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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
Commission file number 0-6983
COMCAST CORPORATION
[GRAPHIC OMITTED - LOGO]
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, $1.00 par value
Class A Special Common Stock, $1.00 par value
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
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As of December 31, 1998, the aggregate market value of the Class A Common Stock
and Class A Special Common Stock held by non-affiliates of the Registrant was
$1.755 billion and $19.234 billion, respectively.
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As of December 31, 1998, there were 328,630,366 shares of Class A Special Common
Stock, 31,690,063 shares of Class A Common Stock and 9,444,375 shares of Class B
Common Stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III - The Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders presently scheduled to be held in June 1999.
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COMCAST CORPORATION
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business.............................................................1
Item 2 Properties..........................................................16
Item 3 Legal Proceedings...................................................16
Item 4 Submission of Matters to a Vote of Security Holders.................16
Item 4A Executive Officers of the Registrant................................17
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters.........................................18
Item 6 Selected Financial Data.............................................19
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................20
Item 8 Financial Statements and Supplementary Data.........................29
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................61
PART III
Item 10 Directors and Executive Officers of the Registrant..................61
Item 11 Executive Compensation..............................................61
Item 12 Security Ownership of Certain Beneficial Owners and Management......61
Item 13 Certain Relationships and Related Transactions......................61
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................................62
SIGNATURES...................................................................67
This Annual Report on Form 10-K is for the year ending December 31, 1998.
This Annual Report modifies and supersedes documents filed prior to this Annual
Report. The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. Information incorporated by reference
is considered to be part of this Annual Report. In addition, information we file
with the SEC in the future will automatically update and supersede information
contained in this Annual Report. In this Annual Report, "Comcast," "we," "us"
and "our" refer to Comcast Corporation and its subsidiaries.
You should carefully review the information contained in this Annual
Report, but should particularly consider any risk factors we set forth in this
Annual Report and in other reports or documents that we file from time to time
with the SEC. In this Annual Report, we state our beliefs of future events and
of our future financial performance. In some cases, you can identify those
so-called "forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
The cable communications industry and the provision of programming content
may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes,
o demand for the programming content we distribute or the willingness of
other video program providers to carry our content,
o general economic conditions.
PART I
ITEM 1 BUSINESS
We are principally engaged both in developing, managing and operating
hybrid fiber-coaxial broadband cable communications networks and in providing
programming content, primarily through QVC, our electronic retailing subsidiary.
We are currently the fourth-largest cable communications system operator in the
United States and are in the process of implementing high-speed Internet access
service and digital video applications to enhance the products available on our
cable networks.
Our consolidated cable operations served approximately 4.5 million
subscribers and passed approximately 7.4 million homes in the United States as
of December 31, 1998. We own interests in other cable communications companies
serving more than 237,000 subscribers. We expect to complete transactions in
1999 that will give us an ownership and management interest in cable systems
which, upon closing of certain pending transactions, will serve approximately
1.1 million subscribers.
We provide programming content through our majority-owned subsidiaries,
QVC, Inc. and E! Entertainment Television, Inc., and through other programming
investments, including Comcast SportsNet, The Golf Channel, Speedvision and
Outdoor Life. Through QVC, we market a wide variety of products directly to
consumers primarily on merchandise-focused television programs. QVC is
available, on a full and part-time basis, to over 70 million homes in the United
States, over 7.3 million homes in the United Kingdom and Ireland and over 14
million homes in Germany.
We are a Pennsylvania corporation that was organized in 1969. We have our
principal executive offices at 1500 Market Street, Philadelphia, PA 19102-2148.
Our telephone number is (215) 665-1700. We also have a world wide web site at
http://www.comcast.com. The information posted on our web site is not
incorporated into this Annual Report.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
You should see Note 10 to our consolidated financial statements in Item 8
of this report for information about our operations by industry segment.
GENERAL DEVELOPMENTS OF OUR BUSINESS
We entered into a number of significant transactions in 1998 and subsequent
to December 31, 1998. We have summarized these transactions below and have more
fully described them in Notes 1 and 3 to our consolidated financial statements
in Item 8 of this Annual Report.
Acquisition of Greater Philadelphia Cablevision
In February 1999, we agreed to acquire Greater Philadelphia Cablevision,
Inc., a subsidiary of Greater Media, Inc. that operates a cable communications
system serving approximately 79,000 subscribers in Philadelphia, Pennsylvania.
We will issue approximately 4.2 million shares of our Class A Special Common
Stock to complete the acquisition. The acquisition is expected to close in the
fourth quarter of 1999 if we receive all the necessary regulatory and other
approvals.
Sale of Comcast Cellular
In January 1999, we agreed to sell our wholly owned subsidiary, Comcast
Cellular Corporation, to SBC Communications, Inc. for approximately $400 million
in cash and the assumption of approximately $1.3 billion of Comcast Cellular
debt. Comcast Cellular provides telephone communications services pursuant to
licenses granted by the Federal Communications Commission to more than 829,000
subscribers in and around the City of Philadelphia, the State of Delaware and in
a significant portion of the State of New Jersey. We expect to recognize a
pre-tax gain on the sale of approximately $600 million. We expect to complete
this sale in the third quarter of 1999 if we receive all the necessary
regulatory and other approvals.
Sale of Primestar
As of December 31, 1998, we own a 9.5% interest in Primestar, Inc.
Primestar acquires, originates and provides television programming services
delivered by satellite to subscribers through a network of distributors. In
January 1999, Primestar announced the sale of its direct broadcast satellite
service to Hughes Electronics Corporation (a division of General Motors
Corporation and the parent company of DirecTV, a direct broadcast satellite
service competing with our cable communications systems) for $1.8 billion in
cash and stock. The sale of Primestar to Hughes Electronics is subject to the
consent of certain Primestar lenders and the receipt of necessary regulatory and
other approvals.
Investment in Prime Communications
In December 1998, we agreed to invest in Prime Communications LLC, a cable
television operator with cable communications systems serving approximately
430,000 subscribers. During the fourth quarter of 1998, we acquired a $50
million 12.75% subordinated note due 2008 from Prime. In addition, under the
terms of the agreement, we will lend Prime approximately $735 million in the
form of a 6% ten year note, which transaction we expect to occur in the third
quarter of 1999. In return we will receive a convertible note giving us the
right to acquire 90% of Prime. The note cannot be converted until the build out
of certain of Prime's cable systems is complete and regulatory and other
approvals are obtained, which is expected to occur in the third quarter of 2002.
Upon conversion of the note, we expect to assume approximately $550 million of
Prime debt. We will have the option to acquire the remaining 10% interest in
Prime for approximately $82 million, plus accrued interest at 7% per annum.
Sale of Sprint PCS
In November 1998, Sprint Corporation assumed total ownership and management
control of Sprint PCS, a personal communications services company serving the
United States. In exchange for our 15% partnership interest in Sprint PCS, we
received approximately 47.2 million shares of unregistered Series 2 Sprint PCS
common stock, 61,726 shares of Sprint PCS convertible preferred stock, which
converts into approximately 2.0 million shares of unregistered Series 2 Sprint
PCS common stock, and a warrant to purchase approximately 3.0 million shares of
unregistered Series 2 Sprint PCS common stock at $24.02 per share. As a result
of this exchange, we recognized a pre-tax gain of approximately $758 million
during the fourth quarter of 1998. We have registration rights, subject to
customary restrictions, which will allow us to sell the Sprint PCS stock that we
received.
Offering of Subsidiary Debt
In November 1998, Comcast Cable Communications, Inc., one of our wholly
owned subsidiaries, sold $800 million aggregate principal amount of 6.20% senior
notes due 2008 in a public offering. Interest on the notes is payable
semi-annually on May 15 and November 15 of each year, commencing May 15, 1999.
The notes are not redeemable prior to maturity. Comcast Cable used substantially
all of the net proceeds from the offering to repay existing intercompany
borrowings and for general corporate purposes.
Sale of Comcast UK Cable
In October 1998, we exchanged all of our shares of Comcast UK Cable
Partners Limited, one of our consolidated subsidiaries, with NTL Incorporated
for approximately 4.8 million shares of unregistered NTL common stock. As a
result of this exchange, we recognized a pre-tax gain of approximately $148
million during the fourth quarter of 1998. We have registration rights, subject
to customary restrictions, which will allow us to sell the NTL shares that we
received.
AT&T Acquisition of Teleport
In July 1998, we exchanged all of our shares of Teleport Communications
Group Inc., a competitive local exchange carrier, with AT&T Corp. for
approximately 24.2 million shares of unregistered AT&T common stock. As a result
of this exchange, we recognized a pre-tax gain of approximately $1.1 billion
during the third quarter of 1998. We have registration rights, subject to
customary restrictions, which will allow us to sell the AT&T shares that we
received.
Acquisition of Jones Intercable
In May and August 1998, we announced agreements to purchase certain
interests in Jones Intercable, Inc., for $700 million. We expect to close this
acquisition in the first half of 1999 if we receive all the necessary regulatory
and other approvals. Upon completion of this acquisition, we will own
approximately 12.8 million shares of Jones Intercable's Class A common stock and
2.9 million shares of its common stock. Those shares will represent
approximately 37% of the economic and 47% of the voting interest in Jones
Intercable. In addition, the 2.9 million shares of common stock that we will own
will represent approximately 57% of the outstanding common stock and will enable
us to elect 75% of the Board of Directors of Jones Intercable. We expect to
consolidate Jones Intercable in our financial statements upon closing of the
acquisition.
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DESCRIPTION OF OUR BUSINESSES
Cable Communications
Technology and Capital Improvements
Our broadband cable networks receive signals by means of:
o special antennae,
o microwave relay systems,
o earth stations.
These networks distribute a variety of video, telecommunications and data
services to residential and commercial subscribers.
In accordance with the October 1997 "social contract" we entered into with
the FCC, 80% of our cable subscribers will be served by a system with a capacity
of at least 550-MHz and at least 60% of our cable subscribers will be served by
a system with a capacity of at least 750-MHz by March 31, 1999. In addition, we
will provide free cable service connections, cable modems and modem service to
schools and to 250 public libraries in communities when we commercially deploy
cable modem service to residential customers in those communities.
In addition to meeting our "social contract" commitments, we are deploying
fiber optic cable and upgrading the technical quality of our broadband networks.
As a result, the reliability and capacity of our systems has increased, aiding
in the delivery of additional video programming and other services such as
enhanced digital video, high-speed Internet access service and, potentially,
telephony. During 1998, we introduced our digital converter cable service in 10
markets. As of December 31, 1998, approximately 78,000 subscribers were
receiving our digital service. Digital converter cable service allows us to use
digital compression to increase the channel capacity of our cable communications
systems to more than 100 channels, as well as to improve picture quality.
Franchises
Cable communications systems are constructed and operated under
non-exclusive franchises granted by state or local governmental authorities and
are subject to federal, state and local legislation and regulation. Franchises
typically contain many conditions which may include:
o rate and service conditions,
o construction schedules,
o types of programming and provision of services to schools and other
public institutions,
o insurance and indemnity bond requirements.
Our franchises typically provide for periodic payment of fees to
franchising authorities of up to 5% of "revenues" (as defined by each franchise
agreement). We normally pass those fees on to subscribers. In most cases, we
need the consent of the franchising authority to transfer our franchises. The
franchises are granted for varying lengths of time.
Although franchises historically have been renewed, renewals may include
less favorable terms and conditions. Under existing law, franchises should
continue to be renewed for companies that have provided adequate service and
have complied generally with franchise terms. The franchising authority may
choose to award additional franchises to competing companies at any time. We
have approximately 825 franchises in the United States.
Revenue Sources
We receive the majority of our revenues from subscription services.
Subscribers typically pay on a monthly basis and generally may discontinue
services at any time. Monthly subscription rates and related charges vary
according to the type of service selected and the type of equipment used by
subscribers. Packages of channels offered to subscribers may consist of
television signals of:
o national television networks,
o local and distant independent, specialty and educational television
stations,
o satellite-delivered programming,
o locally originated programs,
o audio programming,
o electronic retailing programs.
We also offer, for an additional monthly fee, one or more premium services,
such as:
o Home Box Office(R),
o Cinemax(R),
o Showtime(R),
o The Movie Channel(TM),
o Encore(R).
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These premium services generally offer, without commercial interruption,
feature motion pictures, live and taped sporting events, concerts and other
special features. The charge for premium services depends upon the type and
level of service selected by the subscriber.
We also generate revenues from advertising sales, pay-per-view services,
installation services, commissions from electronic retailing and other services.
Pay-per-view services permit a subscriber to order, for a separate fee,
individual feature motion pictures and special event programs, such as
professional boxing, professional wrestling and concerts. We also generate
revenues from the sale of advertising time to local, regional and national
advertisers on non-broadcast channels.
In December 1996, we began marketing @Home Corporation's high-speed cable
modem services in areas served by certain of our cable communications systems.
Residential subscribers can connect their personal computers via cable modems to
a high-speed national network developed and managed by @Home. Subscribers can
then access online information, including the Internet, at faster speeds than
that of conventional or Integrated Service Digital Network modems. Through
@Home, we provide businesses with Internet connectivity solutions and networked
business applications. @Home and Comcast aggregate content, sell advertising to
businesses and provide services to residential subscribers. As of December 31,
1998, the Comcast @Home service was available to over 1.8 million homes in nine
markets and served more than 51,000 customers.
Our sales efforts are primarily directed toward increasing penetration and
generating incremental revenues in our franchise areas. We sell our cable
communications services through:
o telemarketing,
o direct mail advertising,
o door-to-door selling,
o local media advertising.
Programming
We generally pay either a monthly fee per subscriber per channel or a
percentage of certain revenues for programming. Our programming costs are
increased by:
o increases in the number of subscribers,
o expansion of the number of channels provided to customers,
o increases in contract rates from programming suppliers.
We attempt to secure long-term programming contracts with volume discounts
and/or marketing support and incentives from programming suppliers. Our
programming contracts are generally for a fixed period of time and are subject
to negotiated renewal. We anticipate that future contract renewals will result
in programming costs that are higher than our costs today, particularly for
sports programming.
Customer Service
We are currently consolidating our local customer service operations into
large regional call centers. These regional call centers have technologically
advanced telephone systems that provide 24-hour per day, 7-day per week call
answering capability, telemarketing and other services. Because of these
technological advances, we can better serve our subscriber base and cross-market
new products and services. We have 10 call centers in operation as of December
31, 1998 which serve approximately 2.4 million subscribers. Subscribers in our
remaining cable systems receive customer service primarily through our local,
system-based representatives.
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Comcast's Cable Systems
The table below summarizes Homes Passed, Cable Subscribers and Cable
Penetration information for our cable communications systems as of December 31
(homes and subscribers in thousands):
1998 1997 1996(5) 1995 1994
Homes Passed (1)(4).................................. 7,382 7,138 6,975 5,570 5,491
Cable Subscribers (2)(4)............................. 4,511 4,366 4,280 3,407 3,307
Cable Penetration (3)(4)............................. 61.1% 61.2% 61.4% 61.2% 60.2%
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(1) A home is "passed" if we can connect it to our distribution system without
further extending the transmission lines.
(2) A dwelling with one or more television sets connected to a system counts as
one Cable Subscriber.
(3) Cable Penetration means the number of Cable Subscribers as a percentage of
Homes Passed.
(4) The information consists of cable systems whose financial results we
consolidate. The information does not include 341,000 Homes Passed and
237,000 Cable Subscribers in non-consolidated cable communications systems
in which we have ownership and management interests. The information also
does not include pending acquisitions (see "General Developments of Our
Business").
(5) In November 1996, we acquired the cable operations of The E.W. Scripps
Company.
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System Clusters
We manage most of our cable systems in geographic clusters. Clustering
permits us to deliver customer service and support in a more uniform, efficient
and cost effective manner. The following table summarizes Homes Passed, Cable
Subscribers and Cable Penetration for our eight largest regional cable clusters
as of December 31, 1998 (homes and subscribers in thousands):
Homes Cable Cable
Geographic Cluster Passed Subscribers Penetration
Mid-Atlantic......................................... 2,147.9 1,409.4 65.6%
Michigan............................................. 978.5 480.7 49.1%
Tennessee............................................ 499.2 326.3 65.4%
Southern California.................................. 517.2 271.4 52.5%
West Florida......................................... 413.4 269.9 65.3%
Sacramento........................................... 464.1 247.9 53.4%
Southeast Florida.................................... 452.1 236.4 52.3%
Indianapolis......................................... 243.5 147.4 60.5%
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5,715.9 3,389.4 59.3%
Other Systems........................................ 1,666.0 1,121.3 67.3%
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Total................................................ 7,381.9 4,510.7 61.1%
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Competition
Our cable communications systems compete with a number of different sources
which provide news, information and entertainment programming to consumers,
including:
o local television broadcast stations that provide off-air programming
which can be received using a roof-top antenna and television set,
o program distributors that transmit satellite signals containing video
programming, data and other information to receiving dishes of varying
sizes located on the subscriber's premises,
o satellite master antenna television systems, commonly known as SMATV,
which generally serve condominiums, apartment and office complexes and
residential developments,
o multichannel, multipoint distribution service operators, commonly
known as MMDS or wireless cable operators, which use low-power
microwave frequencies to transmit video programming and other
information over-the-air to subscribers,
o other cable operators who build and operate cable systems in the same
communities that we serve, commonly known as overbuilders,
o interactive online computer services,
o newspapers, magazines and book stores,
o movie theaters,
o live concerts and sporting events,
o home video products, including videotape cassette recorders.
Our cable communications systems will be competitive if we provide, at a
reasonable price to subscribers, superior technical performance, superior
customer service and a greater variety of video programming and other
communications services than are available from our competitors.
Modifications to federal law in 1996 changed the regulatory environment in
which our cable communications systems operate. Federal law now allows local
telephone companies to provide directly to subscribers a wide variety of
services that are competitive with our cable communications services. Some local
telephone companies:
o provide video services within and outside their telephone service
areas through a variety of methods, including broadband cable
networks, satellite program distribution and wireless transmission
facilities,
o have announced plans to construct and operate cable communications
systems in various states.
A local telephone company, Ameritech, has obtained approximately 14 cable
franchises in communities in Michigan that we also serve. It competes directly
with us in these areas by providing video and other broadband communications
services to subscribers. New facilities-based competitors such as RCN
Corporation and Knology Holdings, Inc. are now offering cable and related
communications services in several areas where we hold franchises.
Local telephone companies and other businesses construct and operate
communications facilities that provide access to the Internet and distribute
interactive computer-based services, data and other non-video services to homes
and businesses. These competitors are not required, in certain circumstances, to
comply with some of the material obligations imposed upon our cable systems
under our franchises. We cannot predict the likelihood of success of competing
video or broadband service ventures by local telephone companies or other
businesses. Nor can we predict the impact of these competitive ventures on our
cable communications systems and other businesses.
We operate each of our cable communications systems pursuant to a
non-exclusive franchise that is issued by the community's governing body such as
a city council, a county board of supervisors or a state regulatory agency.
Federal law prohibits franchising authorities from unreasonably denying requests
for additional franchises, and it permits franchising authorities to operate
cable systems. Companies that traditionally have not provided cable services and
that have substantial financial resources (such as public utilities that own
certain of the poles to which our cables are attached) may also obtain cable
franchises and may provide competing communications services.
In the past few years, Congress has enacted legislation and the FCC has
adopted regulatory policies intended to provide a more favorable operating
environment for existing and new technologies that provide, or have the
potential to provide, substantial competition to cable communications systems.
These technologies include direct broadcast satellite service, commonly known as
DBS, among others. According to recent government and industry reports,
conventional, medium and high-power satellites currently provide video
programming to over 10.6 million individual households, condominiums, apartment
and office complexes in the United States. DBS providers with medium and
high-power satellites typically offer to their subscribers more than 150
channels of programming, including program services similar to those provided by
cable systems.
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DBS systems use video compression technology to increase channel capacity
and digital technology to improve the quality of the signals transmitted to
their subscribers. DBS service currently has certain competitive advantages and
disadvantages compared to cable service. Advantages of DBS service include more
programming, greater channel capacity and the digital quality of signals
delivered to subscribers. The disadvantages of DBS service include high up-
front customer equipment and installation costs and a lack of local programming
and local service.
Two major companies are currently offering nationwide high-power DBS
services. Both companies have recently announced separate transactions that, if
completed, may significantly enhance the number of channels on which they can
provide programming to subscribers and may improve significantly their
competitive positions against cable operators. We are unable to predict the
effect these transactions may have on our business and operations.
Our cable systems also compete for subscribers with SMATV systems. SMATV
systems typically are not subject to regulation like local franchised cable
operators. SMATV systems offer subscribers both improved reception of local
television stations and many of the same satellite-delivered programming
services offered by franchised cable systems. In addition, some SMATV operators
are developing and/or offering packages of telephony, data and video services to
private residential and commercial developments. SMATV system operators often
enter into exclusive service agreements with building owners or homeowners'
associations, although some states have enacted laws to provide franchised cable
systems access to these complexes. Courts have reviewed challenges to these laws
and have reached varying results. Our ability to compete for subscribers in
residential and commercial developments served by SMATV system operators is
uncertain. However, we are developing competitive packages of services (video,
data and telephony) to offer to these residential and commercial developments.
Cable systems also compete with MMDS or wireless cable systems, which are
authorized to operate in areas served by our cable systems. Federal law
significantly limits certain local restrictions on the use of roof-top,
satellite and microwave antennae to receive satellite programming and
over-the-air broadcasting services.
Many of our cable systems are currently offering, or plan to offer,
interactive online computer services to subscribers. These cable systems will
compete with a number of other companies, many of whom have substantial
resources, such as:
o existing Internet service providers, commonly known as ISPs,
o local telephone companies,
o long distance telephone companies.
Recently, a number of companies, including telephone companies and ISP's,
have requested local authorities and the FCC to require cable operators to
provide access to cable's broadband infrastructure so that these companies may
deliver Internet services directly to customers over cable facilities. In a
recent report to Congress, the FCC declined to institute an administrative
proceeding to examine this issue at this time. At the present time, several
local jurisdictions are attempting to impose access obligations on a cable
operator as a condition for obtaining municipal consent for franchise transfers;
however, such conditions are currently being challenged in court. It is expected
that the FCC, Congress, and state and local regulatory authorities will continue
to consider actions in this area.
