assumption Agreement executed by Parent giving effect to Parent's
assumption of the Assumed Liabilities.
MODIFICATION OR AMENDMENT; WAIVER OF CONDITIONS; EXTENSION
The Contribution and Merger Agreement provides that, subject to the
provisions of applicable Law, at any time prior to the Effective Time with
respect to the Merger or the consummation of the Contribution Closing with
respect to the Contribution, the parties to the Contribution and Merger
Agreement may modify or amend the Contribution and Merger Agreement by written
agreement executed and delivered by duly authorized officers of the respective
parties. The Contribution and Merger Agreement also provides that the conditions
to each of the parties' obligations to consummate the Merger are for the sole
benefit of such party and such party may waive such conditions in whole or in
part to the extent permitted by applicable Law.
TERMINATION
The Contribution and Merger Agreement may be terminated and any and all of
the transactions contemplated therein may be abandoned at any time prior to
their respective Closings by mutual written consent of TCI and Cablevision
through an action of their respective Boards of Directors. Further, Cablevision
may by action of the Cablevision Board of Directors terminate the Contribution
and Merger Agreement, and TCI may by action of the TCI Board of Directors
terminate its and Tele-Communications', obligations and rights under the
Contribution and Merger Agreement, and the Transactions (in the case of a
termination by Cablevision) and the Contribution (in the case of a termination
by TCI, may be abandoned at any time prior to their respective Closings if: (a)
the Transactions (in the case of Cablevision) or the Contribution (in the case
of TCI) have not been consummated by December 31, 1998 (the "Termination Date");
(b) the necessary stockholder approvals have not been obtained; (c) any Order
permanently restraining, enjoining or otherwise prohibiting consummation of the
Contribution (in the case of TCI) or any of the Transactions (in the case of
Cablevision) is final and non-appealable whether before or after the approval by
Cablevision's stockholders; PROVIDED that the right to terminate any or all of
the Contribution and Merger Agreement is not available to any party that has
breached in any material respect its obligations under the Contribution and
Merger Agreement in any manner that will have proximately contributed to the
occurrence of the failure of the Transactions to be consummated.
In addition, TCI may by action of its Board of Directors terminate its and
Tele-Communications' obligations and rights under the Contribution and Merger
Agreement and the Contribution may be abandoned at any time prior to the
Contribution Closing, whether before or after the approval by Cablevision's
stockholders, if there has been a material breach by Cablevision, Parent or
Merger Sub of any representation, warranty, covenant or agreement contained in
the Contribution and Merger Agreement that is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by TCI or
Tele-Communications to the party committing such breach. Similarly, the
Contribution and Merger Agreement may be terminated and the Transactions may be
abandoned at any time prior to their respective Closings, whether before or
after the approval by Cablevision's stockholders, by action of the Board of
Directors of Cablevision if there has been a material breach by TCI or
Tele-Communications of any representation, warranty, covenant or agreement or by
TCI or Tele-Communications of any covenant or agreement contained in the
Contribution and Merger Agreement that is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by Parent to
the party committing such breach.
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In the event of termination of the Contribution and Merger Agreement and the
abandonment of the Contribution pursuant to the Contribution and Merger
Agreement as described above, the Contribution and Merger Agreement will become
void and of no effect with no liability on the part of any party thereto (or of
any of its directors, officers, employees, agents, legal and financial advisors
or other representatives); PROVIDED, HOWEVER, that no such termination will
relieve any party thereto of any liability or damages resulting from any breach
of the Contribution and Merger Agreement.
EXPENSES
The Contribution and Merger Agreement provides that the Surviving
Corporation will pay all charges and expenses in connection with the transfer of
Cablevision Common Stock, and Parent will reimburse the Surviving Corporation
for such charges and expenses. Cablevision and TCI will each be responsible for
one-half of the costs and reasonable expenses associated with the audit and
preparation of audited and unaudited financial statements in form and substance
as is required in connection with this Proxy/ Prospectus Statement; PROVIDED
that if the Contribution Closing is not consummated other than as a result of a
breach or default by Cablevision, Parent or Merger Sub, TCI will be responsible
and pay or reimburse all of such costs and expenses. In addition, any liability
arising out of the New York State or City Real Property Transfer Tax, in
connection with the filing fees under the HSR Act relating to the Contribution
and in respect of any transfer taxes relating to the transfer of the Contributed
Subsidiary Capital Stock, if applicable and due, will be borne by TCI, on the
one hand, and Cablevision or Parent, on the other hand, in equal one-half
shares. All other costs and expenses incurred in connection with the
Contribution and Merger Agreement and the Transactions and the other
transactions contemplated by the Contribution and Merger Agreement, whether or
not any of the Transactions are consummated, will be paid by the party incurring
such expense.
STOCK OPTIONS; CONJUNCTIVE RIGHTS
Pursuant to the Contribution and Merger Agreement, at the Effective Time,
each outstanding Cablevision Option, whether vested or unvested, will be deemed
to constitute an option to acquire, on the same terms and conditions as were
applicable under such Cablevision Option, the same number of shares of Parent
Common Stock subject to the Cablevision Option and at the same exercise price in
effect immediately prior to the Effective Time. In addition, each of the
outstanding "conjunctive stock appreciation rights" and "bonus award shares" of
Cablevision, whether vested or unvested, will at the Effective Time be deemed to
constitute a conjunctive stock appreciation right or bonus award share of
Parent, as the case may be, on the same terms and conditions as were applicable
under such conjunctive stock appreciation right or bonus award share of
Cablevision, as the case may be, as in effect immediately prior to the Effective
Time.
At the Effective Time, Parent will assume each Cablevision Option and
conjunctive stock appreciation right or bonus award share of Cablevision in
accordance with the terms of the Cablevision Stock Plans and other arrangements,
as the case may be, under which it was issued and the stock option agreement or
other agreement, as the case may be, by which it is evidenced. At or prior to
the Effective Time, Parent will take all corporate action necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for delivery
upon exercise of Cablevision Options assumed by it in accordance with this
Section. As soon as practicable after the Effective Time, Parent will file a
registration statement on Form S-3 or Form S-8, as the case may be, or another
appropriate form with respect to the Parent Common Stock subject to such
Cablevision Options, and will use its best efforts to maintain the effectiveness
of such registration statements for so long as such Cablevision Options remain
outstanding.
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CERTAIN RELATED AGREEMENTS
THE STOCKHOLDERS AGREEMENT
THIS CAPTION DESCRIBES CERTAIN ASPECTS OF THE STOCKHOLDERS AGREEMENT. THIS
CAPTION IS NOT A COMPLETE DESCRIPTION OF THE STOCKHOLDERS AGREEMENT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE STOCKHOLDERS
AGREEMENT, WHICH IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT/PROSPECTUS
AND IS INCORPORATED HEREIN BY REFERENCE. ALL CAPITALIZED TERMS USED IN THIS
CAPTION "--THE STOCKHOLDERS AGREEMENT" BUT NOT OTHERWISE DEFINED IN THIS PROXY
STATEMENT/PROSPECTUS HAVE THE MEANINGS ATTRIBUTED TO THEM IN THE STOCKHOLDERS
AGREEMENT. ALL STOCKHOLDERS OF CABLEVISION ARE URGED TO READ THE STOCKHOLDERS
AGREEMENT IN ITS ENTIRETY.
The consummation of the Merger is conditioned on Parent, Tele-Communications
and the Class B Stockholders (as defined below) entering into the Stockholders
Agreement. The "Class B Stockholders" means Dolan, Charles F. Dolan 1997 Grantor
Retained Annuity Trust, Dolan Descendants Trust, Dolan Progeny Trust, Dolan
Grandchildren Trust, Dolan Spouse Trust, DC Kathleen Trust, DC Deborah Trust, DC
Marianne Trust, DC Patrick Trust, DC Thomas Trust, DC James Trust, CFD Trusts
No. 1 through 6 and CFD Trust No. 10. The Stockholders Agreement has not been
executed or delivered as of this date. However, Parent, Tele-Communications and
the Class B Stockholders have agreed to execute and deliver the Stockholders
Agreement prior to the Contribution Closing. As noted earlier in this Proxy
Statement/ Prospectus, the transferors of the Contributed Businesses, each of
which will be receiving Parent Class A Common Stock in the Issuance, are
collectively referred to as the Investor for all purposes under, and will be
parties to, the Stockholders Agreement.
STANDSTILL PROVISIONS. The Investor will not, and will not permit any of
its Subsidiaries or any of its Affiliates or Associates to: (a) form, join or
participate in, or encourage the formation of, a Group with respect to any
Shares, other than a Group consisting solely of the Investor, or Affiliates or
Associates of the Investor, of Class B Stockholders or of Qualified Parties of
Class B Stockholders or the Investor; (b) subject to certain exceptions, deposit
any Shares into a voting trust or subject any such Shares to any arrangement or
agreement with respect to the voting or Transfer thereof; (c)(i) except for
Shares acquired in the Issuance or upon exercise of Tele-Communications'
consultation or the Investor's preemptive rights, purchase or otherwise acquire
Beneficial Ownership of or otherwise Beneficially Own any Voting Securities of
Parent such that the Investor, together with its Affiliates, will Beneficially
Own 10% or more of the Parent Class A Common Stock or (ii) at any time purchase
or otherwise acquire any Shares in violation of Regulation M under the Exchange
Act and the policies of the Commission promulgated thereunder; (d) effect or
agree to effect any reduction in its equity interest in Parent for up to 180
days following delivery by Parent of a written notice that Parent is proposing
to consummate a business combination to be accounted for as a pooling of
interests; or (e) advise, assist or knowingly encourage, induce or attempt to
encourage or induce any other person to take any actions referred to in the
foregoing clauses (a) through (d).
SHARE TRANSFER RESTRICTIONS. The Investor will not Transfer, in any single
transaction or group of related transactions, any Shares that are Beneficially
Owned by the Investor, except for a Transfer in connection with a Holding
Company Merger or in exercise of its tag-along rights or for a Transfer that
complies with any of the following: (a) a Transfer (i) of all (but not less than
all) of such Shares to any Controlled Subsidiary of Tele-Communications or (ii)
of all or any of such Shares to a Subsidiary all of the Voting Securities and
all of the equity securities (other than preferred stock held by institutional
or public investors) of which are Beneficially Owned, directly or indirectly, by
Tele-Communications, PROVIDED that contemporaneously with any such Transfer such
Controlled Subsidiary becomes a party to a counterpart of the Stockholder
Agreement and the Investor and Tele-Communications guarantee the performance of
all obligations of such Controlled Subsidiary under the Stockholders Agreement;
(b) a Transfer of all or any of such Shares to any person if such person,
together with the Affiliates and Associates of such person, will not
Beneficially Own, after giving effect to such Transfer, Voting Securities of
Parent constituting 10% or more of the outstanding Parent Class A Common Stock
or Shares constituting 5% or more of the
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Outstanding Share Capital; PROVIDED, THAT, that the Investor will not, and will
not suffer or permit any Subsidiaries of the Investor to or, to the extent the
Investor has the power to prevent, permit any Affiliates or Associates of the
Investor to, in any case, form, join or participate in or encourage the
formation of a Group with such person or any Affiliates or Associates of such
person; (c) a sale of all or any of such Shares to any person that is conducted
publicly through one or more registered broker-dealers over the AMEX or such
other stock exchange or inter-dealer quotation service where Parent Class A
Common Stock may be listed or quoted pursuant to which the sale of such Shares
will be in a manner to effect a broad distribution, with such distribution
certified to Parent by the lead broker-dealer in any such sale; (d) a Transfer
of all or any of such Shares to underwriters in connection with an underwritten
public offering of such Shares on a firm commitment basis registered under the
Securities Act pursuant to which the sale of such Shares will be in a manner to
effect a broad distribution, with such distribution certified to Parent by the
lead or managing underwriter or underwriters in any such offering; (e) a
Transfer of all or any of such Shares to Parent or any Controlled Subsidiary of
Parent; (f) for so long as the Parent Class B Common Stock is entitled in
accordance with its terms to elect 75% of the Board, a Transfer of all or any of
such Shares to any Class B Stockholder; (g) a Transfer of all or any of such
Shares in a pledge of such Shares to a financial institution to secure
borrowings, PROVIDED that contemporaneously with such pledge, such financial
institution agrees with Parent that upon any foreclosure on such pledge it will
be bound by the obligations of Tele-Communications and the Investor under the
Stockholders Agreement; or (h) a Transfer of all (but not less than all) of such
Shares to any person after complying with all of the provisions set forth in
Section 9 of the Stockholders Agreement relating to Parent's consultation
rights; PROVIDED, that contemporaneously with such Transfer (i) such person
becomes a party to a counterpart of this Agreement as "the Investor," (ii) if
such person is a Subsidiary of any other person that is not a natural person,
the Ultimate Parent Entity of such person will also become a party to a
counterpart of the Stockholders Agreement and assume all obligations of
Tele-Communications thereunder and (iii) such person causes to be delivered to
Parent a legal opinion of counsel of national standing, in form and substance
reasonably acceptable to Parent, as to specified matters.
THE INVESTOR'S CONSULTATION RIGHTS. Until the earlier of either the date
when the Investor ceases to be entitled to nominate two Investor Directors or
the date that is ten years from the date of the Stockholders Agreement, the
Investor, Parent and the Class B Stockholders will have the following rights and
obligations: (a) prior to any of (i) the Class B Stockholders effecting a
Transfer (other than in a BONA FIDE pledge or grant of security interest to a
financial institution to secure borrowings) of Shares to any person (other than
any Class B Stockholder or any Qualified Parties or Controlled Subsidiaries of
any Class B Stockholders) in any transaction or series of transactions pursuant
to which there is a Transfer of Shares that would constitute at least 10% of the
Total Voting Power, (ii) Parent or its Subsidiaries effecting a Transfer (other
than in a BONA FIDE pledge or grant of security interest to a financial
institution to secure borrowings) of Beneficial Ownership of capital stock or
other equity interests in any Restricted Subsidiary other than to Parent or to a
Controlled Subsidiary or the stockholders of Parent or (iii) Parent or its
Subsidiaries effecting a Transfer (other than in a bona fide pledge or grant of
security interest to a financial institution to secure borrowings) of a
substantial portion of the assets of Parent or any Restricted Subsidiary other
than to Parent or to a Controlled Subsidiary of Parent (collectively, a
"Transfer Transaction"), Parent or the Class B Stockholder desiring to make such
a Transfer will first notify the Investor in writing (a "Proposal Notice") of
the possibility of such a transaction and the number of and a description of the
interests contemplated to be Transferred; (b) following the Investor's receipt
of the Proposal Notice, Parent or the Class B Stockholder sending the notice
will discuss with the Investor the possibility of effecting a Transfer
Transaction with the Investor. If the Investor wishes to pursue such a
transaction and is capable of completing a Transfer Transaction, then, for a
period of 30 days after the Investor's receipt of the Proposal Notice (or such
shorter period if the Investor responds in writing that it is not interested in
pursuing such a transaction), Parent or the Class B Stockholder will negotiate
in good faith and exclusively with the Investor to determine whether it is
possible to agree to a Transfer Transaction with the Investor but will not be
obligated to enter into any agreement with the Investor to do so. Parent or
54
<PAGE>
the Class B Stockholder will be free to negotiate and to initiate and hold
discussions with other potential purchasers at any time before the Proposal
Notice or after the expiration of such 30-day or shorter period and may agree to
enter into a Transfer Transaction at any time after the expiration of such
30-day or shorter period even if such Transfer Transaction has a lower value to
Parent or the Class B Stockholder than any transaction proposed by the Investor.
The Investor agrees to keep confidential the fact that Parent or a Class B
Stockholder is considering effecting a Transfer Transaction, the possible terms
thereof and any confidential information obtained by the Investor in pursuing
negotiations contemplated by the "consultation rights" or otherwise obtained
from Parent or any of the Class B Stockholders or their respective
representatives.
THE INVESTOR'S TAG-ALONG RIGHTS. For so long as the Parent Class B Common
Stock is entitled in accordance with its terms to elect 75% of the Board, the
Investor will be entitled to participate in a Tag-Along Transaction (as defined
below).
If any Class B Stockholder proposes to Transfer any Shares Beneficially
Owned by it to any person (other than any Class B Stockholder or any Qualified
Parties or Controlled Subsidiaries of any Class B Stockholders) in a transaction
or series of transactions pursuant to which such person, together with
Affiliates and Associates of such person (a "Tag-Along Transaction"), would
become the Beneficial Owner of Voting Securities of Parent that have the power
to cast at least 50% of the votes entitled to be cast in elections of directors
of Parent, the Investor will be given the opportunity and will have the right to
Transfer such number (but no less or more than such number) of the Shares then
Beneficially Owned by the Investor that is the same in proportion to (x) the
total number of Shares that are Beneficially Owned by the Investor as the
proportion of the number of Shares proposed to be Transferred by the Class B
Stockholders concurrently to such person in the transaction or series of
transactions constituting the Tag-Along Transaction as compared to (y) the total
number of Shares that are Beneficially Owned by all of the Class B Stockholders
on terms and conditions identical in all material respects to those applicable
to such Class B Stockholder in connection with such Transfer. Any such Class B
Stockholder will give written notice to the Investor setting forth in detail the
material terms and conditions of the applicable proposed Transfer, and the
Investor will have at least ten business days after such notice is given within
which to exercise its rights contained in the "tag-along rights" by written
notice thereof given to such Class B Stockholder (it being understood and agreed
that, if no such notice is received by such Class B Stockholder within such
period, the Investor will be deemed to have elected not to have exercised its
rights under the "tag-along rights"). Any such notice will constitute an
irrevocable offer by the Investor to sell to such person such Shares on the
terms and conditions received by any such Class B Stockholder in connection with
such Transfer.
CLASS B STOCKHOLDERS DRAG-ALONG RIGHTS. If the Investor does not exercise
the rights set forth in the Investor's "tag-along rights," then any Class B
Stockholder that is Transferring its Shares to any person in a transaction or
series of transactions pursuant to which such person, together with Affiliates
and Associates of such person (a "Drag-Along Transaction"), would become the
Beneficial Owner of Voting Securities of Parent that have the power to cast at
least 50% of the votes entitled to be cast in elections of directors of Parent
may give written notice to the Investor during the period expiring on the close
of business on the tenth business day following the expiration of the
five-business-day period set forth in the Investor's tag-along rights requiring
the Investor to Transfer such number (but no less or more than such number) of
the Shares then Beneficially Owned by the Investor that is the same in
proportion to (x) the total number of Shares that are Beneficially Owned by the
Investor as compared to (y) the proportion of the number of Shares being or to
be Transferred by the Class B Stockholders concurrently to such person in the
transaction or series of transactions constituting the Drag-Along Transaction to
the number of Shares that are Beneficially Owned by the Class B Stockholders, on
terms (including the form and amount of, and the time of receipt of,
consideration therefor) and conditions no less favorable in all material
respects to those applicable to such Class B Stockholder (and its Affiliates and
Associates) in connection with such Transfer.
55
<PAGE>
PARENT'S RIGHT OF CONSULTATION. Parent will be entitled to a notice if at
any time the Investor desires to make certain Transfers of all (but not less
than all) of its Shares to any other person (the "Investor Proposal Notice").
Following Parent's receipt of an Investor Proposal Notice, the Investor will
discuss with Parent the possibility of effecting such a transaction with Parent.
If Parent wishes to pursue such a transaction and is capable of completing such
a transaction, then, for a period of 30 days after Parent's receipt of the
Investor Proposal Notice (or such shorter period if Parent responds in writing
that it is not interested in pursuing such a transaction), the Investor will
negotiate in good faith and exclusively with Parent to determine whether it is
possible to agree to such a transaction with Parent but will not be obligated to
enter into any agreement with Parent to do so. The Investor will be free to
negotiate and to initiate and hold discussions with other potential purchasers
at any time before the Investor Proposal Notice or after the expiration of such
30-day or shorter period and may agree to enter into such a transaction at any
time after the expiration of such 30-day or shorter period even if such
transaction has a lower value to the Investor than any transaction proposed by
Parent. Parent agrees to keep confidential the fact that the Investor is
considering effecting such a transaction, the possible terms thereof and any
confidential information obtained by Parent in pursuing negotiations
contemplated by the "consultation rights."
THE INVESTOR'S PREEMPTIVE RIGHTS. The Investor will be entitled to certain
preemptive rights. If Parent proposes certain issuances, grants or sales of
Shares, Parent will give to the Investor a written notice setting forth in
reasonable detail the per Share consideration and other terms on which such
Shares are proposed to be issued, granted or sold and the amount thereof
proposed to be issued, granted or sold. The Investor will thereafter have the
preemptive right, exercisable by notice to Parent no later than 15 days after
Parent's notice is given, to purchase up to such number of Shares of Parent
Class A Common Stock so that, after giving effect to such issuance, grant or
sale and the preemptive subscription by the Investor, the Investor, together
with its Affiliates and Associates, will Beneficially Own in the aggregate the
same proportion of the Outstanding Share Capital as Beneficially Owned as of the
date of Parent's notice, for the consideration in cash and on the other terms
set forth in Parent's notice. Any written notice by the Investor exercising the
right to purchase such Shares pursuant to the "preemptive right" will constitute
an irrevocable commitment to purchase from Parent the Shares specified in such
notice, subject to the maximum set forth in the preceding sentence. The closing
of the purchase of such Shares by the Investor will, to the extent legally
practicable, take place at the same time and place as the closing of such
issuance, grant or sale to the persons giving rise to the preemptive rights set
forth in the "preemptive rights" provision and, if not at the same time, will
take place as soon thereafter as is practicable; PROVIDED, that such closing
will, to the extent applicable, be conditioned upon the expiration or
termination of any waiting period under the HSR Act and the making of any
necessary filings with and the obtaining of any approvals from any Governmental
Entities except those that the failure to make or obtain are not reasonably
likely to have a Parent Material Adverse Effect or a material adverse effect on
the financial condition, properties, business or results of operations of
Tele-Communications and its Subsidiaries taken as a whole. At such closing, (i)
Parent will deliver to the Investor certificates representing the Shares of
Parent Class A Common Stock being subscribed, and such Shares will be validly
issued, fully paid and nonassessable, (ii) the Investor will deliver to Parent
the consideration to be paid for such Shares and (iii) the Investor and Parent
will execute such other documents and take such other action as will be
reasonably necessary to consummate the subscription of such Shares. If the
Investor does not exercise its "preemptive rights" with respect to Shares
offered by Parent, from the expiration of the 15-day notice period and for a
period of 90 days thereafter, Parent may offer, issue, grant and sell to any
person up to the amount of Shares set forth in Parent's notice relating to such
Shares for a price and other terms no less favorable to Parent, and including no
less cash, than those set forth in such notice; PROVIDED, HOWEVER, that Parent
may not issue, grant or sell Shares in an amount greater than the amount set
forth in such notice minus the amount purchased or committed to be purchased by
the Investor upon exercise of its "preemptive rights" without granting the
Investor its "preemptive rights." The Investor's "preemptive rights" will not
apply to (i) any Shares, issued and sold by Parent in a Demand Registration or
in a Piggy-back Registration in which the
56
<PAGE>
Investor is participating, (ii) any Shares issued under employee compensation
arrangements within the Parent Share Issuance Commitments or otherwise for
employee, manager or director stock options consistent with Cablevision's and
Parent's past practices, (iii) sales, grants or issuances that, together with
such similar sales, grants or issuances, aggregate less than 1% of the
Outstanding Share Capital or (iv) any other sale, grant or issuances approved in
writing by the Investor.
INVESTOR DIRECTORS. For so long as the Investor Beneficially Owns Parent
Class A Common Stock that in the aggregate comprises at least 20% of the
Outstanding Share Capital, the Investor will be entitled to nominate two
Investor Directors to the Board, each of whom will be a person that is
reasonably acceptable to Parent; provided, that in the event that the Investor
at any time ceases to Beneficially Own Parent Class A Common Stock that in the
aggregate comprises at least 20% of the Outstanding Share Capital but continues
to Beneficially Own Parent Class A Common Stock that in the aggregate comprises
at least 10% of the Outstanding Share Capital, (i) the Investor will be entitled
to nominate one Investor Director and (ii) Parent or any of the Class B
Stockholders may request that one of the Investor Directors then on the Board
resign as a director of Parent (upon any such resignation request, one of the
Investor Directors will resign immediately and relinquish all rights and
privileges as a member of the Board); PROVIDED, FURTHER, that each of the
Investor Directors will in all cases be a director elected to the Board by the
Parent Class B Common Stock and will, accordingly, be a Class B Director. In the
event that the Investor at any time ceases to Beneficially Own Parent Class A
Common Stock that in the aggregate comprises at least 10% of the Outstanding
Share Capital, the Investor will not be entitled to nominate any Investor
Directors and Parent or any of the Class B Stockholders may request that any
Investor Directors then on the Board resign as directors of Parent.
Prior to the election of directors to the Board, the Investor may give
reasonable advance written notice to Parent prior to the mailing of the proxy
statement relating to such matters requesting that Parent include, and Parent
and the Class B Stockholders (in their capacity as stockholders of Parent) agree
that Parent will include, the Investor Directors as nominees for the slate of
directors to be elected to the Board.
Notwithstanding the foregoing, in the event that the holders of the Parent
Class B Common Stock cease at any time to be entitled to elect 75% of the Board
in accordance with the terms of the Parent Class B Common Stock, the Investor
will no longer be entitled to any Board representation rights and following such
event and Parent may request that all or any of the Investor Directors then on
the Board resign as Investor Directors. Upon any such resignation request by
Parent, the Investor Directors will cause such Investor Directors to resign as
Investor Directors and relinquish all rights and privileges as a member of the
Board at the next meeting of stockholders of Parent called for the purpose of
electing directors to the Board.
Under the Stockholders Agreement, the Investor has agreed that no more than
25% of the directors on the Board (rounded up to the nearest whole director)
will be nominees of the Investor or any Affiliate or Associate of the Investor.
SPECIAL COMMITTEE. In addition, for so long as the Investor is entitled to
nominate two Investor Directors, (i) two of the Special Directors will be the
Investor Directors and (ii) Section 9 of Article II of the Parent Bylaws (which
relates to the approval by the Special Directors of certain affiliated
transactions with Parent) may not be amended without the prior written consent
of the Investor. If only one of the Special Directors is an Investor Director,
then any matter requiring the approval of the Special Directors may not be
approved without the approval of the Investor Director.
INVESTOR VOTING GENERALLY. For so long as the Parent Class B Common Stock
is entitled in accordance with its terms to elect 75% of the Board, with respect
to the election of directors to or removal of directors from the Board and any
increase of authorized Shares, the Investor will vote or grant consent with
respect to, and will cause to be voted or to be granted any consents with
respect to, all Voting Securities that are Beneficially Owned by the Investor on
all matters submitted to the holders of Voting Securities in direct
57
<PAGE>
proportion to the votes or consents of the Minority Shares on any such matter.
The Investor and the Class B Stockholders will cause all Shares owned by the
Investor and the Class B Stockholders, as the case may be, and will use
reasonable best efforts to cause all of their respective Affiliates and
Associates to be represented, in person or by proxy, at all meetings of holders
of Shares of which the Investor or the Class B Stockholders, as the case may be,
have actual notice, so that all of such Shares may be counted for the purpose of
determining the presence of a quorum at such meetings.
ACQUISITION TRANSACTIONS. For so long as the Investor is entitled to
nominate two Investor Directors, Parent will not, without the prior written
consent of Tele-Communications, consummate an Acquisition Transaction if, after
giving effect to such transaction, the Cash Flow Ratio (i.e., the ratio of debt
to certain consolidated operating cash flow of Parent) will exceed the Cash Flow
Ratio Threshold (initially 8.0:1.0, and decreasing to 7.5:1.0 on December 31,
1999). Before consummation of an Acquisition Transaction that is reasonably
likely to result in the Cash Flow Ratio Threshold being exceeded, Parent will
provide written notice and a reasonable description of such transaction,
including pro forma calculations of the Cash Flow Ratio giving effect to such
transaction as of the beginning of the most recent three-month period for which
Annualized Operating Cash Flow can be calculated, together with reasonable
documentary supporting information for such calculation. To the extent
reasonably practicable under the circumstances of such transaction, such notice
will be given 30 days prior to such consummation, but in no event will such
notice be given less than 10 days prior to such consummation.
INVESTOR'S REGISTRATION RIGHTS. At any time six months following the
Closing, the Investor has the right to demand registration under the 1933 Act
(the "Demand Registration Rights") of at least 2,000,000 Shares of Registrable
Securities upon presenting Parent with proper notice for the exercise of such
Demand Registration Rights. In addition, subject to certain cut-back provisions,
the Investor has the right to have its Registrable Securities registered for
offering and sale under the 1933 Act in the event Parent registers for offering
at least $100 million of Shares (the "Piggy-back Registration Rights"). In the
case of the Investor exercising its Demand Registration Rights, Parent is
obligated to pay all expenses associated with such registration. In the event
the Investor exercises its Piggy-back Registration Rights, the Investor is
obligated to pay its proportion of certain expenses of such registration.
In connection with the Investor's Demand Registration Rights, Parent has the
right to impose certain restrictions on the Investor's ability to sell its
Registrable Securities during a registered public offering of securities by
Parent. In addition, the Investor's registration rights automatically terminate
if the Investor is able to sell all of its Registrable Securities pursuant to
Rule 144 under the 1933 Act in a single 90-day period.
The Investor's registration rights are subject in all respects to the rights
granted to Cablevision Systems Company and CSC Holding Company pursuant to
certain registration rights agreements, dated as of January 27, 1986.
THE VOTING AGREEMENT
THIS CAPTION DESCRIBES CERTAIN ASPECTS OF THE VOTING AGREEMENT. THIS CAPTION
IS NOT A COMPLETE DESCRIPTION OF THE VOTING AGREEMENT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE VOTING AGREEMENT, WHICH IS
ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED
HEREIN BY REFERENCE. ALL CAPITALIZED TERMS USED IN THIS CAPTION "--THE VOTING
AGREEMENT" BUT NOT OTHERWISE DEFINED IN THIS PROXY STATEMENT/PROSPECTUS HAVE THE
MEANINGS ATTRIBUTED TO THEM IN THE VOTING AGREEMENT. ALL STOCKHOLDERS OF
CABLEVISION ARE URGED TO READ THE VOTING AGREEMENT IN ITS ENTIRETY.
Simultaneously with the execution of the Contribution and Merger Agreement,
Parent, Tele-Communications, Cablevision and the Class B Stockholders entered
into the Voting Agreement, pursuant to which each of the Class B Stockholders
has severally agreed with Tele-Communications, Cablevision and Parent, among
other things, to (a) vote all Shares that are Beneficially Owned by such Class B
Stockholders in favor of the adoption and approval of the Contribution and
Merger Agreement and approval of the
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<PAGE>
Merger and the Issuance and (b) vote all such Beneficially Owned Shares against
any proposal that would compete with or serve to interfere, delay or otherwise
inhibit the timely consummation of such transactions.
In addition, each of the Class B Stockholders has severally agreed with
Tele-Communications, Cablevision and Parent that such Class B Stockholder will
not (a) deposit any Shares Beneficially Owned by such Class B Stockholder in a
voting trust or subject any such Shares to any arrangement with respect to the
voting of such Shares other than arrangements in furtherance of the transactions
or arrangements that would not materially impair the consummation of the
transactions or (b) Transfer (as defined in the Stockholders Agreement) any of
its interests in the Shares to any person unless such person agrees to be bound
by the terms of this Voting Agreement to the same extent as the Class B
Stockholders.
Each of the Class B Stockholders, Tele-Communications and Parent have also
severally agreed in the Voting Agreement that, at the Closing, it will execute
and deliver the Stockholders Agreement.
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UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS OF PARENT
The following unaudited condensed pro forma consolidated balance sheet as of
September 30, 1997 presents Parent's financial position as adjusted to give
effect to the Transactions as if they had occurred as of September 30, 1997. The
following unaudited condensed pro forma consolidated statement of operations for
the year ended December 31, 1996 presents Parent's consolidated results of
operations as adjusted to give effect to (i) the NBC Transaction, (ii) the MSG
Redemption, (iii) the 1997 Warburg Transactions, (iv) the U.S. Cable/Newark
Acquisitions and (v) the Transactions, in each case as if they had occurred at
the beginning of the period presented. The following unaudited condensed pro
forma consolidated statement of operations for the nine months ended September
30, 1997 presents Parent's consolidated results of operations as adjusted to
give effect to (i) the NBC Transaction, (ii) the MSG Redemption, (iii) the 1997
Warburg Transactions and (iv) the Transactions, in each case as if they had
occurred at the beginning of the period presented. Parent has conducted no
meaningful operations prior to the Transactions. Accordingly, historical
information is given with respect to Cablevision. See "The Companies."
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 contained elsewhere herein or incorporated herein
by reference. See "Incorporation of Certain Information by Reference." The pro
forma financial information has been prepared for comparative purposes only and
is not necessarily indicative of what the actual financial position or results
of operations of Parent 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.
The condensed pro forma consolidated financial statements do not give effect
to the transactions contemplated by the Formation Agreement or the pending cable
television systems sales (each of which is described under "The
Companies--Cablevision--Recent Developments,"), nor to the redemption of the
Cablevision Series C Preferred Stock, the Partnership Contribution or the
acquisition of Radio City Productions LLC as they are not material to the
financial position or operating results of Cablevision.
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<PAGE>
CSC PARENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CABLEVISION TKR TCI PRO FORMA
HISTORICAL NJ/NY(1)* NJ/NY(1)* ADJUSTMENTS* PRO FORMA
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................................ $ 32,135 $ 3,726 $ 35,861
Accounts receivable--trade, net.......................... 181,994 15,256 $ 4,461 201,711
Notes and other receivables.............................. 85,080 85,080
Prepaid expenses and other assets........................ 64,424 4,928 2,105 71,457
Property, plant and equipment, net....................... 1,720,053 298,032 154,670 2,172,755
Investments in affiliates................................ 60,424 60,424
Advances to affiliates................................... 4,923 4,923
Feature film inventory................................... 149,630 149,630
Net assets held for sale................................. 264,344 264,344
Intangible assets, net................................... 2,216,033 429,687 451,973 $ (179,684)(2) 2,918,009
Deferred financing, acquisition and other costs, net..... 93,723 93,723
----------- ----------- ----------- ------------ -----------
$4,872,763 $ 751,629 $ 613,209 $ (179,684) $6,057,917
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
LIABILITIES & STOCKHOLDERS' DEFICIENCY
Accounts payable and accrued liabilities................. 692,401 9,557 8,610 710,568
Accounts payable to affiliates........................... 915 915
Deferred income taxes.................................... 13,166 182,187 (195,353)(3)
Deferred revenue......................................... 114,770 114,770
Feature film and contract rights payable................. 283,318 283,318
Bank debt................................................ 2,875,891 573,988 95,012(4) 3,544,891
Senior debt.............................................. 397,617 397,617
Senior debentures........................................ 398,518 398,518
Subordinated debentures.................................. 1,048,207 1,048,207
Subordinated notes payable............................... 151,000 151,000
Obligation to related party.............................. 191,328 191,328
Capital lease obligations and other debt................. 48,951 48,951
Minority interest........................................ 124,737 124,737
----------- ----------- ----------- ------------ -----------
6,327,653 596,711 190,797 (100,341) 7,014,820
----------- ----------- ----------- ------------ -----------
Deficit investment in affiliates......................... 18,225 18,225
----------- -----------
Redeemable preferred stock............................... 1,092,921 1,092,921
----------- -----------
Stockholders' deficiency:
Preferred stock...................................... 15 15
Common stock......................................... 249 122(5) 371
Paid-in capital...................................... 167,251 154,918 422,412 (79,465)(5) 665,116
Accumulated deficit.................................. (2,733,551) (2,733,551)
----------- ----------- ----------- ------------ -----------
(2,566,036) 154,918 422,412 (79,343) (2,068,049)
----------- ----------- ----------- ------------ -----------
$4,872,763 $ 751,629 $ 613,209 $ (179,684) $6,057,917
----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ------------ -----------
</TABLE>
- ------------------------
* See Note A of Notes to Unaudited Condensed Pro Forma Consolidated Financial
Statements.
61
<PAGE>
CSC PARENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS*
--------------------------------------------------------------
1997 U.S. CABLE/
CABLEVISION NBC MSG WARBURG NEWARK
HISTORICAL TRANSACTION REDEMPTION TRANSACTIONS ACQUISITIONS
----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 1,315,142 $121,591(6) $399,214(10) $142,575(15) $ 67,429(21)
----------- ----------- ---------- ------------ ------------
Operating expenses:
Operating, selling,
general and
administrative.......... 851,748 122,530(6) 308,907(10) 86,900(15) 46,365(21)
(5,067)(16) (621)(22)
Depreciation and
amortization............ 388,982 3,870(6) 60,860(10) 46,686(15) 23,981(21)
5,391(7) 10,520(11) 3,456(17) 13,781(23)
----------- ----------- ---------- ------------ ------------
1,240,730 131,791 380,287 131,975 83,506
----------- ----------- ---------- ------------ ------------
Operating profit (loss)... 74,412 (10,200) 18,927 10,600 (16,077)
Other Income (expense):
Interest expense.......... (268,177) (424)(6) (17,850)(10) (45,884)(15) (14,137)(21)
(66,185)(12) (13,018)(18) (2,214)(24)
1,786(16) 249(22)
Interest income........... 3,162 477(6) 53(15) 53(21)
Share of affiliates' net
income (loss)........... (82,028) 3,266(8) (2,041)(13) 73,166(19) 844(25)
Write-off of deferred
interest and financing
costs................... (37,784) (3,495)(15)
Provision for preferential
payment to related
party................... (5,600)
Minority interest......... (9,417) 14,393(9) 18,547(14)
Miscellaneous, net........ (6,647) (498)(6) 1,766(10) (2,798)(15) (157)(21)
----------- ----------- ---------- ------------ ------------
Net income (loss) before
income taxes............ (332,079) 7,014 (46,836) 20,410(20) (31,439)
Income tax expense........
----------- ----------- ---------- ------------ ------------
Net income (loss)......... (332,079) 7,014 (46,836) 20,410 (31,439)
Dividend requirements
applicable to preferred
stock..................... (127,780) 49,977(15)
(49,977)(16)
----------- ----------- ---------- ------------ ------------
Net income (loss) applicable
to common shareholders.... $ (459,859) $ 7,014 $(46,836) $ 20,410 $(31,439)
----------- ----------- ---------- ------------ ------------
----------- ----------- ---------- ------------ ------------
Net loss per common share... $ (18.52)
-----------
-----------
Average number of common
shares outstanding (in
thousands)................ 24,827
-----------
-----------
<CAPTION>
TCI/TKR
TKR TCI PRO FORMA
SUBTOTAL NJ/NY(26)* NJ/NY(26)* ADJUSTMENTS* PRO FORMA
---------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $2,045,951 $185,974 $199,798 $(25,379)(27) $2,406,344
---------- ---------- ----------- ------------ ----------
Operating expenses:
Operating, selling,
general and
administrative.......... 1,410,762 97,292 113,870 (25,379)(27) 1,596,545
Depreciation and
amortization............ 557,527 35,092 40,045 50,491(28) 683,155
---------- ---------- ----------- ------------ ----------
1,968,289 132,384 153,915 25,112 2,279,700
---------- ---------- ----------- ------------ ----------
Operating profit (loss)... 77,662 53,590 45,883 (50,491) 126,644
Other Income (expense):
Interest expense.......... (425,854) (34,437) (1,406) (20,888)(29) (482,585)
Interest income........... 3,745 297 66 4,108
Share of affiliates' net
income (loss)........... (6,793) (6,793)
Write-off of deferred
interest and financing
costs................... (41,279) (41,279)
Provision for preferential
payment to related
party................... (5,600) (5,600)
Minority interest......... 23,523 (964) 964(30) 23,523
Miscellaneous, net........ (8,334) (327) (8,661)
---------- ---------- ----------- ------------ ----------
Net income (loss) before
income taxes............ (382,930) 19,450 43,252 (70,415) (390,643)
Income tax expense........ (400) (15,086) 15,486(31) --
---------- ---------- ----------- ------------ ----------
Net income (loss)......... (382,930) 19,050 28,166 (54,929) (390,643)
Dividend requirements
applicable to preferred
stock..................... (127,780) (127,780)
---------- ---------- ----------- ------------ ----------
Net income (loss) applicable
to common shareholders.... $ (510,710) $ 19,050 $ 28,166 $(54,929) $ (518,423)
---------- ---------- ----------- ------------ ----------
---------- ---------- ----------- ------------ ----------
Net loss per common share... $ (13.99)
----------
----------
Average number of common
shares outstanding (in
thousands)................ 12,236(32) 37,063
------------ ----------
------------ ----------
</TABLE>
- ------------------------
* See Note B of Notes to Unaudited Condensed Pro Forma Consolidated Financial
Statements.
62
<PAGE>
CSC PARENT CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS*
-----------------------------------------------
1997
CABLEVISION NBC MSG WARBURG
HISTORICAL TRANSACTION REDEMPTION TRANSACTIONS
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues................................ $ 1,314,995 $33,905(33) $194,337(37) $ 71,506(42)
----------- ----------- ---------- ------------
Operating expenses:
Operating, selling, general and
administrative...................... 915,664 32,639(33) 146,104(37) 44,727(42)
(2,519)(43)
Depreciation and amortization......... 363,023 1,508(33) 28,289(37) 21,676(42)
1,348(34) 5,330(38) 1,584(44)
----------- ----------- ---------- ------------
1,278,687 35,495 179,723 65,468
----------- ----------- ---------- ------------
Operating profit (loss)............... 36,308 (1,590) 14,614 6,038
Other income (expense):
Interest expense...................... (261,533) (642)(33) (8,371)(37) (22,074)(42)
(20,638)(39) (4,912)(45)
1,195(43)
Interest income....................... 2,635 142(33) 22(42)
Share of affiliates' net income
(loss).............................. (32,243) 1,922(35) (8,277)(40) 37,837(46)
Write-off of deferred interest and
financing costs..................... (13,710)
Gain on redemption of subsidiary
preferred stock..................... 181,738
Provision for preferential payment to
related party....................... (4,200)
Minority interest..................... 14,145 1,269(36) 3,981(41)
Miscellaneous, net.................... (7,059) (2,382)(42)
----------- ----------- ---------- ------------
Net income (loss) before taxes........ (83,919) 1,101 (18,691) 15,724
Income tax expense....................
----------- ----------- ---------- ------------
Net income (loss)..................... (83,919) 1,101 (18,691) 15,724
Dividend requirements applicable to
preferred stock....................... (110,324) 28,297(42)
(28,297)(43)
----------- ----------- ---------- ------------
Net income (loss) applicable to common
shareholders.......................... $ (194,243) $ 1,101 $(18,691) $ 15,724
----------- ----------- ---------- ------------
----------- ----------- ---------- ------------
Net loss per common share............... $ (7.81)
-----------
-----------
Average number of common shares
outstanding (in thousands)............ 24,858
-----------
-----------
<CAPTION>
TCI/TKR
TKR TCI PRO FORMA
SUBTOTAL NJ/NY(47)* NJ/NY(47)* ADJUSTMENTS* PRO FORMA
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $1,614,743 $158,334 $158,294 $(18,606)(48) $1,912,765
---------- ---------- ---------- ------------ ----------
Operating expenses:
Operating, selling, general and
administrative...................... 1,136,615 83,353 84,519 (18,606)(48) 1,285,881
Depreciation and amortization......... 422,758 27,175 30,470 33,529(49) 513,932
---------- ---------- ---------- ------------ ----------
1,559,373 110,528 114,989 14,923 1,799,813
---------- ---------- ---------- ------------ ----------
Operating profit (loss)............... 55,370 47,806 43,305 (33,529) 112,952
Other income (expense):
Interest expense...................... (316,975) (28,934) (105) (8,743)(50) (354,757)
Interest income....................... 2,799 137 2,936
Share of affiliates' net income
(loss).............................. (761) (761)
Write-off of deferred interest and
financing costs..................... (13,710) (13,710)
Gain on redemption of subsidiary
preferred stock..................... 181,738 181,738
Provision for preferential payment to
related party....................... (4,200) (4,200)
Minority interest..................... 19,395 (125) 125(51) 19,395
Miscellaneous, net.................... (9,441) 136 (9,305)
---------- ---------- ---------- ------------ ----------
Net income (loss) before taxes........ (85,785) 19,009 43,211 (42,147) (65,712)
Income tax expense.................... (858) (14,621) 15,479(52)
---------- ---------- ---------- ------------ ----------
Net income (loss)..................... (85,785) 18,151 28,590 (26,668) (65,712)
Dividend requirements applicable to
preferred stock....................... (110,324) (110,324)
---------- ---------- ---------- ------------ ----------
Net income (loss) applicable to common
shareholders.......................... $ (196,109) $ 18,151 $ 28,590 $(26,668) $ (176,036)
---------- ---------- ---------- ------------ ----------
---------- ---------- ---------- ------------ ----------
Net loss per common share............... (4.75)
----------
----------
Average number of common shares
outstanding (in thousands)............ 12,236(53) 37,094
------------ ----------
------------ ----------
</TABLE>
- ------------------------
* See Note C of Unaudited Condensed Pro Forma Consolidated Financial
Statements.
63
<PAGE>
NOTE A--NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 1997
TCI/TKR TRANSACTIONS
(1) Represents the combined balance sheet of the TKR New Jersey/New York
systems and that of the TCI New Jersey and New York systems, respectively,
at September 30, 1997.
(2) Represents the excess of the purchase price over the estimated fair value
of net liabilities assumed at September 30, 1997 of approximately
$701,976,000 and the elimination of the predecessors' net intangible assets
of approximately $881,660,000. This adjustment does not give effect to the
Net Adjusted Working Capital adjustment, if any, to be calculated within 90
days of the closing of the Contribution. Historically, in similar
transactions, such adjustments have been immaterial and, relative to the
size of this transaction, any such adjustment is also anticipated to be
immaterial. Since allocations to identifiable intangible assets cannot be
estimated with any degree of certainty prior to obtaining independent
appraisals, the excess of the purchase price over the book value of net
assets acquired will be allocated to specific assets or liabilities
acquired when independent appraisals are completed. In recent acquisitions
of cable television systems, excess costs have principally been allocated
to franchises and goodwill.
(3) Represents the elimination of assets and liabilities not acquired pursuant
to the Contribution and Merger Agreement.
(4) Represents the net additional debt assumed pursuant to the Contribution and
the Merger Agreement.
(5) Represents the issuance of 12,235,543 shares of common stock valued at
approximately $497,987,000 (based on the average stock price of
Cablevision's Class A Common Stock of $40.70) and the elimination of the
predecessors' equity.
NOTE B--NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
NBC TRANSACTION
(6) As a result of the NBC Transaction, the results of operations of certain
companies previously accounted for under the equity method are now
consolidated with Cablevision's consolidated results of operations. The
adjustments referenced by this Note (6) reflect the consolidation of such
amounts for the year ended December 31, 1996.
(7) Represents the amortization, based on an average 10-year life, of the
excess costs resulting from the exchange of 25% of Cablevision's interests
in Rainbow Media for NBC's interests in certain individual entities.
(8) Represents the elimination of Cablevision's share of affiliates' net income
or loss previously recorded for entities that are now consolidated and
records the additional share of affiliates' net income or loss of interests
contributed by NBC in certain entities that continue to be recorded on an
equity basis.
(9) Represents NBC's minority interest in the net loss of Rainbow Media and a
minority interest in one of the companies previously accounted for under
the equity method.
64
<PAGE>
NOTE B--NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
MSG REDEMPTION
(10) As a result of the MSG Redemption, the results of operations of MSG will be
combined with Cablevision's consolidated results of operations. The
adjustments referenced by this Note (10) reflect the consolidation of such
amounts for the year ended December 31, 1996.
(11) Represents the amortization, based on an average 30-year life, of the
excess costs resulting from the acquisition of 39.8% of MSG and the
contribution of SportsChannel New York to MSG.
(12) Represents interest expense on additional debt incurred to purchase
additional interests in MSG and the amortization of deferred financing
costs incurred in connection with obtaining the additional bank debt.
(13) Represents the elimination of Cablevision's share of net income of MSG
previously recorded using the equity method of accounting.
(14) Represents the minority interest in the pro forma net loss of MSG and
SportsChannel New York owned by ITT and by NBC through its interest in
Rainbow Media.
1997 WARBURG TRANSACTIONS
(15) As a result of the 1997 Warburg Transactions, the results of operations of
the Warburg Companies will be combined with Cablevision's consolidated
results of operations. The adjustments referenced by this Note (15) reflect
the consolidation of such amounts for the year ended December 31, 1996.
(16) Represents the elimination of preferred stock dividends recorded by A-R
Cable and management fees and accrued interest thereon earned by
Cablevision and recorded on the books of the Warburg Companies. These
management fees and related interest had not been paid and Cablevision had
not reflected any accrual for such amounts in its financial statements.
(17) Represents the amortization, based on an average 10-year life, of the
excess cost over fair value of assets acquired of $34,558,000.
(18) Represents interest expense on the additional bank debt incurred to
complete the 1997 Warburg Transactions.
(19) Represents the elimination of the net losses of the Warburg Companies
previously recorded by Cablevision using the equity method of accounting.
(20) The Condensed Pro Forma Statement of Operations for the Year Ended December
31, 1996 does not give effect to the gain recorded on the redemption of A-R
Cable's series A preferred stock.
U.S. CABLE/NEWARK ACQUISITIONS
(21) As a result of the acquisition of the 80% of partnership interest in U.S.
Cable and the acquisition of 75% of partnership interests in Cablevision of
Newark not already owned by Cablevision, the results of operations of U.S.
Cable and Cablevision of Newark were combined with Cablevision's
consolidated results of operations as of the acquisition date. The
adjustments referenced by this Note (21) reflect the consolidation of such
amounts for the period prior to the acquisition date.
(22) Represents the elimination of management fees and interest thereon earned
by Cablevision and recorded on the books of U.S. Cable and Cablevision of
Newark. These management fees and
65
<PAGE>
NOTE B--NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
related interest had not been paid and Cablevision had not reflected any
accrual for such amounts in its financial statements.
(23) Represents the amortization, based on an average 10-year life, of the
excess cost over fair value of assets acquired, offset by the elimination
of pre-acquisition amortization of intangibles.
(24) Represents the interest expense on the additional bank debt incurred to
complete the acquisition of Cablevision of Newark.
(25) Represents the elimination of the net losses of Cablevision of Newark
previously recorded by Cablevision using the equity method of accounting.
TCI/TKR TRANSACTIONS
(26) Represents the combined statement of operations of the TKR New Jersey/New
York Systems and that of the TCI New Jersey and New York Systems,
respectively for the year ended December 31, 1996.
(27) Represents the elimination of intercompany revenues and expenses.
(28) Represents the amortization, based on an assumed average 10-year life, of
the excess costs over the net liabilities assumed of approximately
$69,358,000 and elimination of amortization of intangibles of approximately
$18,867,000 relating to the predecessors' intangible assets. If, after
completion of the appraisal, the weighted average life of the intangible
assets were determined to be 5 years, amortization expense would increase
by $69,358,000, or, if it were determined to average 15 years, such expense
would decrease by $23,119,000.
(29) Represents interest expense on $669,000,000 of the Assumed Debt assumed
pursuant to the Contribution and Merger Agreement and the elimination of
the predecessors' interest expense.
(30) Represents the elimination of the minority interest in the net income of
the systems.
(31) Represents the elimination of income tax expense assuming Cablevision had
filed consolidated tax returns and the net income of the Contributed
Businesses would be offset by net losses of Cablevision.
(32) Represents the issuance of 12,235,543 shares of Parent Class A Common
Stock.
NOTE C--NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
NBC TRANSACTION
(33) As a result of the NBC Transaction, the results of operations of certain
companies previously accounted for on an equity basis are now consolidated
with Cablevision's consolidated results of operations. The adjustments
referenced by this Note (33) reflect the consolidation of such amounts for
the period prior to the date of the transaction.
(34) Represents the amortization, based on an average 10-year life of the excess
costs resulting from the exchange of 25% of Cablevision's interests in
Rainbow Media for NBC's interests in certain entities.
66
<PAGE>
NOTE C--NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (CONTINUED)
(35) Represents the elimination of Cablevision's share of affiliates' net income
or loss previously recorded for entities that are now consolidated and
records the additional share of affiliates' net income or loss of interests
contributed by NBC in certain entities that continue to be recorded on an
equity basis.
(36) Represents NBC's minority interest in the net loss of Rainbow Media and a
minority interest in one of the companies previously accounted for under
the equity method.
MSG REDEMPTION
(37) As a result of the MSG Redemption, the results of operations of MSG will be
combined with Cablevision's consolidated results of operations. The
adjustments referenced by this Note (37) reflect the consolidation of such
amounts for the period prior to the date of transaction.
(38) Represents the amortization, based on an average 30-year life, of the
excess costs resulting from the acquisition of 39.8% of MSG and the
contribution of SportsChannel New York to MSG.
(39) Represents interest expense on additional debt incurred to purchase
additional interests in MSG and the amortization of deferred financing
costs incurred in connection with obtaining the additional bank debt.
(40) Represents the elimination of Cablevision's share of net income of MSG
previously recorded using the equity method of accounting.
(41) Represents the minority interest in the pro forma net loss of MSG and
SportsChannel New York owned by ITT and by NBC through its interest in
Rainbow Media.
1997 WARBURG TRANSACTIONS
(42) As a result of the 1997 Warburg Transactions, the results of operations of
the Warburg Companies will be combined with Cablevision's consolidated
results of operations. The adjustments referenced by this Note (42) reflect
the consolidation of such amounts for the nine months ended September 30,
1997.
(43) Represents the elimination of preferred stock dividends recorded by A-R
Cable and management fees and accrued interest thereon earned by
Cablevision and recorded on the books of the Warburg Companies. These
management fees and related interest had not been paid and Cablevision had
not reflected any accrual for such amounts in its financial statements.
(44) Represents the amortization, based on an average 10-year life, of the
excess cost over fair value of assets acquired of $34,558,000.
(45) Represents interest expense on the additional bank debt incurred to
complete the 1997 Warburg Transactions.
(46) Represents the elimination of the net losses of the Warburg Companies
previously recorded by Cablevision using the equity method of accounting.
67
<PAGE>
NOTE C--NOTES TO UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (CONTINUED)
TCI/TKR TRANSACTIONS
(47) Represents the combined statement of operations of the TKR New Jersey/New
York Systems and that of the TCI New Jersey and New York Systems,
respectively, for the nine months ended September 30, 1997.
(48) Represents the elimination of intercompany revenues and expenses.
(49) Represents the amortization, based on an assumed average 10-year life, of
the excess costs over the net liabilities assumed of approximately
$52,648,000 and elimination of amortization of intangibles of approximately
$19,119,000 relating to the predecessors' intangible assets. If, after
completion of the appraisal, the weighted average life of the intangible
assets were determined to be 5 years, amortization expense would increase
by $52,648,000, or, if it were determined to average 15 years, such expense
would decrease by $17,549,000.
(50) Represents interest expense on $669,000,000 of Assumed Debt assumed
pursuant to the Contribution and Merger Agreement and the elimination of
the predecessors' interest expense.
(51) Represents the elimination of the minority interest in the net income of
the systems.
(52) Represents the elimination of income tax expense assuming Cablevision had
filed consolidated tax returns and the net income of the Contributed
Businesses would be offset by net losses of Cablevision.
(53) Represents the issuance of 12,235,543 shares of Parent Class A Common
Stock.
68
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE TCI NEW JERSEY AND NEW YORK SYSTEMS
GENERAL
The TCI New Jersey and New York Systems own and operate cable television
systems in New Jersey and New York. Substantially all of the TCI New Jersey and
New York Systems' revenue is earned from customer fees for primary and premium
subscription services, the rental of converters and remote control devices, and
installation fees. Additional revenue is derived from the sale of advertising,
pay-per-view programming fees and payments received from revenue-sharing
arrangements in respect of products sold through home shopping services.
The operation of the TCI New Jersey and New York Systems' cable television
systems is regulated at the federal, state and local levels. The Cable
Television Consumer Protection and Competition Act of 1992 and the
Telecommunications Act of 1996 (collectively, the "Cable Acts") established
rules under which the TCI New Jersey and New York Systems' basic and tier
service rates and its equipment and installation charges (the "Regulated
Services") are regulated if a complaint is filed or if the appropriate franchise
authority is certified. Such federal laws and regulations have limited the TCI
New Jersey and New York Systems' ability to increase rates for certain customer
services or restructure its rates for certain services.
At September 30, 1997, 98% of the TCI New Jersey and New York Systems' basic
customers were served by cable television systems that were subject to such rate
regulation. During the nine months ended September 30, 1997, 69% of the TCI New
Jersey and New York Systems' revenue was derived from Regulated Services. As
noted above, any increases in rates charged for Regulated Services are regulated
by the Cable Acts. Moreover, competitive factors may limit the TCI New Jersey
and New York Systems' ability to increase its service rates.
The following discussion should be read in conjunction with the TCI New
Jersey and New York Systems' historical financial statements, including the
notes thereto, included elsewhere in this document.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenue increased 8% for the nine months ended September 30, 1997, as
compared to the corresponding period of 1996. Such increase was primarily the
result of an increase in basic service revenue (8%), an increase in advertising
revenue (1%) and a decrease in premium service revenue (1%). The increase in
basic service revenue reflects a 2% increase in average basic customers and a
10% increase in average basic rates. The decrease in premium service revenue
reflects a 1% decrease in the number of average premium customers and a 3%
decrease in the average premium rate.
Operating, selling, general and administrative expenses increased 4% for the
nine months ended September 30, 1997, as compared to the corresponding period of
1996. Programming expenses increased 12% from $38,906,000 for the nine months
ended September 30, 1996 to $43,656,000 for the corresponding period of 1997.
The TCI New Jersey and New York Systems cannot determine whether and to what
extent increases in the cost of programming will affect its future operating
costs. Increases in programming expense and administrative fees were partially
offset by (i) a reduction in selling, general and administrative salaries and
related payroll expenses due to work force reductions in the fourth quarter in
1996 and (ii) reduced marketing and general overhead expenses.
The increase in administrative fees is due to the aforementioned increase in
average basic customers, partially offset by a decrease in the per-customer
allocation rate. The TCI New Jersey and New York Systems have a management
agreement with certain subsidiaries of TCI whereby such subsidiaries'
managements are providing administrative services and have assumed managerial
responsibility for certain of the TCI New Jersey and New York System's cable
television system operations and construction. As
69
<PAGE>
compensation for these services, the TCI New Jersey and New York Systems pay a
monthly fee calculated on a per-customer basis.
The TCI New Jersey and New York Systems' interest expense decreased $700,000
or 87% for the nine months ended September 30, 1997, as compared to the
corresponding period of 1996. The decrease is due to the January 31, 1997
repayment and termination of the bank loan agreements. See "--Liquidity and
Capital Resources."
Inflation has not had a significant impact on the TCI New Jersey and New
York Systems' results of operations during the nine months ended September 30,
1997.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Revenue increased 11% for each of the years ended December 31, 1996 and
1995, as compared to the corresponding prior year. The 1996 increase in revenue
was the result of an increase in basic service revenue (7%), an increase in
advertising revenue (3%), an increase in rental income (2%) and a decrease in
premium service revenue (1%). The increase in basic service revenue reflects a
3% increase in average basic customers and a 9% increase in average basic rates.
The decrease in premium service revenue reflects a 2% decrease in the number of
average premium customers and a decrease of less than 1% in the average premium
rate.
The 1995 increase in revenue was the result of an increase in basic service
revenue (6%), a nonrecurring revision of a prior year estimate for customer
refunds (3%), an increase in premium service revenue (1%) and an increase in
rental income (1%). The increase in basic service revenue reflects a 3% increase
in average basic customers and a 7% increase in average basic rates. The
increase in premium service revenue reflects a 5% increase in the average
premium rate, partially offset by a 3% decrease in the number of average premium
customers.
Operating expenses increased 20% and 11% for the years ended December 31,
1996 and 1995, respectively, as compared to the prior year. Programming expenses
accounted for the majority of such increases in 1996 and 1995 (16% and 7%,
respectively). In this regard, programming expenses represented $52,058,000
(71%), $42,611,000 (70%) and $38,724,000 (71%) of operating expenses during
1996, 1995 and 1994, respectively. See related discussion above.
Selling, general and administrative expenses increased 13% and 8% for the
years ended December 31, 1996 and 1995, respectively, as compared to the prior
year. Such increases are due primarily to increases in salaries and related
payroll expenses.
Administrative fees increased 42% and 1% for the years ended December 31,
1996 and 1995, respectively, as compared to the prior year. Such increases are
primarily due to the aforementioned increases in average basic customers for
each year as well as an increase in the per-customer allocation rate for the
year ended December 31, 1996 and a decrease in the per-customer allocation rate
for the year ended December 31, 1995. The TCI New Jersey and New York Systems
have a management agreement with certain subsidiaries of TCI whereby such
subsidiaries' managements are providing administrative services and have assumed
managerial responsibility for certain of the TCI New Jersey and New York
Systems' cable television system operations and construction. As compensation
for these services, the TCI New Jersey and New York Systems pay a monthly fee
calculated on a per-customer basis.
The TCI New Jersey and New York Systems' interest expense decreased $60,000
or 4% during 1996 as compared to 1995 and increased $166,000 or 13% during 1995
as compared to 1994. The decrease in 1996 is the result of lower interest rates
and debt balances. The 1995 increase is the net result of increased weighted
average interest rates partially offset by decreased debt balances. The weighted
average interest rate on borrowings was 6.7%, 7.4% and 5.7% during 1996, 1995
and 1994, respectively.
70
<PAGE>
Inflation has not had a significant impact on the TCI New Jersey and New
York Systems' results of operations during the three-year period ended December
31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 6, 1997, TCI and Cablevision entered into a definitive agreement,
pursuant to which TCI's ten New York metropolitan area cable television systems
(the "Systems"), including the TCI New Jersey and New York Systems, will be
contributed to Parent. In exchange, TCI will receive approximately 12.2 million
newly issued shares of Parent Class A common stock, which are expected to
represent 33% of Parent's total shares outstanding. In addition, Parent will
assume $669 million of the Systems' debt, comprised of all amounts outstanding
under a bank credit facility of certain of the Systems other than the TCI New
Jersey and New York Systems and a portion of the intercompany amounts owed by
the Systems to TCI and its affiliates. Consummation of the transaction is
subject to, among other matters, Parent shareholder and regulatory approvals.
There is no assurance that such transaction will be consummated.
Historically, the TCI New Jersey and New York Systems have used cash
provided by operating activities to fund their investing and financing
activities. During the nine months ended September 30, 1997, the TCI New Jersey
and New York Systems used cash provided by operating activities and a decrease
in cash of $55,801,000 and $1,604,000, respectively, to fund investing and
financing activities of $30,726,000 and $26,679,000, respectively. The amount of
cash used for investing activities during the nine months ended September 30,
1997, includes capital expenditures for property and equipment and cash paid to
purchase a minority interest of $7,679,000 and $20,909,000, respectively.
Additionally, the amount of cash used for financing activities during the nine
months ended September 30, 1997, includes cash used to repay debt and a portion
of the amount due to TCI of $17,815,000 and $9,693,000, respectively. For
additional information concerning the cash flows of the TCI New Jersey and New
York Systems, see the TCI New Jersey and New York Systems' condensed combined
statements of cash flows included in the accompanying condensed combined
financial statements.
During the year ended December 31, 1996, the TCI New Jersey and New York
Systems used cash provided by operating activities of $62,329,000 to fund
investing and financing activities of $19,045,000 and $41,680,000, respectively.
The amount of cash used for investing activities during the year ended December
31, 1996 includes capital expenditures for property and equipment of
$19,472,000. Additionally, the amount of cash used for financing activities
during the year ended December 31, 1996 includes cash used to repay a portion of
the amount due to TCI of $40,263,000.
As of December 31, 1996, the TCI New Jersey and New York Systems had
outstanding borrowings pursuant to certain term loan agreements with interest
rates ranging from 6.67% to 7.67%. The term loans were secured and
collateralized by certain assets of the TCI New Jersey and New York Systems,
including franchise rights, and the assignment of various leases and contracts
of the TCI New Jersey and New York Systems. On January 31, 1997, the outstanding
balances of the aforementioned loans ($17,657,000 at December 31, 1996) were
repaid in full.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE TKR NEW JERSEY / NEW YORK SYSTEMS
GENERAL
The TKR New Jersey / New York Systems own and operate cable television
systems in New Jersey and New York. Substantially all of the TKR New Jersey /
New York Systems' revenue is earned from customer fees for primary and premium
subscription services, the rental of converters and remote control devices, and
installation fees. Additional revenue is derived from the sale of advertising,
pay-per-view programming fees and payments received from revenue-sharing
arrangements in respect of products sold through home shopping services.
The operation of the TKR New Jersey / New York Systems' cable television
systems is regulated at the federal, state and local levels. The Cable
Television Consumer Protection and Competition Act of 1992 and the
Telecommunications Act of 1996 established rules under which the TKR New Jersey
/ New York Systems' basic and tier service rates and its equipment and
installation charges are regulated if a complaint is filed or if the appropriate
franchise authority is certified. Such federal laws and regulations have limited
the TKR New Jersey / New York Systems' ability to increase rates for certain
customer services or restructure its rates for certain services. Competitive
factors may also limit the TKR New Jersey / New York Systems' ability to
increase its service rates.
The following discussion should be read in conjunction with the TKR New
Jersey / New York Systems' historical financial statements, including the notes
thereto, included elsewhere in this document. For financial reporting purposes,
the Acquisition (as defined in note 1 to the September 30, 1997 condensed
combined financial statements) has been reported as if the effective date of
such Acquisition was January 1, 1997.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenue increased 16% for the nine months ended September 30, 1997, as
compared to the corresponding period of 1996. Exclusive of an increase in
revenue due to a February 1996 acquisition (7%), revenue increased 9%. Such
increase was primarily the result of an increase in basic service revenue (9%),
a decrease in premium service revenue (2%) and an increase in other revenue
(2%). The increase in basic service revenue reflects a 2% increase in average
basic customers and a 14% increase in average basic rates. The decrease in
premium service revenue reflects a 9% decrease in the number of average premium
customers, partially offset by a 2% increase in the average premium rate.
Operating, selling, general and administrative expenses increased 20% for
the nine months ended September 30, 1997, as compared to the corresponding
period of 1996. Exclusive of an increase attributable to a February 1996
acquisition (9%), operating, selling, general and administrative expenses
increased 11%. Total programming expenses increased 28% from $31,420,000 for the
nine months ended September 30, 1996 to $40,328,000 for the corresponding period
of 1997. The TKR New Jersey / New York Systems cannot determine whether and to
what extent increases in the cost of programming will affect its future
operating costs. The increase in operating, selling, general and administrative
expenses is also attributable to increases in salaries and related payroll
expenses, as well as an increase in administrative fees.
The TKR New Jersey / New York Systems' interest expense increased $4,728,000
or 20% for the nine months ended September 30, 1997, as compared to the
corresponding period of 1996. The increase is due to increases in the weighted
average debt balance, weighted average interest rates and net payments pursuant
to interest rate protection agreements.
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Inflation has not had a significant impact on the TKR New Jersey / New York
Systems' results of operations during the nine months ended September 30, 1997.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Revenue increased 37% and 7% for the years ended December 31, 1996 and 1995,
respectively, as compared to the prior year. Exclusive of an increase in 1996
revenue due to an acquisition (28%), 1996 revenue increased 9%. The 1996
increase in revenue was the result of an increase in basic service revenue (6%),
an increase in premium service revenue (2%) and an increase in advertising
revenue (1%). The increase in basic service revenue reflects a 3% increase in
average basic customers and an 8% increase in average basic rates. The increase
in premium service revenue reflects a 2% increase in the number of average
premium customers and a 3% increase in average premium rates.
The 1995 increase in revenue was the result of an increase in basic service
revenue (5%) and an increase in advertising revenue (2%). The increase in basic
service revenue reflects a 3% increase in average basic customers and a 6%
increase in average basic rates.
Operating expenses increased 41% and 9% for the years ended December 31,
1996 and 1995, respectively, as compared to the prior year. Exclusive of the
effects of a 1996 acquisition (26%), such 1996 expenses increased 15%.
Programming expenses accounted for the majority of such increase. In this
regard, programming expenses represented $43,841,000 (63%), $31,111,000 (63%)
and $28,137,000 (62%) of operating expenses during 1996, 1995 and 1994,
respectively. See related discussion above.
Selling, general and administrative expenses increased 33% and 2% for the
years ended December 31, 1996 and 1995, respectively, as compared to the prior
year. Exclusive of the effects of a 1996 acquisition (19%), such 1996 expenses
increased 14%. Such 1996 increase is due primarily to increases in salaries and
related payroll expenses as well as marketing expenses. Such 1995 increase is
due primarily to increases in salaries and related payroll expenses.
The TKR New Jersey / New York Systems' interest expense increased 56% during
1996 as compared to 1995 and increased 15% during 1995 as compared to 1994. The
increase in 1996 is the result of increased debt balances, primarily as a result
of a 1996 acquisition, partially offset by lower interest rates. The 1995
increase is the result of increased debt balances as well as higher interest
rates.
Inflation has not had a significant impact on the TKR New Jersey / New York
Systems' results of operations during the three-year period ended December 31,
1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 6, 1997, TCI and Cablevision entered into a definitive agreement,
pursuant to which the Systems, including the TKR New Jersey / New York Systems,
will be contributed to Parent. In exchange, TCI will receive approximately 12.2
million newly issued shares of Parent Class A Common Stock, which are expected
to represent 33% of Parent's total shares outstanding. In addition, Parent will
assume $669 million of the Systems' debt, comprised of all amounts outstanding
under the bank credit facility of the TKR New Jersey / New York Systems and a
portion of the intercompany amounts owed by the Systems to TCI and its
affiliates. Consummation of the transaction is subject to, among other matters,
Parent shareholder and regulatory approvals. There is no assurance that such
transaction will be consummated.
During the nine months ended September 30, 1997, the TKR New Jersey / New
York Systems used cash provided by operating activities of $21,314,000 to fund
investing and financing activities of $7,213,000 and $11,286,000, respectively.
The amount of cash used for investing activities during the nine months ended
September 30, 1997 includes capital expenditures for property and equipment of
$7,213,000. Additionally, the amount of cash used for financing activities
during the nine months ended September 30, 1997 includes the repayment of debt,
net of borrowings, of $10,000,000. For additional information
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<PAGE>
concerning the cash flows of the TKR New Jersey / New York Systems, see the TKR
New Jersey / New York Systems' condensed combined statements of cash flows
included in the accompanying September 30, 1997 condensed combined financial
statements.
During the year ended December 31, 1996, the TKR New Jersey / New York
Systems used cash provided by operating and financing activities of $59,627,000
and $257,146,000, respectively, to fund investing activities of $315,862,000.
The amount of cash used for investing activities during the year ended December
31, 1996 includes capital expenditures for property and equipment and cash paid
for an acquisition of cable systems of $108,493,000 and $204,855,000,
respectively. Additionally, the amount of cash provided by financing activities
during the year ended December 31, 1996 includes proceeds from debt, net of
repayments, of $259,500,000.
As of September 30, 1997, the TKR New Jersey / New York Systems had
outstanding borrowings pursuant to a bank credit facility with an interest rate
of 6.53%. The most significant debt covenants of this bank credit facility limit
additional borrowings, sales of assets and additional investments. In addition,
the TKR New Jersey / New York Systems have agreed to maintain certain defined
debt to cash flow, cash flow to debt service and cash flow to interest expense
ratios. For additional information concerning TKR New Jersey / New York Systems'
debt, see note 5 to the TKR New Jersey / New York Systems' December 31, 1996
combined financial statements.
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DESCRIPTION OF PARENT CAPITAL STOCK
The following description of Parent capital stock is not complete and is
qualified in its entirety by reference to the DGCL and to the complete text of
the Parent Certificate, which is attached as Appendix G to this Proxy
Statement/Prospectus and is incorporated herein by reference.
