-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NhkZM04cTV3wfqqR7FxqmH4xe3jxDjmFCqq8ZhnK+mYuoOnO2BK0JG+0hMkn0veU Thy0BB/8Mkw3hyyjMyjPVg== 0000950130-96-001285.txt : 19960419 0000950130-96-001285.hdr.sgml : 19960419 ACCESSION NUMBER: 0000950130-96-001285 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19960418 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CABLEVISION SYSTEMS CORP CENTRAL INDEX KEY: 0000784681 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 112776686 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-63691 FILM NUMBER: 96548449 BUSINESS ADDRESS: STREET 1: ONE MEDIA CROSSWAYS CITY: WOODBURY STATE: NY ZIP: 11797 BUSINESS PHONE: 5163648450 424B3 1 PROSPECTUS Rule 424(b)(3) Registration No. 33-63691 OFFER TO EXCHANGE ALL OUTSTANDING 11 3/4% SERIES G REDEEMABLE EXCHANGEABLE PREFERRED STOCK ($265,336,700 AGGREGATE LIQUIDATION PREFERENCE) FOR 11 3/4% SERIES H REDEEMABLE EXCHANGEABLE PREFERRED STOCK OF CABLEVISION SYSTEMS CORPORATION --------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MAY 17, 1996, UNLESS EXTENDED --------------- Cablevision Systems Corporation, a Delaware corporation (the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying letter of transmittal (the "Letter of Transmittal," and together with this Prospectus, the "Exchange Offer"), to exchange $100 aggregate liquidation preference of its 11 3/4% Series H Redeemable Exchangeable Preferred Stock (the "New Preferred Stock"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement (as defined herein) of which this Prospectus constitutes a part, for each $100 aggregate liquidation preference of the outstanding 11 3/4% Series G Redeemable Exchangeable Preferred Stock (the "Old Preferred Stock") of the Company. The New Preferred Stock and the Old Preferred Stock are collectively referred to herein as the "Preferred Stock". The Company will accept for exchange any and all shares of Old Preferred Stock that are validly tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange Offer expires, which will be May 17, 1996, unless the Exchange Offer is extended to a date not later than June 17, 1996 (the "Expiration Date"). Tenders of Old Preferred Stock may be withdrawn at any time prior to 5:00 p.m., New York City time, on the business day prior to the Expiration Date, unless previously accepted for exchange. The Exchange Offer is not conditioned upon any minimum principal amount of Old Preferred Stock being tendered for exchange. However, the Exchange Offer is subject to certain conditions which may be waived by the Company and to the terms and provisions of the Registration Rights Agreement (as defined herein). See "The Exchange Offer". The form and terms of the New Preferred Stock are the same in all material respects as the form and terms of the Old Preferred Stock except that the shares of New Preferred Stock have been registered under the Securities Act and will not contain terms restricting the transfer of such Preferred Stock. Following the completion of the Exchange Offer, none of the Preferred Stock will be entitled to the benefits of the Registration Rights Agreement, relating to contingent increases in the dividend rate provided for pursuant thereto. See "The Exchange Offer". INVESTMENT IN THE PREFERRED STOCK INVOLVES SIGNIFICANT RISKS DISCUSSED UNDER "RISK FACTORS" ON PAGE 18 WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. Dividends on the New Preferred Stock are payable out of legally available funds and are cumulative from the most recent dividend payment date to which dividends on the Old Preferred Stock were paid (the "Accrual Date"). Holders of Old Preferred Stock whose shares of Old Preferred Stock are accepted for exchange will be deemed to have waived (Continued on next page) --------------- 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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- The date of this Prospectus is April 17, 1996. (Continued from previous page) the right to receive any payment in respect of dividends on the Old Preferred Stock accumulated from the Accrual Date to the date of the issuance of the New Preferred Stock. Consequently, holders who exchange their Old Preferred Stock for New Preferred Stock will receive the same dividend payment on the next dividend payment date (expected to be July 1, 1996) that they would have received had they not accepted the Exchange Offer, except that if such dividend is not paid in cash, it will be paid in shares of New Preferred Stock instead of Old Preferred Stock. The Company paid dividends on January 2, 1996 and will pay dividends on April 1, 1996 on the Old Preferred Stock in additional shares of Old Preferred Stock (the "Dividend Shares"). Dividend Shares may be exchanged for shares of New Preferred Stock. Dividends on the New Preferred Stock are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing July 1, 1996, accumulating from the Accrual Date at the annual rate of 11 3/4% per share of New Preferred Stock. Before October 1, 2000, dividends may, at the option of the Company, be paid in cash or by issuing fully paid and nonassessable shares of New Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends. On and after October 1, 2000, dividends must be paid in cash. The New Preferred Stock has a liquidation preference of $100 per share, plus accumulated and unpaid dividends thereon. Based on no-action letters issued by the staff of the Securities and Exchange Commission (the "Commission") to third parties, the Company believes the New Preferred Stock issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than a "Restricted Holder," being (i) a broker-dealer who acquires such New Preferred Stock directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such shares of New Preferred Stock are acquired in the ordinary course of such holders' business and such holders have no arrangements with any person to participate in the distribution of such New Preferred Stock. Eligible holders wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. Each broker-dealer that receives New Preferred Stock for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Preferred Stock. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Preferred Stock received in exchange for Old Preferred Stock where such Old Preferred Stock was acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that it will make this Prospectus and any amendment or supplement to this Prospectus available to any broker-dealer for use in connection with any such resale for a period of 90 days from the date of this Prospectus, or such shorter period as will terminate when all Old Preferred Stock acquired by broker-dealers for their own accounts as a result of market-making activities or other trading activities have been exchanged for New Preferred Stock and resold by such broker-dealers. See "Plan of Distribution." The Company will not receive any proceeds from this offering, and no underwriter is being utilized in connection with the Exchange Offer. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD PREFERRED STOCK IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. The New Preferred Stock is a new security for which there currently is no public market. If a market for the New Preferred Stock should develop, the shares of New Preferred Stock could trade at a discount from their aggregate liquidation preference. The Company does not intend to list the New Preferred Stock on a national securities exchange or to apply for quotation of the New Preferred Stock through the National Association of Securities Dealers Automated Quotation System. There can be no assurance that an active public market for the New Preferred Stock will develop. The Company has been advised by Bear, Stearns & Co. Inc., Merrill Lynch & Co. and Morgan Stanley & Co. Incorporated that they intend to make a market in the New Preferred Stock; however, such entities are under no obligation to do so and any market making activities with respect to the New Preferred Stock may be discontinued at any time. 2 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange 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 filed by the Company may be inspected and copied at the public reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices: Seven World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and copies of such material can be obtained from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy statements and other information also may be inspected at the offices of the American Stock Exchange, 86 Trinity Place, New York, New York 10006. This Prospectus constitutes a part of a registration statement (the "Registration Statement") filed by the Company with the Commission under the Securities Act. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all of the information contained in the Registration Statement and the exhibits and schedules thereto and reference is hereby made to the Registration Statement and the exhibits and schedules thereto for further information with respect to the Company and the securities offered hereby. Statements contained herein concerning the provisions of any documents filed as an exhibit to the Registration Statement or otherwise filed with the Commission are not necessarily complete, and in each instance reference is made to the copy of such document so filed. Each such statement is qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company hereby incorporates by reference into this Prospectus the following documents or information filed with the Commission: (a) the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the "Form 10-K"); (b) the Company's Current Report on Form 8-K filed March 26, 1996 (the "Form 8-K"); and (c) all documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of this Prospectus and prior to the termination of the offering made hereby. Any statement contained herein or in any documents incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purpose of this 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 Prospectus. As used herein, unless the context otherwise requires, the term "Company" refers to Cablevision Systems Corporation and its subsidiaries. The term "Consolidated Financial Statements" refers to the Company's Consolidated Financial Statements and the notes thereto incorporated by reference from the Form 10-K and the term "Management's Discussion and Analysis" refers to the Management's Discussion and Analysis of Financial Condition and Results of Operations incorporated by reference from the Form 10-K. The term "Condensed Pro Forma Consolidated Financial Statements" refers to the Condensed Pro Forma Consolidated Financial Statements incorporated by reference from the Company's Current Report on Form 8-K. 3 THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST FROM ROBERT S. LEMLE, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY OF THE COMPANY AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES LOCATED AT ONE MEDIA CROSSWAYS, WOODBURY, NEW YORK 11797, TELEPHONE NUMBER (516) 364-8450. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 10, 1996. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. TABLE OF CONTENTS
PAGE ---- Available Information...................................................... 3 Incorporation of Certain Documents by Reference............................ 3 Summary.................................................................... 5 Risk Factors............................................................... 18 The Company................................................................ 22 Use of Proceeds............................................................ 26 The Exchange Offer......................................................... 27 Capitalization............................................................. 34 Description of Capital Stock............................................... 36 Description of New Preferred Stock and Exchange Debentures................. 46 Certain Federal Income Tax Considerations.................................. 62 Plan of Distribution....................................................... 63 Validity of the New Preferred Stock........................................ 64 Experts.................................................................... 64
4 SUMMARY The following information is qualified in its entirety by the more detailed information, financial statements and pro forma financial information appearing elsewhere in this Prospectus or incorporated by reference herein. Investment in the securities offered hereby involves significant risks. See "Risk Factors". THE COMPANY The Company is one of the largest operators of cable television systems in the United States, with approximately 2,723,000 subscribers in 19 states as of December 31, 1995 based on the number of basic subscribers in systems which the Company manages and which it owns or in which it has investments. The Company 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. The Company was formed in 1985 to effect a reorganization of its predecessors. CABLE TELEVISION The cable television systems that are majority owned and managed by the Company (the "Company's cable television systems") served approximately 2,061,000 subscribers as of December 31, 1995 in New York, Ohio, Connecticut, New Jersey, Michigan and Massachusetts. In addition, the Company has non- majority investments in and manages cable television systems which served approximately 662,000 subscribers as of December 31, 1995 in Alabama, Arkansas, Florida, Illinois, Kansas, Kentucky, Maine, Massachusetts, Mississippi, Missouri, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania and Tennessee. The Company's cable television systems have generally been characterized by relatively high revenues per subscriber ($37.07 for December 1995) and ratios of premium service units to basic subscribers (1.9:1 for December 1995). In calculating revenue per subscriber, the Company includes only recurring service revenues and excludes installation charges and certain other revenues such as advertising, pay-per-view and home shopping revenues. PROGRAMMING SERVICES The Company conducts its programming activities through Rainbow Programming Holdings, Inc. ("Rainbow Programming"), its wholly-owned subsidiary, and through subsidiaries of Rainbow Programming in partnership with certain unaffiliated entities, including National Broadcasting Company, Inc. ("NBC") and Liberty Media Corporation. Rainbow Programming's businesses include eight regional SportsChannel services, four national entertainment services (American Movie Classics Company, Bravo Network, MuchMusic and the Independent Film Channel), Rainbow News 12 (regional news services serving suburban areas surrounding New York City) and the sports services of Prime SportsChannel Networks (Prime Network and NewSport). Rainbow Programming also owns an interest in Madison Square Garden Corporation. ADVERTISING SERVICES Rainbow Advertising Sales Corporation sells advertising time to national, regional and local advertisers on behalf of the Company's cable television systems and the SportsChannel and Rainbow News 12 programming services, as well as on behalf of unaffiliated cable television systems. 5 SUMMARY OF THE TERMS OF THE EXCHANGE OFFER The Exchange Offer relates to the exchange of up to 2,653,367 shares of Old Preferred Stock with an aggregate liquidation preference of $265,336,700 for up to 2,653,367 shares of New Preferred Stock with the same aggregate liquidation preference. The form and terms of the New Preferred Stock are the same as the form and terms of the Old Preferred Stock except that the shares of New Preferred Stock have been registered under the Securities Act and will not contain terms restricting the transfer of such stock (and hence are not entitled to the benefits of the Registration Rights Agreement relating to the contingent increases in the dividend rate provided for pursuant thereto) and the terms of the New Preferred Stock clarify the calculation of the Make-Whole Premium applicable to an optional redemption following a Change of Control. The Old Preferred Stock and the New Preferred Stock are herein collectively referred to as the "Preferred Stock." See "Description of New Preferred Stock and Exchange Debentures". The Exchange Offer...... One share of New Preferred Stock with an aggregate liquidation preference of $100 will be issued in exchange for each share of Old Preferred Stock with an aggregate liquidation preference of $100. As of the date hereof, 2,653,367 shares of Old Preferred Stock with an aggregate liquidation preference of $265,336,700 are issued and outstanding. The Company will issue the New Preferred Stock to tendering holders of Old Preferred Stock on or promptly after the Expiration Date. Resale.................. The Company believes that the New Preferred Stock issued pursuant to the Exchange Offer generally will be freely transferable by the holders thereof without registration or any prospectus delivery requirement under the Securities Act, except that a "dealer" or any of the Company's "affiliates", as such terms are defined under the Securities Act, that exchanges Old Preferred Stock held for its own account (a "Restricted Holder") may be required to deliver copies of this Prospectus in connection with any resale of the New Preferred Stock (the "Resale Preferred Stock") issued in exchange for such Old Preferred Stock (the "Prospectus Delivery Requirement"). See "The Exchange Offer--General" and "Plan of Distribution". Expiration Date......... 5:00 p.m., New York City time, on May 17, 1996, unless the Exchange Offer is extended to a date not later than June 17, 1996, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. The maximum period that the Exchange Offer will remain in effect shall be from the date of this Prospectus until the Expiration Date. See "The Exchange Offer--Expiration Date; Extensions; Amendments". Accumulated Dividends on the New Preferred Stock and the Old Preferred Stock........ Dividends on the New Preferred Stock will accumulate from the Accrual Date. Holders of Old Preferred Stock whose shares of Old Preferred Stock are accepted for exchange will be deemed to have waived the right to receive any payment in respect of dividends on such Old Preferred Stock accumulated from the Accrual Date to the date of the issuance of the New Preferred 6 Stock. Consequently, holders who exchange their Old Preferred Stock for New Preferred Stock will receive the same dividend payment on the next dividend payment date (expected to be July 1, 1996) that they would have received had they not accepted the Exchange Offer, except that if such dividend is not paid in cash, it will be paid in shares of New Preferred Stock instead of Old Preferred Stock. See "The Exchange Offer-- Dividends on the New Preferred Stock". Termination of the Exchange Offer......... The Company may terminate the Exchange Offer if it determines that its ability to proceed with the Exchange Offer could be materially impaired due to any legal or governmental action, any new law, statute, rule or regulation or any interpretation of the staff of the Commission of any existing law, statute, rule or regulation or if the Company reasonably deems it advisable to terminate the Exchange Offer. Holders of Old Preferred Stock will have certain rights against the Company under the Registration Rights Agreement should the Company fail to consummate the Exchange Offer. See "The Exchange Offer-- Termination". No federal or state regulatory requirements must be complied with or approvals obtained in connection with the Exchange Offer, other than applicable requirements under federal and state securities laws. Procedures For Tendering Old Preferred Stock........ Each holder of Old Preferred Stock wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Old Preferred Stock to be exchanged and any other required documentation to Mellon Securities Trust Company, as Exchange Agent, at the address set forth herein and therein or effect a tender of Old Preferred Stock pursuant to the procedures for book-entry transfer as provided for herein. See "The Exchange Offer-- Procedures for Tendering". Special Procedures for Beneficial Holders .... Any beneficial holder whose shares of Old Preferred Stock are registered in the name of his broker, dealer, commercial bank, trust company or other nominee and who wishes to tender in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on his behalf. If such beneficial holder wishes to tender on his own behalf, such beneficial holder must, prior to completing and executing the Letter of Transmittal and delivering his Old Preferred Stock, either make appropriate arrangements to register ownership of the Old Preferred Stock in such holder's 7 name or obtain a properly completed stock power from the registered holder. The transfer of record ownership may take considerable time. See "The Exchange Offer--Procedures for Tendering". Guaranteed Delivery Holders of Old Preferred Stock who wish to tender Procedures............. their Old Preferred Stock and whose shares of Old Preferred Stock are not immediately available or who cannot deliver their Old Preferred Stock and a properly completed Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date may tender their Old Preferred Stock according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures". Withdrawal Rights....... Tenders of Old Preferred Stock may be withdrawn at any time prior to 5:00 p.m., New York City time, on the business day prior to the Expiration Date, unless previously accepted for exchange. See "The Exchange Offer--Withdrawal of Tenders". Acceptance of Old Preferred Stock and Delivery of New Preferred Stock........ Subject to certain conditions (as summarized above in "Termination of the Exchange Offer" and described more fully in "The Exchange Offer-- Termination"), the Company will accept for exchange any and all shares of Old Preferred Stock which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The New Preferred Stock issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer--General". Certain Tax The exchange pursuant to the Exchange Offer will Considerations......... generally not be a taxable event for federal income tax purposes. See "Certain Federal Income Tax Considerations". Exchange Agent.......... Chemical Mellon Shareholder Services, L.L.C. is serving as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. Use of Proceeds......... There will be no cash proceeds payable to the Company from the issuance of the New Preferred Stock pursuant to the Exchange Offer. Of the net proceeds received by the Company from the sale of the Old Preferred Stock, approximately $100,000,000 (plus accrued dividends thereon) was applied to the redemption of the Company's outstanding Series E Redeemable Exchangeable Convertible Preferred Stock ("Series E Preferred Stock"), with the remainder applied to repay borrowings under the Credit Agreement. The Company expects to reborrow the amount repaid under the Credit Agreement in the future for general corporate purposes. See "Use of Proceeds". 8 SUMMARY OF TERMS OF THE NEW PREFERRED STOCK AND THE EXCHANGE DEBENTURES NEW PREFERRED STOCK Dividends............... Cumulative at 11 3/4% per annum out of legally available funds. Dividends will accumulate from the Accrual Date and are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, commencing July 1, 1996. The rights to dividends on the New Preferred Stock will be cumulative (whether or not earned or declared) on a daily basis. Before October 1, 2000, dividends may, at the option of the Company, be paid in cash or by issuing additional fully paid and nonassessable shares of New Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends. On or after October 1, 2000, dividends are payable only in cash. For federal income tax purposes, distributions with respect to the New Preferred Stock will not qualify as dividends and will be treated as a return of capital until the Company has earnings and profits. See "Certain Federal Income Tax Considerations--Distributions on Preferred Stock". Liquidation Preference.. $100 per share. Voting.................. Holders of the New Preferred Stock have no general voting rights except as provided by law and as provided in the Certificate of Designations therefor. Upon the failure of the Company to (i) pay dividends in cash or, to the extent permitted by its terms, by the issuance of additional shares of New Preferred Stock, for more than six quarters or (ii) discharge any redemption obligation with respect to the New Preferred Stock, the size of the Company's Board of Directors will be increased by one director, and holders of a majority of the outstanding shares of Preferred Stock, voting or consenting, as the case may be, separately as a class, will be entitled to elect a director to fill the newly created vacancy. The Company may not issue any new class of Senior Securities (as defined herein) without the approval of the holders of at least a majority of the shares of Preferred Stock then outstanding, voting or consenting, as the case may be, separately as a class. Mandatory Redemption.... The Company is required to redeem the New Preferred Stock out of legally available funds on October 1, 2007 at a redemption price equal to the liquidation preference thereof plus accumulated and unpaid dividends thereon to the date of redemption. Optional Redemption..... On and after October 1, 2002, the New Preferred Stock is redeemable, at the option of the Company, in whole or in part, at the redemption prices set forth herein, plus accumulated and unpaid dividends thereon to the date of redemption. In addition, shares of the New Preferred Stock representing up to 33 1/3% of the aggregate liquidation preference of the New Preferred Stock may be redeemed before October 1, 1998 at a 9 redemption price per share equal to the liquidation preference of $100 per share plus accumulated and unpaid dividends thereon plus a premium of $10 per share of New Preferred Stock out of the net proceeds of a sale of Junior Stock (as defined herein) to a Strategic Equity Investor (as defined herein) or a public offering of Class A Common Stock, provided that following such redemption at least 1,666,667 shares of New Preferred Stock (representing at least 66 2/3% of the amount of Preferred Stock initially issued) remain outstanding. Furthermore, the Company may, at its option, prior to October 1, 2002, redeem the New Preferred Stock, in whole but not in part, at any time within 180 days after a Change of Control (as defined herein), at a redemption price per share equal to the sum of (i) the liquidation preference of $100 per share plus (ii) accumulated and unpaid dividends to the date of redemption plus (iii) the Make-Whole Premium (as defined herein), which is based on a discount rate equal to the Treasury Rate (as defined herein) plus 50 basis points. Exchange Feature........ The shares of New Preferred Stock are exchangeable into the Exchange Debentures at the option of the Company, in whole but not in part. Ranking................. The New Preferred Stock will rank, subject to certain conditions, junior to (i) each class of capital stock of the Company or series of preferred stock issued by the Company established after the initial issuance of the Preferred Stock the terms of which specifically provide that such class or series will rank senior to the New Preferred Stock as to dividends and distributions upon the liquidation, winding-up or dissolution of the Company and (ii) all liabilities and obligations (whether or not for borrowed money) of the Company. The New Preferred Stock will rank on a parity with the Old Preferred Stock and the Company's Series B Cumulative Preferred Stock, 8% Series C Cumulative Preferred Stock ("Series C Preferred Stock"), 8% Series D Cumulative Preferred Stock (which may be issued in exchange for shares of Series C Preferred Stock), 8 1/2% Series I Cumulative Convertible Exchangeable Preferred Stock ("Series I Preferred Stock"), 11 1/8% Series L Redeemable Exchangeable Preferred Stock (the "Series L Preferred Stock") and 11 1/8% Series M Redeemable Exchangeable Preferred Stock (which may be issued in exchange for shares of Series L Preferred Stock). Exchange Offer Registration Rights ... The Company has entered into a registration rights agreement with the Initial Purchasers of the Old Preferred Stock (the "Registration Rights Agreement") pursuant to which the Company agreed, for the benefit of the holders of the Old Preferred Stock, at the Company's cost (i) within 30 days after 10 the date of original issue of the Old Preferred Stock, to file a registration statement (the "Exchange Offer Registration Statement") with the Commission with respect to a registered offer to exchange (the "Exchange Offer") the Old Preferred Stock for the New Preferred Stock and (ii) use its best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act, within 120 days after the date of original issuance of the Old Preferred Stock. Upon the Exchange Offer Registration Statement being declared effective, the Company agreed to offer the New Preferred Stock in exchange for surrender of the Old Preferred Stock. For each share of Old Preferred Stock surrendered to the Company pursuant to the Exchange Offer, the holder of such Old Preferred Stock will receive a share of New Preferred Stock. In the event that the Exchange Offer is not consummated on or prior to the 180th calendar day following the date of original issue of the Old Preferred Stock, the dividend rate borne by the Old Preferred Stock shall be increased by one-quarter of one percent per annum for the first 90 days following such 180-day period. Such dividend rate will increase by an additional one-quarter of one percent per annum at the beginning of each subsequent 90-day period, up to a maximum aggregate increase of one percent per annum. Because the Exchange Offer will not be consummated by the 180th calendar day following the date of the original issue of the Old Preferred Stock, the dividend rate borne by the Old Preferred Stock increased by one-quarter of one percent per annum on and from March 24, 1996. Upon the consummation of the Exchange Offer, the dividend rate borne by the Old Preferred Stock will be reduced to the original dividend rate. Dividends on the New Preferred Stock will accumulate at the original dividend rate accruing on the Old Preferred Stock. Absence of Public The New Preferred Stock is a new security for Market................. which there currently is no market. Although Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated, the initial purchasers of the Old Preferred Stock (collectively, the "Initial Purchasers"), have informed the Company that they currently intend to make a market in the New Preferred Stock and, if issued, the Exchange Debentures, they are not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Preferred Stock and, if issued, the Exchange Debentures. The Company does not intend to apply for listing of the New Preferred Stock or, if issued, the Exchange Debentures on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. 11 EXCHANGE DEBENTURES Maturity Date........... October 1, 2007. Interest................ Interest will accrue at the dividend rate of the New Preferred Stock and be payable in arrears on January 1 and July 1 of each year, commencing with the first of such dates to occur after the date upon which Exchange Debentures are issued in exchange for the Preferred Stock ("Exchange Date"). Before October 1, 2000, interest may, at the option of the Company, be paid in cash or by issuing additional Exchange Debentures with a principal amount equal to such interest. On and after October 1, 2000, interest on the Exchange Debentures may be paid only in cash. Optional Redemption..... On and after October 1, 2002, the Exchange Debentures are redeemable, at the option of the Company, in whole or in part, at the redemption prices set forth herein plus accrued and unpaid interest thereon to the redemption date. In addition, up to 33 1/3% in aggregate principal amount of the Exchange Debentures may be redeemed before October 1, 1998 at a price of 110% of the principal amount thereof, plus accrued and unpaid interest thereon, out of the net proceeds of a sale of Junior Stock to a Strategic Equity Investor or a public offering of Class A Common Stock, provided that following such redemption at least $166,666,667 principal amount of Exchange Debentures remains outstanding. See "Description of New Preferred Stock and Exchange Debentures". Subordination........... The Exchange Debentures will be subordinated to all existing and future Senior Indebtedness (as defined) of the Company and will rank pari passu with the Company's 10 3/4% Senior Subordinated Debentures due 2004, 9 7/8% Senior Subordinated Debentures due 2013, 9 7/8% Senior Subordinated Debentures due 2023, 9 1/4% Senior Subordinated Notes due 2005, 8 1/2% Convertible Subordinated Debentures due 2007 (that may be issued in exchange for the Series I Preferred Stock) and 11 1/8% Senior Subordinated Debentures due 2008 (that may be issued in exchange for the Series L Preferred Stock) (collectively, the "Existing Debentures"). The amount of Senior Indebtedness outstanding at December 31, 1995, adjusted to give pro forma effect to the transactions described under "Capitalization" and the application of the net proceeds to the Company from the offering of the Company's Series L Preferred Stock represented by depositary shares, would have been approximately $620.2 million. At December 31, 1995, the Company also had outstanding $1,257.8 million of senior subordinated indebtedness and obligations (including $334.2 million of indebtedness of subsidiaries guaranteed by the Company, included in indebtedness of consolidated subsidiaries set forth 12 in the next sentence) that would have ranked pari passu with the Exchange Debentures. Also, at December 31, 1995, consolidated subsidiaries of the Company had outstanding, adjusted to give pro forma effect to the transactions described under "Capitalization", approximately $1,206.2 million of indebtedness which, insofar as the assets of those subsidiaries are concerned, would have been effectively senior to the Exchange Debentures. Certain Restrictions.... The Indenture for the Exchange Debentures, among other things, contains restrictions (with certain exceptions) on the ability of the Company and its Restricted Subsidiaries (as defined) to incur additional indebtedness, make certain dividend payments or payments to redeem or retire capital stock, invest in Unrestricted Subsidiaries (as defined) or affiliates, engage in certain transactions with affiliates and merge or consolidate with or transfer all or substantially all of their assets to another entity. The Indenture also prohibits the Company from issuing any indebtedness that is senior in right of payment to the Exchange Debentures and expressly subordinate in right of payment to any other indebtedness of the Company. 13 SELECTED FINANCIAL DATA The historical consolidated statement of operations data (except for book value per common share, deficiency of earnings available to cover fixed charges and deficiency of earnings available to cover fixed charges and preferred stock dividends) and balance sheet data for each year ended December 31 and as of December 31 in each year in the five-year period ended December 31, 1995, included in the following selected financial data have been derived from the Consolidated Financial Statements of the Company, audited by KPMG Peat Marwick LLP, independent certified public accountants.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1995 1994 1993 1992 1991 ---------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA(1): Net revenues............ $1,078,060 $ 837,169 $ 666,724 $ 572,487 $ 603,272 Operating expenses: Technical............... 412,479 302,885 241,877 204,449 213,059 Selling, general and ad- ministrative........... 266,209 195,942 172,687 120,356 121,527 Restructuring charge.... -- 4,306(2) -- -- -- Depreciation and amorti- zation................. 319,929 271,343 194,904 168,538 215,326 ---------- --------- --------- --------- --------- Operating profit........ 79,443 62,693 57,256 79,144 53,360 Other income (expense): Interest expense, net... (311,887) (261,781) (230,327) (193,379) (257,189) Provision for preferen- tial payment to related party.......... (5,600) (5,600) (5,600) (2,662) -- Provision for loss on Olympics venture....... -- -- -- (50,000)(3) -- Loss on sale of pre- ferred stock........... -- -- -- (20,000)(4) -- Write-off of deferred financing costs........ (5,517)(5) (9,884)(5) (1,044)(5) (12,284)(5) -- Loss on redemption of debentures............. -- (7,088)(5) -- -- -- Share of affiliates' net loss................... (93,024) (82,864) (61,017) (47,278) (23,780) Gain (loss) on sale of programming and affiliate inter- ests, net.............. 35,989 -- (330) 7,053 15,505 Minority interest....... (8,637) (3,429) 3,000 -- -- Gain on sale of market- able securities, net... -- -- -- 733 5,806 Settlement of litigation and related matters.... -- -- -- (5,655) (9,677) Miscellaneous, net...... (8,225) (7,198) (8,720) (6,175) (11,224) ---------- --------- --------- --------- --------- Net loss................ (317,458) (315,151) (246,782) (250,503) (227,199) Preferred dividend re- quirement.............. (20,249) (6,385) (885) (885) (4,464) ---------- --------- --------- --------- --------- Net loss applicable to common shareholders.... $ (337,707) $(321,536) $(247,667) $(251,388) $(231,663) ========== ========= ========= ========= ========= Net loss per common share.................. $ (14.17) $ (13.72) $ (10.83) $ (11.17) $ (10.32) ========== ========= ========= ========= ========= Average number of common shares outstanding (in thou- sands)................. 23,826 23,444 22,859 22,512 22,446 ========== ========= ========= ========= ========= Book value per common share.................. $ (76.61) $ (76.93) $ (64.61) $ (55.28) $ (41.49) ========== ========= ========= ========= ========= Deficiency of earnings available to cover fixed charges.......... $ (317,384) $(315,003) $(246,644) $(250,429) $(227,124) ========== ========= ========= ========= ========= Deficiency of earnings available to cover fixed charges and preferred stock dividends.............. $ (337,633) $(321,388) $(247,529) $(251,314) $(231,588) ========== ========= ========= ========= =========
(footnotes on following page) 14
AS OF DECEMBER 31, ---------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SUBSCRIBER DATA) CONSOLIDATED BALANCE SHEET DATA(1): Total assets........... $2,502,305 $2,176,413 $1,327,418 $1,251,157 $1,475,672 Total debt............. 3,157,107 3,169,236 2,235,499 2,004,452 2,211,056 Cumulative redeemable preferred stock(4)..... -- -- -- -- 32,094 Series G Redeemable Exchangeable Preferred Stock(6).... 257,751 -- -- -- -- Stockholders' deficiency............. (1,891,676) (1,818,535) (1,503,244) (1,250,248) (932,428) STATISTICAL DATA(1): Homes passed(7)........ 3,328,000 2,899,000 2,240,000 2,019,000 2,005,000 Basic service subscribers............ 2,061,000 1,768,000 1,379,000 1,262,000 1,372,000 Basic penetration(8)... 61.9% 61.0% 61.6% 62.5% 68.4% Number of premium television units....... 3,990,000 3,208,000 3,003,000 2,802,000 2,326,000 Average number of premium units per basic subscriber............ 1.9 1.8 2.2 2.2 1.7 Average monthly revenue per basic subscriber(9)......... $ 37.07 $ 36.33 $ 36.59 $ 37.64 $ 34.43
- -------- (1) The consolidated statement of operations, balance sheet and statistical data reflect (i) the deconsolidation of A-R Cable Services, Inc. ("A-R Cable"), effective as of January 1, 1992, as a result of the restructuring of A-R Cable, (ii) the acquisition of Cablevision of New York City ("Cablevision of NYC"), effective as of July 10, 1992, and (iii) various acquisitions of cable television systems and other businesses during the periods presented. (See "Business--Cable Television Operations" in the Form 10-K and "Condensed Pro Forma Consolidated Financial Information" herein.) Acquisitions made by the Company 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 Charles F. Dolan and entities affiliated with him, which were recorded at Mr. Dolan's and such entities' historical costs. Acquisitions are reflected in the consolidated statement of operations, balance sheet and statistical data from the time of acquisition. Certain reclassifications have been made to the 1991 and 1990 financial statement amounts to conform to the 1992 presentation. (2) The Company 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, the Company recognized a $50.0 million loss in connection with Rainbow Programming's commitment in respect of its venture with NBC relating to the 1992 Summer Olympics, which the Company paid in January 1993. (4) In connection with the 1992 V Cable Reorganization (as defined under "The Company--Cable Television"), the Company redeemed A-R Cable's redeemable preferred stock on May 11, 1992, incurring a loss of $20 million. (5) In connection with the 1992 V Cable Reorganization, the Company wrote off approximately $7.5 million of deferred financing costs related to the debt of V Cable, Inc. Also, a portion of the Company'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, the Company 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 approximately $2.0 million in redemption fees were incurred in connection with the redemption of the reset debentures. In January 1995, Rainbow Programming amended its credit agreement to refinance its existing borrowings and to provide funds for the acquisition of SportsChannel (New York) Associates and Rainbow News 12 Company, resulting in an approximately $2.3 million write-off of deferred financing costs. (6) On September 26, 1995, the Company issued 2.5 million shares of the Old Preferred Stock. (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 last month of the period, divided by average basic subscribers for that month. 15 SUPPLEMENTAL FINANCIAL AND OPERATING DATA The following tables set forth information concerning the Company's Restricted Group (which includes Cablevision of NYC) and Unrestricted Cable (which includes V Cable and Cablevision MFR). The data should be read in conjunction with the Company's Consolidated Financial Statements and "Management's Discussion and Analysis".
YEAR ENDED DECEMBER 31, --------------------------------------- FINANCIAL DATA 1995 1994 1993 -------------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) RESTRICTED GROUP: STATEMENT OF OPERATIONS DATA: Net revenues......................... $ 679,025 $ 584,567 $ 495,354 Operating profit before depreciation and amortization(1)................. 285,323 249,316 215,563 Depreciation and amortization........ 168,067 154,187 111,366 Operating profit..................... 117,256 95,129 104,197 Total interest expense............... 162,340 150,626 137,960 BALANCE SHEET DATA: Total assets......................... $1,415,777 $1,119,882 $ 838,746 Senior debt.......................... 567,249(2) 969,895(2) 488,128 Subordinated debt.................... 923,608 623,534 822,781 Obligation to related party.......... 192,945 193,079 91,619 Total debt........................... 1,683,802(2) 1,786,508(2) 1,402,528 FINANCIAL RATIOS AND OTHER DATA: Operating profit before depreciation and amortization to net revenues.... 42.0% 42.6% 43.5% Total debt to operating profit before depreciation and amortization....... 5.9x 7.2x 6.5x Operating profit before depreciation and amortization to total interest expense............................. 1.8x 1.7x 1.6x Capital expenditures................. $ 234,516 $ 251,078 $ 193,048 UNRESTRICTED CABLE: STATEMENT OF OPERATIONS DATA: Net revenues......................... $ 226,130 $ 169,826 $ 137,853 Operating profit before depreciation and amortization(1)................. 107,093 84,932 65,789 Depreciation and amortization........ 124,488 105,938 80,287 Operating profit (loss).............. (17,395) (21,006) (14,498) Total interest expense............... 132,264 107,100 94,452 BALANCE SHEET DATA: Total assets......................... $ 716,399 $ 823,363 $ 536,629 Total debt........................... 1,235,271 1,233,708 832,964 FINANCIAL RATIOS AND OTHER DATA: Operating profit before depreciation and amortization to net revenues.... 47.4% 50.0% 47.7% Total debt to operating profit before depreciation and amortization....... 11.5x 11.2x(3) 12.7x Operating profit before depreciation and amortization to total interest expense............................. 0.8x 0.8x 0.7x Capital expenditures................. $ 43,707 $ 24,195 $ 20,304 AS OF DECEMBER 31, --------------------------------------- STATISTICAL DATA 1995 1994 1993 ---------------- ---------- ---------- ---------- RESTRICTED GROUP: Homes passed(4)...................... 2,549,000 2,138,000 1,731,000 Basic service subscribers at end of period.............................. 1,512,000 1,243,000 1,029,000 Basic penetration(5)................. 59.3% 58.1% 59.4% Number of premium television units... 3,375,000 2,699,000 2,557,000 Average number of premium units per basic subscriber.................... 2.2 2.2 2.5 Average revenue per basic subscriber(6)....................... $ 38.82 $ 38.29 $ 38.65 UNRESTRICTED CABLE: Homes passed(4)...................... 779,000 760,000 509,000 Basic service subscribers at end of period.............................. 549,000 525,000 350,000 Basic penetration(5)................. 70.5% 69.1% 68.7% Number of premium television units... 615,000 508,000(7) 446,000 Average number of premium units per basic subscriber.................... 1.1 1.0 1.3 Average revenue per basic subscriber(6)....................... $ 32.45 $ 31.72 $ 30.56
(footnotes on following page) 16 FOOTNOTES (1) Operating profit before depreciation and amortization is presented here to provide additional information about the Company's ability to meet future debt service, capital expenditures and working capital requirements. Operating profit before depreciation and amortization should be considered in addition to and not as a substitute for net income and cash flows as indicators of financial performance and liquidity as reported in accordance with generally accepted accounting principles. (2) Excludes Cablevision MFR, Inc. seller note in the amount of approximately $141.3 million that is guaranteed by the Restricted Group (as defined under "The Company--Cable Television"). (3) Cablevision MFR, Inc. was acquired in August 1994, and operating profit before depreciation and amortization for 1994 is annualized for purposes of preparing financial ratios. (4) 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. (5) Basic penetration represents basic service subscribers at the end of the period as a percentage of homes passed at the end of the period. (6) Based on recurring service revenues, excluding installation charges and certain other revenues such as advertising, pay-per-view and home shopping revenues, for the last month in the period presented, divided by the average number of basic subscribers for that month. (7) Reflects the reclassification of units of Madison Square Garden Network subscribers to non-premium units in February 1994. 17 RISK FACTORS Purchase of the New Preferred Stock offered hereby (the "Offering") involves various risks, including the following principal factors, which, together with the other matters set forth herein or incorporated by reference herein, should be carefully considered by prospective investors. Substantial Indebtedness and High Degree of Leverage. The Company has incurred substantial indebtedness, primarily to finance acquisitions and expansion of its operations and, to a lesser extent, for investments in and advances to affiliates. The Company's consolidated debt plus the Old Preferred Stock aggregated approximately $3.4 billion at December 31, 1995 ($3.7 billion on a pro forma basis after giving effect to the transactions described under "Capitalization") with varying maturities to 2023, including an aggregate of approximately $808.6 million ($702.1 million on a pro forma basis after giving effect to the transactions described under "Capitalization") maturing on or prior to December 31, 2000. See Note 4 of Notes to the Consolidated Financial Statements. Net Losses and Stockholders' Deficit. The Company reported net losses for the years ended December 31, 1995, 1994 and 1993 of $317.5 million, $315.2 million and $246.8 million, respectively. At December 31, 1995, the Company had a stockholders' deficiency of $1.9 billion. The 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 1993, 1994 and 1995 and will continue at high levels in 1996 and future years as a result of previously completed, pending and future acquisitions, expected capital expenditures and additional investments in the Company's programming operations. The Company expects to continue incurring substantial losses for at least the next several years. See "Management's Discussion and Analysis--Liquidity and Capital Resources". Need for Additional Financing. The Company's business requires substantial investment on a continuing basis to finance capital expenditures and related expenses for, among other things, upgrade of the Company's cable plant (including the need to make cable system upgrades mandated by franchise authorities), the offering of new services and the servicing, repayment or refinancing of its indebtedness. The Company will require significant additional financing, through debt and/or equity issuances, to meet its capital expenditure plans and to pay its debt and preferred stock obligations. There can be no assurance that the Company will be able to issue additional debt or obtain additional equity capital on satisfactory terms, or at all, to meet its future financing needs. See "Management's Discussion and Analysis--Liquidity and Capital Resources". Future Capital Expenditures and Programming Commitments. The Company's cable systems have commitments for capital expenditures, including major system upgrades, which will involve substantial expenditures over the next several years. In addition, the Company, through Rainbow Programming, has entered into numerous contracts relating to cable television programming, including rights agreements with professional and other sports teams. These contracts typically require substantial payments over extended periods of time. See Note 11 of Notes to Consolidated Financial Statements for a discussion of commitments. Rainbow Programming has the right to acquire interests in MSG Holdings from ITT sufficient to equalize the interests of ITT and Rainbow Programming in MSG Holdings by making certain scheduled payments totalling $250 million (plus interest on any unpaid portion thereof) on specified dates up to and including March 17, 1997. See "The Company--Programming Services". The Company and Rainbow Programming may fund the interest payments on the unpaid portion of the $250 million amount required to equalize the interests of ITT and Rainbow Programming in MSG Holdings from available cash balances or amounts borrowed under the Company's principal bank credit agreement (the "Credit Agreement"). Accordingly, the Company funded an approximate $29 million interest payment on March 11, 1996 from funds available under the Credit Agreement. The Company has not yet identified specific funding sources for the up to $250 million that could be required in connection with the ITT/MSG Holdings transactions. The Company also has a commitment to fund annual payments to Charles F. Dolan related to Cablevision of 18 New York City ("Cablevision of NYC"). See "Business--Consolidated Cable Affiliates--Cablevision of New York City" and "Business--Programming Operations" in the Form 10-K and "Management's Discussion and Analysis-- Liquidity and Capital Resources". Intangible Assets. The Company had total assets at December 31, 1995 of approximately $2.5 billion, of which approximately $1.0 billion were intangible assets, principally franchises, affiliation agreements, excess cost over fair value of net assets acquired, deferred financing, acquisition and other costs and deferred interest expense. It is possible that no cash would be recoverable from the voluntary or involuntary sale of these intangible assets. Losses on Investments in and Advances to Certain Affiliates. The Company has made investments in and advances to certain affiliates of which Charles F. Dolan has substantial ownership interests. At December 31, 1995, advances (less applicable reserves) to one such affiliate, Atlantic Cable Television Publishing Corporation ("Atlantic Publishing"), aggregated approximately $16.7 million. Because Mr. Dolan has a substantial interest in Atlantic Publishing, an inherent conflict of interest exists with respect to such advances. There can be no assurances that such advances and any amounts accrued with respect thereto will be fully recovered or that conflicts of interest will not arise with respect to the recovery of such amounts. Atlantic Publishing holds a minority equity interest and a debt interest