The deployment of Asymmetric Digital Subscriber Line technology, known as
ADSL, will allow Internet access to subscribers at data transmission speeds
equal to or greater than that of modems over conventional telephone lines.
Several telephone companies are introducing ADSL service and have requested the
FCC to allow them to provide high-speed broadband services, including
interactive online services, without regard to present service boundaries and
other regulatory restrictions. We are unable to predict the likelihood of
success of the online services offered by our competitors or the impact on our
business and operations of these competitive ventures.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment to occur in the
future. We refer you to page 10 of this Annual Report for a detailed discussion
of legislative and regulatory factors. Other new technologies and services may
develop and may compete with services that our cable communications systems
offer. Consequently, we are unable to predict the effect that ongoing or future
developments might have on our business and operations.
Electronic Retailing
QVC is a domestic and international electronic media general merchandise
retailer which produces and distributes merchandise-focused television programs,
via satellite, to affiliated video program providers for retransmission to
subscribers. At QVC, program hosts describe and demonstrate the products and
viewers place orders directly with QVC. We own 57% of QVC.
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Revenue Sources
QVC sells a variety of consumer products and accessories including jewelry,
housewares, electronics, apparel and accessories, collectibles, toys and
cosmetics. It purchases, or obtains on consignment, products from domestic and
foreign manufacturers and wholesalers, often on favorable terms based on the
volume of the transactions. QVC intends to continue introducing new products and
product lines. QVC does not depend upon any one particular supplier for any
significant portion of its inventory.
Viewers place orders to purchase QVC merchandise by calling a toll-free
telephone number. QVC uses automatic call distributing equipment to distribute
calls to its operators. The majority of all payments for purchases are made with
a major credit card or QVC's private label credit card. QVC's private label
credit card program is serviced by an unrelated third party. QVC ships
merchandise promptly from its distribution centers, typically within 24 hours
after receipt of an order. QVC's return policy permits customers to return,
within 30 days, any merchandise purchased for a full refund of the purchase
price and original shipping charges.
Distribution Channels
In the United States, QVC is transmitted live 24 hours a day, 7 days a
week, to approximately 58 million cable television homes. Approximately 1.5
million additional cable television homes receive QVC on a less than full time
basis. Approximately 9.8 million home satellite dish users receive QVC
programming. The QVC program schedule consists of one-hour and multi-hour
program segments. Each program theme is devoted to a particular category of
product or lifestyle. From time to time, special program segments are devoted to
merchandise associated with a particular celebrity, event, geographical region
or seasonal interest.
QVC sells products over electronic media in Germany, the United Kingdom and
Ireland. In the UK and Ireland, this service currently reaches over 7.3 million
cable television and home satellite dish-served homes. In Germany, this service
currently is available to over 14 million cable television and home satellite
dish-served homes. However, we estimate that only 4.6 million homes in Germany
have programmed their television sets to receive this service.
QVC also offers an interactive shopping service, iQVC, on the Internet. The
iQVC service offers a diverse array of merchandise, on-line, 24 hours a day, 7
days a week. iQVC also maintains a mailing list which e-mails product news to
subscribers.
QVC Transmission
An exclusive, protected, non-preemptible transponder on a communications
satellite transmits the QVC domestic signal. QVC subleases transponders for the
transmission of its signals to the UK and Germany. Each communications satellite
has a number of separate transponders. If our transponder fails, QVC's signal
will be transferred to a spare transponder. If no transponder is available, the
signal will be transferred to a preemptible transponder located on the same
satellite or, if available, to a transponder on another satellite owned by the
same lessor. The transponder cannot be preempted in favor of a user of a
"protected" transponder that has failed. QVC has never had an interruption in
programming due to transponder failure. Because it has the exclusive use of a
protected, non-preemptible transponder, interruption is unlikely to occur.
However, we cannot offer assurances that there will not be an interruption or
termination of satellite transmission due to transponder failure. Interruption
or termination could have a material adverse effect on QVC.
Program Providers
We have entered into affiliation agreements with video program providers in
the US to carry QVC programming. Generally, there are no additional charges to
subscribers for the distribution of QVC. In return for carrying QVC, each
programming provider receives an allocated portion, based upon market share, of
up to five percent of the net sales of merchandise sold to customers located in
the programming provider's service area. The terms of most affiliation
agreements are automatically renewable for one-year terms unless terminated by
either party on at least 90 days notice prior to the end of the term.
Affiliation agreements covering most of QVC's cable television homes can be
terminated in the sixth year of their respective terms by the programming
provider unless the programming provider earns a specified minimum level of
sales commissions. QVC's sales are currently at levels that meet minimum
requirements. The affiliation agreements provide for the programming provider to
broadcast commercials regarding QVC on other channels and to distribute QVC's
advertising material to subscribers. As of December 31, 1998, approximately 27%
of the total homes reached by QVC were attributable to QVC's affiliation
agreements with us and TeleCommunications, Inc., the indirect owner of a 43%
interest in QVC, and their respective subsidiaries.
If QVC can successfully negotiate with programming providers, then renewal
of these affiliation agreements will be on favorable terms. QVC competes for
cable channels against similar electronic retailing programming, as well as
against alternative programming supplied by other sources, including news,
public affairs,
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entertainment and sports programmers. QVC's business depends on its affiliation
with programming providers for the transmission of QVC programming. If a
significant number of homes are no longer served because of termination or
non-renewal of affiliation agreements, our financial results could be adversely
affected. QVC has incentive programs to induce programming providers to enter
into or extend affiliation agreements or to increase the number of homes under
existing affiliation agreements. These incentives include various forms of
marketing, launch and equipment purchase support. QVC will continue to recruit
additional programming providers and seek to enlarge its audience. Despite these
efforts, it is difficult to both renew or reach affiliation agreements with
programming providers.
Competition
QVC operates in a highly competitive environment. As a general merchandise
retailer, QVC competes for consumer expenditures and interest with the entire
retail industry, including department, discount, warehouse and specialty stores,
mail order and other direct sellers, shopping center and mall tenants and
conventional retail stores. Many of QVC's competitors are connected in chain or
franchise systems. On television, QVC competes with other satellite-transmitted
programs for channel space and viewer loyalty. We believe that, until digital
compression is utilized on a large-scale basis, most programming providers will
not devote more than two channels to televised shopping and may allocate only
one. Large-scale use of digital compression is several years in the future. Many
systems have limited channel capacity and may be precluded from adding any new
programs at the present time. The development and use of digital compression is
expected to provide programming providers with greater channel capacity. Greater
channel capacity would increase the opportunity for QVC, in addition to other
home shopping programs, to be distributed on additional channels.
---------------------------
Other Programming Investments
We have made investments in cable television networks and other programming
related enterprises as a means of generating additional revenues and subscriber
interest. Our programming investments as of December 31, 1998 include:
Ownership
Investment Description Percentage
- ----------------------------- ---------------------------------------------------------- -----------
CN8-The Comcast Network Regional and local programming 100.0%
Comcast SportsNet Regional sports programming and events 46.4%
E! Entertainment Entertainment-related news and original programming 39.7%
The Golf Channel Golf-related programming 43.3%
Outdoor Life Outdoor activities 16.8%
Speedvision Automotive, marine and aviation 14.8%
Sunshine Network Regional sports, public affairs and general entertainment 13.0%
Viewer's Choice Pay-per-view programming 11.1%
---------------------------
CN8-The Comcast Network
We created CN8-The Comcast Network, our regional programming service, in
late 1996. We deliver CN8 to more than 2.0 million cable subscribers in
Pennsylvania, New Jersey and Maryland. CN8 provides original programming,
including local and regional news and public affairs, regional sports, health
and cooking and family-oriented programming.
Comcast SportsNet
In July 1996, we acquired a 66% interest in Comcast Spectacor, L.P., a
partnership that owns the Philadelphia Flyers NHL hockey team, the Philadelphia
76ers NBA basketball team, and their arenas. In October 1997, Comcast- Spectacor
and the owner of the Philadelphia Phillies major league baseball team launched
Comcast SportsNet, a 24-hour regional sports programming network which provides
sports related programming, including Flyers, 76ers and Phillies games to
approximately 2.6 million viewers in the Philadelphia region. Comcast SportsNet
has entered into affiliation agreements with many of the video program providers
in the Philadelphia television market. Comcast SportsNet is delivered to
affiliates terrestrially.
E! Entertainment
E! Entertainment is our entertainment-related news and information service
with distribution to approximately 53 million customers as of December 31, 1998.
E! Entertainment seeks to attract viewers based on international interest in
Hollywood and entertainment industry news, information and features. We obtained
a controlling interest in E! Entertainment in March 1997.
- 9 -
The Golf Channel
The Golf Channel is a 24-hour network devoted exclusively to golf
programming. The programming schedule includes live golf coverage, golf
instruction programs and golf news.
Outdoor Life and Speedvision
Outdoor Life presents programming consisting primarily of outdoor life
themes. Speedvision presents a variety of programming of interest to automobile,
boat and airplane enthusiasts including news, historical and other information
and event coverage.
The Sunshine Network
The Sunshine Network is a regional sports and public affairs network,
providing programming emphasizing Florida's local sports teams and events in
Florida. Programming rights on the network include eight professional teams,
including the Orlando Magic and Miami Heat NBA basketball teams and the Tampa
Bay Lightning NHL hockey team.
Viewer's Choice
Viewer's Choice is the brand-name of a cable operator-controlled buying
cooperative for pay-per-view programming.
Internet Related Investments
We have made investments in various Internet-based programming-related
enterprises to participate in the growing interest among consumers in this new
media distribution system.
---------------------------
LEGISLATION AND REGULATION
Cable Communications
The Communications Act of 1934 establishes a national policy to regulate
the development and operation of cable communications systems. The
Communications Act allocates responsibility for enforcing federal policies among
the FCC, and state and local governmental authorities. The courts, especially
the federal courts, play an important oversight role as these statutory and
regulatory provisions are interpreted and enforced by the various federal, state
and local governmental units.
We expect that court actions and regulatory proceedings will refine the
rights and obligations of various parties, including the government, under the
Communications Act. The results of these judicial and administrative proceedings
may materially affect our business operations. In the following paragraphs, we
summarize the principal federal laws and regulations materially affecting the
growth and operation of the cable communications industry. We also provide a
brief description of certain state and local laws applicable to our businesses.
The Communications Act and FCC Regulations
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
o subscriber rates,
o the content of programming we offer our subscribers, as well as the
way we sell our program packages to subscribers and other video
program providers,
o the use of our cable systems by local franchising authorities, the
public and other unrelated third parties,
o our franchise agreements with governmental authorities,
o cable system ownership limitations and prohibitions,
o our use of utility poles and conduit.
Subscriber Rates
The Communications Act and the FCC's regulations and policies limit the
ability of cable systems to raise rates for basic services and equipment, as
well as for certain non-basic cable programming services, in communities that
are not subject to effective competition, as defined by federal law. Where there
is no effective competition, federal law gives franchising authorities the power
to regulate the monthly rates charged by the operator for:
o the lowest level of programming service, typically called basic
service, which generally includes local broadcast channels and public
access or governmental channels required by the operator's franchise,
o the installation, sale and lease of equipment used by subscribers to
receive basic service, such as converter boxes and remote control
units.
- 10 -
Several years ago the FCC adopted detailed rate regulations, guidelines and
rate forms that we and the franchising authority must use in connection with the
regulation of our basic service and equipment rates. If the franchising
authority concludes that our rates are not in accordance with the FCC's rate
regulations, it may require us to reduce our rates and to refund overcharges to
subscribers, with interest. We may appeal adverse rate decisions to the FCC. The
Communications Act and FCC regulations also permit franchising authorities to
file complaints with the FCC concerning rates we charge for certain non-basic
cable programming service tiers.
The Communications Act and the FCC's regulations also:
o prohibit regulation of rates charged by cable operators for
programming offered on a per channel or per program basis, and for
certain multi-channel groups of new non-basic programming,
o eliminate rate regulation of non-basic cable programming service tiers
after March 31, 1999, although Congress may consider legislation to
extend the period during which non-basic rates remain subject to
regulation,
o require operators to charge uniform rates throughout each franchise
area that is not subject to effective competition,
o prohibit regulation of non-predatory bulk discount rates offered by
operators to subscribers in commercial and residential developments,
o permit regulated equipment rates to be computed by aggregating costs
of broad categories of equipment at the franchise, system, regional or
company level.
Over the past few years, we have reached agreements with various regulatory
bodies to resolve outstanding rate disputes. In addition to the "social
contract" we reached with the FCC, we settled pending local rate proceedings in
1998 involving our basic service rates in certain of our systems. We believe
that the resolution of these proceedings did not have a material adverse impact
on our financial position, results of operations or liquidity.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow local commercial television broadcast stations:
o to elect once every three years to require a cable communications
system to carry the station, subject to certain exceptions, or
o to negotiate with us on the terms by which we carry the station on our
cable communications system, commonly called retransmission consent.
The Communications Act requires a cable operator to devote up to one-third
of its activated channel capacity for the mandatory carriage of local commercial
television stations. The Communications Act also gives local non-commercial
television stations mandatory carriage rights; however, such stations are not
given the option to negotiate retransmission consent for the carriage of their
signals by cable systems. Additionally, cable systems must obtain retransmission
consent for:
o all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WGN),
o commercial radio stations,
o certain low-power television stations.
The FCC has also initiated an administrative proceeding to consider the
requirements, if any, for the mandatory carriage of digital television signals
offered by local broadcasters. We are unable to predict the outcome of this
proceeding or the impact of any new carriage requirements on the operation of
our cable systems.
The Communications Act requires our cable systems to permit subscribers to
purchase video programming on a per channel or a per program basis without the
necessity of subscribing to any tier of service, other than the basic cable
service tier. However, we are not required to comply with this requirement until
2002 for any of our cable systems that do not have addressable converter boxes
or have other substantial technological limitations. A limited number of our
systems do not have the technological capability to offer programming in the
manner required by the statute and thus currently are exempt from complying with
this requirement.
To increase competition between cable operators and other video program
distributors, the Communications Act:
o precludes any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly
to its subscribers, from favoring an affiliated company over
competitors,
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o requires such programmers to sell their satellite-delivered
programming to other video program distributors,
o limits the ability of such programmers to offer exclusive programming
arrangements to their affiliates.
In two recent administrative determinations, the FCC's Cable Services
Bureau concluded that the program access rules did not apply to
terrestrially-delivered programming, such as Comcast SportsNet. These matters
are expected to be reviewed by the FCC.
The FCC and Congress are presently considering proposals that may enhance
the ability of DBS providers and other video program distributors to gain access
to additional programming and to transmit local broadcast signals to local
markets. These proposals, if adopted, will likely increase competition to our
cable systems.
The Communications Act contains restrictions on the transmission by cable
operators of obscene or indecent programming. It requires cable operators to
block fully both the video and audio portion of sexually explicit or indecent
programming on channels that are primarily dedicated to sexually oriented
programming or alternatively to carry such programming only at "safe harbor"
time periods. A three-judge federal district recently determined that this
provision was unconstitutional; however, the federal government announced that
it will appeal the lower court's ruling.
The FCC actively regulates other aspects of our programming, involving such
areas as:
o our use of syndicated and network programs and local sports broadcast
programming,
o advertising in children's programming,
o political advertising,
o origination cablecasting,
o sponsorship identification,
o closed captioning of video programming.
Use of Our Cable Systems by The Government and Unrelated Third Parties
The Communications Act allows franchising authorities and unrelated third
parties to have access to our cable systems' channel capacity. For example, it:
o permits franchising authorities to require cable operators to set
aside channels for public, educational and governmental access
programming;
o requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for commercial
leased access by third parties to provide programming that may compete
with services offered by the cable operator.
The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including the rates and certain terms and
conditions of the commercial use. The FCC is also considering proposals by
various Internet service providers to gain access to our cable systems on a
common carrier basis. We cannot predict if such proposals will be adopted or
whether, if adopted, they will have a material impact upon our business
operations.
Franchise Matters
Although franchising matters are normally regulated at the local level
through a franchise agreement and/or a local ordinance, the Communications Act
provides oversight and guidelines to govern our relationship with local
franchising authorities. For example, the Communications Act:
o affirms the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or more
franchises within their jurisdictions,
o generally prohibits us from operating in communities without a
franchise,
o encourages competition with our existing cable systems by:
o allowing municipalities to operate cable systems without
franchises,
o preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area.
o permits local authorities, when granting or renewing our franchises,
to establish requirements for cable-related facilities and equipment,
but prohibits franchising authorities from establishing requirements
for specific video programming or information services other than in
broad categories,
o permits us to obtain modification of our franchise requirements from
the franchise authority or by judicial action if warranted by changed
circumstances,
- 12 -
o generally prohibits franchising authorities from:
o imposing requirements during the initial cable franchising
process or during franchise renewal that require, prohibit or
restrict us from providing telecommunications services,
o imposing franchise fees on revenues we derive from providing
telecommunications services over our cable systems, or
o restricting our use of any type of subscriber equipment or
transmission technology.
o limits our payment of franchise fees to the local franchising
authority to 5% of our gross revenues derived from providing cable
services over our cable system.
The Communications Act contains procedures designed to protect us against
arbitrary denials of the renewal of our franchises, although a franchising
authority under various conditions could deny us a franchise renewal. Moreover,
even if our franchise is renewed, the franchising authority may seek to impose
upon us new and more onerous requirements such as significant upgrades in
facilities and services or increased franchise fees as a condition of renewal.
Similarly, if a franchising authority's consent is required for the purchase or
sale of our cable system or franchise, the franchising authority may attempt to
impose more burdensome or onerous franchise requirements on us in connection
with a request for such consent. Historically, cable operators providing
satisfactory services to their subscribers and complying with the terms of their
franchises have typically obtained franchise renewals. We believe that we have
generally met the terms of our franchises and have provided quality levels of
service. We anticipate that our future franchise renewal prospects generally
will be favorable.
Various courts have considered whether franchising authorities have the
legal right to limit the number of franchises awarded within a community and to
impose certain substantive franchise requirements (e.g. access channels,
universal service and other technical requirements). These decisions have been
inconsistent and, until the United States Supreme Court rules definitively on
the scope of cable operators' First Amendment protections, the legality of the
franchising process generally and of various specific franchise requirements is
likely to be in a state of flux.
Ownership Limitations
The Communications Act generally prohibits us from owning or operating a
SMATV or wireless cable system in any area where we provide franchised cable
service. We may, however, acquire and operate SMATV systems in our franchised
service areas if the programming and other services provided to SMATV
subscribers are offered according to the terms and conditions of our franchise
agreement.
The Communications Act also authorizes the FCC to impose nationwide limits
on the number of subscribers under the control of a cable operator. While a
federal district court has declared this limitation to be unconstitutional and
delayed its enforcement, the FCC recently reconsidered its cable ownership
regulations and:
o reaffirmed its 30% nationwide subscriber ownership limit, but
maintained its voluntary stay on enforcement of that regulation
pending further action,
o reaffirmed its subscriber ownership information reporting
requirements,
o opened an administrative proceeding to reevaluate its cable television
attribution rules.
Also pending on appeal is a challenge to the statutory and FCC regulatory
limitations on the number of channels that can be occupied on a cable system by
a video programmer in which a cable operator has an attributable ownership
interest. We are unable to predict the outcome of these judicial and regulatory
proceedings or the impact of any ownership restrictions on our business and
operations.
The Communications Act eliminated the statutory prohibition on the common
ownership, operation or control of a cable system and a television broadcast
station in the same market. While the FCC has eliminated its regulations which
precluded the cross-ownership of a national broadcasting network and a cable
system, it has not yet completed its review of other regulations which prohibit
the common ownership of other broadcasting interests and cable systems in the
same geographical areas.
Amendments to the Communications Act made far-reaching changes in the
relationship between local telephone companies and cable service providers.
These amendments:
o eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing
local telephone companies to offer video services in their local
telephone service areas;
o preempted legal barriers to telecommunications competition that
previously existed in state and local laws and regulations;
- 13 -
o set basic standards for relationships between telecommunications
providers; and
o generally limited acquisitions and prohibited certain joint ventures
between local telephone companies and cable operators in the same
market.
Local telephone companies may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. A
federal appellate court recently overturned various parts of the FCC's open
video rules, including the FCC's preemption of local franchising requirements
for open video operators. We expect the FCC to modify its open video rules to
comply with the federal court's decision, but we are unable to predict the
impact any rule modifications may have on our business and operations.
Pole Attachment Regulation
The Communications Act requires the FCC to regulate the rates, terms and
conditions imposed by public utilities for cable systems' use of utility pole
and conduit space unless state authorities demonstrate to the FCC that they
adequately regulate pole attachment rates, as is the case in certain states in
which we operate. In the absence of state regulation, the FCC administers pole
attachment rates on a formula basis. The FCC's current rate formula, which is
being reevaluated by the FCC, governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by cable operators providing
only cable services and, until 2001, by certain companies providing
telecommunications services. The FCC also adopted a second rate formula that
will be effective in 2001 and will govern the maximum rate certain utilities may
charge for attachments to their poles and conduit by companies providing
telecommunications services, including cable operators.
Any resulting increase in attachment rates due to the FCC's new rate
formula will be phased in over a five-year period in equal annual increments,
beginning in February 2001. Several parties have requested the FCC to reconsider
its new regulations and several parties have challenged the new rules in court.
A federal district court recently upheld the constitutionality of the new
statutory provision which requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility; the utilities involved in that
litigation have appealed the lower court's decision. We are unable to predict
the outcome of this litigation or the ultimate impact of any revised FCC rate
formula or of any new pole attachment rate regulations on our business and
operations.
Other Regulatory Requirements of the
Communications Act and the FCC
The Communications Act also includes provisions, among others, regulating:
o customer service,
o subscriber privacy,
o marketing practices,
o equal employment opportunity,
o technical standards and equipment compatibility.
The FCC actively regulates other parts of our cable operations, involving
such areas as:
o hiring and promotion of employees and use of outside vendors,
o consumer protection and customer service,
o technical standards and testing of cable facilities,
o consumer electronics equipment compatibility,
o registration of cable systems,
o maintenance of various records and public inspection files,
o microwave frequency usage,
o antenna structure notification, marking and lighting.
The FCC may enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. The FCC has ongoing rulemaking proceedings that may change its
existing rules or lead to new regulations. We are unable to predict the impact
that any further FCC rule changes may have on our business and operations.