Parent is authorized to issue 200,000,000 shares of Parent Class A Common
Stock, par value $0.01 per share, 80,000,000 shares of Parent Class B Common
Stock, par value $0.01 per share, and 10,000,000 shares of Preferred Stock.
PARENT CLASS A COMMON STOCK AND PARENT CLASS B COMMON STOCK
VOTING. Holders of Parent Class A Common Stock are entitled to one vote per
share. Holders of Parent 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 Parent Class A Common Stock and Parent 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 Parent Class
A Common Stock vote as a separate class and are entitled to elect 25% of the
total number of directors constituting the whole Board of Directors (the "Class
A Directors") and, if such 25% is not a whole number, then the holders of Parent
Class A Common Stock are entitled to elect the nearest higher whole number of
directors that is at least 25% of the total number of directors so long as the
number of outstanding shares of Parent Class A Common Stock is at least 10% of
the total number of outstanding shares of Parent Common Stock. Holders of Parent
Class B Common Stock, voting as a separate class, are entitled to elect the
remaining directors.
If, however, on the record date for any stockholder meeting at which
directors are to be elected, the number of outstanding shares of Parent Class A
Common Stock is less than 10% of the total number of outstanding shares of both
classes of Parent Common Stock, the holders of Parent Class A Common Stock and
Parent Class B Common Stock will vote together as a single class with respect to
the election of directors and the holders of Parent Class A Common Stock will
not have the right to elect 25% of the total number of directors but will have
one vote per share for all directors and holders of Parent 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 Parent Class B Common Stock is
less than 12 1/2% of the total number of outstanding shares of Parent Common
Stock, then the holders of Parent Class A Common Stock, voting as a separate
class, would continue to elect a number of Class A Directors equal to 25% of the
total number of directors constituting the whole Board of Directors and, in
addition, would vote together with the holders of Parent Class B Common Stock to
elect the remaining directors to be elected at such meeting, with the holders of
the Parent Class A Common Stock entitled to one vote per share and the holders
of Parent Class B Common Stock entitled to ten votes per share.
In addition, the affirmative vote or consent of the holders of at least
66 2/3% of the outstanding shares of Parent Class B Common Stock, voting
separately as a class, is required for the authorization or issuance of any
additional shares of Parent Class B Common Stock and for any amendment,
alteration or repeal of any provisions of the Parent Certificate which would
affect adversely the powers, preferences or rights of the Parent Class B Common
Stock. The Parent Certificate does not provide for cumulative voting.
CONVERSION. The Parent Class A Common Stock has no conversion rights. The
Parent Class B Common Stock is convertible into Parent Class A Common Stock in
whole or in part at any time and from time to time on the basis of one share of
Parent Class A Common Stock for each share of Parent Class B Common Stock.
DIVIDENDS. Holders of Parent Class A Common Stock and Parent Class B Common
Stock are entitled to receive dividends equally on a per share basis if and when
such dividends are declared by the Board of Directors from funds legally
available therefor. No dividends may be declared or paid in cash or
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<PAGE>
property on shares of either Parent Class A Common Stock or Parent 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
Parent Class A Common Stock are entitled to receive the same percentage dividend
(payable in shares of Parent Class A Common Stock) as holders of Parent Class B
Common Stock receive (payable in shares of Parent Class B Common Stock). The
Parent Certificate provides that the distribution of shares of capital stock of
any subsidiary to common stockholders may differ to the extent that the common
stock differs as to voting rights and rights in connection with certain
dividends.
LIQUIDATION. Holders of Parent Class A Common Stock and Parent Class B
Common Stock share with each other on a ratable basis as a single class in the
net assets available for distribution in respect of Parent Class A Common Stock
and Parent Class B Common Stock in the event of liquidation.
OTHER TERMS. Neither the Parent Class A Common Stock nor the Parent 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 Parent Class A Common Stock or Parent
Class B Common Stock must be identical to that received by holders of the other
class of Parent Common Stock, except that in any such transactions in which
shares of capital stock are distributed, such shares may differ as to voting
rights only to the extent that voting rights now differ between Parent Class A
Common Stock and Parent Class B Common Stock.
PARENT PREFERRED STOCK
Under the Parent Certificate, the Board of Directors of Parent is
authorized, without further stockholder action, to provide for the issuance of
up to 10,000,000 shares of Parent Preferred Stock. Subject to limitations
imposed by law or the Parent Certificate, the Board of Directors is empowered to
determine (a) the maximum number of shares to constitute the series and the
distinctive designation thereof; (b) whether the shares of such series shall
have voting rights, in addition to any voting rights provided by law, and, if
so, the terms of such voting rights; (c) the dividend rate, if any, on the
shares of such series, the conditions and dates upon which such dividends shall
be payable, the preference or relation which such dividends shall bear to the
dividends payable on any other class or classes or on any other series of
capital stock, and whether such dividends shall be cumulative or non-cumulative;
(d) whether the shares of such series shall be subject to redemption by Parent,
and, if made subject to redemption, the times, prices and other terms and
conditions of such redemption; (e) the rights of holders of shares of such
series upon the liquidation, dissolution or winding up of Parent; (f) whether or
not the shares of such series shall be subject to the operation of a retirement
sinking fund, and, if so, the extent to and manner in which any such retirement
or sinking fund shall be applied to the purchase or redemption of the shares of
such series for retirement or to other corporate purposes and the terms and
provisions relative to the operation thereof; (g) whether or not the shares of
such series shall be convertible into, or exchangeable for, the price or prices
or the rate or rates of conversion or exchange and the method, if any, of
adjusting the same; (h) the limitations and restrictions, if any, to be
effective while any shares of such series are outstanding upon the payment of
dividends or making of other distributions on, and upon the purchase, redemption
or other acquisition by Parent of, the Parent Class A Common Stock, the Parent
Class B Common Stock or any other class or classes of stock of Parent ranking
junior to the shares of such series either as to dividends or upon liquidation;
(i) the conditions or restrictions, if any, upon the creation or indebtedness of
Parent or upon the issue or any additional stock (including additional shares of
such series or of any other series or of any other class) ranking on a parity
with or prior to the shares of such series as to dividends or distribution of
assets on liquidation, dissolution or winding up; (j) whether fractional
interests in shares of the series will be offered in the form of depositary
shares; and (k) any other preference and relative, participating, optional or
other special rights or qualifications, limitations or restrictions thereof.
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OWNERSHIP OF CABLEVISION AND PARENT
Pursuant to the Cablevision By-Laws, the Board of Directors of Cablevision
has fixed the time and date for the determination of stockholders entitled to
notice of and to vote at the meeting as of the close of business on January 6,
1998. Accordingly, only holders of record of Cablevision Common Stock on such
date and at such time will be entitled to vote at the meeting, notwithstanding
any transfer of any stock on the books of Cablevision thereafter. On January 6,
1998, Cablevision had outstanding 13,983,496 shares of Cablevision Class A
Common Stock, each of which entitled the holder to one vote, and 11,096,709
shares of Cablevision Class B Common Stock, each of which entitled the holder to
ten votes. On such date, there were approximately 735 holders of record of
Cablevision Common Stock.
In accordance with Cablevision's confidential voting policy, all shareholder
proxies, ballots and voting materials will be confidentially inspected and
tabulated by independent inspectors of election and will not be disclosed to
Cablevision except under certain limited circumstances.
CABLEVISION
The following table sets forth (i) the number and percent of shares of
Cablevision Class A Common Stock and Cablevision Class B Common Stock owned of
record and beneficially as of March 31, 1997 by each director and each executive
officer of Cablevision and (ii) the name, address and the number and percent of
shares of Cablevision Class A Common Stock and Cablevision Class B Common Stock
owned of record and beneficially by persons beneficially owning more than five
(5%) percent of any class.
<TABLE>
<CAPTION>
COMBINED VOTING
POWER OF
CLASS A CLASS B CLASS A & CLASS B CLASS A & CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED (1) OWNED (1) (2) OWNED (1)(2) OWNED (1)(2)
- ----------------------------------------- -------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles F. Dolan (3)(4).................. 331,618 2.4% 6,234,281 55.4% 6,565,899 26.4% 49.7%
One Media Crossways
Woodbury, NY 11797
The Capital Group Companies, Inc. (5).... 2,008,970 14.8% -- -- 2,008,970 8.1% 1.6%
Capital Research and Management
Company(5)
Capital Guardian Trust
Company (5)
333 South Hope Street
Los Angeles, CA 90071
The Equitable Companies, Incorporated
(6).................................... 2,392,383 17.6% -- -- 2,392,383 9.6% 1.9%
787 Seventh Avenue
New York, NY 10019
Gabelli Funds, Inc. (7).................. 3,779,329 28.7% -- -- 3,779,329 15.2% 3.0%
GAMCO Investors, Inc. (7)
One Corporate Center
Rye, NY 10580
John Tatta(8)............................ 20,000 * -- -- 20,000 * *
William J. Bell (9)(10).................. 116,349 * -- -- 116,349 * *
Francis F. Randolph, Jr.(11)............. 58,500 * -- -- 58,500 * *
Robert S. Lemle (9)(10).................. 93,957 * -- -- 93,957 * *
Marc Lustgarten (9)(10).................. 122,063 * -- -- 122,063 * *
Sheila A. Mahoney (10)................... 21,337 * -- -- 21,337 * *
Robert P. May............................ 200 * -- -- 200 * *
Daniel T. Sweeney (10)................... 31,351 * -- -- 31,351 * *
Charles D. Ferris (12)................... 9,000 * -- -- 9,000
Richard H. Hochman (12).................. 10,094 * -- -- 10,094
Victor Oristano (12)(13)................. 9,000 * -- -- 9,000
James L. Dolan (1)(14)(22)(23)........... 14,688 * 745,241 6.6% 759,929 3.0% 5.9%
Patrick F. Dolan (10)(15)(20)(24)........ 4,100 * 817,410 7.3% 821,510 3.3% 6.5%
</TABLE>
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<TABLE>
<CAPTION>
COMBINED VOTING
POWER OF
CLASS A CLASS B CLASS A & CLASS B CLASS A & CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED (1) OWNED (1) (2) OWNED (1)(2) OWNED (1)(2)
- ----------------------------------------- -------------------- -------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas C. Dolan (10)(16)(21)(25)(26)..... 4,017 * 663,686 5.9% 667,703 2.7% 5.3%
Vincent Tese (12)........................ 2,500 * -- -- 2,500 * *
All executive officers and directors as a
group (20 persons)
(3)(4)(8)(9)(10)(11)
(12)(13)(14)(15)(16)
(29)(21)(22)(23)(24)(25)(26)........... 902,287 6.4% 8,460,618 75.2% 9,362,905 37.1% 67.6%
Paul J. Dolan (17)(22)(23)(24)(25)(26)... 1,700 * 1,894,063 16.8% 1,895,763 7.6% 15.0%
100 Corporate Place Suite 150
Chardon, OH 44024
Kathleen M. Dolan (17)(23)............... 1,000 * 716,741 6.4% 717,741 2.9% 5.7%
One Media Crossways
Woodbury, NY 11797
Mary S. Dolan (18)(20)................... 2,500 * 597,401 5.3% 599,901 2.4% 4.7%
300 So. Riverside Plaza
Suite 1480
Chicago, IL 60606
Deborah A. Dolan (18)(24)................ 1,000 * 816,741 7.3% 817,741 3.3% 6.5%
One Media Crossways
Woodbury, NY 11797
Matthew J. Dolan (19)(21)................ 1,500 * 597,401 5.3% 598,901 2.4% 4.7%
231 Main Street
Court House Annex
Chardon, OH 44024
Marianne E. Weber (19)(25)(26)........... 1,000 * 654,855 5.8% 655,855 2.6% 5.2%
One Media Crossways
Woodbury, NY 11797
John MacPherson (27)..................... 43,000 * 1,883,074 16.7% 1,926,074 7.8% 14.9%
21 Old Town Lane
Halesite, NY 10019
</TABLE>
- ------------------------
(1) Beneficial ownership of a security consists of sole or shared voting power
(including the power to vote or direct the vote) and/or sole or shared
investment power (including the power to dispose or direct the disposition)
with respect to the security through any contract, arrangement,
understanding, relationship or otherwise. Unless indicated, beneficial
ownership disclosed consists of sole voting and investment power. Beneficial
ownership of Cablevision Class A Common Stock is exclusive of the shares of
Cablevision Class A Common Stock that are issuable upon conversion of shares
of Cablevision Class B Common Stock.
(2) Cablevision Class B Common Stock is convertible into Cablevision Class A
Common Stock at the option of the holder on a share for share basis. The
holder of one share of Cablevision Class A Common Stock is entitled to one
vote at a meeting of stockholders of Cablevision, and the holder of one
share of Cablevision Class B Common Stock is entitled to ten votes at a
meeting of stockholders of Cablevision except in the election of directors.
(3) Includes 247,475 shares of Cablevision Class A Common Stock owned by the
Dolan Family Foundation, a New York not-for-profit corporation, the sole
members of which are Charles Dolan and his wife, Helen A. Dolan. Neither Mr.
Dolan nor Mrs. Dolan has an economic interest in such shares, but Mr. Dolan
and his wife share the ultimate power to vote and dispose of such shares.
Under certain rules of the Securities and Exchange Commission, so long as
Mr. Dolan and his wife retain such powers, each of Mr. Dolan and his wife is
deemed to have beneficial ownership thereof. Also includes 5,000 shares of
Cablevision Class A Common Stock owned directly by Mrs. Dolan. The number of
shares held as indicated includes 67,838 shares resulting from the assumed
conversion of 183,000 shares of Series I Preferred Stock (0.37070 shares of
Common Stock for each share of Cablevision Series I Preferred Stock).
(4) Does not include an aggregate 4,981,928 shares of Cablevision Class B Common
Stock held by trusts for the benefit of Dolan family interests (the "Dolan
Family Trusts"). The Dolan Family Trusts also own an aggregate of 94,026
shares of Cablevision Series C Preferred Stock which, commencing on December
30, 1997, may be converted by Cablevision into shares of Cablevision Class B
Common Stock in lieu of redeeming such shares for cash. All shares of
Cablevision Series C Preferred Stock were redeemed for cash on January 2,
1998. Mr. Dolan disclaims beneficial ownership of the shares owned by the
Dolan Family Trusts, in that he has neither voting nor investment power with
respect to such shares.
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<PAGE>
(5) Cablevision has been informed that certain operating subsidiaries of The
Capital Group Companies, Inc. exercised investment discretion over various
institutional accounts which held as of December 31, 1996, 2,008,970 shares
of Cablevision Class A Common Stock. Capital Guardian Trust Company, a bank,
and one of such operating companies, exercised investment discretion over
751,210 of such shares. Capital Research and Management Company, a
registered investment adviser, has investment discretion with respect to
1,184,660 of such shares. The number of shares held as indicated includes
549,370 shares resulting from the assumed conversion of 1,482,000 shares of
Cablevision Series I Preferred Stock (0.37070 shares of common stock for
each share of Cablevision Series I Preferred Stock).
(6) Cablevision has been informed that certain operating subsidiaries of The
Equitable Companies Incorporated exercise sole investment discretion over
various institutional accounts which own 2,392,383 shares of Cablevision
Class A Common Stock, and that such operating subsidiaries exercise sole
voting power with respect to 1,980,433 of such shares and sole dispositive
power with respect to all of such shares. The number of shares held as
indicated includes 938,083 shares resulting from the assumed conversion of
2,530,572 shares of Cablevision Series I Preferred Stock (0.37070 shares of
common stock for each share of Cablevision Series I Preferred Stock).
(7) Cablevision has been informed that certain operating subsidiaries of Gabelli
Funds, Inc. ("GFI") beneficially held, or exercise investment discretion
over various institutional accounts which beneficially held as of March 7,
1997, an aggregate of 3,779,329 shares of Class A Common Stock, including
approximately 24,745 shares of Cablevision Class A Common Stock that may be
obtained upon conversion of shares of Series I Preferred Stock held by such
entities on such date. Cablevision has been informed that GAMCO Investments,
Inc., an investment advisor registered under the Investment Advisers Act of
1940 and a wholly-owned subsidiary of GFI, held sole dispositive power over
2,951,450 of such shares and sole voting power over 2,809,350 of such
shares.
(8) Does not include 40,000 shares of Cablevision Class A Common Stock held by
the Tatta Family Group. The Tatta Family Group is a New York limited
partnership, the general partners of which are six trusts for the benefit of
Tatta family interests (the co-trustees of each of which are Stephen A.
Carib, Esq. and either Deborah T. DeCabia or Lisa T. Crowley, each a
daughter of John Tatta who has been a director since 1985 and was the
President of Cablevision from 1985 until 1991), and the limited partners of
which are trusts for the benefit of Mr. Tatta and Tatta Family interests
(the trustee of each of which is Stephen A. Carb, Esq.). Mr. Tatta who, as
of April 1, 1995, was the holder of 20,000 shares of Cablevision Class A
Common Stock, disclaims beneficial ownership of the stock beneficially owned
by trusts for the benefit of his family, in that he has neither voting nor
investment power with respect to such shares.
(9) Includes shares owned by children of the individuals listed, which shares
represent less than 1% of the outstanding Cablevision Class A Common Stock.
(10) Includes shares of Cablevision Common Stock issuable upon the exercise of
options granted pursuant to Cablevision's First Amended and Restated 1996
Employee Stock Plan or its predecessor plans which on April 1, 1997 were
unexercised but were exercisable within a period of 60 days from that date.
These amounts include the following number of shares for the following
individuals: Mr. James Dolan 13,688; Mr. Bell 116,050; Mr. Lemle 93,733, Mr.
Lustgarten 121,050; Ms. Mahony 21,191; Mr. Sweeney 14,800; Mr. Patrick Dolan
2,200; Mr. Thomas Dolan 3,017; and all executive officers and directors as a
group 422,264. Certain of these options held by Messrs. Bell, Lustgarten and
Lemle may be exercised only when the Fair Market Value (as defined) of a
share of Cablevision Class A Common Stock exceeds $67.80. These Options
(which are included in the aggregate option amounts set forth above in this
footnote(10)) are as follows: Mr. Bell 75,000; Mr. Lustgarten 80,000; and
Mr. Lemle 60,000. Certain of these options held by Ms. Mahony, Mr. Patrick
Dolan, Mr. Thomas Dolan and other executive officers, may be exercised only
when the Fair Market Value (as defined) of a share of Cablevision Class A
Common Stock exceeds $59.375. These options (which are included in the
aggregate option amounts set forth above in this footnote (10)) are as
follows; Ms. Mahony 2,500; Mr. Patrick Dolan 1,562; Mr. Thomas Dolan 1,375;
all executive officers and directors as a group 16,373.
(11) Includes 500 shares of Cablevision Class A Common Stock held by The Utopia
Fund and 500 shares of Cablevision Class A Common Stock held by The Sarah
Todd Fund. The Utopia Fund and The Sara Todd Fund are both private
charitable trusts of which Mr. Randolph is the sole trustee. Mr. Randolph
disclaims beneficial ownership of the shares of Cablevision Class A Common
Stock held by The Utopia Fund and The Sarah Todd Fund in that neither Mr.
Randolph nor any member of his immediate family has a vested interest in the
income or corpus of such trusts.
(12) Includes shares of Cablevision Common Stock issuable upon the exercise of
options granted pursuant to Cablevision's 1996 Stock Option Plan for
Non-Employee Directors, which on April 1, were unexercised but were
exercisable within a period of 60 days from that date. These amounts include
the following number of shares for the following individuals: Mr. Ferris
8,000; Mr. Hochman 8,000; Mr. Oristano 8,000; and Mr. Tese 2,500.
(13) The shares listed are owned by Alda Investment Company, a Florida
partnership consisting of members of the Oristano family.
(14) Includes 28,500 shares of Cablevision Class B Common Stock owned by trusts
for minor children as to which James L. Dolan disclaims beneficial
ownership. Also includes 716,741 shares of Cablevision Class B Common Stock
held by two family trusts of which James L. Dolan is a contingent
beneficiary and a co-trustee, as to which James L. Dolan disclaims
beneficial ownership, which shares are also described in footnotes (22) and
(23).
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(15) Includes 9,500 shares of Cablevision Class B Common Stock owned by trust
for a minor child as to which Patrick F. Dolan disclaims beneficial
ownership. Also includes 807,910 shares of Cablevision Class B Common Stock
held by two family trusts of which Patrick Dolan is a contingent beneficiary
and a co-trustee, as to which Patrick F. Dolan disclaims beneficial
ownership, which shares are also described in footnotes (20) and (24).
(16) Includes 663,686 shares of Cablevision Class B Common Stock held by three
family trusts of which Thomas C. Dolan is a contingent beneficiary and a
co-trustee, as to which Thomas C. Dolan disclaims beneficial ownership,
which shares are also described in footnotes (21), (25) and (26).
(17) Includes 303,116 shares of Cablevision Class B Common Stock held by the DC
Kathleen Trust, the co-trustees of which are Kathleen Dolan and Paul Dolan.
(18) Includes 303, 116 shares of Cablevision Class B Common Stock held by the DC
Deborah Trust, the co-trustees of which are Deborah Dolan and Mary Dolan.
(19) Includes 294,285 shares of Cablevision Class B Common Stock held by the DC
Marianne Trust, the co-trustees of which are Marianne E. Weber and Matthew
Dolan.
(20) Includes 294,285 shares of Cablevision Class B Common Stock held by the DC
Patrick Trust, the co-trustees of which are Patrick Dolan and Mary Dolan.
(21) Includes 303,116 shares of Cablevision Class B Common Stock held by the DC
Thomas Trust, the co-trustees of which are Thomas Dolan and Matthew Dolan.
(22) Includes 303,116 shares of Cablevision Class B Common Stock held by the DC
James Trust, the co-trustees of which are James Dolan and Paul Dolan.
(23) Includes 413,625 shares of Cablevision Class B Common Stock held by the
Dolan Descendants Trust, the co-trustees of which are James Dolan and
Kathleen Dolan and Paul Dolan.
(24) Includes 513,625 shares of Cablevision Class B Common Stock held by the
Dolan Progeny Trust, the co-trustees of which are Patrick Dolan, Deborah
Dolan and Paul Dolan.
(25) Includes 307,625 shares of Cablevision Class B Common Stock held by the
Dolan Grandchildren Trust, the co-trustees of which are Thomas Dolan,
Marianne E. Weber and Paul Dolan.
(26) Includes 52,945 shares of Cablevision Class B Common Stock held by the
Dolan Spouse Trust, the co-trustees of which are Thomas Dolan, Marianne E.
Weber and Paul Dolan.
(27) Includes aggregate of 1,883,074 shares of Cablevision Class B Common Stock
held by various trusts for the benefit of family members of Charles F.
Dolan's family for which Mr. MacPherson serves as Trustee and, in such
capacity, exercises sole voting power and dispositive power with respect to
such shares. Such trusts also own an aggregate of 38,724 shares of
Cablevision Series C Preferred Stock. All shares of Cablevision Series C
Preferred Stock were redeemed for cash on January 2, 1998.
The Dolan family interests (other than Dolan) have agreed with Cablevision
that in the case of any sale or disposition by Dolan family interests (other
than Dolan) of shares of Cablevision Class B Common Stock to a holder other than
Dolan or Dolan family interests, the Cablevision Class B Common Stock will be
converted on the basis of one share of Cablevision Class A Common Stock for each
share of Cablevision Class B Common Stock. This agreement will apply to Parent
and the Parent Common Stock after the Merger.
Dolan and trusts for the benefit of members of his family, by virtue of
their ownership of Cablevision Class B Common Stock, are able collectively to
control stockholder decisions on matters in which holders of Cablevision Class A
Common Stock and Cablevision Class B Common Stock vote together as a class, and
to elect 75% of the Cablevision Board of Directors.
REGISTRATION RIGHTS. Cablevision has granted to each of Dolan, certain
Dolan family interests and the Dolan Family Foundation the right to require
Cablevision to register, at any time prior to the death of both Dolan and his
wife, the shares of Cablevision Class A Common Stock held by them provided that
the shares requested to be registered shall have an aggregate market value of at
least $3,000,000. There is no limitation on the number or frequency of the
registrations that such parties can demand pursuant to the preceding sentence.
After the death of both Dolan and his wife, such parties will be permitted one
additional registration. In addition, Cablevision has granted such parties
"piggy-back" rights pursuant to
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which they may require Cablevision to register their holdings of Cablevision
Class A Common Stock on any registration statement under the Act with respect to
an offering by Cablevision or any security holder thereof (other than a
registration statement on Form S-8, S-4, S-15 or any successor form thereto).
Cablevision has granted Mr. Tatta and certain Tatta family interests the
right to require Cablevision, on any date, with the consent of Dolan, his widow
or the representative of the estate of Dolan or his wife, to register the shares
of Cablevision Class A Common Stock held by them provided that the shares
requested to be registered have an aggregate market value of at least
$3,000,000. After the death of both Dolan and his wife, such parties will be
permitted to demand only one registration. Such parties have also been granted
piggyback registration rights identical to those described above, provided that
in certain instances they received written consent of Dolan, his widow or the
representative of the estate of Dolan or his wife.
Pursuant to an Agreement of Sale and Assignment, dated as of February 14,
1989 among the A. Jerrold Perenchio Living Trust (the "Perenchio Trust"),
Cablevision, Mr. Tatta and certain Tatta family interests, the Perenchio Trust
was assigned registration rights with respect to the 270,000 shares of
Cablevision Class A Common Stock purchased under such agreement. In connection
with an option granted Mr. Randolph to acquire 840,000 shares of Cablevision
Class A Common Stock pursuant to Cablevision's 1986 Nonqualified Stock Option
Plan, Cablevision granted to Mr. Randolph a limited right to require Cablevision
to register such shares. Pursuant to these agreements, in 1990 Cablevision filed
a registration statement on Form S-3 with respect to these shares and has agreed
to use its best efforts to keep such registration statement continuously
effective until such time as all the shares covered thereby have been publicly
sold.
The registration rights agreements described above will apply to Parent and
the Parent Common Stock after the Merger.
PARENT
There is currently outstanding 1 share of Parent Class A Common Stock which
is owned by Cablevision. At the Effective Time of the Merger, such share of
Parent Class A Common Stock will be canceled and will no longer be outstanding.
It is anticipated that after giving effect to the Merger and the Issuance
and based on shares outstanding as of January 6, 1998, 13,983,496 shares of
Parent Class A Common Stock and 11,096,709 shares of Parent Class B Common Stock
will be issued and outstanding. If the Partnership Contribution is consummated,
an additional approximately 52,000 shares of Parent Class A Common Stock would
be issued and outstanding upon consummation of the Transactions and the
Partnership Contribution. It is anticipated that no Parent Preferred Stock will
be outstanding after the Transactions.
Based on ownership as of September 30, 1997, the directors and executive
officers of Parent as of the Effective Time as a group are expected to
beneficially own approximately 34.1% of the outstanding shares of Parent Common
Stock and 66.8% of the total voting power of the outstanding Parent Common Stock
after giving effect to the Merger and approximately 23.9% of the outstanding
shares of Parent Common Stock and 61.1% of the total voting power of the
outstanding shares of Parent Common Stock after giving effect to both of the
Merger and the Issuance. See "--Cablevision" for the number of shares of Parent
Common Stock expected to be beneficially owned by each director, the chief
executive officer and other executive officers of Parent.
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COMPARISON OF CERTAIN RIGHTS OF HOLDERS
RIGHTS OF HOLDERS OF PARENT COMMON STOCK COMPARED TO CABLEVISION COMMON STOCK
Upon consummation of the Merger, the holders of Cablevision Common Stock
will become holders of Parent Common Stock and their rights will be governed by
the Parent Certificate and the Parent Bylaws, copies of which are attached
hereto as Appendices G and H, respectively.
The following discussion is not complete and is qualified in its entirety by
reference to the DGCL and to the Parent Certificate and Parent Bylaws, which are
incorporated herein by reference.
Since both Parent and Cablevision are organized under the laws of the State
of Delaware, any differences in the rights of the stockholders of Parent and
Cablevision would arise solely from differences in their respective certificates
of incorporation and bylaws. The Parent Certificate and Parent Bylaws are
similar in all material respects to the Cablevision Certificate and Cablevision
Bylaws except that Parent will have authorized for issuance 280,000,000 shares
of Parent Common Stock under the Parent Certificate as compared to 70,000,000
shares of Cablevision Common Stock authorized for issuance under the Cablevision
Certificate. In addition, Parent does not have designated any series of Parent
Preferred Stock. The purpose of the additional authorized capital stock of
Parent is to provide adequate authorized shares for, among other things, the
Issuance and stock split that Parent may complete following the Transactions.
MANAGEMENT
BOARD OF DIRECTORS
Upon consummation of the Merger, the Parent Board of Directors will consist
of the members of the Cablevision Board of Directors immediately prior to the
Merger with two of the Class B Directors being Investor Directors pursuant to
the terms of the Contribution and Merger Agreement and the Stockholders
Agreement. The individuals listed under "Cablevision Designees" in the table
below are the current members of the Board of Directors of Cablevision who will
become members of the Board of Directors of Parent at the Effective Time and
Thomas C. Dolan who will become a member of the Board of Directors of Parent at
the Effective Time. The Investor Directors listed in the table below will become
members of the Board of Directors of Parent as Class B Directors at the
Effective Time.
<TABLE>
<CAPTION>
NAME AGE AS OF 4/1/97 POSITION
- ------------------------------------------------ ------------------- ------------------------------------------------
<S> <C> <C>
CABLEVISION DESIGNEES
Class A Directors
- ------------------------------------------------
Charles D. Ferris............................... 63 Director
Richard H. Hochman (1)(2)....................... 51 Director
Victor Oristano (1)(2).......................... 80 Director
Vincent Tese.................................... 54 Director
Class B Directors
- ------------------------------------------------
Charles F. Dolan................................ 70 Chairman and Director
James L. Dolan (3).............................. 41 CEO and Director
William J. Bell (3)............................. 57 Vice Chairman and Director
Marc A. Lustgarten (3).......................... 50 Vice Chairman and Director
Robert S. Lemle (3)............................. 44 Executive Vice President, General Counsel,
Secretary and Director
Patrick F. Dolan................................ 45 Director and Vice President of News
Sheila A. Mahony................................ 55 Senior Vice President and Director
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE AS OF 4/1/97 POSITION
- ------------------------------------------------ ------------------- ------------------------------------------------
<S> <C> <C>
Thomas C. Dolan....................... 44 Senior Vice President and Chief
Information Officer and Director
John Tatta (2)(3)..................... 76 Chairman of the Executive Committee
and Director
INVESTOR DIRECTORS
Class B Directors
- --------------------------------------
John C. Malone (4).................... 54 Director
Leo J. Hindery, Jr. (4)............... 49 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Executive Committee
(4) To be a member of the Special Committee
All directors hold office until the next annual meeting of stockholders
following their elections or until their successors are elected and qualified.
Information with respect to the business experience and affiliations of each
Director is set forth below.
CABLEVISION DESIGNEES. Charles F. Dolan--Chairman and Director of
Cablevision since 1985. Chief Executive Officer of Cablevision from 1985 to
October 1995. Founded and acted as the General Partner of Cablevision's
predecessor from 1973 until 1985. Established Manhattan Cable Television in 1961
and Home Box Office in 1971. Charles F. Dolan is the father of James L. Dolan,
Patrick F. Dolan and Thomas C. Dolan.
James L. Dolan--Chief Executive Officer of Cablevision since October 1995
and Director of Cablevision since 1991. Chief Executive Officer of Rainbow
Programming Holdings, Inc., a subsidiary of Cablevision, from September 1992 to
October 1995. Vice President of Cablevision from 1987 to September 1992.
Director of Advertising Sales from 1985 to September 1992. Manager of
Advertising Sales from 1983 to 1985. James L. Dolan is the son of Charles F.
Dolan and the brother of Patrick F. Dolan and Thomas C. Dolan.
William J. Bell--Vice Chairman and Director of Cablevision since 1985.
Joined Cablevision's predecessor in 1979. Mr. Bell is a member of the Board of
Governors of AMEX.
Marc A. Lustgarten--Director of Cablevision since 1985. Vice Chairman of
Cablevision since 1989. Executive Vice President of Cablevision from 1985 to
1989.
Robert S. Lemle--Director of Cablevision since 1988. Executive Vice
President, General Counsel and Secretary since February 1994. Senior Vice
President, General Counsel and Secretary of Cablevision from 1986 to February
1994 and Vice President, General Counsel and Secretary of Cablevision from 1985
to 1986.
Sheila A. Mahoney--Director of Cablevision since 1988. Senior Vice President
of Cablevision since June 1995. Vice President of Government Relations and
Public Affairs of Cablevision and its predecessor from 1980 to June 1995.
Patrick F. Dolan--Director of Cablevision since August 1991. Vice President
of News since September 1995. News Director of News 12 Long Island, a subsidiary
of Cablevision, from December 1991 to September 1995. Producer of Special
Projects of News 12 Long Island from January 1990 to December 1991 and Special
Projects Director of News 12 Long Island from May 1989 to January 1990. Patrick
F. Dolan is the son of Charles F. Dolan and the brother of James L. Dolan and
Thomas C. Dolan.
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Thomas C. Dolan--Senior Vice President and Chief Information Officer of
Cablevision since February 1996. Vice President and Chief Information Officer of
Cablevision from July 1994 to February 1996. General Manager of Cablevision's
East End Long Island cable system from November 1991 through July 1994. Thomas
C. Dolan is the son of Charles F. Dolan and the brother of Patrick F. Dolan and
James L. Dolan.
John Tatta--Director of Cablevision since 1985. Chairman of the Executive
Committee of Cablevision and consultant to Cablevision since January 1992.
President of Cablevision from 1985 through December 1991. Chief Operating
Officer of Cablevision from 1985 to 1989.
Charles D. Ferris--Director of Cablevision since 1985. Member of the law
firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. since 1981. Chairman
of the FCC from October 1977 until April 1981.
Richard H. Hochman--Director of Cablevision since 1986. Managing Partner of
Regent Capital Partners, L.P. since April 1995. Managing Director of PaineWebber
Incorporated from 1990 to April 1995.
Victor Oristano--Director of Cablevision since 1985. Chairman of Alda
Limited Partners, a holding company which has built and operated cable
television systems in Connecticut, Florida, New Jersey, Pennsylvania and the
United Kingdom since 1966. Mr. Oristano is also a member of the Board of
Directors of People's Choice TV Corp.
Vincent Tese--Director of Cablevision since July 1996. Director of The Bear
Stearns Companies, Inc. since December 1994. Chairman of Wireless Cable
International, Inc. since July 1995. Chairman of Cross Country Wireless from
December 1994 to July 1995. Mr. Tese served as Chairman and Chief Executive
Officer of the New York State Urban Development Corporation from 1985 to 1987,
and as Director of Economic Development for New York State from 1987 to December
1994. Mr. Tese also serves on the Board of Directors of Quintel Entertainment,
Inc., Custodial Trust Company and Bowne & Co., Inc.
INVESTOR DIRECTORS. John C. Malone--Born March 7, 1941; director of
Tele-Communications since June of 1994; Chairman of the Board of
Tele-Communications from November 1996; Chief Executive Officer of
Tele-Communications from January of 1994; President of Tele-Communications from
January of 1994 through March of 1997; Chief Executive Officer of TCI from March
of 1992 to October of 1994 and President of TCI from 1973 to October of 1994;
Chairman of the Board of Directors of International since May of 1995; director
of TPAC since July of 1996; is President and a director of many of Tele-
Communications' subsidiaries; director of BET Holdings, Inc., The Bank of New
York and TCI Satellite Entertainment, Inc.; TCI director since 1973.
Leo J. Hindery, Jr.--Born October 31, 1947; director of the
Tele-Communications Board since May of 1997; President and Chief Operating
Officer of Tele-Communications from March of 1997; President, Chief Executive
Officer and a director of TCI since March of 1997; was founder, Managing General
Partner and Chief Executive Officer of InterMedia Partners and its affiliated
entities since 1988; also a director and Chairman of the Board of TCI Music.
COMPENSATION OF DIRECTORS. Compensation for directors of Parent will be as
is currently the case for Cablevision directors. For a description of such
compensation arrangements, see the portions of the 1997 Proxy Statement included
in the Form 10-K incorporated herein by reference. See "Incorporation of Certain
Information by Reference."
Parent currently anticipates that it will pay, as is currently the case for
Cablevision, its non-employee directors a retainer fee of $20,000 per year for
membership on the Board of Directors, and a $1,000 fee for attendance in person
and a $500 fee for attendance by telephone at each Board of Directors or
Committee meeting in person.
COMMITTEES OF THE BOARD OF DIRECTORS. Following the Merger, the Board or
Directors of Parent will establish such committees and designate members of such
committees as is currently the case for
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Cablevision and as it may deem appropriate. For a description of such
committees, which include an Executive Committee, an Audit Committee and a
Compensation Committee, see portions of the 1997 Proxy Statement included in the
Form 10-K incorporated herein by reference. See "Incorporation of Certain
Information by Reference." The Stockholders Agreement provides for Parent to
establish in accordance with the Parent Bylaws the Special Committee (as defined
in the Stockholders Agreement), and the Investor Directors will be members of
that committee. See "Certain Related Agreements--The Stockholders Agreement."
CONFLICTS OF INTEREST; INTERLOCKS; INSIDER PARTICIPATION; AND RELATIONSHIPS
AND RELATED TRANSACTIONS. For a description of certain conflicts of interest,
Compensation Committee Interlocks, insider participation relationships and
related transactions with other directors that currently apply to Cablevision
and are currently anticipated to apply to Parent after the Merger, see the
portions of the 1997 Proxy Statement included in the Form 10-K incorporated
herein by reference. See "Incorporation of Certain Information by Reference."
EXECUTIVE OFFICERS
Set forth below are the names and titles, following the Effective Time, of
the persons who will serve as executive officers of Parent immediately following
the Merger.
<TABLE>
<CAPTION>
NAME AGE AS OF 4/1/97 POSITION
- ------------------------------------------------ ------------------- ------------------------------------------------
<S> <C> <C>
Charles F. Dolan................................ 70 Chairman and Director
James L. Dolan.................................. 41 Chief Executive Officer and Director
William J. Bell................................. 57 Vice Chairman and Director
Marc A. Lustgarten.............................. 50 Vice Chairman and Director
Robert S. Lemle................................. 44 Executive Vice President, General Counsel,
Secretary and Director
Andrew B. Rosengard............................. 39 Executive Vice President, Financial Planning and
Controller
Margaret Albergo................................ 43 Senior Vice President, Planning and Performance
Joseph W. Cece.................................. 44 Senior Vice President, Strategic Planning
Thomas C. Dolan................................. 44 Senior Vice President and Chief Information
Officer and Director
Sheila A. Mahony................................ 55 Senior Vice President and Director
Barry J. O'Leary................................ 53 Senior Vice President, Finance and Treasurer
Patrick F. Dolan................................ 45 Vice President of News and Director
</TABLE>
Information with respect to the business experience and affiliations of each
executive officer who is not also currently anticipated to serve as a Director
of Parent is set forth below.
Margaret Albergo--Senior Vice President, Planning and Performance of
Cablevision since October 1996. Senior Vice President, Operations of Rainbow
Programming Holdings, Inc. from August 1995 to October 1996. Vice President,
Corporate Development of Rainbow Programming Holdings, Inc. from 1993 until
August 1995. Director of Operations and Administration of News 12 Long Island
from 1991 to 1993.
Joseph W. Cece--Senior Vice President, Strategic Planning of Cablevision
since February 1996. President and Chief Operating Officer of Cablevision
Lightpath, Inc. from January 1994 to February 1996. Vice President, New Business
of Cablevision from September 1993 to January 1994. President and Publisher of
T.V. Guide from October 1988 to August 1993.
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Barry J. O'Leary--Senior Vice President, Finance of Cablevision since 1986.
Vice President of Cablevision from 1985 to 1986 and Treasurer of Cablevision
since December 1985. Joined Cablevision's predecessor in 1984.
Andrew B. Rosengard--Executive Vice President and Controller of Cablevision
since November 1997 and Senior Vice President and Controller of Cablevision from
February 1996 to November 1997. Senior Vice President, Finance for Rainbow
Programming Holdings, Inc. from 1990 to February 1996. Vice President, Finance
and Administration of Rainbow Programming Holdings, Inc. from 1988 to 1990.
Prior to joining Rainbow Programming Holdings, Inc. in 1986, Mr. Rosengard was
director of planning, business development and research of CBS Broadcasting
Group, CBS, Inc.
COMPENSATION OF EXECUTIVE OFFICERS; EMPLOYMENT ARRANGEMENTS. Parent has not
yet paid any compensation to its chief executive officer or any of its other
executive officers. Parent currently anticipates that the compensation of such
executive officers and policies for determining such compensation will be the
same after the Merger as is currently the case for the Cablevision executive
officers. Cablevision is party to employment arrangements with its executive
officers, some of which contain change of control or severance provisions. These
arrangements will be assumed by, and become arrangements of, Parent after the
Merger. The consummation of the Transactions will not trigger any benefits or
payments under these arrangements.
For information concerning the employment arrangements of, and the
compensation paid to, the chief executive officer and the other four most highly
compensated executive officers of Cablevision for the 1996 fiscal year and
concerning the compensation policies of Cablevision, see the 1997 Proxy
Statement included in the Form 10-K which is incorporated herein by reference.
See "Incorporation of Certain Information by Reference."
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THE PLAN PROPOSALS
THE PARENT EMPLOYEE STOCK PLAN
On February 13, 1996, Cablevision's Board of Directors adopted, subject to
shareholder approval, the Cablevision Systems Corporation 1996 Employee Stock
Plan (the "1996 Plan"). On April 25, 1996, the Cablevision Board of Directors
approved certain amendments to the 1996 Plan (as so amended, the "Restated 1996
Stock Plan"), and the Restated 1996 Stock Plan was approved by the stockholders
of Cablevision at the 1996 Annual Meeting.
The Restated 1996 Plan has been amended and adopted by Parent in connection
with the Transactions (as so amended and restated, the "Parent Employee Stock
Plan") and is being submitted to the stockholders of Cablevision in connection
with the Transactions in order to ensure its continued compliance with the
requirements for future grants of "incentive stock options" under Section 422 of
the Code, as well as with the requirements of Section 162(m) of the Code
relating to the deduction of annual compensation in excess of $1 million to
certain executive officers. In order to comply with these requirements, approval
of the holders of Parent Class A Common Stock issued in the Issuance, which will
be sought separately by Parent, must also be obtained. The text of the Parent
Employee Stock Plan is set forth in Appendix D hereto, and the following
discussion is qualified in its entirety by reference thereto.
The Parent Employee Stock Plan will be administered by the Compensation
Committee. Awards may be granted under the Parent Employee Stock Plan to key
employees of Parent and its affiliates (other than members of the Compensation
Committee) as the Compensation Committee may determine. The Compensation
Committee may make awards under the Parent Employee Stock Plan for up to an
aggregate number of shares equal to the sum of (i) 1,500,000 shares, which may
be either treasury shares or authorized and unissued shares, and (ii) the number
of restricted shares, if any, purchased from employees by Parent. Additionally,
if an award is paid or settled in cash, or expires, lapses, terminates or is
canceled without the issuance of shares, then the Compensation Committee may
grant awards with respect to shares subject to such prior awards. In the event
of any stock dividend, stock split, spin-off, reclassification,
recapitalization, or other similar event resulting in dilution of the Parent
Class A Common Stock, then the number of shares of Parent Class A Common Stock
issuable under the Parent Employee Stock Plan shall be proportionately adjusted
to reflect such transaction. No single employee may be issued awards for a
number of shares exceeding 600,000 over the term of the Parent Employee Stock
Plan.
Under the Parent Employee Stock Plan, Parent may grant "incentive stock
options", as defined in Section 422 of the Code, non-qualified stock options,
restricted stock and bonus award shares. Bonus award shares are restricted
shares that are payable upon vesting in cash and/or stock at Parent's election.
The option exercise price of stock options may not be less than the fair market
value per share of Parent Class A Common Stock on the date the option is
granted. Other than in the case of the death of an award recipient, such options
may be exercised for a term no longer than ten years. The Parent Employee Stock
Plan provides that, in conjunction with the grant of an option, Parent may grant
stock appreciation rights ("SARs") pursuant to which the employee may elect to
receive payment, either in lieu of the right to exercise such option or in
addition to the stock received upon the exercise of such option, as the
Compensation Committee may determine at the time the SAR is granted, equal to
the difference between the fair market value of the stock as of the date the SAR
is exercised and the option exercise price. The Parent Employee Stock Plan
permits the granting of restricted shares and bonus award shares at prices
determined by the Compensation Committee.
Under the Parent Employee Stock Plan, the Compensation Committee would have
the authority, in its discretion, to add performance criteria as a condition to
any employee's exercise of a stock option or SAR, or the vesting or payment of
any bonus award shares or restricted shares, granted under the Parent Employee
Stock Plan. Additionally, the Parent Employee Stock Plan specifies certain
performance criteria that may, in the case of certain executive officers of
Parent, be conditions precedent to the vesting of bonus award shares or
restricted shares granted to such executives under the Parent Employee Stock
Plan. These
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performance criteria include: (i) earnings per share, (ii) total return to
stockholders, (iii) return on equity, (iv) operating income or net income, (v)
return on capital, (vi) costs, (vii) results relative to budget, (viii) cash
flow, (ix) cash flow margin, (x) cash flow per subscriber, (xi) revenues, (xii)
revenues per subscriber, (xiii) subscriber growth, (xiv) results relative to
quantitative customer service standards, (xv) results relative to quantitative
customer satisfaction standards, or (xvi) specified increase in the Fair Market
Value of Parent Class A Common Stock. Application of the performance criteria
may be by reference to the performance of Parent or an affiliate of Parent or a
subdivision or other business unit of either, or any combination of the
foregoing, or based on comparative performance relative to other companies.
Restricted shares, bonus award shares and shares issuable upon the exercise of
an option are paid, at the specified vesting or exercise date, as the case may
be, in shares of Parent Class A Common Stock unless satisfied or settled in cash
pursuant to the terms of the Parent Employee Stock Plan.
The Board of Directors or the Compensation Committee may discontinue the
Parent Employee Stock Plan at any time and from time to time may amend or revise
the terms of the Parent Employee Stock Plan, as permitted by applicable law,
except that it may not revoke or alter, in any manner unfavorable to the
recipient of an outstanding award under the Parent Employee Stock Plan, any
award made under the Parent Employee Stock Plan, without the consent of the
recipient of that award, nor may it amend the Parent Employee Stock Plan without
the approval of the stockholders of Parent if such approval is required by Rule
16b-3 under the 1934 Act for transactions pursuant to the Parent Employee Stock
Plan to continue to be exempt thereunder.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following summary generally
describes the principal Federal (but not state and local) income tax
consequences of the issuance and exercise of options under the Parent Employee
Stock Plan. It is general in nature and is not intended to cover all tax
consequences that may apply to a particular participant or Parent. The
provisions of the Code and the regulations thereunder relating to these matters
are complex and their impact in any one case may depend upon the particular
circumstances.
An employee will not realize any income when an incentive stock option is
granted under the Parent Employee Stock Plan or when such an option is
exercised, and Parent will not be entitled to a deduction with respect to the
grant or exercise of such an option. The difference between the exercise price
of an incentive stock option and the fair market value of Parent Class A Common
Stock subject to the option at the time of exercise is an item of tax preference
which may result in the employee being subject to the alternative minimum tax.
If the employee holds the Parent Class A Common Stock acquired under an
incentive stock option for at least two years from the date the option is
granted and at least one year from the date of exercise of the option, any gain
realized by the employee when the Parent Class A Common Stock is sold will be
taxable as capital gain. If the holding periods are not satisfied, the employee
will realize ordinary income in the year of the disposition of the Parent Class
A Common Stock in an amount equal to the excess of the fair market value of such
Parent Class A Common Stock on the date of exercise (or the proceeds of the
disposition, if lower) over the option price, and Parent will be entitled to a
corresponding deduction. Any remaining gain will be capital gain. If an
incentive stock option is settled by Parent in cash, Parent Class A Common Stock
or a combination thereof, the employee will recognize ordinary income at the
time of settlement equal to the fair market value of such cash, Parent Class A
Common Stock or combination thereof and Parent shall be entitled to a
corresponding deduction.
An employee will not realize any income, and Parent will not be entitled to
a deduction, at the time that a non-qualified stock option is granted under the
Parent Employee Stock Plan. Upon exercising a non-qualified stock option, an
employee will realize ordinary income, and Parent will be entitled to a
corresponding deduction, in an amount equal to the excess of the fair market
value on the exercise date of the Parent Class A Common Stock subject to the
option over the exercise price of the option. The employee will have a basis in
the Parent Class A Common Stock received as a result of the exercise, for
purposes of computing capital gain or loss, equal to the fair market value of
such Parent Class A Common Stock on the exercise date and the employee's holding
period in the Parent Class A Common Stock
88
<PAGE>
received will commence on the date of exercise. If a non-qualified stock option
is settled by Parent in cash, Parent Class A Common Stock or a combination
thereof, the employee will recognize ordinary income at the time of settlement
equal to the fair market value of such cash, Parent Class A Common Stock or
combination thereof and Parent shall be entitled to a corresponding deduction.
LONG-TERM CAPITAL GAIN. The maximum rate of tax on long-term capital gain
for shares sold after July 28, 1997 is 20% if the shares have been held for more
than 18 months and 28% for shares held for more than 12 months but not more than
18 months. The 20% maximum rate is reduced to 18% with respect to options
granted after December 31, 2000.
Because Parent is assuming the Parent Employee Stock Plan from Cablevision
as amended and is to be treated as a successor to Cablevision thereunder, grants
of awards under the Restated 1996 Stock Plan are "counted against" the awards
available under the Parent Employee Stock Plan. On May 1, 1996, the Compensation
Committee authorized the grant of 500,855 options, 500,855 SARs and 90,850 Bonus
Awards to 243 employees pursuant to the Restated 1996 Stock Plan; Mr. Quinn and
all executive officers as a group received 16,000 and 69,000 options, and 16,000
and 69,000 SARS, respectively. No executive officer received Bonus Awards under
this grant.
The affirmative vote of a majority of the votes cast at the Special Meeting,
in person or by proxy, by holders of the Cablevision Class A Common Stock and
the Cablevision Class B Common Stock, voting together as a single class, is
required to authorize and approve the Parent Employee Stock Plan.
In addition, the approval of the holders of Parent Class A Common Stock
issued in the Issuance must also be obtained and Parent will seek such approval
separately. Abstentions from voting will have the same effect as voting against
the proposal. Broker non-votes will have no effect on the outcome of the vote on
this proposal.
Approval of the Contribution and Merger Agreement will constitute approval
of the stock options, conjunctive rights, bonus award shares and incentive
awards of Parent to be issued in replacement of outstanding Cablevision stock
options, conjunctive rights, bonus award shares and incentive awards pursuant to
the Contribution and Merger Agreement.
EACH OF THE CABLEVISION AND THE PARENT BOARDS OF DIRECTORS RECOMMENDS A VOTE
FOR ADOPTION AND APPROVAL OF THE PARENT EMPLOYEE STOCK PLAN.
THE PARENT LONG-TERM INCENTIVE PLAN
On April 23, 1997, Cablevision's Board of Directors adopted, subject to
shareholder approval, the Cablevision Systems Corporation 1997 Long-Term
Incentive Plan (the "Cablevision Long-Term Incentive Plan"), and the Cablevision
Long-Term Incentive Plan was approved by the stockholders of Cablevision at the
1997 Annual Meeting. The Cablevision Long-Term Incentive Plan has been amended
and adopted by Parent in connection with the Transactions (as so amended and
restated, the "Parent Long-Term Incentive Plan") and is being submitted to the
stockholders of Cablevision in connection with the Transactions in order to
ensure its continued compliance with the requirements of Section 162(m) of the
Code relating to the deduction of annual compensation in excess of $1 million to
certain executive officers. In order to comply with these requirements, approval
of the holders of Parent Class A Common Stock issued in the Issuance, which will
be sought separately by Parent, must also be obtained. The text of the Parent
Long-Term Incentive Plan is set forth in Appendix E hereto, and the following
discussion is qualified in its entirety by reference thereto.
The Parent Long-Term Incentive Plan will be administered by the Compensation
Committee. Awards may be granted under the Parent Long-Term Incentive Plan to
such officers and key employees of Parent, or an affiliate of Parent, as the
Compensation Committee may determine, except that Dolan shall not be eligible to
receive awards under the plan.
89
<PAGE>
The Compensation Committee may establish one or more conditions which must
be satisfied in order for a participant to be entitled to an award under the
plan. The Parent Long-Term Incentive Plan specifies certain performance criteria
that may, in the discretion of the Compensation Committee, be conditions
precedent to the payment of any award granted under the plan, to the Company's
Chief Executive Officer, any other employee who the Compensation Committee
determines is likely to be among the four other highest compensated officers for
the year in which an award is made or payable, as well as any other employee
designated by the Committee in its discretion. These performance criteria
include satisfaction of one or more of the following over a period or periods
selected by the Committee: (i) earnings per share, (ii) total return to
stockholders, (iii) return on investment, (iv) operating income or net income,
(v) costs, (vi) results relative to budget, (vii) cash flow, (viii) cash flow
margin, (ix) cash flow per subscriber, (x) revenues, (xi) revenues per
subscriber, (xii) subscriber growth, (xiii) results relative to quantitative
customer service standards, (xiv) results relative to quantitative customer
satisfaction standards, (xv) market share, (xvi) a specified increase in the
fair market value of Parent's Class A Common Stock, or (xvii) a specified
increase in the private market value of Parent.
All awards granted under the Parent Long-Term Incentive Plan are payable
solely in cash. In no event may any participant be granted an award at any one
time in an amount exceeding $5,000,000. No awards may be made under the Parent
Long-Term Incentive Plan after December 31, 2006.
Because Parent is assuming the Parent Long-Term Incentive Plan and is be
treated as a successor to Cablevision thereunder, the following table provides
information with respect to awards made in March 1997 to the Chief Executive
Officer and the four other most highly compensated executive officers of
Cablevision, all executive officers of Cablevision as a group, all directors of
Cablevision who are not executive officers as a group and all employees of
Cablevision excluding all current officers who are not executive officers as a
group. Other awards may be made to such persons and groups in the future but the
amount and timing thereof cannot be currently determined. Payment of these
awards is contingent on the achievement of certain performance criteria
established by the Compensation Committee.
<TABLE>
<CAPTION>
NAME TITLE AMOUNT OF AWARD
- -------------------------------------------- -------------------------------------------- ---------------------
<S> <C> <C>
Charles F. Dolan............................ Chairman $ 0
James L. Dolan.............................. Chief Executive Officer $ 4,000,000
Marc Lustgarten............................. Vice Chairman $ 2,250,000
William J. Bell............................. Vice Chairman $ 2,000,000
Robert S. Lemle............................. Executive Vice President, $ 1,650,000
General Counsel and Secretary
Executive Officer Group..................... $ 11,900,000
Non-Executive Officer Director Group........ $ 0
Non-Executive Officer Employee Group........ $ 1,750,000
</TABLE>
The Parent Long-Term Incentive Plan may be amended by the Board of Directors
or the Compensation Committee, as permitted by applicable law.
The affirmative vote of a majority of the votes cast at the Special Meeting,
in person or by proxy, by holders of the Cablevision Class A Common Stock and
the Cablevision Class B Common Stock, voting together as a single class, is
required to authorize and approve the Parent Long-Term Incentive Plan.
Abstentions from voting will have the same effect as voting against the
proposal. Broker non-votes will have no effect on the outcome of the vote on
this proposal. In addition, approval of the holders of Parent Class A Common
Stock issued in the Issuance must also be obtained. Parent will seek such
approval separately.
Approval of the Contribution and Merger Agreement will constitute approval
of the stock options, conjunctive rights, bonus award shares and incentive
awards of Parent to be issued in replacement of
90
<PAGE>
outstanding Cablevision stock options, conjunctive rights, bonus award shares
and incentive awards pursuant to the Contribution and Merger Agreement.
EACH OF THE CABLEVISION AND THE PARENT BOARDS OF DIRECTORS RECOMMENDS A VOTE
FOR ADOPTION AND APPROVAL OF THE PARENT LONG-TERM INCENTIVE PLAN.
91
<PAGE>
CERTAIN LEGAL MATTERS
The validity of the securities issued hereunder will be passed upon for
Parent by Robert S. Lemle, Executive Vice President, General Counsel and
Secretary of Cablevision and Parent. In addition Sherman & Howard, L.L.P. and
Sullivan & Cromwell have delivered opinions attached as Exhibits to the
Registration Statement (which are incorporated herein by reference) to TCI and
Cablevision and Parent, respectively, regarding certain tax matters relating to
the Transactions.
EXPERTS
The consolidated financial statements and schedule of Cablevision and its
subsidiaries as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996 that are included in the Form 10-K
which is incorporated by reference in this Proxy Statement/Prospectus by
reference have been incorporated herein and in the Registration Statement 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 A-R Cable Services, Inc. and its
subsidiaries as of December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996 that are included in the Form 10-K,
which is incorporated in this Proxy Statement/Prospectus by reference, have been
incorporated herein and in the Registration Statement 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 balance sheet of Parent as of November 21, 1997 has been
included in this Proxy Statement/Prospectus in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
The combined balance sheets of the TCI New Jersey and New York Systems (as
defined in note 1 to the combined financial statements) as of December 31, 1996
and 1995, and the related combined statements of operations and parent's
investment and cash flows for each of the years in the three-year period ended
December 31, 1996, have been included herein in reliance upon the report, dated
July 29, 1997, of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The combined balance sheets of the TKR New Jersey/New York Systems (a
combination of certain assets as defined in note 1 to the combined financial
statements) as of December 31, 1996 and 1995, and the related combined
statements of earnings, changes in combined deficit, and cash flows for each of
the years in the three-year period ended December 31, 1996, have been included
herein in reliance upon the report, dated July 21, 1997, of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
Representatives of KPMG Peat Marwick, LLP are expected to be present at the
Special Meeting, where they will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
If the Merger is consummated, the first annual meeting of the stockholders
of Parent is expected to be in the month of June 1998; and if the Merger is not
consummated, the next annual meeting of the stockholders of Cablevision is
expected to be on or about the same date.
Proposals of stockholders intended to be presented at Parent's or
Cablevision's 1998 annual meeting of stockholders (as the case may be) must be
received by such company at its executive offices shown on page 1 of this Proxy
Statement/Prospectus on or prior to January 19, 1998 to be eligible for
inclusion in such company's proxy material to be used in connection with such
1998 meeting.
92
<PAGE>
CERTAIN FINANCIAL INFORMATION
INDEPENDENT AUDITORS' REPORT
The Stockholder
CSC Parent Corporation:
We have audited the accompanying consolidated balance sheet of CSC Parent
Corporation and subsidiary as of November 21, 1997. This financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the consolidated financial position of CSC Parent
Corporation and subsidiary at November 21, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Jericho, New York
December 22, 1997
F-1
<PAGE>
CSC PARENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
NOVEMBER 21, 1997
<TABLE>
<S> <C>
ASSETS
Cash................................................................................. $ 1.00
---------
Total assets..................................................................... $ 1.00
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Stockholder's equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized...................... $ --
Common stock, $.01 par value
Class A common stock, 200,000,000 shares authorized, 1 share issued and
outstanding..................................................................... $ .01
Class B common stock, 80,000,000 shares authorized, none issued.................. --
Additional paid-in capital....................................................... $ .99
---------
Total liabilities and stockholder's equity....................................... $ 1.00
---------
---------
</TABLE>
See accompanying note to consolidated balance sheet.
F-2
<PAGE>
CSC PARENT CORPORATION AND SUBSIDIARY
NOTE TO CONSOLIDATED BALANCE SHEET
NOVEMBER 21, 1997
NOTE 1. THE COMPANY AND NATURE OF OPERATIONS
CSC Parent Corporation (the "Company") was formed on November 21, 1997 as a
wholly owned subsidiary of Cablevision Systems Corporation ("Cablevision") and
in turn, owns 100% of CSC Merger Corporation ("Merger Sub"). The Company has not
conducted any business activities through December 22, 1997, other than those
incident to its formation and the execution of certain documents in connection
with pending contributions to the company of certain partnership interests and
assets of TCI Communications, Inc. (the "Contributed Assets"). The Company was
formed as a holding company to conduct the business of Cablevision and its
subsidiaries and the current business of the Contributed Assets.
In connection with a proposed Contribution and Merger Agreement, Merger Sub
will merge with and into Cablevision and Cablevision will become a wholly owned
subsidiary of the Company (the "Merger"). In the Merger, each outstanding share
of Cablevision Class A Common Stock and Cablevision Class B Common Stock will be
converted into one share of the Company's Class A Common Stock and the Company's
Class B Common Stock, respectively. Subsequent to the Merger, Cablevision will
change its name to CSC Holdings, Inc. and the Company will change its name to
Cablevision Systems Corporation.
Substantially, simultaneously with and immediately after the consummation of
the Merger, the Company will issue an aggregate of 12,235,543 shares of its
Class A Common Stock, subject to certain adjustments pursuant to the
Contribution and Merger Agreement, in exchange for the receipt by the Company of
all of the Contributed Assets. As a result of the transactions described above,
Cablevision will become a wholly owned subsidiary of the Company and the Company
will become a new holding company owning the Contributed Assets and Cablevision.
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
TCI Communications, Inc.:
We have audited the accompanying combined balance sheets of the TCI New
Jersey and New York Systems (as defined in Note 1 to the combined financial
statements) as of December 31, 1996 and 1995, and the related combined
statements of operations and parent's investment and cash flows for each of the
years in the three-year period ended December 31, 1996. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCI New Jersey
and New York Systems as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
July 29, 1997
F-4
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
AMOUNTS IN THOUSANDS
ASSETS
Cash and cash equivalents.................................................................. $ 1,604 --
Trade and other receivables, net........................................................... 8,789 7,975
Property and equipment, at cost:
Land..................................................................................... 186 186
Distribution systems..................................................................... 265,509 252,497
Support equipment and buildings.......................................................... 36,292 32,402
---------- ---------
301,987 285,085
Less accumulated depreciation............................................................ 135,160 109,783
---------- ---------
166,827 175,302
---------- ---------
Franchise costs............................................................................ 542,855 542,302
Less accumulated amortization............................................................ 99,110 86,032
---------- ---------
443,745 456,270
---------- ---------
Other assets, at cost, net of amortization................................................. 1,837 1,586
---------- ---------
$ 622,802 641,133
---------- ---------
---------- ---------
LIABILITIES AND PARENT'S INVESTMENT
Cash overdraft............................................................................. $ -- 642
Accounts payable........................................................................... 800 521
Accrued franchise fees..................................................................... 3,664 2,625
Other accrued expenses..................................................................... 3,664 4,198
Debt (note 3).............................................................................. 17,815 18,590
Deferred income taxes (note 4)............................................................. 189,284 195,849
---------- ---------
Total liabilities...................................................................... 215,227 222,425
Minority interest in equity of consolidated subsidiary..................................... 4,060 3,096
Parent's investment (note 5)............................................................... 403,515 415,612
---------- ---------
Commitments and contingencies (note 7)
$ 622,802 641,133
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND PARENT'S INVESTMENT
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
AMOUNTS IN THOUSANDS
Revenue......................................................................... $ 199,798 180,601 162,688
Operating costs and expenses:
Operating (note 6)............................................................ 72,830 60,469 54,471
Selling, general and administrative........................................... 33,792 29,965 27,784
Administrative fees (note 6).................................................. 7,248 5,101 5,037
Depreciation.................................................................. 26,888 26,296 24,055
Amortization.................................................................. 13,157 13,165 13,456
---------- --------- ---------
153,915 134,996 124,803
---------- --------- ---------
Operating income............................................................ 45,883 45,605 37,885
Other income (expense):
Interest expense.............................................................. (1,406) (1,466) (1,300)
Interest income............................................................... 66 274 50
Minority interest in earnings of consolidated subsidiary...................... (964) (863) (787)
Other, net.................................................................... (327) (51) (60)
---------- --------- ---------
(2,631) (2,106) (2,097)
---------- --------- ---------
Earnings before income taxes................................................ 43,252 43,499 35,788
Income tax expense (note 4)..................................................... (15,086) (15,183) (14,442)
---------- --------- ---------
Net earnings................................................................ 28,166 28,316 21,346
Parent's investment:
Beginning of year............................................................. 415,612 429,279 446,815
Change in due to TCI Communications, Inc. ("TCIC")............................ (40,263) (41,983) (38,882)
---------- --------- ---------
End of year................................................................... $ 403,515 415,612 429,279
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
AMOUNTS IN THOUSANDS
Cash flows from operating activities:
Net earnings.................................................................... $ 28,166 28,316 21,346
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................................................. 40,045 39,461 37,511
Minority interest in earnings of consolidated subsidiary...................... 964 863 787
Deferred income tax benefit................................................... (6,565) (5,060) (1,488)
Other noncash charges......................................................... 597 -- --
Changes in operating assets and liabilities:
Change in receivables....................................................... (814) (3,686) 3,851
Change in other assets...................................................... (251) (130) (304)
Change in accounts payable and accrued expenses............................. 187 (1,321) 2,470
--------- --------- ---------
Net cash provided by operating activities................................. 62,329 58,443 64,173
--------- --------- ---------
Cash flows from investing activities:
Capital expended for property and equipment..................................... (19,472) (17,577) (18,488)
Cash proceeds from disposition of assets........................................ -- 1,218 65
Other investing activities...................................................... 427 (460) (186)
--------- --------- ---------
Net cash used in investing activities..................................... (19,045) (16,819) (18,609)
--------- --------- ---------
Cash flows from financing activities:
Repayments of debt.............................................................. (775) (2,446) (3,589)
Change in due to TCIC........................................................... (40,263) (41,983) (38,882)
Change in cash overdraft........................................................ (642) 642 (930)
--------- --------- ---------
Net cash used in financing activities..................................... (41,680) (43,787) (43,401)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...................... 1,604 (2,163) 2,163
Cash and cash equivalents:
Beginning of year....................................................... -- 2,163 --
--------- --------- ---------
End of year............................................................. $ 1,604 -- 2,163
--------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.......................................... $ 1,525 1,467 1,126
--------- --------- ---------
--------- --------- ---------
Cash paid during the year for income taxes...................................... $ 329 31 2,230
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) BASIS OF PRESENTATION
The combined financial statements include the accounts of TCIC's cable
television systems serving Oakland and Paterson/Allamuchy, New Jersey and
Westchester and Brookhaven, New York (collectively, the "TCI New Jersey and New
York Systems"). The cable television systems serving Oakland, New Jersey and
Westchester and Brookhaven, New York (the "NNJ Systems") are wholly-owned by TCI
of Northern New Jersey, Inc. (NNJ"), an indirect wholly-owned subsidiary of
TCIC. TCIC owned a 50.1% ownership interest in the Paterson/Allamuchy, New
Jersey cable television system until January 31, 1997, when it acquired the
remaining 49.9% interest in this system. TCIC is a subsidiary of
Tele-Communications, Inc. ("TCI"). All significant inter-entity accounts and
transactions have been eliminated in combination.
These combined financial statements include an allocation of certain
purchase accounting adjustments, including the related deferred tax effects,
from TCIC's original acquisition of NNJ. This allocation and the related
franchise cost amortization is based on the number of subscribers in the NNJ
Systems to the total number of subscribers in all of NNJ's cable television
systems. In addition, certain operating costs of TCI are charged to the TCI New
Jersey and New York Systems based on their number of subscribers (see note 6).
Although such allocations are not necessarily indicative of the costs that would
have been incurred by the TCI New Jersey and New York Systems on a stand alone
basis, management believes that the resulting allocated amounts are reasonable.
PROPOSED MERGER TRANSACTION
As of June 6, 1997, TCIC and Cablevision Systems Corporation ("Cablevision")
entered into a definitive agreement, pursuant to which TCIC's ten New York
metropolitan area cable television systems (the "Systems"), including the TCI
New Jersey and New York Systems, will be contributed to Cablevision. In
exchange, TCIC will receive approximately 12.2 million newly issued shares of
Cablevision Class A common stock, which are expected to represent 33% of
Cablevision's total shares outstanding. In addition, Cablevision will assume
$669 million of the Systems' debt, comprised of all amounts outstanding under a
bank credit facility of certain of the Systems other than the TCI New Jersey and
New York Systems and a portion of the intercompany amounts owed by the Systems
to TCIC and its affiliates. Consummation of the transaction is subject to, among
other matters, Cablevision shareholder and regulatory approvals. There is no
assurance that such transaction will be consummated.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The TCI New Jersey and New York Systems consider all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
RECEIVABLES
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1996 and 1995 was not material.
(CONTINUED)
F-8
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
LONG-LIVED ASSETS
(a) Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including
interest during construction and applicable overhead, are capitalized.
During 1996, 1995 and 1994, interest capitalized was not material.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for
support equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or
other dispositions of property, the original cost and cost of removal of
such property are charged to accumulated depreciation, and salvage, if any,
is credited thereto. Gains or losses are only recognized in connection with
the sales of systems in their entirety.
(b) Franchise Costs
Franchise costs include the difference between the cost of acquiring
cable television systems and amounts assigned to their tangible assets. Such
amounts are generally amortized on a straight-line basis over 40 years.
Costs incurred by the TCI New Jersey and New York Systems in negotiating and
renewing franchise agreements are amortized on a straight-line basis over
the life of the franchise, generally 10 to 20 years.
In March of 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("Statement No.
121"), effective for fiscal years beginning after December 15, 1995. Statement
No. 121 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and either the undiscounted
future cash flows estimated to be generated by those assets or the fair market
value are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The TCI New Jersey and New York Systems adopted Statement No. 121 effective
January 1, 1996. Such adoption did not have a significant effect on the
financial position or results of operations of the TCI New Jersey and New York
Systems.
Pursuant to Statement No. 121, the TCI New Jersey and New York Systems
periodically review the carrying amounts of its long-lived assets, franchise
costs and certain other assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. The TCI New Jersey
and New York Systems consider historical and expected future net operating
losses to be its primary indicators of potential impairment. Assets are grouped
and evaluated for impairment at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows of other
groups of assets ("Assets"). The TCI New Jersey and New York Systems deem Assets
to be impaired if the TCI New Jersey and New York Systems are unable to recover
the carrying value of such Assets over their expected remaining useful life
through a forecast of undiscounted future operating cash flows directly related
to the Assets. If Assets are deemed to be impaired, the loss is measured as the
amount by which the carrying amount of the Assets exceeds their fair value. The
TCI New Jersey and New York Systems generally measure fair value by considering
sales prices for similar assets or by discounting estimated future cash flows.
Considerable management judgment is necessary to estimate discounted future cash
flows. Accordingly, actual results could vary significantly from such estimates.
(CONTINUED)
F-9
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
REVENUE RECOGNITION
Revenue for customer fees, equipment rental, advertising, pay-per-view
programming and revenue sharing agreements is recognized in the period that
services are delivered. Installation revenue is recognized in the period the
installation services are provided to th extent of direct selling costs. To
date, direct selling costs have exceeded installation revenue.
COMBINED STATEMENTS OF CASH FLOWS
Transactions effected through the intercompany account with TCIC have been
considered constructive cash receipts and payments for purposes of the combined
statements of cash flows.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(3) DEBT
As of December 31, 1996, the TCI New Jersey and New York Systems had
outstanding borrowings pursuant to certain term loan agreements with interest
rates ranging from 6.67% to 7.67%. The term loans were secured and
collateralized by certain assets of the TCI New Jersey and New York Systems,
including franchise rights, and the assignment of various leases and contracts
of the TCI New Jersey and New York Systems. The carrying value of such term
loans approximates fair value.
On January 31, 1997, the outstanding balances of the aforementioned loans
($17,657,000 at December 31, 1996) were repaid in full.