in a company that publishes cable television guides which are offered to the Company's subscribers and to other unaffiliated cable television operators. As of December 31, 1995, the Company had advanced an aggregate of $16.7 million to Atlantic Publishing, of which approximately $0.5 million was repaid during 1993, $0.6 million was repaid during 1994 and approximately $1.0 million was repaid during 1995. The Company has written off all advances to Atlantic Publishing other than approximately $3.1 million. Atlantic Publishing is owned by a trust for certain Dolan family members; however, the Company has the option to purchase Atlantic Publishing for an amount equal to the owner's net investment therein plus interest. The current owner has only a nominal investment in Atlantic Publishing. See "Business--Other Affiliates--Atlantic Publishing" in the Form 10-K. On December 15, 1995, the Company consummated the acquisition of Cablevision of Boston. In connection with the acquisition, all the subordinated advances that the Company had made to Cablevision of Boston became intercompany indebtedness. As part of the acquisition of Cablevision of Boston, the Company entered into an agreement with Mr. Dolan with respect to Mr. Dolan's 0.5% general partnership interest in Cablevision of Brookline Limited Partnership ("Cablevision of Brookline"), a partnership affiliated with Cablevision of Boston. The Company acquired the remaining 99.5% of the partnership interests in Cablevision of Brookline in the acquisition of Cablevision of Boston. Under the agreement, the Company has a right of first refusal to acquire Mr. Dolan's 0.5% general partnership interest and a right to acquire such interest on the earlier to occur of Mr. Dolan's death or January 1, 2002 at the greater of $10,000 or the book value of such interest at such date. Mr. Dolan's estate has the right to put the interest to the Company at the same price. Additionally, in the event of a change of control of the Company or Cablevision of Brookline, Mr. Dolan will have the right to put his 0.5% general partnership interest in Cablevision of Brookline to the Company at the greater of (i) prices declining from $3.9 million for the year ended December 15, 1996 to $10,000 for the year ended December 15, 2002 and (ii) the book value of such interest on the date of transfer. See "Business--Consolidated Cable Affiliates--Cablevision of New York City" in the Form 10-K for a discussion of the Company's acquisition of substantially all of Charles F. Dolan's interest in Cablevision of NYC, which was consummated as described therein in July 1992. Voting Control by Majority Stockholders; Disparate Voting Rights. As of December 31, 1995, Charles F. Dolan beneficially owned and possessed sole voting power with respect to 292,007 shares or 2.1% of the Company's outstanding Class A Common Stock and 2,346,281 shares or 20.3% of the Company's outstanding Class B common stock (the "Class B Common Stock" and, collectively with the Class A Common Stock, the "Common Stock"). In addition, as of December 31, 1995, an aggregate of 4,000,000 19 shares or 34.6% of the outstanding Class B Common Stock were held by two Grantor Retained Annuity Trusts (the "GRA Trusts") established by Mr. Dolan for estate planning purposes. Mr. Dolan may be deemed to have beneficial ownership of the shares of Class B Common Stock held by the GRA Trusts due to his right to reacquire the Class B Common Stock held by the GRA Trusts by substituting other property of equivalent value, but, until such event, each of the GRA Trusts, through their co-trustees (who are family members of Mr. Dolan) has the power to vote and dispose of the shares of Class B Common Stock held by the GRA Trusts. As a result of his beneficial ownership of the shares held by the GRA Trusts, as of December 31, 1995, Mr. Dolan beneficially owned 292,007 shares or 2.1% of the Company's outstanding Class A Common Stock and 6,346,281 shares or 54.8% of the Company's outstanding Class B Common Stock. On a combined basis, these shares represented 25.7% of the total number of shares of both classes of Common Stock and 49.1% of the total voting power of the classes. Other trusts established by Mr. Dolan for the benefit of certain Dolan family members, and as to which Mr. Dolan disclaims beneficial ownership, owned, as of December 31, 1995, an additional 500,000 shares of Class A Common Stock or 3.5% of the Class A Common Stock and 5,225,928 shares of the Class B Common Stock, or 45.2% of the Class B Common Stock and 40.6% of the total voting power of all classes of the 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 Class B Common Stock, which directors constitute 75% of the entire Board of Directors of the Company. Moreover, because holders of Class B Common Stock are entitled to ten votes per share while holders of Class A Common Stock are entitled to one vote per share, Dolan family members may control stockholder decisions on matters in which holders of Class A and Class B Common Stock vote together as a class. These matters include the amendment of certain provisions of the Company's certificate of incorporation (the "Certificate of Incorporation") and the approval of fundamental corporate transactions, including mergers. In addition, because the affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of the Class B Common Stock, voting separately as a class, is required to approve (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 Company which adversely affects the powers, preferences or rights of the Class B Common Stock, Dolan family members also have the power to prevent such issuance or amendment. The voting rights of the Class B Common Stock beneficially owned by Mr. Dolan will not be modified as a result of any transfer of legal or beneficial ownership thereof. Restrictive Covenants. The Company's Credit Agreement and certain of the Company's other debt instruments contain various financial and operating covenants which, among other things, require the maintenance of certain financial ratios and restrict the Company's ability to borrow funds from other sources and to utilize funds for various purposes, including investments in certain subsidiaries. Violation of the covenants in the Credit Agreement could result in a default under the Credit Agreement which would permit the bank lenders thereunder to restrict the Company's ability to borrow undrawn funds under the Credit Agreement and to accelerate the maturity of borrowings thereunder. See "Management's Discussion and Analysis--Liquidity and Capital Resources". Conflicts of Interest. Charles F. Dolan and trusts for Dolan family interests have varying economic interests in the Company's affiliates. Mr. Dolan and other officers and directors of the Company are also officers and directors of affiliated companies. Such officers and directors of the Company devote such time to the business of the Company as is reasonably required; however, they have other responsibilities which require various amounts of their time and which could conflict with their duties to the Company. Risks Related to Regulation. The Company'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 April 1993 and February 1994, the FCC ordered reductions in cable television rates. In June 1995, a Federal appeals court upheld the material aspects of the FCC's rate regulation scheme. Congress has enacted legislation (the "Telecommunications Act of 1996") that relaxes the regulation 20 of cable television rates. See "Business--Cable Television Operations-- Competition" and "Business--Cable Television Operations--Regulation". Risk of Competition. Cable operators compete with a variety of distribution systems, including broadcast television stations, multichannel multipoint distribution services ("MMDS"), satellite master antenna systems ("SMATV"), direct broadcast satellite systems ("DBS"), and private home dish earth stations. For example, CAI Wireless Systems, Inc., an MMDS operator, has received investments from Bell Atlantic Corporation and NYNEX Corporation and owns operating systems or spectrum rights in a significant portion of the Company's systems. In addition, three DBS systems are now operational in the United States and recently AT&T Corp. announced an investment in Hughes Electronics Corp.'s DirecTv Inc. A venture of MCI and News Corp. recently acquired the rights to launch and operate a fourth DBS system. The 1992 Cable Act prohibits a cable programmer that is owned by or affiliated with a cable operator (such as Rainbow Programming) from unreasonably discriminating among or between cable operators and other multichannel video distribution systems with respect to the price, terms and conditions of sale or distribution of the programmer's service and from unreasonably refusing to sell service to any multichannel video programming distributor. Cable systems also compete with the entities that make videotaped movies and programs available for home rental. The 1992 Cable Act regulates the ownership by cable operators of MMDS and SMATV. Under the Telecommunications Act of 1996, these 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. In July 1992, the FCC voted to authorize additional competition to cable television by video programmers using broadband common carrier facilities constructed by telephone companies. The FCC allowed telephone companies to take ownership interests of up to 5% in such programmers. The FCC also reaffirmed an earlier holding, upheld on appeal by a Federal appeals court, that programmers using such a telephone company-provided "video dialtone" system would not need to obtain a state or municipal franchise. Several telephone companies have sought approval from the FCC to build such "video dialtone" systems. Such a system has been proposed in several communities in which the Company currently holds a cable franchise and several of such systems have been approved by the FCC. The Telecommunications Act of 1996 repeals the "video dialtone" rules, but gives telephone companies (and cable companies, to the extent permitted by the FCC) the option of providing video programming to subscribers through "open video systems" that closely resemble video dialtone systems and that would not require a local cable franchise. Additional competition to cable systems is possible if the FCC authorizes the licensing of local multipoint distribution services ("LMDS"). The FCC has proposed to license this type of service to providers. Competition from Telephone Companies. The 1984 Cable Act bars co-ownership of telephone companies and cable television systems operating in the same service areas ("cable-telco cross-ownership prohibition"). Numerous Federal district courts have held this prohibition to be unconstitutional. Several of these decisions have been upheld on appeal and a number of other decisions are pending on appeal in various Federal appellate courts. The United States Supreme Court is expected to rule on the constitutionality of the prohibition during the 1995-96 term. Neither the 1984 Cable Act nor the 1992 Cable Act bars a telephone company from acquiring cable systems outside its telephone service area, and several Regional Bell operating companies have purchased or made investments in cable systems. The Telecommunications Act of 1996 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. See "Business--Cable Television Operations--Regulation" in the Form 10-K. Risk of Non-Exclusive Franchises and Franchise Renewals. The Company's cable television systems are operated primarily under nonexclusive franchise agreements with local government franchising authorities, in some cases with the approval of state cable television authorities. The Company's business is dependent on its ability to obtain and renew its franchises. Although the Company has never lost a franchise as a result of 21 a failure to obtain a renewal, its franchises are subject to non-renewal or termination under certain circumstances. In certain cases, franchises have not been renewed at expiration and the Company operates under temporary licenses while negotiating renewal terms with the franchising authorities. See "Business--Cable Television Operations--Franchises" in the Form 10-K. Risks Related to the New Preferred Stock and the Exchange Debentures. Absence of Public Market. The New Preferred Stock is a new security for which there currently is no market. Although Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated, the initial purchasers of the Old Preferred Stock (collectively, the "Initial Purchasers"), have informed the Company that they currently intend to make a market in the Old Preferred Stock, the New Preferred Stock and, if issued, the Exchange Debentures, they are not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the New Preferred Stock and, if issued, the Exchange Debentures. The Company does not intend to apply for listing of the New Preferred Stock or, if issued, the Exchange Debentures on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. Restrictions on Company's Ability to Pay Dividends on the New Preferred Stock. Certain of the Company's debt instruments contain covenants that restrict the Company's ability to pay, or may prevent the payment of, dividends on the New Preferred Stock. In addition, under Delaware law, dividends on capital stock may only be paid from "surplus" or if there is no surplus from the corporation's net profits for the then current or the preceding fiscal year. The Company does not anticipate having net profits for the foreseeable future and its ability to pay dividends on the New Preferred Stock will require the availability of adequate "surplus", which is defined as the excess, if any, of the Company's net assets (total assets less total liabilities) over its capital (generally the par value of its issued capital stock). As of December 31, 1995, the Company's total liabilities, including deficit investment in affiliates and Old Preferred Stock, exceeded its total assets by $1.9 billion. Accordingly, in connection with dividend payments on the New Preferred Stock, the Company's Board of Directors will have to determine that the Company has adequate surplus on the basis of valuations of the Company's assets at higher amounts than are reflected in the Company's financial statements. There can be no assurance that the Company's Board of Directors will be able to make such determination and that adequate surplus will be available to pay dividends on the New Preferred Stock. Certain Federal Income Tax Consequences. The Company believes that it does not presently have any current or accumulated earnings and profits as determined under United States federal income tax principles and that it is unlikely to have current or accumulated earnings and profits for the foreseeable future. As a result, until such time as the Company does have earnings and profits, distributions on the New Preferred Stock will be treated as a nontaxable return of capital and will be applied against and reduce the adjusted tax basis of the New Preferred Stock in the hands of each holder (but not below zero), thus increasing the amount of any gain (or reducing the amount of any loss) which would otherwise be realized by such holder upon the disposition of such New Preferred Stock. Consequently, distributions with respect to the New Preferred Stock will not qualify as dividends for federal income tax purposes and, as a result, will not be eligible for the dividends- received deduction. THE COMPANY The Company is one of the largest operators of cable television systems in the United States, with approximately 2,723,000 subscribers in 19 states as of December 31, 1995 based on the number of basic subscribers in systems which the Company manages and which it owns or in which it has investments. The Company 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. 22 For financing purposes, the Company is structured as a restricted group (collectively, the "Restricted Group") and an unrestricted group of subsidiaries. The Restricted Group consists of Cablevision Systems Corporation and certain of its subsidiaries, including Cablevision of NYC and, as of December 15, 1995, a subsidiary holding the cable television assets previously a part of Cablevision of Boston Limited Partnership ("Cablevision of Boston"). The unrestricted group of subsidiaries consists primarily of V Cable, Inc. ("V Cable"), Cablevision MFR, Inc. ("Cablevision MFR" and, collectively with V Cable, "Unrestricted Cable") and Rainbow Programming Holdings, Inc., (including Rainbow Advertising Sales Corporation ("Rainbow Advertising"), American Movie Classics ("AMCC") and SportsChannel Associates (New York) ("SportsChannel New York")) (collectively, "Rainbow Programming"). In addition, the Company has an unrestricted group of investments, consisting of investments in A-R Cable Services, Inc. ("A-R Cable"), U.S. Cable Television Group, L.P. ("U.S. Cable"), Cablevision of Framingham Holding, Inc. ("CFHI"), A-R Cable Partners and Cablevision of Newark. The Company's unrestricted subsidiaries and investments are collectively referred to herein as the "Unrestricted Group". The Restricted Group and each member of the Unrestricted Group that operates cable television systems are individually and separately financed. The indebtedness of V Cable and A-R Cable is non-recourse to the Company, other than with respect to the capital stock of such entities owned by the Company. Rainbow Programming's cash requirements have been financed to date by the Restricted Group, by sales of equity interests in the programming businesses and, as set forth below under "--Programming Services", through separate external debt financing. See "Management's Discussion and Analysis--Liquidity and Capital Resources" for a discussion of the restrictions on investments by the Restricted Group and certain other matters. STRATEGY The Company's strategy has been to concentrate its cable television systems in and around two major metropolitan areas, New York City and Cleveland, Ohio, with a view to being the largest cable provider in each of these markets; to maximize its revenue per subscriber through the use of "tiered" packaging strategies for marketing premium services; to develop and promote niche programming services; and to remain an industry leader in upgrading the technological capabilities of its systems. The Company 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 the Company has existing systems, the Company has been able to realize economies of scale in the operation and management of its systems, and 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, the Company is seeking to significantly increase its analog channel capacity and add new digital channel capacity that will facilitate the development of such adjunct new businesses as information services, interactive services, including Internet access, video on demand, near video on demand, residential telephony and commercial telephony. To implement successfully and roll out these adjunct new businesses beyond the initial development phases, the Company will require additional capital from the sale of equity in the capital markets or to a strategic investor. CABLE TELEVISION The cable television systems that are majority owned and managed by the Company (the "Company's cable televisions systems") served approximately 2,061,000 subscribers as of December 31, 1995 in New York, Ohio, Connecticut, New Jersey, Michigan and Massachusetts. In addition, the Company has non- majority investments in and manages cable television systems which served approximately 662,000 subscribers as of December 31, 1995 in Alabama, Arkansas, Florida, Illinois, Kansas, Kentucky, Maine, Massachusetts, Mississippi, Missouri, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania and Tennessee. The Company's cable television systems have generally been characterized by relatively high revenues per 23 subscriber ($37.07 for December 1995) and ratios of premium service units to basic subscribers (1.9:1 for December 1995). In calculating revenue per subscriber, the Company includes only recurring service revenues and excludes installation charges and certain other revenues such as advertising, pay-per- view and home shopping revenues. The cable television operations in the Restricted Group served approximately 1,512,000 subscribers as of December 31, 1995, primarily on Long Island, New York, in New York City, in Connecticut (principally Fairfield County), in northern New Jersey, in Westchester County, New York and in Cleveland, Ohio. The revenue per subscriber and ratio of premium service units to basic subscribers for cable television systems in the Restricted Group for December 1995 were $38.82 and 2.2:1, respectively. The cable television operations in Unrestricted Cable served approximately 549,000 subscribers as of December 31, 1995 and are conducted through the Company's unrestricted subsidiaries, V Cable and Cablevision MFR, and through its unrestricted investments, consisting of A-R Cable, U.S. Cable, CFHI, A-R Cable Partners and Cablevision of Newark. The revenue per subscriber and ratio of premium service units to basic subscribers for the Company's unrestricted subsidiaries for December 1995 were $32.45 and 1.1:1, respectively. In August 1994, Cablevision MFR, a wholly-owned subsidiary of the Company, acquired substantially all of the assets of Monmouth Cablevision Associates ("Monmouth Cable") and Riverview Cablevision Associates, L.P. ("Riverview Cable"), consisting of cable television systems in New Jersey. Also in August 1994, CFHI, a corporation jointly owned by the Company and E.M. Warburg Pincus Investors, L.P., acquired substantially all of the assets of Framingham Cablevision Associates Limited Partnership ("Framingham Cable"), consisting of a cable television system in Massachusetts. Additionally, in June 1994, a partnership comprised of subsidiaries of the Company and E.M. Warburg, Pincus & Co. Inc. completed the purchase of certain assets of Nashoba Communications, a group of three limited partnerships that operate three cable television systems in Massachusetts. V Cable was formed by the Company in February 1989, principally in the suburbs of Cleveland, Ohio and on Long Island. As described under "Business-- Consolidated Cable Affiliates--V Cable" in the Form 10-K, the Company consummated a significant restructuring and reorganization involving V Cable and U.S. Cable (the "1992 V Cable Reorganization") on December 31, 1992. See also "Recent Developments--V Cable Transactions" in the Form 10-K for a description of certain transactions involving V Cable. PROGRAMMING SERVICES The Company conducts its programming activities through Rainbow Programming, its wholly-owned subsidiary and member of the Unrestricted Group, and through subsidiaries of Rainbow Programming in partnership with certain unaffiliated entities, including National Broadcasting Company, Inc. ("NBC") and Liberty Media Corporation ("Liberty"). Rainbow Programming's businesses include eight regional SportsChannel services, four national entertainment services, AMCC, Bravo Network ("Bravo"), MuchMusic ("MM") and the Independent Film Channel ("IFC")), Rainbow News 12 (regional news services serving suburban areas surrounding New York City) and the sports services of Prime SportsChannel Networks (Prime Network and NewSport). Rainbow Programming also owns an interest in Madison Square Garden Corporation ("MSG"). Rainbow Programming's SportsChannel services provide regional sports programming to the New York, Philadelphia, New England, Chicago, Cincinnati, Cleveland, San Francisco and Florida areas. AMCC is a national program service featuring classic, unedited and non-colorized films from the 1930s through the 1970s. Bravo is a national program service offering international films and performing arts programs, including jazz, dance, classical music, opera and theatrical programs. See "Business--Programming Operations--General" in the Form 10-K. MM is a Canadian music service featuring music primarily from Canadian artists. IFC is a national program service that airs independent films made outside the traditional Hollywood system. 24 In March 1995, MSG Holdings, L.P. ("MSG Holdings"), a partnership among subsidiaries of Rainbow Programming and subsidiaries of ITT Corporation, a Delaware corporation ("ITT"), acquired the business and assets of MSG in a transaction in which MSG merged with and into MSG Holdings. MSG owns the Madison Square Garden Arena and the adjoining Paramount Theater, the New York Rangers professional hockey team, the New York Knicks professional basketball team and the Madison Square Garden Network, a sports programming network with over five million subscribers. The purchase price paid by MSG Holdings for MSG was $1,009.1 million. The name of MSG Holdings has been changed to Madison Square Garden, L.P. MSG Holdings funded the purchase price of the acquisition through (i) borrowings of $289.1 million under a $450 million credit agreement among MSG Holdings, various lending institutions and Chemical Bank as administrative agent, (ii) an equity contribution from Rainbow Programming of $110 million, and (iii) an equity contribution from ITT of $610 million. ITT, Rainbow Programming and the Company are parties to an agreement made as of August 15, 1994 (as amended, the "Bid Agreement") that, as amended, provides Rainbow Programming the right to acquire interests in MSG Holdings from ITT sufficient to equalize the interests of ITT and Rainbow Programming in MSG Holdings by making certain scheduled payments totalling $250 million (plus interest on any unpaid portion thereof) on specified dates up to and including March 17, 1997. Rainbow Programming may acquire all or part of such interests in MSG Holdings through (i) the payment of cash to ITT, (ii) the delivery to ITT, at the option of the Company, of common or preferred stock of the Company (together with the commitment of a nationally recognized underwriter to promptly purchase such common or preferred stock for cash), or a combination of cash and common or preferred stock (with such a commitment), or (iii) the delivery to ITT, at the option of ITT, subject to certain conditions and in lieu of payment of a limited amount of the required cash or common or preferred stock for the purchase of a portion of such interests, of certain designated programming interests of Rainbow Programming. If any scheduled payment is not made on the applicable due date, then Rainbow Programming will forfeit (a) its right to equalize the interests in MSG Holdings and (b) certain minority rights. The Company and Rainbow Programming may fund the interest payments on the unpaid portion of the $250 million amount required to equalize the interests of ITT and Rainbow Programming in MSG Holdings from available cash balances or from funds available from the Credit Agreement. Accordingly, the Company funded an approximately $29 million interest payment on March 11, 1996 from funds available under the Credit Agreement. If certain conditions are met and Rainbow Programming has forfeited its right to equalize the interests in MSG Holdings, then Rainbow Programming will also have the right to require ITT to purchase all of Rainbow Programming's interest in MSG Holdings for an amount equal to (i) the price paid by Rainbow Programming for such interest plus (ii) all interest paid by Rainbow Programming on the unpaid portion of the $250 million of scheduled payments (as described above). Initially MSG Holdings will be managed on a 50-50 basis by Rainbow Programming and ITT. If, as discussed above, Rainbow Programming does not equalize the interests in MSG Holdings, its management role will be effectively eliminated. Rainbow Programming also has the right to voluntarily relinquish any power to direct the management and policies of MSG Holdings. In connection with obtaining the consent of the National Hockey League (the "NHL") and the National Basketball Association (the "NBA") to the indirect transfers of the New York Rangers and the New York Knickerbockers, respectively, resulting from the merger, the Company and Rainbow Programming entered into agreements with the NHL and the NBA agreeing, among other matters, to conduct themselves in accordance with the relevant rules of each league. ADVERTISING SERVICES Rainbow Advertising sells advertising time to national, regional and local advertisers on behalf of the Company's cable television systems and the SportsChannel and Rainbow News 12 Company programming services, as well as on behalf of unaffiliated cable television systems. 