Other bills and administrative proposals pertaining to cable communications
have previously been introduced in Congress or have been considered by other
governmental bodies over the past several years. It is probable that further
attempts will be made by Congress and other governmental bodies relating to the
regulation of cable communications services.
- 14 -
Copyright
Our cable communications systems provide our subscribers with local and
distant television and radio broadcast signals which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming, but comply with an alternative
federal copyright licensing process. In exchange for filing certain reports and
contributing a percentage of our revenues to a federal copyright royalty pool,
we obtain blanket permission to retransmit copyrighted material.
In a report to Congress, the U.S. Copyright Office recommended that
Congress make major revisions to both the cable television and satellite
compulsory licenses. The possible simplification, modification or elimination of
the compulsory copyright license is the subject of continuing legislative
review. The elimination or substantial modification of the cable compulsory
license could adversely affect our ability to obtain suitable programming and
could substantially increase the cost of programming that remains available for
distribution to our subscribers. We cannot predict the outcome of this
legislative activity.
Our cable communications systems often utilize music in the programs we
provide to subscribers including local advertising, local origination
programming and pay-per-view events. The rights to use this music are controlled
by music performance rights societies who negotiate on behalf of their copyright
owners for license fees covering each performance. The cable industry and one of
these societies have agreed upon a standard licensing agreement covering the
performance of music contained in programs originated by cable operators and in
pay-per-view events. Negotiations on a similar licensing agreement are in
process with another music performance rights organization. Rate courts
established by a federal court exist to determine appropriate copyright coverage
and payments in the event the parties fail to reach a negotiated settlement. We
cannot predict the outcome of these proceedings or the amount of any license
fees we may be required to pay for the use of music. We do not believe that the
amount of such fees will be significant to our financial position, results of
operations or liquidity.
State and Local Regulation
Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation which is typically imposed through
the franchising process. The terms and conditions of our franchises vary
materially from jurisdiction to jurisdiction. Each franchise generally contains
provisions governing:
o cable service rates,
o franchise fees,
o franchise term,
o system construction and maintenance obligations,
o system channel capacity,
o design and technical performance,
o customer service standards,
o franchise renewal,
o sale or transfer of the franchise,
o territory of the franchisee,
o indemnification of the franchising authority,
o use and occupancy of public streets,
o types of cable services provided.
A number of states subject cable systems to the jurisdiction of state
governmental agencies. Those states in which we operate that have enacted such
state level regulation are Connecticut, New Jersey and Delaware. State and local
franchising jurisdiction is not unlimited, however; it must be exercised
consistently with federal law. The Communications Act immunizes franchising
authorities from monetary damage awards arising from the regulation of cable
systems or decisions made on franchise grants, renewals, transfers and
amendments.
The summary of certain federal and state regulatory requirements in the
preceding pages does not describe all present and proposed federal, state and
local regulations and legislation affecting the cable industry. Other existing
federal regulations, copyright licensing, and, in many jurisdictions, state and
local franchise requirements, are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in varying
degrees, the manner in which cable systems operate. Neither the outcome of these
proceedings nor their impact upon our cable operations can be predicted at this
time.
Content
The FCC does not directly regulate the content or transmission of
programming services like those offered by QVC and E! Entertainment. The FCC
does, however, exercise regulatory authority over the satellites and uplink
facilities which transmit programming services such as those provided by QVC and
E! Entertainment. The FCC has granted, subject to periodic reviews, permanent
licenses to QVC for its uplink facilities (and for backup equipment of certain
of these facilities) at sufficient power levels for transmission of the QVC
service. The
- 15 -
FCC has licensing authority over satellites from which QVC and E! Entertainment
obtain transponder capacity, but does not regulate their rates, terms or
conditions of service. The FCC could, however, alter the regulatory obligations
applicable to satellite service providers. The QVC programming services offered
in the UK, Ireland and Germany are regulated by the media authorities in those
countries.
EMPLOYEES
As of December 31, 1998, we had approximately 17,000 employees. Of these
employees, approximately 8,800 were associated with cable communications,
approximately 5,700 were associated with electronic retailing and approximately
2,500 were associated with other divisions. We believe that our relationships
with our employees are good.
ITEM 2 PROPERTIES
Cable Communications
A central receiving apparatus, distribution cables, converters, customer
service call centers and local business offices are the principal physical
assets of a cable communications system. We own or lease the receiving and
distribution equipment of each system and own or lease parcels of real property
for the receiving sites, customer service call centers and local business
offices. In order to keep pace with technological advances, we are maintaining,
periodically upgrading and rebuilding the physical components of our cable
communications systems.
Electronic Retailing
Television studios, customer service call centers, business offices,
product warehouses and distribution centers are the principal physical assets of
our electronic retailing operations. These assets include QVC's studios and
offices, Studio Park, located in West Chester, Pennsylvania. QVC owns the
majority of these assets. In order to keep pace with technological advances, QVC
is maintaining, periodically upgrading and rebuilding the physical components of
our electronic retailing operations. QVC's warehousing and distribution
facilities will continue to be upgraded over the next several years.
We believe that substantially all of our physical assets are in good
operating condition.
ITEM 3 LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of ultimate
liability with respect to these actions will not materially affect our financial
position, results of operations or liquidity.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The current term of office of each of our officers expires at the first
meeting of our Board of Directors following the next Annual Meeting of
Shareholders, presently scheduled to be held in June 1999, or as soon thereafter
as each of their successors is elected and qualified. The following table sets
forth certain information concerning our principal executive officers, including
their ages, positions and tenure as of December 31, 1998:
Officer
Name Age Since Position with Comcast
- ---------------------------- ---------- ------------ --------------------------------------------------------
Ralph J. Roberts 78 1969 Chairman of the Board of Directors; Director
Julian A. Brodsky 65 1969 Vice Chairman of the Board of Directors; Director
Brian L. Roberts 39 1986 President; Director
Lawrence S. Smith 51 1988 Executive Vice President
John R. Alchin 50 1990 Senior Vice President; Treasurer
Stanley L. Wang 58 1981 Senior Vice President; General Counsel; Secretary
---------------------------
Ralph J. Roberts has served as a Director and as our Chairman of the Board
of Directors for more than five years. Mr. Roberts devotes a major portion of
his time to our business and affairs. Mr. Roberts has been the President and a
Director of Sural Corporation, a privately-held investment company, our
controlling shareholder, for more than five years. Mr. Roberts is the father of
Brian L. Roberts.
Julian A. Brodsky has served as a Director and as our Vice Chairman of the
Board of Directors for more than five years. Mr. Brodsky devotes a major portion
of his time to our business and affairs. Mr. Brodsky presently serves as the
Treasurer and as a Director of Sural. Mr. Brodsky is also a Director of RBB
Fund, Inc.
Brian L. Roberts has served as our President and as a Director for more
than five years. Mr. Roberts devotes a major portion of his time to our business
and affairs. Mr. Roberts presently serves as Vice President and as a Director of
Sural. As of December 31, 1998, our shares owned by Sural constituted
approximately 76% of the voting power of the two classes of our voting common
stock combined. Mr. Roberts has sole voting power over stock representing a
majority of voting power of all Sural stock and, therefore, has voting control
over Comcast. Mr. Roberts is also a Director of @Home Corporation. Mr. Roberts
is a son of Ralph J. Roberts.
Lawrence S. Smith was named our Executive Vice President in December 1995.
Prior to that time, Mr. Smith served as our Senior Vice President for more than
five years. Mr. Smith is our Principal Accounting Officer.
John R. Alchin has served as our Treasurer and as Senior Vice President for
more than five years. Mr. Alchin is our Principal Financial Officer.
Stanley L. Wang has served as our Senior Vice President, Secretary and
General Counsel for more than five years.
- 17 -
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Class A Special Common Stock is included on Nasdaq under the symbol
CMCSK and our Class A Common Stock is included on Nasdaq under the symbol CMCSA.
There is no established public trading market for our Class B Common Stock. Our
Class B Common Stock can be converted, on a share for share basis, into Class A
Special or Class A Common Stock. The following table sets forth, for the
indicated periods, the closing price range of the Class A Special and Class A
Common Stock as furnished by Nasdaq.
Class A
Special Class A
------------------------------------------------------------
High Low High Low
1998
First Quarter...................................... $37 3/16 $29 7/8 $36 7/8 $30 1/8
Second Quarter..................................... 41 11/16 33 13/16 40 1/2 32 7/8
Third Quarter...................................... 48 3/4 37 3/8 48 1/16 37 1/2
Fourth Quarter..................................... 59 40 9/16 57 7/8 40 1/4
1997
First Quarter...................................... $19 3/8 $16 7/8 $18 15/16 $16 3/8
Second Quarter..................................... 22 1/4 14 5/8 22 3/16 14 1/2
Third Quarter...................................... 25 3/4 19 3/4 25 5/8 19 13/16
Fourth Quarter..................................... 32 9/16 25 19/32 32 3/4 25 11/16
--------------------
We began paying quarterly cash dividends on our Class A Common Stock in 1977.
Since 1978, we have paid equal dividends on shares of both our Class A Common
Stock and our Class B Common Stock. Since December 1986, when the Class A
Special Common Stock was issued, we have paid equal dividends on shares of our
Class A Special, Class A and Class B Common Stock. We declared dividends of
$.0933 for each of the years ended December 31, 1998 and 1997 on shares of our
Class A Special, Class A and Class B Common Stock. The declaration and payment
of future dividends and their amount depend upon our results of operations, our
financial condition and capital needs, and upon contractual restrictions on us
and our subsidiaries and other factors.
If you hold shares of our Class A Special Common Stock, you cannot vote in
the election of directors or otherwise, except where class voting is required by
law. In that case, if you hold Class A Special Common Stock, you have one vote
per share. Generally, if you hold Class A Common Stock, you have one vote per
share. If you hold Class B Common Stock, you have 15 votes per share. Generally,
including the election of directors, holders of Class A Common Stock and the
Class B Common Stock vote as one class except where class voting is required by
law. If you hold Class A Common Stock or Class B Common Stock, you have
cumulative voting rights.
As of December 31, 1998, there were 2,381 record holders of our Class A
Special Common Stock, 1,760 record holders of our Class A Common Stock and three
record holders of our Class B Common Stock.
- 18 -
ITEM 6 SELECTED FINANCIAL DATA
Year Ended December 31,
1998(1) 1997(1) 1996(1) 1995 1994
-------------------------------------------------------------
(Dollars in millions, except per share data)
-------------------------------------------------------------
Statement of Operations Data:
Revenues........................................... $5,145.3 $4,467.7 $3,612.3 $2,988.1 $1,089.2
Operating income................................... 557.1 466.6 465.9 397.7 213.4
Income (loss) from continuing operations before
extraordinary items........................... 1,007.7 (182.9) (6.4) 48.0 (46.1)
Loss from discontinued operations (2).............. 31.4 25.6 46.1 85.8 29.2
Extraordinary items................................ (4.2) (30.2) (1.0) (6.1) (11.7)
Net income (loss).................................. 972.1 (238.7) (53.5) (43.9) (87.0)
Basic earnings (loss) for common stockholders
per common share (3)
Income (loss) from continuing operations
before extraordinary items................. $2.67 ($0.58) ($0.02) $0.20 ($0.20)
Loss from discontinued operations (2)......... (0.09) (0.08) (0.19) (0.36) (0.12)
Extraordinary items........................... (0.01) (0.09) (0.03) (0.05)
----------- ----------- ----------- ---------- ---------
Net income (loss)............................. $2.57 ($0.75) ($0.21) ($0.19) ($0.37)
=========== =========== =========== ========== =========
Diluted earnings (loss) for common
stockholders per common share (3)
Income (loss) from continuing operations
before extraordinary items................. $2.50 ($0.58) ($0.02) $0.20 ($0.20)
Loss from discontinued operations (2)......... (0.08) (0.08) (0.19) (0.36) (0.12)
Extraordinary items........................... (0.01) (0.09) (0.03) (0.05)
----------- ----------- ----------- ---------- ---------
Net income (loss)............................. $2.41 ($0.75) ($0.21) ($0.19) ($0.37)
=========== =========== =========== ========== =========
Cash dividends declared per common share (3)....... $0.0933 $0.0933 $0.0933 $0.0933 $0.0933
Balance Sheet Data (at year end):
Total assets....................................... $14,817.4 $11,326.8 $10,660.4 $8,159.9 $5,480.0
Working capital.................................... 2,531.7 44.9 15.5 604.6 29.4
Long-term debt..................................... 5,464.2 5,334.1 5,998.3 6,014.8 4,066.0
Stockholders' equity (deficiency).................. 3,815.3 1,646.5 551.6 (827.7) (726.8)
Supplementary Financial Data:
Operating income before depreciation and
amortization (4).............................. $1,496.7 $1,293.1 $1,047.0 $881.0 $459.9
Net cash provided by (used in) (5).................
Operating activities.......................... 1,079.7 855.3 644.5 466.7 339.7
Financing activities.......................... 809.2 283.9 (88.0) 1,785.7 1,089.2
Investing activities.......................... (1,427.3) (1,056.5) (749.5) (2,060.3) (1,254.4)
- ----------
(1) You should see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a discussion of events which affect the
comparability of the information reflected in this financial data.
(2) In January 1999, we agreed to sell Comcast Cellular Corporation to SBC
Communications, Inc. This represents the results of Comcast Cellular which
is presented as a discontinued operation for all periods presented.
(3) We have adjusted these for our three-for-two stock split effective February
2, 1994.
(4) Operating income before depreciation and amortization is commonly referred
to in our businesses as "operating cash flow." Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. In part due to the capital intensive nature of our businesses
and the resulting significant level of non-cash depreciation and
amortization expense, operating cash flow is frequently used as one of the
bases for comparing businesses in the our industries, although our measure
of operating cash flow may not be comparable to similarly titled measures
of other companies. Operating cash flow does not purport to represent net
income or net cash provided by operating activities, as those terms are
defined under generally accepted accounting principles, and should not be
considered as an alternative to those measurements as an indicator of our
performance.
(5) This represents net cash provided by (used in) operating activities,
financing activities and investing activities as presented in the our
consolidated statement of cash flows.
- 19 -
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We have experienced significant growth in recent years through both
strategic acquisitions and growth in our existing businesses. We have
historically met our cash needs for operations through our cash flows from
operating activities. Cash requirements for acquisitions and capital
expenditures have been provided through our financing activities and sales of
long-term investments, as well as our existing cash, cash equivalents and
short-term investments.
In January 1999, we agreed to sell our wholly owned subsidiary, Comcast
Cellular Corporation ("Comcast Cellular"), to SBC Communications, Inc. for
approximately $400 million in cash and the assumption of approximately $1.3
billion of Comcast Cellular debt. We expect to recognize a pre-tax gain on the
sale of approximately $600 million. We expect to complete this sale in the third
quarter of 1999 if we receive all the necessary regulatory and other approvals.
The results of Comcast Cellular have been presented as a discontinued operation
in our consolidated financial statements.
General Developments of Business
See "General Developments of Business" in Part I and Note 3 to our
consolidated financial statements in Item 8.
Liquidity and Capital Resources
The cable communications and the electronic retailing industries are
experiencing increasing competition and rapid technological changes. Our future
results of operations will be affected by our ability to react to changes in the
competitive environment and by our ability to implement new technologies.
However, we believe that competition and technological changes will not
significantly affect our ability to obtain financing.
We believe that we will be able to meet our current and long-term liquidity
and capital requirements, including fixed charges, through our cash flows from
operating activities, existing cash, cash equivalents, short-term investments,
lines of credit and other external financing.
Cash, Cash Equivalents and Short-term Investments
We have traditionally maintained significant levels of cash, cash
equivalents and short-term investments to meet our short-term liquidity
requirements. Our cash equivalents and short-term investments are recorded at
fair value. Cash, cash equivalents and short-term investments as of December 31,
1998 and 1997 were $4.524 billion and $573.0 million, respectively. As of
December 31, 1998, our cash, cash equivalents and short-term investments include
$3.635 billion of our investments in AT&T Corp. ("AT&T"), Sprint PCS, NTL
Incorporated ("NTL"), Tele-Communications, Inc. ("TCI"), Liberty Media
Corporation ("Liberty") and TCI Ventures Group, Inc. ("TCI Ventures") (see Notes
3 and 4 to our consolidated financial statements included in Item 8). As of
December 31, 1998, $258.5 million of our cash, cash equivalents and short-term
investments is restricted to use by subsidiaries under contractual or other
arrangements.
Investments
See Notes 3 and 4 to our consolidated financial statements included in Item
8.
We do not have any additional significant contractual funding commitments
with respect to any of our investments. However, to the extent we do not fund
our investees' capital calls, we expose ourselves to dilution of our ownership
interests. We continually evaluate our existing investments as well as new
investment opportunities.
Investment Rights
In July 1996, we acquired a 66% interest in Comcast Spectacor, L.P.
("Comcast-Spectacor"), the owner of two professional sports teams and two arenas
in Philadelphia, Pennsylvania. We have the right to purchase the remaining 34%
interest in Comcast-Spectacor from our partner for its pro rata portion of the
fair market value (on a going concern basis as determined by an appraisal
process) of Comcast-Spectacor. Our partner also has the right to require us to
purchase its interests under the same terms. We may pay our partner for such
interests in shares of our Class A Special Common Stock, subject to certain
restrictions. If our partner exercises its exit rights and we elect not to
purchase its interest, we and our partner will use our best efforts to sell
Comcast-Spectacor.
The Walt Disney Company ("Disney"), in certain circumstances, is entitled
to cause Comcast Entertainment Holdings LLC (the "LLC"), which is owned 50.1% by
us and 49.9% by Disney, to purchase Disney's entire interest in the LLC at its
then fair market value (as determined by an appraisal process). If the LLC
elects not to purchase Disney's interests, Disney has the right, at its option,
to purchase either our entire interest in the LLC or all of the
- 20 -
shares of stock of E! Entertainment Television, Inc. ("E! Entertainment") held
by the LLC, in each case at fair market value. If Disney exercises its rights,
as described above, a portion or all of our $132.8 million aggregate principal
amount ten-year, 7% notes payable to Disney (the "Disney Notes") may be replaced
with a three year note due to Disney.
We and Liberty, a majority owned subsidiary of TCI, own approximately 57%
and 43%, respectively, of QVC, Inc. ("QVC"), an electronic retailer. We, through
a management agreement, are responsible for the day to day operations of QVC.
Liberty may, at certain times following February 9, 2000, trigger the exercise
of certain exit rights with respect to its investment in QVC. If the exit rights
are triggered, we have first right to purchase Liberty's stock in QVC at
Liberty's pro rata portion of the fair market value (on a going concern or
liquidation basis, whichever is higher, as determined by an appraisal process)
of QVC. We may pay Liberty for such stock, subject to certain rights of Liberty
to consummate the purchase in the most tax-efficient method available, in cash,
our promissory note maturing not more than three years after issuance, our
equity securities or any combination thereof. If we elect not to purchase the
stock of QVC held by Liberty, then Liberty will have a similar right to purchase
the stock of QVC held by us. If Liberty elects not to purchase the stock of QVC
held by us, then we and Liberty will use our best efforts to sell QVC.
We own 55% of MHCP Holdings, L.L.C. ("MHCP Holdings"), an indirect
subsidiary of ours which holds cable communications systems serving
approximately 644,000 subscribers as of December 31, 1998. The California Public
Employees Retirement System ("CalPERS") owns the remaining 45% of MHCP Holdings.
At any time after December 18, 2001, CalPERS may elect to liquidate its interest
in MHCP Holdings at a price based upon the fair value of CalPERS' interest in
MHCP Holdings, adjusted, under certain circumstances, for certain performance
criteria relating to the fair value of MHCP Holdings or to our common stock.
Except in certain limited circumstances, we have the option to satisfy this
liquidity arrangement by purchasing CalPERS' interest for cash, through the
issuance of our common stock (subject to certain limitations) or by selling MHCP
Holdings.
Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain of our
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000 (the "Year 2000 Issue"). If this
situation occurs, the potential exists for computer system failure or
miscalculations by computer programs, which could cause disruption of
operations.
We are in the process of evaluating and addressing the impact of the Year
2000 Issue on our operations to ensure that our information technology and
business systems recognize calendar Year 2000. We are utilizing both internal
and external resources in implementing our Year 2000 program, which consists of
the following phases:
o Assessment Phase. Structured evaluation, including a detailed
inventory outlining the impact that the Year 2000 Issue may have on
current operations.
o Detailed Planning Phase. Establishment of priorities, development of
specific action steps and allocation of resources to address the
issues identified in the Assessment Phase.
o Conversion Phase. Implementation of the necessary system modifications
as outlined in the Detailed Planning Phase.
o Testing Phase. Verification that the modifications implemented in the
Conversion Phase will be successful in resolving the Year 2000 Issue
so that all inventory items will function properly, both individually
and on an integrated basis.
o Implementation Phase. Final roll-out of fully tested components into
an operational unit.
Based on an inventory conducted in 1997, we have identified computer
systems that will require modification or replacement so that they will properly
utilize dates beyond December 31, 1999. Many of our critical systems are new and
are already Year 2000 compliant as a result of the recent rebuild of many of our
cable communications systems. In addition, we have initiated communications with
all of our significant software suppliers and service bureaus to determine their
plans for remediating the Year 2000 Issue in their software which we use or rely
upon.
As of December 31, 1998, we are in the Conversion Phase of our Year 2000
remediation program and have entered the Testing Phase with respect to certain
of our key systems. Through December 31, 1998, we have incurred approximately
$4.7 million in connection with our Year 2000 remediation program. We estimate
that we will incur between approximately $8 million to $17 million of additional
expense through December 1999 in connection with our Year 2000 remediation
program. Our estimate to complete the remediation plan includes the
- 21 -
estimated time associated with mitigating the Year 2000 Issue for third party
software. However, we cannot guarantee that the systems of other companies on
which we rely will be converted on a timely basis, or that a failure to convert
by another company would not have a material adverse effect on us.
Our management will continue to periodically report the progress of our
Year 2000 remediation program to the Audit Committee of our Board of Directors.
We plan to complete the Year 2000 mitigation by the third quarter of 1999. Our
management has investigated and may consider potential contingency plans in the
event that our Year 2000 remediation program is not completed by that date.
The costs of the project and the date on which we plan to complete the Year
2000 modifications and replacements are based on our best estimates, which were
derived using assumptions of future events including the continued availability
of resources and the reliability of third party modification plans. However, we
cannot guarantee that these estimates will be achieved and actual results could
differ materially from those plans. Specific factors that may cause such
material differences include, but are not limited to, the availability and cost
of personnel with appropriate necessary skills and the ability to locate and
correct all relevant computer code and similar uncertainties.