(4) INCOME TAXES
The TCI New Jersey and New York Systems are included in the consolidated
federal income tax return of TCI. Income tax expense for the TCI New Jersey and
New York Systems is based on those items in the consolidated calculation
applicable to the TCI New Jersey and New York Systems. Intercompany tax
allocation represents an apportionment of tax expense or benefit (other than
deferred taxes) among subsidiaries of TCI in relation to their respective
amounts of taxable earnings or losses. The payable or receivable arising from
the intercompany tax allocation is recorded as an increase or decrease in
parent's investment.
(CONTINUED)
F-10
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
Income tax benefit (expense) for the years ended December 31, 1996, 1995 and
1994 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- ----------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Year ended December 31, 1996:
Intercompany allocation........................................................ $ (21,322) -- (21,322)
Federal........................................................................ -- 5,119 5,119
State and local................................................................ (329) 1,446 1,117
---------- ----- ---------
$ (21,651) 6,565 (15,086)
---------- ----- ---------
---------- ----- ---------
Year ended December 31, 1995:
Intercompany allocation........................................................ $ (20,212) -- (20,212)
Federal........................................................................ -- 3,945 3,945
State and local................................................................ (31) 1,115 1,084
---------- ----- ---------
$ (20,243) 5,060 (15,183)
---------- ----- ---------
---------- ----- ---------
Year ended December 31, 1994:
Intercompany allocation........................................................ $ (13,700) -- (13,700)
Federal........................................................................ -- 1,160 1,160
State and local................................................................ (2,230) 328 (1,902)
---------- ----- ---------
$ (15,930) 1,488 (14,442)
---------- ----- ---------
---------- ----- ---------
</TABLE>
Income tax expense differs from the amounts computed by applying the federal
income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Computed "expected" tax expense.................................................. $ (15,138) (15,225) (12,526)
Amortization not deductible for tax purposes..................................... (645) (645) (645)
State and local income taxes, net of federal income tax benefit.................. 726 705 (1,236)
Other............................................................................ (29) (18) (35)
---------- --------- ---------
$ (15,086) (15,183) (14,442)
---------- --------- ---------
---------- --------- ---------
</TABLE>
(CONTINUED)
F-11
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liabilities at December 31,
1996 and 1995 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Deferred tax asset--principally due to non-deductible accruals... $ 249 202
---------- ---------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation................................................. 39,763 41,875
Franchise costs, principally due to differences in
amortization................................................. 148,441 152,984
Investment in partnership, due principally to differences in
earnings recognition......................................... 1,329 1,192
---------- ---------
Total gross deferred tax liabilities....................... 189,533 196,051
---------- ---------
Net deferred tax liability................................. $ 189,284 195,849
---------- ---------
---------- ---------
</TABLE>
(5) PARENT'S INVESTMENT
Parent's investment in the TCI New Jersey and New York Systems at December
31, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C>
Due to TCIC............................................................ $ 158,936 199,199
Retained earnings...................................................... 244,579 216,413
---------- ---------
$ 403,515 415,612
---------- ---------
---------- ---------
</TABLE>
The amount due to TCIC represents non-interest-bearing advances for
operations, acquisitions and construction costs as well as the allocation of
certain costs from TCIC. See note 6.
(6) TRANSACTIONS WITH RELATED PARTIES
The amounts due to TCIC consist of various non-interest bearing intercompany
advances and expense allocations. Due to TCIC's ownership of 100% of the
parent's investment of the TCI New Jersey and New York Systems, the amounts due
to TCIC have been classified as a component of parent's investment in the
accompanying combined financial statements. Such amounts are due on demand.
The TCI New Jersey and New York Systems purchase, at TCIC's cost,
substantially all of their pay television and other programming from affiliates
of TCIC. Charges for such programming were $51,587,000, $42,274,000 and
$38,490,000 for 1996, 1995 and 1994, respectively, and are included in operating
expenses in the accompanying combined financial statements.
(CONTINUED)
F-12
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
Certain subsidiaries of TCIC provide administrative services to the TCI New
Jersey and New York Systems and have assumed managerial responsibility of the
TCI New Jersey and New York Systems' cable television system operations and
construction. As compensation for these services, the TCI New Jersey and New
York Systems pay a monthly fee calculated on a per-customer basis.
The intercompany advances and expense allocation activity in amounts due to
TCIC consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
---------- ---------- ---------
AMOUNTS IN THOUSANDS
<S> <C> <C> <C>
Beginning of year.......................................... $ 199,199 241,182 280,064
Programming charges...................................... 51,587 42,274 38,490
Administrative fees...................................... 7,248 5,101 5,037
Tax allocations.......................................... 21,322 20,212 13,700
Cash transfers........................................... (120,420) (109,570) (96,109)
---------- ---------- ---------
End of year................................................ $ 158,936 199,199 241,182
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and 1994,
the Federal Communications Commission ("FCC") adopted certain rate regulations
required by the 1992 Cable Act and imposed a moratorium on certain rate
increases. As a result of such actions, the TCI New Jersey and New York Systems'
basic and tier service rates and its equipment and installation charges (the
"Regulated Services") are subject to the jurisdiction of local franchising
authorities and the FCC. Basic and tier service rates are evaluated against
competitive benchmark rates as published by the FCC, and equipment and
installation charges are based on actual costs. Any rates for Regulated Services
that exceeded the benchmarks were reduced as required by the 1993 and 1994 rate
regulations. The rate regulations do not apply to the relatively few systems
which are subject to "effective competition" or to services offered on an
individual service basis, such as premium movie and pay-per-view services.
The TCI New Jersey and New York Systems believe that they have complied in
all material respects with the provisions of the 1992 Cable Act, including its
rate setting provisions. However, the TCI New Jersey and New York Systems' rates
for Regulated Services are subject to review by the FCC, if a complaint has been
filed, or the appropriate franchise authority, if such authority has been
certified. If, as a result of the review process, a system cannot substantiate
its rates, it could be required to retroactively reduce its rates to the
appropriate benchmark and refund the excess portion of rates received. Any
refunds of the excess portion of tier service rates would be retroactive to the
date of complaint. Any refunds of the excess portion of all other Regulated
Service rates would be retroactive to one year prior to the implementation of
the rate reductions.
The TCI New Jersey and New York Systems have contingent liabilities related
to legal proceedings and other matters arising in the ordinary course of
business. Although it is reasonably possible the TCI New Jersey and New York
Systems may incur losses upon conclusion of such matters, an estimate of any
loss or range of loss cannot be made. In the opinion of management, it is
expected that amounts, if any,
(CONTINUED)
F-13
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
which may be required to satisfy such contingencies will not be material in
relation to the accompanying combined financial statements.
The TCI New Jersey and New York Systems lease business offices, have entered
into pole rental agreements and use certain equipment under lease arrangements.
Rental expense under such arrangements amounted to $3,432,000, $3,360,000 and
$3,243,000 in 1996, 1995 and 1994, respectively.
Future minimum lease payments under noncancellable operating leases for each
of the next five years are summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- -----------------------------------------------------------------------------------
<S> <C>
1997........................................................................... $ 1,445
1998........................................................................... 1,577
1999........................................................................... 1,587
2000........................................................................... 1,597
2001........................................................................... 1,464
Thereafter..................................................................... 15,129
</TABLE>
F-14
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
CONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
AMOUNTS IN THOUSANDS
ASSETS
Cash and cash equivalents........................................................... $ -- 1,604
Trade and other receivables, net.................................................... 4,461 8,789
Property and equipment, at cost..................................................... 307,696 301,987
Less accumulated depreciation..................................................... 153,026 135,160
------------- ------------
154,670 166,827
------------- ------------
Franchise costs..................................................................... 561,528 542,855
Less accumulated amortization..................................................... 109,555 99,110
------------- ------------
451,973 443,745
------------- ------------
Other assets, at cost, net of amortization.......................................... 2,105 1,837
------------- ------------
$ 613,209 622,802
------------- ------------
------------- ------------
LIABILITIES AND PARENT'S INVESTMENT
Cash overdraft...................................................................... $ 829 --
Accounts payable.................................................................... 622 800
Accrued expenses.................................................................... 7,159 7,328
Debt................................................................................ -- 17,815
Deferred income taxes............................................................... 182,187 189,284
------------- ------------
Total liabilities............................................................... 190,797 215,227
Minority interest in equity of consolidated subsidiary.............................. -- 4,060
Parent's investment (note 3)........................................................ 422,412 403,515
------------- ------------
$ 613,209 622,802
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to condensed combined financial statements.
F-15
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
CONDENSED COMBINED STATEMENTS OF OPERATIONS AND PARENT'S INVESTMENT
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
<CAPTION>
AMOUNTS IN THOUSANDS
<S> <C> <C>
Revenue.................................................................................... $ 158,294 146,096
Operating costs and expenses:
Operating, selling, general and administrative (note 3).................................. 84,519 81,626
Depreciation............................................................................. 20,019 19,893
Amortization............................................................................. 10,451 9,937
---------- ---------
114,989 111,456
---------- ---------
Operating income....................................................................... 43,305 34,640
Other income (expense):
Interest expense......................................................................... (105) (805)
Minority interest in earnings of consolidated subsidiary................................. (125) (1,102)
Other, net............................................................................... 136 (317)
---------- ---------
(94) (2,224)
---------- ---------
Earnings before income taxes........................................................... 43,211 32,416
Income tax expense......................................................................... (14,621) (11,203)
---------- ---------
Net earnings........................................................................... 28,590 21,213
Parent's investment:
Beginning of period...................................................................... 403,515 415,612
Change in due to TCI Communications, Inc. ("TCIC") (note 3).............................. (9,693) (28,590)
---------- ---------
End of period............................................................................ $ 422,412 408,235
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to condensed combined financial statements.
F-16
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
AMOUNTS IN THOUSANDS
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................................................. $ 28,590 21,213
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization......................................................... 30,470 29,830
Minority interest in earnings of consolidated subsidiary.............................. 125 1,102
Deferred income tax benefit........................................................... (7,097) (4,795)
Changes in operating assets and liabilities:
Change in receivables............................................................... 4,328 (1,346)
Change in other assets.............................................................. (268) (404)
Change in accounts payable and accrued expenses..................................... (347) (1,712)
--------- ---------
Net cash provided by operating activities........................................... 55,801 43,888
--------- ---------
Cash flows from investing activities:
Capital expended for property and equipment............................................... (7,679) (12,663)
Cash paid to purchase minority interest................................................... (20,909) --
Other investing activities................................................................ (2,138) (832)
--------- ---------
Net cash used in investing activities............................................... (30,726) (13,495)
--------- ---------
Cash flows from financing activities:
Repayments of debt........................................................................ (17,815) (771)
Change in due to TCIC..................................................................... (9,693) (28,590)
Change in cash overdraft.................................................................. 829 (642)
--------- ---------
Net cash used in financing activities............................................... (26,679) (30,003)
--------- ---------
Net increase (decrease) in cash and cash equivalents................................ (1,604) 390
Cash and cash equivalents:
Beginning of period............................................................... 1,604 --
--------- ---------
End of period..................................................................... $ -- 390
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................................................. $ 278 926
--------- ---------
--------- ---------
Cash paid during the period for taxes..................................................... $ 28 60
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed combined financial statements.
F-17
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed combined financial statements include the accounts of TCIC's
cable television systems serving Oakland and Paterson/Allamuchy, New Jersey and
Westchester and Brookhaven, New York (collectively, the "TCI New Jersey and New
York Systems"). The cable television systems serving Oakland, New Jersey and
Westchester and Brookhaven, New York (the "NNJ Systems") are wholly-owned by TCI
of Northern New Jersey, Inc. ("NNJ"), an indirect wholly-owned subsidiary of
TCIC. TCIC owned a 50.1% ownership interest in the Paterson/Allamuchy, New
Jersey cable television system until January 31, 1997, when it acquired the
remaining 49.9% interest in this system for a purchase price of $20,909,000.
TCIC is a subsidiary of Tele-Communications, Inc. ("TCI"). All significant
inter-entity accounts and transactions have been eliminated in combination.
These condensed combined financial statements include an allocation of
certain purchase accounting adjustments, including the related deferred tax
effects, from TCIC's original acquisition of NNJ. This allocation and the
related franchise cost amortization is based on the number of customers in the
NNJ Systems to the total number of customers in all of NNJ's cable television
systems. In addition, certain operating costs of TCI are charged to the TCI New
Jersey and New York Systems based on their number of customers (see note 3).
Although such allocations are not necessarily indicative of the costs that would
have been incurred by the TCI New Jersey and New York Systems on a stand alone
basis, management believes that the resulting allocated amounts are reasonable.
The accompanying interim condensed combined financial statements are
unaudited but, in the opinion of management, reflect all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the results
for such periods. The results of operations for any interim period are not
necessarily indicative of results for the full year. These condensed combined
financial statements should be read in conjunction with the combined financial
statements and notes thereto for the year ended December 31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(2) PROPOSED MERGER TRANSACTION
As of June 6, 1997, TCIC and Cablevision Systems Corporation ("Cablevision")
entered into a definitive agreement, pursuant to which TCIC's ten New York
metropolitan area cable television systems (the "Systems"), including the TCI
New Jersey and New York Systems, will be contributed to Cablevision. In
exchange, TCIC will receive approximately 12.2 million newly issued shares of
Cablevision Class A common stock, which are expected to represent 33% of
Cablevision's total shares outstanding. In addition, Cablevision will assume
$669 million of the Systems' debt, comprised of all amounts outstanding under a
bank credit facility of certain of the Systems other than the TCI New Jersey and
New York Systems and a portion of the intercompany amounts owed by the Systems
to TCIC and its affiliates. Consummation of the transaction is subject to, among
other matters, Cablevision shareholder and regulatory approvals. There is no
assurance that such transaction will be consummated.
(CONTINUED)
F-18
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
(3) TRANSACTIONS WITH RELATED PARTIES
The amounts due to TCIC consist of various non-interest bearing intercompany
advances and expense allocations. Due to TCIC's ownership of 100% of the
parent's investment of the TCI New Jersey and New York Systems, the amounts due
to TCIC have been classified as a component of parent's investment in the
accompanying condensed combined financial statements. Such amounts are due on
demand.
The intercompany advances and expense allocation activity in amounts due to
TCIC consists of the following amounts:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
<CAPTION>
AMOUNTS IN THOUSANDS
<S> <C> <C>
Beginning of period.................................................... $ 158,936 199,199
Programming charges.................................................. 43,656 38,906
Administrative fees.................................................. 3,857 3,793
Tax allocations...................................................... 21,690 15,938
Cash transfers....................................................... (78,896) (87,227)
---------- ---------
End of period.......................................................... $ 149,243 170,609
---------- ---------
---------- ---------
</TABLE>
The TCI New Jersey and New York Systems purchase, at TCIC's cost,
substantially all of their pay television and other programming from affiliates
of TCIC. Charges for such programming were $43,656,000 and $38,906,000 for the
nine months ended September 30, 1997 and 1996, respectively, and are included in
operating, selling, general and administrative expenses in the accompanying
condensed combined financial statements.
Certain subsidiaries of TCIC provide administrative services to the TCI New
Jersey and New York Systems and have assumed managerial responsibility of the
TCI New Jersey and New York Systems' cable television system operations and
construction. As compensation for these services, the TCI New Jersey and New
York Systems pay a monthly fee calculated on a per-customer basis, and are
included in operating, selling, general and administrative expenses in the
accompanying condensed combined financial statements.
(4) COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and 1994,
the Federal Communications Commission ("FCC") adopted certain rate regulations
required by the 1992 Cable Act and imposed a moratorium on certain rate
increases. As a result of such actions, the TCI New Jersey and New York Systems'
basic and tier service rates and its equipment and installation charges (the
"Regulated Services") are subject to the jurisdiction of local franchising
authorities and the FCC. Basic and tier service rates are evaluated against
competitive benchmark rates as published by the FCC, and equipment and
installation charges are based on actual costs. Any rates for Regulated Services
that exceeded the benchmarks were reduced as required by the 1993 and 1994 rate
regulations. The rate regulations do not apply to the relatively few systems
which are subject to "effective competition" or to services offered on an
individual service basis, such as premium movie and pay-per-view services.
(CONTINUED)
F-19
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
The TCI New Jersey and New York Systems believe that they have complied in
all material respects with the provisions of the 1992 Cable Act, including its
rate setting provisions. However, the TCI New Jersey and New York Systems' rates
for Regulated Services are subject to review by the FCC, if a complaint has been
filed, or the appropriate franchise authority, if such authority has been
certified. If, as a result of the review process, a system cannot substantiate
its rates, it could be required to retroactively reduce its rates to the
appropriate benchmark and refund the excess portion of rates received. Any
refunds of the excess portion of tier service rates would be retroactive to the
date of complaint. Any refunds of the excess portion of all other Regulated
Service rates would be retroactive to one year prior to the implementation of
the rate reductions.
The TCI New Jersey and New York Systems have contingent liabilities related
to legal proceedings and other matters arising in the ordinary course of
business. Although it is reasonably possible the TCI New Jersey and New York
Systems may incur losses upon conclusion of such matters, an estimate of any
loss or range of loss cannot be made. In the opinion of management, it is
expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying condensed
combined financial statements.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
TKR Cable Company:
We have audited the accompanying combined balance sheets of the TKR New
Jersey/New York Systems (a combination of certain assets as defined in note 1)
as of December 31, 1996 and 1995, and the related combined statements of
earnings, changes in combined deficit, and cash flows for each of the years in
the three-year period ended December 31, 1996. These combined financial
statements are the responsibility of the TKR New Jersey / New York System's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the TKR New
Jersey/New York Systems as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Princeton, New Jersey
July 21, 1997
F-21
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
(AMOUNTS IN THOUSANDS)
ASSETS
Cash.................................................................................... $ 911 --
Accounts receivable (note 3)............................................................ 11,176 8,060
Less allowance for doubtful accounts.................................................. 690 519
----------- -----------
10,486 7,541
----------- -----------
Property and equipment:
Land.................................................................................. 987 660
Distribution systems.................................................................. 414,930 284,642
Support equipment and buildings....................................................... 34,795 28,377
----------- -----------
450,712 313,679
Less accumulated depreciation......................................................... 140,222 125,863
----------- -----------
310,490 187,816
----------- -----------
Franchise costs......................................................................... 253,522 92,500
Less accumulated amortization......................................................... 31,423 25,713
----------- -----------
222,099 66,787
Other assets, net (including affiliate amount of $2,818,000 in 1996) (note 4)........... 8,732 4,874
----------- -----------
$ 552,718 267,018
----------- -----------
----------- -----------
LIABILITIES AND COMBINED DEFICIT
Cash overdraft.......................................................................... -- 8,851
Accounts payable and accrued expenses................................................... 30,178 18,611
Debt (note 5)........................................................................... 583,988 324,488
Deferred income taxes (note 7).......................................................... 6,612 6,416
----------- -----------
Total liabilities................................................................... 620,778 358,366
----------- -----------
Combined deficit (note 4):
Combined equity....................................................................... 264,470 252,624
Due from affiliates, net (note 4)..................................................... (332,530) (343,972)
----------- -----------
Total combined deficit.............................................................. (68,060) (91,348)
Commitments and contingencies (note 9)
----------- -----------
$ 552,718 267,018
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-22
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Revenue:
Basic service.............................................................. $ 115,770 79,192 72,193
Pay service................................................................ 50,212 41,864 41,588
Other...................................................................... 19,992 14,663 12,592
---------- ---------- ----------
185,974 135,719 126,373
---------- ---------- ----------
Operating costs and expenses:
Operating (note 4)......................................................... 69,861 49,419 45,273
Selling, general and administrative (note 4)............................... 27,431 20,687 20,248
Depreciation............................................................... 29,382 21,585 18,212
Amortization............................................................... 5,710 2,340 2,334
---------- ---------- ----------
132,384 94,031 86,067
---------- ---------- ----------
Operating income......................................................... 53,590 41,688 40,306
Other income (expense):
Interest expense (note 5).................................................. (34,437) (22,072) (19,239)
Interest and other income, net (note 4).................................... 297 784 985
---------- ---------- ----------
(34,140) (21,288) (18,254)
---------- ---------- ----------
Earnings before income tax benefit (expense)............................. 19,450 20,400 22,052
Income tax benefit (expense) (note 7)........................................ (400) 334 (806)
---------- ---------- ----------
Net earnings............................................................. $ 19,050 20,734 21,246
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-23
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
STATEMENTS OF CHANGES IN COMBINED DEFICIT
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
DUE FROM
AFFILIATES,
COMBINED NET
EQUITY (NOTE 4) TOTAL
---------- ------------ ----------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Balance, January 1, 1994................................................... $ 211,764 (343,084) (131,320)
Decrease in advances to affiliates, net.................................. -- 6,339 6,339
Net earnings............................................................. 21,246 -- 21,246
---------- ------------ ----------
Balance, December 31, 1994................................................. 233,010 (336,745) (103,735)
Increase in advances to affiliates, net.................................. -- (7,227) (7,227)
Distributions............................................................ (1,120) -- (1,120)
Net earnings............................................................. 20,734 -- 20,734
---------- ------------ ----------
Balance, December 31, 1995................................................. 252,624 (343,972) (91,348)
Decrease in advances to affiliates, net.................................. -- 11,442 11,442
Distributions............................................................ (7,204) -- (7,204)
Net earnings............................................................. 19,050 -- 19,050
---------- ------------ ----------
Balance, December 31, 1996................................................. $ 264,470 (332,530) (68,060)
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
See accompanying notes to combined financial statements.
F-24
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ---------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Cash flows from operating activities:
Net earnings................................................................ $ 19,050 20,734 21,246
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization........................................... 35,092 23,925 20,546
Deferred income tax expense (benefit)................................... 196 (480) 24
Changes in operating assets and liabilities, net of the effect of
acquisitions:
(Increase) decrease in accounts receivable, net..................... 23 (1,276) (1,186)
(Increase) decrease in other assets................................. (4,257) (1,550) 1,024
Increase in accounts payable and accrued expenses................... 9,523 9,701 2,018
----------- ---------- ---------
Net cash provided by operating activities............................. 59,627 51,054 43,672
----------- ---------- ---------
Cash flows from investing activities:
Property and equipment additions............................................ (108,493) (90,822) (37,899)
Additions to franchise costs................................................ (2,514) (135) (134)
Acquisition of cable systems (note 8)....................................... (204,855) -- --
----------- ---------- ---------
Net cash used in investing activities................................. (315,862) (90,957) (38,033)
----------- ---------- ---------
Cash flows from financing activities:
Proceeds from debt.......................................................... 291,500 278,000 7,000
Repayment of debt........................................................... (32,000) (237,512) (21,000)
Distributions............................................................... (4,945) (1,120) --
Increase (decrease) in cash overdraft....................................... (8,851) 7,762 1,089
Change in amounts due from affiliates, net.................................. 11,442 (7,227) 6,339
----------- ---------- ---------
Net cash provided by (used in) financing activities................... 257,146 39,903 (6,572)
----------- ---------- ---------
Net increase (decrease) in cash............................................... 911 -- (933)
Cash, beginning of year....................................................... -- -- 933
----------- ---------- ---------
Cash, end of year............................................................. $ 911 -- --
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements of the TKR New Jersey / New
York Systems include the accounts of the cable television systems in and around
Morris County, Elizabeth, Hamilton, Warren, Raritan and Parlin, New Jersey, and
Rockland County, Ramapo and Warwick, New York. These systems are wholly-owned by
TKR Cable Company, a general partnership, (together with its consolidated
subsidiaries, "TKR"). TKR owns the cable television systems located in Ramapo
and Warwick, New York through its two corporate subsidiaries (the "Corporate
Subsidiaries"), TKR Cable Company of Ramapo, Inc. and TKR Cable Company of
Warwick, Inc. The accounts of the Corporate Subsidiaries and the KRC/CCC
Investment Partnership ("KRC/CCC IP"), an entity engaged in cable television
advertising sales, are also included in the accompanying combined financial
statements of the TKR New Jersey / New York Systems.
Prior to January 10, 1997, TKR and KRC/CCC IP were jointly owned and managed
by Country Cable Co. ("Country Cable") and Knight-Ridder Cablevision, Inc.
("KRC"). Country Cable is an indirect wholly-owned subsidiary of Liberty Cable,
Inc., which is a wholly-owned subsidiary of Tele-Communications, Inc. ("TCI").
Effective January 10, 1997, a subsidiary of Country Cable purchased KRC's 50%
general partnership interests in TKR and KRC/CCC IP and certain other assets. As
a result, Country Cable indirectly owns 100% of TKR and KRC/CCC IP, including
the TKR New Jersey / New York Systems. All significant intercompany transactions
have been eliminated in combination in the accompanying combined financial
statements.
In the following text, "TKR Parent" refers to TKR exclusive of the TKR New
Jersey / New York Systems and the Corporate Subsidiaries.
PROPOSED MERGER TRANSACTION
As of June 6, 1997, TCIC and Cablevision Systems Corporation ("Cablevision")
entered into a definitive agreement, pursuant to which TCIC's ten New York
metropolitan area cable television systems (the "Systems"), including the TKR
New Jersey / New York Systems, will be contributed to Cablevision. In exchange,
TCIC will receive approximately 12.2 million newly issued shares of Cablevision
Class A common stock, which are expected to represent 33% of Cablevision's total
shares outstanding. In addition, Cablevision will assume $669 million of the
Systems' debt, comprised of all amounts outstanding under the bank credit
facility of the TKR New Jersey / New York Systems and a portion of the
intercompany amounts owed by the Systems to TCIC and its affiliates.
Consummation of the transaction is subject to, among other matters, Cablevision
shareholder and regulatory approvals. There is no assurance that such
transaction will be consummated.
INTEREST RATE DERIVATIVES
Amounts receivable or payable under derivative financial instruments used to
manage interest rate risks arising from TKR New Jersey / New York System's
liabilities are recognized as interest expense. Gains or losses on early
termination of derivatives are included in the carrying amount of the related
derivative financial instrument and are amortized as yield adjustments over the
remaining term of the derivative financial instrument. Such instruments are not
used for trading purposes.
(CONTINUED)
F-26
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
Land is carried at cost and property and equipment are stated at cost less
accumulated depreciation. Depreciation of property and equipment is provided on
the straight-line basis over the estimated useful lives of the respective assets
which range from five to fifteen years for distribution systems and five to
forty years for support equipment and buildings. Leasehold improvements are
amortized on a straight-line basis over the terms of the respective leases or
estimated useful lives, whichever is shorter.
Interest costs are capitalized in connection with cable systems under active
development or construction. Interest capitalized aggregated $3,113,000,
$3,925,000 and $437,000 in 1996, 1995 and 1994, respectively.
Repair and maintenance costs are charged to operations and renewals and
additions are capitalized when incurred. When the TKR New Jersey / New York
Systems dispose of property through ordinary retirements, sales or other
dispositions, the original cost and cost of removal of such property are charged
to accumulated depreciation, net of salvage value, if any. Gains or losses
incurred in connection with the sale or disposition of the TKR New Jersey / New
York Systems assets are only recognized in connection with the sale of
properties in their entirety.
Initial hook-up and installation costs are capitalized and amortized on a
straight-line basis over a five-year period. All other costs incurred, including
costs incurred with respect to reconnects and disconnects and initial marketing
and direct selling costs, are expensed as incurred.
FRANCHISE COSTS
The TKR New Jersey / New York Systems defer costs incurred applicable to the
petition for the award of specific franchises until a determination of the
outcome of such petition can be made. Costs incurred relating to acquired
franchises are capitalized and amortized on a straight-line basis over a
forty-year period. Costs relating to unsuccessful franchise applications or
applications anticipated to be unsuccessful are expensed during the period of
such determination. Costs related to successful franchise renewals are
capitalized and amortized over the life of the new franchise.
Franchise costs incurred as a result of the acquisition of cable television
systems represent the difference between the cost of cable television systems
acquired and the amounts assigned to their tangible assets based on the
estimated fair market value of such assets, as determined by independent
appraisals. Such franchise costs are also amortized on a straight-line basis
over a forty-year period.
REVENUE RECOGNITION
Revenue for customer fees, equipment rental, advertising, pay-per-view
programming and revenue sharing agreements is recognized in the period that
services are delivered. Installation revenue is recognized in the period the
installation services are provided to the extent of direct selling costs. To
date, direct selling costs have exceeded installation revenue.
INCOME TAXES
The provision for income tax expense in the accompanying combined financial
statements relates to the Corporate Subsidiaries. No provision for income tax
expense has been included for earnings or losses of the cable television systems
held by TKR or KRC/CCC IP as such amounts are reported in the respective income
tax returns of the partners.
(CONTINUED)
F-27
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109") requires the use of the asset and liability method of
accounting for income taxes. Under the asset and liability method of FAS 109,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"). In
accordance with FAS 121, the TKR New Jersey / New York Systems review the
carrying amounts of their long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Measurement of any impairment would include a comparison of
estimated future operating cash flows anticipated to be generated during the
remaining life of the assets with their net carrying value. The adoption of FAS
121 in the year ended December 31, 1996, had no effect on the combined financial
statements of the TKR New Jersey / New York Systems.
(2) SUPPLEMENTAL DISCLOSURES TO COMBINED STATEMENTS OF CASH FLOWS--CASH FLOW
INFORMATION AND NONCASH INVESTING AND FINANCING ACTIVITIES
Cash paid for interest aggregated $37,493,000, $24,242,000 and $21,741,000
in 1996, 1995 and 1994, respectively.
Cash paid for income taxes aggregated $441,000 in 1995.
In 1996, 1995 and 1994, the TKR New Jersey / New York Systems retired fully
depreciated equipment with an original cost of approximately $15,023,000,
$24,362,000 and $101,000, respectively, which amount was charged to accumulated
depreciation.
In 1996, the TKR New Jersey / New York Systems distributed certain assets
equally to the Partners as follows (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
Other assets........................................................ $ 478
Investment in New Jersey Fiber Technologies ("NJFT")................ 1,781
---------
$ 2,259
---------
---------
</TABLE>
(CONTINUED)
F-28
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
(3) ACCOUNTS RECEIVABLE
Accounts receivable as of December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
(AMOUNTS IN
THOUSANDS)
Trade receivables.......................................................... $ 9,551 6,522
Other receivables.......................................................... 1,625 1,538
--------- ---------
$ 11,176 8,060
--------- ---------
--------- ---------
</TABLE>
(4) DUE FROM AFFILIATES AND TRANSACTIONS WITH RELATED PARTIES
The amounts due from affiliates consist of amounts due from TKR Parent with
respect to various non-interest bearing intercompany advances, including the net
effect of expense allocations. Due to the fact that TKR Parent and the TKR New
Jersey / New York Systems are under common control, the amounts due from
affiliates have been classified as a component of combined deficit in the
accompanying combined financial statements. Such amounts are due on demand.
The TKR New Jersey / New York Systems are party to an agreement with TCI
whereby the TKR New Jersey / New York Systems purchase certain pay and basic
television programming from TCI at TCI's actual cost of such services. Charges
for such services aggregated $32,419,000, $22,774,000 and $21,562,000 in 1996,
1995 and 1994, respectively.
TKR Parent provides certain corporate general and administrative services
and is responsible for the TKR New Jersey / New York Systems' operations and
construction. Costs related to these services were allocated to the TKR New
Jersey / New York Systems on a basis that is intended to approximate TKR
Parent's proportionate cost of providing such services. The allocated costs for
such services were $2,559,000, $2,522,000 and $2,234,000 in 1996, 1995 and 1994,
respectively, and are included in selling, general and administrative expenses.
Although such allocations are not necessarily representative of the costs that
the TKR New Jersey / New York Systems would have incurred on a stand-alone
basis, management believes that the resulting allocated amounts are reasonable.
Such amounts are included in due from affiliates in the accompanying combined
financial statements.
The intercompany advances and expense allocation activity in amounts due
from affiliates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Beginning of year........................................... $ 343,972 336,745 343,084
Programming charges....................................... (32,419) (22,774) (21,562)
Administrative fees....................................... (2,559) (2,522) (2,234)
Cash transfers............................................ 23,536 32,523 17,457
---------- --------- ---------
End of year................................................. $ 332,530 343,972 336,745
---------- --------- ---------
---------- --------- ---------
</TABLE>
During 1996, the TKR New Jersey / New York Systems entered into various
lease agreements with NJFT, which is 39.65% owned by Country Cable and 39.65%
owned by KRC. The TKR New Jersey / New
(CONTINUED)
F-29
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
York Systems lease certain fiber node space to NJFT, contingent on regulatory
approval, through 10 year direct financing type leases as defined in Statement
of Financial Accounting Standards No. 13, "Accounting for Leases". The net
investment in direct financing type leases is included in other assets, net. The
components of the net investment in direct financing type leases at December 31,
1996 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
Minimum rentals receivable.......................................... $ 4,247
Less unearned interest income....................................... 1,429
---------
Net investment in direct financing leases........................... $ 2,818
---------
</TABLE>
Minimum rentals receivable under existing leases as of December 31, 1996 are
as follows (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997................................................ $ 464
1998................................................ 464
1999................................................ 464
2000................................................ 464
2001................................................ 464
Thereafter.......................................... 1,927
---------
$ 4,247
---------
---------
</TABLE>
(5) DEBT
The TKR New Jersey / New York Systems' loan agreement consists of an
$800,000,000 unsecured revolving credit facility comprised of two sub
facilities, a refinancing facility in the amount of $500,000,000, and an
acquisition facility in the amount of $300,000,000. The proceeds of the
acquisition facility were reserved to only be drawn upon in connection with the
closing of the acquisition of Sammons Communications Inc. (note 8). The
revolving credit facility's maximum commitment will be gradually reduced in
increasing quarterly increments commencing December 31, 1998 in amounts ranging
from 3.75% to 5% of the $800,000,000 maximum commitment level through its
September 30, 2004 termination date. The TKR New Jersey / New York Systems may
make partial prepayments in multiples of either $500,000 or $1,000,000 depending
on the interest rate option selected by the TKR New Jersey / New York Systems.
The TKR New Jersey / New York Systems have the option to permanently reduce the
commitment level in an amount equal to $5,000,000 or whole multiples of
$1,000,000 in excess thereof. The carrying amount of this debt approximates fair
value due to the variable rate nature of this instrument.
The interest rate on borrowings under this facility is subject to selection
by the TKR New Jersey / New York Systems and is based on either the alternate
base rate (the higher of the agent bank's prime rate or the Federal Funds rate
plus 1/2%) or the Eurodollar rate, all plus an applicable margin. The applicable
margin is determined based upon the maintenance of certain debt to cash flow
ratios. Interest rates, including applicable margins, during 1996 under this
credit facility ranged from approximately 6.1% to 6.6% per annum.
The revolving credit facility requires an annual commitment fee, payable
quarterly in arrears, at a rate ranging from 0.25% to 0.375% with respect to the
refinancing facility and 0.125% with respect to the acquisition facility until
the date of the initial borrowing, and thereafter at the refinancing facility's
rate, as
(CONTINUED)
F-30
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
defined. The applicable commitment fee rate is determined based upon the
maintenance of certain debt to cash flow ratios, as defined. In addition, the
TKR New Jersey / New York Systems paid a one-time facility fee of $3,483,000 in
1995 upon closing the revolving credit facility and an additional $1,245,000 fee
in 1996 upon drawing on the acquisition facility. Such fees are being amortized
to interest expense over the term of the facility.
The most significant debt covenants of this credit facility limit additional
borrowings, sales of assets and additional investments. In addition, the TKR New
Jersey / New York Systems have agreed to maintain certain defined debt to cash
flow, cash flow to debt service, and cash flow to interest expense ratios.
The minimum mandatory principal repayments required as of December 31, 1996
based upon the current level of indebtedness under this credit facility are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000.............................................. $ 53,988
2001.............................................. 120,000
2002.............................................. 130,000
2003.............................................. 160,000
2004.............................................. 120,000
---------
$ 583,988
---------
---------
</TABLE>
In addition, the credit facility requires that the TKR New Jersey / New York
Systems enter into interest rate protection agreements for 50% of the
outstanding borrowings under certain circumstances, as specified in the
agreement. The TKR New Jersey / New York Systems are a party to an interest rate
exchange agreement under which it pays, quarterly, a fixed rate of 7.09% on the
notional principal amount of $100,000,000 in exchange for which the TKR New
Jersey / New York Systems will receive 90 day LIBOR payments on a like amount.
The effect of the exchange is to fix the interest rate on $100,000,000 of
borrowings through October 1997. For the years ended December 31, 1996, 1995 and
1994, net payments pursuant to the interest rate protection agreements were
$1,040,000, $1,484,000 and $1,086,000, respectively.
At December 31, 1996, the estimated fair value of the aforementioned
interest rate exchange agreement was $1,453,000. Such fair value was obtained
from a dealer quote and represents the estimated amount that the TKR New Jersey
/ New York Systems would pay to terminate the agreement.
(6) EMPLOYEE BENEFIT PLANS
Employees of the TKR New Jersey / New York Systems may participate in
various benefit plans (the "Plans") sponsored by TKR which cover certain
qualified employees. Under one of these plans, TKR makes discretionary
contributions each year, as determined by TKR's Management Committee, from any
available TKR profits, as defined. Qualified employees may also participate in a
401(k) savings plan (the "401(k) Plan") sponsored by TKR. Employees may elect to
contribute a portion of their wages to the 401(k) Plan, subject to certain
limitations. TKR is not required to contribute a matching percentage
contribution; however, TKR did contribute a portion of the employees'
contribution up to a maximum of 3% for 1996, 1995 and 1994. Charges to the TKR
New Jersey / New York Systems related to the Plans are allocated as described in
note 4.
(CONTINUED)
F-31
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
(7) INCOME TAXES
No provision for income taxes has been recorded in the accompanying combined
financial statements for the TKR New Jersey / New York Systems, except as
explained below with respect to the operations of the Corporate Subsidiaries.
Components of the provision for income tax benefit (expense) of the
Corporate Subsidiaries are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Current:
Federal............................................................. $ (158) (113) (605)
State............................................................... (46) (33) (177)
--------- --- ---
(204) (146) (782)
--------- --- ---
Deferred:
Federal............................................................. (152) 372 (19)
State............................................................... (44) 108 (5)
--------- --- ---
(196) 480 (24)
--------- --- ---
$ (400) 334 (806)
--------- --- ---
--------- --- ---
</TABLE>
The actual provision for income taxes for 1996, 1995 and 1994 differs from
the expected provision (computed by applying the U.S. corporate income tax rate
of 34% to income before provision for income taxes) as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Computed "expected" provision for income taxes................... $ (6,613) (6,936) (7,498)
Income from partnerships included in combined income included in
Partners' income tax returns................................... 7,086 6,878 7,261
State income taxes, net of Federal income tax benefit............ (60) 50 (121)
Amortization of franchise costs not deductible................... (57) (57) (57)
Other, net....................................................... (756) 399 (391)
--------- --------- ---------
$ (400) 334 (806)
--------- --------- ---------
--------- --------- ---------
</TABLE>
(CONTINUED)
F-32
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
(AMOUNTS IN
THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards....................................... $ 3,418 1,788
Investment tax credit carryforwards.................................... 341 268
Alternative minimum tax credit carryforwards........................... 666 959
---------- ---------
Total gross deferred tax assets...................................... 4,425 3,015
---------- ---------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation......................................................... (7,260) (5,557)
Franchise costs, principally due to differences in amortization........ (3,277) (3,374)
Other.................................................................. (500) (500)
---------- ---------
Total gross deferred tax liabilities................................. (11,037) (9,431)
---------- ---------
Net deferred tax liability........................................... $ (6,612) (6,416)
---------- ---------
---------- ---------
</TABLE>
At December 31, 1996, the Corporate Subsidiaries have approximately
$8,543,000 available in net operating loss carryforwards and approximately
$341,000 in investment tax credit carryforwards for income tax purposes. Such
carryforwards expire through the year 2011.
(8) ACQUISITION
In February 1996, the TKR New Jersey / New York Systems consummated a
transaction to acquire certain cable television systems and franchise rights
from Sammons Communications, Inc. for approximately $204,855,000, subject to
adjustments, as defined. The TKR New Jersey / New York Systems financed
$204,555,000 of the purchase price through the acquisition facility (note 5).
This acquisition was accounted for under the purchase method of accounting and
the results of operations of the acquired franchises have been included in the
combined statements of earnings since the acquisition date. On a pro forma
basis, the TKR New Jersey / New York Systems' revenue and net earnings would
have been increased (decreased) by $7,088,000 and ($105,000), respectively, for
the year ended December 31, 1996; and revenue and net earnings would have been
increased (decreased) by $43,524,000 and ($770,000), respectively, for the year
ended December 31, 1995 had the acquired systems been combined with the TKR New
Jersey / New York Systems on January 1, 1995. The foregoing unaudited pro forma
financial information is based upon historical results of operations adjusted
for acquisition costs and, in the opinion of management, is not necessarily
indicative of the results had the TKR New Jersey / New York Systems operated the
acquired systems since January 1, 1995.
(CONTINUED)
F-33
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
The purchase price allocation, which was based on estimated fair market
values at the acquisition date as determined by an independent appraisal, is as
follows (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
Property and equipment............................................ $ 43,563
Accounts receivable............................................... 2,968
Investment in NJFT................................................ 1,781
Franchise costs................................................... 158,508
Other assets...................................................... 79
Accounts payable and accrued expenses............................. (2,044)
---------
Cash paid for acquisitions...................................... $ 204,855
---------
---------
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The TKR New Jersey / New York Systems have entered into certain pole rental
agreements with various utility companies which can be terminated on minimum
notice. Rental payments under such lease agreements aggregated $989,000,
$963,000 and $991,000 in 1996, 1995 and 1994, respectively.
The TKR New Jersey / New York Systems lease certain facilities and real
property under noncancellable leases with original terms varying from one to ten
years. Rental expense under such leases aggregated $1,075,000, $841,000 and
$971,000 in 1996, 1995 and 1994, respectively. Certain rental payments will be
adjusted in the future in accordance with changes in the consumer price index.
Minimum annual rental commitments for the next five years for all
noncancellable leases as of December 31, 1996 are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1997................................................ $ 1,259
1998................................................ 1,369
1999................................................ 1,433
2000................................................ 1,456
2001................................................ 1,508
---------
---------
</TABLE>
As a result of the 1992 Cable Television Consumer Protection and Competition
Act (the 1992 Cable Act), all of the TKR New Jersey / New York Systems' cable
television systems are subject to regulation by local franchise authorities
and/or the Federal Communications Commission (FCC). Regulations imposed by the
1992 Cable Act, among other things, allow regulators to limit and reduce the
rates that cable operators can charge for certain basic cable television
services and equipment rental charges. The TKR New Jersey / New York Systems
have been notified by certain franchise authorities that the rates charged for
basic and programming service to subscribers during the period from September 1,
1993 to May 31, 1994 may have been in excess of the rates permitted by
regulation. In November 1994, however, the FCC issued a Memorandum Opinion and
Order which concluded that one of the TKR New Jersey / New York Systems'
aforementioned cable television systems had effectively complied with the rate
regulations. The TKR New Jersey / New York Systems believe that all of their
other cable television systems had rate structures substantially identical to
the one reviewed by the FCC in the above order. Accordingly, management of the
TKR New Jersey / New York Systems believes that they do not have any material
liability to refund amounts to customers as a result of the 1992 Cable Act.
(CONTINUED)
F-34
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
Certain claims and lawsuits have been filed against the TKR New Jersey / New
York Systems. Although it is reasonably possible that the TKR New Jersey / New
York Systems may incur losses upon conclusion of such matters, an estimate of
any loss or range of loss cannot be made. The TKR New Jersey / New York Systems
believe these claims will not have a material adverse effect on their financial
statements.
(CONTINUED)
F-35
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
CONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
TCI NJNY TKR NJNY
(NOTE 1) (NOTE 1)
------------------ -----------------
<S> <C> <C>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
AMOUNTS IN THOUSANDS
ASSETS
Cash....................................................................... $ 3,726 911
Trade and other receivables, net........................................... 15,256 10,486
Property and equipment, at cost............................................ 316,539 450,712
Less accumulated depreciation............................................ 18,507 140,222
-------- --------
298,032 310,490
-------- --------
Franchise costs............................................................ 437,890 253,522
Less accumulated amortization............................................ 8,203 31,423
-------- --------
429,687 222,099
-------- --------
Other assets, at cost, net of amortization................................. 4,928 8,732
-------- --------
$ 751,629 552,718
-------- --------
-------- --------
LIABILITIES AND COMBINED EQUITY (DEFICIT)
Accounts payable and accrued expenses...................................... $ 9,557 30,178
Debt....................................................................... 573,988 583,988
Deferred income taxes...................................................... 13,166 6,612
-------- --------
Total liabilities...................................................... 596,711 620,778
-------- --------
Combined equity (deficit):
Retained earnings........................................................ 18,151 264,470
Due to (from) affiliates, net (note 3)................................... 136,767 (332,530)
-------- --------
Total combined equity (deficit)........................................ 154,918 (68,060)
-------- --------
$ 751,629 552,718
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed combined financial statements.
F-36
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
CONDENSED COMBINED STATEMENTS OF OPERATIONS AND COMBINED EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
TCI NJNY TKR NJNY
(NOTE 1) (NOTE 1)
------------------ ------------------
<S> <C> <C>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<CAPTION>
AMOUNTS IN THOUSANDS
<S> <C> <C>
Revenue................................................................... $ 158,334 136,718
Operating costs and expenses:
Operating, selling, general and administrative (note 3)................. 83,353 69,417
Depreciation............................................................ 18,507 22,118
Amortization............................................................ 8,668 3,170
-------- --------
110,528 94,705
-------- --------
Operating income...................................................... 47,806 42,013
Other income (expense):
Interest expense........................................................ (28,934) (24,206)
Interest income and other, net.......................................... 137 258
-------- --------
(28,797) (23,948)
-------- --------
Earnings before income tax expense.................................... 19,009 18,065
Income tax expense........................................................ (858) (379)
-------- --------
Net earnings.......................................................... 18,151 17,686
Combined equity (deficit):
Beginning of period..................................................... 138,053 (91,348)
Distributions........................................................... -- (6,452)
Change in due to (from) affiliates, net................................. (1,286) 11,389
-------- --------
End of period........................................................... $ 154,918 (68,725)
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed combined financial statements.
F-37
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TCI NJNY TKR NJNY
(NOTE 1) (NOTE 1)
------------------ ------------------
<S> <C> <C>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<CAPTION>
AMOUNTS IN THOUSANDS
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................................ $ 18,151 17,686
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization....................................... 27,175 25,288
Deferred income tax expense......................................... 858 196
Changes in operating assets and liabilities, net of the effect of an
acquisition:
Change in receivables........................................... (4,770) (1,468)
Change in other assets.......................................... 521 (4,508)
Change in accounts payable and accrued expenses................. (20,621) 4,604
-------- --------
Net cash provided by operating activities......................... 21,314 41,798
-------- --------
Cash flows from investing activities:
Property and equipment additions........................................ (7,213) (73,663)
Additions to franchise costs............................................ -- (2,146)
Acquisition of cable systems............................................ -- (204,855)
-------- --------
Net cash used in investing activities............................. (7,213) (280,664)
-------- --------
Cash flows from financing activities:
Proceeds from debt...................................................... 130,000 274,500
Repayment of debt....................................................... (140,000) (30,000)
Change in amounts due to (from) affiliates, net......................... (1,286) 11,389
Distributions........................................................... -- (4,193)
Change in cash overdraft................................................ -- (8,851)
-------- --------
Net cash provided by (used in) financing activities............... (11,286) 242,845
-------- --------
Net increase in cash.............................................. 2,815 3,979
Cash at beginning of period....................................... 911 --
-------- --------
Cash at end of period............................................. $ 3,726 3,979
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............................ $ 33,032 27,739
-------- --------
-------- --------
Non-cash distribution of assets..................................... $ -- 2,259
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed combined financial statements.
F-38
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed combined financial statements of the TKR New
Jersey/New York Systems include the accounts of the cable television systems in
and around Morris County, Elizabeth, Hamilton, Warren, Raritan and Parlin, New
Jersey, and Rockland County, Ramapo and Warwick, New York. These systems are
wholly-owned by TKR Cable Company, a general partnership, (together with its
consolidated subsidiaries, "TKR"). TKR owns the cable television systems located
in Ramapo and Warwick, New York through its two corporate subsidiaries (the
"Corporate Subsidiaries"), TKR Cable Company of Ramapo, Inc. and TKR Cable
Company of Warwick, Inc. The accounts of the Corporate Subsidiaries and the
KRC/CCC Investment Partnership ("KRC/CCC IP"), an entity engaged in cable
television advertising sales, are also included in the accompanying condensed
combined financial statements of the TKR New Jersey/New York Systems.
Prior to January 10, 1997, TKR and KRC/CCC IP were jointly owned and managed
by Country Cable Co. ("Country Cable") and Knight-Ridder Cablevision, Inc.
("KRC"). Country Cable is an indirect wholly-owned subsidiary of Liberty Cable,
Inc., which is a wholly-owned subsidiary of Tele-Communications, Inc. ("TCI").
Effective January 10, 1997, a subsidiary of Country Cable purchased KRC's 50%
general partnership interests in TKR and KRC/CCC IP and certain other assets
(the "Acquisition"). As a result, Country Cable indirectly owns 100% of TKR and
KRC/CCC IP, including the TKR New Jersey/New York Systems. All significant
intercompany transactions have been eliminated in combination in the
accompanying condensed combined financial statements.
In the following text, "TKR Parent" refers to TKR exclusive of the TKR New
Jersey/New York Systems and the Corporate Subsidiaries.
For financial reporting purposes, the Acquisition has been reported as if
the effective date of such Acquisition was January 1, 1997. In the accompanying
condensed combined financial statements and in the following text, TKR NJNY
refers to the results of operations and financial position of the TKR New
Jersey/New York Systems prior to the Acquisition, and TCI NJNY refers to the
results of operations and financial position of the TKR New Jersey/New York
Systems subsequent to the Acquisition. The "TKR New Jersey/New York Systems"
refers to both TCI NJNY and its predecessor entity, TKR NJNY.
As a result of the Acquisition, which was accounted for as a purchase, the
condensed combined financial information for the period after the Acquisition is
presented on a different cost basis than that for the period before the
Acquisition and, therefore is not comparable. The condensed combined financial
information for the period after the Acquisition date has been adjusted to
reflect the allocation of the Acquisition purchase price based on the estimated
fair values of the TKR New Jersey/New York Systems' net assets. In connection
with such allocation, the TKR New Jersey/New York Systems' December 31, 1996
franchise costs and deferred income taxes were increased by $215,791,000 and
$5,696,000, respectively, and retained earnings, other assets and property and
equipment were decreased by $264,470,000, $2,818,000 and $1,164,000. The
offsetting effect of such adjustments was reflected as a $470,583,000 adjustment
to the intercompany amount due from affiliates. See note 3.
The accompanying interim condensed combined financial statements are
unaudited but, in the opinion of management, reflect all adjustments (consisting
of normal recurring accruals) necessary for a
(CONTINUED)
F-39
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
fair presentation of the results for such periods. The results of operations for
any interim period are not necessarily indicative of results for the full year.
These condensed combined financial statements should be read in conjunction with
the combined financial statements and notes thereto for the year ended December
31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(2) PROPOSED MERGER TRANSACTION
As of June 6, 1997, TCIC and Cablevision Systems Corporation ("Cablevision")
entered into a definitive agreement, pursuant to which TCIC's ten New York
metropolitan area cable television systems (the "Systems"), including the TKR
New Jersey/New York Systems, will be contributed to Cablevision. In exchange,
TCIC will receive approximately 12.2 million newly issued shares of Cablevision
Class A common stock, which are expected to represent 33% of Cablevision's total
shares outstanding. In addition, Cablevision will assume $669 million of the
Systems' debt, comprised of all amounts outstanding under the bank credit
facility of the TKR New Jersey/New York Systems and a portion of the
intercompany amounts owed by the Systems to TCIC and its affiliates.
Consummation of the transaction is subject to, among other matters, Cablevision
shareholder and regulatory approvals. There is no assurance that such
transaction will be consummated.
(3) TRANSACTIONS WITH RELATED PARTIES
The amounts due to (from) affiliates consist of amounts due to TKR Parent
with respect to various non-interest bearing intercompany advances, including
the net effect of expense allocations. The amounts due to (from) affiliates,
subsequent to the Acquisition, include the push down of the Acquisition purchase
price. Due to the fact that TKR Parent and the TKR New Jersey/New York Systems
are under common control, the amounts due to (from) affiliates have been
classified as a component of combined equity (deficit) in the accompanying
condensed combined financial statements. Such amounts are due on demand.
The intercompany activity in amounts due to (from) affiliates consists of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
<CAPTION>
AMOUNTS IN THOUSANDS
<S> <C> <C>
Beginning of period................................................. $ 138,053 (343,972)
Programming charges............................................... 39,898 23,292
Administrative fees............................................... 3,927 1,878
Cash transfers.................................................... (45,111) (13,781)
----------- -----------
End of period....................................................... $ 136,767 (332,583)
----------- -----------
----------- -----------
</TABLE>
Prior to the Acquisition, TKR Parent provided certain corporate general and
administrative services and was responsible for the TKR New Jersey/New York
Systems' operations and construction. Costs related to these services were
allocated to the TKR New Jersey/New York Systems on a basis that was
(CONTINUED)
F-40
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
intended to approximate TKR Parent's proportionate cost of providing such
services. Subsequent to the Acquisition, certain subsidiaries of TCI provide
administrative services to the TKR New Jersey/New York Systems and have assumed
managerial responsibility of the TKR New Jersey/New York Systems' cable
television system operations and construction. As compensation for these
services, the TKR New Jersey/ New York Systems pay a monthly fee calculated on a
per-customer basis. The allocated costs for such services were $3,927,000 and
$1,878,000 for the nine months ended September 30, 1997 and 1996, respectively,
and are included in operating, selling, general and administrative expenses.
Although such allocations are not necessarily representative of the costs that
the TKR New Jersey/New York Systems would have incurred on a stand-alone basis,
management believes that the resulting allocated amounts are reasonable.
The TKR New Jersey/New York Systems are a party to an agreement with TCI
whereby the TKR New Jersey/New York Systems purchase certain pay and basic
television programming from TCI at TCI's actual cost of such services. Charges
for such services aggregated $39,898,000 and $23,292,000 for the nine months
ended September 30, 1997 and 1996, respectively.
During 1996, TKR NJNY entered into various lease agreements with New Jersey
Fiber Technologies ("NJFT"), which is 39.65% owned by Country Cable and 39.65%
owned by KRC. The TKR New Jersey/ New York Systems lease certain fiber node
space to NJFT, contingent on regulatory approval, through 10 year direct
financing type leases as defined in Statement of Financial Accounting Standards
No. 13, "Accounting for Leases". The net investment in direct financing type
leases is included in other assets in the accompanying condensed combined
financial statements.
(4) ACQUISITION
In February 1996, TKR NJNY consummated a transaction to acquire certain
cable television systems and franchise rights from Sammons Communications, Inc.
for approximately $204,855,000, subject to adjustments, as defined. TKR NJNY
financed $204,555,000 of the purchase price through an existing credit facility.
Such acquisition was accounted for under the purchase method of accounting and
the results of operations of the acquired franchises have been included in the
combined statements of operations since the acquisition date.
On a pro forma basis, TKR NJNY's revenue would have been increased by
$7,088,000 and net earnings would have been decreased by $105,000 for the nine
months ended September 30, 1996 had the acquired systems been combined with TKR
NJNY on January 1, 1996.
(5) CONTINGENCIES
As a result of the Cable Television Consumer Protection and Competition Act
of 1992 (the "1992 Cable Act"), all of the TKR New Jersey/New York Systems'
cable television systems are subject to regulation by the Board of Public
Utilities (the "BPU") in New Jersey or the New York State Commission on Cable
Television (or the local franchising authority if it opted out of the state
regulatory scheme) in New York and/or the Federal Communications Commission (the
"FCC"). Regulations imposed by the 1992 Cable Act, among other things, allow
regulators to limit and reduce the rates that cable operators can charge for
certain cable television services and equipment rental charges. The BPU has
issued orders affecting some TKR New Jersey/New York Systems cable television
systems in New Jersey finding that the rates charged for basic cable television
service and certain equipment exceeded the allowable rates under the rules of
the FCC. These orders are subject to appeal by the TKR New Jersey/New York
Systems to the
(CONTINUED)
F-41
<PAGE>
TKR NEW JERSEY/NEW YORK SYSTEMS
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
FCC on substantive, as well as procedural, grounds. In addition, the BPU has
informally told the TKR New Jersey/New York Systems that additional issues not
contained in the orders previously issued may be present in systems that are
currently being reviewed. No orders, or requests for information, have been
submitted to the TKR New Jersey/New York Systems on these issues. Management of
the TKR New Jersey/New York Systems believes that the ultimate resolution of
these issues will not have a material adverse effect on the financial statements
of the TKR New Jersey/New York Systems.
Certain claims and lawsuits have been filed against the TKR New Jersey/New
York Systems. Although it is reasonably possible that the TKR New Jersey/New
York systems may incur losses upon conclusion of such matters, an estimate of
any loss or range of loss cannot be made. The TKR New Jersey/New York Systems
believe these claims will not have a material adverse effect on their financial
statements.
F-42
<PAGE>
APPENDIX A
FINAL EXECUTION COPY
AMENDED AND RESTATED CONTRIBUTION AND
MERGER AGREEMENT
AMONG
TCI COMMUNICATIONS, INC.,
CABLEVISION SYSTEMS CORPORATION,
CSC PARENT CORPORATION
AND
CSC MERGER CORPORATION
DATED AS OF JUNE 6, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
RECITALS
ARTICLE I
The Merger; Closings; Effective Time
1.1. The Merger............................................................................................... 2
1.2. Closings................................................................................................. 2
1.3. Effective Time........................................................................................... 2
ARTICLE II
Certificate of Incorporation and By-Laws of the Surviving Corporation
2.1. The Certificate of Incorporation......................................................................... 2
2.2. The By-Laws.............................................................................................. 2
ARTICLE III
Officers and Directors of the Surviving Corporation; Contribution; Adjustment; Third-Party Consents;
3.1. Directors................................................................................................ 3
3.2. Officers................................................................................................. 3
3.3. Contribution............................................................................................. 3
3.4. Net Adjusted Working Capital Adjustment.................................................................. 6
3.5. Antidilution Adjustments................................................................................. 7
3.6. Failure to Receive Third Party Consents.................................................................. 8
ARTICLE IV
Effect of the Merger on Capital Stock
4.1. Effect on Capital Stock.................................................................................. 9
(a) Merger Consideration.......................................................................... 9
(b) Cancellation of Shares and Parent Common Stock................................................ 9
(c) Merger Sub.................................................................................... 9
(d) Preferred Stock-i-............................................................................ 9
4.2. Transfers................................................................................................ 9
4.3. Dissenters' Rights....................................................................................... 9
4.4. Adjustments to Prevent Dilution.......................................................................... 9
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company............................................................ 10
(a) Organization, Good Standing and Qualification................................................. 10
(b) Capital Structure; Acquired Assets; Indebtedness.............................................. 10
(c) Corporate Authority; Approval................................................................. 11
(d) Governmental Filings; No Violations........................................................... 12
(e) Financial Statements.......................................................................... 12
(f) Absence of Certain Changes.................................................................... 13
(g) Litigation and Liabilities.................................................................... 13
(h) Employee Benefits............................................................................. 14
(i) Compliance with Laws; Permits................................................................. 15
(j) Environmental Matters......................................................................... 16
(k) Tax Matters................................................................................... 17
(l) Taxes......................................................................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
(m) Labor Matters................................................................................. 18
(n) Contracts..................................................................................... 18
(o) No Liabilities as Guarantor................................................................... 18
(p) Notes and Accounts and Royalty Receivables.................................................... 19
(q) Investments................................................................................... 19
(r) Insurance..................................................................................... 19
(s) Owned Real Property........................................................................... 19
(t) Leases........................................................................................ 20
(u) Personal Property............................................................................. 20
(v) Intellectual Property......................................................................... 20
(w) Brokers and Finders........................................................................... 20
(x) Cable Television Franchises................................................................... 20
(y) Accredited Investor; Investment Intent........................................................ 22
(z) Disclosure.................................................................................... 22
5.2 Representations and Warranties of CSC, Parent and Merger Sub............................................. 23
(a) Capitalization of Merger Sub and Parent....................................................... 23
(b) Organization, Good Standing and Qualification................................................. 23
(c) Capital Structure of CSC...................................................................... 23
(d) Corporate Authority........................................................................... 24
(e) Governmental Filings; No Violations........................................................... 24
(f) CSC Reports; Financial Statements............................................................. 25
(g) Absence of Certain Changes.................................................................... 25
(h) Litigation and Liabilities.................................................................... 26
(i) Employee Benefits............................................................................. 26
(j) Compliance with Laws; Permits................................................................. 27
(k) Tax Matters................................................................................... 28
(l) Taxes......................................................................................... 28
(m) Labor Matters................................................................................. 28
(n) Insurance..................................................................................... 28
(o) Brokers and Finders........................................................................... 28
(p) Accredited Investor; Investment Intent........................................................ 28
(q) Environmental Matters......................................................................... 28
(r) Intellectual Property......................................................................... 29
(s) Property...................................................................................... 29
(t) Cable Television Franchises................................................................... 29
(u) Contracts..................................................................................... 31
ARTICLE VI
Covenants
6.1. CSC Interim Operations................................................................................... 31
6.2. Contributed Systems Interim Operations................................................................... 32
6.3. Information Supplied..................................................................................... 34
6.4. Stockholders Meeting; Parent Vote on Reorganization; Recommendation...................................... 34
6.5. Filings; Other Actions; Notification..................................................................... 35
6.6. Taxation................................................................................................. 36
6.7. Access................................................................................................... 36
6.8. Certain Contracts........................................................................................ 36
6.9. Stock Exchange Listing and De-listing.................................................................... 36
6.10. Publicity................................................................................................ 37
6.11. Benefits; Board Representation; Employees................................................................ 37
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
(a) Stock Options; Conjunctive Rights............................................................. 37
(b) Election to Parent's Board of Directors....................................................... 37
(c) Employees..................................................................................... 37
6.12. Expenses................................................................................................. 39
6.13. Indemnification; Directors' and Officers' Insurance...................................................... 39
6.14. Preferred Shares......................................................................................... 39
6.15. Other Actions by the Parties............................................................................. 39
(a) Termination of Affiliated Agreements.......................................................... 39
(b) Stockholders Agreement........................................................................ 40
(c) Other Transactions............................................................................ 40
(d) Certain Intellectual Property................................................................. 40
(e) Certain Environmental Matters................................................................. 40
(f) Further Actions............................................................................... 40
6.16. Parent, CSC and the Company Votes........................................................................ 41
Released Indebtedness and Fibertech Cash; Company Restructuring; Tax Sharing; Surety Liabilities; and
6.17.
Disclosure Updates....................................................................................... 41
(a) Released Indebtedness and Fibertech Cash...................................................... 41
(b) Company Restructuring......................................................................... 41
(c) Tax Sharing Agreements........................................................................ 42
(d) Surety Liabilities............................................................................ 42
(e) Disclosure Updates and Supplements............................................................ 42
ARTICLE VII
Conditions to Merger and Contribution
7.1. Conditions to Obligations to Effect the Merger........................................................... 42
(a) Stockholder Approval.......................................................................... 42
(b) AMEX Listing.................................................................................. 42
(c) Regulatory Consents........................................................................... 42
(d) Litigation.................................................................................... 43
(e) S-4........................................................................................... 43
(f) Blue Sky Approvals............................................................................ 43
(g) Consents Under Agreements..................................................................... 43
(h) Tax Opinion................................................................................... 43
(i) Contribution.................................................................................. 43
7.2. Conditions to Each Party's Obligations to Effect the Contribution........................................ 43
(a) Stockholder Approval.......................................................................... 43
(b) Regulatory Consents........................................................................... 43
(c) Litigation.................................................................................... 44
(d) Merger........................................................................................ 44
(e) AMEX Listing.................................................................................. 44
(f) Stockholders Agreement........................................................................ 44
7.3. Conditions to Obligations of Parent to Effect Contribution............................................... 44
(a) Representations and Warranties................................................................ 44
(b) Performance of Obligations of the Company..................................................... 44
(c) Consents Under Agreements..................................................................... 45
(d) Legal Opinion................................................................................. 45
(e) Contributed Systems Deliveries................................................................ 45
(f) Resignations.................................................................................. 45
(g) Company Restructuring......................................................................... 46
7.4. Conditions to Obligations of the Company to Effect Contribution.......................................... 46
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
(a) Representations and Warranties................................................................ 46
(b) Performance of Obligations of CSC, Parent and Merger Sub...................................... 46
(c) Consents Under Agreements..................................................................... 46
(d) Legal Opinion................................................................................. 46
(e) Tax Opinion................................................................................... 46
(f) Cash Flow Ratio............................................................................... 46
(g) Assumption of Liabilities..................................................................... 46
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent............................................................................ 47
8.2. Termination by Either CSC or the Company................................................................. 47
8.3. Termination by the Company............................................................................... 47
8.4. Termination by CSC....................................................................................... 47
8.5. Effect of Termination and Abandonment.................................................................... 47
ARTICLE IX
Miscellaneous and General
9.1. Survival................................................................................................. 48
9.2. Modification or Amendment................................................................................ 48
9.3. Waiver of Conditions..................................................................................... 48
9.4. Counterparts............................................................................................. 48
9.5. Governing Law and Venue; Waiver of Jury Trial............................................................ 48
9.6. Notices.................................................................................................. 49
9.7. Entire Agreement; No Other Representations............................................................... 49
9.8. No Third Party Beneficiaries............................................................................. 50
9.9. Obligations of CSC, Parent, TCI and the Company.......................................................... 50
9.10. New York State and City Real Property Transfer Tax; Other Transfer Taxes; HSR Fee........................ 50
9.11. Bulk Transfers; Further Assurances....................................................................... 50
9.12. Severability............................................................................................. 50
9.13. Interpretation........................................................................................... 50
9.14. Assignment............................................................................................... 51
Index of Defined Terms:............................................................................................. I-1
Exhibits:
Exhibit A--(Terms of Reorganization Agreement)...................................................................... A-1
Exhibit B--(Form of Stockholders Agreement)......................................................................... B-1
Schedules:
Schedule 3.3(ii) (Asset Contributed Systems)........................................................................ S-1
Schedule 3.3(xii) (Contributed Subsidiaries)........................................................................ S-3
Schedule 3.5 (Issue Exceptions)..................................................................................... S-4
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED CONTRIBUTION AND MERGER AGREEMENT
AMENDED AND RESTATED CONTRIBUTION AND MERGER AGREEMENT (hereinafter called
this "AGREEMENT"), dated as of June 6, 1997, among TCI Communications, Inc, a
Delaware corporation (the "COMPANY"), Cablevision Systems Corporation, a
Delaware corporation ("CSC"), CSC Parent Corporation, a newly formed Delaware
corporation and a wholly owned subsidiary of CSC ("PARENT"), and CSC Merger
Corporation, a Delaware corporation and a wholly owned subsidiary of Parent
("MERGER SUB," and CSC and Merger Sub sometimes being hereinafter collectively
referred to as the "CONSTITUENT CORPORATIONS").
RECITALS
WHEREAS, the parties hereto entered into a Contribution and Merger Agreement
(the "ORIGINAL AGREEMENT") dated as of June 6, 1997 and now desire to amend and
restate the Original Agreement as provided herein.
WHEREAS, the respective boards of directors of each of CSC, Parent and
Merger Sub have approved the merger of Merger Sub with and into CSC (the
"MERGER") and approved the Merger upon the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, after the execution and delivery of this Agreement, Parent and
Charles F. Dolan and/or certain other equity holders in Subsidiaries of CSC may
enter into the Partnership Contribution Agreement (the "PARTNERSHIP CONTRIBUTION
AGREEMENT") relating to the acquisition by Parent of the partnership interests
in Cablevision of New York City M.L.P. held by Charles F. Dolan and/or such
other equity interest in Subsidiaries of CSC pursuant to which, among other
things, the Partnership Contribution (as defined therein) would be consummated
upon the terms and subject to the conditions set forth therein;
WHEREAS, it is anticipated that CSC and Parent will enter into a
Reorganization Agreement containing substantially the terms described in Exhibit
A (the "REORGANIZATION AGREEMENT") pursuant to which, among other things, the
Reorganization (as defined therein) may be consummated upon the terms and
subject to the conditions set forth therein;
WHEREAS, the respective boards of directors of each of CSC, Parent, and the
Company have approved the contribution of all of the outstanding shares of
Contributed Subsidiary Capital Stock and of certain assets to Parent and the
acquisition of the Contributed Subsidiary Capital Stock and such assets and the
assumption of certain liabilities by Parent upon the terms and subject to the
conditions set forth in this Agreement (the "CONTRIBUTION");
WHEREAS, the board of directors of Parent has approved the Stockholders
Agreement substantially in the form attached as Exhibit B hereto (the
"STOCKHOLDERS AGREEMENT") upon the terms and subject to the conditions set forth
in this Agreement;
WHEREAS, contemporaneously with the execution and delivery of the Original
Agreement, as a condition and inducement to the Company's, CSC's, Parent's and
Merger Sub's willingness to enter into this Agreement, the Class B Entities (as
defined in the Voting Agreement), Tele-Communications, Inc., a Delaware
corporation ("TCI"), CSC and Parent are entering into a voting agreement (the
"VOTING AGREEMENT") pursuant to which, among other things, the Class B Entities
shall agree to vote all Shares and shares of Parent Common Stock owned by them
in favor of approval and adoption of this Agreement and the Merger, the approval
of the share issuance in connection with the Contribution and the approval of
the Charter Amendments (as defined therein) and the Class B Entities and TCI
shall agree to enter into the Stockholders Agreement at the Contribution
Closing;
WHEREAS, it is intended that, for federal income tax purposes, the Merger
and the Contribution shall qualify as an exchange governed by Section 351 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the "CODE"); and
A-1
<PAGE>
WHEREAS, CSC, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER; CLOSINGS; EFFECTIVE TIME
1.1. THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time (as defined in Section 1.3) Merger Sub
shall be merged with and into CSC and the separate corporate existence of Merger
Sub shall thereupon cease. CSC shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "SURVIVING CORPORATION"), and the
separate corporate existence of CSC with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger, except as set
forth in Sections 3.1 and 3.2. The Merger shall have the effects specified in
the Delaware General Corporation Law, as amended (the "DGCL").
1.2. CLOSINGS. The closings of each of the Merger (the "MERGER CLOSING")
and the Contribution (the "CONTRIBUTION CLOSING," and, together with the Merger
Closing, the "CLOSINGS") shall take place (i) at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York at 10:00 A.M. on the third
business day on which the last to be fulfilled or waived of the conditions for
the Merger and the Contribution (together, the "TRANSACTIONS"), as the case may
be, set forth in Article VII (other than in each case those conditions that by
their nature are to be satisfied at their respective Closings, but subject to
the fulfillment or waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place and time and/or on
such other date as CSC, the Company and Parent may agree in writing (the
"CLOSING DATE").
1.3. EFFECTIVE TIME. As of or as soon as practicable following the Merger
Closing, CSC and Parent will cause a Certificate of Merger (the "CERTIFICATE OF
MERGER") to be executed, acknowledged and filed with the Secretary of State of
Delaware as provided in Section 251 of the DGCL. The Merger shall become
effective at the time when the Certificate of Merger has been duly filed with
the Secretary of State of Delaware (the "EFFECTIVE TIME").
ARTICLE II
CERTIFICATE OF INCORPORATION AND BY-LAWS
OF THE SURVIVING CORPORATION
2.1. THE CERTIFICATE OF INCORPORATION. The certificate of incorporation of
CSC as in effect immediately prior to the Effective Time shall be the
certificate of incorporation of the Surviving Corporation (the "CHARTER"), until
duly amended as provided therein or by applicable law, except that: (a) Article
Fourth of the Charter shall be amended to read in its entirety as follows: "The
aggregate number of shares that the Corporation shall have the authority to
issue is 10,001,000 shares: (a) 1,000 shares of Common Stock, par value $1.00
per share; (b) 10,000,000 shares of Preferred Stock, par value $.01 per share
("PREFERRED STOCK"), 200,000 shares of which shall be designated as Series A
Cumulative Convertible Preferred Stock ("SERIES A PREFERRED STOCK") and 200,000
shares of which shall be designated as Series B Cumulative Convertible Preferred
stock ("SERIES B PREFERRED STOCK")."; and (b) Article First of the Charter shall
be amended to read in its entirety as follows: "The name of the Corporation is
CSC Holdings, Inc."
