EXECUTION COPY
ITT MSG INC.
ITT EDEN CORP.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
March 6, 1997
Rainbow Garden Corp.
Garden L.P. Holding Corp.
c/o Cablevision Systems Corporation
One Media Crossways
Woodbury, New York 11797
Ladies and Gentlemen:
This nonbinding letter of intent, including Schedule A hereto, sets forth
our preliminary agreement regarding a proposed transaction in which (i) ITT MSG
Inc., a Delaware corporation ("IMI"), would sell to Rainbow Garden Corp. ("RGC")
and Garden L.P. Holding Corp. ("GHC" and, together with RGC, the "Rainbow
Entities") and the Rainbow Entities would purchase, or, at their option, cause
Madison Square Garden, L.P., a Delaware limited partnership ("MSG"), to redeem,
the 49.5% limited partnership interest in MSG held by IMI (the "Partnership
Interest") and (ii) ITT Eden Corp., a Delaware corporation ("IEC"), would sell
to the Rainbow Entities and the Rainbow Entities would purchase the 500 shares
of the Class A Stock of MSG Eden Corporation, a Delaware corporation, held by
IEC (the "Shares") in accordance with the terms set forth in Schedule A hereto.
The proposed sale (or redemption) of the Partnership Interest and the proposed
sale of the Shares is herein referred to as the "MSG Sale Transaction".
We each hereby confirm our agreement to enter into good faith negotiations
with respect to the MSG Sale Transaction, with the goal of negotiating and
executing a mutually acceptable definitive agreement in respect of the MSG Sale
Transaction. The Rainbow Entities will seek to obtain a commitment letter
meeting the conditions described under "Financing Matters" in Schedule A hereto
with the goal of obtaining such a letter within 10 days after the date hereof
and the parties will seek to enter into a definitive agreement with the goal of
entering into such definitive agreement within 30 days after the date hereof.
This nonbinding letter of intent is not, and your acceptance hereunder does
not constitute, an agreement to consummate the MSG Sale Transaction or any
agreement to
2
enter into a formal contract with respect to such transaction. It is understood
that this letter is merely a nonbinding statement of intent with respect to the
MSG Sale Transaction and, while the parties agree in principle to the contents
hereof and in Schedule A hereto as they relate to the MSG Sale Transaction, this
nonbinding letter of intent shall not create any legal obligations between the
parties hereto or their affiliates with respect to the MSG Sale Transaction.
Accordingly, this letter of intent does not constitute a binding agreement nor
does it constitute an agreement to enter into an agreement and the terms hereof
are subject to the execution and delivery of a formal definitive agreement and
receipt of all corporate approvals. Such formal definitive agreement shall be in
form and content satisfactory to all parties. Nothing in this nonbinding letter
of intent shall have any effect whatsoever on the rights and obligations of the
parties hereto or their affiliates under any agreement between them or any of
their affiliates or be given any effect in the interpretation of any such
agreement. This nonbinding letter of intent shall be governed in all respects by
New York law (without regard to conflicts of laws principles).
Very truly yours,
ITT MSG INC.
by
/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
ITT EDEN CORP.
by
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
3
Accepted and agreed
as of the date first written above:
RAINBOW GARDEN CORP.
by
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: Vice Chairman
GARDEN L.P. HOLDING CORP.
by
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: Vice Chairman
SCHEDULE A
TERM SHEET
Financing Matters: Rainbow Entities (as defined in the nonbinding letter
of intent) will deliver to ITT MSG Inc. and ITT Eden
Corp. (collectively, "ITT") within ten days after the
date hereof a letter from one or more financial
institutions, reasonably acceptable to ITT, committing
on a firm basis to provide funds to the Rainbow
Entities and/or MSG in an amount sufficient to purchase
or redeem, as applicable, ITT's interest in MSG, as
provided for below, on the first closing. The terms of
such commitment letter, which shall be structured as a
long form letter, shall be reasonably acceptable to
ITT.