We believe that with modifications to existing software and conversions to
new software, the Year 2000 Issue can be mitigated. However, if such
modifications and conversions are not made, or are not completed within an
adequate time frame, the Year 2000 Issue could have a material adverse impact on
our operations.
Capital Expenditures
During 1999, we expect to incur approximately $750 million of capital
expenditures, including $550 million primarily for the upgrading and rebuilding
of certain of our cable communications systems and the deployment of digital
converters and cable modems (excluding pending acquisitions), $85 million
primarily for the upgrading of QVC's warehousing and distribution facilities and
$40 million primarily for the upgrading of our cellular communications systems
(assuming the sale of Comcast Cellular closes during the third quarter of 1999).
The amount of such capital expenditures for years subsequent to 1999 will depend
on numerous factors, many of which are beyond our control. These factors
include:
o whether competition in a particular market necessitates a cable system
upgrade,
o whether a particular cable system has sufficient capacity to handle
new product offerings including the offering of cable modem, cable
telephony and telecommunications services,
o whether and to what extent we will be able to recover our investment
under FCC rate guidelines and other factors, and
o whether we acquire additional cable systems in need of upgrading or
rebuilding.
National manufacturers are the primary sources of supplies, equipment and
materials utilized in the construction, rebuild and upgrade of our cable
communications systems. Costs have increased during recent years and are
expected to continue to increase as a result of the need to construct
increasingly complex systems, overall demand for labor and other factors. Future
increases in such costs may be significant to our financial position, results of
operations and liquidity. We anticipate capital expenditures for years
subsequent to 1999 will continue to be significant. As of December 31, 1998, we
do not have any significant contractual obligations for capital expenditures.
Financing
See Notes 5 and 6 to our consolidated financial statements included in Item
8.
We have historically utilized a strategy of financing our acquisitions
through the issuance of our common stock or through the issuance of senior debt
at the acquired operating subsidiary level, through the issuance of senior debt
at the intermediate holding company and parent company levels and through public
offerings of subsidiary stock and debt instruments. As of December 31, 1998 and
1997, our long-term debt, including current portion, was $5.578 billion and
$5.466 billion, respectively, of which 18.0% and 17.7%, respectively, was at
variable rates.
Interest Rate Risk Management
We are exposed to market risk including changes in interest rates. To
manage the volatility relating to these exposures, we enter into various
derivative transactions pursuant to our policies in areas such as counterparty
exposure and hedging practices. Positions are monitored using techniques
including market value and sensitivity analyses. We do not hold or issue any
derivative financial instruments for trading purposes and are not a party to
leveraged instruments. The credit risks associated with our derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although we may be exposed to losses in
the event of nonperformance by the counterparties, we do not expect such losses,
if any,
- 22 -
to be significant.
Interest Rate Risk
The use of interest rate risk management instruments, such as interest rate
exchange agreements ("Swaps"), interest rate cap agreements ("Caps") and
interest rate collar agreements ("Collars"), is required under the terms of
certain of our outstanding debt agreements. Our policy is to manage interest
costs using a mix of fixed and variable rate debt. Using Swaps, we agree to
exchange, at specified intervals, the difference between fixed and variable
interest amounts calculated by reference to an agreed-upon notional principal
amount. Caps are used to lock in a maximum interest rate should variable rates
rise, but enable us to otherwise pay lower market rates. Collars limit our
exposure to and benefits from interest rate fluctuations on variable rate debt
to within a certain range of rates.
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 1998 (dollars in millions):
Expected Maturity Date Fair Value at
1999 2000 2001 2002 2003 Thereafter Total 12/31/98
Debt
Fixed Rate.................... $7.3 $18.3 $227.6 $105.6 $7.3 $3,705.6 $4,071.7 $4,489.0
Average Interest Rate...... 9.0% 8.1% 9.5% 8.6% 9.2% 8.3% 8.4%
Variable Rate................. $106.2 $185.9 $322.9 $370.5 $520.5 $1,506.0 $1,506.0
Average Interest Rate...... 5.4% 5.6% 5.8% 5.8% 6.1% 5.9%
Interest Rate Instruments
Variable to Fixed Swaps (1)... $50.0 $504.1 $127.5 $143.5 $36.7 $200.0 $1,061.8 ($13.3)
Average Pay Rate........... 5.7% 5.5% 4.9% 4.9% 4.9% 7.7% 5.7%
Average Receive Rate....... 5.0% 5.0% 5.3% 5.3% 5.4% 5.9% 5.3%
Caps.......................... $240.0 $240.0
Average Cap Rate........... 7.0% 7.0%
Collar........................ $50.0 $50.0
Average Cap Rate........... 6.3% 6.3%
Average Floor Rate......... 4.0% 4.0%
(1) Includes $361.8 million of Swaps which become effective in the year 2000
maturing through 2003 and $200.0 million of Swaps which become effective in
the year 2000 maturing 2008.
---------------------------
The notional amounts of interest rate instruments, as presented in the
table above are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. Interest
rates on variable debt are estimated by us using the average implied forward
London Interbank Offer Rate ("LIBOR") rates for the year of maturity based on
the yield curve in effect at December 31, 1998, plus the borrowing margin in
effect for each credit facility at December 31, 1998. Average receive rates on
the Variable to Fixed Swaps are estimated by us using the average implied
forward LIBOR rates for the year of maturity based on the yield curve in effect
at December 31, 1998. While Swaps, Caps and Collars represent an integral part
of our interest rate risk management program, their incremental effect on
interest expense for the years ended December 31, 1998, 1997 and 1996 was not
significant.
Equity Price Risk
In connection with the share repurchase programs authorized by our Board of
Directors, we sold put options on shares of our Class A Special Common Stock. We
sold put options on 2.75 million shares, 2.0 million shares and 1.0 million
shares during 1998, 1997 and 1996, respectively. The put options give the holder
the right to require us to repurchase such shares at specified prices on
specific dates. The put options sold during 1997 and 1996 expired unexercised.
The amount we would be obligated to pay to repurchase such shares upon exercise
of the put options, totaling $111.2 million and $31.4 million, has been
reclassified from additional capital to common equity put options in our
December 31, 1998 and 1997 consolidated balance sheet. The difference between
the proceeds from the sale of these put options and their estimated fair value
was not significant as of December 31, 1998 and 1997.
- 23 -
Statement of Cash Flows
Cash and cash equivalents increased $461.6 million as of December 31, 1998
from December 31, 1997. The increase in cash and cash equivalents resulted from
cash flows from operating, financing and investing activities as explained
below.
Net cash provided by operating activities from continuing operations
amounted to $1.080 billion for the year ended December 31, 1998 due principally
to our operating income from continuing operations before depreciation and
amortization (see "Results of Operations"), including the effects of the
consolidation of Comcast-Spectacor effective January 1, 1998 (see Note 3 to our
consolidated financial statements included in Item 8), and changes in working
capital as a result of the timing of receipts and disbursements.
Net cash provided by financing activities from continuing operations, which
includes borrowings and repayments of debt, as well as the issuances and
repurchases of our equity securities, was $809.2 million for the year ended
December 31, 1998. During 1998, we borrowed $1.938 billion, consisting primarily
of $797.9 million of 6.20% senior notes due 2008 and $827.0 million of
subsidiary revolving credit in connection with a refinancing. During 1998, we
repaid $1.113 billion of our long-term debt, primarily in connection with the
refinancing of certain subsidiary indebtedness. In addition, during 1998, we had
net issuances of $28.9 million of our common stock and we paid cash dividends of
$36.0 million on our common stock and Series A Preferred Stock. Deferred
financing costs of $16.3 million were incurred during 1998 principally in
connection with the issuance of the 6.20% senior notes due 2008.
Net cash used in investing activities from continuing operations was $1.427
billion for the year ended December 31, 1998. Net cash used in investing
activities includes acquisitions of cable communications systems, net of cash
acquired, of $309.7 million, capital contributions to and purchases of
investments of $202.1 million and capital expenditures of $898.9 million, offset
by proceeds from the sales of short-term investments and call options of $169.5
million and proceeds from the repayment of a loan by an investee of $74.7
million. The sale of Comcast UK Cable resulted in a reduction to cash and cash
equivalents of $140.4 million due to the receipt of approximately 4.8 million
shares of NTL in exchange for all of our shares in Comcast UK Cable (see Note 3
to our consolidated financial statements included in Item 8).
Results of Operations
The effects of our recent acquisitions and the consolidation of
Comcast-Spectacor effective January 1, 1998, as well as increased levels of
capital expenditures, were to increase significantly our revenues and expenses,
resulting in substantial increases in our operating income before depreciation
and amortization, depreciation expense, amortization expense and interest
expense. Investment income has increased significantly in 1998 as a result of
the gains we recognized on the exchange of our interest in Teleport
Communications Group Inc. ("Teleport") for AT&T common stock, the Sprint PCS
restructuring and the exchange of our interest in Comcast UK Cable for NTL
common stock. In addition, our equity in net losses of affiliates has increased
principally as a result of losses incurred by Sprint PCS. See "Operating Results
by Business Segment" and "Consolidated Analysis".
- 24 -
Our summarized consolidated financial information for the three years ended
December 31, 1998 is as follows (dollars in millions, "NM" denotes percentage is
not meaningful):
Year Ended
December 31, Increase/(Decrease)
1998 1997 $ %
Revenues...................................................... $5,145.3 $4,467.7 $677.6 15.2%
Cost of goods sold from electronic retailing.................. 1,462.0 1,270.2 191.8 15.1
Operating, selling, general and administrative expenses....... 2,186.6 1,904.4 282.2 14.8
-------- ------- --------
Operating income before depreciation and amortization (1) .... 1,496.7 1,293.1 203.6 15.7
Depreciation.................................................. 463.9 404.1 59.8 14.8
Amortization.................................................. 475.7 422.4 53.3 12.6
-------- ------- --------
Operating income.............................................. 557.1 466.6 90.5 19.4
-------- ------- --------
Interest expense.............................................. 466.7 458.9 7.8 1.7
Investment income............................................. (1,828.0) (149.4) 1,678.6 NM
Equity in net losses of affiliates............................ 515.9 343.8 172.1 50.1
Gain from equity offering of affiliate........................ (157.8) (7.7) 150.1 NM
Other expense................................................. 2.9 9.7 (6.8) (70.1)
Income tax expense............................................ 594.0 70.4 523.6 NM
Minority interest............................................. (44.3) (76.2) (31.9) (41.9)
-------- ------- --------
Income (loss) from continuing operations before
extraordinary items........................................ $1,007.7 ($182.9) $1,190.6 NM
======== ======= ========
Year Ended
December 31, Increase/(Decrease)
1997 1996 $ %
Revenues...................................................... $4,467.7 $3,612.3 $855.4 23.7%
Cost of goods sold from electronic retailing.................. 1,270.2 1,114.2 156.0 14.0
Operating, selling, general and administrative expenses....... 1,904.4 1,451.1 453.3 31.2
-------- ------- --------
Operating income before depreciation and amortization (1) .... 1,293.1 1,047.0 246.1 23.5
Depreciation.................................................. 404.1 259.2 144.9 55.9
Amortization.................................................. 422.4 321.9 100.5 31.2
-------- ------- --------
Operating income.............................................. 466.6 465.9 0.7 0.2
-------- ------- --------
Interest expense.............................................. 458.9 448.4 10.5 2.3
Investment income............................................. (149.4) (120.0) 29.4 24.5
Equity in net losses of affiliates............................ 343.8 144.8 199.0 NM
Gain from equity offering of affiliate........................ (7.7) (40.6) (32.9) (81.0)
Other expense (income)........................................ 9.7 (21.3) 31.0 NM
Income tax expense............................................ 70.4 109.0 (38.6) (35.4)
Minority interest............................................. (76.2) (48.0) 28.2 58.8
-------- ------- --------
Loss from continuing operations before extraordinary items.... ($182.9) ($6.4) $176.5 NM
======== ======= ========
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in our businesses as "operating cash flow." Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. In part due to the capital intensive nature of our businesses
and the resulting significant level of non-cash depreciation and
amortization expense, operating cash flow is frequently used as one of the
bases for comparing businesses in our industries, although our measure of
operating cash flow may not be comparable to similarly titled measures of
other companies. Operating cash flow does not purport to represent net
income or net cash provided by operating activities, as those terms are
defined under generally accepted accounting principles, and should not be
considered as an alternative to such measurements as an indicator of our
performance. See "Statement of Cash Flows" above for a discussion of net
cash provided by operating activities.
- 25 -
Operating Results by Business Segment
The following represent the operating results of our significant business
segments, including: "Cable Communications" and "Electronic Retailing." The
remaining components of our operations are not independently significant to our
consolidated financial position or results of operations (see Note 10 to our
consolidated financial statements included in Item 8).
---------------------------
Cable Communications
As a result of the acquisition of the cable television operations ("Scripps
Cable") of The E.W. Scripps Company (the "Scripps Acquisition"), we commenced
consolidating the financial results of Scripps Cable effective November 1, 1996.
The following table presents financial information for the years ended December
31, 1998, 1997 and 1996 for our cable communications segment (dollars in
millions):
Year Ended
December 31, Increase
1998 1997 $ %
Service income................................... $2,277.4 $2,073.0 $204.4 9.9%
Operating, selling, general and
administrative expenses..................... 1,180.8 1,085.3 95.5 8.8
-------- -------- ------
Operating income before depreciation
and amortization (a)........................ $1,096.6 $987.7 $108.9 11.0%
======== ======== ======
Year Ended
December 31, Increase
1997 1996 $ %
Service income................................... $2,073.0 $1,641.0 $432.0 26.3%
Operating, selling, general and
administrative expenses..................... 1,085.3 837.2 248.1 29.6
-------- -------- ------
Operating income before depreciation
and amortization (a)........................ $987.7 $803.8 $183.9 22.9%
======== ====== ======
- ---------------
(a) See footnote (1) on page 25.
Of the respective $204.4 million and $432.0 million increases in service
income for the years ended December 31, 1998 and 1997, $30.2 million and $280.4
million are attributable to the effects of the acquisitions of cable
communications systems, $31.8 million and $27.1 million are attributable to
subscriber growth, $109.0 million and $108.9 million relate to changes in rates,
$20.5 million and $8.6 million are attributable to growth in cable advertising
sales and $12.9 million and $7.0 million relate to other product offerings.
Of the respective $95.5 million and $248.1 million increases in operating,
selling, general and administrative expenses for the years ended December 31,
1998 and 1997, $15.8 million and $145.3 million are attributable to the effects
of the acquisitions of cable communications systems, $48.9 million and $34.9
million are attributable to increases in the costs of cable programming as a
result of subscriber growth, additional channel offerings and changes in rates,
$5.3 million and $5.9 million are attributable to growth in cable advertising
sales, $1.5 million and $15.6 million are attributable to increases in costs
associated with customer service and $24.0 million and $46.4 million result from
increases in the costs of labor, other volume related expenses and costs
associated with new product offerings. We anticipate that the cost of cable
programming will increase in the future as cable programming rates increase and
additional sources of cable programming become available.
- 26 -
Electronic Retailing
The following table sets forth the operating results for our electronic
retailing segment (dollars in millions):
Year Ended
December 31, Increase
1998 1997 $ %
Net sales from electronic retailing.............. $2,402.7 $2,082.5 $320.2 15.4%
Cost of goods sold from electronic retailing..... 1,462.0 1,270.2 191.8 15.1
Operating, selling, general and administrative
expenses.................................... 506.5 474.6 31.9 6.7
-------- -------- ------
Operating income before depreciation
and amortization (a)........................ $434.2 $337.7 $96.5 28.6%
======== ======== ======
Gross margin..................................... 39.2% 39.0%
======== ========
Year Ended
December 31, Increase
1997 1996 $ %
Net sales from electronic retailing.............. $2,082.5 $1,835.8 $246.7 13.4%
Cost of goods sold from electronic retailing..... 1,270.2 1,114.2 156.0 14.0
Operating, selling, general and administrative
expenses.................................... 474.6 421.3 53.3 12.7
-------- -------- ------
Operating income before depreciation
and amortization (a)........................ $337.7 $300.3 $37.4 12.5%
======== ======== ======
Gross margin..................................... 39.0% 39.3%
======== ========
- ---------------
(a) See footnote (1) on page 25.
The respective increases in net sales from electronic retailing of $320.2
million and $246.7 million for the years ended December 31, 1998 and 1997 are
primarily attributable to the effects of 5.6% and 7.4% increases, respectively,
in the average number of homes receiving QVC services in the US and 11.8% and
13.7% increases, respectively, in the average number of homes receiving QVC
services in the UK.
An allowance for returned merchandise is provided as a percentage of sales
based on historical experience. The return provision was approximately 21% of
gross sales for each of the years ended December 31, 1998, 1997 and 1996.
The increases in cost of goods sold from electronic retailing are primarily
related to the growth in net sales. The changes in gross margin between these
periods are primarily due to slight changes in product mix from year to year.
Of the respective increases in operating, selling, general and
administrative expenses of $31.9 million and $53.3 million for the years ended
December 31, 1998 and 1997, $21.7 million and $30.6 million are attributable to
higher sales volume, $3.2 million and $25.5 million are attributable to start-up
costs incurred by QVC in Germany, which began operations in the fourth quarter
of 1996, and the remaining changes are primarily attributable to additional
costs associated with new businesses, offset by the reduction in expenses
realized upon consolidation of QVC's multichannel operations in 1996.
---------------------------
Consolidated Analysis
The $59.8 million increase in depreciation expense from 1997 to 1998 is
primarily attributable to the effects of capital expenditures, the consolidation
of Comcast-Spectacor effective January 1, 1998, increased losses on asset
disposals in connection with our cable communications rebuild activities and the
acquisition of cable communications systems. The $144.9 million increase in
depreciation expense from 1996 to 1997 is primarily attributable to the effects
of capital expenditures and the effects of the Scripps Acquisition in November
1996.
The $53.3 million increase in amortization expense from 1997 to 1998 is
primarily attributable to the
- 27 -
consolidation of Comcast-Spectacor effective January 1, 1998 and the acquisition
of cable communications systems. The $100.5 million increase in amortization
expense from 1996 to 1997 is primarily attributable to the effects of the
Scripps Acquisition in November 1996.
We anticipate that, for the foreseeable future, interest expense will be a
significant cost to us and will have a significant adverse effect on our ability
to realize net earnings. We believe we will continue to be able to meet our
obligations through our ability both to generate operating income before
depreciation and amortization and to obtain external financing.
The $1.679 billion increase in investment income from 1997 to 1998 is
primarily attributable to the $1.092 billion gain recognized on the exchange of
our interest in Teleport for AT&T common stock, the $758.5 million gain
recognized on the restructuring of Sprint PCS and the $148.3 million gain
recognized on the exchange of our interest in Comcast UK Cable for NTL common
stock, all recognized in 1998. These gains were partially offset by a $152.8
million loss on certain of our investments based primarily on a decline in value
that we considered other than temporary and investment expense of $105.5 million
incurred during 1998 related to changes in the value of call options related to
our investment in TCI, TCI Ventures and Liberty common stock. The $29.4 million
increase in investment income from 1996 to 1997 is primarily attributable to the
$68.9 million gain recognized in 1997 on the sale of our Teleport Class A Common
Stock, offset, in part, by the $47.3 million gain recognized upon the exchange
of the shares of Turner Broadcasting System, Inc. ("TBS") held by us for Time
Warner, Inc. ("Time Warner") common stock in 1996 as a result of the merger of
Time Warner and TBS in October 1996.
The $172.1 million and $199.0 million increases in equity in net losses of
affiliates from 1997 to 1998 and from 1996 to 1997 are primarily due to losses
incurred by Sprint PCS. With the restructuring of Sprint PCS in the fourth
quarter of 1998, we will no longer account for our investment in Sprint PCS
under the equity method and, as a result, will no longer record our
proportionate share of Sprint PCS' net losses in our consolidated statement of
operations (see Notes 3 and 4 to our consolidated financial statements included
in Item 8).
During the years ended December 31, 1998, 1997 and 1996, Teleport issued
shares of its Class A Common Stock. As a result of these stock issuances, we
recorded a $157.8 million, $7.7 million and $40.6 million increase in our
proportionate share of Teleport's net assets as a gain from equity offering of
affiliate in our 1998, 1997 and 1996 consolidated statement of operations. We
recorded the increase in our proportionate share of Teleport's net assets one
quarter in arrears.
The $6.8 million decrease and $31.0 million increase in other expense from
1997 to 1998 and from 1996 to 1997 are primarily attributable to the effects of
fluctuations in the foreign currency exchange rate.
The $523.6 million increase and $38.6 million decrease in income tax
expense from 1997 to 1998 and from 1996 to 1997 are primarily attributable to
changes in our income before income taxes and minority interest, and
non-deductible foreign losses and non-deductible equity in net losses of
affiliates.
The $31.9 million decrease and $28.2 million increase in minority interest
income from 1997 to 1998 and from 1996 to 1997 are primarily attributable to
minority interests in the net loss of Comcast UK Cable and the net income of
QVC, and the effects of the consolidation of Comcast-Spectacor effective January
1, 1998.
Extraordinary items for the years ended December 31, 1998, 1997 and 1996 of
$4.2 million, $30.2 million and $1.0 million, respectively, consist of
unamortized debt acquisition costs and debt extinguishment costs, net of related
tax benefits, expensed in connection with the redemption and refinancing of
certain indebtedness.
For the years ended December 31, 1998, 1997 and 1996, our distributions
from investees and earnings before extraordinary items, income tax expense,
equity in net losses of affiliates and fixed charges (interest expense) were
$2.584 billion, $690.2 million and $695.8 million, respectively. Such earnings
were adequate to cover our fixed charges (including capitalized interest of
$18.0 million and $32.1 million during 1997 and 1996, respectively), of $466.7
million, $476.9 million and $480.5 million for the years ended December 31,
1998, 1997 and 1996, respectively. Our fixed charges include non-cash interest
expense of $42.5 million, $56.5 million and $51.5 million for the years ended
December 31, 1998, 1997 and 1996, respectively.
We believe that our losses will not significantly affect the performance of
our normal business activities because of our existing cash, cash equivalents
and short-term investments, our ability to generate operating income before
depreciation and amortization and our ability to obtain external financing.