2.2. THE BY-LAWS. The by-laws of Merger Sub in effect at the Effective
Time shall be the by-laws of the Surviving Corporation (the "BY-LAWS"), until
thereafter amended as provided therein or by applicable law.
A-2
<PAGE>
ARTICLE III
OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION;
CONTRIBUTION; ADJUSTMENT;
THIRD-PARTY CONSENTS;
3.1. DIRECTORS. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the Charter
and the By-Laws.
3.2. OFFICERS. The officers of CSC at the Effective Time shall, from and
after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Charter and
the By-Laws.
3.3. CONTRIBUTION. On the terms and subject to the conditions set forth
herein, at the Contribution Closing:
(a) the Company agrees that it shall contribute, convey, transfer,
assign and deliver, or cause to be contributed, conveyed, transferred,
assigned and delivered, to Parent, free and clear of any Liens (other than
Contributed System Permitted Liens), and Parent agrees that it shall accept
and receive all of the Acquired Assets;
(b) the Company agrees that it will transfer or cause to be transferred
to Parent, and Parent agrees that it will acquire from the Company or the
Person the Company causes to transfer to Parent, all of the Included
Contributed Systems, including the franchises, assets and rights necessary
to provide cable television services related thereto, by Parent acquiring
all of the outstanding Contributed Subsidiary Capital Stock, free and clear
of any Lien; and
(c) Parent agrees that it (i) shall issue to the Company an aggregate
consideration (the "STOCK CONSIDERATION") of 12,235,543 shares of Class A
Common Stock, par value $.01 per share (the "PARENT CLASS A SHARES"), of
Parent, subject to adjustment as provided in Section 3.4 and Section 3.5,
and deliver to the transferors of the Acquired Assets and the Contributed
Subsidiary Capital Stock a certificate or certificates representing such
Parent Class A Shares as more specifically described on Schedules 3.3(ii)
and 3.3(xii) and (ii) shall assume and agree to pay and shall discharge and
perform as and when due the Assumed Liabilities. Notwithstanding anything to
the contrary in this Agreement, Parent shall not assume or be liable for,
and the Company shall hold Parent harmless in respect of, any of the
Excluded Liabilities.
As used in this Agreement, the following terms shall have the following
meanings:
(i) "ACQUIRED ASSETS" means all of the properties, assets, privileges,
rights, interests, claims and goodwill, real and personal, tangible and
intangible, of every type and description, including leasehold interests or
rights to possession, whether owned or leased or otherwise possessed, by the
Contributed System Entities primarily relating to, used in or held for use
in connection with or otherwise required to carry on the business of the
Asset Contributed Systems as currently conducted and to be conducted in
accordance with this Agreement prior to the Closing Date, whether now in
existence or hereafter acquired prior to the Contribution Closing, including
the Contributed Accounts, the Contributed Instruments, the Contributed
Contracts, the Contributed Equipment, the Contributed Intellectual Property,
the Contributed Inventory and the Contributed Real Property but excluding
the Excluded Assets;
A-3
<PAGE>
(ii) "ASSET CONTRIBUTED SYSTEMS" means those cable television systems
identified on Schedule 3.3(ii) as an "ASSET CONTRIBUTED SYSTEM";
(iii) "ASSUMED LIABILITIES" means (i) all liabilities, obligations and
commitments of the Contributed System Entities to the extent relating to or
arising out of the business of the Asset Contributed Systems, whether before
or after the Contribution Closing, including all liabilities, obligations
and commitments arising before or after the Contribution Closing under the
Contributed Instruments, the Contributed Contracts and the Contributed
Intellectual Property; (ii) all of the Assumed Company Debt; and (iii) all
other liabilities, obligations and commitments to the extent they are
included as Liabilities, and an adjustment has been taken therefor, under
Section 3.4(a), PROVIDED that Assumed Liabilities shall exclude the Excluded
Liabilities;
(iv) "CONTRIBUTED ACCOUNTS" means all accounts receivable, royalties
receivable, marketable securities, deposits and prepaid expenses of the
Contributed System Entities arising out of or relating to the business of
the Asset Contributed Systems as currently conducted and to be conducted in
accordance with this Agreement prior to the Closing Date;
(v) "CONTRIBUTED CONTRACTS" means all Contracts of the Contributed
System Entities primarily relating to or made in connection with the
business of the Asset Contributed Systems, including, with respect to the
Asset Contributed Systems, the Contributed System Cable Franchise Agreements
and the Contributed System Leases;
(vi) "CONTRIBUTED ENTITIES" means the Contributed Subsidiaries and
their Subsidiaries;
(vii) "CONTRIBUTED EQUIPMENT" means all tangible personalty;
electronic devices; towers; trunk and distribution cable; decoders and spare
decoders for scrambled satellite signals; amplifiers; power supplies;
conduit; vaults and pedestals; grounding and pole hardware; installed
subscriber's devices (including drop lines, converters, encoders,
transformers behind television sets and fittings); "head-ends" and "Hubs"
(origination, transmission and distribution system) hardware; tools;
inventory; spare parts; maps and engineering data; vehicles; supplies, tests
and closed circuit devices; furniture and furnishings; and all other
tangible personal property and facilities owned or leased by the Contributed
System Entities and primarily relating to, used in or held for use in
connection with or otherwise required to carry on the business of the Asset
Contributed Systems as currently conducted and to be conducted in accordance
with this Agreement prior to the Closing Date;
(viii) "CONTRIBUTED INSTRUMENTS" means all permits, licenses,
franchises, variances, exceptions, orders, authorizations, consents,
ordinances or licenses granted to the Contributed System Entities by any
Governmental Entity and primarily in respect of or otherwise used in or held
for use in connection with or required to carry out, the business of the
Asset Contributed Systems as currently conducted and to be conducted in
accordance with this Agreement prior to the Closing Date, including permits
for wire crossings over or under highways, railroads, and other property;
construction permits and certificates of occupancy; business radio, "Earth
Station" and other FCC licenses; pole attachment and other Contracts with
utilities; Contracts for the purchase, sale, receipt or distribution of
news, data and microwave relay signals or for satellite services; and all
other approvals, consents and authorizations of the Contributed System
Entities relating to, used in or held for use in connection with or
otherwise required to carry on the business of the Asset Contributed Systems
as currently conducted and to be conducted in accordance with this Agreement
prior to the Closing Date;
(ix) "CONTRIBUTED INTELLECTUAL PROPERTY" means the Intellectual
Property Rights of the Contributed System Entities primarily relating to,
used in or held for use in connection with or otherwise required to carry on
the business of the Asset Contributed Systems as currently conducted and to
be conducted in accordance with this Agreement prior to the Closing Date,
and the value associated therewith;
A-4
<PAGE>
(x) "CONTRIBUTED INVENTORY" means all inventory (as defined under
GAAP) plus, without limitation, all supplies, all equipment held as
maintenance inventory, all converters, all cables and all amplifiers owned
or leased by the Contributed System Entities relating to, used in or held
for use in connection with or otherwise required to carry on the business of
the Asset Contributed Systems as currently conducted and to be conducted in
accordance with this Agreement prior to the Closing Date;
(xi) "CONTRIBUTED REAL PROPERTY" means all realty, fixtures,
easements, rights-of-way, leasehold and other interests in real property,
buildings and improvements of the Contributed System Entities relating to,
used in or held for use in connection with or otherwise required to carry on
the business of the Asset Contributed Systems as currently conducted and to
be conducted in accordance with this Agreement prior to the Closing Date,
including, with respect to the Asset Contributed Systems, the Contributed
Systems Real Property and the Contributed Systems Leased Real Property;
(xii) "CONTRIBUTED SUBSIDIARIES" means those Persons identified on
Schedule 3.3(xii) as a "Contributed Subsidiary" owning, collectively, all of
the Included Contributed Systems;
(xiii) "CONTRIBUTED SUBSIDIARY CAPITAL STOCK" means 100% of the issued
and outstanding equity interests (including capital stock and partnership
interests) in the Contributed Subsidiaries;
(xiv) "CONTRIBUTED SYSTEM ENTITIES" means those Persons listed on
Schedule 3.3(ii) as a "Contributed System Entity" and also, as of
immediately prior to the Contribution Closing, the Future Contributed System
Entities;
(xv) "CONTRIBUTED SYSTEMS" means the Included Contributed Systems and
the Asset Contributed Systems;
(xvi) "EXCLUDED ASSETS" means, with respect to any Contributed System,
all: (A) programming Contracts (including cable guide Contracts) and
retransmission consent Contracts (other than those listed in Section 5.1(n)
of the Company Disclosure Letter); (B) insurance policies and rights and
claims thereunder up to the Company's self-insured retention or deductible;
(C) cash and cash equivalents subject to the adjustment for Net Adjusted
Working Capital; (D) Contracts relating to national advertising sales
representation, including Contracts with National Cable Communications or
Cable Networks, Inc.; (E) bonds, letters of credit, surety instruments and
other similar items; (F) trademarks, tradenames, service marks, service
names, logos and similar proprietary rights other than those that are used
exclusively with respect to the Acquired Assets; and (G) all commercial
accounts relating to the provision by direct broadcast satellite of cable
music services.
(xvii) "EXCLUDED LIABILITIES" means all of the following liabilities,
obligations and commitments: (v) those to be terminated pursuant to Section
6.15(a) (other than any liabilities, obligations or commitments to the
extent they are included as Liabilities, and an adjustment has been taken
therefor, under Section 3.4(a)); (w) those relating to the officers,
directors or employees of the Company or any of its Subsidiaries that are
not Hired Employees; (x) those arising as a result of a breach by TCI or the
Company of any of its representations, warranties, covenants, agreements or
obligations under this Agreement but only to the extent that such
representations, warranties, covenants, agreements or obligations survive
the consummation of the Transactions as provided in Section 9.1; (y) any
Indebtedness to be released pursuant to Section 6.17(a); and (z) those
relating to the Excluded Assets;
(xviii) "FUTURE CONTRIBUTED SYSTEM ENTITIES" means those corporations
to be formed to receive the Asset Contributed Systems pursuant to and in
accordance with the Company Restructuring prior to the Contribution Closing;
(xix) "INCLUDED CONTRIBUTED SYSTEMS" means those cable television
systems identified on Schedule 3.3(xviii) as an "Included Contributed
Systems";
A-5
<PAGE>
(xx) "LIEN" means any mortgage, pledge, lien, deed of trust,
hypothecation, claim, security interest, title defect, encumbrance, burden,
tax lien (as used in Section 6321 of the Code or similarly by any state,
local or foreign tax authority), charge or other similar restriction, title
retention agreement, option, easement, covenant, encroachment or other
adverse claim; and
(xxi) "PERSON" means any individual, corporation (including
not-for-profit), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, Governmental Entity
or other entity of any kind or nature.
3.4. NET ADJUSTED WORKING CAPITAL ADJUSTMENT. (a) Within 90 days following
the Contribution Closing, Parent shall prepare, or cause to be prepared, and
deliver to the Company a Closing Date consolidated balance sheet relating to
both the Asset Contributed Systems and the Contributed Entities (the "CLOSING
BALANCE SHEET"), which shall set forth the consolidated assets and liabilities
of the Contributed Entities and Acquired Assets and Assumed Liabilities and the
Net Adjusted Working Capital as of the Closing Date, shall be prepared in
accordance with the principles and methods applied to the Proxy Financial
Statements and shall be accompanied by reasonably detailed information
supporting the numbers set forth therein. For this purpose, in no event will
purchase accounting adjustments relating to the Contribution Closing be made to
the Closing Balance Sheet. For the purpose of this Agreement: (i) "CURRENT
ASSETS" means the aggregate amount of cash, marketable securities, deposits,
active subscriber accounts receivables that are no more than 90 days past due
(based on date of invoice) for those subscribers who have been subscribers and
have paid for at least one entire billing cycle and prepaid expenses and
advertising sales accounts receivables for all such receivables, net of reserves
for doubtful accounts, each as reflected as current assets on a balance sheet
prepared in accordance with generally accepted accounting principles ("GAAP")
applied in a manner consistent with that applied in the preparation of the Proxy
Financial Statements, except that the Fibertech Cash and any Excluded Assets
shall not be included; (ii) "LIABILITIES" means the aggregate amount of any and
all liabilities (current and long term and whether or not contingent) reflected
as liabilities on a balance sheet prepared in accordance with GAAP applied in a
manner consistent with that applied in preparation of the Proxy Financial
Statements, except that the Assumed Company Debt, the Surety Liabilities, any
Excluded Liabilities and any other liability or obligation terminated pursuant
to Section 6.15(a) without any liability or obligation to any Contributed Entity
or any Asset Contributed System after the Contribution Closing shall not be
included; and (iii) "NET ADJUSTED WORKING CAPITAL" equals (x) the Current Assets
minus (y) the sum of the Liabilities and the amount by which the total of the
Surety Liabilities exceeds $10,000,000.
(b) The Company and the Company's accountants shall, within 30 days after
the delivery by Parent of the Closing Balance Sheet and the information required
to be delivered with the Closing Balance Sheet, complete their review of the Net
Adjusted Working Capital derived from the Closing Balance Sheet. In the event
that the Company determines that the Net Adjusted Working Capital has not been
determined on the basis set forth in Section 3.4(a) and this Section 3.4(b), the
Company shall inform Parent in writing (the "COMPANY'S OBJECTION"), setting
forth a specific description of the basis of the Company's Objection and the
adjustments to the Net Adjusted Working Capital that the Company believes should
be made, on or before the last day of such 30-day period. Parent shall then have
20 days to review and respond to the Company's Objection. If Parent and the
Company are unable to resolve all of their disagreements with respect to the
determination of the foregoing items within 10 days following the completion of
Parent's review of the Company's Objection, they shall refer their remaining
differences to KPMG Peat Marwick (or its successor) or another internationally
recognized firm of independent public accountants as to which the Company and
Parent mutually agree (the "CPA FIRM"), who shall, acting as experts and not as
arbitrators, determine on the basis of the standards set forth in Section 3.4(a)
and this Section 3.4(b), and only with respect to the remaining differences so
submitted, whether and to what extent, if any, the Net Adjusted Working Capital,
as derived from the Closing Balance Sheet, requires adjustment. The parties
shall instruct the CPA Firm to deliver its written determination to Parent and
the Company no later than the twentieth day after the remaining differences
underlying the Company's Objection are referred to the
A-6
<PAGE>
CPA Firm. The CPA Firm's determination shall be conclusive and binding upon
Parent and the Company and shall not be subject to appeal. The fees and
disbursements of the CPA Firm shall be paid by the Person whose estimate of Net
Adjusted Working Capital differs the most from that ultimately determined by the
CPA Firm. Parent and the Company shall (and Parent shall cause the Contributed
Entities to) make readily available to the CPA Firm all relevant books and
records and any work papers (including those of the parties' respective
accountants) relating to the Financial Statements and Closing Balance Sheet and
all other items reasonably requested by the CPA Firm. The "ADJUSTED CLOSING
BALANCE SHEET" shall be (i) the Closing Balance Sheet in the event that (x) the
Company's Objection is not delivered to Parent during the 30-day period
specified above or (y) the Company and Parent so agree, (ii) the Closing Balance
Sheet, adjusted in accordance with the Company's Objection, in the event that
Parent does not respond to the Company's Objection within the 20-day period
following receipt by Parent of the Company's Objection, or (iii) the Closing
Balance Sheet, as adjusted by either (x) the agreement of the Company and Parent
or (y) the CPA Firm. In the event that the adjustment of the Closing Balance
Sheet pursuant to this Section 3.4(b) discloses that it is appropriate to
include an item in the calculation of Net Adjusted Working Capital that had been
omitted from the Closing Balance Sheet or to omit an item in the calculation of
Net Adjusted Working Capital that had been included in the Closing Balance
Sheet, Parent shall prepare a revised Closing Balance Sheet including or
omitting such item, as the case may be, as at the date thereof.
(c) Within five business days following issuance of the Adjusted Closing
Balance Sheet, the payments payable pursuant to this Section 3.4(c) shall be
paid by wire transfer of immediately available funds to a bank account
designated by Parent or the Company, as the case may be, together with interest
thereon (at the prime rate of interest of Citibank N.A. in effect on the Closing
Date) from and including the Closing Date and up to but not including the date
of payment. If the Net Adjusted Working Capital is more than zero, Parent will
make a payment to the Company in the amount by which the Net Adjusted Working
Capital exceeds zero, as derived from the Adjusted Closing Balance Sheet. If the
Net Adjusted Working Capital is less than zero, the Company will make a payment
to Parent in the amount by which the Net Adjusted Working Capital is less than
zero, as derived from the Adjusted Closing Balance Sheet. Any adjustment payment
in respect of Net Adjusted Working Capital required to be made by Parent to the
Company will be subject to set-off to the extent of any failure by the Company
to comply with Section 6.15(a), Section 6.17(a) or Section 6.17(d). In the event
that the aforementioned set-off is insufficient to fully compensate Parent due
to any failure by the Company to comply with Section 6.15(a), Section 6.17(a) or
Section 6.17(d), the Company shall make a payment to Parent in the amount equal
to such insufficient amount.
3.5. ANTIDILUTION ADJUSTMENTS. If, between the date of this Agreement and
the Contribution Closing, CSC or Parent issues from time to time any Shares or
shares of Parent Common Stock other than in full or partial satisfaction of the
obligations ("ISSUE EXCEPTIONS") that are described on Schedule 3.5 then, upon
any such issue, the number of Parent Class A Shares comprising the Stock
Consideration shall be adjusted (to be either increased or decreased) in
accordance with the following formula:
<TABLE>
<S> <C> <C>
X' = 1,419,322,988
------------
C'
</TABLE>
where:
<TABLE>
<S> <C> <C>
X' = the adjusted aggregate number of Parent Class A Shares comprising the Stock
Consideration immediately following such issue (rounded to the nearest whole
share);
O = the number of Shares or shares of Parent Common Stock outstanding immediately
prior to such issue;
</TABLE>
A-7
<PAGE>
<TABLE>
<S> <C> <C>
I = the aggregate number of Shares or shares of Parent Common Stock to be issued in
such issue;
C = initially $116, and following any antidilution adjustment the C' from the
immediately preceding antidilution calculation;
P = the price per Share of the Shares or shares of Parent Common Stock to be issued
in such issue calculated by reference, as the case may be, to (i) the aggregate
amount of the principal of, interest on, fees and any other amount in respect
of the indebtedness that is paid, redeemed or satisfied in such issue or (ii)
the aggregate amount of the liquidation value of, dividends on, and any other
amount in respect of the Preferred Shares that is paid, redeemed or satisfied
in such issue; and
C' = V+V';
O + I
V = C x O; and
V' = P x I.
</TABLE>
3.6. FAILURE TO RECEIVE THIRD PARTY CONSENTS. Notwithstanding anything to
the contrary in this Agreement, this Agreement shall not constitute an agreement
to assign or transfer any approval, instrument or Contract, or any claim, right
or benefit arising thereunder or arising therefrom, if an assignment or transfer
or an attempt to make such an assignment or transfer without the consent of a
third party would be void or constitute a breach or violation thereof or affect
adversely any of the rights or obligations of Parent thereunder; and any
transfer or assignment to Parent of any interest under any such approval,
instrument or Contract that requires the consent of a third party shall be made
subject to such consent or approval being obtained. In the event that any such
consent or approval is not obtained on or prior to the Closing Date, the Company
(i) shall use its commercially reasonable efforts to obtain any such consent or
approval after the Closing Date until such time as such consent or approval has
been obtained and (ii) shall cooperate with Parent in any lawful arrangement
designed to provide Parent or its Subsidiaries, as the case may be, with the
full economic benefits under any such approval, instrument or Contract,
including performance by the Company or its Affiliates, as the case may be, as
an agent, or in a similar role, for Parent or its Subsidiaries, as the case may
be, PROVIDED that Parent shall undertake to pay or satisfy (or cause the payment
or satisfaction of) the corresponding liabilities for the enjoyment or such
benefit only to the extent Parent would have been responsible therefor hereunder
if such consent or approval had been obtained prior to the Closing Date. No
party hereto shall be required to pay any material payments, agree to any
material restrictions on its or any of its affiliates' business or commence or
pursue any litigation in order to comply with this Section 3.6. Nothing in this
Section 3.6 shall be deemed a waiver or modification by Parent of its right to
receive an effective assignment and transfer of all of the Acquired Assets, nor
shall this Section 3.6 be deemed to constitute an agreement to exclude from the
Acquired Assets any approvals, instruments or Contributed Contracts described in
this Section or to require the obtaining of any consent or approval not
otherwise required to be obtained under the terms of this Agreement.
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ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK
4.1. EFFECT ON CAPITAL STOCK. At the Effective Time, as a result of the
Merger and without any action on the part of the holder of any capital stock of
CSC, Parent or Merger Sub:
(a) MERGER CONSIDERATION. Each share of the Class A Common Stock, par
value $.01 per share ("CSC CLASS A SHARES"), of CSC and each share of Class
B Common Stock, par value $.01 per share ("CSC CLASS B SHARES"), of CSC
(each, a "SHARE" and, collectively, the "SHARES") issued and outstanding
immediately prior to the Effective Time (other than Shares owned by CSC,
Parent, Merger Sub or any other direct or indirect subsidiary of CSC
(collectively, the "PARENT COMPANIES"), excluding in each case those Shares
held on behalf of third parties (collectively, the "EXCLUDED SHARES")) shall
be converted into and become exchangeable for (the "MERGER CONSIDERATION")
one Parent Class A Share (in the case of CSC Class A Shares) or one share of
Class B Common Stock, par value $.01 per share (a "PARENT CLASS B SHARE"),
of Parent (in the case of CSC Class B Shares) (the Parent Class A Shares and
the Parent Class B Shares are together referred to herein as the "PARENT
COMMON STOCK"). At the Effective Time, all Shares shall no longer be
outstanding and shall be canceled and retired and shall cease to exist, and
each certificate (a "CERTIFICATE") formerly representing any of such Shares
(other than Excluded Shares) shall thereafter be deemed for all purposes to
represent the number of shares of Parent Common Stock into which such Shares
were converted pursuant to this Section 4.1.
(b) CANCELLATION OF SHARES AND PARENT COMMON STOCK. Each Share issued
and outstanding immediately prior to the Effective Time and owned by any of
the Parent Companies (other than Shares that are in each case owned on
behalf of third parties) and each share of Parent Common Stock owned by any
of the Parent Companies shall, by virtue of the Merger and without any
action on the part of the holder thereof, cease to be outstanding, shall be
canceled and retired without payment of any consideration therefor and shall
cease to exist.
(c) MERGER SUB. 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 be converted into one share of common stock of
the Surviving Corporation.
(d) PREFERRED STOCK. Each share of Series C Cumulative Preferred
Stock, par value $.01 per share, Series D Cumulative Preferred Stock, par
value $.01 per share, 11 3/4% Series H Redeemable Exchangeable Preferred
Stock, par value $.01 per share, 8 1/2% Series I Cumulative Convertible
Exchangeable Preferred Stock, par value $.01 per share, and 11 1/8% Series M
Redeemable Exchangeable Preferred Stock, par value $.01 per share, of CSC
(collectively, the "PREFERRED SHARES") issued and outstanding at the
Effective Time shall remain outstanding and shall be entitled to the same
dividend and other relative rights, preferences, limitations and
restrictions as provided by the amended and restated certificate of
incorporation of CSC, as amended.
4.2. TRANSFERS. After the Effective Time, if Certificates are presented to
the Surviving Corporation or to Parent they shall be canceled and exchanged for
certificates representing the Merger Consideration into which the Shares
formerly represented by such Certificate were converted pursuant to Section 4.1.
4.3. DISSENTERS' RIGHTS. In accordance with Section 262 of the DGCL, no
appraisal rights shall be available to holders of Shares or Preferred Shares in
connection with the Merger.
4.4. ADJUSTMENTS TO PREVENT DILUTION. In the event that CSC changes the
number of Shares or securities convertible or exchangeable into or exercisable
for Shares, or Parent changes the number of shares of Parent Common Stock or
securities convertible or exchangeable into or exercisable for shares of Parent
Common Stock, issued and outstanding prior to the Effective Time as a result of
a reclassification, stock split (including a reverse split), stock dividend or
stock distribution, recapitalization, subdivision,
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issuer tender or exchange offer, or other similar transaction, the Merger
Consideration and the Stock Consideration shall be equitably adjusted taking
into account, in the case of the Stock Consideration, any adjustment made
pursuant to Section 3.5.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
the corresponding sections or subsections of the disclosure letter delivered to
Parent by the Company on or prior to entering into this Agreement (the "COMPANY
DISCLOSURE LETTER"), the Company hereby represents and warrants to CSC, Parent
and Merger Sub that:
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Contributed
Entities, the Contributed System Entities and the Company is a corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization and has all requisite corporate power
and authority to own and operate its properties and assets and to carry on its
business as presently conducted and is qualified to do business and is in good
standing as a foreign corporation in each jurisdiction where the ownership or
operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in good standing,
when taken together with all other such failures, is not reasonably likely to
have a Contributed Systems Material Adverse Effect. The Company has made
available to Parent a complete and correct copy of the Company's and the
Contributed Entities' respective certificates of incorporation and by-laws or
comparable governing instruments, each as amended to date. The Company's and the
Contributed Entities' respective certificates of incorporation and by-laws or
comparable governing instruments so delivered are in full force and effect. TCI
owns directly all of the outstanding Common Stock of the Company, and the
Company is TCI's principal cable property holding company. Section 5.1(a) of the
Company Disclosure Letter contains a correct and complete list of each
jurisdiction where each of the Contributed Subsidiaries is and each of the
Contributed System Entities is or, if Future Contributed System Entities, will
be as of the Contribution Closing organized and qualified to do business.
As used in this Agreement, the term (i) "SUBSIDIARY" means, with respect
to the Company, any Contributed Entity, CSC, Parent or Merger Sub, as the
case may be, any entity, whether incorporated or unincorporated, of which at
least a majority of the securities or ownership interests having by their
terms ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions is directly or indirectly owned
or controlled by such party or by one or more of its respective Subsidiaries
or by such party and any one or more of its respective Subsidiaries (it
being agreed that until the Effective Time, Parent shall be deemed a
Subsidiary of CSC for all purposes hereunder) and (ii) "CONTRIBUTED SYSTEMS
MATERIAL ADVERSE EFFECT" means a material adverse effect on the financial
condition, properties, business or results of operations of all of the
Contributed Systems, taken as a whole, excluding any such effects
proximately caused by CSC or Parent or any of their respective Subsidiaries.
(b) CAPITAL STRUCTURE; ACQUIRED ASSETS; INDEBTEDNESS. (i) The authorized
and outstanding capital stock of each Contributed Entity is set forth in Section
5.1(b) of the Company Disclosure Letter. All of the outstanding shares of
capital stock in each of the Contributed Entities have been duly authorized and
are validly issued, fully paid and nonassessable and are owned beneficially and
of record by a direct or indirect Subsidiary of the Company, free and clear of
any Lien. Except as required to consummate the Company Restructuring, there are
no preemptive or other outstanding rights, options, warrants, conversion rights,
stock appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or sell any shares of capital stock or
other securities of the Contributed Entities or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any securities of the Contributed Entities,
and no securities or obligations evidencing such
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rights are authorized, issued or outstanding. No Contributed Entity has any
shares of capital stock reserved for issuance. No Contributed Entity has
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or to convert into or be exercised or exchanged
for securities having the right to vote) ("VOTING DEBT") with the stockholders
of any Contributed Entity on any matter. There are no voting trusts, proxies, or
other commitments or understandings, restrictions or arrangements of any kind in
favor of any Person with respect to the voting of, or the right to participate
in dividends or other earnings on, any securities or other ownership interests
of any Contributed Entity. Each of the Contributed System Entities is or, if a
Future Contributed System Entity, will be as of the Contribution Closing a
Subsidiary of the Company. All of the Asset Contributed Systems are owned and
operated within, and all of the Acquired Assets and Assumed Liabilities are
contained within, the Contributed System Entities.
(ii) The Acquired Assets, taken as a whole, constitute and will
constitute all the properties, assets, privileges, rights, and interests of
the Company and its Subsidiaries relating to, used in or held for use in
connection with or otherwise required to carry on the business of the Asset
Contributed Systems as of the date hereof and as of immediately after the
Contribution Closing, except to the extent that Excluded Assets may relate
to, be used in or held for use in connection with or otherwise be required
to carry on such business.
(iii) Section 5.1(b) of the Company Disclosure Letter, which shall be
supplemented on the third business day before the Closing Date in accordance
with Section 6.17(e), sets forth all of the outstanding Indebtedness of each
of the Contributed System Entities (including the Future Contributed System
Entities as of the Contribution Closing) and each of the Contributed
Entities, the maturity thereof and the interest rate thereon, except for the
Assumed Company Debt, which is set forth to the best approximation by the
Company as of the date hereof and shall be set forth in exact amounts on the
third business day prior to the Closing Date. As used in this Agreement, the
term "INDEBTEDNESS" means, without duplication, any liability, whether or
not contingent, (i) in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereto), but excluding reimbursement
obligations under any surety bond and reimbursement obligations and letters
of credit and other forms of surety for cable franchises and other operating
agreements, (ii) representing the balance deferred and unpaid of the
purchase price of any property, except any such balance that constitutes a
trade payable arising in the ordinary course of business, (iii) any
obligation of a Person to pay rent or other amounts under a lease with
respect to any property (whether real, personal or mixed) acquired or leased
by such Person and used in its business that is required to be accounted for
as a liability on the balance sheet of such Person in accordance with GAAP,
and the amount of such obligation constituting Indebtedness shall be the
amount so required to be accounted for as a liability, (iv) under any other
agreement related to the fixing or exchanging of interest rates on any
Indebtedness described above, such as an interest swap, cap or collar
agreement, or (v) guarantees of items of other Persons which would be
included within this definition of Indebtedness for such other Persons
(whether or not the guarantee would appear on a balance sheet of such other
Person). The aggregate amount of liabilities, whether or not contingent, in
respect of reimbursement obligations and letters of credit and other forms
of surety for cable franchises and other operating agreements, excluding
reimbursement obligations under any surety bonds (collectively, the "SURETY
LIABILITIES") does not exceed $10,000,000.
(c) CORPORATE AUTHORITY; APPROVAL. (i) Each of the Company and TCI has
(and as of the Contribution Closing each Contributed System Entity will
have) all requisite corporate power and authority and has taken (or, in the
case of the Contributed System Entities, as of the Contribution Closing will
have taken) all corporate action necessary in order to execute, deliver and
perform its obligations under this Agreement and to consummate the
Contribution (it being understood that, for the purposes of this Agreement,
consummation of the Contribution shall include consummation of the
transactions contemplated by the Company Restructuring). This Agreement is a
valid and binding
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agreement of the Company and TCI enforceable against each of them in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles (the "BANKRUPTCY AND EQUITY EXCEPTION").
(ii) The board of directors of each of the Company and TCI has approved
this Agreement and the Contribution. No approval of the stockholders of the
Company or of TCI is required for the effectiveness, validity or
enforceability of this Agreement or the transactions contemplated hereby.
(d) GOVERNMENTAL FILINGS; NO VIOLATIONS. (i) Other than the filings and/or
notices under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), and except as set forth in Section 5.1(d) of the
Company Disclosure Letter, no notices, reports or other filings are required to
be made by the Company or any of its Subsidiaries with, nor are any consents,
registrations, approvals, permits or authorizations required to be obtained by
the Company or any of its Subsidiaries from, any governmental, regulatory or
self-regulatory (including a sports league) authority, agency, commission, body
or other governmental entity ("GOVERNMENTAL ENTITY"), in connection with the
execution and delivery of this Agreement by the Company and the consummation by
the Company of the Contribution and the performance of its other obligations
hereunder, except those that the failure to make or obtain are not, individually
or in the aggregate, reasonably likely to have a Contributed Systems Material
Adverse Effect or prevent, materially delay or materially impair the ability of
the Company to consummate the Contribution and the other transactions
contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by the
Company do not, and the consummation by the Company of the Contribution and the
performance of its other obligations hereunder will not, constitute or result in
(A) a breach or violation of, or a default under, the respective certificates of
incorporation or by-laws of the Contributed System Entities, the Contributed
Entities or the Company or the comparable governing instruments of any of the
Contributed System Entities or any of the Contributed Entities, (B) a breach of
or violation of or a default under, or the acceleration of any obligations of or
the creation of a Lien on the assets of the Contributed Entities, the Company or
any of its Subsidiaries (with or without notice, lapse of time or both) pursuant
to, any agreement, lease, license, franchise, permit, concession, contract,
note, mortgage, indenture, arrangement or other obligation ("CONTRACTS") binding
upon the Contributed Entities, the Company or any of its Subsidiaries or any Law
or governmental or non-governmental permit or license to which the Contributed
Entities, the Company or any of its Subsidiaries is subject or (C) any change in
the rights or obligations of any party under any of the Contracts, except, in
the case of clause (B) or (C) above, for any breach, violation, default,
acceleration, creation or change that, individually or in the aggregate, is not
reasonably likely to have a Contributed Systems Material Adverse Effect or
prevent, materially delay or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement. Section 5.1(d) of
the Company Disclosure Letter sets forth a correct and complete list of
Contracts of the Contributed Entities, the Company and its Subsidiaries pursuant
to which consents or waivers are or may be required prior to consummation of the
Contribution and the other transactions contemplated by this Agreement (whether
or not subject to the material adverse effect or materiality exception set forth
with respect to clauses (B) and (C) above), other than any such Contract (x) the
amount that could be paid or received thereunder after the Audit Date does not
exceed $100,000 per annum and $250,000 in the aggregate or (y) that is
terminable by any of the Contributed System Entities or by any of the
Contributed Entities without penalty on less than 60 days' notice.
(e) FINANCIAL STATEMENTS. The Company has delivered to Parent and CSC
complete and correct copies of each of the financial statements listed in
Section 5.1(e) of the Company Disclosure Letter (the "FINANCIAL STATEMENTS").
The Financial Statements fairly present, in all material respects, the financial
position of each of the Contributed Systems as of the respective date indicated
and the financial position and results of operations, as the case may be, of
each of the Contributed Systems for the periods set forth therein, in each case
in accordance with GAAP consistently applied during the periods involved, except
for
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the omission of statements of retained earnings, changes in cash flows and
financial positions and except for the omission of notes and normal year-end
adjustments. The Proxy Financial Statements (including the related notes and
schedules) to be delivered to CSC by the Company will fairly present, in all
material respects, the consolidated financial position of the Contributed
Systems as of the respective dates indicated and the consolidated financial
position and results of operations, retained earnings, changes in financial
position and cash flows, as the case may be, of the Contributed Systems for the
periods set forth therein (subject, in the case of unaudited statements) to
notes and normal year-end audit adjustments that will not individually or in the
aggregate be material in amount or effect, in each case in accordance with GAAP
consistently applied during the periods involved, except as may be noted
therein. The financial positions and results of operations reflected in the
Proxy Financial Statements, when delivered, will not differ in any material
respect from that reflected in the Financial Statements for the same periods
involved (other than any purchase accounting adjustments and accruals for Taxes
which were not reflected in the Financial Statements).
(f) ABSENCE OF CERTAIN CHANGES. Since March 31, 1997 (the "AUDIT DATE"):
(i) the Company, the Contributed System Entities and the Contributed Entities
have conducted their respective businesses relating to the Contributed Systems
only in, and have not engaged in any material transaction other than according
to, the ordinary and usual course of such businesses; and (ii) there has not
been (I) any change in the financial condition, properties, business or results
of operations of any of the Contributed Entities or the Contributed Systems or
any event or development or combination of events or developments that,
individually or in the aggregate, has had or is reasonably likely to have a
Contributed Systems Material Adverse Effect (it being acknowledged and agreed
that, for the purposes of this Agreement, knowledge or awareness of the Company
shall include the knowledge or awareness of the Company, of the Contributed
Entities and of any of the Contributed System Entities); PROVIDED, HOWEVER, that
any such effect resulting from any change (x) in law, rule, or regulation or
generally accepted accounting principles or interpretations thereof that applies
to both CSC and the Contributed Systems or (y) in economic or business
conditions generally or in the cable industry specifically shall not be
considered when determining if a Contributed Systems Material Adverse Effect has
occurred; (II) any material damage, destruction or other casualty loss with
respect to any material asset or property owned, leased or otherwise used by the
Company or any of its Subsidiaries with respect to the Contributed Systems,
whether or not covered by insurance; (III) except as required to consummate the
Company Restructuring, any declaration, setting aside or payment of any dividend
or other distribution in respect of the capital stock of any of the Contributed
System Entities or any of the Contributed Entities, except for cash dividends
(excluding any dividend of any Fibertech Cash) or other dividends or
distributions on its capital stock set forth in Section 5.1(f) of the Company
Disclosure Letter; or (IV) any change in accounting principles, practices or
methods used by the Contributed Entities or used with respect to the Contributed
Systems. Since the Audit Date, there has not been any material increase in the
compensation payable or that could become payable by the Contributed Entities or
the Contributed System Entities to officers or key employees of the Contributed
Systems other than periodic or merit increases consistent with past practice or
bonus payments that will not be the responsibility of or require any payment by
Parent or any of its Subsidiaries (including, after the Contribution Closing,
the Contributed Entities) or any amendment of any of the Compensation and
Benefit Plans or the adoption of any new benefit plan or arrangement.
(g) LITIGATION AND LIABILITIES. Except as set forth in Section 5.1(g)
of the Company Disclosure Letter, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of the Company, threatened against
any of the Contributed Entities or Contributed System Entities or against
any of their respective "AFFILIATES" (as defined in Rule 12b-2 under the
Exchange Act) relating directly or indirectly to any of the Contributed
Entities or the Contributed Systems or their respective businesses or (ii)
obligations or liabilities, whether or not accrued, contingent or otherwise
and whether or not required to be disclosed, including those relating to
matters involving any Environmental Law, or any other facts or circumstances
of which the Company has knowledge that could result in any claims against,
or obligations or
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liabilities of any of the Contributed Entities or Contributed Systems
except, in the case of either clause (i) or (ii) above, for those that are
not, individually or in the aggregate, reasonably likely to have a
Contributed Systems Material Adverse Effect or prevent or materially burden
or materially impair the ability of the Company to consummate the
Contribution and the other transactions contemplated by this Agreement.
(h) EMPLOYEE BENEFITS. (i) A copy of each bonus, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock, stock
option, employment, termination, severance, compensation, medical, health or
other plan, agreement, policy or arrangement that covers current or former
employees or directors of the Contributed Entities or of the Company or its
Subsidiaries relating to the Contributed Systems and is in effect on the
date hereof, other than "multiemployer plans" within the meaning of Section
3(37) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (such plans, agreements, policies and arrangements, the
"COMPENSATION AND BENEFIT PLANS"), and any trust agreement or insurance
contract forming a part of such Compensation and Benefit Plans has been made
available to Parent prior to the date hereof. The Compensation and Benefit
Plans are listed in Section 5.1(h) of the Company Disclosure Letter and any
"change of control" or similar provisions therein are specifically
identified in Section 5.1(h) of the Company Disclosure Letter to the extent
that there would be any liability to or payment required by Parent or any of
its Subsidiaries (including after the Contribution Closing, the Contributed
Entities) thereunder.
(ii) All Compensation and Benefit Plans are in substantial compliance
with all applicable Laws, including the Code and ERISA. Each Compensation
and Benefit Plan that is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA (a "PENSION PLAN") and that is intended to
be qualified under Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service (the "IRS") with
respect to "TRA" (as defined in Section 1 of Rev. Proc. 93-39), and the
Company is not aware of any circumstances likely to result in revocation of
any such favorable determination letter. There is no pending or, to the
knowledge of the Company, threatened material litigation relating to the
Compensation and Benefit Plans. Neither the Company nor any of its
Subsidiaries has engaged in a transaction with respect to any Compensation
and Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject any of the Contributed Entities
to or otherwise cause the Contributed Systems to incur a material tax or
penalty imposed by either Section 4975 of the Code or Section 502 of ERISA.
(iii) As of the date hereof, no liability under Subtitle C or D of Title
IV of ERISA has been or is expected to be incurred by any of the Contributed
Entities or of the Contributed Systems with respect to any ongoing, frozen
or terminated "single-employer plan", within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by any of them, or
the single-employer plan of any entity which is considered one employer with
the Company under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA AFFILIATE"). The Contributed Entities and, with respect to the
Contributed Systems, the Contributed System Entities have not incurred and
do not expect to incur any withdrawal liability with respect to a
multiemployer plan under Subtitle E to Title IV of ERISA. No notice of a
"reportable event", within the meaning of Section 4043 of ERISA for which
the 30-day reporting requirement has not been waived, has been required to
be filed for any Pension Plan or by any ERISA Affiliate of the Contributed
Entities or, with respect to the Contributed Systems, the Contributed System
Entities within the 12-month period ending on the date hereof or will be
required to be filed in connection with the transactions contemplated by
this Agreement.
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(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan as of the date hereof have been timely made or
have been reflected on the most recent Financial Statements. Neither any
Pension Plan nor any single-employer plan of an ERISA Affiliate of the
Contributed Entities or, with respect to the Contributed Systems, the
Contributed System Entities or the Company or its Subsidiaries has an
"accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Code or Section 302 of ERISA. None of the Contributed
Entities or, with respect to the Contributed Systems, the Contributed System
Entities has provided, or is required to provide, security to any Pension
Plan or to any single-employer plan of an ERISA Affiliate of the Contributed
Entities or, with respect to the Contributed Systems, the Contributed System
Entities pursuant to Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all "benefit liabilities", within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of
the actuarial assumptions contained in the Pension Plan's most recent
actuarial valuation), did not exceed the then current value of the assets of
such Pension Plan, and there has been no material change in the financial
condition of such Pension Plan since the last day of the most recent plan
year. The withdrawal liability of the Contributed Entities or, with respect
to the Contributed Systems, the Contributed System Entities under each
Compensation and Benefit Plan that is a multiemployer plan, determined as if
a "complete withdrawal" within the meaning of Section 4203 of ERISA had
occurred as of the date hereof, does not exceed $100,000.
(vi) None of the Contributed Entities or, with respect to the
Contributed Systems, the Contributed System Entities has any obligations for
retiree health and life benefits under any Compensation and Benefit Plan,
except as set forth in the Company Disclosure Letter. The Contributed
Entities and, with respect to the Contributed Systems, the Contributed
System Entities may amend or terminate any such plan under the terms of such
plan at any time without incurring any material liability thereunder.
(vii) Except as expressly contemplated by Section 6.11(c), the
consummation of the Contribution and the other transactions contemplated by
this Agreement will not (x) entitle any current or former employees or
directors ("EMPLOYEES") of the Contributed Entities or, with respect to the
Contributed Systems, the Contributed System Entities to severance pay, (y)
accelerate the time of payment or vesting or trigger any payment of
compensation or benefits under, increase the amount payable or trigger any
other material obligation pursuant to, any of the Compensation and Benefit
Plans or (z) result, in any material respect, in any breach or violation of,
or a default under, any of the Compensation and Benefit Plans.
(i) COMPLIANCE WITH LAWS; PERMITS. The businesses of each of the
Contributed Systems Entities and the Contributed Entities have not been, and
are not being, conducted in violation of any federal, state, local or
foreign law, statute, ordinance, rule, regulation, judgment, order,
injunction, decree, arbitration award, agency requirement, franchise,
license or permit of any Governmental Entity (collectively, "LAWS"), except
for violations or possible violations that, individually or in the
aggregate, are not reasonably likely to have a Contributed Systems Material
Adverse Effect or prevent or materially burden or materially impair the
ability of the Company to consummate the Contribution and the other
transactions contemplated by this Agreement. No investigation or review by
any Governmental Entity with respect to any of the Contributed Entities or
the Contributed Systems is pending or, to the knowledge of the Company,
threatened, nor has any Governmental Entity indicated an intention to
conduct such investigation or review except any investigations or reviews
that are not, individually or in the aggregate, reasonably likely to have a
Contributed Systems Material Adverse Effect or prevent or materially burden
or materially impair the ability of the Company to consummate the
Contribution and the other transactions contemplated by this Agreement. To
the knowledge of the Company, no material change is required in any of the
Contributed Systems' processes, properties or
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procedures in connection with any such Laws, and none of the Company, the
Contributed Entities or the Contributed Systems has received any notice or
communication of any noncompliance with any such Laws that has not been
cured as of the date hereof except for such noncompliance that is not,
individually or in the aggregate, reasonably likely to have a Contributed
Systems Material Adverse Effect or prevent or materially burden or
materially impair the ability of the Company to consummate the Contribution
and the other transactions contemplated by this Agreement. Each of the
Contributed Entities and the Contributed Systems has all permits, licenses,
franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct the businesses
of its respective Contributed Systems as presently conducted, except those
the absence of which are not, individually or in the aggregate, reasonably
likely to have a Contributed Systems Material Adverse Effect or prevent or
materially burden or materially impair the ability of the Company to
consummate the Contribution and the other transactions contemplated by this
Agreement.
(j) ENVIRONMENTAL MATTERS. Except as set forth in Section 5.1(j) of
the Company Disclosure Letter, and for such matters that, individually or in
the aggregate, are not reasonably likely to have a Contributed Systems
Material Adverse Effect: (i) all of the Contributed System Entities with
respect to the Asset Contributed Systems and the Contributed Entities have
complied at all times with all applicable Environmental Laws; (ii) the
properties currently owned or operated by any of the Contributed System
Entities with respect to the Asset Contributed Systems or the Contributed
Entities (including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances; (iii) the
properties formerly owned or operated by any of the Contributed System
Entities with respect to the Asset Contributed Systems or the Contributed
Entities were not contaminated with Hazardous Substances during the period
of ownership or operation by any of the Contributed System Entities with
respect to the Asset Contributed Systems or the Contributed Entities; (iv)
none of the Contributed System Entities with respect to the Asset
Contributed Systems or the Contributed Entities is or has been subject to
liability for any Hazardous Substance disposal or contamination on any third
party property; (v) none of the Contributed System Entities with respect to
the Asset Contributed Systems or the Contributed Entities has been
associated with any release or threat of release of any Hazardous Substance;
(vi) none of the Company or any of its Subsidiaries has received any notice,
demand, letter, claim or request for information indicating that any of the
Contributed System Entities with respect to the Asset Contributed Systems or
the Contributed Entities may be in violation of or liable under any
Environmental Law; (vii) none of the Contributed System Entities with
respect to the Asset Contributed Systems or the Contributed Entities is or
has been subject to any orders, decrees, injunctions or other arrangements
with any Governmental Entity, or is subject to any indemnity or other
agreement with any third party, regarding compliance or liability under any
Environmental Law or relating to Hazardous Substances; (viii) there are no
circumstances or conditions involving any of the Contributed System Entities
with respect to the Asset Contributed Systems or the Contributed Entities
that could reasonably be expected to result in any claims, liability,
investigations, costs or restrictions on the ownership, use, or transfer of
any property of any of the Contributed System Entities with respect to the
Asset Contributed Systems or the Contributed Entities pursuant to any
Environmental Law; (ix) none of the properties of any of the Contributed
System Entities with respect to the Asset Contributed Systems or the
Contributed Entities contain or has contained any underground storage tanks
or any Hazardous Substances; (x) none of the Contributed System Entities
with respect to the Asset Contributed Systems or the Contributed Entities
has engaged in any activities involving the generation, use, handling or
disposal of any Hazardous Substances; and (xi) the Company has delivered to
Parent copies of all environmental reports, studies, sampling data, permits,
government filings and other environmental information in its possession or
reasonably available to it relating to any of the Contributed System
Entities with respect to the Asset Contributed Systems or any of the
Contributed Entities current or former properties or operations; and (xii)
the indemnity with respect to environmental matters at the Mamaroneck, New
York site referred to in Section 5.1(j) of the Company
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Disclosure Letter is in favor of a Contributed Entity and will not be
affected by the Contribution Closing.
As used herein: the term "ENVIRONMENTAL LAW" means the Comprehensive
Environmental Response Compensation and Liability Act, the Resource
Conservation and Recovery Act, the Clean Air Act, the Clean Water Act and
the Occupational Safety and Health Act, in each case, as amended, and any
other federal, state, local or foreign law, statute, ordinance, regulation,
judgment, common law, order, decree, arbitration award, agency requirement,
license, permit, authorization or opinion, relating to: (A) the protection,
investigation or restoration of the environment, health and safety, or
natural resources, (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property; and the term "HAZARDOUS SUBSTANCE" means any substance in any
concentration that is: (A) listed, classified or regulated pursuant to any
Environmental Law; (B) any petroleum product or by-product,
asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive materials or radon; or (C) any other
substance which may be the subject of regulatory action by any Government
Authority pursuant to any Environmental Law.
(k) TAX MATTERS. As of the date hereof, neither the Company nor any of
its Affiliates has taken or agreed to take any action, nor do the officers
of the Company have any knowledge of any fact or circumstance, that would
prevent the Merger or the Contribution from qualifying as an exchange
governed by Section 351 of the Code.
(l) TAXES. (i) (A) Except as set forth in Section 5.1(l) of the
Company Disclosure Letter, all Company Tax Returns that are required to be
filed by or with respect to the Company's Group, including the Contributed
Entities, have been duly and timely filed (taking into account an extension
of time within which to file) and all such filed Company Tax Returns are
accurate and complete in all material respects; and (B) all Company Taxes
(as defined below) shown to be due on the Company Tax Returns referred to in
clause (A) have been paid in full, and all Company Taxes required to be
withheld from amounts owing to any employee, creditor or third party have
been withheld, except in each case with respect to matters contested in good
faith.
(ii) None of the Contributed Entities, CSC, Parent or any Affiliate of
CSC will be required to make or fund any payment to an individual that would
be a "parachute payment" to a "disqualified individual" (as those terms are
defined in Section 280G of the Code without regard to whether such payment
is reasonable compensation for personal services performed or to be
performed in the future) as a result of the Contribution.
(iii) Except as set forth in Section 5.1(l) of the Company Disclosure
Letter, none of the Contributed Entities or the Asset Contributed Systems is
a party to or bound by, or has any obligation under, any tax sharing or
similar Contract.
(iv) As used in this Agreement: (A) "COMPANY'S GROUP" shall mean any
"affiliated group" (as defined in Section 1504(a) of the Code without regard
to the limitations contained in Section 1504(b) of the Code) that includes
the Company or any predecessor of or successor to the Company (or another
such predecessor or successor); (B) the term "TAX" (including, with
correlative meaning, the terms "TAXES", and "TAXABLE") includes all federal,
state, local and foreign income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, severances, stamp, payroll,
sales, employment, unemployment, disability, use, property, withholding,
excise, production, value added, occupancy and other taxes, duties or
assessments of any nature whatsoever, together with all interest, penalties
and additions imposed with respect to such amounts and any interest in
respect of such penalties and additions; (C) the term "COMPANY TAX" means
any Tax imposed on the income, properties or operations of any Contributed
Entity or Contributed System Entity with respect to the Asset Contributed
Systems (or predecessor entity) or any other member of the Company's Group;
and (D) the term "COMPANY TAX RETURN" includes all returns and reports
(including elections,
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declarations, disclosures, schedules, estimates and information returns)
required to be supplied to a Governmental Entity relating to Taxes.
(m) LABOR MATTERS. Except as set forth in Section 5.1(m) of the
Company Disclosure Letter: (i) The business of each of the Contributed
Systems and of each of the Contributed Entities is operating and has been
operated in compliance with all Laws respecting employment and employment
practices, terms and conditions of employment and wages and hours
(including, without limitation, where applicable, the Immigration Reform and
Control Act ("IRCA"), the Worker Adjustment and Retraining Notification Act
of 1988 ("WARN"), any such applicable Laws respecting employment
discrimination, equal opportunity, affirmative action, employee privacy,
wrongful or unlawful termination, workers' compensation, occupational safety
and health requirements, labor-management relations and unemployment
insurance) of any Governmental Entity, except where the same, individually
or in the aggregate, is not reasonably likely to have a Contributed Systems
Material Adverse Effect or prevent or materially burden or materially impair
the ability of the Company to consummate the Contribution and the other
transactions contemplated hereby, and none of the Contributed Systems or
Contributed Entities is engaging in any unfair labor practice.
(ii) There is no labor strike, dispute, walkout, work stoppage,
slow-down or lockout pending or, to the knowledge of the Company, threatened
with respect to any of the Contributed Entities or Contributed Systems, and
none of the Contributed Systems or Contributed Entities is experiencing any
work stoppage or, to the knowledge of the Company, any other labor
difficulty or dispute or any union organizing effort by or respecting the
Employees.
(iii) None of the Contributed Systems or Contributed Entities is
materially delinquent in material payments to any Employees for any wages,
salaries, commissions, bonuses, workers' compensation or other compensation
for any services performed by them or amounts required to be reimbursed to
such Employees.
(iv) None of the Contributed Systems or Contributed Entities is a party
to or otherwise bound by any Contract with any labor union or association
representing any Employee, or is in negotiations with respect to any such
Contract.
(v) None of the Contributed Systems or Contributed Entities has
instituted any mass layoffs, as defined for the purposes of WARN, or given
any notice of any contemplated mass layoff.
(n) CONTRACTS. None of the Contributed Entities, or the Contributed
System Entities with respect to the Asset Contributed Systems nor, to the
knowledge of the Company, any other party to any Contributed Contracts or
Contracts to which any of the Contributed Entities is bound or is a party is
(or, with notice or lapse of time or both, could be) in material breach or
default thereof which breaches or defaults, individually or in the
aggregate, are reasonably likely to have a Contributed Systems Material
Adverse Effect or prevent or materially burden or materially impair the
ability of the Company to consummate the Contribution and the other
transactions contemplated by this Agreement. As of the Contribution Closing,
other than as specifically approved in writing by CSC prior to the
Contribution Closing or as disclosed in Section 5.1(n) of the Company
Disclosure Letter, there are no Contributed Contracts or Contracts of any
Contributed Entity with respect to programming or affiliation (or similar
matters) that would be binding upon or otherwise restrict the business or
operations of Parent or any of its Subsidiaries (including, after the
Contribution Closing, the Contributed Entities) after the Contribution
Closing.
(o) NO LIABILITIES AS GUARANTOR. Except as set forth in Section 5.1(o)
of the Company Disclosure Letter, none of the Contributed Systems or
Contributed Entities is directly or indirectly liable upon or with respect
to or obligated in any other way to provide funds in respect of or to
guarantee or assume any debt, dividend or other obligation of any other
Person other than a Contributed Entity.
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(p) NOTES AND ACCOUNTS AND ROYALTY RECEIVABLES. Except as reserved
against in the Financial Statements, all customer and trade notes and
accounts receivable owned by each of the Contributed Entities or the
Contributed System Entities that are reflected in their respective books as
of the date hereof and relate to the Contributed Systems are valid and
genuine, arise out of BONA FIDE sales and performances of services and, to
the knowledge of the Company, are subject to no valid defenses, set-offs or
counterclaims.
(q) INVESTMENTS. Excluding their interests in other Contributed
Entities, none of the Contributed Entities owns of record or beneficially
any equity interests in or other securities of any Person.
(r) INSURANCE. All material fire, casualty, general liability,
business interruption, product liability, property, workers compensation,
sprinkler and water damage and other forms of insurance policies maintained
by the Contributed Entities and by the Company and its Subsidiaries relating
to, used in or held for use in connection with or otherwise required to
carry on the business of the Asset Contributed Systems are with reputable
insurance carriers, provide adequate coverage consistent with cable industry
standards for all normal risks incident to the business of the Contributed
Entities and the Asset Contributed Systems, as the case may be, and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by Persons engaged in similar businesses and
subject to the same or similar perils or hazards, except for any such
failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have a Contributed Systems Material
Adverse Effect. The Contributed System Entities with respect to the Asset
Contributed Systems and the Contributed Entities currently have and, to the
knowledge of the Company, always have carried or had the benefit of such
insurance as is required by Law.
(s) OWNED REAL PROPERTY. (i) Section 5.1(s) of the Company Disclosure
Letter sets forth a complete and correct list of all real property (other
than easements, rights-of-way and similar interests) owned by the
Contributed Entities or, with respect to the Asset Contributed Systems, the
Contributed System Entities (together with all improvements or fixtures
owned by the Contributed Entities or, with respect to the Asset Contributed
Systems, the Contributed System Entities and located thereon, the
"CONTRIBUTED SYSTEMS REAL PROPERTY").
(ii) The Contributed Entities and the Contributed Systems Entities have
good and marketable fee simple title to the Contributed Systems Real
Property of their respective Contributed Systems, free and clear of any Lien
except for Contributed Systems Permitted Liens.
(iii) Other than as set forth in Section 5.1(s) of the Company Disclosure
Letter, there are no outstanding options or rights of first refusal or first
offer to purchase the Contributed Systems Real Property, or any portion
thereof or interest therein.
(iv) The Contributed Systems Real Property and the real property
interests leased pursuant to the Contributed Systems Leases (the
"CONTRIBUTED SYSTEMS LEASED REAL PROPERTY") include all of the land,
buildings, offices, structures and other improvements primarily used or held
for use in connection with or otherwise required to carry on the businesses
of the Contributed Systems as currently conducted.
(v) Other than as set forth in Section 5.1(s) of the Company Disclosure
Letter, there are no proceedings in eminent domain or other similar
proceedings pending, or to the knowledge of the officers of the Company,
threatened against any portion of the Contributed Systems Real Property.
(vi) The current use and operation of the Contributed Systems Real
Property does not violate any applicable building, zoning, subdivision and
other land use or similar Laws or orders of Governmental Entities (the "REAL
PROPERTY LAWS") in any material respect and neither the Company nor any of
its Subsidiaries has received any notice of violation or claimed violation
of any Real Property Law that has not since been cured, which violations,
individually or in the aggregate, are reasonably likely to have a
Contributed Systems Material Adverse Effect or prevent or materially burden
or materially impair the ability of the Company to consummate the
Contribution and the other transactions contemplated hereby.
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<PAGE>
(t) LEASES. The Company has made available to Parent correct and
complete copies of all real property leases that relate to the Contributed
Systems (and any personal property leases that relate to the Contributed
Systems the amount that could be paid or received by the Contributed
Entities or Contributed System Entities thereunder exceeds $100,000 in the
aggregate) to which the Contributed Entities or Contributed System Entities
is a party or is bound (together, the "CONTRIBUTED SYSTEMS LEASES"), none of
which has been modified in any material respect except to the extent such
modifications have been disclosed and copies made available to Parent prior
to the date hereof. Each of the Contributed Systems Leases is in full force
and effect. None of the Contributed Entities or Contributed System Entities,
and, to the knowledge of the Company, no other party is, in default (with or
without notice or lapse of time or both) under any Contributed Systems Lease
in any material respect. To the knowledge of the Company, no event has
occurred and is continuing that constitutes (or with notice or the passage
of time or both, could constitute) a default under any Contributed Systems
Lease in any material respect.
(i) As to the Contributed Systems Leases relating to the Contributed
Systems Leased Real Property:
(A) Neither the Company nor any of its Subsidiaries has received
notice of a proceeding in eminent domain or other similar proceeding
affecting the Contributed Systems Leased Real Property; and
(B) Neither the Company nor any of its Subsidiaries has received
notice that the current use and operation of the Contributed Systems
Leased Real Property violates, in any material respect, any instrument of
record or agreement affecting the Contributed Systems Leased Real
Property or any Real Property Laws.
(ii) The Contributed Entities and the Contributed System Entities have a
valid leasehold interest in their respective Contributed Systems Leased Real
Property, free and clear of any Lien other than Contributed Systems
Permitted Liens.
(u) PERSONAL PROPERTY. The Contributed Entities and the Contributed
System Entities have good title to, or a valid leasehold interest in, or
other good and sufficient right to use, all tangible personal properties
that are material to the business and operations of any of their respective
Contributed Systems.
(v) INTELLECTUAL PROPERTY. The Contributed Entities and the
Contributed System Entities own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, registered or unregistered
trademarks, trade names, service marks, copyrights, and any applications
therefor, technology, know-how, computer software programs or applications,
and tangible or intangible proprietary information or materials (the
"INTELLECTUAL PROPERTY RIGHTS") that are used in the business of their
respective Contributed Systems as currently conducted, except for any such
failures to own, be licensed or possess that, individually or in the
aggregate, are not reasonably likely to have a Contributed Systems Material
Adverse Effect, and to the knowledge of the Company all such Intellectual
Property Rights held by the Contributed Entities and the Contributed System
Entities are valid and subsisting.
(w) BROKERS AND FINDERS. Neither the Company nor any of its
Subsidiaries or their officers, directors or employees has employed any
broker or finder or incurred any liability for any brokerage fees or
commissions or finders' fees in connection with the Transactions or the
other transactions contemplated in this Agreement.
(x) CABLE TELEVISION FRANCHISES. (i) Section 5.1(x) of the Company
Disclosure Letter sets forth all of the Contributed Systems and the
approximate number, as of the date of this Agreement, equal to the sum of
(x) the total number of households (exclusive of "second outlets") that are
paying for and receiving any level of cable television service from the
Contributed Systems in individually billed residential units and (y) the
quotient obtained by dividing the total billings to all subscribers in
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commercial venues or bulk-billed multiple residential units by the
predominant cable service rate charged by each such Contributed System for
the lowest tier of service that includes ESPN, MTV and CNN, as of March 31,
1997 served by each such Contributed System. Section 5.1(x) of the Company
Disclosure Letter sets forth the name of the legal entity that owns or, if
Future Contributed System Entities, will own each such Contributed System
and holds or will hold, as the case may be, the applicable franchise and the
identity and ownership interest and relationship to the Contributed Entities
or Contributed System Entities, if any, of each owner of any interest in
such legal entity. True, complete and correct copies of the franchise
agreements and similar governing agreements, statutes or ordinances,
including any material related Contracts with any Governmental Entity
(collectively, the "CABLE FRANCHISE AGREEMENTS") relating to such
Contributed Systems have been made available to Parent. The Contributed
Entities and the Contributed System Entities are in compliance with all such
Cable Franchise Agreements of their respective Contributed Systems (the
"CONTRIBUTED SYSTEM CABLE FRANCHISE AGREEMENTS") in all material respects.
(ii) Except as set forth in Section 5.1(x) of the Company Disclosure
Letter, there exists no fact or circumstance that makes it reasonably likely
that any Contributed System Cable Franchise Agreement scheduled to expire in
the next five years will not be timely renewed on commercially reasonable
terms. The Company has filed or caused to be filed with the appropriate
Governmental Entity all appropriate requests for renewal under the
Communications Act of 1934, as amended, and the rules and regulations
thereunder (the "COMMUNICATIONS ACT") within 30 to 36 months prior to the
expiration of each Contributed System Cable Franchise Agreement. The
operation of the Contributed Systems has been, and is, in compliance in all
material respects with the rules and regulations of the Federal
Communications Commission ("FCC") and none of the Company or any of its
Subsidiaries has received notice from the FCC of any violation of its rules
and regulations by any of the Contributed Entities or, with respect to the
Asset Contributed Systems, any of the Contributed System Entities. None of
the applicable franchises for the Contributed Systems has been suspended or
revoked. Neither the Company nor any of its Subsidiaries has received any
notice of any such possible suspension or revocation, and no such suspension
or revocation is pending or, to the knowledge of the Company, threatened.
(iii) The Contributed Systems and all related businesses of the
Contributed Entities or, with respect to the Asset Contributed Systems, the
Contributed System Entities are, and, while owned by the Company or any of
its Affiliates, have been, operated in compliance in all material respects
with the Communications Act and the Company has submitted or caused to be
submitted to the FCC all material filings, including but not limited to
cable television registration statements, annual reports and aeronautical
frequency usage notices that are required under the rules and regulations of
the FCC.
(iv) The Contributed Entities or, with respect to the Asset Contributed
Systems, the Contributed System Entities have conducted all system and
microwave performance tests and all Cumulative Leakage Index ("CLI") related
tests applicable to the Contributed Systems and have maintained records
which accurately and completely reflect in all material respects all results
required to be shown thereon. The Contributed Entities or, with respect to
the Asset Contributed Systems, the Contributed System Entities have
corrected any radiation leakage of the Contributed Systems required to be
corrected in connection with the monitoring obligations and have otherwise
complied in all material respects with all applicable CLI rules and
regulations. The Contributed Systems are in compliance in all material
respects with all signal leakage criteria set forth in 47 CFR Section
76.611.
(v) For each relevant semi-annual reporting period, the Company has
timely filed or caused to be filed with the United States Copyright Office
all required Statements of Account in true and correct form, and has paid
when due all required copyright royalty fee payments in the correct amount,
relating to the Contributed Systems' carriage of television broadcast
signals.
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(vi) Other than requests of network non-duplication and syndicated
exclusivity protection, neither the Company nor any of the Contributed
Entities or any of the Company's Subsidiaries has received any requests,
notices or demands, whether written or oral, from the FCC or any other
Governmental Entity, challenging or questioning the rights of the
Contributed Entities or Contributed System Entities to operate the
Contributed Systems or carry any signal or requesting signal carriage. All
of the broadcast television signals carried by the Contributed Systems are
carried either pursuant to the must-carry requirements or pursuant to
executed retransmission consent agreements, accurate, complete and correct
copies of which have been made available to Parent.
(vii) The regulated rates for services and equipment charged by any
Contributed System, including the rates for any "MIGRATED PRODUCT TIERS" (as
such term is defined by the FCC as of the date of this Agreement), (I)
comply in all material respects with FCC's rules establishing maximum
permitted rates for regulated services and equipment, (II) have been
approved by the FCC under a rate settlement with the Company with respect to
a Contributed System or (III) are subject to an order by the FCC or other
Governmental Entity requiring a Contributed System to adjust such rates. The
Company has made available to Parent accurate, complete, and correct copies
of all FCC rate justification forms and materials (including Forms 393,
1200, 1205, 1210, and 1240) filed with the FCC and any other Governmental
Entity for each of the Contributed Systems that are required to file such
forms and materials, and such forms have been filed with the appropriate
regulatory body in compliance in all material respects with all applicable
requirements. The Company has also made available to Parent an accurate,
complete, and correct copy of any rate settlement agreement entered into
with the FCC affecting any Contributed System. Section 5.1(x) of the Company
Disclosure Letter lists each Contributed System and regulated rate that is
the subject of a pending challenge before the FCC or any other Governmental
Entity and the Governmental Entity before which each such challenge is
pending. Section 5.1(x) of the Company Disclosure Letter lists each
Contributed System subject to an order described in subclause (III) above,
and the rate reduction required by each such order.
(viii) The Company has made available to Parent, to the extent it
possesses them, accurate, complete, and correct copies of each material
inquiry, request for information, report, directive, and similar
communications received by the Company or any of its Subsidiaries from the
FCC or any other Governmental Entity that relates to the obligations of the
Contributed Entities with respect to any of the Contributed Systems under
the Communications Act. The Company has also made available to Parent a copy
of each written response by the Company or any of its Subsidiaries to each
such inquiry, request for information, report, directive, or similar
communication.
(y) ACCREDITED INVESTOR; INVESTMENT INTENT. Each of the Company and
the transferors receiving shares of Parent Common Stock in the Contribution
is an "accredited investor" within the meaning of the Securities Act and is
acquiring such shares for its own account and for investment purposes only
and not with a view to, or for resale in connection with, any distribution
thereof in violation of the Securities Act. The Company acknowledges its
understanding that the offering and sale of the shares of Parent Common
Stock in the Contribution is intended to be exempt from the registration
under the Securities Act by virtue of Section 4(2) thereof.
(z) DISCLOSURE. No representation or warranty made by the Company in
this Agreement nor any document, written information, statement, financial
statement, certificate, Schedule or Exhibit prepared and furnished by the
Company or any of its Subsidiaries or its representatives pursuant hereto or
in connection with the transactions contemplated hereby, when taken
together, contains or will contain any untrue statement of a material fact,
or omits or will omit to state a material fact necessary to make the
statements or facts contained herein or therein, in light of the
circumstances under which they were furnished, not misleading. To the best
knowledge of the Company, there is no event, fact or condition that would
have a Contributed Systems Material Adverse Effect, or that
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reasonably could be expected to do so, that has not been set forth in this
Agreement, the Company Disclosure Letter or in the Schedules.
5.2 REPRESENTATIONS AND WARRANTIES OF CSC, PARENT AND MERGER SUB. Except
as set forth in the corresponding sections or subsections of the disclosure
letter delivered to the Company or TCI by CSC on or prior to entering into this
Agreement (the "PARENT DISCLOSURE LETTER"), CSC, Parent and Merger Sub each
hereby represent and warrant to the Company that:
(a) CAPITALIZATION OF MERGER SUB AND PARENT. The authorized capital
stock (i) of Merger Sub consists of 1,000 shares of Common Stock, par value
$.01 per share, all of the outstanding shares of which are validly issued,
fully paid and non-assessable, and (ii) of Parent consists of 200,000,000
Parent Class A Shares, all of the outstanding shares of which are validly
issued, fully paid and non-assessable, 80,000,000 Parent Class B Shares,
none of which are issued or outstanding as of the date hereof, and
10,000,000 shares of Preferred Stock, par value $.01 per share, none of
which are issued or outstanding as of the date hereof. All of the issued and
outstanding capital stock of Merger Sub is, and as of immediately prior to
the Effective Time will be, owned by Parent, and all of the issued and
outstanding capital stock of Parent as of immediately prior to the Effective
Time will be owned by CSC. There are (i) no other shares of capital stock or
voting securities of Merger Sub or Parent, (ii) no securities of Merger Sub
or Parent convertible into or exchangeable for shares of capital stock or
voting securities of Merger Sub or Parent, respectively, and (iii) no
options or other rights to acquire from Merger Sub or Parent, and no
obligations of Merger Sub or Parent to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock
or voting securities of Merger Sub or Parent, except (A) in the case of
Parent and Merger Sub, pursuant to the Merger and (B) in the case of Parent,
pursuant to the Partnership Contribution, the Contribution, the Preferred
Shares, the Parent Class B Shares, the CSC Stock Plans and in respect of any
such other obligations of CSC outstanding as of immediately prior to the
Effective Time. Neither of Merger Sub nor Parent has conducted any business
prior to the date hereof or has any, and prior to the Effective Time will
not have any, assets, liabilities or obligations of any nature other than
those incident to its formation and pursuant to the Partnership
Contribution, the Reorganization, this Agreement and the Transactions and
the other transactions contemplated by this Agreement. CSC and Parent have
delivered to the Company true and complete copies of the certificates of
incorporation and bylaws (or comparable governing instruments) of CSC,
Parent and each of CSC's Significant Subsidiaries, in each case as in effect
on the date hereof.
(b) ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of CSC and its
"SIGNIFICANT SUBSIDIARIES" (as defined in Rule 1.02(w) of Regulation S-X
promulgated pursuant to the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")) is a corporation or partnership duly organized, validly
existing and, in the case of corporate entities, in good standing under the
laws of its respective jurisdiction of organization and has all requisite
corporate, partnership or similar power and authority to own and operate its
properties and assets and to carry on its business as presently conducted
and is qualified to do business and is in good standing as a foreign
corporation or partnership in each jurisdiction where the ownership or
operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in such good
standing, when taken together with all other such failures, is not
reasonably likely to have a Parent Material Adverse Effect.
As used in this Agreement, the term "PARENT MATERIAL ADVERSE EFFECT"
means a material adverse effect on the financial condition, properties,
business or results of operations of CSC and Parent and their Subsidiaries
taken as a whole, excluding such effects proximately caused by any of the
Contributed Entities, the Company or any of its Subsidiaries.