25 USE OF PROCEEDS The Company will not receive any cash proceeds from the issuance of the New Preferred Stock offered hereby. In consideration for issuing the New Preferred Stock as contemplated in this Prospectus, the Company will receive in exchange a like number of shares of Old Preferred Stock with a like aggregate liquidation preference, the terms of which are identical in all material respects to the New Preferred Stock. The Old Preferred Stock surrendered in exchange for the New Preferred Stock will be retired and cancelled and cannot be reissued. Accordingly, issuance of the New Preferred Stock will not result in any change in capitalization of the Company. The net proceeds received by the Company from the offering of the Old Preferred Stock were $239.3 million. The Company applied approximately $103.1 million of such net proceeds to the redemption of the Company's outstanding Series E Redeemable Convertible Exchangeable Preferred Stock (the "Series E Preferred Stock") and the remainder to the repayment of borrowings under the Company's Credit Agreement. All of the borrowings repaid may be reborrowed under the Credit Agreement and the Company expects to reborrow such amount in the future for general corporate purposes. See "Management's Discussion and Analysis--Liquidity and Capital Resources" for information concerning the Company's significant expected expenditures. 26 THE EXCHANGE OFFER GENERAL In connection with the sale of the Old Preferred Stock, the purchasers thereof became entitled to the benefits of certain registration rights (the "Registration Rights"). Pursuant to the agreement governing the Registration Rights (the "Registration Rights Agreement"), the Company agreed (x) within 30 days after September 26, 1995 to file a registration statement (the "Exchange Offer Registration Statement") with the Securities and Exchange Commission (the "Commission") with respect to a registered offer to exchange the Old Preferred Stock for the New Preferred Stock, which will have terms identical to the Old Preferred Stock (except that the New Preferred Stock will not contain terms with respect to transfer restrictions and the terms of the New Preferred Stock clarify the calculation of the Make-Whole Premium applicable to an optional redemption following a Change of Control) and (y) to use its best efforts to cause the Exchange Offer Registration Statement to become effective within 120 days after September 26, 1995. Upon the Exchange Offer Registration Statement being declared effective, the Company will offer the New Preferred Stock in exchange for surrender of the Old Preferred Stock. The Company will keep the Exchange Offer open for not less than 30 days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to the holders of the Old Preferred Stock. For each share of Old Preferred Stock surrendered to the Company pursuant to the Exchange Offer, the holder of such Old Preferred Stock will receive a share of New Preferred Stock having a liquidation preference equal to that of the surrendered Old Preferred Stock. Under existing interpretations of the staff of the Commission, the New Preferred Stock would in general be freely transferable after the Exchange Offer without further registration under the Securities Act by holders thereof (other than a "Restricted Holder," being (i) a broker-dealer who purchases such New Preferred Stock directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such New Preferred Stock is acquired in the ordinary course of such holders' business and such holders have no arrangements with any person to participate in the distribution of such New Preferred Stock. Eligible holders wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. Each broker-dealer that receives New Preferred Stock for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Preferred Stock. In the event that applicable interpretations of the staff of the Commission would not permit the Company to effect the Exchange Offer or, if for any other reason the Exchange Offer was not consummated within 180 days of the issuance of the Old Preferred Stock, the Company agreed to use its best efforts to cause to become effective a shelf registration statement (the "Shelf Registration Statement") with respect to the resale of the Old Preferred Stock and to keep the Shelf Registration Statement effective until three years after the date of issuance of the Old Preferred Stock or such shorter period to terminate once all the Old Preferred Stock covered by the Shelf Registration Settlement have been sold pursuant to such Shelf Registration Statement. Each holder of Old Preferred Stock who wishes to exchange Old Preferred Stock for New Preferred Stock in the Exchange Offer will be required to make certain representations, including that (i) it is neither an affiliate of the Company nor a broker-dealer tendering Old Preferred Stock acquired directly from the Company for its own account, (ii) any shares of New Preferred Stock to be received by it were acquired in the ordinary course of its business and (iii) at the time of commencement of the Exchange Offer, it has no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the New Preferred Stock. In addition, in connection with any resales of New Preferred Stock, any broker-dealer (a "Participating Broker- Dealer") who acquired Old Preferred Stock for its own account as a result of market-making activities or other trading activities must deliver a prospectus meeting the requirements of the Securities Act. The Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the New Preferred Stock (other than a resale of an unsold 27 allotment from the original sale of Old Preferred Stock) with the prospectus contained in the Exchange Offer Registration Statement. Under the Registration Rights Agreement, the Company is required to allow Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such New Preferred Stock. The Company also agreed that in the event that either (i) the Exchange Offer Registration Statement was not filed with the Commission on or prior to the 30th calendar day following the date of original issue of the Old Preferred Stock, or (ii) the Exchange Offer was not consummated or a Shelf Registration Statement was not declared effective on or prior to the 180th calendar day following the date of original issue of the Old Preferred Stock, the dividend rate borne by the Old Preferred Stock would be increased by one-quarter of one percent per annum for the first 30 days following such 30-day period in the case of (i) above or the first 90 days following such 180-day period in the case of (ii) above. Such dividend rate would increase by an additional one-quarter of one percent per annum at the beginning of each subsequent 30-day period in the case (i) above, or 90-day period in the case of (ii) above, up to a maximum aggregate increase of one percent per annum. The Company agreed that upon (x) the filing of the Exchange Offer Registration Statement or (y) the consummation of the Exchange Offer or the effectiveness of the Shelf Registration Statement, as the case may be, the dividend rate borne by the Old Preferred Stock would be reduced to the original dividend rate. The Exchange Offer Registration Statement was filed within 30 days of the date of original issue of the Old Preferred Stock, and thus no increase in the dividend rate borne by the Old Preferred Stock has been made under (i) above. Because the Exchange Offer will not be consummated by the 180th calendar day following the date of the original issue of the Old Preferred Stock, the dividend rate borne by the Old Preferred Stock increased by one-quarter of one percent per annum under (ii) above on and from March 24, 1996. In the event an exchange offer is consummated, the Company will not be required under the Registration Rights Agreement to file a Shelf Registration Statement to register any outstanding Old Preferred Stock, and the dividend rate on such Old Preferred Stock will be reduced to its initial level of 11 3/4%. The Exchange Offer shall be deemed to have been consummated upon the earlier to occur of (i) the Company having exchanged New Preferred Stock for all outstanding Old Preferred Stock (other than Old Preferred Stock held by a Restricted Holder) pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant to the Exchange Offer, New Preferred Stock for all Old Preferred Stock that has been tendered and not withdrawn on the date that is 30 days following the commencement of such Exchange Offer. In such event, holders of Old Preferred Stock seeking liquidity in their investment would have to rely on exemptions to registration requirements under the securities laws, including the Securities Act. See "Description of New Preferred Stock--Registration Rights Agreement" and "Risk Factors". Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, the Company will accept all Old Preferred Stock properly tendered prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue one share of New Preferred Stock with a liquidation preference of $100 in exchange for each one share of issued and outstanding Old Preferred Stock with a liquidation preference of $100 accepted in the Exchange Offer. Based on no-action letters issued by the staff of the Commission to third parties, the Company believes that the New Preferred Stock issued pursuant to the Exchange Offer in exchange for Old Preferred Stock may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act provided that such New Preferred Stock is acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such New Preferred Stock. Any holder of Old Preferred Stock who tenders in the Exchange Offer for the purpose of participating in a distribution of the New Preferred Stock could not rely on such interpretation by the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Preferred Stock for its own account in exchange 28 for Old Preferred Stock, where such Old Preferred Stock was acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Preferred Stock. See "Plan of Distribution". As of the date of this Prospectus, 2,653,367 shares of Old Preferred Stock with an aggregate liquidation preference of $265,336,700 is issued and outstanding. In connection with the issuance of the Old Preferred Stock, the Company arranged for the Old Preferred Stock to be eligible for trading in the Private Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the National Association of Securities Dealers' screen based, automated market trading of securities eligible for resale under Rule 144A. This Prospectus, together with the accompanying letter of transmittal (the "Letter of Transmittal"), is being sent to all registered holders as of April 12, 1996 (the "Record Date"). The Company shall be deemed to have accepted validly tendered Old Preferred Stock when, as and if the Company has given oral or written notice thereof to Mellon Securities Trust Company (the "Exchange Agent"). See "Exchange Agent." The Exchange Agent will act as agent for the tendering holders of Old Preferred Stock for the purpose of receiving New Preferred Stock from the Company and delivering New Preferred Stock to such holders. If any shares of tendered Old Preferred Stock are not accepted for exchange because of an invalid tender or the occurrence of certain other events set forth herein, certificates for any such unaccepted Old Preferred Stock will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders of Old Preferred Stock who tender in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Preferred Stock pursuant to the Exchange Offer. The Company will pay all such charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "Fees and Expenses". EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean May 17, 1996 unless the Company, in its sole discretion, extends the Exchange Offer to a date not later than June 17, 1996, in which case the term "Expiration Date" shall mean the latest date to which the Exchange Offer is extended. The maximum period that the Exchange Offer will remain in effect shall be from the date of this Prospectus until the Expiration Date. In order to extend the Expiration Date, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the record holders of Old Preferred Stock an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Such announcement may state that the Company is extending the Exchange Offer for a specified period of time. The Company reserves the right (i) to delay acceptance of any Old Preferred Stock, to extend the Exchange Offer or to terminate the Exchange Offer and to refuse to accept Old Preferred Stock not previously accepted, if any of the conditions set forth herein under "Termination" shall have occurred and shall not have been waived by the Company (if permitted to be waived by the Company), by giving oral or written notice of such delay, extension or termination to the Exchange Agent, and (ii) to amend the terms of the Exchange Offer in any manner deemed by it to be advantageous to the holders of the Old Preferred Stock. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment in a manner reasonably calculated to inform the holders of the Old Preferred Stock of such amendment. Without limiting the manner in which the Company may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. 29 DIVIDENDS ON THE NEW PREFERRED STOCK Dividends on the New Preferred Stock will accumulate from the Accrual Date, payable quarterly in arrears on January 1, April 1, July 1 and October 1, of each year commencing on July 1, 1996, at the rate of 11 3/4% per annum out of legally available funds. Holders of Old Preferred Stock whose Old Preferred Stock are accepted for exchange will be deemed to have waived the right to receive any payment in respect of dividends on the Old Preferred Stock accumulated from the Accrual Date until the date of the issuance of the New Preferred Stock. PROCEDURES FOR TENDERING To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Old Preferred Stock and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. The tender by a holder of Old Preferred Stock will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. Delivery of all documents must be made to the Exchange Agent at its address set forth herein. Holders may also request that their respective brokers, dealers, commercial banks, trust companies or nominees effect such tender for such holders. The method of delivery of Old Preferred Stock and the Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the holders. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Old Preferred Stock should be sent to the Company. Only a holder of Old Preferred Stock may tender such Old Preferred Stock in the Exchange Offer. The term "holder" with respect to the Exchange Offer means any person in whose name the Old Preferred Stock is registered on the books of the Company or any other person who has obtained a properly completed stock power from the registered holder. Holders of Old Preferred Stock who wish to tender additional shares of Old Preferred Stock received on January 2, 1996 or April 1, 1996 as a dividend payment with respect to the Old Preferred Stock may do so. Any beneficial holder whose shares of Old Preferred Stock are registered in the name of his broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on his behalf. If such beneficial holder wishes to tender on his own behalf, such beneficial holder must, prior to completing and executing the Letter of Transmittal and delivering his Old Preferred Stock, either make appropriate arrangements to register ownership of the Old Preferred Stock in such holder's name or obtain a properly completed stock power from the registered holder. The transfer of record ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Old Preferred Stock tendered pursuant thereto is tendered (i) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. 30 If the Letter of Transmittal is signed by a person other than the registered holder of any Old Preferred Stock listed therein, such Old Preferred Stock must be endorsed or accompanied by appropriate stock powers which authorize such person to tender the Old Preferred Stock on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the Old Preferred Stock. If the Letter of Transmittal or any Old Preferred Stock or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of the tendered Old Preferred Stock will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Preferred Stock not properly tendered or any Old Preferred Stock the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the absolute right to waive any irregularities or conditions of tender as to particular Old Preferred Stock. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Preferred Stock must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Preferred Stock nor shall any of them incur any liability for failure to give such notification. Tenders of Old Preferred Stock will not be deemed to have been made until such irregularities have been cured or waived. Any Old Preferred Stock received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost by the Exchange Agent to the tendering holder of such Old Preferred Stock unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, the Company reserves the right in its sole discretion to (a) purchase or make offers for any Old Preferred Stock that remain outstanding subsequent to the Expiration Date, or, as set forth under "Termination," to terminate the Exchange Offer and (b) to the extent permitted by applicable law, purchase Old Preferred Stock in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers may differ from the terms of the Exchange Offer. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Preferred Stock and (i) whose Old Preferred Stock is not immediately available, or (ii) who cannot deliver their Old Preferred Stock, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, or (iii) who cannot complete the procedure for book-entry transfer on a timely basis, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder of the Old Preferred Stock, the certificate number or numbers of such Old Preferred Stock and the number of shares of Old Preferred Stock tendered, stating that the tender is being made thereby, and guaranteeing that, within five business days after the Expiration Date, the Letter of Transmittal (or facsimile thereof), together with the certificate(s) representing the Old Preferred Stock to be tendered in proper form for transfer and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and 31 (c) Such properly completed and executed Letter of Transmittal (or facsimile thereof), together with the certificate(s) representing all tendered Old Preferred Stock in proper form for transfer and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five business days after the Expiration Date. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Old Preferred Stock may be withdrawn at any time prior to 5:00 p.m., New York City time, on the business day prior to the Expiration Date, unless previously accepted for exchange. To withdraw a tender of Old Preferred Stock in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the business day prior to the Expiration Date and prior to acceptance for exchange thereof by the Company. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Preferred Stock to be withdrawn (the "Depositor"), (ii) identify the Old Preferred Stock to be withdrawn (including the certificate number or numbers and number of shares of such Old Preferred Stock), (iii) be signed by the Depositor in the same manner as the original signature on the Letter of Transmittal by which such Old Preferred Stock was tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to permit the Trustee with respect to the Old Preferred Stock to register the transfer of such Old Preferred Stock into the name of the Depositor withdrawing the tender and (iv) specify the name in which any such Old Preferred Stock is to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Preferred Stock so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no New Preferred Stock will be issued with respect thereto unless the Old Preferred Stock so withdrawn is validly retendered. Any Old Preferred Stock which has been tendered but which is not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Preferred Stock may be retendered by following one of the procedures described above under "Procedures for Tendering" at any time prior to the Expiration Date. TERMINATION Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange, or exchange New Preferred Stock for, any Old Preferred Stock not theretofore accepted for exchange, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Preferred Stock if: (i) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer, which, in the Company's judgment, might materially impair the Company's ability to proceed with the Exchange Offer, (ii) any law, statute, rule or regulation is proposed, adopted or enacted, or any existing law, statute, rule or regulation is interpreted by the staff of the Commission in a manner, which, in the Company's judgment, might materially impair the Company's ability to proceed with the Exchange Offer, or (iii) the Company reasonably deems it advisable to terminate the Exchange Offer. If the Company determines that it may terminate the Exchange Offer, as set forth above, the Company may (i) refuse to accept any Old Preferred Stock and return any Old Preferred Stock that has been tendered to the holders thereof, (ii) extend the Exchange Offer and retain all Old Preferred Stock tendered prior to the Expiration of the Exchange Offer, subject to the rights of such holders of tendered Old Preferred Stock to withdraw their tendered Old Preferred Stock, (iii) waive such termination event with respect to the Exchange Offer and accept all properly tendered Old Preferred Stock that has not been withdrawn. If such waiver constitutes a material change in the Exchange Offer, the Company will disclose such change by means of a supplement to this Prospectus that will be distributed to each registered holder of Old Preferred Stock, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders of the Old Preferred Stock, 32 if the Exchange Offer would otherwise expire during such period. See "Description of New Preferred Stock--Registration Rights Agreement". EXCHANGE AGENT Chemical Mellon Shareholder Services, L.L.C. has been appointed as Exchange Agent for the Exchange Offer. FEES AND EXPENSES The expenses of soliciting tenders pursuant to the Exchange Offer will be borne by the Company. The principal solicitation for tenders pursuant to the Exchange Offer is being made by mail. Additional solicitations may be made by officers and regular employees of the Company and its affiliates in person, by telegraph or telephone. The Company will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in connection therewith. The Company may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus, Letters of Transmittal and related documents to the beneficial owners of the Old Preferred Stock and in handling or forwarding tenders for exchange. The expenses to be incurred by the Company and the Exchange Agent in connection with the Exchange Offer, including the fees of the Exchange Agent and accounting and legal fees, will be paid by the Company. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Preferred Stock pursuant to the Exchange Offer. If, however, certificates representing New Preferred Stock or Old Preferred Stock not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Preferred Stock tendered, or if tendered Old Preferred Stock is registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Preferred Stock pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. ACCOUNTING TREATMENT No gain or loss for accounting purposes will be recognized by the Company upon the consummation of the Exchange Offer as the expenses of the Exchange Offer will be charged to paid-in capital. 33 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company and its consolidated subsidiaries at December 31, 1995 and as adjusted to reflect the pro forma consolidated capitalization of the Company and its consolidated subsidiaries at December 31, 1995, adjusted to give effect to (i) transactions involving V Cable described under "Recent Developments" in the Form 10-K (the "V Cable Transactions") and (ii) the issuance in February 1996 of the Company's Series L Preferred Stock, and the application of the estimated net proceeds to the Company from such offering. See "Use of Proceeds" and "Condensed Pro Forma Consolidated Financial Statements".