We believe that our operations are not materially affected by inflation.
- 28 -
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Corporation
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast
Corporation and its subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficiency)
and of cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the consolidated financial
statements of QVC, Inc. ("QVC") (a consolidated subsidiary) which statements
reflect total assets constituting 14% and 19% of the Company's consolidated
total assets as of December 31, 1998 and 1997 and total revenues constituting
47%, 47% and 51% of the Company's consolidated revenues for the years ended
December 31, 1998, 1997 and 1996, respectively. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included in the Company's consolidated financial
statements for QVC, is based solely upon the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Comcast Corporation and its subsidiaries as of December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 22, 1999
- 29 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
ASSETS 1998 1997
CURRENT ASSETS
Cash and cash equivalents............................................. $870.7 $409.1
Investments........................................................... 3,653.4 163.9
Accounts receivable, less allowance for doubtful
accounts of $120.7 and $108.8....................................... 549.3 439.6
Inventories, net...................................................... 343.8 309.9
Other current assets.................................................. 207.1 155.9
--------- ---------
Total current assets.............................................. 5,624.3 1,478.4
--------- ---------
INVESTMENTS.............................................................. 602.4 1,235.8
--------- ---------
PROPERTY AND EQUIPMENT................................................... 3,886.7 3,689.5
Accumulated depreciation.............................................. (1,362.3) (1,205.9)
--------- ---------
Property and equipment, net........................................... 2,524.4 2,483.6
--------- ---------
DEFERRED CHARGES
Franchise and license acquisition costs............................... 4,763.6 4,847.9
Excess of cost over net assets acquired and other..................... 3,450.9 3,089.5
--------- ---------
8,214.5 7,937.4
Accumulated amortization.............................................. (2,148.2) (1,808.4)
--------- ---------
Deferred charges, net................................................. 6,066.3 6,129.0
--------- ---------
$14,817.4 $11,326.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses................................. $1,600.3 $1,095.4
Accrued interest...................................................... 73.5 72.2
Net liabilities of discontinued operations............................ 165.2 133.6
Deferred income taxes................................................. 1,140.1
Current portion of long-term debt..................................... 113.5 132.3
--------- ---------
Total current liabilities......................................... 3,092.6 1,433.5
--------- ---------
LONG-TERM DEBT, less current portion..................................... 5,464.2 5,334.1
--------- ---------
DEFERRED INCOME TAXES.................................................... 1,500.1 1,849.5
--------- ---------
MINORITY INTEREST AND OTHER.............................................. 834.0 1,031.8
--------- ---------
COMMITMENTS AND CONTINGENCIES
COMMON EQUITY PUT OPTIONS................................................ 111.2 31.4
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 20,000,000 shares; 5% series A
convertible, no par value; issued, 6,370 at redemption value........ 31.9 31.9
5.25% series B mandatorily redeemable convertible, $1,000 par value;
issued, 540,690 and 513,211 at redemption value..................... 540.7 513.2
Class A special common stock, $1 par value - authorized,
500,000,000 shares; issued, 328,630,366 and 317,025,969 ............ 328.6 317.0
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 31,690,063 and 31,793,487............... 31.7 31.8
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 9,444,375 and 8,786,250 ................. 9.4 8.8
Additional capital.................................................... 3,311.5 3,030.6
Accumulated deficit................................................... (1,488.2) (2,415.9)
Unrealized gains on marketable securities............................. 1,049.5 140.7
Cumulative translation adjustments.................................... 0.2 (11.6)
--------- ---------
Total stockholders' equity........................................ 3,815.3 1,646.5
--------- ---------
$14,817.4 $11,326.8
========= =========
See notes to consolidated financial statements.
- 30 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in millions, except per share data)
Year Ended December 31,
1998 1997 1996
REVENUES
Service income............................................. $2,742.6 $2,385.2 $1,776.5
Net sales from electronic retailing........................ 2,402.7 2,082.5 1,835.8
-------- -------- --------
5,145.3 4,467.7 3,612.3
-------- -------- --------
COSTS AND EXPENSES
Operating.................................................. 1,410.3 1,204.1 911.8
Cost of goods sold from electronic retailing............... 1,462.0 1,270.2 1,114.2
Selling, general and administrative........................ 776.3 700.3 539.3
Depreciation............................................... 463.9 404.1 259.2
Amortization............................................... 475.7 422.4 321.9
-------- -------- --------
4,588.2 4,001.1 3,146.4
-------- -------- --------
OPERATING INCOME.............................................. 557.1 466.6 465.9
OTHER (INCOME) EXPENSE
Interest expense........................................... 466.7 458.9 448.4
Investment income.......................................... (1,828.0) (149.4) (120.0)
Equity in net losses of affiliates......................... 515.9 343.8 144.8
Gain from equity offering of affiliate..................... (157.8) (7.7) (40.6)
Other...................................................... 2.9 9.7 (21.3)
-------- -------- --------
(1,000.3) 655.3 411.3
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAX EXPENSE, MINORITY INTEREST AND
EXTRAORDINARY ITEMS........................................ 1,557.4 (188.7) 54.6
INCOME TAX EXPENSE............................................ 594.0 70.4 109.0
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST AND EXTRAORDINARY ITEMS.................. 963.4 (259.1) (54.4)
MINORITY INTEREST............................................. (44.3) (76.2) (48.0)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEMS........................................ 1,007.7 (182.9) (6.4)
LOSS FROM DISCONTINUED OPERATIONS, net of income tax
benefit of $19.1 million, $14.8 million and $24.6 million.. 31.4 25.6 46.1
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS...................... 976.3 (208.5) (52.5)
EXTRAORDINARY ITEMS .......................................... (4.2) (30.2) (1.0)
-------- -------- --------
NET INCOME (LOSS)............................................. 972.1 (238.7) (53.5)
PREFERRED DIVIDENDS........................................... (29.1) (14.8) (0.7)
-------- -------- --------
NET INCOME (LOSS) FOR COMMON STOCKHOLDERS..................... $943.0 ($253.5) ($54.2)
======== ======== ========
BASIC EARNINGS (LOSS) FOR COMMON STOCKHOLDERS
PER COMMON SHARE
Income (loss) from continuing operations before
extraordinary items...................................... $2.67 ($.58) ($.02)
Loss from discontinued operations.......................... (.09) (.08) (.19)
Extraordinary items........................................ (.01) (.09)
-------- -------- --------
Net income (loss)........................................ $2.57 ($.75) ($.21)
======== ======== ========
BASIC WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING................................. 366.5 339.0 247.6
======== ======== ========
DILUTED EARNINGS (LOSS) FOR COMMON STOCKHOLDERS
PER COMMON SHARE
Income (loss) from continuing operations before
extraordinary items...................................... $2.50 ($.58) ($.02)
Loss from discontinued operations.......................... (.08) (.08) (.19)
Extraordinary items........................................ (.01) (.09)
-------- -------- --------
Net income (loss)........................................ $2.41 ($.75) ($.21)
======== ======== ========
DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING.................................. 403.0 339.0 247.6
======== ======== ========
See notes to consolidated financial statements.
- 31 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31,
1998 1997 1996
OPERATING ACTIVITIES
Net income (loss).......................................... $972.1 ($238.7) ($53.5)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities from
continuing operations:
Depreciation............................................. 463.9 404.1 259.2
Amortization............................................. 475.7 422.4 321.9
Non-cash interest expense, net........................... 29.2 32.3 16.8
Equity in net losses of affiliates....................... 515.9 343.8 144.8
Gain from equity offering of affiliate................... (157.8) (7.7) (40.6)
Gains on investments, net................................ (1,758.5) (81.0) (69.2)
Minority interest........................................ (44.3) (76.2) (48.0)
Loss from discontinued operations........................ 31.4 25.6 46.1
Extraordinary items...................................... 4.2 30.2 1.0
Deferred income taxes and other.......................... 418.2 (40.6) 15.0
--------- --------- ---------
950.0 814.2 593.5
Changes in working capital............................... 129.7 41.1 51.0
--------- --------- ---------
Net cash provided by operating activities from
continuing operations............................... 1,079.7 855.3 644.5
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings................................... 1,938.0 1,951.1 657.5
Retirement and repayment of debt........................... (1,113.4) (2,586.6) (559.2)
Issuance of preferred stock................................ 500.0
Issuances (repurchases) of common stock, net............... 28.9 470.2 (175.9)
Dividends.................................................. (36.0) (34.0) (26.8)
Deferred financing costs................................... (16.3) (16.9) (5.0)
Other...................................................... 8.0 0.1 21.4
--------- --------- ---------
Net cash provided by (used in) financing activities
from continuing operations.......................... 809.2 283.9 (88.0)
--------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired......................... (309.7) (170.1) (24.8)
Proceeds from sales of short-term investments, net......... 145.9 45.6 210.2
Capital contributions to and purchases of investments...... (202.1) (268.7) (475.4)
Proceeds from sales of and distributions from investments.. 23.6 171.1 165.1
Proceeds from investees' repayments of loans............... 74.7 30.6
Capital expenditures....................................... (898.9) (795.5) (554.4)
Sale of subsidiary, net of cash sold....................... (140.4)
Additions to deferred charges.............................. (108.4) (58.8) (38.0)
Other...................................................... (12.0) (10.7) (32.2)
--------- --------- ---------
Net cash used in investing activities from
continuing operations............................... (1,427.3) (1,056.5) (749.5)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS - CONTINUING OPERATIONS................... 461.6 82.7 (193.0)
CASH AND CASH EQUIVALENTS, beginning of year.................. 409.1 326.4 519.4
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year........................ $870.7 $409.1 $326.4
========= ========= =========
See notes to consolidated financial statements.
- 32 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Dollars in millions, except per share data)
Accumulated Other
Comprehensive Income (Loss)
Unrealized
Gains Cumulative
on Transla-
Preferred Stock Common Stock Accumu- Marketable tion
Series Series Class A Additional lated Secur- Adjust-
A B Special Class A Class B Capital Defici t ities ments Total
BALANCE, JANUARY 1, 1996............$ $ $192.8 $37.7 $8.8 $843.1 ($1,914.3) $22.2 ($18.0) ($827.7)
Comprehensive income (loss):
Net loss......................... (53.5)
Unrealized losses on marketable
securities, net of deferred
taxes of ($11.9)................ (22.1)
Cumulative translation
adjustments ................... 12.0
Total comprehensive loss............ (63.6)
Issuance of common stock......... 97.2 1,526.3 1,623.5
Issuance of preferred stock...... 31.9 31.9
Exercise of options.............. 0.2 0.2 3.0 3.4
Retirement of common stock....... (6.9) (3.9) (41.4) (133.2) (185.4)
Cash dividends, common,
$.0933 per share.............. (26.1) (26.1)
Cash dividends, Series A
preferred ..................... (0.7) (0.7)
Unrecognized gain on issuance of
common stock of a subsidiary... 11.6 11.6
Temporary equity related to
put options ................... (17.5) (17.5)
Proceeds from sales and
extensions of put options...... 2.2 2.2
----- ------ ------ ----- ---- -------- --------- -------- ---- --------
BALANCE, DECEMBER 31, 1996.......... 31.9 283.3 34.0 8.8 2,326.6 (2,127.1) 0.1 (6.0) 551.6
Comprehensive income (loss):
Net loss......................... (238.7)
Unrealized gains on marketable
securities, net of deferred
taxes of $75.8................. 140.6
Cumulative translation adjustments (5.6)
Total comprehensive loss............ (103.7)
Issuance of common stock......... 24.9 475.4 500.3
Issuance of preferred stock...... 500.0 500.0
Exercise of options.............. 1.0 14.8 15.8
Conversion of convertible
subordinated debt to common
stock.......................... 8.4 210.1 218.5
Retirement of common stock....... (0.6) (2.2) (22.3) (17.7) (42.8)
Cash dividends, common,
$.0933 per share............... (32.4) (32.4)
Cash dividends, Series A
preferred ..................... (1.6) (1.6)
Series B preferred dividends..... 13.2 (13.2)
Temporary equity related to
put options ................... 38.2 38.2
Proceeds from sales and
extensions of put options...... 2.6 2.6
----- ------ ------ ----- ---- -------- --------- -------- ---- --------
BALANCE, DECEMBER 31, 1997.......... 31.9 513.2 317.0 31.8 8.8 3,030.6 (2,415.9) 140.7 (11.6) 1,646.5
Comprehensive income:
Net income....................... 972.1
Unrealized gains on marketable
securities, net of deferred
taxes of $489.4................ 908.8
Cumulative translation
adjustments.................... 11.8
Total comprehensive income.......... 1,892.7
Conversion of convertible
subordinated debt to
common stock................... 10.4 347.2 357.6
Exercise of options.............. 1.4 0.6 33.8 35.8
Retirement of common stock....... (0.2) (0.1) (2.6) (10.0) (12.9)
Cash dividends, common,
$.0933 per share............... (34.4) (34.4)
Cash dividends, Series A
preferred...................... (1.6) (1.6)
Series B preferred dividends..... 27.5 (27.5)
Temporary equity related to put
options........................ (79.8) (79.8)
Proceeds from sales of put options 11.4 11.4
----- ------ ------ ----- ---- -------- --------- -------- ---- --------
BALANCE, DECEMBER 31, 1998..........$31.9 $540.7 $328.6 $31.7 $9.4 $3,311.5 ($1,488.2) $1,049.5 $0.2 $3,815.3
===== ====== ====== ===== ==== ======== ========= ======== ==== ========
See notes to consolidated financial statements.
- 33 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. BUSINESS
Comcast Corporation and its subsidiaries (the "Company") is principally
engaged in the development, management and operation of broadband cable
networks and the provision of programming content.
Cable communications includes cable and telecommunications services in the
United States ("US"). The Company's consolidated cable operations served
approximately 4.5 million subscribers and passed approximately 7.4 million
homes as of December 31, 1998.
Programming content is provided through the Company's consolidated
subsidiaries, QVC, Inc. ("QVC"), E! Entertainment Television, Inc. ("E!
Entertainment") and Comcast SportsNet (see Note 3), and other investments,
including The Golf Channel, Speedvision and Outdoor Life. Through QVC, the
Company markets a wide variety of products and is available to, on a full
and part-time basis, over 70 million homes in the US, over 7.3 million
homes in the United Kingdom ("UK") and over 14 million homes in Germany. E!
Entertainment is an entertainment-related news and information service with
distribution to approximately 53 million customers as of December 31, 1998.
Comcast SportsNet is a regional sports programming network which provides
sports related programming to approximately 2.6 million viewers in the
Philadelphia region.
In January 1999, the Company agreed to sell its indirect wholly owned
subsidiary, Comcast Cellular Corporation ("Comcast Cellular"), to SBC
Communications, Inc. for approximately $400 million in cash and the
assumption of approximately $1.3 billion of Comcast Cellular debt. As of
December 31, 1998, Comcast Cellular provides telephone communications
services pursuant to licenses granted by the Federal Communications
Commission ("FCC") to more than 829,000 subscribers in and around the City
of Philadelphia, the State of Delaware and a significant portion of the
State of New Jersey. Revenues for Comcast Cellular were $455.2 million,
$444.9 million and $426.1 million for the years ended December 31, 1998,
1997 and 1996, respectively. The sale of Comcast Cellular is expected to
close in the third quarter of 1999 subject to the receipt of all necessary
regulatory and other approvals. The results of operations of Comcast
Cellular have been presented as a discontinued operation in accordance with
Accounting Principles Board ("APB") Opinion 30, "Reporting the Results of
Operations Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER ITEMS
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned or controlled subsidiaries. All significant
intercompany accounts and transactions among consolidated entities have
been eliminated.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available
market information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates
of fair value. The estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Such fair value estimates are based on pertinent information
available to
- 34 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
management as of December 31, 1998 and 1997, and have not been
comprehensively revalued for purposes of these consolidated financial
statements since such dates.
Cash Equivalents
Cash equivalents consist principally of US Government obligations,
commercial paper, repurchase agreements and certificates of deposit with
maturities of three months or less when purchased. The carrying amounts of
the Company's cash equivalents approximate their fair values.
Inventories - Electronic Retailing
Inventories, consisting primarily of products held for sale, are stated at
the lower of cost or market. Cost is determined by the average cost method,
which approximates the first-in, first-out method.
Investments
Investments consist principally of equity securities and US Government
obligations, commercial paper, repurchase agreements and certificates of
deposit with maturities of greater than three months when purchased.
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee and investments in partnerships which are not controlled by the
Company are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and
dividends received. The differences between the Company's recorded
investments and its proportionate interests in the book value of the
investees' net assets are being amortized to equity in net income or loss,
primarily over a period of 20 years, which is consistent with the estimated
lives of the underlying assets.
Unrestricted publicly traded investments are classified as available for
sale and recorded at their fair value, with unrealized gains or losses
resulting from changes in fair value between measurement dates recorded as
a component of other comprehensive income.
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known diminution in value.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over estimated useful lives as follows:
Buildings and improvements.........................8-40 years
Operating facilities...............................5-20 years
Other equipment....................................2-10 years
Improvements that extend asset lives are capitalized; other repairs and
maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
Deferred Charges
Franchise and license acquisition costs are amortized on a straight-line
basis over their legal or estimated useful lives of 3 to 40 years. The
excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over estimated useful lives of 20 to 40
years.
- 35 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using
objective methodologies. Such methodologies include evaluations based on
the cash flows generated by the underlying assets or other determinants of
fair value.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, where the
functional currency is the local currency, are translated into US dollars
at the December 31 exchange rate. The related translation adjustments are
recorded as other comprehensive income. Revenues and expenses are
translated using average exchange rates prevailing during the year. Foreign
currency transaction gains and losses are included in other (income)
expense.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to cable customers who are delinquent. Net sales
from electronic retailing are recognized at the time of shipment to
customers. The Company's policy is to allow customers to return merchandise
for credit up to thirty days after date of shipment. An allowance for
returned merchandise is provided as a percentage of sales based on
historical experience. The return provision was approximately 21% of gross
sales for each of the years ended December 31, 1998, 1997 and 1996.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, as permitted by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation."
Compensation expense for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Compensation
expense for restricted stock awards is recorded annually based on the
quoted market price of the Company's stock at the date of the grant and the
vesting period. Compensation expense for stock appreciation rights is
recorded annually based on the changes in quoted market prices of the
Company's stock or other determinants of fair value at the end of the year
(see Note 6).
Postretirement and Postemployment Benefits
The estimated costs of retiree benefits and benefits for former or inactive
employees, after employment but before retirement, are accrued and recorded
as a charge to operations during the years the employees provide services.
Investment Income
Investment income includes interest income and gains, net of losses, on the
sales of marketable securities and long-term investments. Gross realized
gains and losses are recognized using the specific identification method
(see Note 4). Investment income also includes impairment losses resulting
from adjustments to the net realizable value of certain of the Company's
long-term investments.
Capitalized Interest
Interest is capitalized as part of the historical cost of acquiring
qualifying assets, including investments in equity method investees while
the investee has activities in progress necessary to commence its planned
principal operations. Capitalized interest for the years ended December 31,
1997 and 1996 was $18.0 million and $32.1 million, respectively.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment.
- 36 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
Derivative Financial Instruments
The Company uses derivative financial instruments, including interest rate
exchange agreements ("Swaps"), interest rate cap agreements ("Caps") and
interest rate collar agreements ("Collars") to manage its exposure to
fluctuations in interest rates and common stock option contracts to manage
its exposure to fluctuations in the price of its Class A Special Common
Stock ("Comcast Put Options"). The Company also enters into call options on
certain of its equity investments ("Covered Call Options").
Swaps, Caps and Collars are matched with either fixed or variable rate debt
and periodic cash payments are accrued on a settlement basis as an
adjustment to interest expense. Any premiums associated with these
instruments are amortized over their term and realized gains or losses as a
result of the termination of the instruments are deferred and amortized
over the remaining term of the underlying debt. Unrealized gains and losses
as a result of these instruments are recognized when the underlying hedged
item is extinguished or otherwise terminated.
Proceeds from sales of Comcast Put Options are recorded in stockholders'
equity and an amount equal to the redemption price of the common stock is
reclassified from permanent equity to temporary equity. Subsequent changes
in the market value of Comcast Put Options are not recorded. Covered Call
Options are marked to market on a current basis in the Company's
consolidated statement of operations.
Those instruments that have been entered into by the Company to hedge
exposure to interest rate risks are periodically examined by the Company to
ensure that the instruments are matched with underlying liabilities, reduce
the Company's risks relating to interest rates and, through market value
and sensitivity analysis, maintain a high correlation to the interest
expense of the hedged item. For those instruments that do not meet the
above criteria, variations in their fair value are marked-to-market on a
current basis in the Company's consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 5).
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed
to losses in the event of nonperformance by the counterparties, the Company
does not expect such losses, if any, to be significant.
Sale of Stock by a Subsidiary or Equity Method Investee
Changes in the Company's proportionate share of the underlying equity of a
consolidated subsidiary or equity method investee which result from the
issuance of additional securities by such subsidiary or investee are
recognized as gains or losses in the Company's consolidated statement of
operations unless gain realization is not assured in the circumstances.
Gains for which realization is not assured are credited directly to
additional capital.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement, which establishes accounting and reporting standards for
derivatives and hedging activities, is effective for fiscal years beginning
after June 15, 1999. Upon the adoption of SFAS No. 133, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. The Company is currently
evaluating the impact the adoption of SFAS No. 133 will have on its
financial position and results of operations.
Earnings (Loss) for Common Stockholders Per Common Share
Earnings (loss) for common stockholders per common share is computed by
dividing net income (loss), after deduction of preferred stock dividends,
when applicable, by the weighted average number of common shares
outstanding during the period on a basic and diluted basis. The following
table reconciles the numerator and denominator of the computations of
diluted earnings (loss) for common stockholders per common share ("Diluted
EPS") for the years ended December 31, 1998, 1997 and 1996, respectively.