(c) CAPITAL STRUCTURE OF CSC. The authorized capital stock of CSC
consists of (i) 50,000,000 CSC Class A Shares, of which 13,722,151 shares
were outstanding as of the close of business on June 6, 1997, and 20,000,000
CSC Class B Shares, of which 11,119,709 shares were outstanding as of the
close of business on June 6, 1997, and (ii) such number of Preferred Shares
as set forth in Section
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5.2(c) of the Parent Disclosure Letter, of which such number of shares were
outstanding as of the close of business on March 31, 1997 as set forth in
Section 5.2(c) of the Parent Disclosure Letter. All of the outstanding
Shares and the Preferred Shares have been duly authorized and are validly
issued, fully paid and nonassessable. CSC has no Shares or Preferred Shares
reserved for or subject to issuance, except that, as of March 31, 1997,
there were approximately 648,211 CSC Class A Shares reserved for issuance
pursuant to the CSC Amended and Restated Employee Stock Plan, 1,500,000 CSC
Class A Shares reserved for issuance pursuant to the CSC First Amended and
Restated 1996 Employee Stock Plan and 60,000 CSC Class A Shares reserved for
issuance pursuant to the CSC 1996 Non-Employee Director Stock Option Plan
(collectively, the "CSC STOCK PLANS"), the same number of CSC Class A Shares
subject to issuance upon conversion of the same number of CSC Class B Shares
(including all such CSC Class B Shares subject to issuance upon conversion
of the Preferred Shares) and 5,115,600 CSC Class A Shares reserved for
issuance upon conversion of the 8 1/2% Series I Cumulative Convertible
Exchangeable Preferred Stock of CSC. Each of the outstanding shares of
capital stock of each of CSC's Significant Subsidiaries and, after the
Effective Time, each of Parent's Significant Subsidiaries is, with respect
to such Significant Subsidiaries that are corporations, duly authorized,
validly issued, fully paid and nonassessable and, except as disclosed in the
CSC Reports filed prior to the date hereof or as set forth in Section 5.2(c)
of the Parent Disclosure Letter, is owned by a direct or indirect
wholly-owned subsidiary of CSC or, after the Effective Time, of Parent, free
and clear of any Lien. Except as disclosed in the CSC Reports filed prior to
the date hereof or as set forth above and in Section 5.2(c) of the Parent
Disclosure Letter, there are no preemptive or other outstanding rights,
options, warrants, conversion rights, stock appreciation rights, redemption
rights, repurchase rights, agreements, arrangements or commitments to issue
or to sell any shares of capital stock or other securities of CSC or any of
its Significant Subsidiaries or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to
subscribe for or acquire, any securities of CSC or any of its Significant
Subsidiaries, and no securities or obligation evidencing such rights are
authorized, issued or outstanding. CSC does not have outstanding any Voting
Debt having the right to vote with the stockholders of CSC on any matter.
(d) CORPORATE AUTHORITY. (i) Each of CSC, Parent and Merger Sub has
all requisite corporate power and authority and has taken all corporate
action necessary in order to execute, deliver and perform its obligations
under this Agreement and to consummate the Transactions, subject only to (A)
any stockholder approval necessary to permit the issuance of the shares of
Parent Common Stock required to be issued pursuant to the Contribution and
(B) the vote of a majority of the outstanding Shares voting together as a
single class to approve the Merger (together, the "PARENT REQUISITE VOTES").
This Agreement is a valid and binding agreement of CSC, Parent and Merger
Sub, enforceable against each of them in accordance with its terms, subject
to the Bankruptcy and Equity Exception.
(ii) Prior to the Effective Time, Parent will have taken all necessary
action to permit it to issue the number of shares of Parent Common Stock
required to be issued pursuant to the Contribution and the Merger. The
Parent Common Stock, when issued in connection with the Contribution and the
Merger, will be validly issued, fully paid and nonassessable, and no
stockholder of Parent will have any preemptive right of subscription or
purchase in respect thereof.
(e) GOVERNMENTAL FILINGS; NO VIOLATIONS. (i) Other than the filings
and/or notices (A) pursuant to Section 1.3, (B) under the HSR Act, the
Securities Act and the Exchange Act, (C) to comply with state securities or
"blue sky" laws, (D) required to be made with the American Stock Exchange,
Inc. (the "AMEX") and (E) as disclosed in Section 5.2(e) of the Parent
Disclosure Letter, no notices, reports or other filings are required to be
made by CSC, Parent or Merger Sub with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by CSC, Parent
or Merger Sub from, any Governmental Entity, in connection with the
execution and delivery of this Agreement by CSC, Parent and Merger Sub and
the consummation by CSC, Parent and Merger Sub of the Transactions and the
other transactions contemplated hereby, except those that the failure to
make or obtain are not, individually or in the aggregate, reasonably likely
to have a Parent Material
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Adverse Effect or prevent or materially delay or materially impair the
ability of CSC, Parent or Merger Sub to consummate the transactions
contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by CSC,
Parent and Merger Sub do not, and the consummation by CSC, Parent and Merger
Sub of the Transactions and the other transactions contemplated hereby will
not, constitute or result in (A) a breach or violation of, or a default
under, the certificate of incorporation or by-laws of CSC, Parent and Merger
Sub or the comparable governing instruments of any of their Significant
Subsidiaries, (B) a breach of or violation of or a default under, or the
acceleration of any obligations of or the creation of a Lien on the assets
of CSC or any of its Significant Subsidiaries (with or without notice, lapse
of time or both) pursuant to, any Contracts binding upon CSC or any of its
Significant Subsidiaries or any Law or governmental or non-governmental
permit or license to which CSC or any of its Significant Subsidiaries is
subject or (C) any change in the rights or obligations of any party under
any of the Contracts, except, in the case of clause (B) or (C) above, for
any breach, violation, default, acceleration, creation or change that,
individually or in the aggregate, is not reasonably likely to have a Parent
Material Adverse Effect or prevent, materially delay or materially impair
the ability of CSC, Parent or Merger Sub to consummate the transactions
contemplated by this Agreement. Section 5.2(e) of the Parent Disclosure
Letter sets forth a correct and complete list of Contracts of CSC and its
Significant Subsidiaries pursuant to which consents or waivers are or may be
required prior to consummation of the transactions contemplated by this
Agreement (whether or not subject to the material adverse effect or
materiality exception set forth with respect to clauses (B) and (C) above),
other than any such Contract (x) the amount that could be paid or received
thereunder after the CSC Audit Date does not exceed $100,000 per annum and
$250,000 in the aggregate or (y) that is terminable by the CSC or any of its
Significant Subsidiaries, as the case may be, without penalty on less than
60 days' notice.
(f) CSC REPORTS; FINANCIAL STATEMENTS. CSC has delivered to the
Company each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1996 (the "CSC AUDIT DATE"),
including (i) CSC's Annual Report on Form 10-K for the year ended December
31, 1996 and (ii) CSC's Quarterly Report on Form 10-Q for the period ended
March 31, 1997, each in the form (including exhibits, annexes and any
amendments thereto) filed with the SEC (collectively, including any such
reports filed subsequent to the date hereof, the "CSC REPORTS"). As of their
respective dates, the CSC Reports did not, and any CSC Reports filed with
the SEC subsequent to the date hereof will not, contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference into
the CSC Reports (including the related notes and schedules) fairly presents,
or will fairly present, in all material respects, the consolidated financial
position of CSC 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 CSC Reports (including any
related notes and schedules) fairly presents, or will fairly present, in all
material respects, the results of operations, retained earnings and changes
in financial position, as the case may be, of CSC and its Subsidiaries for
the periods set forth therein (subject, in the case of unaudited statements,
to notes and normal year-end audit adjustments that will not be material in
amount or effect), in each case in accordance with GAAP consistently applied
during the periods involved, except as may be noted therein.
(g) ABSENCE OF CERTAIN CHANGES. Except as disclosed in the CSC Reports
filed prior to the date hereof, since the CSC Audit Date, there has not been
(i) any change in the financial condition, properties, business or results
of operations of CSC and its Subsidiaries or any event or development or
combination of events or developments that, individually or in the
aggregate, has had or is reasonably likely to have a Parent Material Adverse
Effect; PROVIDED, HOWEVER, that any such effect resulting from any change
(x) in law, rule, or regulation or generally accepted accounting principles
or interpretations thereof that applies to both CSC or such Subsidiary and
the Contributed Systems or
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(y) in economic or business conditions generally or in the cable industry or
programming industry specifically shall not be considered when determining
if a Parent Material Adverse Effect has occurred; (ii) any material damage,
destruction or other casualty loss with respect to any material asset or
property owned, leased or otherwise used by CSC or any of its Significant
Subsidiaries, whether or not covered by insurance; (iii) any change by CSC
in accounting principles, practices or methods; or (iv) any declaration,
setting aside or payment of any dividend or other distribution in respect of
the capital stock of CSC or Parent, except for dividends or other
distributions on its capital stock publicly announced prior to the date
hereof and regular dividends in respect of the Preferred Shares.
(h) LITIGATION AND LIABILITIES. Except as disclosed in the CSC Reports
filed prior to the date hereof, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of CSC, threatened against CSC or
any of its Affiliates or (ii) obligations or liabilities, whether or not
accrued, contingent or otherwise and whether or not required to be
disclosed, including those relating to environmental and occupational safety
and health matters, or any other facts or circumstances of which CSC has
knowledge that could result in any claims against, or obligations or
liabilities of, CSC or any of its Affiliates, except, in the case of either
clause (i) or (ii) above, for those that are not, individually or in the
aggregate, reasonably likely to have a Parent Material Adverse Effect or
prevent or materially burden or materially impair the ability of CSC, Parent
or Merger Sub to consummate the transactions contemplated by this Agreement.
(i) EMPLOYEE BENEFITS. (i) A copy of each bonus, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock, stock
option, employment, termination, severance, compensation, medical, health or
other plan, agreement, policy or arrangement that covers current or former
employees or directors of CSC and its Subsidiaries and is in effect on the
date hereof, other than multiemployer plans (the "CSC COMPENSATION AND
BENEFIT PLANS"), and any trust arrangement or insurance contract forming a
part of such CSC Compensation and Benefits Plans has been made available to
the Company prior to the date hereof. The CSC Compensation and Benefit Plans
are listed in Section 5.2(i) of the Parent Disclosure Letter and any "change
of control" or similar provision therein are specifically identified in
Section 5.2.(i) of the Parent Disclosure Letter.
(ii) All CSC Compensation and Benefit Plans are in substantial
compliance with all applicable Laws, including the Code and ERISA. Each CSC
Compensation and Benefit Plan that is an "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA (a "CSC PENSION PLAN") and that
is intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the IRS with respect to TRA, and CSC is
not aware of any circumstances likely to result in revocation of any such
favorable determination letter. As of the date hereof, there is no pending
or, to the knowledge of CSC, threatened material litigation relating to the
CSC Compensation and Benefit Plans. Neither CSC nor any of its Subsidiaries
has engaged in a transaction with respect to any CSC Compensation and
Benefit Plan that, assuming the taxable period of such transaction expired
as of the date hereof, would subject CSC or any of its Subsidiaries to a
material tax or penalty imposed by either Section 4975 of the Code or
Section 502 of ERISA.
(iii) As of the date hereof, no liability under Subtitle C or D of Title
IV of ERISA has been or is expected to be incurred by CSC or any Subsidiary
with respect to any ongoing, frozen or terminated "single-employer plan",
within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which
is considered an ERISA Affiliate of CSC. CSC and its Subsidiaries have not
incurred and do not expect to incur any withdrawal liability with respect to
a multiemployer plan under Subtitle E to Title IV of ERISA. No notice of a
"reportable event", within the meaning of Section 4043 of ERISA for which
the 30-day reporting requirement has not been waived, has been required to
be filed for any CSC Pension Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof or will be required to be filed in
connection with the transactions contemplated by this Agreement.
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<PAGE>
(iv) All contributions required to be made under the terms of any CSC
Compensation and Benefit Plan or of the date hereof have been timely made or
have been reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the CSC Reports prior to the date hereof.
Neither any CSC Pension Plan nor any single-employer plan of an ERISA
Affiliate of CSC has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA. Neither CSC nor its Subsidiaries has provided, or is required to
provide, security to any CSC Pension Plan or to any single-employer plan of
an ERISA Affiliate of CSC pursuant to Section 401(a)(29) of the Code.
(v) Under each CSC Pension Plan which is a single-employer plan, as of
the last day of the most recent plan year ended prior to the date hereof,
the actuarially determined present value of all "benefit liabilities",
within the meaning of Section 4001(a)(16) of ERISA (as determined on the
basis of the actuarial assumptions contained in the CSC Pension Plan's most
recent actuarial valuation), did not exceed the then current value of the
assets of such CSC Pension Plan, and there has been no material change in
the financial condition of such CSC Pension Plan since the last day of the
most recent plan year. The withdrawal liability of CSC and its Subsidiaries
under each CSC Compensation and Benefit Plan which is a multiemployer plan,
determined as if a complete withdrawal has occurred as of the date hereof,
does not exceed $100,000.
(vi) Neither CSC nor its Subsidiaries have any obligations for retiree
health and life benefits under any CSC Compensation and Benefit Plan, except
as set forth in the Parent Disclosure Letter. CSC or its Subsidiaries may
amend or terminate any such plan under the terms of such plan at any time
without incurring any material liability thereunder.
(vii) The consummation of the Transactions and the other transactions
contemplated by this Agreement will not (x) entitle any employees of CSC or
its Subsidiaries to severance pay, (y) accelerate the time of payment or
vesting or trigger any payment of compensation or benefits under, increase
the amount payable or trigger any other material obligation pursuant to, any
of the CSC Compensation and Benefit Plans or (z) result, in any material
respect, in any breach or violation of, or default under, any of the CSC
Compensation and Benefit Plans.
(j) COMPLIANCE WITH LAWS; PERMITS. Except as set forth in the CSC
Reports filed prior to the date hereof, the businesses of each of CSC and
its Subsidiaries have not been, and are not being, conducted in violation of
any Laws, except for violations or possible violations that, individually or
in the aggregate, are not reasonably likely to have a Parent Material
Adverse Effect or prevent or materially burden or materially impair the
ability of CSC, Parent or Merger Sub to consummate the transactions
contemplated by this Agreement. Except as set forth in the CSC Reports filed
prior to the date hereof, no investigation or review by any Governmental
Entity with respect to CSC or any of its Subsidiaries is pending or, to the
knowledge of CSC, threatened, nor has any Governmental Entity indicated an
intention to conduct the same, except for those the outcome of which are
not, individually or in the aggregate, reasonably likely to have a Parent
Material Adverse Effect or prevent or materially burden or materially impair
the ability of CSC, Parent or Merger Sub to consummate the transactions
contemplated by this Agreement. To the knowledge of CSC, no material change
is required in CSC's or any of its Subsidiaries' processes, properties or
procedures in connection with any such Laws, and CSC has not received any
notice or communication of any noncompliance with any such Laws that has not
been cured as of the date hereof except for noncompliance that is not,
individually or in the aggregate, reasonably likely to have a Parent
Material Adverse Effect or prevent or materially burden or materially impair
the ability of CSC, Parent or Merger Sub to consummate the transactions
contemplated by this Agreement. CSC and its Subsidiaries each has all
permits, licenses, trademarks, patents, trade names, copyrights, service
marks, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business as
presently conducted except those the absence of which are not, individually
or in the aggregate, reasonably likely to have a Parent Material Adverse
Effect or prevent or materially burden or
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<PAGE>
materially impair the ability of CSC, Parent or Merger Sub to consummate the
Transactions and the other transactions contemplated by this Agreement.
(k) TAX MATTERS. As of the date hereof, neither CSC nor any of its
Affiliates has taken or agreed to take any action, nor does CSC have any
knowledge of any fact or circumstance, that would prevent the Merger, the
Contribution or the Partnership Contribution from qualifying as an exchange
governed by Section 351 of the Code.
(l) TAXES. (i) (A) All CSC Tax Returns that are required to be filed
by or with respect to the CSC Group have been duly and timely filed (taking
into account an extension of time within which to file) and all such filed
CSC Tax Returns are accurate and complete in all material respects; and (B)
all CSC Taxes shown to be due on the CSC Tax Returns referred to in clause
(A) have been paid in full, and all CSC Taxes required to be withheld from
amounts owing to any employee, creditor or third party have been withheld,
except in each case with respect to matters contested in good faith.
(ii) As used in this Agreement: (A) the term "CSC GROUP" means any
"affiliated group" (as defined in Section 1504(a) of the Code without regard
to the limitations contained in Section 1504(b) of the Code) that includes
CSC or any predecessor of or successor to CSC (or another such predecessor
or successor); (B) the term "CSC TAX" means any Tax imposed on the income,
properties or operations of any member of the Company's Group; and (C) the
term "CSC TAX RETURN" means any Tax Return of any member of the CSC Group
including, without limitation, consolidated federal income tax returns of
the CSC Group.
(m) LABOR MATTERS. Neither CSC nor any of its Significant Subsidiaries
is a party to or otherwise bound by any collective bargaining agreement,
contract or other agreement with a labor union or labor organization, nor,
as of the date hereof, is CSC or any of its Significant Subsidiaries the
subject of any material proceeding asserting that CSC or any of its
Significant Subsidiaries has committed an unfair labor practice or is
seeking to compel it to bargain with any labor union or labor organization
nor is there pending or, to the knowledge of CSC, threatened, any labor
strike, dispute, walk-out, work stoppage, slow-down or lockout involving CSC
or any of its Significant Subsidiaries.
(n) INSURANCE. All material fire and casualty, general liability,
business interruption, product liability, property, workers compensation,
sprinkler and water damage and other forms of insurance policies maintained
by CSC or any of its Subsidiaries are with reputable insurance carriers,
provide adequate coverage consistent with cable industry standards for all
normal risks incident to the business of CSC and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and
subject to the same or similar perils or hazards, except for any such
failures to maintain insurance policies that, individually or in the
aggregate, are not reasonably likely to have a Parent Material Adverse
Effect.
(o) BROKERS AND FINDERS. Neither CSC or its Subsidiaries nor any of
their officers, directors or employees has employed any broker or finder
or incurred any liability for any brokerage fees or commissions or
finders' fees in connection with the Transactions or the other
transactions contemplated by this Agreement.
(p) ACCREDITED INVESTOR; INVESTMENT INTENT. Parent is an
"accredited investor" within the meaning of the Securities Act and is
acquiring the Contributed Subsidiary Capital Stock for its own account
and for investment purposes only and not with a view to, or for resale in
connection with, any distribution thereof in violation of the Securities
Act. Parent acknowledge its understanding that the offering and sale of
the Contributed Subsidiary Capital Stock is intended to be exempt from
the registration under the Securities Act by virtue of Section 4(2)
thereof.
(q) ENVIRONMENTAL MATTERS. Except for such matters that,
individually or in the aggregate, are not reasonably likely to have a
Parent Material Adverse Effect: (i) CSC and Parent and their Significant
Subsidiaries have complied at all times with all applicable Environmental
Laws;
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(ii) the properties currently owned or operated by any of CSC and Parent
and their Significant Subsidiaries (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any
Hazardous Substances; (iii) the properties formerly owned or operated by
any of CSC and Parent and their Significant Subsidiaries were not
contaminated with Hazardous Substances during the period of ownership or
operation by any of CSC and Parent and their Significant Subsidiaries;
(iv) none of CSC and Parent and their Significant Subsidiaries is or has
been subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) none of CSC and Parent and
their Significant Subsidiaries has been associated with any release or
threat of release of any Hazardous Substance; (vi) none of CSC or any of
its Subsidiaries has received any notice, demand, letter, claim or
request for information indicating that any of CSC and Parent and their
Significant Subsidiaries may be in violation of or liable under any
Environmental Law; (vii) none of CSC and Parent and their Significant
Subsidiaries is or has been subject to any orders, decrees, injunctions
or other arrangements with any Governmental Entity, or is subject to any
indemnity or other agreement with any third party, regarding compliance
or liability under any Environmental Law or relating to Hazardous
Substances; (viii) there are no circumstances or conditions involving any
of and CSC and Parent and their Significant Subsidiaries that could
reasonably be expected to result in any claims, liability,
investigations, costs or restrictions on the ownership, use, or transfer
of any property of any of CSC and Parent and their Significant
Subsidiaries pursuant to any Environmental Law; (ix) none of the
properties of any of CSC and Parent and their Significant Subsidiaries
contain or has contained any underground storage tanks or any Hazardous
Substances; (x) none of CSC and Parent and their Significant Subsidiaries
has engaged in any activities involving the generation, use, handling or
disposal of any Hazardous Substances; and (xi) CSC has delivered to the
Company copies of all environmental reports, studies, sampling data,
permits, government filings and other environmental information in its
possession or reasonably available to it relating to any of CSC and
Parent and their Significant Subsidiaries or any of their current or
former properties or operations.
(r) INTELLECTUAL PROPERTY. Each of CSC and Parent and their
Significant Subsidiaries owns, or is licensed or otherwise possesses
legally enforceable rights to use, all Intellectual Property Rights that
are used in the business of CSC, Parent or such Significant Subsidiary as
currently conducted, except for any such failures to own, be licensed or
possess that, individually or in the aggregate, are not reasonably likely
to have a Parent Material Adverse Effect, and to the knowledge of CSC all
Intellectual Property Rights held by CSC and Parent and their Significant
Subsidiaries are valid and subsisting.
(s) PROPERTY. Each of CSC, Parent and their Significant
Subsidiaries has good title to, or a valid leasehold interest in, or
other good and sufficient right to use, all tangible personal properties
and real property interests that are material to the business and
operations of CSC, Parent or such Significant Subsidiary.
(t) CABLE TELEVISION FRANCHISES. (i) Section 5.2(t) of the Parent
Disclosure Letter sets forth all of the cable television systems operated
by CSC, Parent and their Subsidiaries (the "PARENT SYSTEMS"), the name of
the legal entity that owns each such Parent System and holds the
applicable franchise, the identity and ownership interest and
relationship to CSC, Parent and their Subsidiaries, if any, of each owner
of any interest in such legal entity, and the approximate number of
subscribers in each of the Parent Systems' groups (as specified in such
Section of the Parent Disclosure Letter), as of the date of this
Agreement, to be calculated as follows:(x) the total number of households
(exclusive of "second outlets") that are paying for and receiving any
level of cable television service from the Parent Systems in individually
billed residential units and (y) the quotient obtained by dividing the
total billings to all subscribers in commercial venues or bulk-billed
multiple residential units by the average cable service rate charged by
the Parent
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Systems for the lowest tier of service that includes ESPN, MTV and CNN,
as of March 31, 1997 served by each such Parent System. True, complete
and correct copies of the Cable Franchise Agreements relating to the
Parent Systems of CSC, Parent and their Significant Subsidiaries (the
"PARENT CABLE FRANCHISE AGREEMENTS") have been made available to the
Company. CSC, Parent and their Significant Subsidiaries are in compliance
with the Parent Cable Franchise Agreements in all material respects.
(ii) There exists no fact or circumstance that makes it reasonably
likely that any Parent Cable Franchise Agreement scheduled to expire in
the next five years will not be timely renewed on commercially reasonable
terms. CSC and Parent have filed or caused to be filed with the
appropriate Governmental Entity all appropriate requests for renewal
under the Communications Act within 30 to 36 months prior to the
expiration of each Parent Cable Franchise Agreement. The operation of the
Parent Systems of CSC, Parent and their Significant Subsidiaries has
been, and is, in compliance in all material respects with the rules and
regulations of the FCC and none of CSC or Parent or their Subsidiaries
has received notice from the FCC of any violation of its rules and
regulations by any of CSC or Parent or their Subsidiaries. None of the
applicable franchises for the Parent Systems of CSC, Parent and their
Significant Subsidiaries has been suspended or revoked. Neither CSC nor
Parent nor any of their Subsidiaries has received any notice of any such
possible suspension or revocation, and no such suspension or revocation
is pending or, to the knowledge of CSC, threatened.
(iii) The Parent Systems of CSC, Parent and their Significant
Subsidiaries and all related businesses of CSC, Parent and their
Significant Subsidiaries are, and, while owned by CSC, Parent, their
Significant Subsidiaries or any of their Affiliates, have been, operated
in compliance in all material respects with the Communications Act and
CSC and Parent have submitted or caused to be submitted to the FCC all
material filings, including but not limited to cable television
registration statements, annual reports and aeronautical frequency usage
notices that are required under the rules and regulations of the FCC.
(iv) CSC, Parent and their Significant Subsidiaries have conducted
all system and microwave performance tests and all CLI related tests
applicable to the Parent Systems of CSC, Parent and their Significant
Subsidiaries, and have maintained records which accurately and completely
reflect in all material respects all results required to be shown
thereon. CSC, Parent and their Significant Subsidiaries have corrected
any radiation leakage of the Parent Systems of CSC, Parent and their
Significant Subsidiaries required to be corrected in connection with the
monitoring obligations and have otherwise complied in all material
respects with all applicable CLI rules and regulations. The Parent
Systems are in compliance in all material respects with all signal
leakage criteria set forth in 47 CFR Section 76.611.
(v) For each relevant semi-annual reporting period, CSC and Parent
have timely filed or caused to be filed with the United States Copyright
Office all required Statements of Account in true and correct form, and
has paid when due all required copyright royalty fee payments in the
correct amount, relating to the carriage of television broadcast signals
by the Parent Systems of CSC, Parent and their Significant Subsidiaries.
(vi) Other than requests of network non-duplication and syndicated
exclusivity protection, neither CSC nor Parent nor any of their
Significant Subsidiaries has received any requests, notices or demands,
whether written or oral, from the FCC or any other Governmental Entity,
challenging or questioning the rights of CSC, Parent and their
Significant Subsidiaries to operate the Parent Systems of CSC, Parent and
their Significant Subsidiaries or carry any signal or requesting signal
carriage. All of the broadcast television signals carried by the Parent
Systems of CSC, Parent and their Significant Subsidiaries are carried
either pursuant to the must-carry
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requirements or pursuant to executed retransmission consent agreements,
accurate, complete and correct copies of which have been made available
to the Company.
(vii) The regulated rates for services and equipment charged by any
Parent System of CSC, Parent and their Significant Subsidiaries,
including the rates for any Migrated Product Tiers, (I) comply in all
material respects with FCC's rules establishing maximum permitted rates
for regulated services and equipment, (II) have been approved by the FCC
under a rate settlement with CSC or Parent or their Significant
Subsidiaries with respect to a Parent System of CSC, Parent and their
Significant Subsidiaries or (III) are subject to an order by the FCC or
other Governmental Entity requiring a Parent System of CSC, Parent and
their Significant Subsidiaries to adjust such rates. CSC or Parent has
made available to the Company accurate, complete, and correct copies of
all FCC rate justification forms and materials (including Forms 393,
1200, 1205, 1210, and 1240) filed with the FCC and any other Governmental
Entity for each of the Parent Systems of CSC, Parent and their
Significant Subsidiaries that are required to file such forms and
materials, and such forms have been filed with the appropriate regulatory
body in compliance in all material respects with all applicable
requirements. CSC or Parent has also made available to the Company an
accurate, complete, and correct copy of any rate settlement agreement
entered into with the FCC affecting any Parent System. Section 5.2(t) of
the Parent Disclosure Letter lists each Parent System of CSC, Parent and
their Significant Subsidiaries and regulated rate that is the subject of
a pending challenge before the FCC or any other Governmental Entity and
the Governmental Entity before which each such challenge is pending.
Section 5.2(t) of the Parent Disclosure Letter lists each Parent System
subject to an order described in subclause (III) above, and the rate
reduction required by each such order.
(viii) CSC or Parent has made available to the Company, to the extent
it possesses them, accurate, complete, and correct copies of each
material inquiry, request for information, report, directive, and similar
communications received by CSC or Parent or any of their Subsidiaries
from the FCC or any other Governmental Entity with respect to any of CSC
or Parent or their Significant Subsidiaries that relates to the
obligations of CSC or Parent or any of their Significant Subsidiaries
with respect to any of the Parent Systems of CSC, Parent and their
Significant Subsidiaries under the Communications Act. CSC or Parent has
also made available to the Company a copy of each written response by CSC
or Parent or any of their Subsidiaries to each such inquiry, request for
information, report, directive, or similar communication.
(u) CONTRACTS. None of CSC or Parent or their Significant
Subsidiaries, nor, to the knowledge of CSC, any other party to any
Contracts to which any of CSC or Parent or their Significant Subsidiaries
is bound or is a party, is (or, with notice or lapse of time or both,
could be) in material breach or default thereof which breaches or
defaults individually or in the aggregate, are reasonably likely to have
a Parent Material Adverse Effect or prevent or materially burden or
materially impair the ability of CSC or Parent or Merger Sub to
consummate the transactions contemplated by this Agreement.
ARTICLE VI
COVENANTS
6.1. CSC INTERIM OPERATIONS. Each of CSC and Parent covenants and agrees
that, after the date hereof and until the consummation of the Contribution
Closing (unless the Company shall otherwise approve, which approval shall not be
unreasonably withheld or delayed), and except as otherwise expressly
contemplated by this Agreement or the Partnership Contribution Agreement:
(a) it shall not (i) issue, sell, pledge, dispose of or encumber any
capital stock owned by it in any of its Significant Subsidiaries to an
Affiliate of CSC or of Parent, except (x) to CSC or any
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wholly owned Subsidiaries of Parent or CSC or (y) pursuant to possible
issuances disclosed in Section 5.2(a) or Section 5.2(c) or in Section
5.2(c) of the Parent Disclosure Letter; (ii) amend its certificate of
incorporation or by-laws, except for the Charter Amendments and for
amendments to Parent's certificate of incorporation that conform to the
certificate of incorporation of CSC and amendments to Parent's by-laws
that conform to the by-laws of CSC and the Stockholders Agreement; (iii)
split, combine or reclassify its outstanding shares of capital stock;
(iv) declare, set aside or pay any dividend or make any distribution
payable in cash, stock or property in respect of any capital stock,
except for dividends (x) payable by any Subsidiary of CSC to its direct
or indirect Subsidiaries or (y) on the Preferred Shares; or (v)
repurchase, redeem or otherwise acquire or permit any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of its capital
stock or any securities convertible into or exchangeable or exercisable
for any shares of its capital stock, except pursuant to (x) cancellations
in connection with possible issuances disclosed in Section 5.2(a) or
Section 5.2(c) or in Section 5.2(c) of the Parent Disclosure Letter or
(y) any mandatory sinking funds relating to outstanding debt securities
of CSC;
(b) (i) it shall not sell any property or assets of it to an
Affiliate of it and shall not issue or sell any shares of or securities
convertible into or exchangeable or exercisable for, or options,
warrants, calls, commitments or rights of any kind to acquire any shares
of, its capital stock of any class or any Voting Debt and (ii) none of
its Subsidiaries shall issue, sell, pledge, dispose of or encumber any
shares of, or securities convertible into or exchangeable or exercisable
for, or options, warrants, calls, commitments or rights of any kind to
acquire any shares of, its capital stock of any class or any Voting Debt
or any other property or assets to an Affiliate of CSC or Parent, except,
in either of the cases set forth in (i) and (ii) above, (x) to any wholly
owned Subsidiaries of Parent or CSC or (y) pursuant to possible issuances
disclosed in Section 5.2(a) or Section 5.2(c) or in Section 5.2(c) of the
Parent Disclosure Letter;
(c) it shall not engage in an Acquisition Transaction (as defined in
the Stockholders Agreement) that would cause the condition set forth in
Section 7.4(f) not to be satisfied; and
(d) neither it nor any of its Subsidiaries will authorize or enter
into any binding agreement or make any binding commitment (whether oral
or written) to take any of the types of action described in the foregoing
paragraphs (a), (b) and (c).
6.2. CONTRIBUTED SYSTEMS INTERIM OPERATIONS. The Company covenants and
agrees that, from and after the execution and delivery of this Agreement until
the consummation of the Contribution Closing, except as otherwise expressly
contemplated in this Agreement: (i) the business of each of the Contributed
Entities and Contributed System Entities with respect to the Contributed Systems
shall be conducted in the ordinary and usual course of business, and, to the
extent consistent therewith, the Company shall use all reasonable best efforts
to preserve each of the Contributed Entities' and each of the Contributed
Systems Entities' business organization intact and maintain the Contributed
Systems' existing relations and goodwill with customers, suppliers,
distributors, subscribers, creditors, lessors, employees and business
associates; and (ii) the Company shall, and shall cause each of the Contributed
Entities and, with respect to the Asset Contributed Systems, the Contributed
System Entities to, operate in all material respects in accordance with the 1997
operating and capital budget plan relating to the Contributed Systems (the "1997
BUDGET") and, in calendar year 1998, the 1998 operating and capital budget plan
relating to the Contributed Systems (which shall be the same in all material
respects as the 1997 Budget, unless Parent shall otherwise approve in writing),
a copy of which has been or will be, as the case may be, provided to CSC,
including by making or causing to be made all capital expenditures as set forth
therein. The Company shall, and shall cause each of the Contributed Entities
and, with respect to the Asset Contributed Systems, the Contributed System
Entities to, keep in effect all of the Contributed System Cable Franchise
Agreements and shall not, and shall cause each of the Contributed Entities and,
with respect to the Asset Contributed Systems, the Contributed System Entities
not to, abandon, avoid, dispose, surrender or amend the terms of any such
agreements except for causing assignments thereof as required to effect the
Company Restructuring. The
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Company further covenants and agrees that it shall procure that each of the
Contributed Entities and, with respect to the Asset Contributed Systems, the
Contributed System Entities shall not, after the date hereof and prior to the
Contribution Closing (unless Parent shall otherwise approve in writing, which
approval shall not be unreasonably withheld or delayed), except as otherwise
expressly contemplated in this Agreement:
(a) sell, lease, transfer or otherwise dispose of any material
assets or property (tangible or intangible) of any of the Contributed
Entities or of any of the Contributed Entities and, with respect to the
Asset Contributed Systems, the Contributed System Entities other than
assets or property disposed of in the ordinary course of business that
are obsolete and no longer used in the operation of the Contributed
Systems or that are replaced by similar assets or property of equal or
greater value and utility; waive or release any rights of material value
relating to the business of any of the Contributed Entities or of the
Asset Contributed Systems; or cancel, compromise, release or assign any
material debt or claim related to the business of any of the Contributed
Entities or relating to the business of any of the Asset Contributed
Systems, in each case except in the ordinary and usual course of
business;
(b) subject to or suffer to exist any Lien on any of the assets of
any of the Contributed Entities or on any of the assets of the Asset
Contributed Systems outside of the ordinary and usual course of business,
other than those (i) Liens reflected or reserved for in the Financial
Statements or in the Closing Balance Sheet to the extent so reflected or
reserved, (ii) Liens for Taxes, assessments and other governmental
charges not yet due and payable or due but not delinquent or being
contested in good faith by appropriate proceedings and (iii) Liens that
would not be material to the business of any of the Contributed Systems
or restrict in any material way the conduct of such business
(collectively, "CONTRIBUTED SYSTEMS PERMITTED LIENS");
(c) institute, settle or agree to settle any litigation, action or
proceeding before any court or Governmental Entity that could impose any
material obligations or restrictions on any of the Contributed Entities
or on any of the Asset Contributed Systems following the Contribution
Closing or prevent or materially burden or materially impair the ability
of the Company to consummate the Contribution and the other transactions
contemplated hereby;
(d) except in the ordinary and usual course of business, make any
material change in the overall selling, pricing, advertising,
distribution, marketing, programming, affiliation, warranty or personnel
practices relating to any Contributed System;
(e) other than bonuses that will not be the responsibility of or
require any payment by Parent or any of its Subsidiaries (including,
after the Contribution Closing, the Contributed Entities), grant any
increase in compensation or fringe benefits (other than compensation
increases made in the ordinary and usual course of business, and related
changes in fringe benefits of any Employees or other Person) or pay or
agree to pay any pension or retirement allowance, life insurance premiums
or other benefit payments not required by any existing employment
agreement or Compensation and Benefit Plan to any such Employees or other
Person, commit itself to make variations in or waivers with respect to,
or amend in any respect, any employment agreement or Compensation and
Benefit Plan with or for the benefit of any Employee or other Person, or
institute or adopt any compensation or benefit program, plan or
arrangement for Employees or other Persons;
(f) (i) issue, sell, pledge, dispose of or encumber any capital
stock owned by it in any of the Contributed Entities, except to the
Company or any of its Subsidiaries; (ii) amend any of the Contributed
Entities' respective certificates of incorporation, by-laws or similar
organizational documents; (iii) split, combine or reclassify its
outstanding shares of capital stock; or (iv) repurchase, redeem or
otherwise acquire any shares of the Contributed Entities' capital stock
or any securities convertible into or exchangeable or exercisable for any
shares of any Contributed Entities' capital stock (other than capital
stock or securities owned by a Contributed Entity);
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(g) (i) issue, sell, dispose of or otherwise subject to a Lien, or
authorize or propose the issuance, sale, disposition or subjection to a
Lien of, any shares of, or securities convertible into or exchangeable or
exercisable for, or options, warrants, conversion rights, calls,
commitments or rights of any kind to acquire, any shares of any of the
Contributed Entities' capital stock of any class or any other property or
assets of any of the Contributed Entities or the Asset Contributed
Systems or give any Person a right to subscribe for or acquire any shares
of capital stock or other equity interest of any of the Contributed
Entities; or (ii) by any means, make any acquisition of, or investment
in, stock or equity of any other Person or, other than in the ordinary
course of business, acquire or invest in any assets of any Person other
than a Contributed System Entity or Contributed Entity;
(h) terminate, establish, adopt, enter into, make any new grants or
awards under, amend or otherwise modify, any Compensation and Benefit
Plan;
(i) permit any insurance policy naming it as a beneficiary or a loss
payable payee to be canceled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such termination or
cancellation replacement policies providing substantially the same
coverage are in full force and effect;
(j) in any material respect, amend or modify the 1997 Budget or,
when applicable, the operating and capital budget plan for 1998;
(k) enter into any Contracts that would be binding upon or otherwise
restrict the business or operations of any of the Contributed Entities or
any of the Asset Contributed Systems after the Contribution Closing
(other than Contracts that are fair to and on commercially reasonable
terms for such Contributed Entity or such Asset Contributed System);
(l) declare or distribute any cash dividend or other distribution of
the Fibertech Cash other than to a Contributed Entity; or
(m) authorize or enter into any binding agreement or make any binding
commitment (whether oral or written) to take any of the types of action
described in the foregoing paragraphs (a) through (l).
6.3. INFORMATION SUPPLIED. TCI and CSC each agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it or
its Subsidiaries for inclusion or incorporation by reference in (i) the
Registration Statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of shares of Parent Common Stock in the Merger
(including the proxy statement and prospectus (the "PROSPECTUS/PROXY STATEMENT")
constituting a part thereof) (the "S-4 REGISTRATION STATEMENT") will, at the
time the S-4 Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
(ii) the Prospectus/Proxy Statement and any amendment or supplement thereto
will, at the date of mailing to stockholders and at the times of the meetings of
stockholders of CSC to be held in connection with the Merger and the other
transactions contemplated hereby, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
6.4. STOCKHOLDERS MEETING; PARENT VOTE ON REORGANIZATION;
RECOMMENDATION. CSC will take, in accordance with applicable law and its
certificate of incorporation and by-laws, all action necessary to convene a
meeting of holders of Shares (the "STOCKHOLDERS MEETING") as promptly as
practicable after the S-4 Registration Statement is declared effective to
consider and vote upon the approval and adoption of this Agreement and, if
applicable, the issuance of Parent Common Stock pursuant to the Contribution.
Subject to fiduciary obligations under applicable law, each of CSC's and the
Parent's board of directors shall recommend such approval and shall take all
lawful action to solicit such approval.
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6.5. FILINGS; OTHER ACTIONS; NOTIFICATION. (a) CSC and Parent shall
promptly prepare and file with the SEC the Prospectus/Proxy Statement and shall
prepare and file with the SEC the S-4 Registration Statement as promptly as
practicable. CSC and TCI shall use all reasonable efforts to have the S-4
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing, and promptly thereafter mail the
Prospectus/Proxy Statement to the stockholders of CSC. CSC shall also use its
reasonable efforts to obtain prior to the effective date of the S-4 Registration
Statement all necessary state securities law or "blue sky" permits and approvals
required in connection with the Merger and will pay all expenses incident
thereto.
(b) TCI on the one hand and CSC and Parent on the other hand shall cooperate
with each other and use (and shall cause their respective Subsidiaries to use)
all reasonable best efforts to take or cause to be taken all actions, and do or
cause to be done all things, necessary, proper or advisable on its part under
this Agreement and applicable Laws to cause to be satisfied all of the
conditions set forth in Article VII and to consummate and make effective each of
the Transactions and the other transactions contemplated by this Agreement as
soon as practicable, including preparing and filing as promptly as practicable
all documentation to effect all necessary notices, reports and other filings and
to obtain as promptly as practicable all consents, registrations, approvals,
permits and authorizations necessary or advisable to be obtained from any third
party and/or any Governmental Entity in order to consummate each of the
Transactions or any of the other transactions contemplated by this Agreement and
responding as promptly as practicable to any inquiries received from any
Governmental Entity in connection therewith. TCI and CSC and Parent shall use
their respective reasonable best efforts to overcome any objections that may be
raised by any Governmental Entity to the consummation of the Contribution and
the other transactions contemplated by this Agreement. In this regard, TCI
agrees that it shall agree to such modifications to or relinquishments of its
governance rights (including voting, consent and board representation rights) as
may be required to overcome any such objections; PROVIDED, that if TCI agrees to
modify or relinquish any governance right, CSC and Parent shall provide
contractual rights that approximate as nearly as reasonably practicable the
governance rights modified or relinquished. Neither TCI nor CSC or Parent shall
be required to make any change in the operations or activities of its or its
Subsidiaries' business (or material assets employed therein) if such change
would be materially adverse to TCI and its Subsidiaries, taken as an entirety,
or to CSC or Parent and its Subsidiaries, taken as an entirety, as the case may
be, or to their respective cable television businesses, taken as an entirety, or
their respective programming businesses, taken as an entirety, or to any of
their respective Significant Subsidiaries or any business (within the meaning of
Rule 11-01(d) of Regulation S-X promulgated under the Exchange Act) that, if it
were a Subsidiary, would be a Significant Subsidiary (it being agreed and
understood that any change that would prevent, modify or terminate any
contractual relationships among any of the parties hereto or any of their
respective Affiliates entered into after May 1, 1997 (excluding the agreements
contemplated in this Agreement) shall not be deemed to be materially adverse).
Subject to applicable laws relating to the exchange of information, CSC, Parent
and TCI each shall have the right to review in advance, and to the extent
practicable each will consult the other on, all the information relating to CSC,
Parent or TCI, as the case may be, and any of their respective Subsidiaries,
that may appear in any filing made with, or written materials submitted to, any
third party and/or any Governmental Entity in connection with each of the
Transactions and the other transactions contemplated by this Agreement. In
exercising the foregoing right, each of TCI, CSC and Parent shall act reasonably
and as promptly as practicable.
(c) TCI, CSC and Parent each shall, upon request by the other, furnish the
other with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Prospectus/Proxy Statement, the S-4
Registration Statement or any other statement, filing, notice or application
made by or on behalf of CSC, Parent, TCI or any of their respective Subsidiaries
to any third party and/or any Governmental Entity in connection with each of the
Transactions and the other transactions contemplated by this Agreement.
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(d) TCI and CSC and Parent each shall keep the other apprised of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notice or other
communications received by CSC or Parent or TCI, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Transactions and the other transactions contemplated by this
Agreement. The Company and CSC each shall give prompt notice to the other of any
change that is reasonably likely to result in a Contributed Systems Material
Adverse Effect or Parent Material Adverse Effect, respectively.
(e) As soon as practicable after the date hereof but in no event later than
75 days after the date of the Original Agreement, the Company shall prepare and
deliver or cause to be prepared and delivered to CSC audited financial
statements and unaudited financial statements (collectively, the "PROXY
FINANCIAL STATEMENTS") for the combined operations of the Contributed Systems in
form and substance as is required in connection with the Prospectus/Proxy
Statement and the S-4 Registration Statement. The Proxy Financial Statements
shall be prepared under the supervision of the audit partner of KPMG Peat
Marwick who is in charge of the CSC audit and in cooperation and consultation
with CSC and its Representatives. CSC and the Company shall each be responsible
for one-half of the costs and reasonable expenses associated with the audit and
preparation required under this paragraph; PROVIDED, that if the Contribution
Closing is not consummated other than as a result of a breach or default by CSC,
Parent or Merger Sub, the Company shall be responsible and pay or reimburse all
of such costs and expenses.
6.6. TAXATION. Neither CSC, Parent or Merger Sub nor TCI shall take or
cause to be taken any action, whether before or after the Effective Time, that
would cause the Merger, the Contribution or, if applicable, the Partnership
Contribution not to qualify as an exchange governed by Section 351 of the Code.
6.7. ACCESS. Upon reasonable notice, and except as may otherwise be
required by applicable law, TCI and CSC and Parent each shall (and shall cause
its Subsidiaries to) afford the other's officers, employees, counsel,
accountants and other authorized representatives ("REPRESENTATIVES") access,
during normal business hours throughout the period prior to the consummation of
the Contribution Closing, to its properties, books, contracts and records and,
during such period, each shall (and shall cause its Subsidiaries to) furnish
promptly to the other all information concerning its business, properties and
personnel as may reasonably be requested, PROVIDED that no investigation
pursuant to this Section shall affect or be deemed to modify any representation
or warranty made by the Company, CSC, Parent or Merger Sub, and PROVIDED,
FURTHER, that the foregoing shall not require TCI or CSC or Parent to permit any
inspection, or to disclose any information, that in the reasonable judgment of
TCI or CSC or Parent, as the case may be, would result in the disclosure of any
trade secrets of third parties or violate any of its obligations with respect to
confidentiality if TCI or CSC or Parent, as the case may be, shall have used
reasonable best efforts to obtain the consent of such third party to such
inspection or disclosure. All requests for information made pursuant to this
Section shall be directed to an executive officer of the Company or CSC or
Parent, as the case may be, or such Person as may be designated by any of its
officers, as the case may be. All such information shall be governed by the
terms of the Confidentiality Agreement.
6.8. CERTAIN CONTRACTS. The Company agrees to take such action as
necessary so that at the Contribution Closing none of the Contributed Entities
is a party or Contributed Systems is subject to or bound by any programming,
affiliation or similar Contracts except as CSC may approve in writing prior to
the Contribution Closing Date or as set forth on Section 5.1(n) of the Company
Disclosure Letter.
6.9. STOCK EXCHANGE LISTING AND DE-LISTING. CSC and Parent shall use their
respective best reasonable efforts to cause the shares of Parent Common Stock to
be issued in the Merger and pursuant to the Contribution (including any shares
of Parent Common Stock issuable upon conversion, exercise or exchange of
securities of Parent) to be approved for listing on the AMEX subject to official
notice of issuance, prior to the Closing Date. The Surviving Corporation shall
use its best efforts to cause the CSC
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Class A Shares to be de-listed from the AMEX and de-registered under the
Exchange Act as soon as practicable following the Effective Time.
6.10. PUBLICITY. The initial press release regarding the Contribution
shall be a joint press release by CSC and TCI, and the initial press release(s)
regarding the Partnership Contribution, the Reorganization and/or the Merger
shall be a press release by CSC, and thereafter TCI and CSC and Parent each
shall consult with each other prior to issuing any press releases or otherwise
making public announcements with respect to the Contribution and prior to making
any filings with any third party and/or any Governmental Entity (including any
national securities exchange) with respect thereto, except as may be required by
law or by obligations pursuant to any listing agreement with or rules of any
national securities exchange.
6.11. BENEFITS; BOARD REPRESENTATION; EMPLOYEES.
(a) STOCK OPTIONS; CONJUNCTIVE RIGHTS.
(i) At the Effective Time, each outstanding option to purchase Shares (a
"CSC OPTION") under the CSC Stock Plans, whether vested or unvested, shall be
deemed to constitute an option to acquire, on the same terms and conditions as
were applicable under such CSC Option, the same number of shares of Parent
Common Stock subject to the CSC Option and at the same exercise price in effect
immediately prior to the Effective Time. In addition, each of the outstanding
"conjunctive stock appreciation rights" and "bonus award shares" of CSC (as
described in the CSC Reports), whether vested or unvested, shall, at the
Effective Time be deemed to constitute a conjunctive stock appreciation right or
bonus award share of Parent, as the case may be, on the same terms and
conditions as were applicable under such conjunctive stock appreciation right or
bonus award share of CSC, as the case may be, as in effect immediately prior to
the Effective Time.
(ii) Effective at the Effective Time, Parent shall assume each CSC Option
and conjunctive stock appreciation right or bonus award share of CSC in
accordance with the terms of the CSC Stock Plans and other arrangements, as the
case may be, under which it was issued and the stock option agreement or other
agreement, as the case may be, by which it is evidenced. At or prior to the
Effective Time, Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of CSC Options assumed by it in accordance with this Section. As soon
as practicable after the Effective Time, Parent shall file a registration
statement on Form S-3 or Form S-8, as the case may be (or any successor or other
appropriate forms), or another appropriate form with respect to the Parent
Common Stock subject to such CSC Options, and shall use its best efforts to
maintain the effectiveness of such registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such CSC Options remain outstanding.
(b) Election to Parent's Board of Directors. Effective as of the Effective
Time, CSC shall cause two persons to be designated by TCI as soon as reasonably
practicable after the date hereof and no later than prior to the substantial
completion of the Proxy Statement/Prospectus to be appointed to Parent's board
of directors as designees of the Parent Class B Shares as contemplated by the
Stockholders Agreement.
(c) Employees. (i) Parent or CSC may, but shall have no obligation to,
employ or offer employment to any employee engaged in the business of a
Contributed System, including employees engaged in advertising sales for a
Contributed System. Not less than 120 days (or such later date as the Company
and CSC may mutually agree) after the date of this Agreement, CSC shall provide
the Company a list, which may be updated by CSC from time to time to reflect
changes in employees or staffing after such date (provided such updates are not
material overall), of employees who will be offered employment after the Closing
Date (the "HIRED EMPLOYEES"). CSC shall coordinate the hiring procedures
relating to such Hired Employees with the Company.
(ii) The Company will pay or cause to be paid to all employees employed in
the Contributed Systems all compensation, including salaries, commissions,
bonuses, deferred compensation, severance, insurance, pensions, profit sharing,
vacation (other than vacation and sick leave which is allowed to be carried over
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pursuant to Section 6.11(c)(iii)), sick pay and other compensation or benefits
to which they are entitled for periods prior to the Contribution Closing,
including, without limitation, all amounts, if any, payable on account of the
termination of their employment. The Company agrees to cooperate in all
reasonable respects with CSC to allow CSC to evaluate and interview employees of
the Contributed Systems to make hiring decisions.
(iii) The Company will remain solely responsible for, and will indemnify and
hold harmless Parent and CSC from and against all losses arising from or with
respect to, all salaries and all severance, vacation, medical, sick, holiday,
continuation coverage and other compensation or benefits to which its employees
may be entitled, whether or not such employees may be hired by CSC, as a result
of their employment by it prior to the Contribution Closing, the termination of
their employment prior to the Contribution Closing, the obligation, if any, to
notify and/or bargain with any labor organization, the consummation of the
transactions contemplated hereby or pursuant to any applicable legal requirement
(including without limitation WARN) or otherwise relating to their employment
prior to the Closing Time. All Hired Employees shall be entitled to carry
forward all accrued vacation and sick leave limited to the maximum amount to be
carried forward under Parent's standard policies.
(iv) Parent shall after the Contribution Closing provide employee benefit
plans, programs and policies to Hired Employees that, in the aggregate, will
provide benefits to such employees that are no less favorable in the aggregate
than those provided to similarly situated employees of Parent and its
Subsidiaries. Hired Employees of the Contributed System Entities and the
Contributed Entities shall be given credit for all service with the Company, the
Contributed System Entities and the Contributed Entities, or with any prior
owner or operator of a Contributed System to the extent that such employee
received time and grade credit from the Company, the Contributed System Entities
and the Contributed Entities, under all employee benefit plans, programs and
policies (including any bonus program) of Parent and its Subsidiaries in which
they become participants for purposes of eligibility and vesting but not for
purposes of benefit accrual. Notwithstanding the foregoing, the requirements of
this subsection (c)(iv) shall not apply to employees who are covered by a
collective bargaining agreement.
(v) Effective as of the Contribution Closing, all Hired Employees shall
cease to be covered by the Company's employee welfare benefit plans, including
plans, programs, policies and arrangements which provide medical and dental
coverage, life and accident insurance, disability coverage, and vacation and
severance pay (collectively, "WELFARE PLANS") and all other employee benefit
plans of the Company.
(vi) All claims and obligations under, pursuant to, or in connection with,
any Welfare Plan or other employee benefit plan of the Company affecting
employees of the Company or any of its Subsidiaries, including any Hired
Employee, incurred on or before the Contribution Closing or resulting or arising
from events or occurrences commencing or occurring on or before the Contribution
Closing will remain the responsibility of the Company. The Company shall retain
all obligations for payment of long- or short-term disability claims arising
from disabilities that occurred prior to the Contribution Closing and up until
such time as the employee returns to work with one of the Contributed Systems.
Parent shall be responsible for payment of long and short-term disability claims
that arise from disabilities that occur after the Contribution Closing, or any
claims of a Hired Employee after such employee has returned to work with one of
the Contributed Systems, on a full-time, unrestricted basis for at least 30
days.
(vii) If Parent or any of its Subsidiaries discharges any Hired Employee
prior to 60 days following the Contribution Closing, Parent shall pay such
discharged Hired Employee the severance benefits that would have been payable by
the Company if such discharge had occurred prior to the Contribution Closing and
the Company shall reimburse Parent and its Subsidiaries for all claims and
obligations for any and all such benefits. Any claims or obligations arising in
connection with any discharges of any Hired Employees after such date shall be
the responsibility and obligation of the Parent and its Subsidiaries and not of
the Company or its Subsidiaries.
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6.12. EXPENSES. The Surviving Corporation shall pay all charges and
expenses in connection with the transactions contemplated in Article IV, and
Parent shall reimburse the Surviving Corporation for such charges and expenses.
Except as otherwise provided in Section 6.5(e) and Section 9.10, whether or not
any of the Transactions are consummated, all costs and expenses incurred in
connection with this Agreement and the Transactions and the other transactions
contemplated by this Agreement shall be paid by the party incurring such
expense.
6.13. INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) From and
after the Effective Time, Parent shall indemnify and hold harmless, to the
fullest extent permitted under applicable law (and Parent shall also advance
expenses as incurred to the fullest extent permitted under applicable law;
PROVIDED the Person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such Person is not
entitled to indemnification), each present and former director and officer of
CSC and its Subsidiaries (collectively, the "D&O INDEMNIFIED PARTIES") against
any costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively, "COSTS") incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time to the fullest
extent that CSC or such Subsidiary would have been permitted as of the date
hereof to indemnify such person.
(b) Any D&O Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 6.13, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Parent thereof, but the
failure to so notify shall not relieve Parent of any liability it may have to
such D&O Indemnified Party except to the extent that such failure materially
prejudices the indemnifying party. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), any D&O Indemnified Party may retain counsel satisfactory to him or her,
and Parent or the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the D&O Indemnified Party promptly as statements
therefor are received. Parent and the Surviving Corporation will cooperate and
assist in the defense of any such matter. If such indemnity is not available
with respect to any D&O Indemnified Party, then the Surviving Corporation and
the D&O Indemnified Party shall contribute to the amount payable in such
proportion as is appropriate to reflect relative faults and benefits.
(c) The Surviving Corporation or Parent shall maintain CSC's officers' and
directors' liability insurance ("D&O INSURANCE") on substantially the same terms
as in existence on the date hereof for a period of six years after the Effective
Time so long as such insurance can be obtained on commercially reasonable terms.
Prior to the Effective Time, Parent shall enter into indemnification agreements
with its officers and directors on the same terms and conditions as those
contained in the indemnification agreements of the officers and directors of CSC
as of the date hereof.
(d) The provisions of this Section are intended to be for the benefit of,
and shall be enforceable by, each of the D&O Indemnified Parties, their heirs
and their representatives.
6.14. PREFERRED SHARES. Prior to the Effective Time, CSC and Parent shall
enter into such agreements or other documents as required under the respective
certificates of designation of the Preferred Shares, as may be amended, to give
effect to the consummation of the Merger and, if applicable, the Charter
Amendments.
6.15. OTHER ACTIONS BY THE PARTIES. (a) TERMINATION OF AFFILIATED
AGREEMENTS. Prior to the Contribution Closing, the Company shall take all
actions necessary or appropriate so that the Contributed Entities and the Asset
Contributed Systems, without any payment or transfer of value to any of the
Company or any of its Subsidiaries, shall not be subject to and shall have no
debt, liability, commitment or other obligation of any kind whatsoever, whether
known or unknown, choate or inchoate, secured or unsecured, accrued, fixed,
absolute, contingent or otherwise, and whether due or to become due, to the
Company or any of its Affiliates after the Contribution Closing (including (i)
all borrowing and Contracts between (x) the
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Contributed Entities or any of the Asset Contributed Systems and (y) the Company
or its Affiliates and (ii) any obligations to pay dividends or other
distributions to the Company or any of its Affiliates), in all cases other than
as expressly set forth on Section 6.15(a) of the Company Disclosure Letter and
other than solely among the Contributed Entities.
(b) STOCKHOLDERS AGREEMENT. At or prior to the Contribution Closing,
Parent and TCI shall execute and deliver the Stockholders Agreement.
(c) OTHER TRANSACTIONS. In addition, CSC, Parent and the Surviving
Corporation shall consummate and cause to be consummated the following
transactions:
(i) At the Merger Closing and effective immediately after the
Effective Time, Parent shall amend its certificate of incorporation to
change its name to "Cablevision Systems Corporation".
(ii) Following the Contribution Closing, the Reorganization may be
consummated in accordance with the terms and conditions of the
Reorganization Agreement.
(d) CERTAIN INTELLECTUAL PROPERTY. The Company and TCI agree that Parent
shall have (A) the right, for a period of 120 days following the date of the
Contribution Closing, to the reasonable use of any Intellectual Property Rights
of the Company and TCI relating to the businesses of the Contributed Entities
and the Asset Contributed Systems including signs, purchase orders, invoices,
brochures, labels, letterheads or billing documents and (B) the right (I) for a
period of 120 days following the date of the Contribution Closing, to the extent
reasonably required in connection with the conduct of their businesses after
such date, to include a statement indicating that, prior to being acquired by
Parent, the businesses of the Contributed Entities and the Asset Contributed
Systems were conducted under their respective corporate names prior to the
Contribution Closing and (II) to the extent required by applicable law, to
indicate by footnote or other similar device that information concerning prior
financial or operating performance results or other similar historical
information about the Contributed Systems arose when they conducted their
respective businesses under their respective corporate or business names prior
to the Contribution Closing.
(e) CERTAIN ENVIRONMENTAL MATTERS. Notwithstanding anything to the
contrary in this Agreement, the Company shall protect, defend, indemnify and
hold harmless Parent, CSC and their principals, shareholders, directors,
officers, affiliates, agents, and employees ("INDEMNIFIED PARTIES"), from and
against any and all claims, demands, losses, expenses, damages, liabilities,
fines, penalties, charges, administrative and judicial proceedings, orders,
judgments, remedial action requirements, investigations, property or personal
injury claims, natural resource damage claims, enforcement actions and all costs
and expenses incurred in connection therewith (including reasonable attorneys'
fees and expenses) arising under or relating to any Environmental Laws and
asserted by any Person other than any of the Indemnified Parties in connection
with any release or contamination ("PRE-EXISTING CONTAMINATION") involving
Hazardous Substances (whether in soil, water, air or structures) that at or
prior to the Contribution Closing existed at or emanated from property owned by
UA-Columbia Cablevision of Westchester, Inc. generally known as 604-612 Fayette
Avenue and 605-609 Center Avenue in Mamaroneck, New York excluding only
environmental liabilities (i) for which a Contributed Subsidiary is able to
recover under the September 1, 1988 agreement between George and Brenda Lane,
UA-Columbia Cablevision of Westchester, Inc., Electro-Materials Corp. of America
and Rohm and Haas Company or (ii) that are not attributable to Pre-Existing
Contamination. This indemnity shall survive indefinitely and shall be binding
upon the successors and assigns of the Company, Parent and CSC. To the extent
that the Company shall have indemnified any of the Indemnified Parties pursuant
to this Section 6.15(e), the Company shall have a right of subrogation as to
claims that the Indemnified Parties may have against any other Person, and the
Indemnified Parties shall assign to the Company their rights against such other
Person.
(f) FURTHER ACTIONS. The Company, Parent and the Surviving Corporation
shall enter into, file and perform all such agreements, indentures, charter
amendments, certificates of designation, documents,
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certificates, stockholder and director consents and such other instruments as
are required, advisable or desirable in order to give full effect to this
Section 6.15 and to the Partnership Contribution in accordance with the
Partnership Contribution Agreement.
6.16. PARENT, CSC AND THE COMPANY VOTES. Parent, CSC and the Company shall
vote (or consent with respect to) or cause to be voted (or a consent to be given
with respect to) any shares of capital stock of Merger Sub, the Surviving
Corporation and Parent, respectively, beneficially owned by it or any of its
Affiliates or with respect to which it or any of its Affiliates has the power
(by agreement, proxy or otherwise) to cause to be voted (or to provide a
consent), in favor of the adoption and approval of this Agreement and any and
all of the Transactions at any meeting of stockholders of CSC, Parent, Merger
Sub or the Surviving Corporation at which this Agreement and/or any or all of
the Transactions shall be submitted for adoption and approval and at all
adjournments or postponements thereof (or, if applicable, by any action of
stockholders of CSC, Parent, Merger Sub or the Surviving Corporation by consent
in lieu of a meeting).
6.17. RELEASED INDEBTEDNESS AND FIBERTECH CASH; COMPANY RESTRUCTURING; TAX
SHARING; SURETY LIABILITIES; AND DISCLOSURE UPDATES: (a) RELEASED INDEBTEDNESS
AND FIBERTECH CASH. Without limiting the generality of any other provisions of
this Agreement, prior to the Contribution Closing the Company shall take any and
all actions necessary or appropriate so that the Contributed Entities shall have
no, and the Asset Contributed Systems shall not be subject to or encumbered by
any, outstanding Indebtedness as of the Contribution Closing, in both cases
other than (I) an aggregate amount of debt for borrowed money, including in such
amount the principal of such debt and any interest accrued thereon and fees and
other amounts payable in respect thereof, not to exceed (assuming payment in
full at the Contribution Closing) $669,000,000 (the "ASSUMED COMPANY DEBT") at
the consummation of the Contribution Closing, (II) Liabilities not material in
amount and accounted for in Section 3.4. and (III) any debt obligations or other
liabilities solely among the Contributed Entities. The Assumed Company Debt will
be due and payable in full as of the Contribution Closing and the parties agree
that, notwithstanding any other provision of this Agreement to the contrary: (i)
the existence of the Assumed Company Debt, or the occurrence of a default
thereunder as a result of the Contribution, shall not cause the Company to be in
breach or default of any of its representations, warranties, covenants or
agreements in this Agreement; and (ii) CSC or Parent, as of the Contribution
Closing, shall pay or cause to be paid the Assumed Company Debt in full, or
shall cause the Company and any of its Affiliates (other than Parent and its
Subsidiaries, including, after the Contribution Closing, the Contributed
Entities) that are liable (directly or contingently) for payment of the Assumed
Company Debt to be unconditionally released from any liability with respect to
the Assumed Company Debt. In the event that the Company or any of its
Subsidiaries receive any cash ("Fibertech Cash") in respect of any prepayments
of the Facilities Lease Agreement dated June 1, 1995 between TKR Cable Company
(Owner) and New Jersey Fiber Technologies (Operator), the Company shall cause
all such cash to remain as and be included as an asset of the Contributed
Entities and Asset Contributed Systems up to and through the Contribution
Closing.
(b) COMPANY RESTRUCTURING. Prior to the Contribution Closing, the Company
shall take or cause to be taken the actions described in Section 6.17(b) of the
Company Disclosure Letter (the "COMPANY RESTRUCTURING"), so that, immediately
prior to the Contribution Closing, all of the Asset Contributed Systems will be
owned by the Contributed System Entities, all of the Included Contributed
Systems will be owned by the Contributed Entities and all of the outstanding
capital stock of the Contributed Entities will be owned by the Company or one or
more of its Subsidiaries. The Company covenants and agrees that none of the
actions taken by it or any of its Affiliates in connection with the Company
Restructuring shall cause a breach or default by the Company of any of its
representations, warranties, covenants or agreements in this Agreement.
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(c) TAX SHARING AGREEMENTS. Any obligations and Contracts disclosed on
Section 5.1(l) of the Company Disclosure Letter shall be terminated as of
immediately prior to the Contribution Closing without subjecting any Contributed
Entity or any Asset Contributed System to any liability.
(d) SURETY LIABILITIES. Prior to the Contribution Closing, the Company
shall take any and all actions necessary or appropriate so that the Contributed
Entities shall have no outstanding Surety Liabilities (or obligations to incur
Surety Liabilities) and so that the Asset Contributed Systems shall not be
encumbered by or subject to any outstanding Surety Liabilities (or obligations
to incur Surety Liabilities), in both cases, other than an aggregate amount not
to exceed $10,000,000 and other than Liabilities accounted for in Section 3.4.
CSC or Parent shall cause the Company and any of its Affiliates including the
Contributed System Entities (other than Parent and its Subsidiaries, including,
after the Contribution Closing, the Contributed Entities) that are liable
(directly or contingently) under the Surety Liabilities to be unconditionally
released from any liability with respect to the Surety Liabilities.
(e) DISCLOSURE UPDATES AND SUPPLEMENTS. On the third business day before
the Closing Date, the Company shall deliver to Parent a supplement to the
Company Disclosure Letter as of such date, which supplement shall reflect the
consummation of the Company Restructuring but shall not, except as otherwise
expressly noted in this Agreement, be deemed to modify in any respect the
Company Disclosure Letter.
ARTICLE VII
CONDITIONS TO MERGER AND CONTRIBUTION
7.1. CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER. The respective
obligations of CSC, Parent and Merger Sub to effect the Merger are subject to
the satisfaction or waiver by CSC at or prior to the Effective Time of each of
the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been duly approved
and adopted by holders of Shares constituting the relevant one of the Parent
Requisite Votes and shall have been duly approved by the sole stockholder of
Merger Sub in accordance with applicable law and the certificate of
incorporation and by-laws of each such corporation.
(b) AMEX LISTING. The shares of Parent Common Stock issuable to the
CSC stockholders pursuant to the Merger shall have been authorized for
listing on the AMEX upon official notice of issuance.
(c) REGULATORY CONSENTS. (i) All notices, reports and filings required
to be made prior to the Effective Time by CSC or any of its Subsidiaries
with, and all consents, registrations, approvals, permits and authorizations
required to be obtained prior to the Effective Time by CSC or any of its
Subsidiaries from, any Governmental Entity, which reports, filings,
consents, registrations, approvals, permits and authorizations are noted
with a single asterisk in Section 5.2(e) of the Parent Disclosure Letter, in
connection with the execution and delivery of this Agreement and the
consummation of the Merger shall have been made or obtained, as the case may
be.
(ii) Other than the filing provided for in Section 1.3 or as described
in Section 7.1(c)(i), all notices, reports and other filings required to be
made prior to the Effective Time by CSC or Parent or any of their respective
Subsidiaries with, and all other consents, registrations, approvals, permits
and authorizations required to be obtained prior to the Effective Time by
CSC or any of its Subsidiaries from, any Governmental Entity in connection
with the execution and delivery of this Agreement and the consummation of
the Merger shall have been made or obtained (as the case may be), except
those that the failure to make or to obtain are not, individually or in the
aggregate, reasonably likely to have a Parent Material Adverse Effect or to
provide a reasonable basis to conclude that the parties hereto or any of
their affiliates or respective directors, officers, agents, advisors or
other representatives would be subject to the risk of criminal liability.
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(d) LITIGATION. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any law, statute, ordinance, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) that is in
effect (collectively, an "ORDER") and that restrains, enjoins or otherwise
prohibits consummation of the Merger, and no Governmental Entity shall have
instituted any proceeding or threatened to institute any proceeding seeking
any such Order.
(e) S-4. The S-4 Registration Statement shall have become effective
under the Securities Act. No stop order suspending the effectiveness of the
S-4 Registration Statement shall have been issued, and no proceedings for
that purpose shall have been initiated or be threatened, by the SEC.
(f) BLUE SKY APPROVALS. Parent shall have received all state
securities and "blue sky" permits and approvals necessary to consummate the
Merger.
(g) CONSENTS UNDER AGREEMENTS. (i) CSC shall have obtained the consent
or approval of each Person whose consent or approval shall be required in
order to consummate the Merger under any Contract that is noted with a
triple asterisk in Section 5.2(e) of the Parent Disclosure Letter.
(ii) Other than as described in Section 7.1(g)(i), CSC shall have
obtained the consent or approval of each Person whose consent or approval
shall be required under any Contract to which CSC or any of its Subsidiaries
is a party, except those for which the failure to obtain such consent or
approval, individually or in the aggregate, is not reasonably likely to have
a Parent Material Adverse Effect or is not reasonably likely to prevent or
to materially burden or materially impair the ability of CSC, Parent or
Merger Sub to consummate the Merger.
(h) TAX OPINION. Parent shall have received the opinion of Sullivan &
Cromwell, counsel to Parent, dated the date of the Merger Closing, to the
effect that the Merger will be treated for Federal income tax purposes as an
exchange governed by Section 351 of the Code.
(i) CONTRIBUTION. All of the conditions precedent to the obligations
of Parent and the Company to effect the Contribution shall have been
fulfilled or irrevocably waived or shall be capable of being fulfilled
promptly following the Effective Time or at the Contribution Closing.
7.2. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
CONTRIBUTION. The respective obligations of Parent and the Company to effect
the Contribution are subject to the satisfaction or waiver at or prior to the
Contribution Closing of each of the following conditions:
(a) STOCKHOLDER APPROVAL. The issuance of the Parent Common Stock in
connection with the Contribution shall have been approved by the relevant
one of the Parent Requisite Votes.
(b) REGULATORY CONSENTS. (i) All required filings under the HSR Act
shall have been made and any applicable waiting period under the HSR Act
shall have expired or been terminated.
(ii) All notices, reports and other filings required to be made prior to
the Contribution Closing by CSC, Parent or the Company or any of their
respective Subsidiaries with, and all consents, registrations, approvals,
permits and authorizations required to be obtained prior to the Contribution
Closing by CSC, Parent or the Company or any of their respective
Subsidiaries from, (i) the franchise authorities with respect to 100% of the
total subscribers in the Contributed Systems and the Parent Systems in
connection with the execution and delivery of this Agreement and the
consummation of the Contribution shall have been made or obtained, as the
case may be, and (ii) any Governmental Entity, which non-franchise authority
reports, filings, consents, registrations, approvals, permits and
authorizations are noted with a double asterisk in Section 5.1(d) of the
Company Disclosure Letter, or with a double asterisk in Section 5.2(e) of
the Parent Disclosure Letter in connection with the execution and delivery
of this Agreement and the consummation of the Contribution shall have been
made or obtained, as the case may be. Notwithstanding the condition
precedent in the foregoing clause (i), in the event that consents, approvals
and authorizations are obtained with respect to at least 90% of the total
subscribers in the Contributed Systems and the Parent Systems, Parent may,
in its sole discretion, waive such condition, which shall then be deemed
satisfied and fulfilled, and CSC,
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Parent and the Company shall cooperate with each other and use all
reasonable best efforts to minimize any adverse effects that may result from
consummating the Contribution Closing without obtaining all consents,
approvals and authorizations from franchise authorities and in furtherance
thereof negotiate in good faith to implement, if necessary, a transaction
structure so that after the Contribution Closing the aggregate net economic
benefit of all of the Contributed Systems shall inure to the benefit of and
accrue to Parent with requisite control of necessary Contributed Systems
remaining with the Company or its Subsidiaries.