First Closing; $500 million, payable in cash, for 77% of ITT's
Tag-Along: interest in MSG (i.e., 38.5% of MSG in the aggregate),
including all of ITT's interest in the stock of MSG
Eden Corporation. The parties will use all reasonable
efforts to cause the first closing to occur on or
before June 1, 1997. If the transaction does not close
by August 1, 1997, because of a failure to obtain NHL
approvals, NBA approvals or HSR clearance either ITT or
the Rainbow Entities will have the right to terminate
the agreement (unless the relevant failure results from
a breach by such party).
If any of the closings are structured as a redemption,
the percentages, but not the amounts paid, shall be
appropriately adjusted to give effect thereto to
achieve the contemplated economics.
ITT will have tag-along rights in respect of its
remaining interest in MSG held at any time after the
first closing in any private sale transaction of any
"direct or indirect interest" in MSG. (The meaning of
"direct or indirect interest" or similar terms as used
2
herein shall be defined in the definitive agreement.)
ITT will have piggy back registration rights in the
case of a public offering which rights, in the case of
a primary offering, will be subject to customary
cut-back provisions (such that MSG primary offerings
will take precedence) exercisable at the direction of
the lead underwriter. Rainbow will have equivalent
drag-along rights in the case of a private sale, but
only if above the relevant price specified under
"Second Closing" and "Third Closing" in the case of a
private sale occurring prior to the second anniversary
of the first closing. The tag-along rights and
drag-along rights will not apply to individual private
sale transactions (as opposed to any series of related
private sale transactions) of less than 25% of MSG.
Second Closing: At the option of ITT, Cablevision will be required to
purchase or, at Cablevision's election, to cause MSG to
redeem, one-half of ITT's remaining limited partnership
interest in MSG (i.e., 5.75% of MSG in the aggregate)
on the first anniversary of the first closing, for $75
million in cash. Cablevision will have the option, in
lieu of such cash, to cause to be issued to ITT an
amount of Cablevision public common stock equal in
value to the amount owing in respect of the purchase or
redemption and the further obligation to make-whole ITT
in the event the net cash proceeds actually realized
from the immediate underwritten sale of such stock by
ITT is less than the amount owing in respect of the
purchase or redemption. Cablevision will register the
Cablevision common stock on an effective registration
statement on the closing of the purchase or redemption
to allow such stock to be freely transferable.
Customary indemnities to ITT and its affiliates will be
provided by Cablevision.
3
Third Closing: At the option of ITT, Cablevision will be required to
purchase or, at Cablevision's election, to cause MSG to
redeem, the balance of ITT's limited partnership
interest in MSG (i.e., 5.75% of MSG in the aggregate)
on the second anniversary of the first closing, for $75
million in cash, or, if the option in respect of the
second closing was not exercised, all of ITT's limited
partnership interest for $150 million in cash. There
will be provisions equivalent to those set forth under
"Second Closing" for Cablevision public common stock
for the "Third Closing".
ITT will not have the right to transfer, "directly or
indirectly", its remaining limited partnership interest
in MSG until after the third anniversary of the first
closing. If Cablevision defaults on its purchase
obligation on the second closing or third closing, the
restriction on transfer shall no longer apply although
a right of first refusal for ITT's "direct or indirect
interest" in MSG will apply. ITT will grant Rainbow a
right of first refusal for any transfer of a "direct or
indirect interest" in MSG from the third anniversary of
the first closing.
Cablevision In the event of a "change of control" of ITT,
Call Right: Cablevision shall have the right to require ITT to sell
its interests in MSG specified under "Second Closing"
and "Third Closing" at a price determined as provided
under "Second Closing" and "Third Closing", which right
will be exercisable for 60 days after receipt of notice
of the change of control and thereafter shall
terminate. Cablevision shall have the option to satisfy
its payment obligations by issuing debt obligations of
either Cablevision or one of the Rainbow Entities (with
the terms specified by Cablevision or one of the
Rainbow Entities as applicable) to ITT valued by an
investment banking firm as having a fair market value
equal to the price specified under "Second Closing"
4
and "Third Closing". The investment banking firm shall
be selected as follows: Cablevision will select three
investment banking firms from a group of six, Lazard
Freres, Morgan ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Bear ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ Brothers and ▇▇▇▇▇▇▇ ▇▇▇▇▇, thereupon ITT will
select one such firm from the Cablevision list of
three.