- 37 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
(Amounts in millions, except per share data)
Year Ended
December 31,
1998 1997 1996
Net income (loss) for common stockholders...................... $943.0 ($253.5) ($54.2)
Dilutive securities effect on net income (loss) for common
stockholders................................................ 1.0
Preferred dividends............................................ 29.1
-------------- ------------ -----------
Net income (loss) for common stockholders used for
Diluted EPS................................................. $973.1 ($253.5) ($54.2)
============== ============ ===========
Weighted average number of common shares outstanding........... 366.5 339.0 247.6
Dilutive securities:
1 1/8% discount convertible subordinated debentures,
redeemed March 1998.................................. 2.5
Series A and B convertible preferred stock............. 22.6
Stock option and restricted stock plans................ 11.4
-------------- ------------ -----------
Diluted weighted average number of common shares
outstanding................................................. 403.0 339.0 247.6
============== ============ ===========
Diluted earnings (loss) for common stockholders per
common share................................................ $2.41 ($.75) ($.21)
============== ============ ===========
Put options sold by the Company on 2.75 million shares of its Class A
Special Common Stock (see Note 6) were outstanding during the year ended
December 31, 1998 but were not included in the computation of Diluted EPS
as the options' exercise price was less than the average market price of
the Company's Class A Special Common Stock during the period.
For the years ended December 31, 1997 and 1996, the Company's potential
common shares of 53.2 million shares and 42.9 million shares have an
antidilutive effect on loss for common stockholders per common share and,
therefore, have not been used in determining the total weighted average
number of common shares outstanding.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1998.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Acquisition of Greater Philadelphia Cablevision
In February 1999, the Company agreed to acquire Greater Philadelphia
Cablevision, Inc., a subsidiary of Greater Media, Inc. that operates a
cable system serving approximately 79,000 subscribers in Philadelphia,
Pennsylvania. The Company will issue approximately 4.2 million shares of
its Class A Special Common Stock to complete the acquisition. The
acquisition is expected to close in the fourth quarter of 1999, subject to
receipt of all necessary regulatory and other approvals.
- 38 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
Sale of Primestar
As of December 31, 1998, the Company owns a 9.5% interest in Primestar,
Inc. ("Primestar"). Primestar acquires, originates and provides television
programming services delivered by satellite through a network of
distributors. In January 1999, Primestar announced the sale of its direct
broadcast satellite service to Hughes Electronics Corporation (a division
of General Motors Corporation and the parent company of DirecTV, a direct
broadcast satellite service) ("Hughes Electronics") for approximately $1.8
billion in cash and stock. The sale of Primestar to Hughes Electronics is
subject to the consent of certain Primestar lenders and the receipt of
necessary regulatory and other approvals.
Investment in Prime Communications
In December 1998, the Company agreed to invest in Prime Communications LLC
("Prime"), a cable television operator with cable communications systems
serving approximately 430,000 subscribers. During the fourth quarter of
1998, the Company acquired a $50 million 12.75% subordinated note due 2008
from Prime. In addition, under the terms of the agreement, the Company will
lend Prime approximately $735 million in the form of a 6% ten year note,
expected to occur in the third quarter of 1999. In return, the Company will
receive a convertible note giving the Company the right to acquire 90% of
Prime. The note cannot be converted until the build out of certain of
Prime's cable systems is complete and regulatory and other approvals are
obtained, which is expected to occur in the third quarter of 2002. Upon
conversion of the note, the Company expects to assume approximately $550
million of Prime debt. The Company will have the option to acquire the
remaining 10% interest in Prime for approximately $82 million, plus accrued
interest at 7% per annum.
Sale of Sprint PCS
The Company, Tele-Communications, Inc. ("TCI"), Cox Communications, Inc.
("Cox," and together with the Company and TCI, the "Cable Partners") and
Sprint Corporation ("Sprint") engaged in the wireless communications
business through a limited partnership known as "Sprint PCS."
In November 1998, Sprint assumed ownership and management control of Sprint
PCS and issued a new class of Sprint stock (the "Sprint PCS Stock") to
track the performance of Sprint's combined wireless operations. In exchange
for its 15% interest in Sprint PCS, the Company received approximately 47.2
million shares of unregistered Series 2 Sprint PCS common stock, 61,726
shares of Sprint PCS preferred stock (convertible into approximately 2.0
million shares of unregistered Series 2 Sprint PCS common stock) and a
warrant to purchase approximately 3.0 million shares of unregistered Series
2 Sprint PCS common stock at $24.02 per share. As a result of the exchange,
the Company recognized a pre-tax gain of $758.5 million during the fourth
quarter of 1998 representing the difference between the fair value of the
Sprint PCS common stock, convertible preferred stock and warrant, and the
Company's basis in Sprint PCS. This gain is included in investment income
in the Company's consolidated statement of operations. The Company has
registration rights, subject to customary restrictions, which will allow
the Company to sell the Sprint PCS Stock received. As of December 31, 1998,
the Company has recorded its investment in Sprint PCS at its estimated fair
value.
The Sprint PCS Stock is divided into three categories: (i) Series 1 (one
vote per share) to be held by the public, (ii) Series 2 (1/10 vote per
share other than in class votes) to be held by the Cable Partners, and
(iii) Series 3 (one vote per share) to be held by two of Sprint's major
shareholders. The Cable Partners have registration rights, subject to
customary restrictions, that, if used, would permit the monetization of
their Sprint PCS holdings through equity offerings or derivatives. If the
Series 2 shares are transferred by a Cable Partner, the transferred shares
become full vote Series 1 shares.
Sale of Comcast UK Cable
In October 1998, the Company received approximately 4.8 million shares of
unregistered NTL Incorporated ("NTL") common stock, an alternative
telecommunications company in the UK, in exchange for all of the shares of
Comcast UK Cable Partners Limited ("Comcast UK Cable"), a consolidated
subsidiary of the Company, held by the Company (the "NTL Transaction"). As
a result of the exchange, the Company recognized a pre-tax gain of
- 39 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
$148.3 million during the fourth quarter of 1998, representing the
difference between the fair value of the NTL common stock received and the
Company's basis in Comcast UK Cable. Such gain is included in investment
income in the Company's consolidated statement of operations. Certain
conditions agreed to in the NTL Transaction restrict the Company's ability
to sell the NTL common stock received for a period of 150 days after the
closing of the NTL Transaction. As of December 31, 1998, the Company has
recorded its investment in NTL at its estimated fair value.
AT&T Acquisition of Teleport
In July 1998, AT&T Corp. ("AT&T") merged with Teleport Communications Group
Inc. ("Teleport") with AT&T as the surviving corporation (the "AT&T
Transaction"). Upon closing of the AT&T Transaction, the Company received
approximately 24.2 million shares of unregistered AT&T common stock in
exchange for the approximately 25.6 million shares of Teleport Class B
Common Stock held by the Company (see Note 4). As a result of the exchange,
the Company recognized a pre-tax gain of $1.092 billion during the third
quarter of 1998, representing the difference between the fair value of the
AT&T stock received and the Company's basis in Teleport. Such gain is
included in investment income in the Company's consolidated statement of
operations. The Company has registration rights, subject to customary
restrictions, which allow the Company to effect a registration of the AT&T
shares received. As of December 31, 1998, the Company has recorded its
investment in AT&T at its estimated fair value.
Acquisition of Jones Intercable
In May 1998, the Company agreed to purchase from BCI Telecom Holding
("BTH") 6.4 million Class A Common Shares in Jones Intercable, Inc. ("Jones
Intercable"), and a 49% interest in the BTH subsidiaries which were to
continue to own BTH's remaining 6.4 million shares of Jones Intercable
Class A Common Stock. At the same time, the Company agreed to acquire
approximately 2.9 million shares of Common Stock of Jones Intercable (the
"Control Shares"), if and when acquired by BTH from affiliates of Jones
Intercable's controlling shareholder under an existing option (the "Control
Option") to acquire such shares (which absent extraordinary circumstances
would not have been exercisable until December 2001). The Company was to
purchase the remaining 51% of the BTH subsidiaries when the Control Shares
were acquired. The Company, BTH, Jones Intercable and Jones Intercable's
controlling shareholder agreed in August 1998 to accelerate the Control
Option to permit its early exercise and the early closing of the
transactions with BTH. At closing (expected to occur in the first half of
1999, subject to the receipt of required regulatory approvals), the Company
will pay BTH a total of $500 million in cash to acquire the 12.8 million
shares of Jones Intercable Class A Common Stock and $200 million in cash to
acquire the Control Shares. After closing, the Company will control
approximately 37% of the economic and 47% of the voting interest in Jones
Intercable. In addition, the Control Shares will represent shares having
the right to elect approximately 75% of the Board of Directors of Jones
Intercable. The transaction will be funded either with new borrowings, with
available borrowings under existing lines of credit or by other means.
Jones Intercable is a public company, which upon closing of certain pending
transactions, will own or manage cable operations serving approximately 1.0
million customers.
E! Entertainment
On March 31, 1997, the Company, through Comcast Entertainment Holdings LLC
(the "LLC"), which is owned 50.1% by the Company and 49.9% by The Walt
Disney Company ("Disney"), purchased a 58.4% interest in E! Entertainment
from Time Warner, Inc. ("Time Warner") for $321.9 million (the "E!
Acquisition"). The E! Acquisition was funded by cash contributions to the
LLC by the Company and Disney of $132.8 million and $189.1 million,
respectively. In connection with the E! Acquisition, the Company
contributed its 10.4% interest in E! Entertainment to the LLC. To fund the
cash contribution to the LLC, the Company borrowed $132.8 million from
Disney in the form of two 10-year, 7% notes (the "Disney Notes").
In December 1997, the LLC acquired the 10.4% interest in E! Entertainment
held by Cox for $57.1 million. The acquisition was funded by cash
contributions to the LLC by the Company and Disney of $28.6 million and
$28.5 million, respectively. As of December 31, 1998 and 1997, the LLC owns
a 79.2% interest in E! Entertainment.
- 40 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
The Company accounted for the acquisitions under the purchase method and E!
Entertainment was consolidated with the Company effective March 31, 1997.
Microsoft Investment
In June 1997, the Company and Microsoft Corporation ("Microsoft") completed
a Stock Purchase Agreement. Microsoft purchased and the Company issued
approximately 24.6 million shares of the Company's Class A Special Common
Stock at $20.29 per share, for $500.0 million and 500,000 shares of the
Company's newly issued 5.25% Series B Mandatorily Redeemable Convertible
Preferred Stock, par value $1,000 per share (the "Series B Preferred
Stock"), for $500.0 million (see Note 6).
Scripps Cable
In November 1996, the Company acquired the cable television operations
("Scripps Cable") of The E.W. Scripps Company ("E.W. Scripps") in exchange
for approximately 93.0 million shares of the Company's Class A Special
Common Stock, valued at $1.552 billion (the "Scripps Acquisition"). The
Company accounted for the Scripps Acquisition under the purchase method and
Scripps Cable was consolidated with the Company effective November 1, 1996.
As the consideration given in exchange for Scripps Cable was shares of
Class A Special Common Stock, the Scripps Acquisition had no significant
impact on the Company's consolidated statement of cash flows.
Comcast-Spectacor
In July 1996, the Company completed its acquisition (the "Sports Venture
Acquisition") of a 66% interest in the Philadelphia Flyers Limited
Partnership, a Pennsylvania limited partnership ("PFLP"), the assets of
which, after giving effect to the Sports Venture Acquisition, consist of
(i) the National Basketball Association ("NBA") franchise to own and
operate the Philadelphia 76ers basketball team and related assets (the
"Sixers"), (ii) the National Hockey League ("NHL") franchise to own and
operate the Philadelphia Flyers hockey team and related assets, and (iii)
two adjacent arenas, leasehold interests in and development rights related
to the land underlying the arenas and other adjacent parcels of land
located in Philadelphia, Pennsylvania (collectively, the "Arenas").
Concurrent with the completion of the Sports Venture Acquisition, PFLP was
renamed Comcast Spectacor, L.P. ("Comcast-Spectacor").
The Sports Venture Acquisition was completed in two steps. In April 1996,
the Company purchased the Sixers for $125.0 million in cash plus assumed
net liabilities of $11.0 million through a partnership controlled by the
Company. To complete the Sports Venture Acquisition, in July 1996, the
Company contributed its interest in the Sixers, exchanged approximately 3.5
million shares of the Company's Class A Special Common Stock and 6,370
shares of the Company's newly issued 5% Series A Convertible Preferred
Stock (the "Series A Preferred Stock") (see Note 6), and paid $15.0 million
in cash for its current interest in Comcast-Spectacor. The remaining 34%
interest in Comcast-Spectacor is owned by a group, including the former
majority owner of PFLP, who also manages Comcast-Spectacor (the "Minority
Group"). In connection with the Sports Venture Acquisition, Comcast-
Spectacor assumed the outstanding liabilities relating to the Sixers and
the Arenas, including a mortgage and other obligations of $155.0 million.
The issuance of the Series A Preferred Stock and the Class A Special Common
Stock in the Sports Venture Acquisition had no impact on the Company's
consolidated statement of cash flows due to their non-cash nature.
- 41 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
4. INVESTMENTS
December 31,
1998 1997
(Dollars in millions)
Equity method................................................ $11.1 $839.1
Fair value method............................................ 4,170.0 346.5
Cost method ................................................ 74.7 214.1
--------- --------
Total investments............................... 4,255.8 1,399.7
Less, current investments.................................... 3,653.4 163.9
--------- --------
Non-current investments...................................... $602.4 $1,235.8
========= ========
Equity Method
The Company records its proportionate interests in the net income (loss) of
substantially all of its equity method investees three months in arrears.
As of December 31, 1997, the Company held interests representing less than
20% of the total outstanding ownership interests in certain of its equity
method investees. The equity method of accounting was utilized for these
investments based on the type of investment (e.g. general partnership
interest), board representation, participation in a controlling investor
group, significant shareholder rights or a combination of these and other
factors. The Company's recorded investments exceed its proportionate
interests in the book value of the investees' net assets by $82.3 million
as of December 31, 1998 (primarily related to the investment in The Golf
Channel). Such excess is being amortized to equity in net income or loss,
primarily over a period of twenty years, which is consistent with the
estimated lives of the underlying assets. The original cost of investments
accounted for under the equity method totaled $215.3 million and $1.424
billion as of December 31, 1998 and 1997, respectively. Summarized
financial information for the Company's equity method investees for 1998,
1997 and 1996 is as follows (dollars in millions).
- 42 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
Sprint UK Comcast
PCS Teleport Investees Spectacor Other Combined
Year Ended December 31, 1998:
Combined Results of Operations
Revenues, net.......................... $1,136.5 $605.8 $197.8 $638.6 $2,578.7
Operating, selling, general and
administrative expenses.............. 2,587.6 558.7 153.3 653.8 3,953.4
Depreciation and amortization.......... 749.5 163.4 69.7 69.1 1,051.7
Operating loss......................... (2,200.6) (116.3) (25.2) (84.3) (2,426.4)
Net loss (a)........................... (2,572.8) (190.6) (78.8) (134.2) (2,976.4)
Company's Equity in Net Loss
Equity in current period net loss...... ($385.9) ($27.2) ($28.9) ($66.4) ($508.4)
Amortization expense................... (3.5) (0.5) (3.5) (7.5)
------- ------- ------- ------- ------- --------
Total equity in net loss............. ($389.4) ($27.2) ($29.4) ($69.9) ($515.9)
======= ======= ======= ======= ======= ========
Year Ended December 31, 1997:
Combined Results of Operations
Revenues, net.......................... $111.5 $431.3 $197.5 $140.8 $743.9 $1,625.0
Operating, selling, general and
administrative expenses.............. 959.4 398.5 168.4 117.9 820.9 2,465.1
Depreciation and amortization.......... 194.2 133.9 76.0 46.5 66.2 516.8
Operating loss......................... (1,042.1) (101.1) (46.9) (23.6) (143.2) (1,356.9)
Net loss (a)........................... (1,187.3) (192.9) (92.2) (39.6) (189.3) (1,701.3)
Company's Equity in Net Loss
Equity in current period net loss...... ($178.1) ($30.5) ($34.6) ($26.2) ($65.3) ($334.7)
Amortization expense................... (1.5) (0.2) (0.6) (5.4) (1.4) (9.1)
------- ------- ------- ------- ------- --------
Total equity in net loss............. ($179.6) ($30.7) ($35.2) ($31.6) ($66.7) ($343.8)
======= ======= ======= ======= ======= ========
Year Ended December 31, 1996:
Combined Results of Operations
Revenues, net.......................... $0.1 $192.9 $155.2 $440.0 $788.2
Operating, selling, general and
administrative expenses.............. 208.0 180.9 140.9 486.0 1,015.8
Depreciation and amortization.......... 1.9 57.2 57.6 60.0 176.7
Operating loss......................... (209.8) (45.2) (43.3) (106.0) (404.3)
Net loss (a)........................... (344.9) (84.8) (72.2) (140.8) (642.7)
Company's Equity in Net Loss
Equity in current period net loss...... ($51.7) ($15.1) ($28.6) ($45.9) ($141.3)
Amortization income (expense).......... 0.6 (1.1) (0.3) (2.7) (3.5)
------- ------- ------- ------- ------- --------
Total equity in net loss............. ($51.1) ($16.2) ($28.9) ($48.6) ($144.8)
======= ======= ======= ======= ======= ========
- ---------
(a) see footnote (1) on page 44.
- 43 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
Sprint UK Comcast
PCS Teleport Investees Spectacor Other Combined
Combined Financial Position
As of December 31, 1998 (2):
Current assets..................... $57.8 $57.8
Noncurrent assets.................. 314.7 314.7
Current liabilities................ 41.9 41.9
Noncurrent liabilities............. 451.4 451.4
As of December 31, 1997:
Current assets..................... $317.3 $440.8 $35.9 $84.9 $219.4 $1,098.3
Noncurrent assets.................. 5,483.3 1,675.2 716.4 285.4 915.7 9,076.0
Current liabilities................ 440.2 302.8 74.6 107.7 747.5 1,672.8
Noncurrent liabilities............. 3,312.9 1,061.6 558.7 188.0 377.2 5,498.4
- --------
(1) Net loss also represents loss from continuing operations before
extraordinary items and cumulative effect of changes in accounting
principles.
(2) Financial position information as of December 31, 1998 is not presented for
Sprint PCS, Teleport, the UK Investees or Comcast-Spectacor as such
investments were no longer accounted for under the equity method as of that
date.
Sprint PCS. Effective November 1998, the Company accounts for its
investment in Sprint PCS under the fair value method (see Note 3).
Teleport. For the years ended December 31, 1998, 1997 and 1996, Teleport
issued shares of its Class A Common Stock. As a result of these stock
issuances, the Company recognized a $157.8 million, $7.7 million and $40.6
million, respectively, increase in its proportionate share of Teleport's
net assets as a gain from equity offering of affiliate. The Company
recorded its proportionate share of Teleport's net assets one quarter in
arrears. In March 1997, the Company received 2.76 million shares of
Teleport Class A Common Stock from Teleport in exchange for the Company's
shares of an alternate access provider. In May 1997, the Company sold all
of its shares of Teleport Class A Stock for $68.9 million and recognized a
$68.9 million pre-tax gain, which is included in investment income in the
Company's 1997 consolidated statement of operations. In July 1998, in
connection with the AT&T Transaction (see Note 3), the Company exchanged
its interest in Teleport for shares of AT&T common stock.
UK Investees. In October 1998, the Company exchanged its interest in
Comcast UK Cable for shares of NTL common stock (see Note 3).
Comcast-Spectacor. Effective January 1, 1998, the Company began
consolidating the accounts of Comcast- Spectacor, an affiliate previously
accounted for under the equity method, due to certain call rights held by
the Company which became exercisable effective January 16, 1998.
Other. The Company's other equity investees include investments in cable
communications and programming content providers. The Company does not
consider these other equity method investments to be individually
significant to its consolidated financial position, results of operations
or liquidity.
The Company does not have any additional significant contractual
commitments with respect to any of its investments. However, to the extent
the Company does not fund its investees' capital calls, it exposes itself
to dilution of its ownership interests.
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, with an historical cost (including $1.999 billion of
pre-tax gains recognized during 1998 - see Note 3) of $2.555 billion and
$130.0
- 44 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
million as of December 31, 1998 and 1997, respectively. The Company has
recorded these investments, which are classified as available for sale, at
their estimated fair values of $4.170 billion and $346.5 million as of
December 31, 1998 and 1997, respectively. The unrealized pre-tax gains as
of December 31, 1998 and 1997 of $1.615 billion and $216.5 million,
respectively, have been reported in the Company's consolidated balance
sheet as a component of stockholders' equity, net of related deferred
income tax expense of $565.1 million and $75.8 million, respectively.
@Home. In July 1997, At Home Corporation ("@Home"), an investee of the
Company previously accounted for under the equity method, completed an
initial public offering of its Series A Common Stock (the "@Home IPO").
@Home provides Internet services to customers and businesses over the cable
television infrastructure in a limited number of cities in the US.
Effective July 1, 1997, due to the dilution of the Company's equity and
voting interests and other factors subsequent to the @Home IPO, the Company
discontinued the equity method of accounting for its investment in @Home.
The Company holds approximately 8.0 million contractually restricted shares
(the "Restricted Shares") and approximately 6.6 million unrestricted shares
(the "Unrestricted Shares") of @Home Series A Common Stock (the "@Home
Series A Stock"), as of December 31, 1998 and 1997. The Company has
recorded the Restricted Shares at their historical cost of $1.1 million and
the Unrestricted Shares, which are classified as available for sale, at
their estimated fair value of $486.4 million and $164.6 million, based on
the quoted market price of the @Home Series A Stock as of December 31, 1998
and 1997, respectively.
TCI. As of December 31, 1998 and 1997, the Company holds approximately 3.1
million shares of TCI Class A Common Stock, approximately 2.4 million
shares of Liberty Media Corporation ("Liberty") Class A Common Stock and
approximately 2.3 million shares of TCI Ventures Group, Inc. ("TCI
Ventures") Class A Common Stock (as adjusted for the one-for-two stock
split for Liberty and one-for-one stock split for TCI Ventures in February
1998) (together, the "TCI Stock"). In March 1998, the Company sold call
options relating to the TCI Stock for $20.7 million. Such call options
expire between March and September 1999. During the year ended December 31,
1998, the Company recorded pre-tax investment expense of $105.5 million
related to the increase in the value of the call options.
During the years ended December 31, 1997 and 1996, the Company recognized
pre-tax gains of $33.3 million and $82.6 million, respectively, on sales of
certain of its fair value method investments. These gains were recorded as
a reclassification from other comprehensive income to investment income.
Cost Method
It is not practicable to estimate the fair value of the Company's
investments in privately held companies, accounted for under the cost
method, due to a lack of quoted market prices and excessive costs involved
in determining such fair value.