(iii) Other than as described in Section 7.2(b)(ii), all notices, reports
and filings required to be made prior to the Contribution Closing by CSC,
Parent or the Company or any of their respective Subsidiaries with, and all
other consents, registrations, approvals, permits and authorizations
required to be obtained prior to the Contribution Closing by CSC, Parent or
the Company or any of their respective Subsidiaries from, any Governmental
Entity in connection with the execution and delivery of this Agreement and
the consummation of the Contribution shall have been made or obtained (as
the case may be), except those that the failure to make or to obtain are
not, individually or in the aggregate, reasonably likely to have a Parent
Material Adverse Effect or a Contributed Systems Material Adverse Effect or
to provide a reasonable basis to conclude that the parties hereto or any of
their affiliates or respective directors, officers, agents, advisors or
other representatives would be subject to the risk of criminal liability.
(c) LITIGATION. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any Order that restrains, enjoins or otherwise prohibits consummation of the
Contribution, and no Governmental Entity shall have instituted any
proceeding seeking any such Order.
(d) MERGER. The Merger Closing shall be consummated contemporaneously
with the Contribution Closing.
(e) AMEX LISTING. The Parent Class A Shares issuable to the Company or
the relevant transferor(s) pursuant to the Contribution shall have been
authorized for listing on the AMEX upon official notice of issuance.
(f) STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall have been
executed and delivered by the parties thereto.
7.3. CONDITIONS TO OBLIGATIONS OF PARENT TO EFFECT CONTRIBUTION. The
obligations of Parent to effect the Contribution are subject to the satisfaction
or waiver by Parent at or prior to the Contribution Closing of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the date of the Contribution Closing as
though made on and as of the date of the Contribution Closing (except to the
extent any such representation or warranty expressly speaks as of an earlier
date), and Parent shall have received a certificate signed on behalf of the
Company by the President or any Vice President of the Company to such
effect; PROVIDED, HOWEVER, that notwithstanding anything herein to the
contrary, this Section 7.3(a) shall be deemed to have been satisfied even if
such representations or warranties are not so true and correct unless the
failure of such representations or warranties to be so true and correct,
individually or in the aggregate, has had, or is reasonably likely to have,
a Contributed Systems Material Adverse Effect or is reasonably likely to
prevent or to materially burden or materially impair the ability of the
Company to consummate the Contribution.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the date of the Contribution
Closing, and Parent shall have received a certificate signed on behalf of
the Company by the President or any Vice President of the Company to such
effect.
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(c) CONSENTS UNDER AGREEMENTS. (i) The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be
required in order to consummate the Contribution under any Contract that is
noted with a triple asterisk in Section 5.1(d) of the Company Disclosure
Letter.
(ii) Other than as described in Section 7.3(c)(i), the Company shall
have obtained the consent or approval of each Person whose consent or
approval shall be required in order to consummate the Contribution under any
other Contract to which the Contributed Entities, the Company or any of its
Subsidiaries is a party, except those for which the failure to obtain such
consent or approval, individually or in the aggregate, is not reasonably
likely to have a Contributed Systems Material Adverse Effect or is not
reasonably likely to prevent or to materially burden or materially impair
the ability of the Company to consummate the Contribution.
(d) LEGAL OPINION. Parent shall have received an opinion of Sherman &
Howard L.L.C., counsel to the Company, dated the date of the Contribution
Closing, in a form reasonably satisfactory to Parent.
(e) CONTRIBUTED SYSTEMS DELIVERIES. Parent shall have received:
(i) certificates (or, if partnership interests, such other
documents) representing all of the Contributed Subsidiary Capital
Stock, duly endorsed in blank for transfer or accompanied by stock
powers duly executed in blank, with signatures properly guaranteed
and with any requisite stock transfer and other documentary stamps
attached, and any other documents that are necessary to transfer to
Parent good title to all of the Contributed Subsidiary Capital Stock;
(ii) certificates representing all of shares of capital stock
for any Subsidiaries of the Contributed Subsidiaries; such special
warranty deeds, assignments of leasehold interests, bills of sale,
and other good and sufficient instruments of conveyance, transfer and
assignment as are necessary to vest in Parent in accordance herewith
the Acquired Assets in a form reasonably satisfactory to Parent;
(iii) all of the minute books and any corporate seals of the
Contributed Entities, true and complete up to the date of the
Contribution Closing;
(iv) copies of any consents or notices obtained or given in
connection with the consummation of the transactions contemplated by
this Agreement;
(v) such other instruments, filings or documents as may be
required by this Agreement to carry out the transfers of the Acquired
Assets as contemplated by this Agreement (other than transfers not to
occur pursuant to Section 3.6);
(vi) a certificate signed on behalf of the Company by the
President or any Vice President of the Company certifying the matters
described in Section 6.15(a), Section 6.17(a) and Section 6.17(d) in
a form reasonably satisfactory to Parent;
(vii) the supplements to the Company Disclosure Letter in
accordance with Section 6.17(e); and
(viii) a "long form good standing" or similar certificate or
telegram for each of the Contributed Subsidiaries (which shall
include the certificate of incorporation or similar document),
certified by the Secretary of State or similar authority of the
jurisdiction of organization for each such Person, each dated as of a
date that is not more than 10 business days prior to the date of the
Contribution Closing.
(f) RESIGNATIONS. Parent shall have received the resignations of each
director and officer of the Contributed Entities designated in writing by
Parent within one business day of the date of the Contribution Closing.
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(g) COMPANY RESTRUCTURING. All of the transactions contemplated by the
Company Restructuring shall have been consummated in all material respects
in accordance with Section 6.17(b).
7.4. CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT CONTRIBUTION. The
obligation of the Company to effect the Contribution is subject to the
satisfaction or waiver by the Company at or prior to Contribution Closing of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of CSC, Parent and Merger Sub set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the date of the Stock
Closing as though made on and as of the date of the Contribution Closing
(except to the extent any such representation and warranty expressly speaks
as of an earlier date) and the Company shall have received a certificate
signed on behalf of CSC, Parent and Merger Sub by the President or any
Vice-President of Parent to such effect; PROVIDED, HOWEVER, that
notwithstanding anything herein to the contrary, this Section 7.4(a) shall
be deemed to have been satisfied even if such representations or warranties
are not so true and correct unless the failure of such representations or
warranties to be so true and correct, individually or in the aggregate, has
had, or is reasonably likely to have, a Parent Material Adverse Effect or is
reasonably likely to prevent or to materially burden or materially impair
the ability of Parent to consummate the Contribution.
(b) PERFORMANCE OF OBLIGATIONS OF CSC, PARENT AND MERGER SUB. Each of
CSC, Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the date of the Contribution Closing, and the Company shall have received
a certificate signed on behalf of CSC, Parent and Merger Sub by the
President or any Vice President of Parent to such effect.
(c) CONSENTS UNDER AGREEMENTS. (i) Parent and CSC shall have obtained
the consent or approval of each Person whose consent or approval shall be
required in order to consummate the Contribution under any Contract that is
noted with a double asterisk in Section 5.2(e) of the Company Disclosure
Letter.
(ii) Other than as described in Section 7.4(c)(i), Parent and CSC shall
have obtained the consent or approval of each Person whose consent or
approval shall be required in order to consummate the Contribution under any
other Contract to which CSC or Parent or any of its Subsidiaries is a party,
except those for which failure to obtain such consents and approvals,
individually or in the aggregate, is not reasonably likely to have a Parent
Material Adverse Effect or is not reasonably likely to prevent or to
materially burden or materially impair the ability of CSC or Parent to
consummate the Contribution.
(d) LEGAL OPINION. The Company shall have received an opinion of
Sullivan & Cromwell, counsel to Parent, dated the date of the Contribution
Closing, in a form reasonably satisfactory to the Company.
(e) TAX OPINION. The Company shall have received the opinion of
Sherman & Howard L.L.C., counsel to the Company, dated the date of the
Contribution Closing, to the effect that the Contribution will be treated
for Federal income tax purposes as an exchange governed by Section 351 of
the Code.
(f) CASH FLOW RATIO. The Cash Flow Ratio (as defined in the
Stockholders Agreement) of Parent, on a pro forma basis after giving effect
to the Contribution, shall not be in excess of the Cash Flow Ratio Threshold
(as defined in the Stockholders Agreement).
(g) ASSUMPTION OF LIABILITIES. The Company shall have received the
Assumption Agreement executed by Parent giving effect to Parent's assumption
of the Assumed Liabilities.
A-46
<PAGE>
ARTICLE VIII
TERMINATION
8.1. TERMINATION BY MUTUAL CONSENT. All or any portion of this Agreement
may be terminated and any or all of the Transactions may be abandoned at any
time prior to their respective Closings, whether before or after the approval by
stockholders referred to in Section 7.1(a) and in Section 7.2(a), by mutual
written consent of the Company and CSC by action of their respective Boards of
Directors.
8.2. TERMINATION BY EITHER CSC OR THE COMPANY. CSC may by action of its
Board of Directors terminate this Agreement and the Company may by action of its
Board of Directors terminate its and TCI's obligations and rights under this
Agreement and the Transactions in the case of a termination by CSC and the
Contribution in the case of a termination by the Company may be abandoned at any
time prior to their respective Closings if (a) the Transactions in the case of
CSC or the Contribution in the case of the Company shall not have been
consummated by December 31, 1998 whether such date is before or after the date
of approval by the stockholders referred to in Section 7.1(a) and in Section
7.1(b)(the "TERMINATION DATE"), (b) the approval of the stockholders required by
Section 7.1(a) and by Section 7.2(a) shall not have been obtained at a
meeting(s) duly convened therefor or at any adjournment or postponement thereof
or,(c) any Order permanently restraining, enjoining or otherwise prohibiting
consummation of the Contribution in the case of the Company or any of the
Transactions in the case of CSC shall become final and non-appealable whether
before or after the approval by the stockholders set forth in Section 7.1(a) and
Section 7.2(a) or; PROVIDED, that the right to terminate any or all of this
Agreement pursuant to this Section 8.2 shall not be available to any party that
has breached (or to the Company in the event of TCI's breach) in any material
respect its obligations under this Agreement in any manner which breach shall
have proximately contributed to the occurrence of the failure of the
Transactions to be consummated.
8.3. TERMINATION BY THE COMPANY. The Company may by action of its Board of
Directors terminate its and TCI's obligations and rights under this Agreement
and the Contribution may be abandoned at any time prior to the Stock Closing,
whether before or after the approval by stockholders referred to in Section
7.1(a) and in Section 7.2(a), if there has been a material breach by CSC, Parent
or Merger Sub of any representation, warranty, covenant or agreement contained
in this Agreement that is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by the Company to the party
committing such breach or if any Class B Entity shall not execute and deliver to
the Company a signature page to the Voting Agreement within 20 days after the
date hereof.
8.4. TERMINATION BY CSC. This Agreement may be terminated and the
Transactions may be abandoned at any time prior to their respective Closings,
whether before or after the approval by the stockholders referred to in Section
7.1(a) and in Section 7.2(a), by action of the Board of Directors of CSC if
there has been a material breach by the Company of any representation, warranty,
covenant or agreement or by TCI of any covenant or agreement contained in this
Agreement that is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by Parent to the party committing such
breach.
8.5. EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and the abandonment of the Contribution pursuant to this Article
VIII, this Agreement (other than as set forth in Section 9.1) shall become void
and of no effect with no liability on the part of any party hereto (or of any of
its directors, officers, employees, agents, legal and financial advisors or
other representatives); PROVIDED, HOWEVER, no such termination shall relieve any
party hereto of any liability or damages resulting from any breach of this
Agreement.
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<PAGE>
ARTICLE IX
MISCELLANEOUS AND GENERAL
9.1. SURVIVAL. This Article IX, the agreements of the Company, TCI, CSC,
Parent and Merger Sub contained in Section 3.3 (Contribution), Section 3.4 (Net
Adjusted Working Capital Adjustment), Section 3.5 (Antidilution Adjustments),
Section 3.6 (Failure to Receive Third Party Consents), Section 6.1 (CSC Interim
Operations), Section 6.2 (Contributed Systems Interim Operations), Section 6.6
(Taxation), Section 6.8 (Certain Contracts), Section 6.9 (Stock Exchange Listing
and De-listing), Section 6.11 (Benefits; Board Representation; Employees),
Section 6.12 (Expenses), Section 6.13 (Indemnification; Directors and Officers'
Insurance) and Section 6.15 (Other Actions by the Parties) shall survive
consummation of any or all of the Transactions. This Article IX, the agreements
of the Company, TCI, CSC, Parent and Merger Sub contained in Section 6.12
(Expenses), Section 8.5 (Effect of Termination and Abandonment) and the
Confidentiality Agreement shall survive the termination of this Agreement in
accordance with its terms. All other representations, warranties, covenants and
agreements in this Agreement shall not survive the consummation of all of the
Transactions or the termination of this Agreement in accordance with its terms.
9.2. MODIFICATION OR AMENDMENT. Subject to the provisions of the
applicable law, at any time prior to the Effective Time with respect to the
Merger or the consummation of the Contribution Closing with respect to the
Contribution, the parties hereto may modify or amend any portion of this
Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties.
9.3. WAIVER OF CONDITIONS. The conditions to each of the parties'
obligations to consummate the Merger and the Contribution are for the sole
benefit of such party and may be waived by such party in whole or in part to the
extent permitted by applicable law.
9.4. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. (A) THIS AGREEMENT
SHALL BE DEEMED TO BE MADE UNDER, AND IN ALL RESPECTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH, THE LAW OF THE STATE OF
DELAWARE. The parties hereby irrevocably submit to the jurisdiction of the
courts of the State of Delaware and the Federal courts of the United States of
America located in the State of Delaware solely in respect of the interpretation
and enforcement of the provisions of this Agreement and of the documents
referred to in this Agreement, and in respect of the transactions contemplated
hereby, and hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this Agreement or any such document may
not be enforced in or by such courts, and the parties hereto irrevocably agree
that all claims with respect to such action or proceeding shall be heard and
determined in such a Delaware State or Federal court. The parties hereby consent
to and grant any such court jurisdiction over the person of such parties and
over the subject matter of such dispute and agree that mailing of process or
other papers in connection with any such action or proceeding in the manner
provided in Section 9.6 or in such other manner as may be permitted by law shall
be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
A-48
<PAGE>
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
9.6. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
IF TO CSC, PARENT OR MERGER SUB
One Media Crossways,
Woodbury, NY 11797.
Attention: General Counsel
fax: (516) 364-8501
(with a copy to Joseph B. Frumkin, Esq.,
Sullivan & Cromwell,
125 Broad Street, New York, NY 10004
fax: (212) 558-3588)
IF TO TCI OR THE COMPANY
5619 DTC Parkway
Englewood, Colorado 80111-3000
Attention: President
fax: (303) 488-3219
with a copy similarly addressed,
Attention: Legal Department
fax: (303) 488-3245
(with a copy to Charles Y. Tanabe, Esq.,
Sherman & Howard L.L.C.
Suite 3000
633 Seventeenth Street
Denver, Colorado 80202
fax: (303) 298-0940)
or to such other Persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. ENTIRE AGREEMENT; NO OTHER REPRESENTATIONS. This Agreement (including
any exhibits and schedules hereto), the Partnership Contribution Agreement, the
Voting Agreement, the Company Disclosure Letter, the Parent Disclosure Letter
and the Confidentiality Agreement, dated March 26, 1997, between CSC and the
Company (as amended, the "CONFIDENTIALITY AGREEMENT") constitute the entire
agreement, and supersede all other prior agreements, understandings,
indemnities, representations and warranties both written and oral, among the
parties, with respect to the subject matter hereof. EACH PARTY HERETO AGREES
THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT,
NEITHER PARENT AND MERGER SUB NOR THE COMPANY
A-49
<PAGE>
MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND EACH HEREBY DISCLAIMS ANY
OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS OR OTHER
REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE
TO THE OTHER OR THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER
INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
9.8. NO THIRD PARTY BENEFICIARIES. Except as provided in Section 6.13
(Indemnification; Directors' and Officers' Insurance), this Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
9.9. OBLIGATIONS OF CSC, PARENT, TCI AND THE COMPANY. Whenever this
Agreement requires a Subsidiary of CSC or Parent to take any action, such
requirement shall be deemed to include an undertaking on the part of CSC or
Parent to cause such Subsidiary (including, after the Effective Time, the
Surviving Corporation) to take such action. Whenever this Agreement requires a
Subsidiary of the Company or TCI to take any action, such requirement shall be
deemed to include an undertaking on the part of the Company and TCI to cause
such Subsidiary to take such action.
9.10. NEW YORK STATE AND CITY REAL PROPERTY TRANSFER TAX; OTHER TRANSFER
TAXES; HSR FEE. Any liability arising out of the New York State or City Real
Property Transfer Tax, in connection with the filing fees under the HSR Act
relating to the Contribution and in respect of any transfer or other similar
taxes relating to the transfer of the Contributed Subsidiary Capital Stock, the
Acquired Assets or Assumed Liabilities, if applicable and due, shall be borne by
Company, on the one hand, and CSC or Parent, on the other hand, in equal
one-half shares.
9.11. BULK TRANSFERS; FURTHER ASSURANCES. The parties hereto waive
compliance with the requirements of the Bulk Sales Law of any jurisdiction in
connection with the Contribution. The Company shall indemnify and hold harmless
Parent and its Subsidiaries against all liabilities which may be asserted by
third parties against Parent or any of its Subsidiaries, as a result of
noncompliance with the Bulk Sales Law of any jurisdiction. From time to time
after the Closing Date, upon the reasonable request of Parent or the Company,
the Company or Parent (as the case may be) shall execute and deliver or cause to
be executed and delivered such further instruments of conveyance, assignment and
transfer and take such further action in order to contribute, assign, convey,
transfer, assign and deliver and record title effectively to the Acquired Assets
and to evidence the assumption of the Assumed Liabilities.
9.12. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
9.13. INTERPRETATION. The table of contents, index and headings herein are
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section, Schedule or Exhibit,
such reference shall be to a Section of or Schedule or Exhibit to this Agreement
unless otherwise indicated. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
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<PAGE>
9.14. ASSIGNMENT. This Agreement shall not be assignable by operation of
law or otherwise; PROVIDED, HOWEVER, that (i) CSC may assign this Agreement in
connection with the Merger to the Surviving Corporation, in which event all
references herein to CSC shall be deemed references to the Surviving Corporation
except that all representations, warranties, covenants and agreements made
herein with respect to CSC shall be deemed to be made either by Parent or the
Surviving Corporation (each as a successor to CSC as the context may require),
(ii) Parent may designate, by written notice to the Company, another wholly
owned direct or indirect Subsidiary to be a Constituent Corporation in lieu of
Merger Sub, in which event all references herein to Merger Sub shall be deemed
references to such other Subsidiary except that all representations, warranties,
covenants and agreements made herein with respect to Merger Sub as of the date
of this Agreement shall be deemed to be made with respect to such other
Subsidiary as of the date of such designation and (iii) the Company may
designate, by written notice to CSC, one or more direct or indirect wholly owned
subsidiaries of the Company to make a contribution of all or part of the stock
of any Contributed Subsidiary to Parent, but such designation shall not affect
the liabilities or obligations of the Company under this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
TCI COMMUNICATIONS, INC.
BY: /S/ STEPHEN M. BRETT
------------------------------------------
Name: Stephen M. Brett
Title: Senior Vice President
CABLEVISION SYSTEMS CORPORATION
BY: /S/ WILLIAM J. BELL
------------------------------------------
Name: William J. Bell
Title: Vice Chairman
CSC PARENT CORPORATION
BY: /S/ WILLIAM J. BELL
------------------------------------------
Name: William J. Bell
Title: Vice Chairman
CSC MERGER CORPORATION
BY: /S/ WILLIAM J. BELL
------------------------------------------
Name: William J. Bell
Title: Vice Chairman
A-51
<PAGE>
AGREED WITH RESPECT TO THE
PARTICULAR SECTIONS
EXPRESSLY NOTED IN
ARTICLE VI AND ARTICLE IX:
<TABLE>
<S> <C> <C>
TELE-COMMUNICATIONS, INC.
BY: /S/ STEPHEN M. BRETT
------------------------------------------
Name: Stephen M. Brett
Title: Senior Vice President
</TABLE>
A-52
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------------------------- -----------
<S> <C>
1997 Budget.......................................................................................... 6.2
Acquired Assets...................................................................................... 3.3(c)
Adjusted Closing Balance Sheet....................................................................... 3.4(b)
Affiliates........................................................................................... 5.1(g)
Agreement............................................................................................ Preamble
AMEX................................................................................................. 5.2(e)
Asset Contributed Systems............................................................................ 3.3(c)
Assumed Company Debt................................................................................. 6.17(a)
Assumed Liabilities.................................................................................. 3.3(c)
Audit Date........................................................................................... 5.1(f)
Bankruptcy and Equity Exception...................................................................... 5.1(c)
By-Laws.............................................................................................. 2.2
Cable Franchise Agreements........................................................................... 5.1(x)
Certificate.......................................................................................... 4.1(a)
Certificate of Merger................................................................................ 1.3
Charter.............................................................................................. 2.1
CLI.................................................................................................. 5.1(x)
Closing Balance Sheet................................................................................ 3.4(a)
Closing Date......................................................................................... 1.2
Closings............................................................................................. 1.2
Code................................................................................................. Recitals
Communications Act................................................................................... 5.1(x)
Company.............................................................................................. Preamble
Company Disclosure Letter............................................................................ 5.1
Company Restructuring................................................................................ 6.17(b)
Company's Group...................................................................................... 5.1(l)
Company's Objection.................................................................................. 3.4(b)
Company Tax.......................................................................................... 5.1(l)
Company Tax Return................................................................................... 5.1(l)
Compensation and Benefit Plans....................................................................... 5.1(h)
Confidentiality Agreement............................................................................ 9.7
Constituent Corporations............................................................................. Preamble
Contracts............................................................................................ 5.1(d)
Contributed Accounts................................................................................. 3.3(c)
Contributed Contracts................................................................................ 3.3(c)
Contributed Entities................................................................................. 3.3(c)
Contributed Equipment................................................................................ 3.3(C)
Contributed Instruments.............................................................................. 3.3(c)
Contributed Intellectual Property.................................................................... 3.3(c)
Contributed Inventory................................................................................ 3.3(c)
Contributed Real Property............................................................................ 3.3(c)
Contributed Subsidiaries............................................................................. 3.3(c)
Contributed Subsidiary Capital Stock................................................................. 3.3(c)
Contributed System Entity; Contributed System Entities............................................... 3.3(c)
Contributed Systems.................................................................................. 3.3(c)
Contributed Systems Cable Franchise Agreements....................................................... 5.1(x)
Contributed Systems Leased Real Property............................................................. 5.1(s)
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------------------------- -----------
<S> <C>
Contributed Systems Leases........................................................................... 5.1(t)
Contributed Systems Material Adverse Effect.......................................................... 5.1(a)
Contributed Systems Permitted Liens.................................................................. 6.2(b)
Contributed Systems Real Property.................................................................... 5.1(s)
Contribution......................................................................................... Recitals
Contribution Closing................................................................................. 1.2
Costs................................................................................................ 6.13(a)
CPA Firm............................................................................................. 3.4(b)
CSC.................................................................................................. Preamble
CSC Audit Date....................................................................................... 5.2(f)
CSC Class A Shares................................................................................... 4.1(a)
CSC Class B Shares................................................................................... 4.1(a)
CSC Compensation and Benefit Plans................................................................... 5.2(i)
CSC Group............................................................................................ 5.2(l)
CSC Option........................................................................................... 6.11(a)
CSC Pension Plan..................................................................................... 5.2(i)
CSC Reports.......................................................................................... 5.2(f)
CSC Stock Plans...................................................................................... 5.2(c)
CSC Tax.............................................................................................. 5.2(l)
CSC Tax Return....................................................................................... 5.2(l)
Current Assets....................................................................................... 3.4(a)
D&O Indemnified Parties.............................................................................. 6.13(a)
D&O Insurance........................................................................................ 6.13(c)
DGCL................................................................................................. 1.1
Effective Time....................................................................................... 1.3
Employees............................................................................................ 5.1(h)
Environmental Law.................................................................................... 5.1(j)
ERISA................................................................................................ 5.1(h)
ERISA Affiliate...................................................................................... 5.1(h)
Exchange Act......................................................................................... 5.2(b)
Excluded Assets...................................................................................... 3.3(c)
Excluded Liabilities................................................................................. 3.3(c)
Excluded Shares...................................................................................... 4.1(a)
FCC.................................................................................................. 5.1(x)
Financial Statements................................................................................. 5.1(e)
Future Contributed Systems Entities.................................................................. 3.3(c)
Future Subsidiary.................................................................................... 3.3
GAAP................................................................................................. 3.4(a)
Governmental Entity.................................................................................. 5.1(d)
Hazardous Substance.................................................................................. 5.1(j)
Hired Employees...................................................................................... 6.11(c)
HSR Act.............................................................................................. 5.1(d)
Included Contributed Systems......................................................................... 3.3(c)
Indebtedness......................................................................................... 5.1(b)
Indemnified Parties.................................................................................. 6.15(e)
Intellectual Property Rights......................................................................... 5.1(v)
IRCA................................................................................................. 5.1(m)
IRS.................................................................................................. 5.1(h)
Issue Exceptions..................................................................................... 3.5
Laws................................................................................................. 5.1(i)
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------------------------- -----------
<S> <C>
Liabilities.......................................................................................... 3.4(a)
Lien................................................................................................. 3.3
Merger............................................................................................... Recitals
Merger Closing....................................................................................... 1.2
Merger Consideration................................................................................. 4.1(a)
Merger Sub........................................................................................... Preamble
Migrated Product Tiers............................................................................... 5.1(x)
Net Adjusted Working Capital......................................................................... 3.4(a)
Order................................................................................................ 7.1(d)
Original Agreement................................................................................... Recitals
Parent............................................................................................... Preamble
Parent Cable Franchise Agreements.................................................................... 5.2(t)
Parent Class A Shares................................................................................ 3.3(c)
Parent Class B Share................................................................................. 4.1(a)
Parent Common Stock.................................................................................. 4.1(a)
Parent Companies..................................................................................... 4.1(a)
Parent Disclosure Letter............................................................................. 5.2
Parent Material Adverse Effect....................................................................... 5.2(b)
Parent Requisite Votes............................................................................... 5.2(d)
Parent Systems....................................................................................... 5.2(t)
Partnership Contribution Agreement................................................................... Recitals
Pension Plan......................................................................................... 5.1(h)
Person............................................................................................... 3.3(c)
Pre-Existing Contamination........................................................................... 6.15(e)
Preferred Shares..................................................................................... 4.1(d)
Preferred Stock...................................................................................... 2.1
Prospectus/Proxy Statement........................................................................... 6.3
Proxy Financial Statements........................................................................... 6.5(e)
Real Property Laws................................................................................... 5.1(s)
Reorganization Agreement............................................................................. Recitals
Representatives...................................................................................... 6.7
S-4 Registration Statement........................................................................... 6.3
Series A Preferred Stock............................................................................. 2.1
Series B Preferred Stock............................................................................. 2.1
Share; Shares........................................................................................ 4.1(a)
Significant Subsidiaries............................................................................. 5.2(b)
Stock Consideration.................................................................................. 3.3(c)
Stockholders Agreement............................................................................... Recitals
Stockholders Meeting................................................................................. 6.4
Subsidiary........................................................................................... 5.1(a)
Surety Liabilities................................................................................... 5.1(b)
Surviving Corporation................................................................................ 1.1
Tax; Taxes; Taxable.................................................................................. 5.1(l)
TCI.................................................................................................. Recitals
Termination Date..................................................................................... 8.2
Transactions......................................................................................... 1.2
Voting Agreement..................................................................................... Recitals
Voting Debt.......................................................................................... 5.1(b)
WARN................................................................................................. 5.1(m)
Welfare Plans........................................................................................ 6.11(c)
</TABLE>
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<PAGE>
EXHIBIT A
(Terms of Reorganization Agreement)
Filed separately herewith as Appendix F to this Proxy Statement/Prospectus.
A-1
<PAGE>
EXHIBIT B
(Form of Stockholders Agreement)
File separately herewith as Appendix B to this Proxy Statement/Prospectus.
B-1
<PAGE>
SCHEDULE 3.3(II)
ASSET CONTRIBUTED SYSTEMS
<TABLE>
<CAPTION>
CONTRIBUTED SYSTEM PARENT CLASS A
ASSET CONTRIBUTED CONTRIBUTED SYSTEM ENTITIES ENTITIES AS OF THE SHARES TO BE
SYSTEM AS OF THE DATE HEREOF CLOSING DATE PAID*
- -------------------------- ------------------------------------ ----------------------------- -----------------
<S> <C> <C> <C>
Oakland, NJ system TCI of Northern New Jersey, Inc. TCI CSC II, Inc.
Franklin Lakes, NJ system UA-Columbia Cablevision of New TCI CSC II, Inc.
Jersey, Inc.
Brookhaven, NY system Brookhaven Cable TV, Inc. TCI CSC II, Inc.
Interest in Paterson, NJ TCI American Cable Holdings, L.P. TCI CSC III, Inc.
system
Interest in Paterson, NJ TCI American Cable Holdings, L.P. TCI CSC IV, Inc.
system
Interest in Paterson, NJ TCI American Cable Holdings, L.P. TCI CSC V, Inc.
system
Interest in Paterson, NJ TCI American Cable Holdings, L.P. TCI CSC VI, Inc.
system
Interest in Paterson, NJ TCI American Cable Holdings, L.P. TCI CSC VII, Inc.
system
Interest in Paterson, NJ TCI American Cable Holdings, L.P. TCI CSC VIII, Inc.
system
Interest in Paterson, NJ TCI American Cable Holdings, L.P. TCI CSC IX, Inc.
system
Interest in Paterson, NJ TCI American Cable Holdings, L.P. TCI CSC X, Inc.
system
Interest in Paterson, NJ TCI American Cable Holdings, L.P. TCI CSC XI, Inc.
system
</TABLE>
- ------------------------
* To be provided three business days before the Contribution Closing.
S-1
<PAGE>
SCHEDULE 3.3(XII)
<TABLE>
<CAPTION>
PARENT CLASS A
INCLUDED CONTRIBUTED SHARES TO BE
TRANSFEROR CONTRIBUTED SUBSIDIARY SYSTEM PAID*
- -------------------------- ------------------------------------ ----------------------------- -----------------
<S> <C> <C> <C>
Country Cable III, Inc. .1% partnership interest in TKR Elizabeth, NJ
Cable Company Hamilton (Del Val N), NJ
Tri-System, NJ
Morris, NJ
Ramapo, NJ
Rockland, NY
Warwick, NY
Country Cable III, Inc. 99.9% partnership interest in TKR Elizabeth, NJ
Cable Company Hamilton (Del Val N), NJ
Tri-System, NJ
Morris, NJ
Ramapo, NJ
Rockland, NY
Warwick, NY
Country Cable III, Inc. 52.05% partnership interest in None
KRC/CCC Investment Partnership
CCC Sub, Inc. 47.95% partnership interest in None
KRC/CCC Investment Partnership
TCI CSC II, Inc. 100% of the capital stock Westchester, NY
UA-Columbia Cablevision of
Westchester, Inc.
</TABLE>
- ------------------------
* To be provided three business days before the Contribution Closing.
S-2
<PAGE>
SCHEDULE 3.5
(Issue Exceptions)
1. Series C Cumulative Preferred Stock, par value $.01 per share, of CSC or
Parent, as outstanding as of the date hereof.
2. Any grant or exercise under or pursuant to the CSC Stock Plans or under or
pursuant to other grants made under employee, management or director plans
adopted after the date hereof that, when aggregated with those grants made
under the CSC Stock Plans, are consistent with CSC's past practices.
3. Conversion of CSC or Parent Class B Shares into CSC or Parent Class A
Shares.
S-3
<PAGE>
APPENDIX B
FORM OF STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is entered into as of
, 1998, by and among Cablevision Systems Corporation, a Delaware corporation
(including any successor pursuant to this Agreement, the "Parent"),
Tele-Communications, Inc., a Delaware corporation (including any successor
pursuant to this Agreement, the "Company"), and the Class B Entities (as defined
below).
WHEREAS, Parent, TCI Communications, Inc. and the Company have entered into
an Amended and Restated Contribution and Merger Agreement dated as of June 6,
1997 (the "Merger Agreement") providing for, among other things, the
Contribution and the Merger;
WHEREAS, the respective boards of directors of each of Parent and the
Company have approved this Agreement;
WHEREAS, upon consummation of the Transactions pursuant to the Merger
Agreement, the Company and the Class B Entities will Beneficially Own (as
defined below) Shares (as defined below) and the Class B Entities will
Beneficially Own in the aggregate Shares constituting a majority of the Total
Voting Power (as defined below);
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the consummation of the Contribution Closing; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements as provided in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. (a) Capitalized terms that are used but not
otherwise defined herein shall have the meanings given to them in the Merger
Agreement.
(b) For the purposes of this Agreement, the following terms shall have the
following meanings:
"Affiliate" and "Associate" when used with reference to any Person shall
have the meanings assigned to such terms in Rule 12b-2 of the Exchange Act as in
effect of the date hereof; PROVIDED, that Parent and its Subsidiaries and the
officers and directors of Parent and its Subsidiaries who are not Investor
Directors and who are not directors or officers of the Company or any of its
Subsidiaries shall not, solely as a result of holding such office of Parent or
any of its Subsidiaries, be deemed Affiliates or Associates of any Investor for
purposes of this Agreement.
"Acquisition Transaction" shall mean (i) any merger or other business
combination or reorganization transaction involving Parent or any of its
Subsidiaries or (ii) any transaction involving the acquisition of capital stock
or assets or assumption of liabilities of any Person by Parent or any of its
Subsidiaries the fair market value of which exceeds $5 million in the aggregate
and which is not made in the ordinary course of business.
"Annualized Operating Cash Flow" shall mean, as of any date, an amount equal
to Operating Cash Flow for the period of three complete consecutive calendar
months ending on or most recently prior to such date, multiplied by four.
A Person shall be deemed the "Beneficial Owner", and to have "Beneficial
Ownership" of, and to "Beneficially Own," any securities as to which such Person
is or may be deemed to be the beneficial owner pursuant to Rule 13d-3 and 13d-5
under the Exchange Act, as such rules are in effect on the date of this
Agreement, as well as any securities as to which such Person has the right to
become Beneficial Owner (whether such right is exercisable immediately or only
after the passage of time or the occurrence of conditions) pursuant to any
agreement, arrangement or understanding (other than customary agreements
B-1
<PAGE>
with and between underwriters and selling group members with respect to a BONA
FIDE public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise; PROVIDED, HOWEVER,
that no Person shall be deemed the "Beneficial Owner" or to have "Beneficial
Ownership" of, or to "Beneficially Own," any Shares solely by virtue of the
rights set forth in Sections 7, 8, 9 and 10; PROVIDED, FURTHER, that a Person
shall not be deemed the "Beneficial Owner", or to have "Beneficial Ownership"
of, or to "Beneficially Own", any Shares (i) solely because such Shares have
been tendered pursuant to a tender or exchange offer made by such Person, or any
of such Person's Affiliates or Associates, until such tendered Shares are
accepted for payment or exchange or (ii) solely because such Person, or any of
such Person's Affiliates or Associates, has or shares the power to vote or
direct the voting of such Shares pursuant to a revocable proxy given in response
to a public proxy or consent solicitation made pursuant to, and in accordance
with, the applicable rules and regulations under the Exchange Act, except if
such power (or the arrangements relating thereto) is then reportable under Item
6 of Schedule 13D under the Exchange Act (or any similar provision of a
comparable or successor report). For purposes of this Agreement, in determining
the percentage of the outstanding Shares with respect to which a Person is the
Beneficial Owner, all Shares as to which such Person is deemed the Beneficial
Owner shall be deemed outstanding.
"Board" shall mean the Board of Directors of Parent.
"Cash Flow Ratio" shall mean, as of any date, the ratio of (A) the sum of
(i) the aggregate principal amount of all Indebtedness of Parent and its
Indenture Restricted Subsidiaries plus (ii) the aggregate Redemption Amounts on
such date in respect of all outstanding preferred stock of Parent and any of its
Indenture Restricted Subsidiaries, to (B) Annualized Operating Cash Flow
determined as of the last day of the calendar month which precedes such date by
at least 10 business days.
"Cash Flow Ratio Threshold" shall mean 8.0 to 1.0 until and through December
31, 1998; 7.75 to 1.0 from January 1, 1999 until and through December 31, 1999;
and 7.5 to 1.0 after December 31, 1999.
"Change of Control" shall mean, with respect to the Investor or any Class B
Entity (other than any Class B Entity that is a natural person), any transaction
or series of transactions occurring after the date that such Person becomes
subject to this Agreement pursuant to which any Person becomes the Beneficial
Owner of Voting Securities of the Investor or such Class B Entity that have the
power to cast at least 50% of the votes entitled to be cast in elections of
directors (or similar officials) of the Investor or such Class B Entity, as the
case may be; PROVIDED, that if the Investor or Class B Entity is a trust, this
definition shall apply when any Person becomes the Beneficial Owner of interests
in such trust constituting at least 50% of the beneficial interest.
"Class B Entities" shall mean Charles F. Dolan, Charles F. Dolan 1997
Grantor Retained Annuity Trust, Dolan Descendants Trust, Dolan Progeny Trust,
Dolan Grandchildren Trust, Dolan Spouse Trust, DC Kathleen Trust, DC Deborah
Trust, DC Marianne Trust, DC Patrick Trust, DC Thomas Trust, DC James Trust, CFD
Trust No. 1, CFD Trust No. 2, CFD Trust No. 3, CFD Trust No. 4, CFD Trust No. 5,
CFD Trust No. 6 and CFD Trust No. 10.
"Closing Date" shall mean the date of the Contribution Closing.
"Competitor" shall mean a competitor of Parent or any of its Subsidiaries in
one or more of Parent's or any of its Subsidiaries' significant lines of
business.
"Controlled Subsidiary" shall mean, with respect to any Person, a Subsidiary
at least a majority of the Voting Securities and other equity interests of which
are owned, directly or indirectly, by such Person.
"Family Members" shall mean, with respect to any natural person, such
person's spouse, siblings, descendants and any spouse of such siblings and
descendants and descendants of such siblings, including for this purpose persons
in a step or adoptive relationship.
"Group" shall have the meaning assigned to such term in Rule 13d-5 under the
Exchange Act as in effect on the date hereof.
B-2
<PAGE>
"Holding Company Merger" shall mean any merger or other business combination
or reorganization transaction where the stockholders of Parent immediately prior
to such transaction will Beneficially Own in the aggregate 100% of the surviving
corporation's Voting Securities and other equity interests immediately following
such transaction in the same proportion as immediately prior to such transaction
subject only to any disproportionality resulting solely from any issuance of
Shares in the Partnership Contribution.
"Indebtedness" shall have the meaning set forth in the Indenture.
"Indenture" shall mean the Indenture dated as of November 1, 1995, between
CSC and The Bank of New York, as Trustee, as in effect on the date of the Merger
Agreement and without regard to whether such Indenture shall be in effect or
amended in any respect.
"Indenture Restricted Subsidiary" shall mean "Restricted Subsidiary" as
defined in the Indenture as applied to Parent as opposed to CSC.
"Investor" shall mean the Company or any Permitted Transferee that may from
time to time become a party as the Investor to a counterpart of this Agreement.
"Minority Shares" shall mean the Voting Securities of Parent that are
Beneficially Owned by Minority Stockholders.
"Minority Stockholders" shall mean the Beneficial Owners of Voting
Securities of Parent who (i) are not the Investor or a Class B Entity, or
Affiliates or Associates of the Investor or a Class B Entity, and (ii) are not
members of a Group of which the Investor or a Class B Entity, or Affiliates or
Associates of the Investor or a Class B Entity, are members with respect to
Voting Securities of Parent.
"Operating Cash Flow" shall mean, for any period, "Operating Cash Flow" as
defined in the Indenture as applied to Parent and its Indenture Restricted
Subsidiaries on a consolidated basis.
"Outstanding Share Capital" shall mean, from time to time, the issued and
outstanding Shares, excluding any treasury Shares.
"Parent Share Issuance Commitments" shall mean those commitments to issue
Shares set forth in Schedule 1.
"Permitted Transferee" shall mean a permitted transferee under Section 6(a)
or Section 6(h).
"Qualified Parties" shall mean, with respect to any Person, any (i) trust
described in Section 664 of the Code or other trust of which the Person or
Family Members or Qualified Parties of the Person are greater than 50% income
beneficiaries, (ii) charitable organization described in Section 501(c)(3) of
the Code, (iii) with respect to any Class B Entity that is a natural person,
estate of such natural person and (iv) Family Members of any Person that is a
natural person.
"Redemption Amounts" shall mean the sum of all amounts payable (whether or
not then due) by Parent or any of its Indenture Restricted Subsidiaries (or
principal amount of indebtedness issuable by Parent or any of its Indenture
Restricted Subsidiaries) in respect of any preferred stock of Parent or any of
its Indenture Restricted Subsidiaries which is by its terms at any time required
to be redeemed, purchased or otherwise retired or extinguished (other than by
delivery of common stock or of preferred stock of Parent or its Indenture
Restricted Subsidiaries), or which by its terms is convertible into any
Indebtedness of Parent or any Indenture Restricted Subsidiary at a fixed or
determinable date, at the option of any Person other than Parent or such
Indenture Restricted Subsidiary or upon the occurrence of a condition not solely
within the control of Parent or such Indenture Restricted Subsidiary, or which
by its terms is convertible into preferred stock of Parent or any of its
Indenture Restricted Subsidiaries that can be so redeemed, retired, extinguished
or converted.
"Restricted Subsidiary" shall mean any Significant Subsidiary of Parent
other than Madison Square Garden L.P.
B-3
<PAGE>
"Shares" shall mean the Parent Class A Shares and Parent Class B Shares and
any other shares of common stock of Parent.
"Special Committee" shall mean the committee of directors of the Board
formed pursuant to Article II, Section 9 of the By-laws of Parent.*
"Special Directors" shall mean those directors of the Board who are members
of the Special Committee.
"Subsidiary" shall mean, with respect to any Person, any entity at least 50%
of the Voting Securities of which are owned directly or indirectly by such
Person.
"Total Voting Power" shall mean the aggregate votes that are entitled to be
cast by all Shares, calculated with respect to any Person in accordance with
Rule 13d-3(d)(1)(i) under the Exchange Act.
"Transfer" shall mean (i) any direct or indirect sale, transfer, assignment,
pledge, hypothecation, mortgage, or other disposition or encumbrance, including
those by operation or succession of law, merger or otherwise, and (ii) with
respect to any Shares that are Beneficially Owned by the Investor, any Change of
Control of such Investor where, at the time immediately following such Change of
Control, the fair market value of such Shares represents more than 20% of the
fair market value of all assets of such Investor and (iii) with respect to any
Shares that are Beneficially Owned by any Class B Entity, any Change of Control
of such Class B Entity.
"Ultimate Parent Entity" shall mean, with respect to any Person that is a
Subsidiary of a Person, the Person that, directly or indirectly, Beneficially
Owns at least 50% of the Voting Securities of such Subsidiary and is not a
Subsidiary of any Person who is not a natural person.
"Voting Securities" shall mean any securities entitled to vote in the
ordinary course in the election of directors or of Persons serving in a similar
governing capacity of any partnership, limited liability company or other
entity, including the voting rights attached to such securities.
(c) For the purposes of this Agreement, the following terms shall have the
meanings assigned to them in the corresponding Sections of this Agreement
(whether or not such Sections have been terminated):
<TABLE>
<CAPTION>
TERM SECTION
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Agreement......................................................................... Recitals
Company........................................................................... Recitals
Demand Registration............................................................... Annex A
Drag-Along Transaction............................................................ 8(b)
Investor Directors................................................................ 11(a)
Investor Proposal Notice.......................................................... 9(a)
Merger Agreement.................................................................. Recitals
Parent............................................................................ Recitals
Piggy-back Registration........................................................... Annex A
Proposal Notice................................................................... 7(a)
Tag-Along Transaction............................................................. 8(a)
Transfer Transaction.............................................................. 7(a)
</TABLE>
2. REPRESENTATIONS OF THE COMPANY. As of the date hereof, the Company
represents and warrants to Parent and to each of the Class B Entities that:
(a) other than those Voting Securities of CSC or Shares issued in
exchange thereof in the Merger disclosed to Parent prior to the Contribution
Closing, the Company does not Beneficially Own any
- ------------------------
* S&C will draft a new Parent By-law providing for a four-member committee for
Class B Entity transactions and transactions with Family Members of Class B
Entities with Parent (excluding compensation): two Class A Directors and,
under this Agreement, two Investor Directors.
B-4
<PAGE>
Shares other than those Shares issued in connection with the Contribution at
the Contribution Closing;
(b) the Company has all requisite corporate power and authority and has
taken all corporate action necessary in order to execute and deliver this
Agreement;
(c) this Agreement has been duly executed and delivered by the Company
and is a valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, subject to the Bankruptcy and Equity
Exception;
(d) no notices, reports or other filings are required to be made by the
Company with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Company from, any Governmental
Entity, in connection with the execution and delivery of this Agreement by
the Company, except those that have been made or obtained or that the
failure to make or obtain are not, individually or in the aggregate,
reasonably likely to prevent, materially delay or materially impair the
ability of the Company to consummate the transactions contemplated by this
Agreement; and
(e) the execution, delivery and performance of this Agreement by the
Company do not, and the consummation by the Company of the transactions
contemplated hereby will not, constitute or result in (i) a breach or
violation of, or a default under, the certificate of incorporation or
by-laws of the Company, (ii) a breach of or violation of or a default under,
or the acceleration of any obligations of or the creation of a Lien on the
assets of the Company (with or without notice, lapse of time or both)
pursuant to, any Contracts binding upon the Company or any Law or
governmental or non-governmental permit or license to which the Company is
subject or (iii) any change in the rights or obligations of any party under
any of such Contracts to which the Company is a party, except, in the case
of clause (ii) or (iii) above, for any breach, violation, default,
acceleration, creation or change that, individually or in the aggregate, is
not reasonably likely to prevent, materially delay or materially impair the
ability of the Company to consummate the transactions contemplated by this
Agreement.
3. REPRESENTATIONS OF THE CLASS B ENTITIES. As of the date hereof, the
Class B Entities each severally represents and warrants to the Company and to
Parent that:
(a) such Class B Entity Beneficially Owns such Shares as set forth
opposite its name in Schedule 3 hereto;
(b) such Class B Entity has all requisite power and authority (corporate
or otherwise) and has taken all action (corporate or otherwise) necessary in
order to execute and deliver this Agreement;
(c) this Agreement has been duly executed and delivered by such Class B
Entity and is a valid and binding agreement of such Class B Entity
enforceable against it in accordance with its terms, subject to the
Bankruptcy and Equity Exception;
(d) no notices, reports or other filings are required to be made by such
Class B Entity with, nor are any consents, registrations, approvals, permits
or authorizations required to be obtained by such Class B Entity from, any
Governmental Entity, in connection with the execution and delivery of this
Agreement by such Class B Entity, except those that have been made or
obtained or that the failure to make or obtain are not, individually or in
the aggregate, reasonably likely to prevent, materially delay or materially
impair the ability of such Class B Entity to consummate the transactions
contemplated by this Agreement; and
(e) the execution, delivery and performance of this Agreement by such
Class B Entity does not, and the consummation by such Class B Entity of the
transactions contemplated hereby will not, constitute or result in (i) a
breach or violation of, or a default under, the certificate of incorporation
or by-laws of such Class B Entity or any of its comparable governing
instruments, (ii) a breach of or violation of or a default under, or the
acceleration of any obligations of or the creation of a Lien on the assets
of such Class B Entity (with or without notice, lapse of time or both)
pursuant to, any Contracts binding upon such Class B Entity or any Law or
governmental or non-governmental permit
B-5
<PAGE>
or license to which such Class B Entity is subject or (iii) any change in
the rights or obligations of any party under any of such Contracts to which
such Class B Entity is a party, except, in the case of clause (ii) or (iii)
above, for (x) Contracts, Laws, permits and licenses also binding upon CSC
or to which CSC or its business also is subject and (y) any breach,
violation, default, acceleration, creation or change that, individually or
in the aggregate, is not reasonably likely to prevent, materially delay or
materially impair the ability of such Class B Entity to consummate the
transactions contemplated by this Agreement.
4. REPRESENTATIONS OF PARENT. As of the date hereof, Parent represents and
warrants to the Company and the Class B Entities that:
(a) Parent has all requisite corporate power and authority and has taken
all corporate action necessary in order to execute and deliver this
Agreement;
(b) this Agreement has been duly executed and delivered by Parent and is
a valid and binding agreement of Parent enforceable against Parent in
accordance with its terms, subject to the Bankruptcy and Equity Exception;
(c) no notices, reports or other filings are required to be made by
Parent with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Parent from, any Governmental
Entity, in connection with the execution and delivery of this Agreement by
Parent, except those that have been made or obtained or that the failure to
make or obtain are not, individually or in the aggregate, reasonably likely
to prevent, materially delay or materially impair the ability of Parent to
consummate the transactions contemplated by this Agreement; and
(d) the execution, delivery and performance of this Agreement by Parent
do not, and the consummation by Parent of the transactions contemplated
hereby will not, constitute or result in (i) a breach or violation of, or a
default under, the certificate of incorporation or by-laws of Parent, (ii) a
breach of or violation of or a default under, or the acceleration of any
obligations of or the creation of a Lien on the assets of Parent (with or
without notice, lapse of time or both) pursuant to, any Contracts binding
upon Parent or any Law or governmental or non-governmental permit or license
to which Parent is subject or (iii) any change in the rights or obligations
of any party under any of such Contracts to which Parent is a party, except,
in the case of clause (ii) or (iii) above, for any breach, violation,
default, acceleration, creation or change that, individually or in the
aggregate, is not reasonably likely to prevent, materially delay or
materially impair the ability of Parent to consummate the transactions
contemplated by this Agreement.
5. STANDSTILL PROVISIONS. The Investor shall not, and shall not suffer or
permit any Subsidiaries of the Investor to or, to the extent the Investor
possesses the power to prevent, permit any Affiliates or Associates of the
Investor to (and shall use all reasonable best efforts to cause such Affiliates
and Associates not to), whether acting alone or in concert with others:
(a) form, join or participate in, or encourage the formation of, a Group
with respect to any Shares, other than a Group consisting solely of the
Investor, or Affiliates or Associates of the Investor, of Class B Entities
or of Qualified Parties of Class B Entities or the Investor;
(b) deposit any Shares into a voting trust or (except as provided in
this Agreement) subject any such Shares to any arrangement or agreement with
respect to the voting or Transfer thereof, other than any such trust,
arrangement or agreement (i) the only parties to, or beneficiaries of which,
are the Investor or any Controlled Subsidiaries of the Investor, any of the
Class B Entities, Parent or any Qualified Parties of the Investor or any of
the Class B Entities and (ii) the terms of which prohibit any party thereto
from acting in a manner inconsistent with this Agreement; PROVIDED, that all
of the Shares deposited into any such trust or subjected to any such
arrangement or agreement shall be deemed to be Beneficially Owned by the
Investor or Affiliates or Associates of the Investor for all purposes of
this Agreement;
B-6
<PAGE>
(c) (i) except for Shares acquired in the Stock Contribution or upon
exercise of the Investor's rights set forth in Section 7 or 10, purchase or
otherwise acquire Beneficial Ownership of or otherwise Beneficially Own any
Voting Securities of Parent such that the Investor, together with the
Affiliates of the Investor, will Beneficially Own 10% or more of the Parent
Class A Shares (it being understood and agreed that any Shares acquired and
from time to time Beneficially Owned by the Investor and its Affiliates as a
result of the ownership of the Voting Securities of CSC and the exchange
thereof in the Merger as disclosed to Parent pursuant to Section Z(a) shall
be included and count toward such 10% threshold), or (ii) at any time
purchase or otherwise acquire any Shares in violation of Regulation M under
the Exchange Act (or any successor provision) and the policies of the SEC
promulgated thereunder;
(d) effect or agree to effect any reduction in its equity interest in
Parent for up to 180 days following delivery by Parent of a written notice
that Parent is proposing to consummate a business combination to be
accounted for as a pooling of interests; PROVIDED, that this restriction
shall terminate if Parent has not consummated such business combination
within 90 days of the date of such written notice and PROVIDED, FURTHER,
that this restriction shall be inapplicable to the extent any reduction
would not adversely affect the accounting treatment of such business
combination as a pooling of interests; or
(e) advise, assist (including by knowingly providing or arranging
financing for that purpose) or knowingly encourage, induce or attempt to
encourage or induce any other Person to take any actions referred to in the
foregoing paragraphs (a) through (d).
6. SHARE TRANSFERS. The Investor shall not Transfer, in any single
transaction or group of related transactions, any Shares that are Beneficially
Owned by the Investor, except for a Transfer in connection with a Holding
Company Merger or pursuant to Section 8 or for a Transfer that complies with any
of the following subsections:
(a) a Transfer (i) of all (but not less than all) of such Shares to any
Controlled Subsidiary of the Company or (ii) of all or any of such Shares to
a Subsidiary all of the Voting Securities and all of the equity securities
(other than preferred stock held by institutional or public investors) of
which are Beneficially Owned, directly or indirectly, by the Company;
PROVIDED, that contemporaneously with any such Transfer such Controlled
Subsidiary or wholly owned Subsidiary, as the case may be, becomes a party
to a counterpart of this Agreement and the Investor and the Company
guarantee the performance of all obligations of such Controlled Subsidiary
or wholly owned Subsidiary, as the case may be, under this Agreement;
PROVIDED, FURTHER, that such Controlled Subsidiary or wholly owned
Subsidiary, as the case may be, and the Company shall prior to such Transfer
covenant and agree with Parent and the Class B Entities that, for so long as
the Controlled Subsidiary or wholly owned Subsidiary, as the case may be,
Beneficially Owns such Shares, it shall continue to be a Controlled
Subsidiary or wholly owned Subsidiary, as the case may be, of the Company;
(b) a Transfer of all or any of such Shares to any Person such that such
Person, together with the Affiliates and Associates of such Person, will not
Beneficially Own, after giving effect to such Transfer, Voting Securities of
Parent constituting 10% or more of the outstanding Parent Class A Shares or
Shares constituting 5% or more of the Outstanding Share Capital; PROVIDED,
that the Investor shall not, and shall not suffer or permit any Subsidiaries
of the Investor to or, to the extent the Investor has the power to prevent,
permit any Affiliates or Associates of the Investor to (and shall use all
reasonable best efforts to cause such Affiliates and Associates not to), in
any case, form, join or participate in or encourage the formation of a Group
with such Person or any Affiliates or Associates of such Person;
(c) a sale of all or any of such Shares to any Person that is conducted
publicly through one or more registered broker-dealers over the AMEX or such
other stock exchange or interdealer quotation service where Parent Class A
Shares may be listed or quoted pursuant to which the sale of such Shares
B-7
<PAGE>
will be in a manner to effect a broad distribution, with such distribution
certified to Parent by the lead broker-dealer in any such sale;
(d) a Transfer of all or any of such Shares to underwriters in
connection with an underwritten public offering of such Shares on a firm
commitment basis registered under the Securities Act pursuant to which the
sale of such Shares will be in a manner to effect a broad distribution, with
such distribution certified to Parent by the lead or managing underwriter or
underwriters in any such offering;
(e) a Transfer of all or any of such Shares to Parent or any Controlled
Subsidiary of Parent;
(f) for so long as the Parent Class B Shares are entitled in accordance
with their terms to elect 75% of the Board, a Transfer of all or any of such
Shares to any Class B Entity;
(g) a Transfer of all or any of such Shares in a BONA FIDE pledge of
such Shares to a financial institution to secure borrowings as permitted by
applicable Law; PROVIDED, that contemporaneously with such pledge such
financial institution agrees with Parent that upon any foreclosure on such
pledge it shall be bound by the obligations of the Company and the Investor
under this Agreement (but shall not have any of the rights of the Company
and the Investor under this Agreement except as provided in this Section and
in Sections 11, 14(c), 15 and 16 pursuant to an assignment effected in
accordance with the terms hereof); or
(h) a Transfer of all (but not less than all) of such Shares to any
Person after complying with all of the provisions set forth in Section 9;
PROVIDED, that contemporaneously with such Transfer (i) such Person becomes
a party to a counterpart of this Agreement as the Investor (whereupon,
subject to Section 16(f), any reference to the Investor herein shall be
deemed to be a reference to such Person), (ii) if such Person is a
Subsidiary of any other Person that is not a natural person, the Ultimate
Parent Entity of such Person shall also become a party to a counterpart of
this Agreement and assume all obligations of the Company hereunder
(whereupon, subject to Section 16(f), any reference to the Company herein
shall be deemed to be a reference to such Ultimate Parent Entity) and (iii)
such Person causes to be delivered to Parent a legal opinion of counsel of
national standing, in form and substance reasonably acceptable to Parent, to
the effect set forth in Sections 2(b) and 2(c).
7. THE COMPANY'S RIGHT OF CONSULTATION WITH PARENT AND THE CLASS B
ENTITIES. The Company, Parent and the Class B Entities hereby agree with each
other that, until the date that the Investor ceases to be entitled to nominate
two Investor Directors pursuant to Section 11(a) or, if earlier and at such time
the Investor does not Beneficially Own at least 33% of the Outstanding Share
Capital or such lesser percentage that results solely from any dilution for
issuances for which no preemptive rights under Section 10 are given to the
Investor, ten years from the date hereof, the Company, Parent and the Class B
Entities shall be entitled to the respective rights and be subject to the
respective obligations set forth in this Section:
(a) NOTICE. Prior to (i) the Class B Entities effecting a Transfer
(other than in a BONA FIDE pledge or grant of security interest to a
financial institution to secure borrowings) of Shares to any Person (other
than any Class B Entity or any Qualified Parties or Controlled Subsidiaries
of any Class B Entities) in any transaction or series of transactions
pursuant to which there is a Transfer of Shares that would constitute at
least 10% of the Total Voting Power, (ii) Parent or its Subsidiaries
effecting a Transfer (other than in a BONA FIDE pledge or grant of security
interest to a financial institution to secure borrowings) of Beneficial
Ownership of capital stock or other equity interests in any Restricted
Subsidiary other than to Parent or to a Controlled Subsidiary or
stockholders of Parent or (iii) Parent or its Subsidiaries effecting a
Transfer (other than in a bona fide pledge or grant of security interest to
a financial institution to secure borrowings) of a substantial portion of
the assets of Parent or any Restricted Subsidiary other than to Parent or to
a Controlled Subsidiary of Parent (collectively, a "Transfer Transaction"),
Parent or the Class B Entity desiring to make such a Transfer shall first
notify the Company in writing (a "Proposal Notice") of the possibility of
such a transaction and the number of and a description of the interests
contemplated to be Transferred.
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(b) CONSULTATION. Following the Company's receipt of the Proposal
Notice, Parent or the Class B Entity sending the notice shall discuss with
the Company the possibility of effecting a Transfer Transaction with the
Company. If the Company wishes to pursue such a transaction and is capable
of completing a Transfer Transaction, then, for a period of 30 days after
the Company's receipt of the Proposal Notice (or such shorter period if the
Company responds in writing that it is not interested in pursuing such a
transaction), Parent or the Class B Entity shall negotiate in good faith and
exclusively with the Company to determine whether it is possible to agree to
a Transfer Transaction with the Company but shall not be obligated to enter
into any agreement with the Company to do so. Parent or the Class B Entity
shall be free to negotiate and to initiate and hold discussions with other
potential purchasers at any time before the Proposal Notice or after the
expiration of such 30-day or shorter period and may agree to enter into a
Transfer Transaction at any time after the expiration of such 30-day or
shorter period even if such Transfer Transaction has a lower value to Parent
or the Class B Entity than any transaction proposed by the Company. The
Company agrees to keep confidential the fact that Parent or a Class B Entity
is considering effecting a Transfer Transaction, the possible terms thereof
and any confidential information obtained by the Company in pursuing
negotiations contemplated by this Section or otherwise obtained from Parent
or any of the Class B Entities or their respective representatives.
8. THE INVESTOR'S TAG-ALONG RIGHTS; THE CLASS B ENTITIES' DRAG-ALONG
RIGHTS. The Company and the Class B Entities hereby agree with each other that,
for so long as the Parent Class B Shares are entitled in accordance with their
terms to elect 75% of the Board or until this Section 8 terminates as provided
in Section 16(f), the Company and the Class B Entities shall be entitled to the
respective rights and subject to the respective obligations set forth in this
Section:
(a) TAG-ALONG. If any Class B Entity proposes to Transfer any Shares
Beneficially Owned by it to any Person (other than any Class B Entity or any
Qualified Parties or Controlled Subsidiaries of any Class B Entities) in a
transaction or series of transactions pursuant to which such Person,
together with Affiliates and Associates of such Person (excluding from such
Affiliates or Associates any Class B Entity or any Qualified Parties or
Controlled Subsidiaries of any Class B Entities) (a "Tag-Along
Transaction"), would become the Beneficial Owner of Voting Securities of
Parent that have the power to cast at least 50% of the votes entitled to be
cast in elections of directors of Parent, the Investor shall be given the
opportunity and shall have the right to Transfer such number (but no less or
more than such number) of the Shares then Beneficially Owned by the Investor
that is the same in proportion to the total number of Shares that are
Beneficially Owned by the Investor as the proportion of the number of Shares
being or to be Transferred by the Class B Entities concurrently to such
Person in the transaction or series of transactions constituting the
Tag-Along Transaction to the total number of Shares that are Beneficially
Owned by all of the Class B Entities on terms (including the form and amount
of, and the time of receipt of, consideration therefor) and conditions
identical in all material respects to those applicable to such Class B
Entity in connection with such Transfer. Any such Class B Entity shall give
written notice to the Investor setting forth in detail the material terms
and conditions of the applicable proposed Transfer, and the Investor shall
have at least ten business days after such notice is given within which to
exercise its rights contained in this Section by written notice thereof
given to such Class B Entity (it being understood and agreed that, if no
such notice is received by such Class B Entity within such period, the
Investor shall be deemed to have elected not to have exercised its rights
under this Section). Any such notice shall constitute an irrevocable offer
by the Investor to sell to such Person such Shares on the terms and
conditions received by any such Class B Entity in connection with such
Transfer.
(b) DRAG-ALONG. If the Investor does not exercise the rights set forth
in the foregoing paragraph (a), then any Class B Entity that is Transferring
Shares to a Person (other than any Class B Entity or any Qualified Parties
or Controlled Subsidiaries of a Class B Entity or any Person that before
entering into the definitive documentation relating to such Transfer was an
Associate or
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Affiliate of any Class B Entity or of a Qualified Party of a Class B Entity)
in a transaction or series of transactions pursuant to which such Person,
together with Affiliates and Associates of such Person (excluding from such
Affiliates or Associates any Class B Entity or any Qualified Parties or
Controlled Subsidiaries of any Class B Entities) (a "Drag-Along
Transaction"), would become the Beneficial Owner of Voting Securities of
Parent that have the power to cast at least 50% of the votes entitled to be
cast in elections of directors of Parent may give written notice to the
Investor during the period expiring on the close of business on the tenth
business day following the expiration of the five business day period set
forth in the foregoing paragraph (a) requiring the Investor to Transfer such
number (but no less or more than such number) of the Shares then
Beneficially Owned by the Investor that is the same in proportion to the
total number of Shares that are Beneficially Owned by the Investor as the
proportion of the number of Shares being or to be Transferred by the Class B
Entities concurrently to such Person in the transaction or series of
transactions constituting the Drag-Along Transaction to the number of Shares
that are Beneficially Owned by the Class B Entities on terms (including the
form and amount of, and the time of receipt of, consideration therefor) and
conditions no less favorable in all material respects to those applicable to
such Class B Entity (and its Affiliates and Associates) in connection with
such Transfer.
(c) PARITY; CLOSING. The terms on which the applicable Class B Entity
actually Transfers its Shares shall not be materially more favorable to the
Class B Entity (and its Affiliates, Associates and Qualified Parties), and
include no more cash, than the terms set forth in the notice given by it
pursuant to the foregoing paragraph (a). The Investor shall give the same
representations, warranties, covenants and agreements as are given by the
Class B Entity in connection with any Transfer pursuant to this Section, but
only insofar as they relate to the Investor's ownership of Shares or are
representations and warranties to the effect set forth in Section 2, and
shall take all such actions as may be necessary to permit such Transfer to
lawfully occur. The closing of the purchase and sale of the Investor's
Shares by any Person pursuant to this Section shall, to the extent legally
practicable, take place at the same time and place as the closing of the
Transfer by any such Class B Entity giving rise to the tag-along rights and
drag-along rights set forth in this Section. At such closing, (i) the
Investor shall deliver to such Person certificates representing the Shares
being sold, free and clear of any Lien (and the Investor hereby represents
and warrants to the Class B Entities and shall represent and warrant to such
Person that such Shares shall, immediately prior to such sale, be so free
and clear), (ii) such Person shall deliver to the Investor the consideration
to be paid for such Shares in accordance with the terms of the purchase and
sale of such Shares and (iii) the Investor shall execute such other
documents and take such other action as shall be reasonably necessary to
consummate the purchase and sale of such Shares; PROVIDED, that if the
Investor is required to Transfer Shares pursuant to a Class B Entity's
exercise of its drag-along rights, the Investor shall not be required to
enter into any noncompete or other agreement that in any material respect
restricts or has an adverse effect on the business or operations of the
Investor or any of its Affiliates.
9. PARENT'S RIGHT OF CONSULTATION WITH THE INVESTOR. The Company and
Parent hereby agree with each other that the Company and Parent shall be
entitled to the respective rights and subject to the respective obligations set
forth in this Section:
(a) NOTICE. If at any time the Investor desires to Transfer in a
transaction or series of transactions any Shares to any other Person
pursuant to Section 6(h), the Investor shall first notify Parent in writing
(an "Investor Proposal Notice") of the possibility of such a transaction,
the number of Shares proposed to be Transferred and the aggregate number of
and a description of the Shares that are Beneficially Owned by the Investor.
(b) CONSULTATION. Following Parent's receipt of an Investor Proposal
Notice the Investor shall discuss with Parent the possibility of effecting
such a transaction with Parent. If Parent wishes to pursue such a
transaction and is capable of completing such a transaction, then, for a
period of 30 days after Parent's receipt of the Investor Proposal Notice (or
such shorter period if Parent responds in
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writing that it is not interested in pursuing such a transaction), the
Investor shall negotiate in good faith and exclusively with Parent to
determine whether it is possible to agree to such a transaction with Parent
but shall not be obligated to enter into any agreement with Parent to do so.
The Investor shall be free to negotiate and to initiate and hold discussions
with other potential purchasers at any time before the Investor Proposal
Notice or after the expiration of such 30-day or shorter period and may
agree to enter into such a transaction at any time after the expiration of
such 30-day or shorter period even if such transaction has a lower value to
the Investor than any transaction proposed by Parent. Parent agrees to keep
confidential the fact that the Investor is considering effecting such a
transaction, the possible terms thereof and any confidential information
obtained by Parent in pursuing negotiations contemplated by this Section.
10. THE INVESTOR'S PREEMPTIVE RIGHTS. The Company and Parent hereby agree
with each other that the Investor and Parent shall be entitled to the respective
rights and subject to the respective obligations set forth in this Section:
(a) NOTICE; EXERCISE; CLOSING. If Parent proposes to issue, grant or
sell Shares, Parent shall give to the Investor a written notice setting
forth in reasonable detail the per share consideration (including, in the
case of any convertible or derivative security, the issue consideration pro
rated per Share for such security) and other terms on which such Shares are
proposed to be issued, granted or sold and the amount thereof proposed to be
issued, granted or sold. The Investor shall thereafter have the preemptive
right, exercisable by notice to Parent no later than 15 days after Parent's
notice is given, to purchase up to such number of Parent Class A Shares so
that, after giving effect to such issuance, grant or sale and the preemptive
subscription by the Investor, the Investor, together with its Affiliates and
Associates, will Beneficially Own in the aggregate the same proportion of
the Outstanding Share Capital as Beneficially Owned as of the date of
Parent's notice, for the consideration in cash and on the other terms set
forth in Parent's notice. Any written notice by the Investor exercising the
right to purchase Shares pursuant to this Section shall constitute an
irrevocable commitment to purchase from Parent the Shares specified in such
notice, subject to the maximum set forth in the preceding sentence. The
closing of the purchase of Shares by the Investor shall, to the extent
legally practicable, take place at the same time and place as the closing of
such issuance, grant or sale to the Persons giving rise to the preemptive
rights set forth in this Section and if not at the same time shall take
place as soon thereafter as is practicable; PROVIDED that such closing
shall, to the extent applicable, be conditioned upon the expiration or
termination of any waiting period under the HSR Act and the making of any
necessary filings with and obtaining of any approvals from any Governmental
Entities except those that the failure to make or obtain are not,
individually or in the aggregate, reasonably likely to have a Parent
Material Adverse Effect or a material adverse effect on the financial
condition, properties, business or results of operations of the Company and
its Subsidiaries taken as a whole. At such closing, (i) Parent shall deliver
to the Investor certificates representing the Shares being subscribed, and
such Shares will be validly issued, fully paid and nonassessable, (ii) the
Investor shall deliver to Parent the consideration to be paid for such
Shares and (iii) the Investor and Parent shall execute such other documents
and take such other action as shall be reasonably necessary to consummate
the subscription of such Shares.
(b) NON-EXERCISE. From the expiration of the 15-day period first
referred to in the foregoing paragraph (a) and for a period of 90 days
thereafter, Parent may offer, issue, grant and sell to any Person up to the
amount of Shares set forth in Parent's notice relating to such Shares for a
price and other terms no less favorable to Parent, and including no less
cash, than those set forth in such notice (without deduction for reasonable
underwriting, sales agency and similar fees payable in connection
therewith); PROVIDED, HOWEVER, that Parent may not issue, grant or sell
Shares in an amount greater than the amount set forth in such notice minus
the amount purchased or committed to be purchased by the Investor upon
exercise of its preemptive rights without granting the Investor the
preemptive rights in this Section with respect to such greater amount of
Shares.
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(c) EXEMPTIONS. The provisions of this Section shall not apply to (i)
any issuance and sale of Shares by Parent in a Demand Registration (as
defined in Annex A) or in a Piggy-back Registration (as defined in Annex A)
in which the Investor is participating; (ii) the grant or exercise of
employee, management or director stock options to purchase Shares pursuant
to, or the issuance of Shares otherwise under or pursuant to, the Parent
Share Issuance Commitments; (iii) any grant or exercise of employee,
management or director stock options not included in the Parent Share
Issuance Commitments the grant of which, when aggregated with options or
Shares included in or issued under the Parent Share Issuance Commitments,
was or is consistent with CSC's and Parent's past practices; (iv) any sale,
grant or issuance of Shares that, together with any previous sales, grants
or issuances made in reliance on this clause (iv), represents less than 1%
of the Outstanding Share Capital as of the date of such sale, grant or
issuance; and (v) any other sale, grant or issuance of Shares that has been
approved in writing by the Investor.
(d) NON-CASH VALUATION. In the event that any offer, issue, grant or
sale includes or is proposed to include any non-cash consideration, Parent
and the Investor shall in good faith seek to agree upon the value of such
non-cash consideration. If Parent and the Investor fail to agree on such
value during the 15-day period contemplated by paragraph (a) of this
Section, then Parent shall refer the items in dispute to a nationally
recognized investment banking firm that is selected by the Board and that
shall make a final and binding determination within 10 days. The value of
any securities shall be the fair market value of such securities and the
value of any property other than securities shall be the fair market value
of such property. If a determination under this paragraph (d) is required,
any deadline for acceptance provided for in this Section shall be postponed
until the fifth business day after the date of such determination. Whichever
of the Investor or Parent whose last estimate differed the most from that
finally decided by the investment banking firm shall be responsible for and
pay all of the expenses of such investment banking firm. All determinations
made pursuant to this paragraph (d) shall be final and binding on the
Investor and Parent.