AS OF DECEMBER 31, 1995 ---------------------- HISTORICAL PRO FORMA ---------- ---------- (DOLLARS IN THOUSANDS) LONG-TERM DEBT: Restricted Group: Bank indebtedness(1)........................... $ 559,235 $ 612,235 10 3/4% Senior Subordinated Debentures due 2004.......................................... 275,000 275,000 9 1/4% Senior Subordinated Notes due 2005...... 300,000 300,000 9 7/8% Senior Subordinated Debentures due 2013. 198,930 198,930 9 7/8% Senior Subordinated Debentures due 2023. 149,678 149,678 Capitalized lease obligations.................. 8,014 8,014 ---------- ---------- Total........................................ 1,490,857 1,543,857 ---------- ---------- V Cable: Senior debt.................................... 898,803 -- ---------- ---------- Cablevision of Ohio: Bank debt...................................... -- 288,803 ---------- ---------- MFR: Senior bank debt............................... 195,200 195,200 Subordinated notes............................. 141,268 141,268 ---------- ---------- Total........................................ 336,468 336,468 ---------- ---------- Other Unrestricted Subsidiaries: Other indebtedness............................. 238,034 388,034 Obligation to related party(2)................. 192,945 192,945 ---------- ---------- Total........................................ 430,979 580,979 ---------- ---------- Total long-term debt....................... 3,157,107 2,750,107 ---------- ---------- Series G Redeemable Exchangeable Preferred Stock... 257,751 257,751 ---------- ---------- Series L Redeemable Exchangeable Preferred Stock... -- 650,000 ---------- ---------- STOCKHOLDERS' DEFICIENCY: Series C/D Cumulative Preferred Stock: Authorized--225,000 shares Issued--110,622 shares......................... 1 1 Series I Cumulative Convertible Exchangeable Preferred Stock.................................. 14 14 Class A Common Stock: Authorized--50,000,000 shares Issued--14,210,599 shares...................... 142 131 Class B Common Stock: Authorized--20,000,000 shares Issued--11,572,709 shares...................... 116 116 Paid-in capital.................................. 247,671 162,290 Accumulated deficit.............................. (2,079,228) (2,108,026) ---------- ---------- (1,831,284) (1,945,474) Treasury stock (1,091,553 shares)................ (60,392) -- ---------- ---------- Total stockholders' deficiency............... (1,891,676) (1,945,474) ---------- ---------- Total capitalization....................... 1,523,182 1,712,384 ========== ==========
(footnotes on following page) 34 FOOTNOTES: (1) See "Management's Discussion and Analysis--Liquidity and Capital Resources" and the Consolidated Financial Statements for a description of the bank indebtedness. This indebtedness consists of the Company's indebtedness under its principal bank credit agreement, the New Jersey subsidiary credit agreement and the Cablevision of NYC credit agreement. These amounts do not include approximately $20.4 million reserved under the Company's bank credit agreements for certain letters of credit issued on behalf of the Company. The Company and its New Jersey subsidiary are jointly and severally liable under the New Jersey subsidiary credit agreement. (2) Obligation of NYC LP Corp., a wholly-owned Unrestricted Group subsidiary, relating to the acquisition of Cablevision of NYC, which obligation has been guaranteed by the Company. NYC LP Corp.'s obligation under such guarantee may be paid in cash or, at the Company's option, shares of the Company's Common Stock. Under the Credit Agreement, the Company is currently prohibited from paying all but $40.0 million of this obligation in cash and, accordingly, without the consent of the Company's bank lenders, would be required to pay it in shares of the Company's Common Stock. 35 DESCRIPTION OF CAPITAL STOCK The Company is authorized to issue 80,000,000 shares of capital stock, of which 50,000,000 shares are Class A Common Stock, par value $.01 per share, 20,000,000 shares are Class B Common Stock, par value $.01 per share, and 10,000,000 shares are preferred stock, par value $.01 per share, of which the Preferred Stock offered hereby will be a series. CLASS A COMMON STOCK AND CLASS B COMMON STOCK Voting. Holders of Class A Common Stock are entitled to one vote per share. Holders of 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 Class A Common Stock and 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 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 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. Holders of 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 Class A Common Stock is less than 10% of the total number of outstanding shares of both classes of Common Stock, the holders of Class A Common Stock and Class B Common Stock will vote together as a single class with respect to the election of directors and the holders of 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 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 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, 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 Class B Common Stock to elect the remaining directors to be elected at such meeting, with the holders of Class A Common Stock entitled to one vote per share and the holders of 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 Class B Common Stock, voting separately as a class, is required for the authorization or issuance of any additional shares of Class B Common Stock and for any amendment, alteration or repeal of any provisions of the Company's Certificate of Incorporation which would affect adversely the powers, preferences or rights of the Class B Common Stock. The Company's Certificate of Incorporation does not provide for cumulative voting. Conversion. The Class A Common Stock has no conversion rights. The Class B Common Stock is convertible into Class A Common Stock in whole or in part at any time and from time to time on the basis of one share of Class A Common Stock for each share of Class B Common Stock. Dividends. Holders of Class A Common Stock and 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 dividend may be declared or paid in cash or property on shares of either Class A Common Stock or 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 Class A Common Stock are entitled to receive the same percentage dividend (payable in shares of Class A Common Stock) as holders of Class B Common Stock receive (payable in shares of Class B Common Stock). The Company's Certificate of Incorporation 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. 36 Liquidation. Holders of Class A Common Stock and 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 Class A Common Stock and Class B Common Stock in the event of liquidation. Other Terms. 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 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 Class A Common Stock or Class B Common Stock must be identical to that received by holders of the other class of Common Stock, except that in any such transaction in which shares of capital stock are distributed, such shares may differ as to voting rights only to the extent that voting rights now differ between Class A Common Stock and Class B Common Stock. Restrictions on Ownership. Transfer of shares of Class A Common Stock or Class B Common Stock which could result in a change of control of the Company may require the approval of state agencies or local franchising authorities in certain states in which the Company operates. Transfer Agent. The Company's transfer agent and registrar for the Class A Common Stock is Mellon Securities Trust Company. No Preemptive Rights. The shares of common stock have no preemptive or other rights to subscribe for or purchase any proportionate part of any new or additional issues of stock of any class or of securities convertible into stock of any class. PREFERRED STOCK The following description of the terms of the Company's preferred stock sets forth certain general terms and provisions of the preferred stock. The description set forth below is subject to and qualified in its entirety by reference to the certificate of designations establishing a particular series of preferred stock. General. Under the Certificate of Incorporation, the Board of Directors of the Company is authorized, without further stockholder action, to provide for the issuance of up to 10,000,000 shares of preferred stock in one or more series. Subject to limitations imposed by law or the Company's Certificate of Incorporation, 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 the Company, 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 Company; (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 Company of, the Class A Common Stock, the Class B Common Stock or any other class or classes of stock of the Company ranking junior to the shares of such series either as to dividends or upon liquidation; (i) the conditions or restrictions, 37 if any, upon the creation or indebtedness of the Company 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. Designated Preferred Stock. General. The authorized preferred stock of the Company consists of (i) 200,000 shares of Series B Cumulative Preferred Stock, $.01 par value and $100 liquidation value per share (the "Series B Preferred Stock"), none of which are outstanding, (ii) 112,500 shares of 8% Series C Cumulative Preferred Stock, $.01 par value and $100 liquidation value per share (the "Series C Preferred Stock"), of which 110,622 shares were outstanding at December 31, 1995, (iii) 112,500 shares of 8% Series D Cumulative Preferred Stock, $.01 par value and $100 liquidation value per share, none of which are outstanding (the "Series D Preferred Stock"), (iv) 100,000 shares of Series E Preferred Stock, $.01 par value and $1,000 liquidation preference per share, none of which are outstanding, (v) 100,000 shares of Series F Redeemable Preferred Stock, $.01 par value and $1,000 liquidation preference per share, none of which are outstanding (the "Series F Preferred Stock"), (vi) 4,500,000 shares of Old Preferred Stock, 2,500,000 shares of which were issued on September 26, 1995 and are outstanding and 77,510 shares of which were issued on January 2, 1996 and are outstanding, (viii) 1,380,000 shares of 8 1/2% Series I Cumulative Convertible Exchangeable Preferred Stock (the "Series I Preferred Stock"), 1,380,000 shares of which are outstanding and represented by 13,800,000 depositary shares, and (ix) 115,000 shares of 11 1/8% Series L Redeemable Exchangeable Preferred Stock (the "Series L Preferred Stock"), 65,000 shares of which were issued on February 15, 1996 and are outstanding and are represented by 6,500,000 depositary shares (the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Old Preferred Stock, Series I Preferred Stock and the Series L Preferred Stock are hereinafter sometimes collectively referred to as the "Authorized Preferred Stock"). The Series A Preferred Stock, $.01 par value, was cancelled by the Board of Directors on February 2, 1988. The Company does not expect to issue any Series B Preferred Stock. The Series D Preferred Stock is issuable upon conversion of the Series C Preferred Stock. The Company redeemed the Series E Preferred Stock on November 2, 1995. The Series F Preferred Stock would have been issuable upon conversion of the Series E Preferred Stock. The Company anticipates that it will, prior to the consummation of the Exchange Offer, file a certificate of cancellation with respect to all of the authorized shares of Series E Preferred Stock and Series F Preferred Stock with the Delaware Secretary of State. In connection with the consummation of the Exchange Offer, a certificate of cancellation with respect to the Old Preferred Stock tendered in the Exchange Offer will be filed with the Delaware Secretary of State and a certificate of designation will be filed with respect to 4,500,000 shares of New Preferred Stock. The right to dividends on shares of the Authorized Preferred Stock are cumulative. Series B, Series C and Series D Preferred Stock. The holders of such Series B Preferred Stock are entitled, when declared by the Board of Directors, to dividends at the time legally available at the annual rate of $12.00 per share prior and in preference to any declaration of payment of any dividend on the common stock of the Company. The holders of Series C Preferred Stock and Series D Preferred Stock are entitled, when declared by the Board of Directors, to dividends out of legally available funds at the annual rate of $8.00 per share prior and in preference to any declaration of payment of any dividend on the common stock of the Company. At any time and from time to time commencing on December 31, 1997, the holders of Series C Preferred Stock and Series D Preferred Stock may require the Company to redeem, upon 30 days' notice to the Company, any or all of the shares of Series C Preferred Stock and Series D Preferred Stock then outstanding at a price equal to the lesser of (i) $100 per share or (ii) the present value of $100, discounted from December 31, 2007 to the date of such redemption, plus, in each case, all dividends (whether or not earned or declared) accrued and unpaid on the shares of Series C Preferred Stock and Series D Preferred Stock to the date fixed for redemption (the "Series C Preferred Stock and Series D Preferred Stock Redemption 38 Price"). The Company may, at its option, upon notice to the holders requesting redemption within 20 days of such holders' notice to the Company, convert all or part of such shares of Series C Preferred Stock into Class B Common Stock and all or part of such shares of Series D Preferred Stock into Class A Common Stock. The Company at its option may, but shall not be required to, redeem, at any time and from time to time after December 31, 1997 on not less than 30 days' nor more than 60 days' prior notice, any or all of the shares of Series C Preferred Stock and Series D Preferred Stock then outstanding at the Series C Preferred Stock and Series D Preferred Stock Redemption Price. If the Company elects to convert any shares of Series C Preferred Stock or Series D Preferred Stock after a demand for redemption by such holders, the number of shares to be issued by the Company shall be calculated by dividing the applicable Series C Preferred Stock and Series D Preferred Stock Redemption Price by the average of the market price of a share of Class A Common Stock for the 30 trading days preceding the date on which a holder gives notice of its election to convert such shares. Holders of Series C Preferred Stock and Series D Preferred Stock have no voting rights except as to which they may be entitled under the laws of the State of Delaware. In the event of any liquidation, dissolution or winding up the Company, the holders of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are entitled to receive a preferential amount equal to $100 for each share of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock held plus all dividends (whether or not earned or declared) accumulated and unpaid on such shares of Authorized Preferred Stock to the date of final distribution in preference to any such distribution to the holders of the common stock of the Company. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the amounts payable with respect to the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are not paid in full , the holders of the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and any other preferred stock on parity therewith will share equally and ratably in any distribution of the assets of the Company in proportion to the full liquidation preference to which each is entitled. Neither the 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 Company nor the consolidation or merger of the Company with one or more corporations shall be deemed a liquidation, dissolution or winding up of the Company. Old Preferred Stock and New Preferred Stock. The Old Preferred Stock, with respect to dividends and distributions upon the liquidation, winding up and dissolution of the Company, ranks (i) senior to all classes of Common Stock and each other class of capital stock or series of preferred stock established by the Board of Directors (except as set forth below) which does not expressly provide that it ranks senior to the Old Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Series G Junior Stock"); (ii) on a parity with the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, New Preferred Stock, Series I Preferred Stock, Series L Preferred Stock and any other class of capital stock or series of preferred stock issued by the Company established after the initial issuance of the Old Preferred Stock by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Old Preferred Stock as to dividends and distributions upon the liquidation, winding up and dissolution of the Company (collectively referred to as "Series G Parity Securities"); and (iii) junior to each class of capital stock or series of preferred stock issued by the Company established after the initial issuance of the Old Preferred Stock by the Board of Directors, the terms of which specifically provide that such class or series will rank senior to the Old Preferred Stock as to dividends and distributions upon the liquidation, winding up and dissolution of the Company (collectively referred to as "Series G Senior Securities"). No full dividends may be declared or paid or funds set apart for the payment of dividends on any Series G Parity Securities for any period unless full cumulative dividends shall have been paid or set apart for such payment on the Old Preferred Stock. If full dividends are not so paid, the Old Preferred Stock shall share 39 dividends pro rata with the Series G Parity Securities. Subject to certain exceptions set forth in the certificate of designations for the Old Preferred Stock, no dividends may be paid or set apart for such payment on Series G Junior Stock (except dividends on Series G Junior Stock in additional shares of Series G Junior Stock), and no Series G Junior Stock may be repurchased, redeemed or otherwise retired nor may funds be set apart for payment with respect thereto, if full dividends have not been paid on the Old Preferred Stock. The Company may redeem the Old Preferred Stock at any time after October 1, 2002, in whole or in part, at certain redemption prices. In addition, the Company may redeem shares of Old Preferred Stock at any time before October 1, 1998 at a redemption price per share equal to the liquidation preference of $100, plus accumulated and unpaid dividends plus a premium of $10 per share, out of the net proceeds of the sale of Series G Junior Stock to a Strategic Equity Investor or a public offering of Class A Common Stock. Furthermore, the Company may, at its option, prior to October 1, 2002, redeem the Old Preferred Stock at any time within 180 days, at certain redemption prices, after a Change in Control (as defined in the Certificate of Designations for the Old Preferred Stock). On October 1, 2007, the Company will be required to redeem all outstanding shares of Old Preferred Stock out of funds legally available. The Company may, at its option, on any scheduled dividend payment date, exchange the Old Preferred Stock for the Company's 11 3/4% Senior Subordinated Debentures due 2007. In the event of any liquidation, winding up or dissolution of the Company, holders of Old Preferred Stock will be entitled to receive a preferential amount equal to $100 per share, plus all accumulated and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding up of the Company (including an amount equal to a prorated dividend from the last dividend payment date to the date fixed for liquidation, dissolution or winding up), before any distribution is made on the Series G Junior Stock. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the amounts payable with respect to the Old Preferred Stock and all other Series G Parity Securities are not paid in full, the holders of the Old Preferred Stock and the Series G Parity Securities will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled. After payment of the full amount of the liquidation preferences to which they are entitled, the holders of shares of Old Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. Neither the 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 Company nor the consolidation or merger of the Company with one or more corporations shall be deemed a liquidation, dissolution or winding up of the Company. Holders of the Old Preferred Stock will have no voting rights with respect to general corporate matters except as provided by law or as set forth in the Certificate of Designations therefor. The Certificate of Designations for the Old Preferred Stock provides that (a) dividends on the Old Preferred Stock are in arrears and unpaid (and if after October 1, 2000, such dividends are not paid in cash) for six quarterly periods (whether or not consecutive), or (b) the Company fails to discharge its redemption obligation to redeem the Old Preferred Stock on October 1, 2007, the number of directors constituting the Board of Directors will be adjusted to permit the holders of the majority of the then outstanding Old Preferred Stock, voting as a class, to elect a director. Such voting rights will continue until such time as all dividends in arrears on the Old Preferred Stock are paid in full (and in the case of dividends payable after October 1, 2000, paid in cash) and any failure, breach or default referred to in clause (b) is remedied, at which time the term of the directors elected pursuant to the provisions of this paragraph shall terminate. Each such event described in clauses (a) and (b) above is referred to herein as a "Series G Voting Rights Triggering Event". The Certificate of Designations for the Old Preferred Stock also provides that the Company will not authorize any class of Series G Senior Securities without the affirmative vote or consent of holders of at least a majority of the shares of Old Preferred Stock then outstanding, voting or consenting, as the case may be, separately as one class. The Company may not amend the Certificate of Designations for the Old Preferred Stock so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares 40 of the Old Preferred Stock, or authorize the issuance of any additional shares of Old Preferred Stock, without the affirmative vote or consent of the holders of at least a majority of the outstanding shares of Old Preferred Stock, voting or consenting, as the case may be, as one class. Without the affirmative vote or consent of a majority of the issued and outstanding shares of Old Preferred Stock, the Company may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person unless: (a) the entity formed by such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (b) the Old Preferred Stock shall be converted into or exchanged for and shall become shares of such successor, transferee or resulting corporation, having in respect of such successor, transferee or resulting corporation the same powers, preferences and relative participating, optional or special rights, and the qualifications, limitations or restrictions thereon, that the Old Preferred Stock had immediately prior to such transactions; and (c) immediately after giving effect to such transaction, no Series G Voting Rights Triggering Event shall have occurred and be continuing. Notwithstanding the foregoing, the Company may consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person if the Company makes adequate provision (i) prior to October 1, 2002, to redeem the Old Preferred Stock after a Change in Control (as defined in the Certificate of Designations for the Old Preferred Stock) or (ii) on or after October 1, 2002, to redeem the Old Preferred Stock at the applicable redemption price set forth in the certificate of designations therefor. The New Preferred Stock will have terms identical to the Old Preferred Stock, except that the New Preferred Stock will not contain terms restricting the transfer thereof and the terms of the New Preferred Stock clarify the calculation of the Make-Whole Premium applicable to an optional redemption following a Change of Control. Series I Preferred Stock. The Series I Preferred Stock, with respect to dividends and distributions upon the liquidation, winding-up and dissolution of the Company, ranks (i) senior to all classes of Common Stock and each other class of capital stock or series of preferred stock established by the Board of Directors after the issuance of the Series I Preferred Stock which does not expressly provide that it ranks senior to or on a parity with the Series I Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Series I Junior Stock"); (ii) on a parity with the Company's Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock (which may be issued in exchange for shares of the Series C Preferred Stock), Old Preferred Stock, New Preferred Stock, Series L Preferred Stock and any other class of capital stock or series of preferred stock established by the Board of Directors after the initial issuance of the Series I Preferred Stock, the terms of which expressly provide that such class or series will rank on a parity with the Series I Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Series I Parity Stock"); and (iii) junior to each class of capital stock or series of preferred stock established by the Board of Directors after the initial issuance of the Series I Preferred Stock, the terms of which specifically provide that such class or series will rank senior to the Series I Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Series I Senior Stock"). Holders of the Series I Preferred Stock are entitled, when declared by the Board of Directors, out of funds legally available therefor, to receive cumulative cash dividends on each outstanding share of the Series I Preferred Stock, at the annual rate of 8 1/2% or $21.25 per share of Series I Preferred Stock (equivalent to $2.125 per annum per depositary share). Dividends on the Series I Preferred Stock are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year. Dividends will be payable to the holder of record on the respective record date as may be fixed by the Board of Directors in advance of each dividend. The right to dividends on the Series I Preferred Stock will be cumulative (whether or not earned or declared) from the date of issuance of the Series I Preferred Stock. If any dividend (or portion thereof) payable on any dividend payment date is not paid in full on the dividend payment date therefor, the amount of such dividend that is payable and that is not paid on such date will increase at the rate of 8 1/2% per annum per share of Series I Preferred Stock from such dividend payment date until paid in full. 41 No full dividends may be declared or paid or funds set apart for the payment of dividends on any Series I Parity Stock for any period unless full cumulative dividends shall have been paid or set apart for such payment on the Series I Preferred Stock. If the funds available for the payment of dividends are insufficient to pay in full the dividends payable on all outstanding shares of Series I Preferred Stock and any series of Series I Parity Stock, the total available funds to be paid in partial dividends shall be divided among the Series I Preferred Stock and such other series pro rata in proportion to the aggregate amount of dividends accrued and unpaid with respect to such Series I Preferred Stock and such other series. Subject to various exceptions set forth in the certificate of designations for the Series I Preferred Stock, no dividends may be paid or set apart for such payment on Series I Junior Stock (except dividends on Series I Junior Stock in additional shares of Series I Junior Stock), and no Series I Junior Stock, or any warrants, rights, calls or options exercisable for or convertible into any Series I Junior Stock, may be repurchased, redeemed or otherwise retired nor may funds be set apart for payment with respect thereto, if full dividends have not been paid on the Series I Preferred Stock. After dividends on the Series I Preferred Stock for all past and current quarterly dividend periods have been paid in full, the Series I Preferred Stock will not be entitled to participate in any further distributions by the Company. On or after January 1, 1998, the Company may, at its option, on any scheduled dividend payment date, exchange the Series I Preferred Stock, in whole but not in part, for the Company's 8 1/2% Convertible Subordinated Debentures due 2007 (the "Series I Exchange Debentures"). The Company at its option may redeem the Series I Preferred Stock (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) at any time after November 1, 1999, in whole or in part, at certain redemption prices. Each share of Series I Preferred Stock is convertible into shares of Class A Common Stock at the option of the holder at a conversion rate equal to $250.00 (the original liquidation preference of the shares of Series I Preferred Stock), divided by the conversion price, except that, if shares of Series I Preferred Stock are called for redemption or the Company elects to issue Series I Exchange Debentures in exchange for the Series I Preferred Stock, the conversion right will terminate at the close of business five business days prior to the date fixed for redemption or exchange. The initial conversion price is $67.44 per share. The conversion price is subject to adjustment (under formulas set forth in the certificate of designations for the Series I Preferred Stock) in certain events, including (a) the issuance of Class A Common Stock as a dividend or distribution on any class of the capital stock of the Company; (b) subdivisions, reclassifications and combinations of the Class A Common Stock; (c) the issuance to all holders of Class A Common Stock of certain rights or warrants entitling them to subscribe for or purchase Class A Common Stock at less than the current market price (as defined in the certificate of designations for the Series I Preferred Stock); and (d) certain distributions to all holders of Class A Common Stock of capital stock or evidences of indebtedness of the Company or cash or other assets of the Company. In case of (i) any consolidation of the Company with, or merger of the Company into, any other entity, (ii) any merger of another entity into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Class A Common Stock of the Company), or (iii) any sale or transfer of all or substantially all of the assets of the Company, subject to certain exceptions set forth in the certificate of designations for the Series I Preferred Stock, each holder of a share of Series I Preferred Stock then outstanding shall have the right thereafter to convert their shares of Series I Preferred Stock only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Class A Common Stock of the Company into which such share of Series I Preferred Stock might have been converted immediately prior to such consolidation, merger, sale or transfer. The Series I Preferred Stock has a special conversion right that becomes effective upon the occurrence of certain types of significant transactions affecting ownership or control of the Company or the market for the Class A Common Stock. In the event of any liquidation, dissolution or winding-up of the Company, after 42 payment or processing for payment of the debts and other liabilities of the Company and of liquidation preferences in respect of any Series I Senior Stock, holders of Series I Preferred Stock will be entitled to receive out of the remaining net assets of the Company, if any, a preferential amount equal to $250.00 per share (equivalent to $25.00 per depositary share), plus all accumulated and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding-up of the Company (including an amount equal to a prorated dividend from the last dividend payment date to the date fixed for liquidation, dissolution or winding-up), before any distribution is made on any Series I Junior Stock, including, without limitation, on any Common Stock. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the amounts payable with respect to the Series I Preferred Stock and all other Series I Parity Stock are not paid in full, the holders of the Series I Preferred Stock and the Series I Parity Stock will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled. After payment of the full amount of the liquidation preferences to which they are entitled, the holders of shares of Series I Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. Neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with one or more corporations shall be deemed to be a liquidation, dissolution or winding-up of the Company. Holders of the Series I Preferred Stock will have no voting rights with respect to general corporate matters except as provided by law or as set forth in the certificate of designations. The certificate of designations provides that if dividends on the Series I Preferred Stock are in arrears and unpaid for six quarterly periods (whether or not consecutive), then the number of directors constituting the Board of Directors will be adjusted to permit the holders of the majority of the then outstanding Series I Preferred Stock, voting as a class, to elect one director and a second director if the right to elect a second director is required by the American Stock Exchange or any other national securities exchange on which the Company elects to list the Class A Common Stock or by the requirements of the Nasdaq National Market System if the Company elects to have the Class A Common Stock traded thereon. Such voting rights will continue until such time as all dividends in arrears on the Series I Preferred Stock are paid in full, at which time the term of the directors elected pursuant to the provisions of this paragraph shall terminate. Such event described above is referred to herein as a "Series I Voting Rights Triggering Event". Any vacancy occurring in the office of the director elected by holders of the Series I Preferred Stock may be filled by the remaining director, if any, or otherwise by the departing director unless and until such vacancy shall be filled by such holders. The certificate of designations also provides that the Company will not authorize any class of Series I Senior Stock without the affirmative vote or consent of holders of at least 66 2/3% of the shares of Series I Preferred Stock then outstanding, voting or consenting, as the case may be, separately as one class. The certificate of designations also provides that the Company may not amend the certificate of designations so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of the Series I Preferred Stock, or authorize the issuance of any additional shares of Series I Preferred Stock, without the affirmative vote or consent of the holders of at least 66 2/3% of the outstanding shares of Series I Preferred Stock, voting or consenting, as the case may be, as one class. The holders of at least 66 2/3% of the outstanding shares of Series I Preferred Stock, voting or consenting, as the case may be, as one class, may also waive compliance with any provision of the certificate of designations. The certificate of designations also provides that (a) the creation, authorization, existence or issuance of any shares of Series I Parity Stock or Series I Junior Stock or (b) the increase or decrease in the amount of authorized capital stock of any class, including any preferred stock, shall not require the consent of the holders of Series I Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges or voting rights of holders of shares of Series I Preferred Stock. Without the affirmative vote or consent of the holders of a majority of the issued and outstanding shares of Series I Preferred Stock, the Company may not consolidate or merge with or into, or sell, assign, transfer, 43 lease, convey or otherwise dispose of all or substantially all of its assets to, any person unless: (a) the entity formed by such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the "resulting entity") shall be a corporation organized or existing under the laws of the United States or any State thereof or the District of Columbia; (b) the Series I Preferred Stock shall remain unchanged or be converted into or exchanged for and shall become shares of such resulting entity, having in respect of such resulting entity the same (or more favorable) powers, preferences and relative participating, optional or other special rights, and the same (or more favorable) qualifications, limitations or restrictions thereon, that the Series I Preferred Stock had immediately prior to such transaction (provided that (i) if, in accordance with the certificate of designations for the Series I Preferred Stock, the Series I Preferred Stock shall become convertible into a different amount or type of securities, cash or other property, such change shall not be deemed to be a change in the powers, preferences and relative participating, optional or other special rights of the Series I Preferred Stock and (ii) the fact that the resulting entity has authorized or outstanding any securities other than Series I Senior Stock, shall not be deemed to be a change in the powers, preferences and relative participating, optional or other special rights of the Series I Preferred Stock); and (c) immediately after giving effect to such transaction, no Series I Voting Rights Triggering Event shall have occurred or be continuing; provided, however, that the foregoing shall not be applicable to a transaction or event that constitutes a "Change of Control", as defined in the certificate of designations for the Series I Preferred Stock. Series L and Series M Preferred Stock. The Series L Preferred Stock, with respect to dividends and distributions upon the liquidation, winding up and dissolution of the Company, ranks (i) senior to all classes of Common Stock and each other class of capital stock or series of preferred stock established by the Board of Directors (except as set forth below) which does not expressly provide that it ranks senior to the Series L Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Series L Junior Stock"); (ii) on a parity with the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Old Preferred Stock, New Preferred Stock, Series I Preferred Stock and any other class of capital stock or series of preferred stock issued by the Company established after the initial issuance of the Series L Preferred Stock by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series L Preferred Stock as to dividends and distributions upon the liquidation, winding up and dissolution of the Company (collectively referred to as "Series L Parity Securities"); and (iii) junior to each class of capital stock or series of preferred stock issued by the Company established after the initial issuance of Series L Preferred Stock by the Board of Directors, the terms of which specifically provide that such class or series will rank senior to the Series L Preferred Stock as to dividends and distributions upon the liquidation, winding up or dissolution of the Company (collectively referred to as "Series L Senior Securities"). No full dividends may be declared or paid or funds set apart for the payment of dividends on any Series L Parity Securities for any period unless full cumulative dividends shall have been paid or set apart for such payment on the Series L Preferred Stock. If full dividends are not so paid, the Series L Preferred Stock shall share dividends pro rata with the Series L Parity Securities. Subject to certain exceptions set forth in the certificate of designations for the Series L Preferred Stock, no dividends may be paid or set apart for such payment on Series L Junior Stock (except dividends on Series L Junior Stock in additional shares of Series L Junior Stock), and no Series L Junior Stock may be repurchased, redeemed or otherwise retired nor may funds by set apart for payment with respect thereto, if full dividends have not been paid on the Series L Preferred Stock. The Company may redeem the Series L Preferred Stock at any time after April 1, 2003, in whole or in part, at certain redemption prices. In addition, the Company may redeem shares of Series L Preferred Stock at any time before April 1, 1999 at a redemption price per share equal to the liquidation preference of $10,000, plus accumulated and unpaid dividends plus a premium of $1,000 per share, out of the net proceeds of the sale of Series L Junior Stock to a Strategic Equity Investor or a public offering of Class A Common Stock. Furthermore, the Company may, at its option, prior to April 1, 2003, redeem the Series L Preferred Stock at 44 any time within 180 days, at certain redemption prices, after a Change of Control (as defined in the certificate of designations for the Series L Preferred Stock). On April 1, 2008, the Company will be required to redeem all outstanding shares of Series L Preferred Stock out of funds legally available therefrom. The Company may, at its option, on any scheduled dividend payment date, exchange the Series L Preferred Stock for the Company's 11 1/8% Senior Subordinated Debentures due 2008. In the event of any liquidation, winding up or dissolution of the Company, holders of Series L Preferred Stock will be entitled to receive a preferential amount equal to $10,000 per share, plus all accumulated and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding up of the Company (including an amount equal to a prorated dividend from the last dividend payment date to the date fixed for liquidation, dissolution or winding up), before any distribution is made on the Series L Junior Stock. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the amounts payable with respect to the Series L Preferred Stock and all other Series L Parity Securities are not paid in full, the holders of the Series L Preferred Stock and the Series L Parity Securities will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled. After payment of the full amount of the liquidation preferences to which they are entitled, the holders of shares of Series L Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. Neither the 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 Company nor the consolidation or merger of the Company with one or more corporations shall be deemed a liquidation, dissolution or winding up of the Company. Holders of the Series L Preferred Stock have no voting rights with respect to general corporate matters except as provided by law or as set forth in the certificate of designations therefor. The certificate of designations for the Series L Preferred Stock provides that (a) dividends on the Series L Preferred Stock are in arrears and unpaid (and if after April 1, 2001, such dividends are not paid in cash) for six quarterly periods (whether or not consecutive), or (b) the Company fails to discharge its redemption obligation to redeem the Series L Preferred Stock on April 1, 2008, the number of directors constituting the Board of Directors will be adjusted to permit the holders of a majority of the then outstanding Series L Preferred Stock and the Company's 11 1/8% Series M Redeemable Exchangeable Preferred Stock ("Series M Preferred Stock"), voting or consenting, as the case may be, separately as a single class, to elect a director. Such voting rights will continue until such time as all dividends in arrears on the Series L Preferred Stock are paid in full (and in the case of dividends payable after April 1, 2001, paid in cash) and any failure, breach or default referred to in clause (b) is remedied, at which time the term of the directors elected pursuant to the provisions of this paragraph shall terminate. Each such event described in clauses (a) and (b) above is referred to herein as a "Series L Voting Rights Triggering Event". The certificate of designations for the Series L Preferred Stock also provides that the Company will not authorize any class of Series L Senior Securities without the affirmative vote or consent of holders of at least a majority of the shares of Series L Preferred Stock and Series M Preferred Stock then outstanding, voting or consenting, as the case may be, separately as a single class. The Company may not amend the certificate of designations for the Series L Preferred Stock so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of the Series L Preferred Stock, or authorize the issuance of any additional shares of Series L Preferred Stock, without the affirmative vote or consent of the holders of at least a majority of the outstanding shares of Series L Preferred Stock and Series M Preferred Stock, voting or consenting, as the case may be, separately as a single class. Without the affirmative vote or consent of a majority of the issued and outstanding shares of Series L Preferred Stock and Series M Preferred Stock, voting or consenting, as the case may be, separately as a single class, the Company may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person unless: (a) the entity formed by such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made shall be a corporation organized and existing under 45 the laws of the United States or any State thereof or the District of Columbia; (b) the Series L Preferred Stock shall be converted into or exchanged for and shall become shares of such successor, transferee or resulting corporation, having in respect of such successor, transferee or resulting corporation the same powers, preferences and relative participating, optional or special rights, and the qualifications, limitations or restrictions thereon, that the Series L Preferred Stock had immediately prior to such transactions; and (c) immediately after giving effect to such transaction, no Series L Voting Rights Triggering Event shall have occurred and be continuing. Notwithstanding the foregoing, the Company may consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person if the Company makes adequate provision (i) prior to April 1, 2003, to redeem the Series L Preferred Stock after a Change of Control (as defined in the certificate of designations for the Series L Preferred Stock) or (ii) on or after April 1, 2003, to redeem the Series L Preferred Stock at the applicable redemption price set forth in the certificate of designations therefor. The Series M Preferred Stock will have the same terms in all material respects as the Series L Preferred Stock, except that the Series M Preferred Stock will not contain terms restricting the transfer thereof. DESCRIPTION OF NEW PREFERRED STOCK AND EXCHANGE DEBENTURES NEW PREFERRED STOCK The New Preferred Stock will be issued pursuant to a certificate of designations (the "Certificate of Designations"). The summary contained herein of certain provisions of the New Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the provisions of the Certificate of Designations. The definitions of certain terms used in the Certificate of Designations and in the following summary are set forth below under "--Definitions." GENERAL The Company will (assuming the exchange of all outstanding shares of Old Preferred Stock for New Preferred Stock) authorize the issuance of up to 4,500,000 shares of New Preferred Stock, which will consist of 2,653,367 shares of New Preferred Stock issuable in exchange for Old Preferred Stock plus 1,846,633 additional shares of New Preferred Stock which may be used to pay dividends on the New Preferred Stock if the Company elects to pay dividends in additional shares of New Preferred Stock, and will file a Certificate of Designations with respect thereto with the Secretary of State of the State of Delaware as required by Delaware law. The Old Preferred Stock surrendered in exchange for the New Preferred Stock will be retired and cancelled and cannot be reissued. Accordingly, issuance of the New Preferred Stock will not result in any change in capitalization of the Company. The New Preferred Stock when issued in accordance with the terms of the Exchange Offer (as defined herein), will be fully paid and non-assessable, and the holders thereof will have no subscription or preemptive rights related thereto. RANKING The New Preferred Stock, with respect to dividends and distributions upon the liquidation, winding-up and dissolution of the Company, will rank (i) senior to all classes of Common Stock and each other class of capital stock or series of preferred stock established by the Board of Directors which does not expressly provide that it ranks senior to or on a parity with the New Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Junior Stock"); (ii) on a parity with the Old Preferred Stock and the Company's Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock (which may be issued in exchange for shares of the Series C Preferred Stock), Series I Preferred Stock, Series L Preferred Stock and any other class of capital stock or series of preferred stock issued by the Company established after the initial issuance of the New Preferred Stock by the Board 46 of Directors, the terms of which expressly provide that such class or series will rank on a parity with the New Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Parity Securities"); and (iii) junior to each class of capital stock or series of preferred stock issued by the Company established after the initial issuance of the New Preferred Stock by the Board of Directors, the terms of which specifically provide that such class or series will rank senior to the New Preferred Stock as to dividends and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Senior Securities"). The Company may not issue any new class of Senior Securities without the approval of the holders of at least a majority of the shares of New Preferred Stock then outstanding, voting or consenting, as the case may be, as one class. DIVIDENDS Holders of New Preferred Stock are entitled, when declared by the Board of Directors, out of funds legally available therefor, to receive dividends on each outstanding share of the New Preferred Stock, at the annual rate of 11 3/4% per share of New Preferred Stock. Dividends on the New Preferred Stock will accumulate from the most recent dividend payment date to which dividends on the Old Preferred Stock were paid (the "Accrual Date") and are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year. Holders of Old Preferred Stock whose shares of Old Preferred Stock are accepted for exchange will be deemed to have waived the right to receive any payment in respect of dividends on the Old Preferred Stock accumulated from the Accrual Date until the date of the issuance of the New Preferred Stock. Consequently, holders who exchanged their Old Preferred Stock for New Preferred Stock will receive the same dividend payment on the next dividend payment date (expected to be July 1, 1996) that they would have received had they not accepted the Exchange Offer, except that if such dividend is not paid in cash, it will be paid in shares of New Preferred Stock instead of Old Preferred Stock. Before October 1, 2000, dividends may, at the option of the Company, be paid either in cash or fully paid and non-assessable shares of New Preferred Stock with an aggregate liquidation preference equal to the amount of such dividend. On and after October 1, 2000, dividends may only be paid in cash. If any dividend (or portion thereof) payable on any dividend payment date on or after October 1, 2000 is not paid in full in cash on the dividend payment date therefor, the amount of such dividend that is payable and that is not paid in cash on such date will increase at the rate of 11 3/4% per annum from such dividend payment date until paid in full. No full dividends may be declared or paid or funds set apart for the payment of dividends on any Parity Securities for any period unless full cumulative dividends shall have been paid or set apart for such payment on the New Preferred Stock. If full dividends are not so paid, the New Preferred Stock shall share dividends pro rata with the Parity Securities. No dividends may be paid or set apart for such payment on Junior Stock (except dividends on Junior Stock in additional shares of Junior Stock), and no Junior Stock may be repurchased, redeemed or otherwise retired nor may funds be set apart for payment with respect thereto, if full dividends have not been paid on the New Preferred Stock, except for (i) any conversion of Class B Common Stock of the Company into Class A Common Stock of the Company, (ii) prior to October 1, 2000, the occurrence of the Rainbow Spin-Off, (iii) repurchases of Common Stock issued under the Company's stock incentive programs from employees of the Company, and (iv) dividends or distributions payable-in-kind in additional shares of, or warrants, rights, calls or options exercisable for or convertible into additional shares of Junior Stock. See "Risk Factors--Risks Related to the New Preferred Stock and the Exchange Debentures--Restrictions on Company's Ability to Pay Dividends on the New Preferred Stock". OPTIONAL REDEMPTION The Company at its option may, but shall not be required to, redeem the New Preferred Stock (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) at any time after October 1, 2002, in whole or in part, at the redemption prices (expressed in percentage of 47 liquidation preference) set forth below together with all accumulated and unpaid dividends from the last payment date to the redemption date, if redeemed during the 12-month period beginning October 1 of the years indicated:
YEAR PERCENTAGE ---- ---------- 2002........................................................... 105.875% 2003........................................................... 103.917 2004........................................................... 101.958 2005 and thereafter............................................ 100.000
In addition, the Company may redeem shares of New Preferred Stock having an aggregate liquidation preference of up to 33 1/3% of the aggregate liquidation preference of all shares of New Preferred Stock then outstanding at any time before October 1, 1998 at a redemption price per share equal to the liquidation preference of $100, plus accumulated and unpaid dividends plus a premium of $10 per share, out of the net proceeds of the sale of Junior Stock to a Strategic Equity Investor or a public offering of Class A Common Stock; provided that following such redemption, at least 1,666,667 shares of New Preferred Stock (representing at least 66 2/3% of the amount of the New Preferred Stock initially issued) shall remain outstanding. Furthermore, the Company may, at its option, prior to October 1, 2002, redeem the New Preferred Stock, in whole but not in part, at any time within 180 days after a Change of Control (as defined herein), at a redemption price per share equal to the sum of (i) the liquidation preference of $100 per share plus (ii) accumulated and unpaid dividends to the date of redemption plus (iii) the Make- Whole Premium (as defined herein), which is based on a discount rate equal to the Treasury Rate (as defined herein) plus 50 basis points. In the event of partial redemptions of New Preferred Stock, the shares to be redeemed will be determined pro rata or by lot, as determined by the Company, except that the Company may redeem such shares held by any holders of fewer than 100 shares (or shares held by holders who would hold less than 100 shares as a result of such redemption), as may be determined by the Company. MANDATORY REDEMPTION On October 1, 2007 (the "Mandatory Redemption Date"), the Company will be required to redeem (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) all outstanding shares of New Preferred Stock at a price equal to the liquidation preference thereof plus all accumulated and unpaid dividends from the last payment date to the date of redemption. Future agreements of the Company may restrict or prohibit the Company from redeeming the New Preferred Stock. PROCEDURE FOR REDEMPTION On and after a redemption date, unless the Company defaults in the payment of the applicable redemption price, dividends will cease to accumulate on shares of New Preferred Stock called for redemption and all rights of holders of such shares will terminate except for the right to receive the redemption price, without interest. The Company will send a written notice of redemption by first class mail to each holder of record of shares of New Preferred Stock, not fewer than 30 days nor more than 60 days prior to the date fixed for such redemption. Shares of New Preferred Stock issued and reacquired will, upon compliance with the applicable requirements of Delaware law, have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may with any and all other authorized but unissued shares of preferred stock of the Company be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, except that any issuance or reissuance of shares of New Preferred Stock must be in compliance with the Certificate of Designations. EXCHANGE The Company may, at its option, on any scheduled dividend payment date, exchange the New Preferred Stock, in whole but not in part, for the Exchange Debentures. See "--The Exchange Debentures" below for the terms of the Exchange Debentures. Holders of New Preferred Stock so exchanged will be entitled to 48 receive a principal amount of Exchange Debentures equal to $100 for each $100 of liquidation preference of New Preferred Stock held by such holders at the time of exchange plus an amount per share in cash (or prior to October 1, 2000, in principal amount of Exchange Debentures) equal to all accumulated but unpaid dividends thereon from the last dividend payment date to the exchange date. The Exchange Debentures will be issuable only in denominations of $1,000 and integral multiples thereof. An amount in cash will be paid to holders for any principal amount otherwise issuable which is less than $1,000. Following such exchange, all dividends on the New Preferred Stock will cease to accrue, the rights of the holders of New Preferred Stock as stockholders of the Company shall cease and the person or persons entitled to receive the Exchange Debentures issuable upon exchange shall be treated as the registered holder or holders of such Exchange Debentures. Notice of exchange will be mailed at least 30 days but not more than 60 days prior to the date of exchange to each holder of New Preferred Stock. See "--The Exchange Debentures" below. LIQUIDATION PREFERENCE In the event of any liquidation, dissolution or winding-up of the Company, holders of New Preferred Stock will be entitled to receive a preferential amount equal to $100 per share, plus all accumulated and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding-up of the Company (including an amount equal to a prorated dividend from the last dividend payment date to the date fixed for liquidation, dissolution or winding-up), before any distribution is made on any Junior Stock, including, without limitation, on any Common Stock. If upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the amounts payable with respect to the New Preferred Stock and all other Parity Securities are not paid in full, the holders of the New