Cablevision will also have a right to purchase any of
ITT's remaining interest three years from the date of
the first closing at "fair market value", determined on
a proportionate basis to the entire value of MSG to a
third party (i.e., there would be no minority
discount). "Fair market value" will be determined based
on the opinion of an investment banking firm selected
as provided above. In all cases, "fair market value"
shall be no less than the relevant amount or amounts
specified in "Second Closing" and "Third Closing". In
the event that Cablevision does not exercise its rights
to purchase ITT's remaining interest in MSG on such
third anniversary, then all interests in MSG shall be
freely transferable by ITT subject to the right of
first refusal discussed above.
Governance of MSG: There will be no change in the Board of Directors of
MSG Eden Corporation prior to the first closing (other
than as permitted by the existing governing documents).
Profit Sharing: In the event the Rainbow Entities sell or transfer any
"direct or indirect interest" in MSG (by way of private
sale or secondary public offering) or all or
substantially all of the assets of MSG, within one year
of the first closing, ITT will have the right to share
in such proceeds to the extent the value implied by
such transaction is in excess of the value for MSG
contemplated by ITT's sale to the Rainbow Entities;
provided, however, there will be a 12% "cost of carry
buffer" provided to the Rainbow
5
Entities so that ITT's profit sharing right will be
reduced by an amount equal to the proceeds from the
relevant transaction multiplied by 12% per annum
calculated on the basis of the actual number of days
elapsed from the date of the first closing. This
provision will provide that any partial sale or
transfer will be treated as a resale of the interest
purchased or redeemed from ITT.
SportsChannel NY: Rainbow will have the right to contribute SportsChannel
NY to MSG from 30 days after the first closing. If
SportsChannel NY is contributed within one year after
the first closing, the deemed amount of such
contribution will be $170 million and, in this regard,
the definitive agreement will contain covenants
applicable to SportsChannel NY restricting sales,
transfers or other dispositions of assets and conduct
of business. Thereafter, the deemed amount of any
contribution of SportsChannel NY shall be its "fair
market value" based on the opinion of an investment
banking firm selected as provided above. The dilution
of ITT's interest in MSG shall be determined on such
"fair market value" basis.
WBIS: See Schedule 1.
Closing Conditions; Each closing shall only be conditioned upon the
Documentation; expiration of any applicable ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ waiting
Other: period, any required approval of the NBA and NHL and
the applicable closing conditions set forth in the
first sentence of the third paragraph under this
heading. ITT and Rainbow shall agree to use all
reasonable efforts to cause the conditions to be
satisfied. The closings shall not be conditioned upon
the receipt of financing. The parties will close the
transaction within five business days after receiving
HSR clearance and league approvals and other conditions
to closing are satisfied.
6
ITT will have the right to assign its interest herein
and in any definitive agreements (along with related
rights or obligations) to any wholly owned subsidiary
of ITT or any "direct or indirect" parent of ITT so
long as the transferee agrees to be bound thereby.
The definitive agreement will include: customary
representations and warranties; customary closing
conditions regarding accuracy of representations and
warranties; customary closing conditions regarding
delivery of customary legal opinions and ordinary
course officers' certificates; customary closing
conditions regarding litigation and compliance with
agreements; and a closing condition to the effect that
it shall be a condition to closing that the financial
institution issuing the commitment letter shall not
have exercised its "material adverse change" out (so
long as the material adverse change is not caused by
any action by SportsChannel NY or any action by
Cablevision or any of its affiliates under affiliation
agreements with MSG). Other documentary terms will also
be mutually agreed upon by ITT and Rainbow.