(e) HSR CONDITION. If in the reasonable judgment of the Investor, the
Investor's acquisition of Shares upon exercise of its rights under this
Section 10 would require a filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), Parent and the
Investor each will take such actions as may be required promptly to comply
with the requirements of the HSR Act relating to the filing and furnishing
of information (an "HSR Report") to the Federal Trade Commission ("FTC") and
the Antitrust Division of the Department of Justice ("DOJ"), such actions to
include (i) preparing and cooperating with each other in preparing the HSR
Report to be filed by or on behalf of each of them so as to avoid errors or
inconsistencies between their HSR Reports in the description of the reported
transaction and to permit the filing of their HSR Reports in a timely
fashion, (ii) complying with any request for additional documents or
information made by the FTC, the DOJ or any other Governmental Entity or by
any court and assisting the other in so complying and (iii) causing all
Persons which are part of the same "person" (as defined for purposes of the
HSR Act) as such party to cooperate and assist in such compliance. Parent
and the Investor each will pay any costs that it incurs in complying with
the obligations set forth in this paragraph. It will be a condition
precedent to the acquisition of Shares by the Investor that either (i) no
filing under the HSR Act by the Investor is required in connection with such
acquisition or (ii) any applicable waiting period under the HSR Act has
expired or been terminated. If the applicable waiting period under the HSR
Act has not expired or been terminated within 180 days after filing of the
HSR Report or if the Investor and Parent agree to withdraw the HSR Report,
then Parent will use its reasonable best efforts to afford to the Investor
the benefits intended to be provided by this Section 10 by granting to the
Investor the right to acquire, on the same terms as the securities
originally to be acquired, other securities of Parent having substantially
the same rights, privileges and preferences as the securities originally to
be acquired, except that such other securities will not possess voting
rights and will be convertible into the Shares that the Investor was to
acquire pursuant to this Section.
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11. BOARD REPRESENTATION.
(a) INVESTOR DIRECTORS. For so long as, and only for so long as, the
Investor Beneficially Owns Parent Class A Shares that in the aggregate
comprise at least 20% of the Outstanding Share Capital, the Investor shall
be entitled to nominate two and no more than two directors (the "Investor
Directors") to the Board, each of whom shall be a person that is reasonably
acceptable to Parent (it being agreed for this purpose that, subject to
applicable legal requirements, any executive officer or member of the board
of directors of the Company shall be acceptable to Parent); PROVIDED, that
in the event that the Investor shall at any time cease to Beneficially Own
Parent Class A Shares that in the aggregate comprise at least 20% of the
Outstanding Share Capital but shall continue to Beneficially Own Parent
Class A Shares that in the aggregate comprise at least 10% of the
Outstanding Share Capital, the Investor shall thenceforth be entitled to
nominate one and no more than one Investor Director under this Section 11
and Parent or any of the Class B Entities may request that one of the
Investor Directors then on the Board resign as a director of Parent and,
upon such request, one of the Investor Directors shall, and the Investor
shall use best efforts to cause one of the Investor Directors to, resign
immediately and relinquish all rights and privileges as a member of the
Board; PROVIDED, FURTHER, that each of the Investor Directors shall in all
cases be a director elected to the Board by the Parent Class B Shares. In
the event that the Investor shall at any time cease to Beneficially Own
Parent Class A Shares that in the aggregate comprise at least 10% of the
Outstanding Share Capital, the Investor shall thenceforth not be entitled to
nominate any Investor Directors under this Section 11 and Parent or any of
the Class B Entities may request that any Investor Directors then on the
Board resign as directors of Parent and, upon such request, the Investor
Directors shall, and the Investor shall use its reasonable best efforts to,
cause such Investor Directors to, resign immediately and relinquish all
rights and privileges as a member of the Board.
Prior to the election of directors to the Board, the Investor may give
reasonable advance written notice to Parent prior to the mailing of the proxy
statement relating to such matters requesting that Parent include, and Parent
and the Class B Entities (in their capacity as stockholders of Parent) agree
that Parent shall include, the Investor Directors as nominees for the slate of
directors to be elected to the Board.
Notwithstanding the foregoing, in the event that the holders of the Class B
Shares cease at any time to be entitled to elect 75% of the Board in accordance
with the terms of the Parent Class B Shares, the Investor shall thenceforth no
longer be entitled to any rights under this Section and the Investor agrees
that, following such event, Parent may request that all or any of the Investor
Directors then on the Board resign as Investor Directors, and upon such request
by Parent, the Investor Directors shall, and the Investor shall use reasonable
best efforts to cause such Investor Directors to, resign as Investor Directors
and relinquish all rights and privileges as a member of the Board at the next
meeting of stockholders of Parent called for the purpose of electing directors
to the Board; PROVIDED, that such Investor Directors may in any case be nominees
as directors to the Board at any meetings called for election of directors in
accordance with this Agreement and with the By-laws of Parent. Notwithstanding
anything to the contrary in this Agreement, no more than 25% of the directors on
the Board (rounded up to the nearest whole director) shall be nominees of the
Investor or any Affiliate or Associate of the Investor.
(b) SPECIAL COMMITTEE. For so long as, and only for so long as, the
Investor is entitled to nominate two Investor Directors pursuant to Section
11(a) (without giving effect to any reduction in the number of Investor
Directors resulting from the last sentence of Section 11(a)), (i) two (or
one, if the number of Investor Directors is reduced as a result of Section
11(a)) of the Special Directors shall be the Investor Directors and (ii)
Section 9 of Article II of Parent's By-laws may not be amended without the
prior written consent of the Investor. If only one of the Special Directors
is an Investor Director as a result of any reduction resulting from the last
sentence of Section 11(a), then any matter requiring the approval of the
Special Directors shall not be approved without the approval of the Investor
Director. The Investor, Parent and the Class B Entities agree that the
Investor Directors shall not be entitled to vote on the transactions
contemplated by the Partnership Contribution or on the
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approval or adoption of the Partnership Contribution Agreement
notwithstanding the fact that such transaction and such agreement may be
referred to the Special Committee.
(c) EFFORTS TO NOMINATE AND ELECT DIRECTORS. Parent shall nominate and
Parent and the Class B Entities shall use their respective best efforts to
take and cause to be taken all necessary action (corporate and other), which
efforts shall include the voting of or granting consents with respect to all
Voting Securities of Parent Beneficially Owned by them, to elect to the
Board the Investor Directors required to be nominated for election as
directors in accordance with the terms of this Section.
12. INVESTOR VOTING. For so long as the Class B Shares are entitled in
accordance with their terms to elect 75% of the Board, with respect to the
election of directors to or removal of directors from the Board and any increase
of authorized Shares*, the Investor shall vote or grant consent with respect to,
and shall cause to be voted or to be granted any consents with respect to, all
Voting Securities that are Beneficially Owned by the Investor on all matters
submitted to the holders of Voting Securities in direct proportion to the votes
or consents of the Minority Shares on any such matter. The Investor and the
Class B Entities shall cause all Shares owned by the Investor and the Class B
Entities, as the case may be, and shall use reasonable best efforts to cause all
of their respective Affiliates and Associates to be represented, in person or by
proxy, at all meetings of holders of Shares of which the Investor or the Class B
Entities, as the case may be, have actual notice, so that all of such Shares may
be counted for the purpose of determining the presence of a quorum at such
meetings.
13. ACQUISITION TRANSACTIONS. For so long as, and only for so long as, the
Investor is entitled to nominate two Investor Directors pursuant to Section
11(a), Parent shall not, without the prior written consent of the Company,
consummate an Acquisition Transaction if, after giving effect to such
transaction, the Cash Flow Ratio will exceed the Cash Flow Ratio Threshold.
Before consummation of an Acquisition Transaction that is reasonably likely to
result in the Cash Flow Ratio Threshold being exceeded, Parent shall provide
written notice and a reasonable description of such transaction, including pro
forma calculations of the Cash Flow Ratio giving effect to such transaction as
of the beginning of the most recent three-month period for which Annualized
Operating Cash Flow can be calculated, together with reasonable documentary
supporting information for such calculation. To the extent reasonably
practicable under the circumstances of such transaction, such notice shall be
given 30 days prior to such consummation, but in no event shall such notice be
given less than 10 days prior to such consummation.
14. ADDITIONAL AGREEMENTS.
(a) EXCHANGE ACT REPORTING. For so long as, and only for so long as,
any of the Shares Beneficially Owned by the Investor are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
unless Parent is then subject to and in compliance with Section 13 or 15(d)
of the Exchange Act as contemplated by Rule 144(c)(1) under the Securities
Act, Parent shall make publicly available any information concerning Parent
that is contemplated by Rule 144(c)(2) under the Securities Act.
(b) MAINTENANCE OF ULTIMATE PARENT ENTITY AS A PARTY. In the event
that the Company shall at any time become or be a Subsidiary of any Person
that is not a natural person, the Company covenants and agrees that the
Ultimate Parent Entity of such Person shall forthwith execute a counterpart
of this Agreement and shall assume all obligations of the Company hereunder
and all references herein to the Company shall be deemed a reference to such
Ultimate Parent Entity. This paragraph shall similarly apply to any
subsequent Ultimate Parent Entities.
(c) REGISTRATION RIGHTS. The Investor shall have the registration
rights set forth in Annex A hereto.
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* If not approved at the Stockholders Meeting, the Investor shall vote to
increase the authorized Parent Class A Shares.
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(d) VOLUME DISCOUNTS. The Company shall use its reasonable best
efforts to make available to Parent and its Subsidiaries the benefits of its
agreements with vendors on terms no less favorable than those generally
available to the Company or Affiliates of the Company.
15. LEGENDS. (a) Each of the Investor and the Class B Entities agrees that
all certificates representing the Shares that are from time to time subject to
this Agreement shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT DATED , 199 (A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE CORPORATION) WHICH PROVIDES, AMONG OTHER
THINGS, FOR CERTAIN RESTRICTIONS ON THE TRANSFER AND VOTING THEREOF. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR OTHER
TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT SHALL BE VOID."
Upon termination with respect to the Investor or the Class B Entities of this
Agreement in accordance with its terms or upon any Shares ceasing to be subject
to this Agreement and upon the written request by the Investor or any of the
Class B Entities, as the case may be, Parent shall issue new certificates with
the foregoing legend removed.
(b) The Investor agrees that all certificates representing the Shares that
were issued in the Contribution and that are Transferred pursuant to this
Agreement (unless a registration statement with respect to such Shares referred
to in Annex A is then effective) shall bear the following legend until such time
as the Investor or any transferee thereof delivers an opinion of counsel
reasonably acceptable to Parent to the effect that such legend is no longer
required under the Securities Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE SOLD WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND MAY BE OFFERED OR SOLD
ONLY IF REGISTERED UNDER THE SECURITIES ACT OF 1933 OR IF AN EXEMPTION
FROM REGISTRATION IS AVAILABLE."
16. MISCELLANEOUS.
(a) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH AND SUBJECT
TO THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO CONFLICTS OF LAWS
PRINCIPLES.
(b) VENUE; WAIVER OF JURY TRIAL. The parties hereby irrevocably submit to
the jurisdiction of the courts of the State of Delaware and the Federal court of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the interpretation or enforcement hereof or
of any such document, that it is not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a Delaware State or Federal court. The
parties hereby consent to and grant any such court jurisdiction over the person
of such parties and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in paragraph (c) of this Section or in such
other manner as may be permitted by law shall be valid and sufficient service
thereof.
B-15
<PAGE>
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS PARAGRAPH (b).
(c) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given (i) on
the first business day following the date received, if delivered personally or
by telecopy (with telephonic confirmation of receipt by the addressee), (ii) on
the business day following timely deposit with an overnight courier service, if
sent by overnight courier specifying next day delivery and (iii) on the first
business day that is at least five days following deposit in the mails, if sent
by first class mail, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to the Company or the Investor, to:
5619 DTC Parkway
Englewood, Colorado 80111-3000
Facsimile: (303) 488-3219/(303) 488-3245
Attention: President/Legal Department
with a copy to:
Sherman & Howard L.L.C.
Suite 3000
633 Seventeenth Street
Denver, Colorado 80202
Facsimile: (303) 298-0940
Attention: Charles Y. Tanabe, Esq.
If to Parent, to:
One Media Crossways
Woodbury, New York 11797
Facsimile: (516) 364-8501
Attention: General Counsel
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Facsimile: (212) 558-3588
Attention: Joseph B. Frumkin, Esq.
B-16
<PAGE>
If to any of the Class B Entities, to:
Charles F. Dolan
One Media Crossways
Woodbury, New York 11797
Facsimile: (516) 364-6279
and
William A. Frewin, Jr.
One Media Crossways
Woodbury, New York 11797
Facsimile: (516) 364-4592
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Facsimile: (212) 909-6836
Attention: Bruce D. Haims, Esq.
(d) SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (i) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (ii) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
(e) COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original and all of which shall together constitute the same
agreement.
(f) TERMINATION; SURVIVAL. Immediately upon the Investor, together with
all of the Affiliates of the Investor, ceasing to Beneficially Own in the
aggregate at least 20% of the Outstanding Share Capital, Sections 7 and 9 shall
terminate automatically without any action by any party and such terminated
provision shall not survive such termination. Immediately upon the Investor,
together with all of the Affiliates of the Investor, ceasing to Beneficially Own
in the aggregate at least 10% of the Outstanding Share Capital, this Agreement
(other than Sections 1, 2, 3, 4, 5, 14(c), 15 and 16) shall terminate
automatically without any action by any party and such terminated provisions of
this Agreement shall not survive such termination. On the day that is two years
after the date of such termination, Section 5 shall terminate automatically
without any action by any party and shall not survive such termination.
Immediately upon a Transfer to a Permitted Transferee pursuant to Section 6(h),
Sections 7, 9, 11(b) and 13 shall terminate automatically without any action by
any party and such terminated provisions of this Agreement shall not survive
such termination; PROVIDED, that if such Permitted Transferee is a Competitor,
all of Section 11 shall terminate automatically without any action by any party
and such terminated provision shall not survive such termination; PROVIDED,
FURTHER, that on the day that is five years following a Transfer to any such
Permitted Transferee, Section 10 shall terminate automatically without any
action by any party and such terminated provision shall not survive such
termination. This Section 16 and Sections 1, 2, 3, 4, 14(c) and 15 shall survive
any termination of all or any part of this Agreement indefinitely.
B-17
<PAGE>
(g) HEADINGS; RECITALS. All Section headings and the recitals herein are
for convenience of reference only and are not part of this Agreement, and no
construction or reference shall be derived therefrom.
(h) SPECIFIC PERFORMANCE. Each party hereto acknowledges that it will be
impossible to measure in money the damage to the other party if a party hereto
fails to comply with any of the obligations imposed by this Agreement, that
every such obligation is material and that, in the event of any such failure,
the other party will not have an adequate remedy at law or damages. Accordingly,
each party hereto agrees that injunctive relief or other equitable remedy, in
addition to remedies at law or damages, is the appropriate remedy for any such
failure and will not oppose the granting of such relief on the basis that the
other party has an adequate remedy at law. Each party hereto agrees that it
shall not seek, and agrees to waive any requirement for, the securing or posting
of a bond in connection with any other party's seeking or obtaining such
equitable relief.
(i) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns and shall not be assignable except to the extent expressly
permitted hereby and any purported assignment in violation of this Agreement
shall be void. Any Class B Entity may assign this Agreement in connection with a
Transfer of any Shares to a Class B Entity or any Qualified Parties or
Controlled Subsidiaries of any Class B Entities; PROVIDED, that such transferee
shall become a party to a counterpart of this Agreement and become bound as a
Class B Entity hereunder. In the case of a merger or other business combination
or reorganization transaction involving Parent where securities other than those
of Parent are issued to the holders of Shares, this Agreement shall be assigned
to and shall inure to the benefit of and be binding upon the Person issuing
securities in such transaction and any reference herein to Parent shall be
deemed to be a reference to such Person. The rights and obligations under this
Agreement (excluding Sections 7, 9, 11(b) and 13) shall be assigned by the
Investor and the Company to a Permitted Transferee in connection with the
Transfer to such Permitted Transferee pursuant to Section 6(h); PROVIDED, that
if such Permitted Transferee is a Competitor, Section 11 shall also be excluded
from such assignment, which assignment shall not terminate any portion of this
Agreement except in accordance with Section 16(f). The Investor may assign its
rights and obligations (w) under this Agreement to a Permitted Transferee
pursuant to Section 6(a)(i), (x) under this Agreement to a Permitted Transferee
pursuant to Section 6(a)(ii), (y) under Sections 14(c), 15 and 16 to a
transferee pursuant to Section 6(b) and (z) under Sections 6, 11, 14(c), 15 and
16 to a transferee pursuant to Section 6(g), which assignment shall not
terminate any obligations of the Investor hereunder; PROVIDED, that in the event
of an assignment described in (x), (y) or (z) above, the Investor agrees with
Parent that the transferee(s) and the Investor shall, with respect to Parent,
act as one Investor under such assigned Sections.
(j) ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including any
annexes and schedules hereto) and the Merger Agreement (including any exhibits
and schedules thereto) supersede all prior agreements, written or oral, among
the parties hereto with respect to the subject matter hereof and contains the
entire agreement among the parties with respect to the subject matter hereof.
This Agreement may not be amended, supplemented or modified, and no provisions
hereof may be modified or waived, except by an instrument in writing signed by
the party or parties affected or to be affected thereby. No waiver of any
provisions hereof by any party shall be deemed a waiver of any other provisions
hereof by any such party, nor shall any such waiver be deemed a continuing
waiver of any provision hereof by such party.
(k) NO REQUEST FOR AMENDMENT OR WAIVER. The Company shall not, and shall
cause its Affiliates not to and use reasonable best efforts to cause its
Associates not to, request publicly that Parent or any of the Class B Entities
or any of their respective agents or representatives, directly or indirectly,
amend or waive any provision of this Agreement or make any such request
privately if it could reasonably be expected to require Parent to make a public
announcement regarding such request.
(l) NO RELIEF OF LIABILITIES. No Transfer by the Investor or any Class B
Entity of Beneficial Ownership of any Shares shall relieve the Investor or such
Class B Entity of any liabilities or obligations to
B-18
<PAGE>
Parent or to a Class B Entity (in the case of a Transfer by the Investor) or to
the Investor (in the case of a Transfer by a Class B Entity) that arose or
accrued prior to the date of such Transfer.
(m) SECURITIES SUBJECT TO AGREEMENT; INEFFECTIVE TRANSFERS. All Shares
that are Beneficially Owned by the Investor (including any Shares disclosed
pursuant to Section Z(a) for as long as such Shares are Beneficially Owned by
the Investor or its Affiliates), and the Class B Entities and, to the extent
provided herein, the Affiliates and Associates of the Investor and the Class B
Entities, shall be subject to this Agreement. No Transfer or acquisition of any
Shares in violation of any provision of this Agreement shall be effective to
pass any title to, or create any interest in favor of, any Person, but the
Investor or Class B Entities, as the case may be, in attempting to effect or in
permitting or suffering such Transfer or acquisition, shall be deemed to have
committed a material breach hereof.
(n) FURTHER ASSURANCES. The parties hereto shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
(o) THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR
IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY ANY RIGHTS OR REMEDIES OF
ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT.
IN WITNESS WHEREOF, Parent, each Class B Entity and the Company have
executed and delivered this Agreement, or a counterpart hereof, as of the date
first written above or, where applicable, across from a party's signature on
such counterpart.
CABLEVISION SYSTEMS CORPORATION
By: ------------------------------------------
Name:
Title:
TELE-COMMUNICATIONS, INC.
By: ------------------------------------------
Name:
Title:
CHARLES F. DOLAN
By:
CHARLES F. DOLAN 1997 GRANTOR RETAINED ANNUITY
TRUST
By: ------------------------------------------
Name:
Title:
B-19
<PAGE>
<TABLE>
<S> <C> <C>
DOLAN DESCENDANTS TRUST
By: ------------------------------------------
Name:
Title:
DOLAN PROGENY TRUST
By: ------------------------------------------
Name:
Title:
DOLAN GRANDCHILDREN TRUST
By: ------------------------------------------
Name:
Title:
DOLAN SPOUSE TRUST
By: ------------------------------------------
Name:
Title:
DC KATHLEEN TRUST
By: ------------------------------------------
Name:
Title:
DC DEBORAH TRUST
By: ------------------------------------------
Name:
Title:
DC MARIANNE TRUST
By: ------------------------------------------
Name:
Title:
</TABLE>
B-20
<PAGE>
<TABLE>
<S> <C> <C>
DC PATRICK TRUST
By: ------------------------------------------
Name:
Title:
DC THOMAS TRUST
By: ------------------------------------------
Name:
Title:
DC JAMES TRUST
By: ------------------------------------------
Name:
Title:
CFD TRUST NO. 1
By: ------------------------------------------
Name:
Title:
CFD TRUST NO. 2
By: ------------------------------------------
Name:
Title:
CFD TRUST NO. 3
By: ------------------------------------------
Name:
Title:
CFD TRUST NO. 4
By: ------------------------------------------
Name:
Title:
</TABLE>
B-21
<PAGE>
<TABLE>
<S> <C> <C>
CFD TRUST NO. 5
By: ------------------------------------------
Name:
Title:
CFD TRUST NO. 6
By: ------------------------------------------
Name:
Title:
CFD TRUST NO. 10
By: ------------------------------------------
Name:
Title:
</TABLE>
B-22
<PAGE>
SCHEDULE 1
(PARENT SHARE ISSUANCE COMMITMENTS)
1. CSC Stock Plans.
2. Any Parent Class A Shares issuable upon conversion of any Parent Class B
Shares.
3. Any Shares issuable upon conversion of the Series C Cumulative Preferred
Stock, par value $.01 per share, of Parent outstanding as of the date of the
Merger Agreement.
<PAGE>
SCHEDULE 3
(PARENT CLASS B SHARES OF THE CLASS B ENTITIES)*
<TABLE>
<CAPTION>
ENTITY CLASS B SHARES
- -------------------------------------------------------------------------------------------------- --------------
<S> <C>
Charles F. Dolan.................................................................................. 4,859,281
Charles F. Dolan 1997 Grantor Retained Annuity Trust.............................................. 1,240,000
Dolan Descendants Trust........................................................................... 413,625
Dolan Progeny Trust............................................................................... 513,625
Dolan Grandchildren Trust......................................................................... 307,625
Dolan Spouse Trust................................................................................ 52,945
DC Kathleen Trust................................................................................. 303,116
DC Deborah Trust.................................................................................. 303,116
DC Marianne Trust................................................................................. 294,285
DC Patrick Trust.................................................................................. 294,285
DC Thomas Trust................................................................................... 303,116
DC James Trust.................................................................................... 303,116
CFD Trust No. 1................................................................................... 302,880
CFD Trust No. 2................................................................................... 302,880
CFD Trust No. 3................................................................................... 294,049
CFD Trust No. 4................................................................................... 294,049
CFD Trust No. 5................................................................................... 302,880
CFD Trust No. 6................................................................................... 302,880
CFD Trust No. 10.................................................................................. 93,456
</TABLE>
- ------------------------
* To be updated as of Contribution Closing.
<PAGE>
ANNEX A
REGISTRATION RIGHTS
The Parent Class A Shares that are Beneficially Owned by the Investor from
time to time are hereinafter referred to as the "Registrable Securities" and
shall have the benefit of the following registration rights.
<TABLE>
<S> <C>
Demand Registration:......... After the date that is six months following the Stock
Closing, the Investor may request, by written notice to
Parent, that Parent file a registration statement
registering for offering and sale Registrable Securities in
an amount equal to or in excess of 2,000,000 Shares or, if
less, the Shares then Beneficially Owned by the Investor and
any transferees with rights hereunder in an underwritten
public offering (a "Demand Registration"). Parent will use
its reasonable best efforts to file a registration statement
on an appropriate form with the SEC covering the Registrable
Securities for which registration was so requested within 30
days of Parent's receipt of such request, subject to
Parent's blackout rights described below, and shall use its
reasonable best efforts to cause such registration statement
to be declared effective as soon thereafter as practicable.
In addition, Parent shall amend or supplement such
registration statement so that the Investor may use such
registration statement and the related prospectus in
connection with an underwritten offering of such Registrable
Securities for 90 days from the effective date of such
registration statement, subject to Parent's blackout rights
described below. Parent agrees to keep the Demand
Registration effective for such 90-day period and, after the
expiration of such 90-day period, may deregister the
Registrable Securities registered thereon. Parent shall not
be obligated to effect more than one Demand Registration for
the Investor in each of the years following the date that is
six months following the Stock Closing.
Piggy-back Registration:..... The Investor shall be entitled to "piggy-back" registration
rights on any registrations of Shares registering for
offering and sale at least $100 million of Shares (based
upon the market value thereof on the date of filing), other
than a registration on Form S-8, Form S-4 or any successors
to such forms (a "Piggy-back Registration"), subject to the
cutback provisions described below.
Registration Expenses:....... The Investor will pay a proportional amount (based upon the
number of shares registered by the Investor) of any and all
fees and expenses in a Piggy-back Registration; PROVIDED,
that the Investor will not be responsible for counsel
expenses of other selling stockholders. In a Demand
Registration, Parent will pay any and all fees and expenses;
PROVIDED that Parent will not be responsible for the counsel
expenses of the Investor or any underwriting fees and
commissions for the Shares sold by the Investor.
Underwriters:................ In case of any Demand Registration or Piggy-back
Registration, Parent shall select the underwriter or
underwriters that shall manage or lead such registration.
The Investor shall not be entitled to
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
participate in any underwritten offering unless and until
the Investor has entered into an underwriting or other
agreement with such underwriter or underwriters in such form
as Parent and such underwriter or underwriters shall
determine.
In addition, in connection with any underwritten offering
proposed by the Investor hereunder, Parent shall enter into
an underwriting or other agreement with the underwriters
thereof containing customary representations, warranties,
covenants, indemnities and other terms.
Transfer of
Registration Rights:....... The Investor may transfer or assign its registration rights
in connection with any Transfer of Registrable Securities to
a Permitted Transferee or a transferee under Section 6(b) or
6(g); PROVIDED, that any such transferee shall agree to be
bound by the terms hereof relating to Shares or securities
convertible or exchangeable for Shares and, with respect to
Parent, all of such transferees must act as one Investor
hereunder.
Lock-Up Provision:........... The Investor will not engage in transactions involving
Parent's equity securities, including by commencing any
public offering of Parent's equity securities or by causing
a Demand Registration, for a period not to exceed 180 days
after the effective date of any Parent registration
statement that is equal to the shortest period that such
restriction is made applicable to any director, officer or
Affiliate of Parent.
Blackout Rights:............. Upon written notice to the Investor, Parent may suspend the
Investor's right to sell Registrable Securities under a
registration statement or temporarily refuse to proceed with
a Demand Registration under the following circumstances: (a)
Parent reasonably believes that the use of such registration
statement would require disclosure of a material corporate
development not otherwise required to be disclosed that
Parent has a valid business purpose for not disclosing, (b)
Parent is in the process of making, or preparing to make, a
registered offering of securities and Parent reasonably
deems it advisable to temporarily discontinue disposition of
Registrable Securities or (c) Parent reasonably believes
that disposition of Registrable Securities at such time
would have a material adverse effect on Parent. Parent shall
notify the Investor immediately upon the conditions in
clause (a) or (c) above ceasing to exist, at which time such
suspension shall terminate. Notwithstanding the foregoing,
(i) the maximum period in which Parent can suspend the
Investor's rights under clauses (a), (b) and (c) above is 60
days on any single occasion and 145 consecutive days in any
one-year period, (ii) Parent may not suspend such rights
more than three times in any one-year period commencing
after the date that the Demand Registration becomes
effective and (iii) the Investor shall in any event, taking
into account the blackout rights and lock-up provisions set
forth herein, be entitled to 180 days in any one-year period
(other than the period prior to the date that is six months
following the Stock Closing) that are not subject to any
blackout or lock-up. The Investor's rights hereunder
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
may not be suspended unless corresponding rights of other
stockholders are similarly suspended.
Cutback Rights:.............. In the event that the Investor, Parent and/or any
stockholder or Affiliate of Parent are participating in an
underwritten equity offering and the managing or lead
underwriter or underwriters thereof shall determine in its
or their reasonable good faith judgment that it cannot sell,
or that it would not be advisable to sell, all the Shares
desired to be sold, then the number of Shares that each such
Person may have included shall be reduced according to the
following terms until the managing or lead underwriter or
underwriters shall believe that the remaining Shares can be
sold and it would not be inadvisable to sell such number of
Shares:
(a) in the event that the offering in question
includes a primary offering of Shares by Parent, then
the number of Shares that Parent may have included shall
not be reduced and the number of Shares which the
Investor and any other Persons may have included shall
be reduced pro rata in proportion to the total number of
Shares sought to be included by each such Person, and
(b) in the event that the offering in question does
not include a primary offering of Shares by Parent, then
the number of shares that the Investor and any other
Persons may have included shall be reduced pro rata in
proportion to the total number of Shares sought to be
included by each such Person.
Indemnification:............. Parent will indemnify the Investor and the Investor's
officers, directors and controlling persons against any
losses, claims, damages, expenses or liabilities incurred by
the Investor arising out of, or based upon, any untrue
statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus or
amendment or supplement thereto, including any document
incorporated by reference therein, or the omission or
alleged omission therefrom of a material fact necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
PROVIDED, that Parent shall not be liable to the extent that
any loss, claim, damage, expense or liability arises out of
information supplied in writing by the Investor or any of
its Affiliates or Associates for use in any registration
statement or prospectus or amendment or supplement thereto,
including any document incorporated by reference therein.
The Investor shall indemnify Parent and Parent's officers,
directors and controlling persons against any losses,
claims, damages, expenses or liabilities incurred by Parent
arising out of, or based upon, any untrue statement or
alleged untrue statement of a material fact relating to the
Investor contained in any registration statement or
prospectus or amendment or supplement thereto, including any
document incorporated by reference therein, which
information was supplied in writing by the Investor or any
of its Affiliates or Associates for use in any registration
statement or prospectus or amendment or supplement thereto,
or the omission or alleged omission therefrom of a material
fact relating to the Investor
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
necessary in order to make the statements therein, in light
of the circumstances under which they were made, not
misleading.
Promptly after receipt by an indemnified party under the
preceding paragraph of notice of the commencement of any
action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under
such paragraph, notify the indemnifying party in writing of
the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be
brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein
and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of
the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to
such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable
to such indemnified party under such subsection for any
legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party,
in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without
the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any
judgment with respect to, any pending or threatened action
or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified
party is an actual or potential party to such action or
claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party
from all liability arising out of such action or claim and
(ii) does not include a statement as to or an admission of
fault, culpability or a failure to act by or on behalf of
any indemnified party.
Termination of
Registration Rights:....... The Investor's registration rights hereunder will
automatically expire with no action by either Parent or the
Investor if and at the time that the Investor is able to
sell all of its Registrable Securities in any 90-day period
pursuant to Rule 144 or any successor exemption under the
Securities Act.
Further Actions:............. In connection with sales of Registrable Securities by the
Investor, Parent shall take such further actions as are
customarily required of issuers providing registration
rights, including using its reasonable best efforts to (i)
list the shares on the principal securities exchanges or
markets on which or in which the outstanding securities of
the same class are listed or traded, (ii) obtain any
required clearance with state securities regulators, (iii)
file Exchange Act reports on a timely basis, (iv) make
available for inspection corporate documents at reasonable
times, (v) participate in a reasonable number of management
due
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C>
diligence sessions at reasonable times (but Parent's
management shall not be required to travel outside of the
metropolitan area in which its principal executive offices
are located) and (vi) furnish copies of required
prospectuses, in each case, at the expense of the Investor.
Savings Clause:.............. The registration rights granted hereunder are subject in all
respects to the rights granted to Cablevision Systems
Company and CSC Holdings Company pursuant to the
Registration Rights Agreements, each dated January 27, 1986,
between CSC and each of such parties as in effect on the
date of the Merger Agreement, true and complete copies of
which have been provided to the Company.
</TABLE>
A-5
<PAGE>
APPENDIX C
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is entered into as of November 21,
1997 by and among CSC Parent Corporation, a Delaware corporation ("Parent"),
Tele-Communications, Inc., a Delaware corporation (the "Company"), Cablevision
Systems Corporation, a Delaware corporation ("CSC"), and the Class B Entities
(as defined below).
WHEREAS, CSC, Parent and TCI Communications, Inc. have entered into an
Amended and Restated Contribution and Merger Agreement (the "Merger Agreement")
dated as of June 6, 1997 providing for, among other things, the Contribution and
the Merger;
WHEREAS, the Merger Agreement contemplates the execution and delivery of
this Agreement;
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements as provided in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. (a) Capitalized terms that are used but not
otherwise defined herein shall have the meanings given to them in the Merger
Agreement.
(b) For the purposes of this Agreement, the following terms shall have
the following meanings:
"Affiliate" and "Associate" when used with reference to any Person shall
have the meanings assigned to such terms in Rule 12b-2 of the Exchange Act as in
effect on the date hereof; PROVIDED, that CSC and Parent and their Subsidiaries
and the officers and directors of CSC and Parent and their Subsidiaries who are
not directors or officers of the Company or any of its Subsidiaries shall not,
solely as a result of holding such office of CSC and Parent or any of their
Subsidiaries, be deemed Affiliates or Associates of the Company or its
Subsidiaries for purposes of this Agreement.
A Person shall be deemed the "Beneficial Owner", and to have "Beneficial
Ownership" of, and to "Beneficially Own," any securities as to which such Person
is or may be deemed to be the beneficial owner pursuant to Rule 13d-3 and 13d-5
under the Exchange Act, as such rules are in effect on the date of this
Agreement, as well as any securities as to which such Person has the right to
become Beneficial Owner (whether such right is exercisable immediately or only
after the passage of time or the occurrence of conditions) pursuant to any
agreement, arrangement or understanding (other than customary agreements with
and between underwriters and selling group members with respect to a BONA FIDE
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or otherwise; PROVIDED, HOWEVER,
that a Person shall not be deemed the "Beneficial Owner", or to have "Beneficial
Ownership" of, or to "Beneficially Own", any Shares solely by virtue of being a
party to the Merger Agreement or (i) solely because such Shares have been
tendered pursuant to a tender or exchange offer made by such Person, or any of
such Person's Affiliates or Associates, until such tendered Shares are accepted
for payment or exchange or (ii) solely because such Person, or any of such
Person's Affiliates or Associates, has or shares the power to vote or direct the
voting of such Shares pursuant to a revocable proxy given in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations under the Exchange Act, except if such
power (or the arrangements relating thereto) is then reportable under Item 6 of
Schedule 13D under the Exchange Act (or any similar provision of a comparable or
successor report). For purposes of this Agreement, in determining the percentage
of the outstanding Shares with respect to which a Person is the Beneficial
Owner, all Shares as to which such Person is deemed the Beneficial Owner shall
be deemed outstanding.
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"Charter Amendments" shall mean each of those amendments to the certificate
of incorporation of CSC, in such form as may be approved by resolution of the
board of directors of CSC, such that each of the CSC Series C Cumulative
Preferred Stock, par value $.01 per share, CSC Series D Cumulative Preferred
Stock, par value $.01 per share, and CSC Series I Cumulative Convertible
Exchangeable Preferred Stock, par value $.01 per share, shall, as a result of
the Merger automatically become at the Effective Time, without any action by any
Person, preferred stock of Parent having the same terms and designations as
immediately prior to the Effective Time except for being preferred stock of
Parent rather than preferred stock of CSC.
"Class B Entities" shall mean Charles F. Dolan, Charles F. Dolan 1997
Grantor Retained Annuity Trust, Dolan Descendants Trust, Dolan Progeny Trust,
Dolan Grandchildren Trust, Dolan Spouse Trust, DC Kathleen Trust, DC Deborah
Trust, DC Marianne Trust, DC Patrick Trust, DC Thomas Trust, DC James Trust, CFD
Trust No. 1, CFD Trust No. 2, CFD Trust No. 3, CFD Trust No. 4, CFD Trust No. 5,
CFD Trust No. 6 and CFD Trust No. 10.
"Shares" shall mean the Parent Class A Shares and Parent Class B Shares and
any other shares of common stock of Parent.
2. REPRESENTATIONS OF PARENT AND CSC. As of the date hereof, Parent and CSC
severally represent and warrant to the Company and to each of the Class B
Entities that:
(a) each of Parent and CSC has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute
and deliver this Agreement; and
(b) this Agreement has been duly executed and delivered by Parent and
CSC and is a valid and binding agreement of Parent and CSC enforceable
against each of them in accordance with its terms, subject to the Bankruptcy
and Equity Exception.
3. REPRESENTATIONS OF THE COMPANY. As of the date hereof, the Company
represents and warrants to Parent, to CSC and to each of the Class B Entities
that:
(a) the Company does not Beneficially Own any Shares other than those
Parent Class A Shares to be issued in connection with the Contribution at
the Closing or as disclosed to Parent or CSC;
(b) the Company has all requisite corporate power and authority and has
taken all corporate action necessary in order to execute and deliver this
Agreement; and
(c) this Agreement has been duly executed and delivered by the Company
and is a valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, subject to the Bankruptcy and Equity
Exception.
4. REPRESENTATIONS OF THE CLASS B ENTITIES. As of the date hereof, the Class
B Entities each severally represents and warrants to the Company, to CSC and to
Parent that:
(a) such Class B Entity Beneficially Owns Shares as set forth opposite
its name in Schedule 4 hereto;
(b) such Class B Entity has all requisite power and authority (corporate
or otherwise) and has taken all action (corporate or otherwise) necessary in
order to execute and deliver this Agreement;
(c) this Agreement has been executed and delivered by such Class B
Entity and is a valid and binding agreement of such Class B Entity
enforceable against it in accordance with its terms, subject to the
Bankruptcy and Equity Exception;
(d) other than filings under the Exchange Act, no notices, reports or
other filings are required to be made by such Class B Entity with, nor are
any consents, registrations, approvals, permits or authorizations required
to be obtained by such Class B Entity from, any Governmental Entity, in
connection with the execution and delivery of this Agreement by such Class B
Entity, except those that
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<PAGE>
the failure to make or obtain are not, individually or in the aggregate,
reasonably likely to prevent, materially delay or materially impair the
ability of such Class B Entity to consummate the transactions contemplated
by this Agreement; and
(e) the execution, delivery and performance of this Agreement by such
Class B Entity does not, and the consummation by such Class B Entity of the
transactions contemplated hereby will not, constitute or result in (i) a
breach or violation of, or a default under, the certificate of incorporation
or by-laws of such Class B Entity or any of their comparable governing
instruments, (ii) a breach of or violation of or a default under, or the
acceleration of any obligations of or the creation of a Lien on the assets
of such Class B Entity (with or without notice, lapse of time or both)
pursuant to, any Contracts binding upon such Class B Entity or any Law or
governmental or non-governmental permit or license to which such Class B
Entity is subject or (iii) any change in the rights or obligations of any
party under any of such Contracts, except, in the case of clause (ii) or
(iii) above, (x) for Contracts, Laws, permits and licenses also binding upon
CSC or to which CSC or its business also is subject and (y) for any breach,
violation, default, acceleration, creation or change that, individually or
in the aggregate, is not reasonably likely to prevent, materially delay or
materially impair the ability of such Class B Entity to consummate the
transactions contemplated by this Agreement.
5. AGREEMENT TO VOTE SHARES. Each of the Class B Entities severally
covenants and agrees with the Company, CSC and Parent (a) to vote all Shares
that are Beneficially Owned by such Class B Entity in favor of (or consent with
respect to such Shares for) the adoption and approval of the Merger Agreement
and the Merger, the adoption and approval of the Charter Amendments and the
approval of the issuance of the shares of Parent Common Stock required to be
issued in connection with the consummation of the Contribution at every meeting
of the stockholders of CSC or Parent (or solicitation of consents in lieu
thereof) at which such matters are considered and at every adjournment or
postponement thereof, and (b) to vote such Shares against (or withhold consents
with respect to such Shares for) any proposal that would compete with or serve
to interfere, delay or otherwise inhibit the timely consummation of the matters
contemplated by the foregoing clause.
6. NO VOTING TRUSTS OR TRANSFERS. After the date hereof, each of the Class B
Entities severally covenants and agrees with the Company, CSC and Parent that
such Class B Entity shall not, and shall not permit any entity to, (i) deposit
any Shares Beneficially Owned by such Class B Entity in a voting trust or
subject any Shares to any arrangement with respect to the voting of such Shares
other than agreements or arrangements entered into in furtherance of the
Transactions or those that would not materially impair the ability to consummate
the Transactions on the schedule contemplated by the Merger Agreement or (ii)
Transfer (as defined in the Stockholders Agreement) any of its interest in
Shares to any Person unless such transferee agrees to be bound by this Agreement
to the same extent as such Class B Entity, other than as agreed in writing by
Parent, CSC and the Company.
7. STOCKHOLDERS AGREEMENT. Each of the Class B Entities, the Company and
Parent severally agrees that, at the Closing, it will execute and deliver the
Stockholders Agreement.
8. MISCELLANEOUS.
(a) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH AND SUBJECT
TO THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO CONFLICTS OF LAWS
PRINCIPLES.
(b) VENUE; WAIVER OF JURY TRIAL. The parties hereby irrevocably submit to
the jurisdiction of the courts of the State of Delaware and the Federal court of
the United States of America located in the State of Delaware solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the
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<PAGE>
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a Delaware State
or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in paragraph (c) of this
Section or in such other manner as may be permitted by law shall be valid and
sufficient service thereof.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS PARAGRAPH (b).
(c) NOTICES. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed given (i) on the first
business day following the date received, if delivered personally or by telecopy
(with telephonic confirmation of receipt by the addressee), (ii) on the business
day following timely deposit with an overnight courier service, if sent by
overnight courier specifying next day delivery and (iii) on the first business
day that is at least five days following deposit in the mails, if sent by first
class mail, to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
IF TO CSC OR PARENT
One Media Crossways,
Woodbury, NY 11797.
Attention: General Counsel
fax: (516) 364-8501
(with a copy to Joseph B. Frumkin, Esq.,
Sullivan & Cromwell,
125 Broad Street, New York, NY 10004
fax: (212) 558-3588)
IF TO THE CLASS B ENTITIES
Charles F. Dolan
One Media Crossways
Woodbury, NY 11797
fax: (516) 364-6279
and
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<PAGE>
William A. Frewin
One Media Crossways
Woodbury, NY 11797
fax: (516) 364-4592
(with a copy to Bruce D. Haims, Esq.,
Debevoise & Plimpton,
875 Third Avenue,
New York, NY 10022
fax: (212) 909-6836)
IF TO THE COMPANY
5619 DTC Parkway
Englewood, Colorado 80111-3000
Attention: President
fax: (303) 488-3219
with a copy similarly addressed,
Attention: Legal Department
fax: (303) 488-3245
(with a copy to Charles Y. Tanabe, Esq.,
Sherman & Howard L.L.C.
Suite 3000
633 Seventeenth Street
Denver, Colorado 80202
fax: (303) 298-0940)
or to such other Persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
(d) SEVERABILITY. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof. If any provision of
this Agreement, or the application thereof to any Person or any circumstance, is
invalid or unenforceable, (i) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (ii) the remainder of this Agreement and the application of such provision
to other Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction.
(e) COUNTERPARTS. For the convenience of the parties hereto, this Agreement
may be executed in any number of counterparts, each of which shall be deemed to
be an original and all of which shall together constitute the same agreement.
(f) TERMINATION; SURVIVAL. This Agreement shall terminate upon the
termination of the Merger Agreement in accordance with its terms, the mutual
written consent of all parties hereto or upon the later to occur of the
Effective Time, or the Closing, and all of the provisions hereof shall terminate
at such time.
(g) HEADINGS; RECITALS. All Section headings and the recitals herein are for
convenience of reference only and are not part of this Agreement, and no
construction or reference shall be derived therefrom.
(h) SPECIFIC PERFORMANCE. Each party hereto acknowledges that it will be
impossible to measure in money the damage to the other party if a party hereto
fails to comply with any of the obligations imposed
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<PAGE>
by this Agreement, that every such obligation is material and that, in the event
of any such failure, the other party will not have an adequate remedy at law or
damages. Accordingly, each party hereto agrees that injunctive relief or other
equitable remedy, in addition to remedies at law or damages, is the appropriate
remedy for any such failure and will not oppose the granting of such relief on
the basis that the other party has an adequate remedy at law. Each party hereto
agrees that it shall not seek, and agrees to waive any requirement for, the
securing or posting of a bond in connection with any other party's seeking or
obtaining such equitable relief.
(i) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns and shall not be assignable without the written consent of all
other parties hereto.
(j) ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including any
annexes and schedules hereto) and the Merger Agreement (including any exhibits
and schedules thereto) supersede all prior agreements, written or oral, among
the parties hereto with respect to the subject matter hereof and contains the
entire agreement among the parties with respect to the subject matter hereof.
This Agreement may not be amended, supplemented or modified, and no provisions
hereof may be modified or waived, except by an instrument in writing signed by
CSC and approved by the majority vote of the directors elected by the Class A
Shares and, with respect to each of Parent, the Company and the Class B
Entities, by Parent, the Company and such Class B Entities. No waiver of any
provisions hereof by any party shall be deemed a waiver of any other provisions
hereof by any such party, nor shall any such waiver be deemed a continuing
waiver of any provision hereof by such party.
(k) NO REQUEST FOR AMENDMENT OR WAIVER. The Company and the Class B Entities
shall not, and shall cause their respective Controlled Affiliates and Associates
not to, request publicly that Parent or CSC or any of their respective agents or
representatives, directly or indirectly, amend or waive any provision of this
Agreement or make any such request privately if it could be expected to require
Parent or CSC to make a public announcement regarding such request.
(l) FURTHER ASSURANCES. The parties hereto shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
(m) THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT, EXPRESS OR
IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY ANY RIGHTS OR REMEDIES OF
ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS AGREEMENT.
IN WITNESS WHEREOF, Parent, the Company, CSC and each Class B Entity have
executed and delivered this Agreement as of the date first written above.
<TABLE>
<S> <C> <C>
CSC PARENT CORPORATION
By: /s/ WILLIAM J. BELL
----------------------------------------
Name: William J. Bell
Title: Vice Chairman
TELE-COMMUNICATIONS, INC.
By: /s/ STEPHEN M. BRETT
----------------------------------------
Name: Stephen M. Brett
Title: Senior Vice President
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
CABLEVISION SYSTEMS CORPORATION
By: /s/ WILLIAM J. BELL
----------------------------------------
Name: William J. Bell
Title: Vice Chairman
CHARLES F. DOLAN
By: /s/ CHARLES F. DOLAN
----------------------------------------
CHARLES F. DOLAN 1997 GRANTOR RETAINED ANNUITY
TRUST
/s/ CHARLES F. DOLAN
By: /s/ HELEN DOLAN
----------------------------------------
Name: Charles F. Dolan
Helen Dolan
Title: Trustees
DOLAN DESCENDANTS TRUST
/s/ JAMES L. DOLAN
/s/ KATHLEEN M. DOLAN
By: /s/ PAUL J. DOLAN
----------------------------------------
Name: James L. Dolan
Kathleen M. Dolan
Paul J. Dolan
Title: Trustees
DOLAN PROGENY TRUST
/s/ PATRICK F. DOLAN
/s/ DEBORAH A. DOLAN
By: /s/ PAUL J. DOLAN
----------------------------------------
Name: Patrick F. Dolan
Deborah A. Dolan
Paul J. Dolan
Title: Trustees
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
DOLAN GRANDCHILDREN TRUST
/s/ THOMAS C. DOLAN
/s/ MARIANNE DOLAN WEBER
By: /s/ PAUL J. DOLAN
----------------------------------------
Name: Thomas C. Dolan
Marianne Dolan Weber
Paul J. Dolan
Title: Trustees
DOLAN SPOUSE TRUST
/s/ THOMAS C. DOLAN
/s/ MARIANNE DOLAN WEBER
By: /s/ PAUL J. DOLAN
----------------------------------------
Name: Thomas C. Dolan
Marianne Dolan Weber
Paul J. Dolan
Title: Trustees
DC KATHLEEN TRUST
/s/ KATHLEEN M. DOLAN
By: /s/ PAUL J. DOLAN
----------------------------------------
Name: Kathleen M. Dolan
Paul J. Dolan
Title: Trustees
DC DEBORAH TRUST
/s/ DEBORAH A. DOLAN
By: /s/ MARY DOLAN
----------------------------------------
Name: Deborah A. Dolan
Mary Dolan
Title: Trustees
DC MARIANNE TRUST
/s/ MARIANNE DOLAN WEBER
By: /s/ MATT DOLAN
----------------------------------------
Name: Marianne Dolan Weber
Matt Dolan
Title: Trustees
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
DC PATRICK TRUST
/s/ PATRICK F. DOLAN
By: /s/ MARY DOLAN
----------------------------------------
Name: Patrick F. Dolan
Mary Dolan
Title: Trustees
DC THOMAS TRUST
/s/ THOMAS C. DOLAN
By: /s/ MATT DOLAN
----------------------------------------
Name: Thomas C. Dolan
Matt Dolan
Title: Trustees
DC JAMES TRUST
/s/ JAMES L. DOLAN
By: /s/ PAUL J. DOLAN
----------------------------------------
Name: James L. Dolan
Paul J. Dolan
Title: Trustees
CFD TRUST NO. 1
By: /s/ JOHN MACPHERSON
----------------------------------------
Name: John MacPherson
Title: Trustee
CFD TRUST NO. 2
By: /s/ JOHN MACPHERSON
----------------------------------------
Name: John MacPherson
Title: Trustee
CFD TRUST NO. 3
By: /s/ JOHN MACPHERSON
----------------------------------------
Name: John MacPherson
Title: Trustee
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
CFD TRUST NO. 4
By: /s/ JOHN MACPHERSON
----------------------------------------
Name: John MacPherson
Title: Trustee
CFD TRUST NO. 5
By: /s/ JOHN MACPHERSON
----------------------------------------
Name: John MacPherson
Title: Trustee
CFD TRUST NO. 6
By: /s/ JOHN MACPHERSON
----------------------------------------
Name: John MacPherson
Title: Trustee
CFD TRUST NO. 10
By: /s/ JOHN MACPHERSON
----------------------------------------
Name: John MacPherson
Title: Trustee
</TABLE>
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SCHEDULE 4
(Shares of the Class B Entities)
<TABLE>
<CAPTION>
CLASS B
ENTITIES SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Charles F. Dolan..................................................................................... 4,859,281
Charles F. Dolan 1997 Grantor........................................................................ 1,240,000
Retained Annuity Trust
Dolan Descendants Trust.............................................................................. 413,625
Dolan Progeny Trust.................................................................................. 513,625
Dolan Grandchildren Trust............................................................................ 297,625
Dolan Spouse Trust................................................................................... 52,945
DC Kathleen Trust.................................................................................... 303,116
DC Deborah Trust..................................................................................... 303,116
DC Marianne Trust.................................................................................... 294,285
DC Patrick Trust..................................................................................... 294,285
DC Thomas Trust...................................................................................... 303,116
DC James Trust....................................................................................... 303,116
CFD Trust No. 1...................................................................................... 302,880
CFD Trust No. 2...................................................................................... 302,880
CFD Trust No. 3...................................................................................... 294,049
CFD Trust No. 4...................................................................................... 291,049
CFD Trust No. 5...................................................................................... 302,880
CFD Trust No. 6...................................................................................... 302,880
CFD Trust No. 10..................................................................................... 93,456
</TABLE>
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<PAGE>
APPENDIX D
CSC PARENT CORPORATION
EMPLOYEE STOCK PLAN
(1) PURPOSE. The purpose of the CSC Parent Corporation Employee Stock Plan
is to compensate key employees of the Company and its Affiliates who are and
have been largely responsible for the management and growth of the business of
the Company and its Affiliates and to advance the interests of the Company by
encouraging and enabling the acquisition of a larger personal proprietary
interest in the Company by key employees upon whose judgment and keen interest
the Company and its Affiliates are largely dependent for the successful conduct
of their operations. It is anticipated that such compensation and the
acquisition of such proprietary interest in the Company will stimulate the
efforts of such key employees on behalf of the Company and its Affiliates, and
strengthen their desire to remain with the Company and its Affiliates. It is
also expected that such compensation and the opportunity to acquire such a
proprietary interest will enable the Company and its Affiliates to attract
desirable personnel.
(2) DEFINITIONS. When used in this Plan, unless the context otherwise
requires:
(a) "Affiliate" shall mean (i) any corporation controlling, controlled
by, or under common control with the Company or any other Affiliate, (ii)
any corporation in which the Company owns at least five percent of the
outstanding shares of all classes of common shares of such corporation,
(iii) any unincorporated trade or business controlling, controlled by, or
under common control with the Company or any other Affiliate, and (iv) any
unincorporated trade or business in which the Company owns at least a five
percent interest in the capital or profits of such trade or business.
(b) "Awards" shall mean options, Rights, Restricted Shares or Bonus
Awards which are granted or made under the Plan.
(c) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted at any time.
(d) "Bonus Awards" shall mean awards made pursuant to Section 11.
(e) "Committee" shall mean the Committee of the Board of Directors, as
described in Section 3.
(f) "Company" shall mean CSC Parent Corporation, a Delaware corporation.
(g) "Executive Officer" shall mean a person who is an officer of the
Company within the meaning of Rule 16b-l(f) promulgated under the Securities
Exchange Act of 1934, as amended from time to time.
(h) "Fair Market Value" on a specified date shall mean the average of
the bid and asked closing prices at which one Share is traded on the
over-the-counter market, as reported on the National Association of
Securities Dealers Automated Quotation System, or the closing price for a
Share on the stock exchange, if any, on which such Shares are primarily
traded, but if no Shares were traded on such date, then on the last previous
date on which a Share was so traded, or, if none of the above is applicable,
the value of a Share as established by the Committee for such date using any
reasonable method of valuation.
(i) "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
(j) "Options" shall mean the stock options issued pursuant to this Plan.
D-1
<PAGE>
(k) "Performance Criteria" shall mean a goal or goals established by the
Committee and measured over a period or periods selected by the Committee,
such goal(s) to constitute a requirement that must be met prior to either
the vesting, exercise or payment of an Award under the Plan as specified by
the Committee. Unless the Committee otherwise determines at the time of
grant of an award of Restricted Shares or a Bonus Award to an Executive
Officer, the Performance Criteria with respect to such award shall be
related to at least one of the following criteria, which may be determined
by reference to the performance of the Company or an Affiliate, subdivision
or other business unit of either, or any combination of the foregoing, or
based on comparative performance relative to other companies; (i) earnings
per share, (ii) total return to stockholders, (iii) return on equity, (iv)
operating income or net income, (v) return on capital, (vi) costs, (vii)
results relative to budget, (viii) cash flow, (ix) cash margin, (x) cash
flow per subscriber, (xi) revenues, (xii) revenues per subscriber, (xiii)
subscriber growth, (xiv) results relative to quantitative customer service
standards, (xv) results relative to quantitative customer satisfaction
standards, or (xvi) a specified increase in the Fair Market Value of the
Company's Class A common stock.
(l) "Plan" shall mean the CSC Parent Corporation Employee Stock Plan.
(m) "Restricted Period" shall mean the period of time during which
Restrictions shall apply to a Restricted Share, as determined by the
Committee pursuant to Section 10 hereof.
(n) "Restricted Shares" shall mean the Shares granted pursuant to
Section 10 hereof.
(o) "Restrictions" shall mean the restrictions upon the sale,
assignment, transfer, pledge or other disposal or encumbrance on a
Restricted Share as set forth in Section 10 hereof.
(p) "Rights" shall mean the stock appreciation rights issued to the
grantee of an Option pursuant to Section 7 of the Plan to receive from the
Company cash or Shares or a combination of cash or Shares, based on the
excess of the Fair Market Value of the Shares at the time of exercise over
the exercise price of the Shares subject to the related option, subject to
the terms and conditions of the Plan.
(q) "Share" shall mean a share of Class A common stock of the Company,
par value $.0l.
(r) "Subsidiary" shall mean any "subsidiary corporation," as defined in
Section 424(f) of the Internal Revenue Code.
(3) ADMINISTRATION. The Plan shall be administered by the Committee, which
shall consist of at least three members of the Board of Directors of the Company
who shall be appointed by, and shall serve at the pleasure of, the Board of
Directors of the Company. No member of the Committee shall (i) be eligible to
receive an Award under the Plan while serving on the Committee or at any time
within one year prior to his appointment to the Committee, or (ii) receive an
award of equity securities under any other plan of the Company or any of its
Affiliates while serving on the Committee or at any time prior to his
appointment to the Committee, except as permitted by Rule 16b-3 under the
Securities Exchange Act of 1934 (the "Exchange Act") without the member ceasing
to be considered a disinterested person thereunder.
The Committee shall have full authority, subject to the terms of the Plan,
to select the persons to whom Awards shall be granted or made under the Plan, to
set the date of any such Award and any terms or conditions associated with any
such Award. The Committee also shall have the authority to establish such rules
and regulations; not inconsistent with the provisions of the Plan, for the
proper administration of the Plan and to make such determinations and
interpretations under and in connection with the Plan as it deems necessary or
advisable. The Plan, and all such rules, regulations, determinations and
interpretations, shall be binding and conclusive upon the Company, its
stockholders and all employees, and upon their respective legal representatives,
heirs, beneficiaries, successors and assigns and upon all other persons claiming
under or through any of them.
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(4) PARTICIPANTS. Except as hereinafter provided, all officers and key
employees of the Company or an Affiliate shall be eligible to receive Awards
under the Plan, except that Options that are intended to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code
shall be granted only to employees of the Company or a Subsidiary. In addition,
Charles F. Dolan shall not be eligible to receive Awards under the Plan. Nothing
herein contained shall be construed to prevent the making of one or more Awards
at the same or different times to the same employee.
(5) SHARES. The Committee may make Awards under this Plan for up to an
aggregate number of Shares equal to the sum of (i) 1,500,000 Shares, which may
be either treasury Shares or authorized but unissued Shares, and (ii) the number
of Restricted Shares, if any, purchased from employees by the Company.
Notwithstanding the foregoing, in no event shall any Participant be granted
Awards for a number of Shares exceeding 600,000 in the aggregate over the term
of the Plan. If an Award shall be paid or settled or shall expire, lapse,
terminate or be canceled for any reason without the issuance of Shares, or if
Restricted Shares shall revert back to the Company, then the Committee may grant
Awards with respect to the Shares subject to any such prior Award or the
Restricted Shares which have reverted back to the Company. Awards payable only
in cash shall not reduce the aggregate remaining number of Shares with respect
to which Awards may be made under the Plan.
The maximum number of Shares that may be issued under the Plan and the
number of Shares with respect to which Awards may be made shall be adjusted to
the extent necessary to accommodate the adjustments provided for in Section 12
hereof as well as those adjustments provided for in grants or awards made prior
to the effective date of the Plan.
(6) OPTIONS. Options granted under the Plan shall be either incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code,
or non-qualified options, as determined by the Committee in its sole discretion.
(a) TERMS AND CONDITIONS. The form, terms and conditions of each
Option shall be determined by the Committee and shall be set forth in a
certificate or agreement (the "Option Certificate") signed by the Option
holder and an officer of the Company. The Option Certificate shall state
whether or not the Option is an incentive stock option. The Committee may,
in its sole discretion, establish one or more conditions to the exercise of
an Option including, without limitation, conditions the satisfaction of
which is measured by performance criteria applicable to the recipient or the
Company, as the Committee may deem appropriate, PROVIDED that, if such
Option is designated as an incentive stock option, then such condition or
conditions shall not be inconsistent with Section 422 of the Internal
Revenue Code.
(b) EXERCISE PRICE FOR OPTIONS. The exercise price per Share of the
Shares to be purchased pursuant to any Option shall be fixed by the
Committee at the time an Option is granted, but in no event shall it be less
than the Fair Market Value of a Share on the day on which the Option is
granted. Such exercise price shall thereafter be subject to adjustment as
required by the Option certificate relating to each Option.
(c) DURATION OF OPTIONS. The duration of any Option granted under this
Plan shall be for a period fixed by the Committee but shall, except as
described in the next sentence, in no event be more than ten years.
Notwithstanding the foregoing, the Option Certificate issued in connection
with a non-qualified Option granted under this Plan may provide that, in the
event the Option holder dies while the Option is exercisable, the Option
will remain exercisable by the holder's estate or beneficiary only until the
first anniversary of the holder's date of death, and whether or not such
first anniversary occurs prior to or following the expiration of ten years
from the date the Option was granted.
(d) OPTIONS GRANTED TO TEN PERCENT STOCKHOLDERS. No Option which is
intended to qualify as an incentive stock option shall be granted under this
Plan to any employee who, at the time the Option is granted, owns, or is
considered as owning, within the meaning of Section 422 of the Internal
Revenue
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Code, shares possessing more than ten percent of the total combined voting
power or value of all classes of stock of the Company or any Subsidiary,
unless the exercise price under such Option is at least 110 percent of the
Fair Market Value of a Share on the date such Option is granted and the
duration of such option is no more than five years.
(e) INITIAL EXERCISABILITY LIMITATION. The aggregate Fair Market Value
(determined at the time that an Option is granted) of the Shares with
respect to incentive stock options granted in any calendar year under all
stock option plans of the Company or any corporation which (at the time of
the granting of such incentive stock option) was a parent or Subsidiary of
the Company, or of any predecessor corporation of any such corporation,
which are exercisable for the first time by an Option holder during any
calendar year shall not exceed $100,000.
(f) SETTLEMENT OF AN OPTION. When an Option is exercised pursuant to
Section 8 hereof, the Committee, in its sole discretion, may elect, in lieu
of issuing Shares pursuant to the terms of the Option, to settle the Option
by paying the Option holder an amount equal to the product obtained by
multiplying (i) the excess of the Fair Market Value of one Share on the date
the Option is exercised over the exercise price of the Option (the "Option
Spread") by (ii) the number of Shares with respect to which the Option is
exercised. The amount payable to the Option holder in these circumstances
shall be paid by the Company either in cash or in Shares having a Fair
Market Value equal to the Option Spread, or a combination thereof, as the
Committee shall determine at the time the Option is exercised or at the time
the Option is granted.
(7) RIGHTS. At the time an Option is granted, or anytime thereafter prior
to its expiration, the Committee, in its sole discretion, may issue to the
recipient of such Option related Rights with respect to the same number of
Shares as are covered by the Option, subject to adjustment pursuant to the terms
of Section 12 hereof. The duration of any such Right shall be coextensive with
the duration of the related Option.
(a) CONJUNCTIVE AND ALTERNATIVE RIGHTS. Such Rights shall entitle the
holder to receive cash from the Company:
i. in addition to the right to exercise the related Option (such
Rights being hereinafter referred to as "Conjunctive Rights"); and/or
ii. in lieu of the right to exercise the related Option (such Rights
being hereinafter referred to as "Alternative Rights");
as the Committee may determine, in its sole discretion, at the time the Right is
granted. If the Option holder is granted Conjunctive Rights, he may exercise
such Rights only if, and to the extent that, the related Option has been
exercised or is exercisable. If the Option holder is granted Alternative Rights,
he may exercise such Rights only to the extent such related Option is
exercisable and the exercise of such Alternative Rights shall result in the
cancellation of the related Option to the extent of the number of Shares with
respect to which such Alternative Rights have been exercised and the exercise of
the related Option shall result in the cancellation of the Alternative Rights to
the extent of the number of Shares with respect to which such Option has been
exercised.
(b) TERMS AND CONDITIONS. Upon the exercise of any Rights, the Option
holder shall be entitled to receive from the Company an amount in cash equal
to the product obtained by multiplying (i) the excess of the Fair Market
Value of one Share on the date the Rights are exercised over the exercise
price of the related Option (the "Rights Spread") by (ii) the number of
Shares with respect to which such Rights are exercised. The form, terms and
conditions of Rights shall be determined by the Committee. A certificate of
Rights (the "Rights Certificate") signed by an officer of the Company shall
be issued to each person to whom Rights are granted.
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<PAGE>
(8) EXERCISE OF OPTIONS AND RIGHTS. Except as otherwise provided herein,
an Option (and any related Rights), after the grant thereof, shall be
exercisable by the holder at such rate and times as may be fixed by the
Committee at the time the Option and the related Rights, if any, are granted;
PROVIDED, HOWEVER, that any Rights issued to the Option holder shall be
exercisable only at the times and in the amounts at which the related Option
shall be exercisable.
All or any part of any remaining unexercised Options (and any related
Rights) granted to any person shall be exercisable in full upon the occurrence
of such special circumstances or events as, in the sole discretion of the
Committee, merits special consideration.
An Option shall be exercised by the delivery to any person who has been
designated by the Company for the purpose of receiving the same, of a written
notice duly signed by the Option holder thereof (or the representative of the
estate or the heirs of a deceased Option holder) to such effect. Unless the
Company chooses to settle the Option in cash, Shares or a combination thereof
pursuant to Section 6(f) hereof, the holder of the Option shall be required to
deliver to the Company, within five days of the delivery of the notice described
above, either cash, a check payable to the order of the Company or Shares duly
endorsed over to the Company (which Shares shall be valued at their Fair Market
Value as of the date preceding the day of such exercise) or any combination of
such methods of payment, which together amount to the full exercise price of the
Shares purchased pursuant to the exercise of the Option. Notwithstanding the
preceding sentence, the Company and the holder of the Option may agree upon any
other reasonable manner of providing for payment of the exercise price of the
Option.
Any Rights may be exercised by the holder thereof (or the representative of
the estate or the heirs of a deceased Option holder), by delivery of a written
notice of exercise of such Rights, together with the Rights Certificate to any
person who has been designated by the Company for the purpose of receiving the
same. No Option (or related Rights) may be granted pursuant to the Plan or
exercised at any time when such Option or Rights, or the granting or exercise
thereof, may result in the violation of any law or governmental order or
regulation.
Unless the Committee chooses to settle an Option in cash, Shares or a
combination thereof pursuant to Section 6(f) hereof, within a reasonable time
after exercise of an Option the Company shall cause to be delivered to the
person entitled thereto (i) a certificate for the Shares purchased pursuant to
the exercise of the Option and (ii) a check for the cash payable, if any, upon
the exercise of the Rights. If the Option and/or related Rights shall have been
exercised with respect to less than all of the Shares subject to the Option, the
Company shall also cause to be delivered to the person entitled thereto a new
Option Certificate and Rights Certificate, if applicable, in replacement of the
Option Certificate and the Rights Certificate surrendered at the time of the
exercise of the Option and Rights, indicating the number of Shares with respect
to which the Option and related Rights remain available for exercise, or the
original Option Certificate and Rights Certificate, if any, shall be endorsed to
give effect to the partial exercise thereof.
(9) TERMINATION OF OPTIONS AND RIGHTS UPON TERMINATION OF EMPLOYMENT. At
the time an Option and the related Rights, if any, are granted, the Committee
shall determine the period of time during which the Option holder may exercise
such Option and related Rights, if any, following his termination of employment
with the Company and its Affiliates; PROVIDED, HOWEVER, that an Option shall be
exercisable only to the extent such Option, by its terms, is exercisable as of
the date the Option holder's employment is terminated, unless such Option is
made fully exercisable by the Committee pursuant to Section 8 hereof, and such
exercise must be accomplished prior to the expiration of the term of such Option
and related Rights. The Committee may fix different periods of time during which
such Option and related Rights may be exercised following the Option holder's
termination of employment, depending on the cause for the Option holder's
termination of employment. The Committee shall decide whether, and under what
conditions, the Options and related Rights may continue in force in the event of
an approved leave of absence.
D-5
<PAGE>
(10) RESTRICTED SHARES. The Committee, in its sole discretion, may grant
to employees the right to receive such number of Restricted Shares, as
determined by the Committee in its sole discretion.
(a) ISSUANCE. The employee shall have forty-five (45) business days
from the date of such grant to pay to the Company, in cash or by check, an
amount equal to the par value of a Share multiplied by the number of
Restricted Shares which have been granted to the employee by the Committee.
Subject to the provisions of Section 15 hereof, upon the receipt of such
payment, the Company shall issue to the employee a certificate representing
such Restricted Shares. The terms and conditions of the grant of such
Restricted Shares and the Restrictions applicable to such Shares shall be
set forth in writing, in an agreement signed by the employee and an officer
of the Company (the "Restricted Shares Agreement"). In the event the
employee fails to make payment to the Company for such Restricted Shares
within ten (10) business days of the grant thereof, the grant of Restricted
Shares shall lapse and the Committee may again grant Awards with respect to
such Shares.
(b) RESTRICTIONS ON SHARES. In no event shall a Restricted Share be
sold, assigned, transferred, pledged or otherwise disposed of or encumbered
until the expiration of the Restricted Period which relates to such
Restricted Share. As of the date the Restricted Shares are granted, the
Committee, in its sole discretion, shall specify the dates as of which, and
the number of Shares with respect to which, Restrictions upon the Restricted
Shares shall cease. Without limiting the foregoing, the Committee may
provide with respect to any grant of Restricted Shares, that the termination
of Restrictions on such Restricted Shares may be subject to, among other
things, conditions, the satisfaction of which is measured by one or more
Performance Criteria applicable to the recipient or the Company, an
Affiliate, division or other business unit, as the Committee may deem
appropriate.
(c) FORFEITURE OF RESTRICTED SHARES. If the employment of an employee
by the Company and its Affiliates ceases prior to the end of the Restricted
Period for any one of the reasons specified by the Committee at the time the
Restricted Shares are granted and set forth in the Restricted Shares
Agreement, Restricted Shares held by such employee which are subject to
Restrictions shall revert back and belong to the Company. In the event that
any Restricted Shares should revert back and belong to the Company pursuant
to this section, any stock certificate or certificates representing such
Restricted Shares shall be canceled and the Restricted Shares shall be
returned to the treasury of the Company. Upon the reversion of such
Restricted Shares, the Company shall repay to the employee or (in the case
of death) to the representative of the employee's estate, the full amount
paid to the Company by the employee for such Restricted Shares.
Notwithstanding the preceding, the Restrictions upon the Restricted Shares
shall cease and upon the termination of the employee's employment with the
Company and its Affiliates the Restricted Shares shall not revert back and
belong to the Company, upon the occurrence of such special circumstances or
events as the Committee shall determine in its sole discretion, at or after
grant, merit special consideration.
(d) RIGHT TO VOTE AND RECEIVE DIVIDENDS ON RESTRICTED SHARES. Each
holder of Restricted Shares shall, during the Restricted Period, be the
beneficial and record owner of such Restricted Shares and shall have full
voting rights with respect thereto. During the Restricted Period, all
dividends and distributions paid upon any Restricted Share shall be retained
by the Company for the account of the holder of such Restricted Share. Such
dividends and distributions shall revert back to the Company if for any
reason the Restricted Share upon which such dividends and distributions were
paid reverts back to the Company. Upon the expiration of the Restricted
Period, all dividends and distributions made on such Restricted Share and
retained by the Company will be paid to the holder.
(11) BONUS AWARDS.
(a) GRANT AND TERMS OF AWARDS. The Committee shall determine the
employees that shall receive Bonus Awards, the number of Shares to be so
awarded, and the terms and conditions of such Bonus Awards. The Committee
shall determine whether, and under what conditions, Bonus Awards
D-6
<PAGE>
shall remain in force in the event of the termination of the awardee's
employment with the Company and its Affiliates.
(b) TIME FOR ISSUANCE OF BONUS AWARDS. Each grantee of a Bonus Award
under the Plan shall receive a letter (the "Bonus Award Letter") after he
has been selected to receive such Bonus Award, which letter shall state the
terms of the Bonus Award, including, without limitation, the amount of the
Bonus Award, the number of Shares proposed to be issued to him, the vesting
schedule for such Bonus Award and the date or dates and the conditions upon
which such Bonus Award shall be paid to the grantee. Without limiting the
foregoing, the Committee may provide with respect to any Bonus Award, that
the vesting of such Bonus Award may be subject to, among other things,
conditions, the satisfaction of which is measured by one or more Performance
Criteria applicable to the recipient or the Company, an Affiliate, division
or other business unit, as the Committee may deem appropriate. The time of
issuance of Shares to any grantee may be accelerated by the Committee in its
sole discretion. The Committee, in its sole discretion, may instruct the
Company to pay on the date when Shares would otherwise be issued pursuant to
a Bonus Award, in lieu of such Shares, a cash amount equal to the number of
such Shares multiplied by the Fair Market Value of a Share on the date when
Shares would otherwise have been issued. If a grantee is entitled to receive
other stock, securities or other property as a result of adjustment,
pursuant to Section 12 hereof, the Committee, in its sole discretion, may
instruct the Company to pay, in lieu of such other stock, securities or
other property, cash equal to the fair market value thereof as determined in
good faith by the Committee.