Preferred Stock and the Parity Securities will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled. After payment of the full amount of the liquidation preferences to which they are entitled, the holders of shares of New Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. However, neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with one or more corporations shall be deemed to be a liquidation, dissolution or winding-up of the Company. The Certificate of Designations for the New Preferred Stock does not contain any provision requiring funds to be set aside to protect the liquidation preference of the New Preferred Stock, although such liquidation preference will be substantially in excess of the par value of such shares of New Preferred Stock. In addition, the Company is not aware of any provision of Delaware law or any controlling decision of the courts of the State of Delaware (the state of incorporation of the Company) that requires a restriction upon any surplus of the Company solely because the liquidation preference of the New Preferred Stock will exceed its par value. Consequently, there will be no restriction upon any surplus of the Company solely because the liquidation preference of the New Preferred Stock will exceed the par value and there will be no remedies available to holders of the New Preferred Stock before or after the payment of any dividend, other than in connection with the liquidation of the Company, solely by reason of the fact that such dividend would reduce any surplus of the Company to an amount less than the difference between the liquidation preference of the New Preferred Stock and its par value. See "Risk Factors--Risks Related to the New Preferred Stock and the Exchange Debentures-- Restrictions on the Company's Ability to Pay Dividends on the New Preferred Stock". VOTING RIGHTS. Holders of the New Preferred Stock will have no voting rights with respect to general corporate matters except as provided by law or as set forth in the Certificate of Designations. The Certificate of Designations provides that if (a) dividends on the New Preferred Stock are in arrears and unpaid (and if after October 1, 2000, such dividends are not paid in cash) for six quarterly periods (whether or not consecutive), or (b) the Company fails to discharge its redemption obligation to redeem the New Preferred Stock on the Mandatory Redemption Date, then the number of directors constituting the Board of Directors will be adjusted to permit the holders of the majority of the then outstanding New Preferred Stock, voting as a class, to elect a director. Such voting rights will continue until such time as all dividends in arrears on the New Preferred Stock are paid in full (and in the case of dividends payable after October 1, 2000, paid in cash) and any failure, breach 49 or default referred to in clause (b) is remedied, at which time the term of the directors elected pursuant to the provisions of this paragraph shall terminate. Each such event described in clauses (a) and (b) above is referred to herein as a "Voting Rights Triggering Event". Any vacancy occurring in the office of the director elected by holders of the New Preferred Stock may be filled by the departing director unless and until such vacancy shall be filled by such holders. The Certificate of Designations also provides that, except as stated above under "--Ranking", the Company will not authorize any class of Senior Securities without the affirmative vote or consent of holders of at least a majority of the shares of New Preferred Stock then outstanding, voting or consenting, as the case may be, separately as one class. The Certificate of Designations also provides that the Company may not amend the Certificate of Designations so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of the New Preferred Stock, or authorize the issuance of any additional shares of New Preferred Stock, without the affirmative vote or consent of the holders of at least a majority of the outstanding shares of New Preferred Stock, voting or consenting, as the case may be, as one class. The holders of at least a majority of the outstanding shares of New Preferred Stock, voting or consenting, as the case may be, as one class, may also waive compliance with any provision of the Certificate of Designations. The Certificate of Designations also provides that, except as set forth above, (a) the creation, authorization or issuance of any shares of Parity Securities or Junior Stock or (b) the increase or decrease in the amount of authorized capital stock of any class, including any preferred stock, shall not require the consent of the holders of New Preferred Stock and shall not be deemed to affect adversely the rights, preferences, privileges or voting rights of holders of shares of New Preferred Stock. Under Delaware law, holders of a class of preferred stock will be entitled to vote as a class upon a proposed amendment to the certificate of incorporation, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. MERGER, CONSOLIDATION AND SALE OF ASSETS. Without the affirmative vote or consent of the holders of a majority of the issued and outstanding shares of New Preferred Stock, the Company may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any Person unless: (a) the entity formed by such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made shall be a corporation organized or existing under the laws of the United States or any State thereof or the District of Columbia; (b) the New Preferred Stock shall be converted into or exchanged for and shall become shares of such successor, transferee or resulting corporation, having in respect of such successor, transferee or resulting corporation the same powers, preferences and relative participating, optional or other special rights, and the qualifications, limitations or restrictions thereon, that the New Preferred Stock had immediately prior to such transaction; and (c) immediately after giving effect to such transaction, no Voting Rights Triggering Event shall have occurred or be continuing. Notwithstanding the foregoing, the Company may consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any Person if the Company makes adequate provision (i) prior to October 1, 2002, to redeem the New Preferred Stock after a Change of Control or (ii) on or after October 1, 2002, to redeem the New Preferred Stock at the applicable redemption price set forth herein. COVENANT TO REPORT Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company will file with the Securities and Exchange Commission (the "Commission") and provide the Transfer Agent and the holders of the Preferred Stock with all information, documents and reports specified in Section 13 and Section 15(d) of the Exchange Act. 50 TRANSFER AGENT AND REGISTRAR Mellon Securities Trust Company is the transfer agent and registrar for the New Preferred Stock. THE EXCHANGE DEBENTURES The Exchange Debentures will be issued under an Indenture dated as of September 26, 1995 (the "Exchange Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee"). The Exchange Indenture is subject to and is governed by the Trust Indenture Act of 1939, as amended. The following summaries of certain provisions of the Exchange Indenture do not purport to be complete, and where reference is made to particular provisions of the Exchange Indenture, such provisions, including the definitions of certain terms, are incorporated by reference as a part of such summaries or terms, which are qualified in their entirety by such reference. The definitions of certain capitalized terms used in the Exchange Indenture and in the following summary are set forth below under "Certain Definitions". The Exchange Debentures will be unsecured obligations of the Company and will be limited in aggregate principal amount to the aggregate liquidation preference of the New Preferred Stock, plus accumulated and unpaid dividends on the date of exchange of the New Preferred Stock into Exchange Debentures (plus any additional Exchange Debentures issued in lieu of cash interest as described herein). The Exchange Debentures will be issued only in fully registered form without coupons, in denominations of $1,000 or any integral multiple thereof (other than with respect to additional Exchange Debentures issued in lieu of cash interest as described herein). The Exchange Debentures will be subordinated to all existing and future Senior Indebtedness of the Company. The Exchange Debentures will mature on October 1, 2007. Each Exchange Debenture will accrue interest at the dividend rate of the New Preferred Stock from the Exchange Debenture Issue Date or from the most recent interest payment date to which interest has been paid or provided for. Interest will be payable semi-annually in cash (or, on or prior to October 1, 2000, in additional Exchange Debentures having a principal amount equal to the cash interest otherwise payable, or in a combination of cash and Exchange Debentures, at the option of the Company) in arrears on January 1 and July 1 of each year, commencing with the first such date after the Exchange Debenture Issue Date. Interest on the Exchange Debentures will be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed. Principal of and premium, if any, and interest on the Exchange Debentures will be payable, and the Exchange Debentures will be exchangeable and transferable, at the office or agency of the Company in The City of New York (which initially will be the Corporate Trust Office of the Trustee); provided, however, that payment of interest, to the extent paid in cash, may be made at the option of the Company by check mailed to the person entitled thereto as shown on the Register of the Exchange Debentures. No service charge will be made for any registration of transfer or exchange of Exchange Debentures, except for any tax or other governmental charge that may be imposed in connection therewith. The Exchange Indenture will not contain any provisions that limit the ability of the Company to incur indebtedness or that afford Holders of the Exchange Debentures protection in the event of a highly leveraged or similar transaction involving the Company, other than as described under "--Certain Covenants of the Company--Limitation on Indebtedness". SINKING FUND The Exchange Debentures will not be entitled to the benefits of a sinking fund. SUBORDINATION The indebtedness represented by the Exchange Debentures will be subordinated in right of payment to the prior payment in full of all Senior Indebtedness. (Section 1201) Upon the maturity of any Senior Indebtedness, by lapse of time, acceleration or otherwise, or upon any payment default (with or without the giving of notice or lapse of time or both, in accordance with the terms of the instrument governing such Senior Indebtedness, and without any waiver or forgiveness) with respect to any Senior Indebtedness, all 51 obligations with respect to such Senior Indebtedness must first be paid in full, or such payment duly provided for, before any payment is made with respect to the Exchange Debentures or before any acquisition of Exchange Debentures by the Company. (Section 1202) Upon (i) a default with respect to any Senior Indebtedness (other than under circumstances when the terms of the previous paragraph are applicable), as such default is defined therein or in the instrument under which it is outstanding, permitting the holders of Senior Indebtedness to accelerate the maturity thereof, and (ii) written notice thereof ("Default Notice") given to the Company and the Trustee by the agent or agents under the Credit Agreement, then, unless and until such default shall have been cured or waived by the holders of such Senior Indebtedness or shall have ceased to exist, no direct or indirect payment may be made by the Company with respect to the principal of or interest on the Exchange Debentures (other than payments made in Junior Securities) or to acquire any of the Exchange Debentures or on account of the redemption provisions of the Exchange Debentures; provided, however, that such provision shall not prevent the making of any payment (which is not otherwise prohibited by the previous paragraph) for more than 120 days after the Default Notice shall have been given unless the Senior Indebtedness in respect of which such event of default exists has been declared due and payable in its entirety, in which case no such payment may be made until such acceleration has been rescinded or annulled or such Senior Indebtedness has been paid in full. Notwithstanding the foregoing, not more than one Default Notice may be given with respect to Senior Indebtedness within a period of 240 consecutive days. The Exchange Indenture will provide that, upon any payment by or distribution of the assets of the Company to creditors upon any dissolution, winding up, liquidation, bankruptcy, reorganization, assignment for the benefit of creditors, or any insolvency, receivership or similar proceeding relating to the Company, all Senior Indebtedness must be paid in full, or such payment duly provided for, before any payment or distribution (other than in Junior Securities) is made on account of the principal of or interest on the Exchange Debentures. (Section 1203) By reason of such subordination, in the event of liquidation or insolvency, creditors of the Company who are holders of Senior Indebtedness may recover more, ratably, than other creditors of the Company and creditors of the Company who are not holders of Senior Indebtedness or of the Exchange Debentures (or the Company's 10 3/4% Debentures due 2004, the 9 1/4% Senior Subordinated Notes due 2005, the 9 7/8% Debentures due 2013 and the 9 7/8% Debentures due 2023 (collectively, the "Debentures")) may recover more, ratably, than the Holders of the Exchange Debentures. A Holder of Exchange Debentures by such holder's acceptance of the Exchange Debentures agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on his behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Exchange Indenture and appoints the Trustee his attorney-in-fact for such purpose. (Section 1209) The amount of Senior Indebtedness outstanding at December 31, 1995, adjusted to give pro forma effect to the transactions described under "Capitalization" and the application of the net proceeds to the Company from the offering of the Company's Series L Preferred Stock, would have been approximately $620.2 million. OPTIONAL REDEMPTION. The Exchange Debentures will be subject to redemption at any time on or after October 1, 2002, at the option of the Company, in whole or in part, on not less than 30 nor more than 60 days' prior notice at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning October 1 of the years indicated:
REDEMPTION YEAR PRICE ---- ---------- 2002........................................................... 105.875% 2003........................................................... 103.917 2004........................................................... 101.958 2005 and thereafter............................................ 100.000
52 in each case together with accrued interest to the redemption date (subject to the right of Holders of record on relevant record dates to receive interest due on an interest payment date). If less than all of the Exchange Debentures are to be redeemed, the Trustee shall select the Exchange Debentures or portions thereof to be redeemed either pro rata or by lot. In addition, up to 33 1/3% in aggregate principal amount of the Exchange Debentures may be redeemed before October 1, 1998 at a price of 110% of the principal amount thereof, plus accrued and unpaid interest thereon, out of the net proceeds of a sale of Junior Stock to a Strategic Equity Investor or a public offering of Class A Common Stock, provided that following such redemption at least $166,666,667 principal amount of Exchange Debentures remains outstanding. The Credit Agreement currently prohibits the Company from making optional redemptions of the Exchange Debentures other than through the issuance of subordinated indebtedness, preferred stock or common stock. CERTAIN COVENANTS OF THE COMPANY. Upon issuance of the Exchange Debentures, the following covenants shall be applicable: Limitation on Indebtedness. The Exchange Indenture provides that the Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly incur, create, issue, assume, guarantee or otherwise become liable for, contingently or otherwise, or become responsible for the payment of, contingently or otherwise, any Indebtedness (other than Indebtedness between or among any of the Company and Restricted Subsidiaries) unless, after giving effect thereto, the Cash Flow Ratio shall be less than or equal to 9 to 1. (Section 1007) At December 31, 1995, such Cash Flow Ratio was approximately 5.66 to 1. Limitation on Senior Subordinated Indebtedness. The Exchange Indenture provides that the Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become liable for, contingently or otherwise, or become responsible for the payment of, contingently or otherwise, any Indebtedness which is both (i) senior in right of payment to the Exchange Debentures and (ii) expressly subordinate in right of payment to any other Indebtedness of the Company. For purposes of this covenant, Indebtedness is deemed to be senior in right of payment to the Exchange Debentures if it is not subordinate in right of payment to Senior Indebtedness at least to the same extent as the Exchange Debentures are subordinate to Senior Indebtedness. (Section 1008) Limitation on Restricted Payments. The Exchange Indenture provides that, so long as any of the Exchange Debentures remains outstanding, the Company will not, and will not permit any Restricted Subsidiary to, make any Restricted Payment if (a) at the time of such proposed Restricted Payment, a Default or Event of Default shall have occurred and be continuing or shall occur as a consequence of such Restricted Payment or (b) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments that shall have been made on or after July 1, 1988 would exceed the sum of: (i) $25,000,000, plus (ii) an amount equal to the difference between (A) the Cumulative Cash Flow Credit and (B) 1.2 multiplied by Cumulative Interest Expense. Notwithstanding the foregoing, so long as no Default or Event of Default shall have occurred and be continuing, the Company may make any Permitted Restricted Payment; provided, however, that such Permitted Restricted Payment shall thereafter be counted as a Restricted Payment solely for purposes of calculating whether any future Restricted Payments are permitted under clause (b) of the preceding sentence. For purposes of the "Limitation on Restricted Payments" covenant, the amount of any Restricted Payment or Permitted Restricted Payment, if other than cash, shall be based upon fair market value as 53 determined by the Board of Directors of the Company, whose good faith determination shall be conclusive. (Section 1009) The foregoing provisions do not prevent: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment complied with the above provisions; (ii) the retirement or redemption of any shares of the Company's capital stock or warrants, rights or options to acquire capital stock of the Company, in exchange for, or out of the proceeds of a substantially concurrent sale of, other shares of the Company's capital stock or warrants, rights or options to acquire capital stock of the Company (other than Disqualified Stock); and (iii) the redemption of or payments of cash dividends on the Series C Preferred Stock outstanding on January 1, 1995, which redemptions or dividends are provided for by the terms of the Series C Preferred Stock in effect on such date (or the redemption of or payment of cash dividends on any security of the Company issued in exchange for or upon the conversion of such Series C Preferred Stock; provided that the aggregate amount payable pursuant to the terms of such security is no greater than the aggregate amount payable pursuant to the terms of the Series C Preferred Stock). For purposes of determining the aggregate permissible amount of Restricted Payments in accordance with clause (b) of the first paragraph of this covenant, all amounts expended pursuant to clauses (i) and (iii) of this paragraph shall be included and all amounts expended or received pursuant to clause (ii) of this paragraph shall be excluded; provided, however, that amounts paid pursuant to clause (i) of this paragraph shall be included only to the extent that such amounts were not previously included in calculating Restricted Payments. (Section 1009) For the purposes of the foregoing provisions, the net proceeds from the issuance of shares of capital stock of the Company upon conversion of Indebtedness shall be deemed to be an amount equal to (i) the accreted value of such Indebtedness so converted on the date of such conversion and (ii) the additional consideration, if any, received by the Company upon such conversion thereof, less any cash payment on account of fractional shares (such consideration, if in property other than cash, to be determined by the Board of Directors of the Company, whose good faith determination shall be conclusive). If the Company makes a Restricted Payment which, at the time of the making of such Restricted Payment, would in the good faith determination of the Company be permitted under the requirements of this covenant, such Restricted Payment shall be deemed to have been made in compliance with this covenant notwithstanding any subsequent adjustments made in good faith to the Company's financial statements affecting Cumulative Cash Flow Credit or Cumulative Interest Expense for any period. (Section 1009) As of December 31, 1995, this covenant would have permitted the Company to make Restricted Payments of $597.7 million. Limitation on Investments in Unrestricted Subsidiaries and Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly (i) make any Investment or (ii) allow any Restricted Subsidiary to become an Unrestricted Subsidiary (a "redesignation of a Restricted Subsidiary"), in each case unless (a) no Default or Event of Default shall have occurred and be continuing or shall occur as a consequence of such Investment or such redesignation of a Restricted Subsidiary and (b) after giving effect thereto, the Cash Flow Ratio shall be less than or equal to 9 to 1. The foregoing provisions of this covenant shall not prohibit (i) any renewal or reclassification of any Investment existing on the date hereof or (ii) trade credit extended on usual and customary terms in the ordinary course of business. (Section 1010) Transactions with Affiliates. The Exchange Indenture provides that the Company shall not, and shall not permit any of its subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, an Affiliate of the Company that is not a subsidiary of the Company, having a value, or for consideration having a value, in excess of $10,000,000 individually or in the aggregate unless the Board of Directors of the Company shall make a good faith determination that the terms 54 of such transaction are, taken as a whole, no less favorable to the Company or such subsidiary, as the case may be, than those which might be available in a comparable transaction with an unrelated Person. For purposes of clarification, this provision shall not apply to Restricted Payments or Permitted Restricted Payments permitted under "Limitation on Restricted Payments". (Section 1011) CONSOLIDATION, MERGER AND SALE OF ASSETS. The Company may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any Person, unless: (i) the entity formed by such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or disposition shall have been made shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia, and shall assume by a supplemental indenture all the obligations of the Company under the Exchange Debentures and the Exchange Indenture; (ii) immediately before and immediately after such transaction, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing; and (iii) immediately after such transaction, and after giving effect thereto, the Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease or conveyance or disposition shall have been made, shall have a Cash Flow Ratio not in excess of 9 to 1. (Section 801) EVENTS OF DEFAULT. The following are Events of Default under the Exchange Indenture: (1) default for 30 days in payment of interest on the Exchange Debentures; (2) default in payment of principal or premium, if any, on the Exchange Debentures at Maturity, upon acceleration, redemption or otherwise; (3) failure to comply with any other covenant or agreement of the Company, continued for 60 days (or, with respect to certain covenants or agreements, 30 days) after written notice as provided in the Exchange Indenture; (4) a default or defaults under any mortgage, indenture or instrument which secures or evidences any Indebtedness for money borrowed or guaranteed by the Company or a Restricted Subsidiary in an aggregate amount of $10,000,000 or more (but excluding any Indebtedness for the deferred purchase price of property or services owed to the Person providing such property or services as to which the Company or such Restricted Subsidiary is contesting its obligation to pay the same in good faith and by proper proceedings and for which the Company or such Restricted Subsidiary has established appropriate reserves) which result from the failure to pay such Indebtedness at final maturity or which have resulted in the acceleration of such Indebtedness; (5) the entry of a final judgment or final judgments for the payment of money by a court or courts of competent jurisdiction against the Company or any Restricted Subsidiary in an aggregate amount exceeding $10,000,000 which remain undischarged and unbonded for a period (during which execution shall not be effectively stayed) of 60 days or as to which an enforcement proceeding has been commenced by any creditor, and (6) certain events of bankruptcy, insolvency or reorganization. (Section 501) If an Event of Default (other than as specified in clause (6) above) shall occur and be continuing under the Exchange Indenture, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the outstanding Exchange Debentures, by written notice to the Company and the agents, if any, under the Credit Agreement (and to the Trustee if such notice is given by the Holders), may declare all the unpaid principal of, premium, if any, and interest on the Exchange Debentures to be due and payable as provided in the Exchange Indenture. Upon a declaration of acceleration, such principal, premium, if any, and accrued interest shall be due and payable upon the first to occur of an acceleration under the Credit Agreement or ten days after receipt by the Company and the agents, if any, under the Credit Agreement of such written notice. No action on the part of the Trustee or any Holder of the Exchange Debentures is required for such acceleration if an Event of Default specified in clause (6) above shall occur and be continuing. The Holders of at least a majority in principal amount of the Exchange Debentures then outstanding may rescind an acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of principal of, premium, if any, or interest on the Exchange Debentures which have become due solely because of the acceleration, have been cured or waived and (ii) the rescission would not conflict with any judgment or decree 55 of a court of competent jurisdiction. A declaration of acceleration because of an Event of Default specified in clause (4) of the preceding paragraph would be automatically annulled if the Indebtedness referred to therein were discharged, or the Holders thereof rescinded their declaration of acceleration referred to therein, within 30 days after the acceleration of the Exchange Debentures and no other Event of Default had occurred and not been cured or waived during such period. (Section 502) The Holders of a majority in principal amount of the Exchange Debentures outstanding also have the right to waive certain past defaults under the Exchange Indenture. (Section 513) No Holder of any Exchange Debentures issued under the Exchange Indenture has any right to institute any proceeding with respect to such Exchange Indenture or for any remedy thereunder, unless (i) such Holder has previously given to the Trustee written notice of a continuing Event of Default under the Exchange Indenture, (ii) the Holders of at least 25% in principal amount of the outstanding Exchange Debentures issued under the Exchange Indenture have made written request and offered reasonable indemnity to the Trustee to institute such proceeding as Trustee under the Exchange Indenture, and (iii) the Trustee has not received from the Holders of a majority in principal amount of the outstanding Exchange Debentures a direction inconsistent with such request and the Trustee has failed to institute such proceeding within 60 days after receipt of such notice. (Section 507) Such limitations do not apply, however, to a suit instituted by a Holder of an Exchange Debenture for the enforcement of payment of the principal of or premium, if any, or interest on such Exchange Debenture on or after the respective due dates expressed in such Exchange Debenture. (Section 508) During the existence of an Event of Default, the Trustee is required to exercise such rights and powers vested in it under the Exchange Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. Subject to the provisions of the Exchange Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing, the Trustee is not under any obligation to exercise any of its rights or