Impairment Losses
During the years ended December 31, 1998, 1997 and 1996, the Company
recorded pre-tax losses of $152.8 million, $2.5 million and $15.0 million,
respectively, on certain of its investments based on a decline in value
that was considered other than temporary. Such pre-tax losses are included
in investment income in the Company's consolidated statement of operations.
- 45 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
5. LONG-TERM DEBT
December 31,
1998 1997
(Dollars in millions)
Notes payable to banks and insurance companies, due
in installments through 2003.......................................... $1,690.8 $1,753.3
8-1/8% Senior notes, due 2004........................................... 299.8 299.7
8-3/8% Senior notes, due 2007........................................... 596.5 596.3
6.20% Senior notes, due 2008............................................ 797.9
8-7/8% Senior notes, due 2017........................................... 545.6 545.5
8-1/2% Senior notes, due 2027........................................... 249.6 249.6
11.20% Senior discount debentures, due 2007............................. 378.3
10-1/4% Senior subordinated debentures, due 2001........................ 125.0 125.0
9-3/8% Senior subordinated debentures, due 2005......................... 234.1 234.1
9-1/8% Senior subordinated debentures, due 2006......................... 223.7 250.0
9-1/2% Senior subordinated debentures, due 2008......................... 200.0 200.0
10-5/8% Senior subordinated debentures, due 2012........................ 282.5 300.0
1-1/8% Discount convertible subordinated debentures, due 2007........... 355.9
7% Disney Notes, due 2007 (see Note 3).................................. 132.8 132.8
Other debt, due in installments principally through 2000................ 199.4 45.9
-------- --------
5,577.7 5,466.4
Less current portion.................................................... 113.5 132.3
-------- --------
$5,464.2 $5,334.1
======== ========
Maturities of long-term debt outstanding as of December 31, 1998 for the four
years after 1999 are as follows (dollars in millions):
2000................................................. $204.2
2001................................................. 550.5
2002................................................. 476.1
2003................................................. 527.8
Cable Notes
In November 1998, Comcast Cable Communications, Inc. ("Comcast Cable"),a
wholly owned subsidiary of the Company, sold $800.0 million of 6.20%
nonrecourse public debt due 2008. Comcast Cable used substantially all of
the net proceeds from the offering to repay existing intercompany
borrowings to the Company and for general corporate purposes.
In May 1997, Comcast Cable sold a total of $1.7 billion of nonrecourse
public debt with interest rates ranging from 8 1/8% to 8 7/8% and maturity
dates from 2004 to 2027. Comcast Cable used the net proceeds from the
offerings to repay existing borrowings by their subsidiaries.
The Cable Notes are unsecured and unsubordinated obligations of Comcast
Cable and rank pari passu with all other unsecured and unsubordinated
indebtedness and other obligations of Comcast Cable. The Cable Notes are
effectively subordinated to all liabilities of Comcast Cable's
subsidiaries, including trade payables. The Cable Notes
- 46 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
are obligations only of Comcast Cable and are not guaranteed by and do not
otherwise constitute obligations of the Company.
The indenture for the Cable Notes, among other things, contains
restrictions (with certain exceptions) on the ability of Comcast Cable and
its Restricted Subsidiaries (as defined) to: (i) make dividend payments or
other restricted payments; (ii) create liens or enter into sale and
leaseback transactions; and (iii) enter into mergers, consolidations, or
sales of all or substantially all of their assets.
Redemption of 1 1/8% Debentures
In March 1998, the Company completed the redemption of its $541.9 million
principal amount 1 1/8% discount convertible subordinated debentures due
2007 (the "1 1/8% Debentures"). The Company issued 10.4 million shares of
its Class A Special Common Stock upon conversion of $540.2 million
principal amount of 1 1/8% Debentures while $1.7 million principal amount
of 1 1/8% Debentures was redeemed for cash at a redemption price of 67.112%
of the principal amount, together with accrued interest thereon.
Stockholders' equity was increased by the full amount of 1 1/8% Debentures
converted plus accrued interest, less unamortized debt acquisition costs.
Unamortized debt acquisition costs related to the 1 1/8% Debentures
redeemed for cash were not significant. The issuance of the Company's Class
A Special Common Stock upon conversion of the 1 1/8% Debentures had no
impact on the Company's consolidated statement of cash flows due its
noncash nature.
Extraordinary Items
Extraordinary items for the years ended December 31, 1998, 1997 and 1996 of
$4.2 million, $30.2 million and $1.0 million, respectively, consist of
unamortized debt acquisition costs and debt extinguishment costs, net of
related tax benefits, expensed principally in connection with the
redemption and refinancing of certain indebtedness.
Interest Rates
The fixed interest rate on notes payable to insurance companies was 8.6% as
of December 31, 1998. Bank debt interest rates vary based upon one or more
of the following rates at the option of the Company:
Prime rate to prime plus 2.0%;
Federal Funds rate plus 0.5% to 1.5%; and
LIBOR plus 0.375% to 1.875%.
As of December 31, 1998 and 1997, the Company's effective weighted average
interest rate on its variable rate bank debt outstanding was 5.80% and
6.64%, respectively.
Interest Rate Risk Management
The Company is exposed to market risk including changes in interest rates.
To manage the volatility relating to these exposures, the Company enters
into various derivative transactions pursuant to the Company's policies in
areas such as counterparty exposure and hedging practices. Positions are
monitored using techniques including market value and sensitivity analyses.
The use of interest rate risk management instruments, such as Swaps, Caps
and Collars, is required under the terms of certain of the Company's
outstanding debt agreements. The Company's policy is to manage interest
costs using a mix of fixed and variable rate debt. Using Swaps, the Company
agrees to exchange, at specified intervals, the difference between fixed
and variable interest amounts calculated by reference to an agreed-upon
notional principal amount. Caps are used to lock in a maximum interest rate
should variable rates rise, but enable the Company to otherwise pay lower
market rates. Collars limit the Company's exposure to and benefits from
interest rate fluctuations on variable rate debt to within a certain range
of rates.
- 47 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
The following table summarizes the terms of the Company's existing Swaps,
Caps and Collars as of December 31, 1998 and 1997 (dollars in millions):
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
As of December 31, 1998
Variable to Fixed Swaps.......... $1,061.8 1999-2008 5.7% ($13.3)
Caps............................. 240.0 1999 7.0%
Collar........................... 50.0 2000 6.3%/4.0%
As of December 31, 1997
Variable to Fixed Swaps.......... $550.0 1998-2000 5.6% $4.2
Caps............................. 150.0 1998 6.7%
Collar........................... 50.0 1998 7.0%/4.9% 0.2
The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts.
While Swaps, Caps and Collars represent an integral part of the Company's
interest rate risk management program, their incremental effect on interest
expense for the years ended December 31, 1998, 1997 and 1996 was not
significant.
Estimated Fair Value
The Company's long-term debt had estimated fair values of $5.995 billion
and $5.848 billion as of December 31, 1998 and 1997, respectively. The
estimated fair value of the Company's publicly traded debt is based on
quoted market prices for that debt. Interest rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities are used to estimate fair value for debt issues for
which quoted market prices are not available.
Debt Covenants
Certain of the Company's subsidiaries' loan agreements contain restrictive
covenants which limit the subsidiaries' ability to enter into arrangements
for the acquisition of property and equipment, investments, mergers and the
incurrence of additional debt. Certain of these agreements require that
certain ratios and cash flow levels be maintained and contain certain
restrictions on dividend payments and advances of funds to the Company. The
Company and its subsidiaries were in compliance with such restrictive
covenants for all periods presented. In addition, the stock of certain
subsidiary companies is pledged as collateral for the notes payable to
banks and insurance companies.
As of December 31, 1998, $258.5 million of the Company's cash, cash
equivalents and short-term investments is restricted to use by subsidiaries
of the Company under contractual or other arrangements. Restricted net
assets of the Company's subsidiaries were approximately $2.5 billion as of
December 31, 1998.
Lines and Letters of Credit
As of December 31, 1998, certain subsidiaries of the Company had unused
lines of credit of $966.8 million, $366.8 million of which is restricted by
the covenants of the related debt agreements and to subsidiary general
purposes and dividend declaration.
As of December 31, 1998, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $121.6 million to
cover potential fundings associated with several projects.
- 48 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
6. STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred Stock
The Company is authorized to issue, in one or more series, up to a maximum
of 20.0 million shares of preferred stock. The shares can be issued with
such designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights and other special or related
rights as the Company's Board of Directors (the "Board") shall from time to
time fix by resolution.
In June 1997, in connection with Microsoft's investment in the Company (see
Note 3), the Company issued the Series B Preferred Stock. The Series B
Preferred Stock has a 5.25% pay-in-kind annual dividend. Dividends will be
paid quarterly through the issuance of additional shares of Series B
Preferred Stock (the "Additional Shares") and will be cumulative from the
Issuance Date (except that dividends on the Additional Shares will accrue
from the date such Additional Shares are issued). The Series B Preferred
Stock, including the Additional Shares, is convertible, at the option of
Microsoft, into 21.2 million shares of the Company's Class A Special Common
Stock, subject to adjustment in certain limited circumstances, which equals
an initial conversion price of $23.54 per share, increasing as a result of
the Additional Shares to $33.91 per share on June 30, 2004. The Series B
Preferred Stock is mandatorily redeemable on June 30, 2017, or, at the
option of the Company beginning on June 30, 2004 or at the option of
Microsoft on June 30, 2004 or on June 30, 2012. Upon redemption, the
Company, at its option, may redeem the Series B Preferred Stock with cash,
Class A Special Common Stock or a combination thereof. As the Company
currently intends to redeem the Series B Preferred Stock with Class A
Special Common Stock upon redemption, the Series B Preferred Stock has been
classified as a component of stockholders' equity as of December 31, 1998.
The Series B Preferred Stock is generally non-voting.
In July 1996, in connection with the Sports Venture Acquisition (see Note
3), the Company issued 6,370 shares of Series A Preferred Stock. Each
holder of shares of the Series A Preferred Stock is entitled to receive
cumulative cash dividends at the annual rate of $250 per share, payable
quarterly in arrears. The Series A Preferred Stock is redeemable, at the
option of the Company, beginning in July 1999 at a redemption price of
$5,000 per share plus accrued and unpaid dividends, subject to certain
conditions and conversion adjustments. The Series A Preferred Stock is
convertible, at the option of the holder, into shares of the Company's
Class A Special Common Stock at a ratio of 209.1175 shares of Class A
Special Common Stock for each share of Series A Preferred Stock, subject to
certain conditions. The holders of the Series A Preferred Stock are not
entitled to any voting rights except as otherwise provided by the Company's
Articles of Incorporation or by applicable law.
Common Stock
The Company's Class A Special Common Stock is generally nonvoting and each
share of the Company's Class A Common Stock is entitled to one vote. Each
share of the Company's Class B Common Stock is entitled to fifteen votes
and is convertible, share for share, into Class A or Class A Special Common
Stock, subject to certain restrictions.
Repurchase Program
Based on the trade date for stock repurchases, during the years ended
December 31, 1998, 1997 and 1996, the Company repurchased 0.3 million
shares, 2.3 million shares and 10.5 million shares, respectively, of its
common stock for aggregate consideration of $12.9 million, $36.2 million
and $180.0 million, respectively, pursuant to its Board-authorized
repurchase programs.
As part of the repurchase programs, the Company sold Comcast Put Options on
2.75 million, 2.0 million and 1.0 million shares, during the years ended
December 31, 1998, 1997 and 1996, respectively.
The Comcast Put Options give the holder the right to require the Company to
repurchase such shares at specified prices on specific dates. The Comcast
Put Options sold during 1997 and 1996 expired unexercised. The amount the
Company would be obligated to pay to repurchase such shares upon exercise
of the Comcast Put Options,
- 49 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
totaling $111.2 million and $31.4 million, has been reclassified from
additional capital to common equity put options in the Company's December
31, 1998 and 1997 consolidated balance sheet, respectively. The difference
between the proceeds from the sale of these put options and their estimated
fair value was not significant as of December 31, 1998 and 1997.
Stock-Based Compensation Plans
As of December 31, 1998, the Company and its subsidiaries have several
stock-based compensation plans for certain employees, officers, directors
and other persons designated by the applicable compensation committees of
the Boards of Directors of the Company and its subsidiaries. These plans
are described below.
Comcast Option Plan. The Company maintains qualified and nonqualified stock
option plans for certain employees, directors and other persons under which
fixed stock options are granted and the option price is generally not less
than the fair value of a share of the underlying stock at the date of grant
(collectively, the "Comcast Option Plan"). Under the Comcast Option Plan,
31.2 million shares of Class A Special Common Stock were reserved as of
December 31, 1998. Option terms are generally from five to 10 1/2 years,
with options generally becoming exercisable between two and 9 1/2 years
from the date of grant.
A summary of the activity of the Comcast Option Plan as of and for the
years ended December 31, 1998, 1997 and 1996 is presented below (options in
thousands):
1998 1997 1996
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Class A Special Common Stock
Outstanding at beginning of year.. 16,110 $15.50 14,851 $14.54 14,208 $14.25
Granted........................... 8,175 33.06 2,599 19.47 1,308 17.41
Exercised......................... (1,985) 13.20 (795) 9.95 (199) 8.72
Canceled.......................... (799) 20.96 (545) 16.40 (466) 16.08
------ ------ ------
Outstanding at end of year........ 21,501 22.18 16,110 15.50 14,851 14.54
====== ====== ======
Exercisable at end of year........ 7,695 $14.59 7,693 $13.91 6,875 $13.40
====== ====== ======
Class A Common Stock
Outstanding at beginning of year.. 229 $4.87
Exercised......................... (229) 4.87
Canceled..........................
------
Outstanding at end of year........
======
Exercisable at end of year........
======
Class B Common Stock
Outstanding at beginning of year.. 658 $5.70 658 $5.70 658 $5.70
Exercised......................... (658) 5.70
------ ------ ------
Outstanding at end of year....... 658 $5.70 658 $5.70
====== ====== ======
Exercisable at end of year........ 658 $5.70 658 $5.70
====== ====== ======
- 50 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
The following table summarizes information about the Class A Special Common
Stock options outstanding under the Comcast Option Plan as of December 31,
1998 (options in thousands):
Options Outstanding Options Exercisable
Weighted-
Range of Number Average Weighted- Number Weighted-
Exercise Outstanding Remaining Average Exercisable Average
Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
$6.22 to $12.08 3,376 1.5 years $8.78 2,916 $8.62
$13.42 to $18.38 4,794 6.7 years 15.89 1,198 14.45
$18.63 to $32.86 7,440 5.2 years 22.65 3,581 19.50
$33.88 to $55.19 5,891 9.5 years 34.40
------ -----
21,501 7,695
====== =====
The weighted-average fair value at date of grant of a Class A Special
Common Stock option granted under the Comcast Option Plan during 1998, 1997
and 1996 was $17.07, $10.18 and $9.71, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
dividend yield of .44%, .52% and .53% for 1998, 1997 and 1996,
respectively; expected volatility of 31.3%, 30.1% and 34.9% for 1998, 1997
and 1996, respectively; risk-free interest rate of 5.6%, 6.5% and 6.8% for
1998, 1997 and 1996, respectively; expected option lives of 9.9 years for
all years; and a forfeiture rate of 3.0% for all years.
QVC Tandem Plan. QVC established a qualified and nonqualified combination
stock option/Stock Appreciation Rights ("SAR") plan (collectively, the "QVC
Tandem Plan") during 1995 for employees, officers, directors and other
persons designated by the Compensation Committee of QVC's Board of
Directors. Under the QVC Tandem Plan, the option price is generally not
less than the fair value, as determined by an independent appraisal, of a
share of the underlying common stock of QVC (the "QVC Common Stock") at the
date of grant. As of the latest valuation date, the fair value of a share
of QVC Common Stock was $741.79. If the SAR feature of the QVC Tandem Plan
is elected by the eligible participant, the participant receives 75% of the
excess of the fair value of a share of QVC Common Stock over the exercise
price of the option to which it is attached at the exercise date. Option
holders have stated an intention not to exercise the SAR feature of the QVC
Tandem Plan. Because the exercise of the option component is more likely
than the exercise of the SAR feature, compensation expense is measured
based on the stock option component. Under the QVC Tandem Plan, option/SAR
terms are ten years from the date of grant, with options/SARs generally
becoming exercisable over four years from the date of grant. As of December
31, 1998, 230,000 shares of QVC Common Stock were reserved under the plan.
Compensation expense of $1.0 million, $3.4 million and $4.0 million was
recorded under the QVC Tandem Plan during the years ended December 31,
1998, 1997 and 1996, respectively.
- 51 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
A summary of the activity of the QVC Tandem Plan as of and for the years
ended December 31, 1998, 1997 and 1996 is presented below (options/SARs in
thousands):
1998 1997 1996
Weighted- Weighted- Weighted-
Average Average Average
Options/ Exercise Options/ Exercise Options/ Exercise
SARs Price SARs Price SARs Price
Outstanding at
beginning of year....... 180 $363.99 164 $192.16 142 $177.05
Granted..................... 72 664.76 74 601.28 26 271.23
Exercised................... (41) 186.01 (55) 177.05
Canceled.................... (5) 511.01 (3) 262.20 (4) 177.05
------ ------ ------
Outstanding at end of year.. 206 500.82 180 363.99 164 192.16
====== ====== ======
Exercisable at end of year.. 37 $397.46 20 $205.42 36 $177.05
====== ====== ======
The following table summarizes information about the options/SARs
outstanding under the QVC Tandem Plan as of December 31, 1998 (options/SARs
in thousands):
Options/SARs OutstandingOptions/SARs Exercisable
Weighted-
Number Average Number
Exercise Outstanding Remaining Exercisable
Prices at 12/31/98 Contractual Life at 12/31/98
$177.05 64 6.4 years 19
522.31 2 7.5 years 1
585.19 6 8.0 years 2
634.25 71 8.8 years 15
651.84 46 9.7 years
688.14 10 9.2 years
741.79 7 9.8 years
------ -----
206 37
====== =====
The weighted-average fair value at date of grant of a QVC Common Stock
option/SAR granted during 1998, 1997 and 1996 was $296.67, $331.93 and
$385.13, respectively. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: no dividend yield for all years;
expected volatility of 20% for all years; risk-free interest rate of 4.9%,
6.2% and 6.8% for 1998, 1997 and 1996, respectively; expected option lives
of 10 years for all years; and a forfeiture rate of 3.0% for all years.
- 52 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
Had compensation expense for the Company's two aforementioned stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans under the provisions of SFAS No. 123,
the Company's net income (loss) and net income (loss) per share would have
changed to the pro forma amounts indicated below (dollars in millions,
except per share data):
1998 1997 1996
Net income (loss) - As reported...................... $972.1 ($238.7) ($53.5)
Net income (loss) - Pro forma........................ 936.4 (252.0) (61.0)
Net income (loss) for common stockholders -
As reported...................................... $943.0 ($253.5) ($54.2)
Net income (loss) for common stockholders -
Pro forma........................................ 907.3 (266.7) (61.7)
Basic earnings (loss) for common stockholders
per common share - As reported................... $2.57 ($.75) ($.21)
Basic earnings (loss) for common stockholders
per common share - Pro forma..................... 2.48 (.79) (.24)
Diluted earnings (loss) for common stockholders
per common share - As reported................... $2.41 ($.75) ($.21)
Diluted earnings (loss) for common stockholders
per common share - Pro forma..................... 2.33 (.79) (.24)
The pro forma effect on net income (loss) and net income (loss) per share
for the years ended December 31, 1998, 1997 and 1996 by applying SFAS No.
123 may not be indicative of the pro forma effect on net income or loss in
future years since SFAS No. 123 does not take into consideration pro forma
compensation expense related to awards made prior to January 1, 1995 and
since additional awards in future years are anticipated.
Other Stock-Based Compensation Plans
The Company maintains a restricted stock program under which management
employees may be granted restricted shares of the Company's Class A Special
Common Stock. The shares awarded vest annually, generally over a period not
to exceed five years from the date of the award, and do not have voting or
dividend rights until vesting occurs. At December 31, 1998, there were 1.0
million unvested shares granted under the program, of which 167,000 vested
in January 1999. During the years ended December 31, 1998, 1997 and 1996,
328,000, 208,000 and 951,000 shares were granted under the program,
respectively, with a weighted-average grant date market value of $34.66,
$17.36 and $19.16 per share, respectively. Compensation expense recognized
during the years ended December 31, 1998, 1997 and 1996 under this program
was $5.3 million, $7.1 million and $5.5 million, respectively. There was no
significant difference between the amount of compensation expense
recognized by the Company during the years ended December 31, 1998, 1997
and 1996 and the amount that would have been recognized had compensation
expense been determined under the provisions of SFAS No. 123.
The Company and QVC established SAR plans during 1996 and 1995 for certain
employees, officers, directors and other persons (the "QVC SAR Plans").
Under the QVC SAR Plans, eligible participants are entitled to receive a
cash payment from the Company or QVC equal to 100% of the excess, if any,
of the fair value of a share of QVC Common Stock at the exercise date over
the fair value of such a share at the grant date. The SARs have a term of
ten years from the date of grant and become exercisable over four to five
years from the date of grant. During the years ended December 31, 1998,
1997 and 1996, 5,000, 4,000 and 11,000 SARs were awarded, respectively, and
20,000 SARs were outstanding at December 31, 1998, of which 6,000 were
exercisable. Compensation expense related to the QVC SAR Plans of $3.2
million, $3.4 million and $4.5 million was recorded during the years ended
- 53 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
December 31, 1998, 1997 and 1996, respectively. There was no significant
difference between the amount of compensation expense recognized and the
amount that would have been recognized had compensation expense been
determined under the provisions of SFAS No. 123.
E! Entertainment established a SAR plan in 1995 for certain of its
employees and officers (the "E! SAR Plan"). By written agreement between
the participants and E! Entertainment, the E! SAR Plan was terminated
effective December 31, 1998 in exchange for a lump-sum payment of a
negotiated amount which was paid in February 1999. Terms of the agreement
also included the complete and full release of E! Entertainment from any
further liability associated with the E! SAR Plan. Compensation expense
related to the E! SAR Plan was $11.6 million and $7.0 million during the
years ended December 31, 1998 and 1997, respectively. There was no
significant difference between the amount of compensation expense
recognized and the amount that would have been recognized had compensation
expense been determined under the provisions of SFAS No. 123.