(12) CERTAIN ADJUSTMENTS.
(a) DIVIDENDS, STOCK SPLITS, SPIN-OFFS, CONVERSIONS, ETC. If, during
the period prior to complete exercise of any Option or Right (as to such
Option or Right) or during the Restricted Period (as to Restricted Stock) or
prior to the issuance and delivery of Shares pursuant to a Bonus Award (as
to such Bonus Award) (such period being referred to herein as the "Award
Period"), there shall be declared and paid a stock or property dividend or
any other distribution by way of dividend, stock split (including a reverse
stock split), or spin-off with respect to the Shares, or if the Class A
common stock of the Company shall be converted, exchanged, reclassified or
recapitalized, or if the Shares shall be in any way substituted for in a
merger in which the entity surviving such merger or its parent is a public
Company, then:
(i) in the case of an Option or Right, the Option or Right, to the
extent that it has not been exercised, shall entitle the holder thereof
upon the future exercise of the Option or Right to such number and kind
of securities or cash or other property, subject to the terms of the
Option or Right, to which he would have been entitled had he actually
owned the Shares subject to the unexercised portion of the Option or
Right at the time of the occurrence of such dividend, stock split,
spin-off, conversion, exchange, reclassification, recapitalization or
substitution, and the aggregate purchase price upon the future exercise
of the Option or Right shall be the same as if the Shares originally
subject to the Option or Right were being purchased or used to determine
the amount of the payment to which the holder is entitled thereunder;
(ii) in the case of a Restricted Share, the holder of the Restricted
Share shall receive, subject to the provisions of Section 10(c) hereof,
the same securities or other property as are received by the other
holders of the Company's Shares pursuant to such dividend, stock split,
spin-off, conversion, exchange, reclassification, recapitalization or
substitution; and
(iii) in the case of a Bonus Award, the Bonus Award shall entitle the
holder thereof upon the future issuance and delivery of Shares pursuant
to a Bonus Award to such number and kind of securities or cash or other
property, subject to the terms of the Bonus Award, to which he would have
been entitled had he actually owned the Shares subject to the Bonus Award
at the time of the occurrence of such dividend, stock split, spin-off,
conversion, exchange, reclassification, recapitalization or substitution.
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<PAGE>
(b) OTHER EVENTS RESULTING IN DILUTION. If, during the Award Period,
there occurs any event as to which the provisions against the effect of
dilution contained in the Plan are not strictly applicable, but the failure
to make any adjustment would not fairly protect the rights represented by
the Award in accordance with the essential intent and principles thereof,
then, in each such case, the Company shall appoint a firm of independent
certified public accountants of recognized national standing, which shall
give its opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in the Plan, which they believe
is necessary to preserve without dilution, the rights represented by the
Award. Upon receipt of such opinion, the Company will promptly mail a copy
thereof to the holder and shall make the adjustment described therein.
(c) FRACTIONAL SHARES OR SECURITIES. Any fractional shares or
securities payable upon the exercise of the Option or Right or to the holder
of a Restricted Share or pursuant to a Bonus Award as a result of an
adjustment pursuant to this Section 12 shall, at the election of the
Committee, be payable in cash, Shares, or a combination thereof, based upon
the fair market value of such shares or securities at the time of exercise.
(13) NO RIGHTS OF A STOCKHOLDER. An Option holder, Rights holder or
grantee of a Bonus Award shall not be deemed to be the holder of, or have any of
the rights of a shareholder with respect to, any Shares subject to such Option,
any related Rights or the Bonus Award unless and until (i) the Option and/ or
related Rights shall have been exercised pursuant to the terms thereof or the
Shares subject to the Bonus Award shall have vested, (ii) the Company shall have
issued and delivered Shares to the Option holder or grantee of a Bonus Award,
and (iii) said holder's name shall have been entered as a shareholder of record
on the books of the Company. Thereupon, said holder shall have full voting,
dividend and other ownership rights with respect to such Shares.
The Company will not be obligated to issue or deliver any Shares unless and
until all legal matters in connection with the issuance and delivery of Shares
have been approved by the Company's counsel and the Company's counsel determines
that all applicable federal, state and other laws and regulations have been
complied with and all listing requirements for relevant stock exchanges have
been met.
(14) NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained herein or in any
Options or Rights Certificate, Restricted Share Agreement or Bonus Award Letter
shall be construed to confer on any employee any right to continue in the employ
of the Company or any Affiliate or derogate from the right of the Company and
any Affiliate to retire, request the resignation of, or discharge such employee,
at any time, with or without cause.
(15) ISSUANCE OF SHARES AND COMPLIANCE WITH THE SECURITIES LAWS.
(a) CERTAIN ASSURANCES. Before issuing or delivering any Shares to an
Option holder, or at any time prior to the end of the Restricted Period as
to any Shares, the Company may: (i) require the holder to give satisfactory
assurances that such Shares are being purchased for investment and not with
a view to resale or distribution, and will not be transferred in violation
of the applicable securities laws; (ii) restrict the transferability of such
Shares and require a legend to be endorsed on the certificates representing
the Shares; and (iii) condition the issuance and delivery of such Shares
upon the listing, registration or qualification of such Shares upon a
securities exchange or under applicable securities laws. The Company may
also condition the issuance and delivery of Shares upon compliance with all
applicable federal, state and other laws and regulations, as determined by
the Company's counsel.
(b) REGISTRATION RIGHTS INCIDENT TO AWARDS. Prior to the issuance of
Shares pursuant to an Award under the Plan, the Company will cause an
appropriate registration statement covering the shares to be issued pursuant
to the Plan to be filed with the Securities and Exchange Commission under
the Securities Act, if required, and, in any event, will cause a
registration statement covering the reoffer and resale of Shares by grantees
who may be deemed to be affiliates of the Company to be so
D-8
<PAGE>
filed, and shall use its best efforts to cause each such registration
statement to become and remain effective for a period of at least two years
from the date such Shares offered for resale were issued by the Company.
(c) LEGENDED STOCK. Each stock certificate representing Restricted
Shares shall contain an appropriate legend referring to the Plan and the
Restrictions upon such Restricted Shares. Simultaneously with delivery of
each stock certificate for Restricted Shares, the Company may cause a stop
transfer order with respect to such certificate to be placed with the
transfer agent of the Shares.
(16) WITHHOLDING. If the Company or an Affiliate shall be required to
withhold any amounts by reason of any federal, state or local tax laws, rules or
regulations in respect of the payment of cash or the issuance of Shares pursuant
to the exercise of an Option or Rights, an award of Restricted Stock or a Bonus
Award, the Company or an Affiliate shall be entitled to deduct or withhold such
amounts from any cash payments to be made to the holder. In any event, the
holder shall make available to the Company or Affiliate, promptly when requested
by the Company or such Affiliate, sufficient funds to meet the requirements of
such withholding and the Company or Affiliate shall be entitled to take and
authorize such steps as it may deem advisable in order to have such funds made
available to the Company or Affiliate out of any funds or property to become due
to the holder.
The holder may elect, subject to the approval of the Committee, to satisfy
the requirements of such tax withholding, in whole or in part, by having the
Company withhold from the Shares which would otherwise be issued to the holder
pursuant to the exercise of an Option or Rights or a Bonus Award, Shares having
a Fair Market Value which is equal to the amount of tax required to be withheld.
The election must be irrevocable and must be made on or before the date on which
the amount of tax to be withheld is determined. In addition, elections by
holders who are subject to the restrictions of Section 16(b) of the Exchange Act
either (i) must be made at least six months before the date on which the amount
of tax to be withheld is determined, or (ii) (A) must be made in the "window
period" beginning on the third business day following the release of the
Company's quarterly or annual earnings and ending on the twelfth business day
following such release, or be made outside of such "window period" but will only
take effect in such window period, and (B) must not be made within six months of
the grant or award of the Option, Right or Bonus Award (unless the holder's
death or disability occurs prior to six months from such grant or award).
(17) NON-TRANSFERABILITY OF AWARDS. Unless the Committee shall permit (on
such terms and conditions as it shall establish) an Award to be transferred to a
member of the Participant's immediate family or to a trust or similar vehicle
for the benefit of such immediate family members (collectively, the "Permitted
Transferees"), no Award shall be assignable or transferable except by will or
the laws of descent and distribution, and except to the extent required by law,
no right or interest of any Participant shall be subject to any lien, obligation
or liability of the Participant. All rights with respect to Awards granted to a
Participant under the Plan shall be exercisable during his lifetime only by such
Participant or, if applicable, the Permitted Transferees.
(18) ADMINISTRATION AND AMENDMENT OF THE PLAN. The Board of Directors or
the Committee may discontinue the Plan at any time and from time to time may
amend or revise the terms of the Plan, as permitted by applicable law, except
that it may not revoke or alter, in any manner unfavorable to the recipient of
an outstanding award under the Plan, any award made under the Plan, without the
consent of the recipient of that award, nor may it amend the Plan without the
approval of the stockholders of the Company if such approval is required by Rule
16b-3 under the Exchange Act for transactions pursuant to the Plan to continue
to be exempt thereunder.
(19) EFFECTIVE DATE. This Plan shall become effective upon its adoption by
the Board of Directors or the Committee and shall be submitted to the
stockholders of the Company for their approval. In the event that the Plan is
not approved by stockholders within 12 months of its adoption by the Board of
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<PAGE>
Directors, the Plan and any awards granted hereunder on or after the date of
adoption by the Board of Directors shall become null and void, notwithstanding
any other provisions of the Plan to the contrary.
(20) ASSUMPTION OF OPTIONS. The Committee, in its sole discretion, may,
with the consent of the Option holder, elect to treat as an Option issued under
this Plan (but not as an incentive stock Option, within the meaning of Section
422 of the Internal Revenue Code) an Option to purchase Shares (the "Assumed
Option") which has been granted by any person other than the Company to a person
who, as of the date such Assumed Option was granted, was an employee of the
Company or an Affiliate. Thereafter, such Assumed Option shall be subject to the
terms and conditions of this Plan except that for determining the exercise price
of such Assumed Option, when and to what extent such Assumed Option may be
exercised and the expiration date of such Assumed Option, the date as of which
such Option was granted by such third party shall be treated as the date of
grant for purposes of the Plan. Subject to the foregoing, to the extent that
there is any conflict between the terms and conditions of this Plan and the
Assumed Option, the terms and conditions of this Plan shall control. The number
of Shares which may be purchased upon the exercise of any Assumed Option shall
reduce, by the same amount, the number of Shares with respect to which Options,
related Rights, Restricted Shares and Bonus Awards remain to be granted under
the Plan pursuant to Section 5 hereof. In exchange for assuming an Option
granted by someone other than the Company, the Company shall receive such
consideration, if any, from such third party which the Committee, in its sole
discretion, deems appropriate.
(21) INTERPRETATION. Notwithstanding anything to the contrary in the Plan,
if any award of Restricted Shares or any Bonus Award is intended, at the time of
grant, to be "other performance-based compensation" within the meaning of
Section 162(m)(4)(C) of the Code, to the extent required to so qualify any such
Award hereunder the Committee shall not be entitled to exercise any discretion
otherwise authorized under the Plan with respect to such Award if the ability to
exercise such discretion (as opposed to the exercise of such discretion) would
cause such Award to fail to qualify as "other performance-based compensation."
(22) FINAL ISSUANCE DATE. No Awards shall be made under this Plan after
February 13, 2006.
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APPENDIX E
CSC PARENT CORPORATION
LONG-TERM INCENTIVE PLAN
(1) PURPOSES. The purposes of the CSC Parent Corporation 1997 Long-Term
Incentive Plan are (a) to advance the interests of the Company and its
shareholders by providing a means to motivate the key employees of the Company
and its Affiliates, upon whose judgment, initiative and efforts the continued
success, growth and development of the Company is dependent; (b) to link the
rewards of the key employees of the Company and its Affiliates to the
achievement of specific, critical performance objectives and goals; and (c) to
assist the Company and its Affiliates in maintaining a competitive total
compensation program that serves to attract and retain the most highly qualified
individuals.
(2) DEFINITIONS. When used in this Plan, unless the context otherwise
requires:
(a) "Affiliate" shall mean (i) any corporation controlling, controlled
by, or under common control with the Company or any other Affiliate, (ii)
any corporation in which the Company owns at least five percent of the
outstanding shares of all classes of common shares of such corporation,
(iii) any unincorporated trade or business controlling, controlled by or
under common control with the Company or any other Affiliate, and (iv) any
unincorporated trade or business in which the Company owns at least a five
percent interest in the capital or profits of such trade or business.
(b) "Award" shall mean a cash award which is granted or made under the
Plan.
(c) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted at any time.
(d) "Committee" shall mean the Committee of the Board of Directors, as
described in Section 3.
(e) "Company" shall mean CSC Parent Corporation, a Delaware corporation.
(f) "Covered Employee" means, at the time of an Award (or at such other
time as required or permitted by Section 162(m) of the Internal Revenue
Code), the Company's Chief Executive Officer (or an individual acting in
such capacity), any employee of the Company or its subsidiaries who, in the
discretion of the Committee for purposes of determining those employees who
are "covered employees" under Section 162(m) of the Internal Revenue Code,
is likely to be among the four other highest compensated officers of the
Company for the year in which an Award is made or payable and any other
employee of the Company or an Affiliate designated by the Committee in its
discretion.
(g) "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
(h) "Participant" shall mean an employee of the Company or an Affiliate
who is granted an Award by the Committee under the Plan.
(i) "Performance Criteria" shall mean a goal or goals established by the
Committee and measured over a period or periods selected by the Committee,
such goal(s) to constitute a requirement that must be met prior to the
payment, of an Award to a Covered Employee, as specified by the Committee.
Unless the Committee otherwise determines at the time of grant of an Award
to a Covered Employee, the Performance Criteria with respect to such Award
shall be related to at least one of the following criteria, which may be
determined by reference to the performance of the Company or an Affiliate,
subdivision or other business unit of either, or any combination of the
foregoing, or based on comparative performance relative to other companies:
(i) earnings per share, (ii) total return to stockholders, (iii) return on
investment, (iv) operating income or net income, (v) costs, (vi) results
relative to budget, (vii) cash flow, (viii) cash flow margin, (ix) cash flow
per subscriber, (x) revenues, (xi) revenues per subscriber, (xiii)
subscriber growth, (xii) results relative to quantitative customer service
standards, (xiv) results relative to quantitative customer satisfaction
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standards, (xv) market share, (xvi) a specified increase in the fair market
value of the Company's Class A common stock, or (xvii) a specified increase
in the private market value of the Company.
(j) "Permitted Transferees" shall have the meaning set forth in
Paragraph 9 hereof.
(k) "Plan" shall mean the Cablevision Systems Corporation 1997 Long-Term
Incentive Plan.
(3) ADMINISTRATION. The Plan shall be administered by the Committee (or a
subcommittee thereof), which shall consist of at least two members of the Board
of Directors who shall be appointed by, and shall serve at the pleasure of, the
Board of Directors, and who shall qualify to serve in such capacity by Section
162(m) of the Internal Revenue Code.
The Committee shall have full authority, subject to the terms of the Plan,
to select the persons to whom Awards shall be granted or made under the Plan, to
set the date of any such Award and any terms or conditions associated with any
such Award. The Committee also shall have the authority to establish such rules
and regulations, not inconsistent with the provisions of the Plan, for the
proper administration of the Plan and to make such determinations and
interpretations under and in connection with the Plan as it deems necessary or
advisable. The Plan, and all such rules, regulations, determinations and
interpretations, shall be binding and conclusive upon the Company, its
stockholders and all employees, and upon their respective legal representatives,
heirs, beneficiaries, successors and assigns and upon all other persons claiming
under or through any of them.
(4) PARTICIPANTS. Except as hereinafter provided, all officers and key
employees of the Company or an Affiliate shall be eligible to receive Awards
under the Plan. Charles F. Dolan shall not be eligible to receive Awards under
the Plan. Nothing herein contained shall be construed to prevent the making of
one or more Awards at the same or different times to the same employee.
(5) AWARDS. In no event shall any Participant be granted an Award at any
one time in an amount exceeding $5,000,000.
(a) TERMS AND CONDITIONS. The form, terms and conditions of each Award
shall be determined by the Committee and shall be set forth in a certificate
or agreement (the "Award Certificate") signed by the Participant and an
officer of the Company. The Committee shall, in its sole discretion,
establish one or more conditions to the entitlement to an Award including,
without limitation, conditions the satisfaction of which are measured by
Performance Criteria applicable to the Participant or the Company, as the
Committee may deem appropriate.
(b) DURATION OF AWARDS. The duration of any Award granted under this
Plan shall be for a period fixed by the Committee but shall, in no event be
more than ten years.
(6) PAYMENT OF AWARDS. Except as otherwise provided herein, a Participant
may elect to receive payment of an Award at such rate and times as may be fixed
by the Committee at the time the Award is granted.
A Participant (or the representative of the estate or heirs of a deceased
Participant) may receive all or any part of any remaining unearned Award in full
upon the occurrence of such special circumstances or events as, in the sole
discretion of the Committee, merits special consideration.
Participants shall elect to receive payment of their Awards by the delivery
to any person who has been designated by the Company for the purpose of
receiving the same, of a written notice duly signed by the Participant (or the
representative of the estate or the heirs of a deceased Participant) to such
effect.
(7) NO RIGHT TO CONTINUED EMPLOYMENT. Nothing contained herein or in any
Award Certificate shall be construed to confer on any employee any right to
continue in the employ of the Company or any Affiliate or derogate from the
right of the Company and any Affiliate to retire, request the resignation of, or
discharge such employee at any time, with or without cause.
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(8) WITHHOLDING. If the Company or an Affiliate shall be required to
withhold any amount by reason of any federal, state or local tax laws, rules or
regulations in respect of the payment of an Award to the Participant, the
Company or an Affiliate shall be entitled to deduct or withhold such amounts
from any cash payments to be made to the holder.
(9) NON-TRANSFERABILITY OF AWARDS. Unless the Committee shall permit (on
such terms and conditions as it shall establish) an Award to be transferred to a
member of the Participant's immediate family or to a trust or similar vehicle
for the benefit of such immediate family members (collectively, the "Permitted
Transferees"), no Award shall be assignable or transferable except by will or
the laws of descent and distribution, and except to the extent required by law,
no right or interest of any Participant shall be subject to any lien, obligation
or liability of the Participant.
(10) ADMINISTRATION AND AMENDMENT OF THE PLAN. The Board of Directors or
the Committee may discontinue the Plan at any time and from time to time may
amend or revise the terms of the Plan, as permitted by applicable law, except
that it may not revoke or alter, in any manner unfavorable to the recipient of
an outstanding Award under the Plan, any Award made under the Plan, without the
consent of the recipient of that Award.
(11) EFFECTIVE DATE. This Plan shall become effective as of January 1,
1997, and shall be submitted to the stockholders of the Company for their
approval. In the event that the Plan is not approved by stockholders within 12
months of its adoption by the Board of Directors, the Plan and any Awards
granted hereunder on or after January 1, 1997 shall become null and void,
notwithstanding any other provisions of the Plan to the contrary.
(12) FINAL ISSUANCE DATE. No Awards shall be made under this Plan after
December 31, 2006.
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APPENDIX F
TERMS OF RESTRUCTURING AGREEMENT
TERMS:
1. Simultaneously with the Contribution Closing and/or the Partnership
Contribution, or thereafter, Parent may transfer or cause to be transferred
all or part of the Acquired Assets, the Assumed Liabilities and the
Contributed Subsidiary Capital Stock to one or more direct Subsidiaries of
Parent (each a "First-Tier Transferee Subsidiary") or to one or more direct
Subsidiaries of a First-Tier Transferee Subsidiary.
2. The stock of one or more of the First-Tier Transferee Subsidiaries may be
transferred to an entity that is a member of the CSC Group and that holds
directly or indirectly the other cable properties of the CSC Group.
3. Notwithstanding anything to the contrary in the foregoing paragraphs, (a)
the stock of each First-Tier Transferee Subsidiary shall continue to be held
directly by Parent for a period of at least one year after the Closing Date
and (b) CSC will not transfer or distribute to Parent substantially all of
its assets outside the ordinary course of business and will not be merged
into Parent or liquidated or wound-up for a period of at least one year
after the Closing Date, unless in the case of (a) or (b) either (i) the
Company has consented to the stock of such First-Tier Transferee
Subsidiaries ceasing to be held directly by Parent, or to such transfer,
distribution, merger, liquidation or winding-up of CSC, as applicable, or
(ii) CSC or Parent has obtained a ruling from the Internal Revenue Service
to the effect that a transaction pursuant to which the stock of such
First-Tier Transferee Subsidiaries ceases to be held directly by Parent
prior to the expiration of such one-year period, or pursuant to which CSC
transfers or distributes substantially of its assets to Parent or is merged,
liquidated or wound-up, as applicable, will not cause the Contribution and
the Merger not to qualify as an exchange governed by Section 351 of the
Code. As of the date of this Agreement, there is no plan or intention to
undertake any transaction that would cause the Contribution and the Merger
not to qualify as an exchange governed by Section 351 of the Code.
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APPENDIX G
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CSC PARENT CORPORATION
FIRST: The name of this corporation (hereinafter called the "corporation")
is CSC Parent Corporation.
SECOND: The name and address, including street, number, city and county, of
the registered office of the corporation in the State of Delaware is The
Corporation Service Company, 1013 Centre Road, City of Wilmington, County of New
Castle.
THIRD: The nature of the business and of the purposes to be conducted and
promoted by the corporation are to conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue shall be 290,000,000 shares: (a) 200,000,000 shares of Class
A Common Stock, par value $.01 per share ("Class A Common Stock"), (b)
80,000,000 shares of Class B Common Stock, par value $.01 per share ("Class B
Common Stock"), and (c) 10,000,000 shares of Preferred Stock, par value $.01 per
share ("Preferred Stock").
The following is a statement of (a) the designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of each of the Class A
Common Stock and the Class B Common Stock and (b) the authority expressly vested
in the Board of Directors hereunder with respect to the issuance of series of
Preferred Stock:
A. Class A Common Stock and Class B Common Stock:
I. Priority of Preferred Stock.
Each of the Class A Common Stock and Class B Common Stock is subject to
all the powers, rights, privileges, preferences and priorities of any series
of Preferred Stock as are stated and expressed herein and as shall be stated
and expressed in any Certificates of Designations filed with respect to any
series of Preferred Stock pursuant to authority expressly granted to and
vested in the Board of Directors by the provisions of Paragraph B of this
Article FOURTH.
II. Dividends.
Subject to (a) the rights of the holders of Series A Preferred Stock and
Series B Preferred Stock, (b) any other provisions of the Certificate of
Incorporation of the corporation, as amended from time to time, and (c) the
provisions of any Certificates of Designations filed with respect to any
series of Preferred Stock, holders of Class A Common Stock and Class B
Common Stock shall be entitled to receive equally on a per share basis such
dividends and other distributions in cash, stock or property of the
corporation as may be declared thereon by the Board of Directors from time
to time out of assets or funds of the corporation legally available
therefor; provided that the Board of Directors shall declare no dividend,
and no dividend shall be paid, with respect to any outstanding share of
Class A Common Stock or Class B Common Stock, whether paid in cash or
property (including, without limitation, shares of Class A Common Stock paid
on or with respect to shares of Class A Common Stock or shares of Class B
Common Stock paid on or with respect to shares of Class B Common Stock
(collectively, "Stock Dividends")), unless, simultaneously, the same
dividend (in the case of Stock Dividends, stock of the class on or with
respect to which the dividend is paid in the same percentage, relative to
the total number of shares of such class, issued and outstanding immediately
prior to the payment of such dividend, as the Stock Dividend on or with
respect to the other class bears to the
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number of shares of such class issued and outstanding immediately prior to
the payment of such dividend) is paid with respect to each share of Class A
Common Stock and Class B Common Stock. Stock Dividends with respect to Class
A Common Stock may only be paid with shares of Class A Common Stock. Stock
Dividends with respect to Class B Common Stock may only be paid with shares
of Class B Common Stock.
III. Voting.
(a) Except as otherwise required (i) by statute, (ii) pursuant to the
provisions of the Certificate of Incorporation of the corporation, as
amended from time to time, or (iii) pursuant to the provisions of any
Certificates of Designations filed with respect to any series of Preferred
Stock, the Class A Common Stock and Class B Common Stock shall have the sole
right and power to vote on all matters on which a vote of stockholders is to
be taken. At every meeting of the stockholders, each holder of Class A
Common Stock shall be entitled to cast one (1) vote in person or by proxy
for each share of Class A Common Stock standing in his or her name on the
transfer books of the corporation and each holder of Class B Common Stock
shall be entitled to cast ten (10) votes in person or by proxy for each
share of Class B Common Stock standing in his or her name on the transfer
books of the corporation. Except in the election of directors of the
corporation (voting in respect of which shall be governed by the terms set
forth in subsections (b) and (c) of this Section III) and as may be
otherwise required (i) by statute (ii) pursuant to the provisions of the
Certificate of Incorporation of the corporation, as the same may be amended
from time to time, or (iii) pursuant to the provisions of any Certificates
of Designation filed with respect to any series of Preferred Stock, the
holders of Class A Common Stock and Class B Common Stock shall vote together
as a single class; provided, however, that the affirmative vote or consent
of the holders of at least 66 2/3% of the outstanding shares of Class B
Common Stock, voting separately as a class, shall be required for (i) the
authorization or issuance of any additional shares of Class B Common Stock
and (ii) any amendment, alteration or repeal of any of the provisions of the
Certificate of Incorporation of the corporation which adversely affects the
powers, preferences or rights of the Class B Common Stock.
(b) With respect to the election of directors, holders of Class A Common
Stock shall vote as a separate class and be entitled to be elect 25% of the
total number of directors (the "Class A Directors") elected by the holders
of Class A Common Stock and Class B Common Stock (the "Common Stock
Directors") and, if such 25% is not a whole number, then the holders of
Class A Common Stock shall be entitled to elect the nearest higher whole
number of directors that is at least 25% of the total number of Common Stock
Directors, so long as the number of outstanding shares of Class A Common
Stock is at least 10% of the total number of outstanding shares of both
classes of common stock. Holders of Class B Common Stock, voting as a
separate class, shall be entitled to elect the remaining Common Stock
Directors. If, on the record date for any stockholder meeting at which
directors are to be elected, the number of outstanding shares of Class A
Common Stock is less than 10% of the total number of outstanding shares of
common stock, however, the holders of the Class A Common Stock and the Class
B Common Stock shall vote together as a single class with respect to the
election of Common Stock Directors and the holders of Class A Common Stock
shall not have the right to elect 25% of the number of such directors, but
shall have one (1) vote per share for all Common Stock Directors and the
holders of the Class B Common Stock shall have ten (10) votes per share for
all Common Stock Directors. If, on the record date for any stockholder
meeting at which Common Stock Directors are to be elected, the number of
outstanding shares of 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 Class A Common Stock, voting as a separate class, shall continue
to elect a number of Class A Directors equal to 25% of the total number of
Common Stock Directors and, in addition, shall vote together with the
holders of Class B Common Stock to elect the remaining Common Stock
Directors to be elected at such meeting, with the holders of Class A Common
Stock entitled to one (1) vote per share for all Common Stock Directors and
the holders of Class B Common Stock entitled to ten (10) votes per share for
all Common Stock Directors.
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(c) Any vacancy in the office of a Common Stock Director elected by the
holders of Class A Common Stock voting as a separate class may be filled by
a vote of such holders voting as a separate class and any vacancy in the
office of a Common Stock Director elected by the holders of Class B Common
Stock voting as a separate class may be filled by a vote of such holders
voting as a separate class or, in the absence of a stockholder vote, in the
case of a vacancy in the office of a Common Stock Director elected by either
class, such vacancy may be filled by the remaining directors. Any director
elected by the Board of Directors to fill a vacancy shall serve until the
next annual meeting of stockholders and until his or her successor has been
elected and has qualified. If the Board of Directors increases the number of
directors in accordance with Article FIFTH of the Certificate of
Incorporation of the corporation, any vacancy so created may be filled by
the Board of Directors; provided that, so long as the holders of Class A
Common Stock have the rights provided in subsections (b) and (c) of this
Section III in respect of the last preceding annual meeting of stockholders
to elect 25% of the total number of Common Stock Directors, the Board of
Directors may be so enlarged by the directors only to the extent that at
least 25% of the enlarged board consists of Common Stock Directors elected
by the holders of Class A Common Stock or of persons appointed to fill
vacancies created by the death, resignation or removal of persons elected by
the holders of Class A Common Stock.
(d) Notwithstanding anything in this Section III to the contrary, the
holders of Class A Common Stock shall have exclusive voting power on all
matters upon which, pursuant to the Certificate of Incorporation of the
corporation or applicable laws, the holders of common stock are entitled to
vote, at any time when no shares of Class B Common Stock are issued and
outstanding.
(e) Wherever any provision of the Certificate of Incorporation of the
corporation sets forth a specific percentage of the shares outstanding and
entitled to vote which is required for approval or ratification of any
action upon which the vote of the stockholders is required or may be
obtained, such provision shall mean such specified percentage of the votes
entitled to be cast by holders of shares then outstanding and entitled to
vote on such action.
IV. Conversion Rights.
(a) Subject to the terms and conditions of this Article FOURTH, each
share of Class B Common Stock shall be convertible at any time or from time
to time, at the option of the holder thereof, at the office of any transfer
agent for such Class B Common Stock and at such other place or places, if
any, as the Board of Directors may designate, or, if the Board of Directors
shall fail so to designate, at the principal office of the corporation
(attention of the Secretary of the corporation), into one (1) fully paid and
non-assessable share of Class A Common Stock. Upon conversion, the
corporation shall make no payment or adjustment on account of dividends
accrued or in arrears on Class B Common Stock surrendered for conversion or
on account of any dividends on the Class A Common Stock issuable on such
conversion. Before any holder of Class B Common Stock shall be entitled to
convert the same into Class A Common Stock, he or she shall surrender the
certificate or certificates for such Class B Common Stock at the office of
said transfer agent (or other place as provided above), which certificate or
certificates, if the corporation shall so request, shall be duly endorsed to
the corporation or in blank or accompanied by proper instruments of transfer
to the corporation or in blank (such endorsements or instruments of transfer
to be in form satisfactory to the corporation, and shall give written notice
to the corporation at said office that he or she elects so to convert said
Class B Common Stock in accordance with the terms of this Section IV, and
shall state in writing therein the name or names in which he or she wishes
the certificate or certificates for Class A Common Stock to be registered.
Every such notice of election to convert shall constitute a binding contract
between the holder of such Class B Common Stock and the corporation, whereby
the holder of such Class B Common shall be deemed to subscribe for the
amount of Class A Common Stock which he or she shall be entitled to receive
upon such conversion, and, in satisfaction of such subscription, to deposit
the Class B Common Stock to be converted and to release the corporation from
all liability thereunder, and thereby the corporation shall be deemed to
agree that the surrender of the certificate
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or certificates therefor and the extinguishment of liability thereon shall
constitute full payment of such subscription for Class A Common Stock to be
issued upon such conversion. The corporation will as soon as practicable
after such deposit of a certificate or certificates for Class B Common
Stock, accompanied by the written notice and the statement above prescribed,
issue and deliver at the office of said transfer agent (or other place as
provided above) to the person for whose account such Class B Common Stock
was so surrendered, or to his nominee or nominees, a certificate or
certificates for the number of full shares of Class A Common Stock to which
he shall be entitled as aforesaid. Subject to the provisions of subsection
(d) of this Section IV, such conversion shall be deemed to have been made as
of the date of such surrender of the Class B Common Stock to be converted;
and the person or persons entitled to receive the Class A Common Stock
issuable upon conversion of such Class B Common Stock shall be treated for
all purposes as the record holder or holders of such Class A Common Stock on
such date. Upon conversion of shares of Class B Common Stock, shares of
Class B Common Stock so converted will be canceled and retired by the
corporation, such shares shall not be reissued and the number of shares of
Class B Common Stock which the corporation shall have authority to issue
shall be decreased by the number of shares of Class B Common Stock so
converted and the Board of Directors shall take such steps as are required
to so retire such shares.
(b) The issuance of certificates for shares of Class A Common Stock upon
conversion of shares of Class B Common Stock shall be made without charge
for any stamp or other similar tax in respect of such issuance. However, if
any such certificate is to be issued in a name other than that of the holder
of the share or shares of Class B Common Stock converted, the person or
persons requesting the issuance thereof shall pay to the corporation the
amount of any tax which may be payable in respect of any transfer involved
in such issuance or shall establish to the satisfaction of the corporation
that such tax has been paid or that no such tax is due.
(c) The Corporation shall not be required to convert Class B Common
Stock, and no surrender of Class B Common Stock shall be effective for that
purpose, while the stock transfer books of the corporation are closed for
any purpose; but the surrender of Class B Common Stock for conversion during
any period while such books are closed shall be deemed effective for
conversion immediately upon the reopening of such books, as if the
conversion had been made on the date such Class B Common Stock was
surrendered.
(d) The corporation will at all times reserve and keep available, solely
for the purpose of issue upon conversion of the outstanding shares of Class
B Common Stock, such number of shares of Class A Common Stock as shall be
issuable upon the conversion of all such outstanding shares, provided that
nothing contained herein shall be construed to preclude the corporation from
satisfying its obligations in respect of the conversion of the outstanding
shares of Class B Common Stock by delivery of shares of Class A Common Stock
which are held in the treasury of the corporation. The corporation covenants
that if any shares of Class A Common Stock, required to be reserved for
purposes of conversion hereunder, require registration with or approval of
any governmental authority under any federal or state law before such shares
of Class A Common Stock may be issued upon conversion, the corporation will
use its best efforts to cause such shares to be duly registered or approved,
as the case may be. The corporation will endeavor to list the shares of
Class A Common Stock required to be delivered upon conversion prior to such
delivery upon each national securities exchange, if any, upon which the
outstanding Class A Common Stock is listed at the time of such delivery. The
corporation covenants that all shares of Class A Common Stock which shall be
issued upon conversion of the shares of Class B Common Stock will, upon
issue, be fully paid and non-assessable and not entitled to any preemptive
rights.
V. Liquidation Rights.
In the event of any dissolution, liquidation or winding up of the
affairs of the corporation, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities of the
corporation and after payment in full of the amounts to be paid to holders
of Series A Preferred Stock and Series B Preferred Stock as set forth in
Section (B) (II) and to holders of
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Preferred Stock as set forth in any Certificates of Designations filed with
respect thereto, the remaining assets and funds of the corporation shall be
divided among and paid ratably to the holders of Class A Common Stock and
Class B Common Stock (including those persons who shall become holders of
Class A Common Stock by reason of the conversion of their shares of Class B
Common Stock) as a single class. For the purposes hereof, the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all the property
or assets of the corporation shall be deemed a voluntary liquidation,
dissolution or winding up of the corporation, but a consolidation or merger
of the corporation with one or more other corporations shall not be deemed
to be a liquidation, dissolution or winding up, voluntary or involuntary.
VI. Reclassifications, Etc.
Neither the Class A Common Stock nor the Class B Common Stock may be
subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the other classes of common stock are
subdivided, consolidated, reclassified or otherwise changed in the same
proportion and in the same manner.
VII. Mergers, Consolidations, Etc.
In any merger, consolidation or business combination of the corporation
with or into another corporation, whether or not the corporation is the
surviving corporation, the consideration per share to be received by holders
of Class A Common Stock and Class B Common Stock in such merger,
consolidation or business combination 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 to the extent and only to the extent that the
voting rights of the Class A Common Stock and Class B Common Stock differ as
provided herein.
VIII. Rights and Warrants.
In case the corporation shall issue rights or warrants to purchase
shares of capital stock of the corporation, the terms of the rights and
warrants, and the number of rights or warrants per share, to be received by
holders of Class A Common Stock or Class B Common Stock must be identical to
that received by holders of the other classes of common stock, except that
the shares of capital stock into which such rights or warrants are
exercisable may differ as to voting rights to the extent and only to the
extent that the voting rights of the Class A Common Stock and Class B Common
Stock differ as provided herein.
B. Preferred Stock.
I. Issuance.
Preferred Stock may be issued from time to time in one or more series,
the shares of each series to have such powers, designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as are stated and
expressed herein or in a Certificate or Certificates of Designations
providing for the issuance of such series, adopted by the Board of Directors
as hereinafter provided.
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II. Powers of the Board of Directors.
Authority is hereby expressly granted to the Board of Directors to
authorize the issue of one or more series of Preferred Stock, and with
respect to each series to set forth in a Certificate or Certificates of
Designations provisions with respect to the issuance of such series:
(a) The maximum number of shares to constitute such series and the
distinctive designation thereof;
(b) Whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights;
(c) The dividend rate, if any, on the shares of such series, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the dividends
payable on any other class or classes or on any other series of capital
stock, and whether such dividends shall be cumulative or non-cumulative;
(d) Whether the shares of such series shall be subject to redemption by
the corporation, and, if made subject to redemption, the times, prices and
other terms and conditions of such redemption;
(e) The rights of the holders of shares of such series upon the
liquidation, dissolution or winding up of the corporation;
(f) Whether or not the shares of such series shall be subject to the
operation of a retirement or sinking fund, and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or to
other corporate purposes and the terms and provisions relative to the
operation thereof;
(g) Whether or not the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or classes, or of
any other series of the same class, and if so convertible or exchangeable,
the price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same;
(h) The limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or
making of other distributions on, and upon the purchase, redemption or other
acquisition by the corporation of the Class A Common Stock, the Class B
Common Stock or any other class or classes of stock of the corporation
ranking junior to the shares of such series either as to dividends or upon
liquidation;
(i) The conditions or restrictions, if any, upon the creation of
indebtedness of the corporation or upon the issue of any additional stock
(including additional shares of such series or of any other series or of any
other class) ranking on a parity with or prior to the shares of such series
as to dividends or distribution of assets on liquidation, dissolution or
winding up; and
(j) Any other preference and relative, participating, optional, or other
special rights, and qualifications, limitations or restrictions thereof as
shall not be inconsistent with this Article FOURTH.
III. Ranking.
All shares of any one series of Preferred Stock shall be identical with
each other in all respects, except that shares of any one series issued at
different times may differ as to the dates from which dividends, if any,
thereon shall be cumulative; and all series shall rank equally and be
identical in all respects, except as permitted by the foregoing provisions
of Section II hereof; and all shares of Preferred Stock shall rank senior to
the common stock both as to dividends and upon liquidation.
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IV. Liquidation Rights.
In the event of any liquidation, dissolution or winding up of the
corporation, before any payment or distribution of the assets of the
corporation (whether capital or surplus) shall be made to or set apart for
the holders of any class or classes of stock of the corporation ranking
junior to the Preferred Stock upon liquidation, the holders of the shares of
the Preferred Stock shall be entitled to receive payment at the rate fixed
herein or in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such series, plus (if dividends on shares of such
series of Preferred Stock shall be cumulative) an amount equal to all
dividends (whether or not earned or declared) accumulated to the date of
final distribution to such holders; but they shall be entitled to no further
payment. If, upon any liquidation, dissolution or winding up of the
corporation, the assets of the corporation, or proceeds thereof,
distributable among the holders of the shares of the Preferred Stock shall
be insufficient to pay in full the preferential amount aforesaid, then such
assets, or the proceeds thereof, shall be distributed among such holders
ratably in accordance with the respective amounts which would be payable on
such shares if all amounts payable thereon were paid in full. For the
purposes of this Section IV, the voluntary sale, conveyance, exchange or
transfer (for cash, shares of stock, securities, or other consideration) of
all or substantially all the property or assets of the corporation shall be
deemed a voluntary liquidation, dissolution or winding up of the
corporation, but a consolidation or merger of the corporation with one or
more other corporations shall not be deemed to be liquidation, dissolution
or winding up, voluntary or involuntary.
V. Voting.
Except as shall be otherwise stated and expressed herein or in the
Certificate or Certificates of Designations adopted by the Board of
Directors with respect to the issuance of any series of Preferred Stock and
except as otherwise required by the laws of the State of Delaware, the
holders of shares of Preferred Stock shall have, with respect to such
shares, no right or power to vote on any question or in any proceeding or to
be represented at, or to receive notice of, any meeting of stockholders.
FIFTH: The management of the business and the conduct of the affairs of the
corporation, including the election of the Chairman, if any, the President, the
Treasurer, the Secretary, and other principal officers of the corporation, shall
be vested in its Board of Directors. The number of directors of the corporation
shall be fixed by the By-Laws of the corporation and may be altered from time to
time as provided therein. A director shall be elected to hold office until the
expiration of the term for which such person is elected, and until such person's
successor shall be duly elected and qualified.
SIXTH: The name and mailing address of the incorporator are as follows:
Melissa L. Halbach-Merz, Sullivan & Cromwell, 125 Broad Street, New York, New
York 10004.
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this corporation as a consequence of such compromise or arrangement, and the
said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
corporation, as the case may be, and also on this corporation.
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EIGHTH: The original By-Laws of the corporation shall be adopted by the
incorporator. Thereafter, the power to make, alter, or repeal the By-Laws, and
to adopt any new By-Law, shall be vested in the Board of Directors and the
stockholders entitled to vote in the election of directors.
NINTH: The corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, or by any successor thereto, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section. Such right to indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person. The indemnification provided for herein shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise.
No director of this corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that this paragraph shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
this corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit.
TENTH: No contract or transaction between the corporation and one or more
of its directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if:
(A) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(B) The material facts as this relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(C) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders.
Common or interested directors may be counted in the presence of a
quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
IN WITNESS WHEREOF, CSC Parent Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed this 14th day of January,
1998.
CSC Parent Corporation
/s/_ANDREW ROSENGARD
Andrew Rosengard
Executive Vice President, Financial
Planning and Controller
Attest:
/s/_ ROBERT S. LEMLE
Robert S. Lemle
Secretary
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APPENDIX H
BY-LAWS
OF
CSC PARENT CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the corporation
shall be entitled to have a certificate signed by, or in the name of, the
corporation by the Chairman, the Chief Executive Officer or Vice Chairman, if
any, or by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation certifying the number of shares owned by him in the corporation. If
such certificate is countersigned by a transfer agent other than the corporation
or its employee or by a registrar other than the corporation or its employee,
any other signature on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one class of
stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen, or
destroyed, and the Board of Directors may require the owner of any lost, stolen,
or destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss, theft, or destruction of any such
certificate or the issuance of any such new certificate.
2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. In lieu thereof it shall either pay in
cash the fair value of fractions of a share, as determined by the Board of
Directors, to those entitled thereto or issue scrip or fractional warrants in
registered or bearer form over the manual or facsimile signature of an officer
of the corporation or of its agent, exchangeable as therein provided for full
shares, but such scrip or fractional warrants shall not entitle the holder to
any rights of a stockholder except as therein provided. Such scrip or fractional
warrants may be issued subject to the condition that the same shall become void
if not exchanged for certificates representing full shares of stock before a
specified date, or subject to the condition that the shares of stock for which
such scrip or fractional warrants are exchangeable may be sold by the
corporation and the proceeds thereof distributed to the holders of such scrip or
fractional warrants, or subject to any other conditions which the Board of
Directors may determine.
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3. STOCK TRANSFERS. Upon compliance with provisions restricting the transfer
or registration of transfer of shares of stock, if any, transfers or
registration of transfer of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to any corporate action in
writing without a meeting, or for the purpose of determining stockholders
entitled to receive payment of any dividend or other distribution or the
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other lawful
action, the directors may fix, in advance, a date as the record date for any
such determination of stockholders. Such date shall not be more than sixty days
nor less than ten days before the date of such meeting, nor more than sixty days
prior to any other action. If no record date is fixed, the record date for the
determination of stockholders entitled (a) to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held and (b) to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed; the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. When a determination
of stockholders of record entitled to notice of or to vote at any meeting of
stockholders has been made as provided in this paragraph, such determination
shall apply to any adjournment thereof; PROVIDED, HOWEVER, that the Board of
Directors may fix a new record date for the adjourned meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term 'share' or 'shares' or 'share of stock' or 'shares of
stock' or 'stockholder' or 'stockholders' refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; PROVIDED, HOWEVER, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, including any Preferred Stock
which is denied voting rights under the provisions of the resolution or
resolutions adopted by the Board of Directors with respect to the issuance
thereof.
6. STOCKHOLDER MEETINGS.
TIME. The annual meeting shall be held on the date and at the time fixed,
from time to time, by the directors, PROVIDED, that the first annual meeting
shall be held on a date within thirteen months after the organization of the
corporation, and each successive annual meeting shall be held on a date within
thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
PLACE. Annual meetings and special meetings shall be held at such place,
within or without the State of Delaware, as the directors may, from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
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CALL. Annual meetings and special meetings may be called by resolution of
the Board of Directors only.
NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be given,
stating the place, date, and hour of the meeting. The notice of an annual
meeting shall state that the meeting is called for the election of directors and
for the transaction of other business which may properly come before the
meeting, and shall (if any other action which could be taken at a special
meeting is to be taken at such annual meeting), state such other action or
actions as are known at the time of such notice. The notice of a special meeting
shall in all instances state the purpose or purposes for which the meeting is
called. If any action is proposed to be taken which would, if taken, entitle
stockholders to receive payment for their shares of stock, the notice shall
include a statement of that purpose and to that effect. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten days nor more than
sixty days before the date of the meeting, unless the lapse of the prescribed
period of time shall have been waived, and directed to each stockholder at his
record address or at such other address which he may have furnished for such
purpose in writing to the Secretary of the corporation. Notice by mail shall be
deemed to be given when deposited, with postage thereof prepaid, in the United
States mail. If a meeting is adjourned to another time, not more than thirty
days hence, and/or to another place, and if an announcement of the adjourned
time and/or place is made at the meeting, it shall not be necessary to give
notice of the adjourned meeting unless the directors, after adjournment, fix a
new record date for the adjourned meeting. Notice need not be given to any
stockholder who submits a written waiver of notice by him before or after the
time stated therein. Attendance of a person at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders need be specified in any
written waiver of notice.
STOCKHOLDER LIST. There shall be prepared and made, at least ten days before
every meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by
one of the following officers in the order or seniority and if present and
acting, the Chairman, if any, the Chief Executive Officer, if any, a Vice
Chairman, if any, the President, a Vice President, a chairman for the meeting
chosen by the Board of Directors, or, if none of the foregoing is in office and
present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present, the chairman for the meeting shall appoint a secretary of
the meeting. The presiding officer shall: call the meeting to order; determine
when proxies must be filed with the secretary of the meeting; open the polls,
establish the time period for which polls remain open and close the polls;
decide who may address the meeting and generally determine the order of business
and time for adjournment of the meeting. The presiding officer shall also
maintain proper and orderly conduct, and shall take all means reasonably
necessary to prevent or cease disruptions, personal attacks or inflammatory
remarks at the
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meeting. In addition to the powers and duties specified herein, the presiding
officer shall have the authority to make all other determinations necessary for
the order and proper conduct of the meeting.
PROXY REPRESENTATION. Every Stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
INSPECTORS AND JUDGES. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election or judges of the vote, as
the case may be, to act at the meeting or any adjournment thereof. If an
inspector or inspectors or judge or judges are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors or
judges. In case any person who may be appointed as an inspector or judge fails
to appear or act, the vacancy may be filled by appointment made by the person
presiding thereat. Each inspector or judge, if any, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector or judge at such meeting with strict impartiality and
according to the best of his ability. The inspectors or judges, if any, shall
determine the number of shares of stock outstanding and the voting power of
each, the shares of stock represented at the meeting, the existence of a quorum,
the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors or judge or judges, if any, shall make
a report in writing of any challenge, question or matter determined by him or
them and execute a certificate of any fact found by him or them.
QUORUM. Except as the General Corporation Law or these by-laws may otherwise
provide, the holders of a majority of the votes represented by the outstanding
shares of stock entitled to vote shall constitute a quorum at a meeting of
stockholders for the transaction of any business; PROVIDED, HOWEVER, that if the
certificate of incorporation or General Corporation Law provides that voting on
a particular action is to be by class, a majority of the votes represented by
the outstanding shares of stock of such class shall constitute a quorum at a
meeting of stockholders for the authorization of such action. The stockholders
present may adjourn the meeting despite the absence of a quorum. When a quorum
is once present to organize a meeting, it is not broken by the subsequent
withdrawal of any stockholders.
VOTING. Except as otherwise provided in these by-laws, the certificate of
incorporation or, with respect to Preferred Stock, the resolution or resolutions
of the Board of Directors providing for the issuance thereof, and except as
otherwise provided by the General Corporation Law, at every meeting of the
stockholders, each stockholder entitled to vote at such meeting shall be
entitled to the number of votes as specified, and to the extent provided for, in
the certificate of incorporation or, with respect to Preferred Stock, the
resolution or resolutions of the Board of Directors providing the issuance
thereof, in person or by proxy, for each share of stock entitled to vote held by
such stockholder. In the election of directors, a plurality of the votes cast by
each class of stock, voting separately as a class, shall elect the directors for
such class is authorized to elect as specified, and to the extent provided for,
in the certificate of incorporation. Any other action shall be authorized by a
majority of the votes cast except where the certificate of incorporation of the
General Corporation Law prescribes a different percentage of votes and/ or a
different exercise of voting power. Voting by ballot shall not be required for
corporate action except as otherwise provided by the General Corporation Law.
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ADVANCE NOTICE OF STOCKHOLDER PROPOSALS. At any annual or special meeting of
stockholders, proposals by stockholders and persons nominated for election as
directors by stockholders shall be considered only if advance notice thereof has
been timely given as provided herein. Notice of any proposal to be presented by
any stockholder or of the name of any person to be nominated by any stockholder
for election as a director of the Corporation at any meeting of stockholders
shall be given to the Secretary of the Corporation not less than 60 nor more
than 90 days prior to the date of the meeting; PROVIDED, HOWEVER, that if the
date if the meeting is publicly announced or disclosed less than 70 days prior
to the date of the meeting, such notice shall be given not more than ten days
after such date is first so announced or disclosed. No additional public
announcement or disclosure of the date of any annual meeting of stockholders
need be made if the Corporation shall have previously disclosed, in these
by-laws or otherwise, that the annual meeting in each year is to be held on a
determinable date, unless and until the Board determines to hold the meeting on
a different date. Any stockholder who gives notice of any such proposal shall
deliver therewith the text of the proposal to be presented and a brief written
statement of the reasons why such stockholder favors the proposal and setting
forth such stockholder's name and address, the number and class of all shares of
each class of stock of the Corporation beneficially owned by such stockholder
and any material interest of such stockholder in the proposal (other than as a
stockholder). Any stockholder desiring to nominate any person for election as a
director of the Corporation shall deliver with such notice a statement in
writing setting forth the name of the person to be nominated, the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such person, the information regarding such person required by paragraphs
(d), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and
Exchange Commission (or the corresponding provisions of any regulation
subsequently adopted by the Securities and Exchange Commission applicable to the
Corporation), such person's signed consent to serve as a director of the
Corporation if elected, such stockholder's name and address and the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such stockholder. As used herein, shares 'beneficially owned' shall mean all
shares as to which such person, together with such person's affiliates and
associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934),
may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the
Securities and Exchange Act of 1934, as well as all shares as to which such
person, together with such person's affiliates and associates, has the right to
become the beneficial owner pursuant to any agreement or understanding, or upon
the exercise of warrant, options or rights to convert or exchange (whether such
rights are exercisable immediately or only after the passage of time or the
occurrence of conditions). The person presiding at the meeting shall determine
whether such notice has been duly given and shall direct that proposals and
nominees not be considered if such notice has not been given.
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Except as provided in the
certificate of incorporation, any action required to be taken, or any action
which may be taken, at any annual or special meeting of stockholder, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
the outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or to take such action under the provisions of
the General Corporation Law or the certificate of incorporation at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITIONS. The business of the corporation shall be
managed by the Board of Directors of the corporation. The use of the phrase
'whole Board of Directors' herein refers to the total number of directors which
the corporation would have if there were no vacancies.
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2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of ten persons. Thereafter the number
of directors constituting the whole Board of Directors shall be at least three.
Subject to the foregoing limitation and except for the first Board of Directors,
such number may be fixed from time to time by action of the directors only, or,
if the number is not fixed, the number shall be ten.
3. ELECTION AND TERM. The first Board of Directors shall be elected by the
incorporator and shall hold office until the next election of the class for
which such directors have been chosen and until their successors have been
elected and qualified or until their earlier resignation or removal. Any
director may resign at any time upon written notice to the corporation.
Thereafter, directors who are elected at an annual meeting of stockholders, and
directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office for the term of the class for which such
directors shall have been chosen and until their successors have been elected
and qualified or until their earlier resignation or removal. Subject to the
provisions of the certificate of incorporation, in the interim between annual
meetings of stockholders or of special meetings of stockholders called for the
election of directors and/or for the removal of one or more directors and for
the filling of any vacancies in the Board of Directors, including vacancies
resulting from the removal of directors for cause or without cause, any vacancy
in the Board of Directors may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum, or the sole
remaining director.
4. MEETING.
TIME. Meetings shall be held at such time as the Board of Directors shall
fix.
FIRST MEETING. The first meeting of each newly elected Board of Directors
may be held immediately after each annual meeting of the stockholders at the
same place at which the annual meeting of stockholders is held, and no notice of
such meeting shall be necessary, provided a quorum shall be present. In the
event such first meeting is not so held immediately after the annual meeting of
the stockholders, it may be held at such time and place as shall be specified in
the notice given as hereinafter provided for special meetings of the Board of
Directors, or at such time and place as shall be fixed by the consent in writing
of all of the directors.
PLACE. Meetings, both regular and special, shall be held at such place
within or without the State of Delaware as shall be fixed by the Board of
Directors.
CALL. No call shall be required for regular meetings for which the time and
place have been fixed. Special meetings may be called by or at the direction of
the Chairman, if any, a Vice Chairman, if any, or the President, or of a
majority of the directors in office.
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral, or
any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenience assembly of the directors
thereat. The notice of any meeting need not specify the purpose of the meeting.
Any requirement of furnishing a notice shall be waived by any director who signs
a written waiver of such notice before or after the time stated therein.
Attendance of a director at a meeting of the Board of Directors shall
constitute a waiver of notice of such meeting, except when the director attends
a meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
QUORUM AND ACTION. A majority of the whole Board of Directors shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided that such majority shall constitute at least one-third (1/3) of the
whole
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Board of Directors. Any director may participate in a meeting of the Board of
Directors by means of a conference telephone or similar communications equipment
by means of which all directors participating in the meeting can hear each
other, and such participation in a meeting of the Board of Directors shall
constitute presence in person at such meeting. A majority of the directors
present, whether or not a quorum is present, may adjourn a meeting to another
time and place. Except as herein otherwise provided, and except as otherwise
provided by the General Corporation Law or the certificate of incorporation, the
act of the Board of Directors shall be the act by vote of a majority of the
directors present at a meeting, a quorum being present. The quorum and voting
provisions herein stated shall not be construed as conflicting with any
provisions of the General Corporation Law and these by-laws which govern a
meeting of directors held to fill vacancies and newly created directorships in
the Board of Directors.
CHAIRMAN OF THE MEETING. The Chairman, if any and if present and acting,
shall preside at all meetings; otherwise, any other director chosen by the Board
of Directors shall preside.
5. REMOVAL OF DIRECTORS. Any or all of the directors may be removed for
cause or without cause by the Board of Directors or by the stockholders;
PROVIDED, HOWEVER, that so long as the certificate of incorporation provides
that each class of stock, voting separately as a class, shall elect a certain
percentage of directors, a director may be removed without cause by stockholders
only by the vote of class of stock, voting separately as a class, that either
elected such director or elected the predecessor of such director whose position
was filled by such director due to the predecessor director's death, resignation
or removal.
6. ACTION IN WRITING. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
7. EXECUTIVE COMMITTEE.
POWERS. The Board of Directors may appoint an Executive Committee of the
Board of Directors of the corporation of such number of members as shall be
determined from time to time by the Board of Directors. The term of office of
each member of the Executive Committee shall be co-extensive with the term of
his office as director. Any member of the Executive Committee who shall cease to
be a director of the corporation shall ipso facto cease to be a member of the
Executive Committee. A majority of the members of the Executive Committee shall
constitute a quorum for the valid transaction of business. The Executive
Committee may meet at stated times or on two days' notice by any member of the
Executive Committee to all other members, by delivered letter, by mail or by
telegram. The provisions of Section 4 of this Article II with respect to waiver
of notice of meetings of the Board of Directors and participation at meetings of
the Board of Directors by means of a conference telephone or similar
communications equipment shall apply to meetings of the Executive Committee. The
provisions of Section 6 of this Article II with respect to action taken by a
committee of the Board or Directors without a meeting shall to action taken by
the Executive Committee. At all times whenever the Board of Directors is not in
session, the Executive Committee shall apply to have and may exercise all of the
powers of said Board of Directors in the management of the business and affairs
of the corporation except as limited by the General Corporation Law, including,
without limitation, (a) the powers of the Board of Directors referred to in the
certificate of incorporation or in the resolution or resolutions providing for
the issuance of preferred stock adopted by the Board of Directors as provided in
the certificate of incorporation to effect, or which are related or incidental
to, the redemption or conversion of the corporation's capital stock, (b) the
authority to declare dividends, (c) the authority to issue capital stock of the
corporation and (d) the adoption of a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law, and may also authorize
the seal of the corporation to be affixed to all papers which may require it;
PROVIDED, HOWEVER, that the Executive Committee may not approve any contract or
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers
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are directors or officers or have a material financial interest. The Executive
Committee shall have power to make rules and regulations for the conduct of its
business. Vacancies in the membership of the Executive Committee shall be filled
by the Board of Directors from among the directors at a regular meeting, or at a
special meeting, held for that purpose.
CHAIRMAN AND SECRETARY. The Executive Committee shall elect from its own
members a chairman who shall hold office during the term of his office as a
member of the Executive Committee. When present he shall preside over all
meetings of the Executive Committee. The Executive Committee shall also elect a
secretary of the Executive Committee who shall attend all meetings of the
Executive Committee and keep the minutes of its acts and proceedings. Such
secretary shall be a member of the Board of Directors and may, but need not, be
a member of the Executive Committee.
MINUTES. The Executive Committee shall keep minutes of its acts and
proceedings which shall be submitted at the next meeting of the Board of
Directors, and any action taken by the Board of Directors with respect thereto
shall be entered in the minutes of the Board of Directors.
MEETINGS. The Executive Committee may hold meetings, both regular and
special, either within or without the State of Delaware, as shall be set forth
in the Notice of the Meeting or in a duly executed Waiver of Notice thereof.
8. OTHER COMMITTEES. The Board of Directors may from time to time, by
resolution adopted by affirmative vote of a majority of the whole Board of
Directors, appoint other committees of the Board of Directors which shall have
such powers and duties as the Board of Directors may properly determine. No such
other committee of the Board of Directors shall be composed of fewer than two
(2) directors. Meetings of such committees of the Board of Directors may be held
at any place, within or without the State of Delaware, from time to time
designated by the Board of Directors, of the committee in question. Such
committees may meet at stated times on two days' notice by any member of such
committee to all other members, by delivered letter, by mail or by telegram. The
provisions of Section 4 of this Article II with respect to waiver of notice of
meetings of the Board of Directors and participation at meetings of the Board of
Directors by means of a conference telephone or similar communications equipment
shall apply to meetings of such other committees.
9. APPROVAL OF TRANSACTION WITH DOLAN AFFILIATES. The corporation shall make
any investment in or advance to a Dolan Affiliate (as defined below) only if
such investment or advance shall be approved by the Special Committee as
provided below; provided that approval of such Special Committee shall not be
required for any investment or advance that constitutes compensation for
services rendered to or on behalf of the corporation as determined by the Board
of Directors. The Special Committee shall be comprised of two Independent
Directors (as defined below) and such number, if any, of Investor Directors (as
defined in the Stockholders Agreement (the 'Stockholders Agreement') to be
entered into by the corporation pursuant to the Amended and Restated
Contribution and Merger Agreement dated as of June 6, 1997 to which the
corporation is a party, as may be amended from time to time) as is required
under Section 11(b) of the Stockholders Agreement. Approval of the Special
Committee shall require the affirmative vote of a majority of the committee
members present and voting and, if only one Investor Director is on the Special
Committee, the affirmative vote of such Investor Director, and the presence in
person or as permitted by Section 8 of this Article II of one Independent
Director and, as long as any Investor Director is on the Special Committee, one
Investor Director shall be required to constitute a quorum. An 'Independent
Director' of the Board of Directors is a director who is not an officer or
director of the Dolan Affiliate which is a party to the transaction at issue and
who is not an officer or employee of the corporation and is not an Investor
Director. A 'Dolan Affiliate' is Charles F. Dolan or any other Class B Entity
(as defined in the Stockholders Agreement) or any other corporation,
partnership, association or other organization owned or controlled by Charles F.
Dolan and shall include any Family Member (as defined in the Stockholders
Agreement) of any Class B Entity, provided that a Dolan Affiliate shall not
include any entity which is a subsidiary of the corporation.
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ARTICLE III
OFFICERS
1. EXECUTIVE OFFICERS. The directors may elect or appoint a Chairman, a
Chief Executive Officer, one or more Vice Chairmen, a President, one or more
Vice Presidents (one or more of whom may be denominated 'Executive Vice
President' or 'Senior Vice President'), a Secretary, one or more Assistant
Secretaries, a Treasurer, one or more Assistant Treasurers, a Controller, one or
more Assistant Controllers and such other officers as they may determine. Any
number of officers may be held by the same person.
2. TERM OF OFFICE; REMOVAL. Unless otherwise provided in the resolution of
election or appointment, each officer shall hold office until the meeting of the
Board of Directors following the next annual meeting of stockholders and until
his successor has been elected and qualified. The Board of Directors may remove
any officer for cause or without cause.
3. AUTHORITY AND DUTIES. All officers, as between themselves and the
corporation, shall have such authority and perform such duties in the management
of the corporation as may be provided in these by-laws, or, to the extent not so
provided, by the Board of Directors.
4. THE CHAIRMAN. The Chairman, if any, and if present and acting, shall be
involved in policy making and strategic planning. In addition, the Chairman
shall preside at all meetings of the Board of Directors; otherwise, any other
director chosen by the Board of Directors shall preside. The Chairman, if any,
shall have such additional duties as the Board of Directors may prescribe.
5. OTHER OFFICERS. The other officers of the corporation shall have such
powers and duties as generally pertain to their respective offices, as well as
such powers and duties as from time to time may be conferred by the Chairman,
the Chief Executive Officer, the President or the Board of Directors.
ARTICLE IV
VOTING OF STOCKS IN OTHER COMPANIES
Unless otherwise ordered by the Board of Directors, the Chairman, the Chief
Executive Officer, a Vice Chairman, the President, a Vice President, the
Secretary or the Treasurer shall have full power and authority on behalf of the
corporation to attend and to act and vote at any meetings of stockholders of any
corporation in which the corporation may hold stock and at any such meeting
shall possess and exercise any and all of the rights and powers incident to the
ownership of such stock which as the owner thereof the corporation might have
possessed and exercised if present or the Chairman, the Vice Chairman, the
President, or a Vice President may in his discretion give a proxy or proxies in
the name of the corporation to any other person or persons, who may vote said
stock and exercise any and all other rights in regard to it here accorded to the
officers. The Board of Directors by resolution from time to time may limit or
curtail such power.
ARTICLE V
CORPORATE SEAL
AND
CORPORATE BOOKS
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
The books of the corporation may be kept within or without the State of
Delaware, at such place or places as the Board of Directors may, from time to
time, determine.
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ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BY-LAWS
The power to amend, alter, and repeal these by-laws and to adopt new by-laws
shall be vested in both the Board of Directors and the stockholders entitled to
vote in the election of directors.
ARTICLE VIII
INDEMNIFICATION
A. The corporation shall indemnify each person who was or is made a party or
is threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a 'proceeding'), by reason of the fact that he or
she, or a person of who he or she is the legal representative, is or was a
director or officer of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in official capacity as a director, officer, employee or gent or
alleged action in any other capacity while serving as a director, officer,
employee or agent, to the maximum extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment), against all expense,
liability and loss (including attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred by such person in connection with such proceeding such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of his or her heirs, executors and
administrators. The right to indemnification conferred in this Article shall be
a contract right and shall include the right to be paid by the corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided that, if the Delaware General Corporation Law so requires,
the payment of such expenses incurred by a director or officer in advance of the
final disposition of a proceeding shall be made only upon receipt by the
corporation of an undertaking by or on behalf of such person to repay all
amounts so advanced if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this Article or
otherwise.
B. The right to indemnification and advancement of expenses conferred on any
person by this Article shall not limit the corporation form providing any other
indemnification permitted by law nor shall it be deemed exclusive of any other
right which any such person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
C. The Corporation may purchase and maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, or other enterprise against
any expense, liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
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CSC PARENT CORPORTION
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
STOCKHOLDERS........................................................................... 1
1. CERTIFICATES REPRESENTING STOCK................................................... 1
2. FRACTIONAL SHARE INTERESTS........................................................ 1
3. STOCK TRANSFERS................................................................... 2
4. RECORD DATE FOR STOCKHOLDERS...................................................... 2
5. MEANING OF CERTAIN TERMS.......................................................... 2
6. STOCKHOLDER MEETINGS.............................................................. 2
TIME............................................................................... 2
PLACE.............................................................................. 2
CALL............................................................................... 3
NOTICE OR WAIVER OF NOTICE......................................................... 3
STOCKHOLDER LIST................................................................... 3
CONDUCT OF MEETING................................................................. 3
PROXY REPRESENTATION............................................................... 4
INSPECTORS AND JUDGES.............................................................. 4
QUORUM............................................................................. 4
VOTING............................................................................. 4
ADVANCE NOTICE OF STOCKHOLDER PROPOSALS............................................ 5
7. STOCKHOLDER ACTION WITHOUT MEETINGS............................................... 5
ARTICLE II
DIRECTORS.............................................................................. 5
1. FUNCTIONS AND DEFINITIONS......................................................... 5
2. QUALIFICATIONS AND NUMBER......................................................... 6
3. ELECTION AND TERM................................................................. 6
4. MEETING........................................................................... 6
TIME............................................................................... 6
FIRST MEETING...................................................................... 6
PLACE.............................................................................. 6
CALL............................................................................... 6
NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER............................................ 6
QUORUM AND ACTION.................................................................. 6
CHAIRMAN OF THE MEETING............................................................ 7
5. REMOVAL OF DIRECTORS.............................................................. 7
6. ACTION IN WRITING................................................................. 7
7. EXECUTIVE COMMITTEE............................................................... 7
POWERS............................................................................. 7
CHAIRMAN AND SECRETARY............................................................. 8
MINUTES............................................................................ 8
MEETINGS........................................................................... 8
8. OTHER COMMITTEES.................................................................. 8
9. APPROVAL OF TRANSACTION WITH DOLAN AFFILIATES..................................... 8
ARTICLE III
OFFICERS............................................................................... 9
1. EXECUTIVE OFFICERS................................................................ 9
2. TERM OF OFFICE; REMOVAL........................................................... 9
</TABLE>
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<TABLE>
<S> <C>
3. AUTHORITY AND DUTIES.............................................................. 9
4. THE CHAIRMAN...................................................................... 9
5. OTHER OFFICERS.................................................................... 9
ARTICLE IV
VOTING OF STOCKS IN OTHER COMPANIES.................................................... 9
ARTICLE V
CORPORATE SEAL AND CORPORATE BOOKS..................................................... 9
ARTICLE VI
FISCAL YEAR............................................................................ 10
ARTICLE VII
CONTROL OVER BY-LAWS................................................................... 10
ARTICLE VIII
INDEMNIFICATION........................................................................ 10
</TABLE>
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APPENDIX I
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
The following is a reproduction of Section 262 of the General Corporation
Law, as amended, of the State of Delaware:
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation not consented thereto in writing
pursuant to Section228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
Section251(g) of this title), Section252, Section254, Section257, Section258,
Section263 or Section264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and
further provided that no appraisal rights shall be available for any shares of
stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (l) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to SectionSection251, 252, 254,
257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (OR DEPOSITORY IN RESPECT THEREOF) or
depository receipts at the effective date of the merger or consolidation
will be either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section228 or
Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided , however, that if such second notice
is sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of
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determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any Stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
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<PAGE>
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholder would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation. (Last amended by Ch. 120, L. "97,
eff. 7-1-97.)
Ch. 120, L. "97, eff. 7-1-97, added matter in italic.
ED. NOTE: This section is effective only with respect to mergers or
consolidation consummated pursuant to an agreement of merger or consolidation
entered into after July 1, 1987.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION
COMMON STOCK
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS - FEBRUARY 16, 1998
The undersigned hereby appoints William J. Bell, Robert S. Lemle,
James L. Dolan, Marc A. Lustgarten and Andrew B. Rosengard, and
each of them, proxies, with full power of substitution, to vote, as indicated
on the reverse side of all the shares of Common Stock of Cablevision Systems
Corporation, held of record by the undersigned on January 6, 1998, at
the Special Meeting of Shareholders to be held at Cablevision Systems
Corporation headquarters, One Media Crossways, Woodbury, New York 11797, on
February 16, 1998, at 10:00 a.m., Eastern Standard Time, or any adjournment or
postponement thereof.
[CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE.]
<PAGE>
This proxy when properly executed will be voted in the manner directed herein
by the shareholder.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEM 1, ITEM 2 AND
ITEM 3.
The Board of Directors Recommends a Vote FOR Item 1, Item 2 and Item 3.
<TABLE>
<C> <C> <C> <C>
Item 1. Approval and adoption of the Amended and Restated FOR AGAINST ABSTAIN
Contribution and Merger Agreement (the "Contribution / / / / / /
and Merger Agreement") dated as of June 6, 1997 by
and among Cablevision Systems Corporation
("Cablevision"), TCI Communications, Inc., CSC Parent
Corporation ("Parent") and CSC Merger Sub and the
transactions contemplated thereby, as fully described
in the Proxy Statement/Prospectus relating thereto.
A vote FOR this Item 1 proposal will be deemed to be
a vote FOR the approval of the issuance of 12,235,543
shares of Parent Class A Common Stock in the Issuance
(as described and defined in the Proxy
Statement/Prospectus relating thereto) and also a
vote FOR the approval of the proposals described in
the following Items 2 and 3 with respect to the stock
options, conjunctive rights, bonus award shares and
incentive awards of Cablevision to be assumed by
Parent in the transactions contemplated by, and
pursuant to, the Contribution and Merger Agreement
(as fully described in the Proxy Statement/Prospectus
relating thereto).
Item 2. Approval and adoption of the Parent Employee Stock FOR AGAINST ABSTAIN
Plan, as fully described in the Proxy / / / / / /
Statement/Prospectus relating thereto.
Item 3. Approval and adoption of the Parent Long-Term FOR AGAINST ABSTAIN
Incentive Plan, as fully described in the Proxy / / / / / /
Statement/Prospectus relating thereto.
</TABLE>
In their discretion, the Proxies are authorized to vote upon
such matters that are properly presented for action at the Special
Meeting
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE
Sign exactly as name appears below. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, give full title as such. If a corporation, sign in
full corporate name by president or other authorized officer. If a
partnership, sign in partnership name by authorized person.
Receipt of the Notice of Special Meeting of Shareholders and the related
Joint Proxy Statement/Prospectus is acknowledged.
(Signature) ______________________________
(Signature if held jointly) ______________________________
(Title or Authority) ___________________________
Dated: __________, 1998