If the Rainbow Entities or their affiliates do not
consummate the first closing, notwithstanding that all
conditions to closing have been satisfied, ITT will
have the right to cause the contribution to MSG of
SportsChannel NY at a valuation of $170 million and the
restriction on transfer and right of first refusal in
existing agreements shall become immediately null and
void and of no effect, provided that, if ITT exercises
its right in respect of SportsChannel NY, Cablevision
shall have a right of first refusal in respect of ITT's
"direct or indirect interest" in MSG.
Cooperation: The parties will cooperate and cause MSG to cooperate
with each other in providing information as is
reasonably
7
needed in respect of financing of the transaction and,
in the case of ITT Corporation, delivery of investment
banking fairness opinions.
Schedule 1
On or before the first closing, SportsChannel NY and WBIS shall enter into
an agreement pursuant to which SportsChannel NY will sublicense to WBIS (i) up
to 15 (5 in the case of the 1996-1997 seasons) regular season games of each of
the Nets, Devils and Islanders during each of the 1996-1997, 1997-1998 and
1998-1999 NBA and NHL seasons and (ii) if SportsChannel NY acquires broadcast
rights to the games of the Mets beginning in the 1999 MLB season, up to 5
pre-season and 50 regular season games of the Mets during the 1999-2011 MLB
seasons (subject to any early termination discussed by the parties). The terms
of such sublicense agreement shall be reasonably acceptable to both
SportsChannel NY and WBIS and shall provide for the payment by WBIS of the
following per game fees (in the case of the Devils, Islanders and Nets):
Team 1996-1997 1997-1998 1998-1999
---- --------- --------- ---------
Devils $ 80,800 $ 80,800 $ 83,400
Islanders $ 80,800 $ 80,800 $ 83,400
Nets $ 73,100 $ 77,000 $ 83,400
and a fee for the Mets equal to $268,300 per regular season game in the 1999
season and a per game fee for each season thereafter equal to the per game fee
for the prior season adjusted upward by the CPI (subject to a 3.5% minimum
annual upward adjustment and a 5.0% maximum annual upward adjustment).
On or before the first closing, MSG and WBIS shall enter into an agreement
pursuant to which (i) MSG shall grant WBIS the right to broadcast up to 15 (5 in
the case of the 1996-1997 NHL season for the Rangers and 4 in the case of the
1996-1997 NBA season for the Knicks) regular season games of each of the Knicks
and the Rangers during each of the 1996-1997, 1997-1998 and 1998-1999 NBA and
NHL seasons, for an arm's length rights fee and (ii) subject to mutually
satisfactory resolution of any issues under MSG's agreement with the Yankees,
MSG shall sublicense to WBIS up to 50 regular season games of the Yankees during
the 1997, 1998 and 1999 MLB seasons for an arm's length rights fee. The terms of
such agreement shall be reasonably acceptable to both MSG and WBIS.
2
With respect to each of the licenses or grants described above, such
licenses and grants are for broadcast exhibition by and on WBIS within each of
the respective team's home territory. In the event that the WBIS signal is
retransmitted pursuant to federal copyright law, the WBIS signal must be carried
in its entirety and the parties will agree upon appropriate compensation. To the
extent the home territory of any of the teams extends beyond the reach of the
WBIS broadcast signal, in such excess territory WBIS must be carried in its
entirety. SportsChannel NY and MSG shall not license to any other party games
licensed or granted to WBIS or exhibit such games in any manner during the
24-hour period following the live exhibition of such games by WBIS. WBIS'
exhibition rights, however, shall include the right to replay such games during
that 24-hour period.
The agreements between WBIS, SportsChannel NY and MSG shall survive any
direct or indirect sale or transfer by ITT of its interest in WBIS. A right of
first refusal will be granted to Cablevision (or its designee) in respect of
WBIS, subject to any existing agreement with ▇▇▇ ▇▇▇▇▇. Such right of first
refusal shall not apply to any transfer of 10% or less of WBIS to any entity
which would provide content for WBIS.