powers under the Exchange Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity. (Section 602) Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in principal amount of the outstanding Exchange Debentures have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee under the Exchange Indenture. (Section 512) The Company is required to furnish to the Trustee an annual statement as to the performance by the Company of its obligations under the Exchange Indenture and as to any default in such performance. (Section 1013) DEFEASANCE. The Company may at any time terminate all of its obligations with respect to the Exchange Debentures ("defeasance"), except for certain obligations, including those regarding the Defeasance Trust (as defined below) and obligations to register the transfer or exchange of Exchange Debentures, to replace mutilated, destroyed, lost or stolen Exchange Debentures and to maintain agencies in respect of the Exchange Debentures. The Company may also at any time terminate its obligations under the covenants set forth in the Exchange Indenture, which are described under "--Certain Covenants of the Company" above, and any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Exchange Debentures ("covenant defeasance"). (Sections 1402, 1403 and 1404) In order to exercise either defeasance or covenant defeasance, (i) the Company must irrevocably deposit in trust, for the benefit of the Holders, with the Trustee money or U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient to pay the principal of and premium, if any, and interest on the Exchange Debentures to redemption or maturity (the "Defeasance Trust"), (ii) the Company must deliver opinions of counsel to the effect that such Holders will not recognize income, gain or loss for 56 federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred (in the case of defeasance, such opinion must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable federal income tax laws), (iii) no event or condition shall exist that, pursuant to certain provisions described under "Subordination" above, would prevent the Company from making payments of principal of and premium, if any, and interest on the Exchange Debentures at the date of the irrevocable deposit referred to above or at any time during the period ending on the 91st day after such deposit date and (iv) the Company must comply with certain other conditions. (Section 1404) SATISFACTION AND DISCHARGE OF THE EXCHANGE INDENTURE AND THE EXCHANGE DEBENTURES. The Exchange Indenture will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Exchange Debentures, as expressly provided for in the Exchange Indenture) when either (i) all such Exchange Debentures theretofore authenticated and delivered (except lost, stolen or destroyed Exchange Debentures which have been replaced or paid) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it under the Exchange Indenture or (ii) all such Exchange Debentures not theretofore delivered to the Trustee for cancellation (a) have become due and payable, or (b) will become due and payable within one year, or (c) are to be called for redemption within one year, and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay the entire indebtedness on such Exchange Debentures not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of deposit (if such Exchange Debentures are then due and payable) or to the applicable maturity or redemption date (as the case may be), and the Company has paid all sums payable by it under the Exchange Indenture. (Section 401) MODIFICATION AND WAIVER. Modifications and amendments of the Exchange Indenture or the Exchange Debentures may be made by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Exchange Debentures; provided, however, that no such modification or amendment may, without the consent of the Holder of each outstanding Exchange Debenture, (i) change the Stated Maturity of the principal of, or the premium, if any, or any installment of interest on, the Exchange Debentures, (ii) reduce the principal amount of, or the premium, if any, or interest on, the Exchange Debentures, (iii) change the Currency in which any Exchange Debenture or any premium or the interest thereon is payable, (iv) impair the right to institute suit for the enforcement of any payment on or with respect to the Exchange Debentures, (v) reduce the percentage in principal amount of outstanding Exchange Debentures necessary to waive compliance with certain provisions of the Exchange Indenture or to waive certain defaults, (vi) modify any of the provisions relating to supplemental indentures requiring the consent of Holders or relating to the waiver of past defaults, except to increase the percentage of outstanding Exchange Debentures required for such actions or to provide that certain other provisions of the Exchange Indenture cannot be modified or waived without the consent of the Holder of each Exchange Debenture affected thereby, or (vii) modify any of the provisions of the Exchange Indenture relating to the subordination of the Exchange Debentures in a manner adverse to the Holders thereof. (Sections 901 and 902) The Holders of a majority in aggregate principal amount of the Exchange Debentures then outstanding may waive compliance with certain restrictive covenants and provisions of the Exchange Indenture. (Section 1014) REGARDING THE TRUSTEE. The Bank of New York ("BONY") is the Trustee under the Exchange Indenture and the indentures relating to the Company's 10 3/4% Debentures due 2004, the 9 7/8% Debentures due 2013, the 9 7/8% Debentures due 2023 and the 9 1/4% Senior Subordinated Notes due 2005. BONY is a party to certain credit 57 agreements with the Company and its subsidiaries, including the Credit Agreement, borrowings under which constitute Senior Indebtedness under the Exchange Indenture. BONY may also maintain other banking arrangements with the Company in the ordinary course of business. DEFINITIONS Set forth below is a summary of certain defined terms used in the Certificate of Designations and in the Exchange Indenture. Reference is made to the Certificate of Designations and the Exchange Indenture for the full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, control when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Annualized Operating Cash Flow" means, for any period of three complete consecutive calendar months, an amount equal to Operating Cash Flow for such period multiplied by four. "Banks" means the lenders from time to time under the Credit Agreement. "Capitalized Lease Obligation" means 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 generally accepted accounting principles, and the amount of such Capitalized Lease Obligation shall be the amount so required to be accounted for as a liability. "Cash Flow Ratio" means, as at any date, the ratio of (i) the sum of the aggregate outstanding principal amount of all Indebtedness of the Company and the Restricted Subsidiaries determined on a consolidated basis but excluding all Interest Swap Obligations entered into by the Company or any Restricted Subsidiary and one of the Banks outstanding on such date plus (but without duplication of Indebtedness supported by Letters of Credit) the aggregate undrawn face amount of all Letters of Credit outstanding on such date to(ii) Annualized Operating Cash Flow determined as at the last day of the most recent month for which financial information is available. "Change of Control" means any transaction or series of transactions (including, without limitation, a tender offer, merger or consolidation) the result of which is that Dolan ceases (i) to elect a majority of the Board of Directors of the Company or (ii) to be the "beneficial owner" (as defined in Rule 13(d)(3) under the Exchange Act) of at least 50% of the aggregate voting power of the voting stock of the Company. "Cumulative Cash Flow Credit" means the sum of: (a) cumulative Operating Cash Flow during the period commencing on July 1, 1988 and ending on the last day of the most recent month preceding the date of the proposed Restricted Payment for which financial information is available or, if cumulative Operating Cash Flow for such period is negative, minus the amount by which cumulative Operating Cash Flow is less than zero, plus (b) the aggregate net proceeds received by the Company from the issue or sale (other than to a Restricted Subsidiary) of its capital stock (other than Disqualified Stock) on or after January 1, 1992, plus (c) the aggregate net proceeds received by the Company from the issuance or sale (other than to a Restricted Subsidiary) of its capital stock (other than Disqualified Stock) on or after January 1, 1992, upon the conversion of, or exchange for, Indebtedness of the Company or any Restricted Subsidiary or from the exercise of any options, warrants or other rights to acquire capital stock of the Company. 58 For purposes of this definition, the net proceeds in property other than cash received by the Company as contemplated by clauses (b) and (c) above shall be valued at the fair market value of such property (as determined by the Board of Directors of the Company, whose good faith determination shall be conclusive) at the date of receipt by the Company. "Cumulative Interest Expense" means, for the period commencing on July 1, 1988 and ending on the last day of the most recent month preceding the proposed Restricted Payment for which financial information is available, the aggregate of the interest expense of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with generally accepted accounting principles, including interest expense attributable to Capitalized Lease Obligations. "Debt" with respect to any Person 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, (ii) representing the balance deferred and unpaid of the purchase price of any property (including pursuant to Capitalized Lease Obligations), except any such balance that constitutes a trade payable, (iii) under Interest Swap Agreements (as defined in the Credit Agreement) entered into pursuant to the Credit Agreement, (iv) under any other agreement related to the fixing of interest rates on any Indebtedness, such as an interest swap, cap or collar agreement (if and to the extent any of the foregoing would appear as a liability upon a balance sheet of such Person prepared on a consolidated basis in accordance with generally accepted accounting principles), or (v) guarantees of items of other Persons which would be included within this definition for such other Persons (whether or not the guarantee would appear on such balance sheet). "Disqualified Stock" means any capital stock of the Company or any Restricted Subsidiary which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Exchange Debentures. "Dolan" shall mean Mr. Charles Dolan, his spouse, his descendants or any spouse of any such descendants and trusts for the benefit of, inter alia, him, his spouse, his descendants or any spouse of any such descendants, and any estate, testamentary trust, or executor, administrator, conservator or legal or personal representative of any of the foregoing. "Exchange Debenture Issue Date" means the date on which the Exchange Debentures are originally issued under the Exchange Indenture. "Indebtedness" with respect to any Person, means the Debt of such Person; provided, however, that, with respect to the Company, the Minimum Payment or the Preferred Payment (each a "Cablevision of NYC Payment") payable by a subsidiary of the Company and guaranteed by the Company as a result of the Cablevision of NYC Acquisition shall not be deemed to be "Indebtedness" so long as the Company and such subsidiary are permitted to make such Cablevision of NYC Payment in one or more classes of the Company's capital stock (other than Disqualified Stock) pursuant to the terms of the Cablevision of NYC Acquisition agreement and the Company and the Restricted Subsidiaries are prohibited from making such Cablevision of NYC Payment in cash, debt securities, Disqualified Stock or any combination thereof, pursuant to the terms of any mortgage, indenture, credit agreement or other instrument that secures or evidences Indebtedness for money borrowed or guaranteed by the Company or a Restricted Subsidiary in an aggregate amount of $10,000,000 or more; provided that, for purposes of the definition of "Indebtedness" (including the term "Debt" to the extent incorporated in such definition) and for purposes of the definition of "Event of Default", the term "guarantee" shall not be interpreted to extend to a guarantee under which recourse is limited to the capital stock of an entity that is not a Restricted Subsidiary. "Interest Swap Obligations" means, with respect to any Person, the obligations of such Person pursuant to any arrangement with any other Person whereby, directly or indirectly, such Person is entitled to receive 59 from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such Person calculated by applying a fixed or a floating rate of interest on the same notional amount. "Investment" means any advance, loan, account receivable (other than an account receivable arising in the ordinary course of business), or other extension of credit (excluding, however, accrued and unpaid interest in respect of any advance, loan or other extension of credit) or any capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others, or otherwise), any purchase or ownership of any stocks, bonds, notes, debentures or other securities (including, without limitation, any interests in any partnership, joint venture or joint adventure) of, or any bank accounts with or guarantee of any Indebtedness or other obligations of, any Unrestricted Subsidiary or Affiliate that is not a subsidiary of the Company, provided that (i) the term "Investment" shall not include any transaction that would otherwise constitute an Investment of the Company or a subsidiary of the Company to the extent that the consideration provided by the Company or such subsidiary in connection therewith shall consist of capital stock of the Company (other than Disqualified Stock) and (ii) the term "guarantee" shall not be interpreted to extend to a guarantee under which recourse is limited to the capital stock of an entity that is not a Restricted Subsidiary. "Junior Securities" means securities of the Company as reorganized or readjusted or securities of the Company or any other company, trust or corporation provided for by a plan of reorganization or readjustment, junior or the payment of which is otherwise subordinate, at least to the extent provided in the Exchange Indenture, to the payment of all Senior Indebtedness at the time outstanding, and to the payment of all securities issued in exchange therefor, to the holders of the Senior Indebtedness at the time outstanding. "Make-Whole Premium" means, with respect to a share of Preferred Stock, (a) the present value of (i) dividends accruing until and including October 1, 2002 (assuming payment thereof in cash on the applicable dividend payment date) and (ii) the liquidation preference and any applicable optional redemption premium therefor payable on such date for such share (in each case assuming payment thereof on October 1, 2002), computed using a discount rate equal to the Treasury Rate plus 50 basis points less (b) the liquidation preference of $100 per share. The definition of Make-Whole Premium in the New Preferred Stock has been changed to make clear that the amount to be received by a holder of New Preferred Stock is the sum of (i) the liquidation preference of $100 per share plus (ii) accumulated and unpaid dividends to the date of redemption plus (iii) the Make-Whole Premium, which is based on a discount rate equal to the Treasury Rate plus 50 basis points. "Operating Cash Flow" means, for any period, the sum of the following for the Company and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with generally accepted accounting principles (except for the amortization of deferred installation income which shall be excluded from the calculation of Operating Cash Flow for all purposes of the Exchange Indenture): (i) aggregate operating revenues minus (ii) aggregate operating expenses (including technical, programming, sales, selling, general and administrative expenses and salaries and other compensation, net of amounts allocated to Affiliates, paid to any general partner, director, officer or employee of the Company or any Restricted Subsidiary, but excluding interest, depreciation and amortization and the amount of non-cash compensation in respect of the Company's employee incentive stock programs for such period (not to exceed in the aggregate for any calendar year 7% of Operating Cash Flow for the previous calendar year) and, to the extent otherwise included in operating expenses, any losses resulting from a writeoff or writedown of Investments by the Company or any Restricted Subsidiary in Affiliates). For purposes of determining Operating Cash Flow, there shall be excluded all management fees until actually paid to the Company or any Restricted Subsidiary in cash. "Permitted Restricted Payment" means the payment or declaration of any dividend by the Company or the making by the Company of any other distribution or the consummation of an exchange offer, or any combination of the foregoing, which results in all or a portion of the Capital Stock of Rainbow Programming 60 Holdings, Inc. or of another entity holding only assets that were held by Rainbow Programming Holdings, Inc. immediately prior to the acquisition thereof by such entity (in either case, "RPH") being held by all or any portion of the shareholders of the Company (an "RPH Transaction"), it being understood that (i) if the Company and its Subsidiaries, after the date of the Exchange Indenture and prior to the date of an RPH Transaction, make Investments in RPH (in cash or assets) aggregating not more than $15,000,000, then such RPH Transaction shall continue to constitute a "Permitted Restricted Payment" and (ii) if the Company or any Subsidiary makes any Investment in RPH, after the date of the Exchange Indenture and prior to the date of such RPH Transaction, that is not permitted by the foregoing clause (i), then such RPH Transaction shall not constitute a "Permitted Restricted Payment". For purposes of the foregoing, the value of any assets invested in RPH shall be based upon the fair market value thereof as determined by the Board of Directors of the Company, whose good faith determination shall be conclusive. "Principals" means Charles F. Dolan and trusts established for the benefit of family members of Charles F. Dolan. "Rainbow Spin-Off" means the payment of any dividend by the Company or the making by the Company of any other distribution or the consummation of an exchange offer, or any combination of the foregoing, which results in all or a portion of the capital stock of Rainbow Programming Holdings, Inc. or any successor to the assets or equity interests thereof, or of another entity, holding only assets that were held by Rainbow Programming Holdings, Inc. immediately prior to the acquisition thereof by such entity, being held by all or any portion of the shareholders of the Company. "Restricted Payment" means, (a) any Stock Payment by the Company or a Restricted Subsidiary; or (b) any direct or indirect payment to redeem, repurchase, defease or otherwise acquire or retire for value, or permit any Restricted Subsidiary to redeem, repurchase, defease or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate in right of payment to the Exchange Debentures. Notwithstanding the foregoing, Restricted Payments shall not include (x) payments by any Restricted Subsidiary to the Company or any other Restricted Subsidiary or (y) any Investment or designation of a Restricted Subsidiary as an Unrestricted Subsidiary permitted under the "Limitation on Investments in Unrestricted Subsidiaries and Affiliates" covenant. "Restricted Subsidiary" means any subsidiary of the Company, whether existing on the date of the Exchange Indenture or created subsequent thereto, designated from time to time by the Company as a "Restricted Subsidiary"; provided, however, that no subsidiary can be or remain so designated unless (i) at least 67% of each of the total equity interest and the voting control of such subsidiary is owned, directly or indirectly, by the Company or another Restricted Subsidiary and (ii) such subsidiary is not restricted, pursuant to the terms of any loan agreement, note, indenture or other evidence of indebtedness, from (a) paying dividends or making any distribution on such subsidiary's capital stock or other equity securities or paying any Indebtedness owed to the Company or to any Restricted Subsidiary, (b) making any loans or advances to the Company or any Restricted Subsidiary or (c) transferring any of its properties or assets to the Company or any Restricted Subsidiary (it being understood that a financial covenant any of the components of which are directly impacted by the taking of the action (e.g., the payment of a dividend) itself (such as a minimum net worth test) would be deemed to be a restriction on the foregoing actions, while a financial covenant none of the components of which is directly impacted by the taking of the action (e.g., the payment of a dividend) itself (such as a debt to cash flow test) would not be deemed to be a restriction on the foregoing actions); and provided further, that the Company may, from time to time, redesignate any Restricted Subsidiary as an Unrestricted Subsidiary in accordance with the provisions of the "Limitation on Investments in Unrestricted Subsidiaries and Affiliates" covenant. 61 "Senior Indebtedness" means the principal, premium, if any, interest (including post-petition interest in any proceeding under any Bankruptcy Law, whether or not such interest is an allowed claim enforceable against the debtor in a proceeding under such Bankruptcy Law), penalties, fees and other liabilities payable with respect to (i) all Debt of the Company, other than the Exchange Debentures and the Company's 10 3/4% Debentures due 2004, the 9 7/8% Debentures due 2013, the 9 7/8% Debentures due 2023 and the 9 1/4% Senior Subordinated Notes due 2005 (with which the Exchange Debentures are intended to rank on a parity), whether outstanding on the date of the Exchange Indenture or thereafter created, incurred or assumed, which is (x) for money borrowed, (y) evidenced by a note or similar instrument given in connection with the acquisition of any businesses, properties or assets of any kind or (z) in respect of any Capitalized Lease Obligations and (ii) all renewals, extensions, refundings, increases or refinancings thereof, unless, in the case of (i) or (ii) above, the instrument under which the Debt is created, incurred, assumed or guaranteed expressly provides that such Debt is not senior in right of payment to the Exchange Debentures. For purposes of clarification, Senior Indebtedness includes any liability under Interest Swap Agreements entered into pursuant to the Credit Agreement. Notwithstanding anything to the contrary contained in the Exchange Indenture, Senior Indebtedness shall mean and include all amounts of Senior Indebtedness that is such by virtue of clause (i) or (ii) of the foregoing definition that are repaid by the Company and subsequently recovered from the holder of such Senior Indebtedness under any applicable Bankruptcy Laws or otherwise (other than by reason of some wrongful conduct on the part of the holders of such Debt). "Stock Payment" means, with respect to any Person, the payment or declaration of any dividend, either in cash or in property (except dividends payable in common stock or common shares of capital stock of such Person), or the making by such Person of any other distribution, on account of any shares of any class of its capital stock, now or hereafter outstanding, or the redemption, purchase, retirement or other acquisition for value by such Person, directly or indirectly, of any shares of any class of its capital stock, now or hereafter outstanding. "Strategic Equity Investor" means a corporation or entity with an equity market capitalization, a net asset value or annual revenues of at least $1.0 billion that owns and operates businesses in the telecommunications, information systems, entertainment, cable or similar or related industries. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) which has become publicly available at least two business days prior to the date fixed for redemption of the Preferred Stock or, if such Statistical Release is no longer published, any publicly available source of similar market data with a constant maturity most nearly equal to the then remaining period to the date scheduled for the mandatory redemption of the Preferred Stock; provided, however, that if such period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given. "Unrestricted Subsidiary" means any subsidiary of the Company which is not a Restricted Subsidiary. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of the material anticipated federal income tax consequences of an exchange of the Old Preferred Stock for New Preferred Stock. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the final, temporary and proposed regulations promulgated thereunder, and administrative rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. This summary does not purport to deal with all aspects of federal income taxation that may be relevant to an investor's decision to hold the New Preferred Stock and it is not intended to be applicable to all categories of investors, some of which, such as dealers in securities, banks, insurance companies, tax-exempt organizations, foreign persons, persons that hold New Preferred Stock or Exchange Debentures as part of a straddle or conversion transaction or holders 62 subject to the alternative minimum tax, may be subject to special rules. In addition, the summary is limited to persons that will hold the New Preferred Stock and any Exchange Debentures received in exchange therefor as "capital assets" (generally, property held for investment) within the meaning of Section 1221 of the Code. Holders should note that Counsel's opinion is not binding on the Service and there can be no assurance that the Internal Revenue Service (the "Service") will take a similar view with respect to the tax consequences described below. No ruling has been or will be requested by the Company from the Service on any tax matters relating to the New Preferred Stock or Exchange Debentures. ALL PROSPECTIVE HOLDERS OF SHARES OF NEW PREFERRED STOCK ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF NEW PREFERRED STOCK OR EXCHANGE DEBENTURES. TAXATION OF HOLDERS ON EXCHANGE No gain or loss will be recognized by a holder that exchanges Old Preferred Stock for New Preferred Stock pursuant to the Exchange Offer. The basis of New Preferred Stock received by such holder in the exchange will be the same as the Old Preferred Stock exchanged therefor. The holder's holding period for such New Preferred Stock will include the holder's holding period for the Old Preferred Stock so exchanged, provided that the Old Preferred Stock was held as a capital asset. PLAN OF DISTRIBUTION Each broker-dealer that receives New Preferred Stock for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Preferred Stock. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Preferred Stock received in exchange for Old Preferred Stock where such Old Preferred Stock were acquired as a result of market-making activities or other trading activities. The Company has agreed that it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale for a period of 90 days from the date of this Prospectus, or such shorter period as will terminate when all Old Preferred Stock acquired by broker-dealers for their own accounts as a result of market-making activities or other trading activities have been exchanged for New Preferred Stock and resold by such broker-dealers. The Company will not receive any proceeds from any sale of New Preferred Stock by broker-dealers. New Preferred Stock received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Preferred Stock or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Preferred Stock. Any broker-dealer that resells New Preferred Stock that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Preferred Stock may be deemed to be a "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Preferred Stock and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days from the date of this Prospectus, or such shorter period as will terminate when all Old Preferred Stock acquired by broker- dealers for their own accounts as a result of market-making activities or other trading activities have been exchanged for New Preferred Stock and resold by such broker-dealers, the Company will promptly send additional copies of this Prospectus and any amendment or 63 supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to indemnify such broker- dealers against certain liabilities, including liabilities under the Securities Act. VALIDITY OF THE NEW PREFERRED STOCK The validity of the New Preferred Stock will be passed upon for the Company by Sullivan & Cromwell, New York, New York. EXPERTS The consolidated financial statements and schedule of the Company and its subsidiaries as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995 that are incorporated in this 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, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995 that are incorporated in this 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. 64 -----END PRIVACY-ENHANCED MESSAGE-----