7. INCOME TAXES
The Company joins with its 80% or more owned subsidiaries (the
"Consolidated Group") in filing consolidated federal income tax returns.
QVC, E! Entertainment and Comcast Communications Properties, Inc., an
indirect majority owned subsidiary of the Company, each file separate
consolidated federal income tax returns. Income tax expense consists of the
following components:
Year Ended December 31,
1998 1997 1996
(Dollars in millions)
Current expense
Federal.................................................... $135.5 $94.4 $82.0
State...................................................... 27.5 24.7 23.0
-------- ------- --------
163.0 119.1 105.0
-------- ------- --------
Deferred expense (benefit)
Federal.................................................... 424.6 (47.5) 4.3
State...................................................... 6.4 (1.2) (0.3)
-------- ------- --------
431.0 (48.7) 4.0
-------- ------- --------
Income tax expense......................................... $594.0 $70.4 $109.0
======== ======= ========
- 54 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
The effective income tax expense of the Company differs from the statutory
amount because of the effect of the following items:
Year Ended December 31,
1998 1997 1996
(Dollars in millions)
Federal tax at statutory rate.............................. $545.1 ($66.1) $19.1
Non-deductible depreciation and amortization............... 41.0 42.6 32.0
State income taxes, net of federal benefit................. 22.0 15.3 14.8
Non-deductible (deductible) foreign (income) losses
and equity in net losses of affiliates................... (11.2) 53.1 27.5
Additions to valuation allowance........................... 3.0 16.3 18.3
Other...................................................... (5.9) 9.2 (2.7)
------ ----- ------
Income tax expense......................................... $594.0 $70.4 $109.0
====== ===== ======
Deferred income tax expense (benefit) resulted from the following
differences between financial and income tax reporting:
Year Ended December 31,
1998 1997 1996
(Dollars in millions)
Depreciation and amortization......................... ($69.0) ($94.5) ($60.0)
Accrued expenses not currently deductible............. (26.7) (13.2) (6.3)
Non-deductible reserves for bad debts,
obsolete inventory and sales returns................ (9.6) (10.9) (11.0)
Temporary differences associated with sale
or exchange of securities........................... 508.8 6.4 30.9
Losses from affiliated partnerships................... (9.6) 45.9 25.6
Change in net operating loss carryforwards............ 35.5 2.2 3.0
Change in valuation allowance and other............... 1.6 15.4 21.8
------ ------ ------
Deferred income tax expense (benefit)................. $431.0 ($48.7) $4.0
====== ====== ======
- 55 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
Significant components of the Company's net deferred tax liability are as
follows:
December 31,
1998 1997
(Dollars in millions)
Deferred tax assets:
Net operating loss carryforwards.................... $324.7 $343.8
Differences between book and
tax basis of property and equipment
and deferred charges.............................. 24.5 24.5
Reserves for bad debts, obsolete inventory
and sales returns................................. 94.4 84.8
Other............................................... 89.6 62.9
Less: Valuation allowance........................... (282.5) (279.5)
-------- --------
$250.7 $236.5
-------- --------
Deferred tax liabilities:
Temporary differences, principally book and
tax basis of property and equipment and
deferred charges.................................... 1,582.6 1,785.6
Differences between book and tax basis
in investments.................................... 1,201.4 207.9
-------- --------
2,784.0 1,993.5
-------- --------
Net deferred tax liability............................ $2,533.3 $1,757.0
======== ========
The Company recorded approximately $489.4 million of deferred income taxes
in 1998 in connection with unrealized gains on marketable securities which
are included in other comprehensive income.
The deferred tax liability is net of deferred tax assets of $106.9 million
and $92.5 million as of December 31, 1998 and 1997, respectively, which are
included in other current assets in the Company's consolidated balance
sheet. Further, the Company has recorded deferred tax liabilities of $1.140
billion related to current investments which have been included in current
liabilities. The Company's valuation allowance against deferred tax assets
includes approximately $120.0 million for which any subsequent tax benefits
recognized will be allocated to reduce goodwill and other noncurrent
intangible assets. For income tax reporting purposes, the Consolidated
Group and Comcast Communications Properties, Inc. have net operating loss
carryforwards for which deferred tax assets have been recorded of
approximately $150.0 million and $45.0 million, respectively, which expire
primarily in periods through 2018.
During the year ended December 31, 1998, the Company settled all issues
primarily related to the deductibility of amortization of cable television
distribution rights raised by the Internal Revenue Service in its
examination of QVC, through fiscal tax year 1993. Such settlement resulted
in a reversal of previously recorded deferred tax liabilities of $135.5
million. As a result of the settlement, the Company recorded an adjustment
to reduce goodwill by $119.7 million during 1998. Such adjustment has been
excluded from the Company's consolidated statement of cash flows due to its
noncash nature.
8. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $418.9 million, $467.2
million and $408.1 million during the years ended December 31, 1998, 1997
and 1996, respectively.
- 56 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
The Company made cash payments for income taxes of $129.2 million, $113.7
million and $101.3 million during the years ended December 31, 1998, 1997
and 1996, respectively.
9. COMMITMENTS AND CONTINGENCIES
Commitments
The Company has the right to purchase the minority interests in
Comcast-Spectacor from the Minority Group for the Minority Group's pro rata
portion of the fair market value (on a going concern basis as determined by
an appraisal process) of Comcast-Spectacor. The Minority Group also has the
right to require the Company to purchase its interests under the same
terms. The Company may pay the Minority Group for such interests in shares
of the Company's Class A Special Common Stock, subject to certain
restrictions. If the Minority Group exercises its exit rights and the
Company elects not to purchase their interest, the Company and the Minority
Group will use their best efforts to sell Comcast-Spectacor.
Disney, in certain circumstances, is entitled to cause the LLC to purchase
Disney's entire interest in the LLC at its then fair market value (as
determined by an appraisal process). If the LLC elects not to purchase
Disney's interests, Disney has the right, at its option, to purchase either
the Company's entire interest in the LLC or all of the shares of stock of
E! Entertainment held by the LLC, in each case at fair market value. In the
event that Disney exercises its rights, as described above, a portion or
all of the Disney Notes (see Notes 3 and 5) may be replaced with a three
year note due to Disney.
Liberty, a majority owned subsidiary of TCI, may, at certain times
following February 9, 2000, trigger the exercise of certain exit rights
with respect to its investment in QVC. If the exit rights are triggered,
the Company has first right to purchase Liberty's stock in QVC at Liberty's
pro rata portion of the fair market value (on a going concern or
liquidation basis, whichever is higher, as determined by an appraisal
process) of QVC. The Company may pay Liberty for such stock, subject to
certain rights of Liberty to consummate the purchase in the most
tax-efficient method available, in cash, the Company's promissory note
maturing not more than three years after issuance, the Company's equity
securities or any combination thereof. If the Company elects not to
purchase the stock of QVC held by Liberty, then Liberty will have a similar
right to purchase the stock of QVC held by the Company. If Liberty elects
not to purchase the stock of QVC held by the Company, then Liberty and the
Company will use their best efforts to sell QVC.
At any time after December 18, 2001, the California Public Employees
Retirement System ("CalPERS") may elect to liquidate its interest in MHCP
Holdings, L.L.C. ("MHCP Holdings"), a 55% owned indirect subsidiary of the
Company (which holds cable communications systems serving approximately
644,000 subscribers as of December 31, 1998) in which CalPERS owns the
remaining 45% interest, at a price based upon the fair value of CalPERS'
interest in MHCP Holdings, adjusted, under certain circumstances, for
certain performance criteria relating to the fair value of MHCP Holdings or
to the Company's common stock. Except in certain limited circumstances, the
Company, at its option, may satisfy this liquidity arrangement by
purchasing CalPERS' interest for cash, through the issuance of the
Company's common stock (subject to certain limitations) or by selling MHCP
Holdings.
- 57 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
Minimum annual rental commitments for office space, equipment and
transponder service agreements under noncancellable operating leases as of
December 31, 1998 are as follows:
(Dollars
in millions)
1999........................................ $45.1
2000........................................ 47.6
2001........................................ 43.2
2002........................................ 40.5
2003........................................ 39.9
Thereafter.................................. 202.0
Rental expense of $64.8 million, $65.8 million and $44.2 million for 1998,
1997 and 1996, respectively, has been charged to operations.
Contingencies
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
- 58 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (Continued)
10. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
"Cable Communications" and "Electronic Retailing." The components of net
income (loss) below operating income (loss) are not separately evaluated by
the Company's management on a segment basis (see the Company's consolidated
statement of operations) (dollars in millions).
Cable Electronic Corporate
Communications Retailing and Other(1) Total
1998
Revenues..................................................... $2,277.4 $2,402.7 $465.2 $5,145.3
Operating income (loss) before depreciation
and amortization (2)....................................... 1,096.6 434.2 (34.1) 1,496.7
Depreciation and amortization................................ 674.2 126.1 139.3 939.6
Operating income (loss)...................................... 422.4 308.1 (173.4) 557.1
Interest expense............................................. 223.6 51.1 192.0 466.7
Assets....................................................... 6,449.4 2,208.7 6,159.3 14,817.4
Long-term debt............................................... 3,462.1 626.8 1,375.3 5,464.2
Capital expenditures......................................... 711.1 67.2 120.6 898.9
1997
Revenues..................................................... $2,073.0 $2,082.5 $312.2 $4,467.7
Operating income (loss) before depreciation
and amortization (2)....................................... 987.7 337.7 (32.3) 1,293.1
Depreciation and amortization................................ 626.1 115.0 85.4 826.5
Operating income (loss)...................................... 361.6 222.7 (117.7) 466.6
Interest expense............................................. 227.9 56.3 174.7 458.9
Assets....................................................... 6,057.8 2,268.3 3,000.7 11,326.8
Long-term debt............................................... 2,554.9 768.8 2,010.4 5,334.1
Capital expenditures......................................... 497.8 97.3 200.4 795.5
1996
Revenues..................................................... $1,641.0 $1,835.8 $135.5 $3,612.3
Operating income (loss) before depreciation
and amortization (2)....................................... 803.8 300.3 (57.1) 1,047.0
Depreciation and amortization................................ 420.3 107.7 53.1 581.1
Operating income (loss)...................................... 383.5 192.6 (110.2) 465.9
Interest expense............................................. 228.3 65.2 154.9 448.4
Assets....................................................... 6,938.3 2,162.7 1,559.4 10,660.4
Long-term debt............................................... 3,078.1 842.6 2,077.6 5,998.3
Capital expenditures......................................... 290.9 63.6 199.9 554.4
- --------------
(1) Other includes segments not meeting certain quantitative guidelines for
reporting. Other includes certain operating businesses, including
Comcast-Spectacor (effective January 1, 1998), E! Entertainment (effective
March 31, 1997), the Company's consolidated UK cable and telecommunications
operations (prior to October 29, 1998), the Company's DBS operations (prior
to April 1, 1998) and elimination entries related to the segments
presented. Corporate and other assets consist primarily of the Company's
investments (see Note 4).
(2) Operating income before depreciation and amortization is commonly referred
to in the Company's businesses as "operating cash flow." Operating cash
flow is a measure of a company's ability to generate cash to service its
obligations, including debt service obligations, and to finance capital and
other expenditures. In part due to the capital intensive nature of the
Company's businesses and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing businesses in the Company's
industries, although the Company's measure of operating cash flow may not
be comparable to similarly titled measures of other companies. Operating
cash flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to
such measurements as an indicator of the Company's performance.
- 59 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996 (Concluded)
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Total
Quarter Quarter Quarter Quarter (5) Year
(Dollars in millions, except per share data)
1998 (2)
Revenues...................................... $1,254.5 $1,205.9 $1,238.0 $1,446.9 $5,145.3
Operating income before depreciation
and amortization (1)........................ 348.8 353.4 373.2 421.3 1,496.7
Operating income.............................. 109.4 124.1 132.9 190.7 557.1
Income (loss) from continuing operations
before extraordinary items (3).............. (68.9) (79.9) 723.7 432.8 1,007.7
Basic earnings (loss) for common
stockholders per common share
Income (loss) from continuing operations
before extraordinary items................ (0.21) (0.24) 1.96 1.15 2.67
Net income (loss)........................... (0.24) (0.25) 1.93 1.12 2.57
Diluted earnings (loss) for common
stockholders per common share
Income (loss) from continuing operations
before extraordinary items................ (0.21) (0.24) 1.80 1.07 2.50
Net income (loss)........................... (0.24) (0.25) 1.78 1.04 2.41
Cash dividends per common share............... .0233 .0233 .0233 .0233 .0933
1997 (4)
Revenues...................................... $1,026.9 $1,068.3 $1,089.0 $1,283.5 $4,467.7
Operating income before depreciation
and amortization (1)........................ 296.0 316.6 313.6 366.9 1,293.1
Operating income.............................. 111.5 92.2 99.5 163.4 466.6
Loss from continuing operations before
extraordinary items......................... (53.1) (11.8) (49.3) (68.7) (182.9)
Basic loss for common stockholders per
common share
Loss from continuing operations
before extraordinary items................ (0.16) (0.04) (0.17) (0.21) (0.58)
Net loss.................................... (0.20) (0.12) (0.19) (0.25) (0.75)
Diluted loss for common stockholders
per common share
Loss from continuing operations before
extraordinary items....................... (0.16) (0.04) (0.17) (0.21) (0.58)
Net loss.................................... (0.20) (0.12) (0.19) (0.25) (0.75)
Cash dividends per common share............... .0233 .0233 .0233 .0233 .0933
- --------------
(1) See Note 10, note 2.
(2) Results of operations for 1998 include the results of Comcast-Spectacor
which was consolidated effective January 1, 1998 and the results of Comcast
UK Cable through October 29, 1998 (see Note 3).
(3) Results of operations were affected by the gain on the AT&T Transaction in
the third quarter of 1998 and the gains on the NTL Transaction and the
Sprint PCS restructuring in the fourth quarter of 1998 (see Note 3).
(4) Results of operations for the second quarter of 1997 include the results of
E! Entertainment, which have been consolidated effective March 31, 1997
(see Note 3).
(5) The Company's consolidated results of operations for the fourth quarter of
1998 and 1997 are also affected by the seasonality of the Company's
electronic retailing operations.
- 60 -
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for by Item 10, Directors and Executive Officers of
the Registrant (except for the information regarding executive officers called
for by Item 401 of Regulation S-K which is included in Part I hereof as Item 4A
in accordance with General Instruction G(3)), Item 11, Executive Compensation,
Item 12, Security Ownership of Certain Beneficial Owners and Management, and
Item 13, Certain Relationships and Related Transactions, is hereby incorporated
by reference to our definitive Proxy Statement for our Annual Meeting of
Shareholders presently scheduled to be held in June 1999, which shall be filed
with the Securities and Exchange Commission within 120 days of the end of our
latest fiscal year.
- 61 -
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of ours are included in
Part II, Item 8:
Independent Auditors' Report...................................29
Consolidated Balance Sheet--December 31, 1998 and 1997.........30
Consolidated Statement of Operations--Years
Ended December 31, 1998, 1997 and 1996.......................31
Consolidated Statement of Cash Flows--Years
Ended December 31, 1998, 1997 and 1996.......................32
Consolidated Statement of Stockholders' Equity
(Deficiency)--Years Ended December 31, 1998, 1997 and 1996...33
Notes to Consolidated Financial Statements.....................34
(b)(i) The following financial statement schedules required to be
filed by Items 8 and 14(d) of Form 10-K are included in Part IV:
Schedule I - Condensed Financial Information of Registrant
Unconsolidated (Parent Only)
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable,
not required or the required information is included in the
consolidated financial statements or notes thereto.
(c) Reports on Form 8-K:
None.
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
3.1(a) Amended and Restated Articles of Incorporation filed on
July 24, 1990 (incorporated by reference to Exhibit 3.1(a)
to our Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(b) Amendment to Restated Articles of Incorporation filed on
July 14, 1994 (incorporated by reference to Exhibit 3.1(b)
to our Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(c) Amendment to Restated Articles of Incorporation filed on
July 12, 1995 (incorporated by reference to Exhibit 3.1(c)
to our Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(d) Amendment to Restated Articles of Incorporation filed on
June 24, 1996 (incorporated by reference to Exhibit 4.1(d)
to our Registration Statement on Form S-3, as amended,
filed on July 16, 1996).
3.1(e) Form of Statement of Designations, Preferences and Rights
of 5% Series A Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 4.1(e) to our
Registration Statement on Form S-3 filed on July 16,
1996).
3.1(f) Form of Statement of Designations, Preferences and Rights
of Series B Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 3.1 to our Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).
3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3(ii) to our Annual Report on Form 10-K for the
year ended December 31, 1993).
4.1 Specimen Class A Common Stock Certificate (incorporated by
reference to Exhibit 2(a) to our Registration Statement on
Form S-7 filed on September 17, 1980, File No. 2-69178).
4.2 Specimen Class A Special Common Stock Certificate
(incorporated by reference to Exhibit 4(2) to our Annual
Report on Form 10-K for the year ended December 31, 1986).
- 62 -
4.3 Indenture, dated as of October 17, 1991, between the
Company and Bank of Montreal/Harris Trust (successor to
Morgan Guaranty Trust Company of New York), as Trustee
(incorporated by reference to Exhibit 2 to our Current
Report on Form 8-K filed on October 31, 1991).
4.4 Form of Debenture relating to our 10-1/4% Senior
Subordinated Debentures due 2001 (incorporated by
reference to Exhibit 4(19) to our Annual Report on Form
10-K for the year ended December 31, 1991).
4.5 Form of Debenture relating to our $300,000,000 10-5/8%
Senior Subordinated Debentures due 2012 (incorporated by
reference to Exhibit 4(17) to our Annual Report on Form
10-K for the year ended December 31, 1992).
4.6 Form of Debenture relating to our $200,000,000 9-1/2%
Senior Subordinated Debentures due 2008 (incorporated by
reference to Exhibit 4(18) to our Annual Report on Form
10-K for the year ended December 31, 1992).
4.7 Indenture, dated as of February 20, 1991, between us and
Bankers Trust Company, as Trustee (incorporated by
reference to Exhibit 4.3 to our Registration Statement on
Form S-3 (File No. 33-32830), filed on January 11, 1990).
4.8 Form of Debenture relating to our $250.0 million 9-3/8%
Senior Subordinated Debentures due 2005 (incorporated by
reference to Exhibit 4.1 to our Quarterly Report on Form
10-Q for the quarter ended June 30, 1995).
4.9 Form of Debenture relating to our $250.0 million 9-1/8%
Senior Subordinated Debentures due 2006 (incorporated by
reference to Exhibit 4.13 to our Annual Report on Form
10-K for the year ended December 31, 1995).
10.1* Comcast Corporation 1986 Non-Qualified Stock Option Plan,
as amended and restated, effective December 10, 1996
(incorporated by reference to Exhibit 10.3 to our Annual
Report on Form 10-K for the year ended December 31, 1996).
10.2* Comcast Corporation 1987 Stock Option Plan, as amended and
restated, effective December 15, 1998.
10.3* Comcast Corporation 1996 Stock Option Plan, as amended and
restated, effective December 15, 1998.
10.4* Comcast Corporation 1996 Deferred Compensation Plan, as
amended and restated, effective December 15, 1998.
10.5* Comcast Corporation 1990 Restricted Stock Plan, as amended
and restated, effective December 15, 1998.
10.6* 1992 Executive Split Dollar Insurance Plan (incorporated
by reference to Exhibit 10(12) to our Annual Report on
Form 10-K for the year ended December 31, 1992).
10.7* Comcast Corporation 1996 Cash Bonus Plan, as amended and
restated, effective December 15, 1998.
10.8* Comcast Corporation 1996 Executive Cash Bonus Plan, dated
August 15, 1996 (incorporated by reference to Exhibit
10.10 to our Annual Report on Form 10-K for the year ended
December 31, 1996).
10.9* Compensation and Deferred Compensation Agreement by and
between Comcast Corporation and Ralph J. Roberts, as
amended and restated, effective August 31, 1998
(incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
10.10 The Comcast Corporation Retirement-Investment Plan, as
amended and restated effective January 1, 1993 (revised
through September 30, 1995) (incorporated by reference to
Exhibit 10.1 to our Registration Statement on Form S-8
filed on October 5, 1995).
10.11 Defined Contribution Plans Master Trust Agreement, between
Comcast Corporation and State Street Bank and Trust
Company (incorporated by reference to Exhibit 10.2 to our
Registration Statement on Form S-8 filed on October 5,
1995).
- --------
* Constitutes a management contract or compensatory plan or arrangement.
- 63 -
10.12 Tax Sharing Agreement, dated as of December 2, 1992, among
Storer Communications, Inc., TKR Cable I, Inc., TKR Cable
II, Inc., TKR Cable III, Inc., Tele-Communications, Inc.,
the Company and each of the Departing Subsidiaries that
are signatories thereto (incorporated by reference to
Exhibit 4 to our Current Report on Form 8-K filed on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.13* Comcast Corporation 1997 Deferred Stock Option Plan, as
amended and restated, effective December 18, 1997
(incorporated by reference to Exhibit 10.13 to our Annual
Report on Form 10-K for the year ended December 31, 1997).
10.14 Note Purchase Agreement, dated as of November 15, 1992,
among Comcast Storer, Inc., Storer Communications, Inc.,
Comcast Storer Finance Sub, Inc. and each of the
respective purchasers named therein (incorporated by
reference to Exhibit 6 to our Current Report on Form 8-K
filed on December 17, 1992, as amended by Form 8 filed
January 8, 1993).
10.15 Payment Agreement, dated December 2, 1992, among the
Company, Comcast Storer, Inc., SCI Holdings, Inc., Storer
Communications, Inc. and each of the Remaining
Subsidiaries that are signatories thereto (incorporated by
reference to Exhibit 7 to our Current Report on Form 8-K
filed on December 17, 1992, as amended by Form 8 filed
January 8, 1993).
10.16 Intercreditor and Collateral Agency Agreement, dated as of
December 2, 1992, among Comcast Storer, Inc., Comcast
Cable Communications, Inc., Storer Communications, Inc.,
the banks party to the Credit Agreement dated as of
December 2, 1992, the purchasers of the Senior Notes under
the separate Note Purchase Agreements each dated as of
November 15, 1992, the Senior Lenders (as defined therein)
and The Bank of New York as collateral agent for the
Senior Lenders (incorporated by reference to Exhibit 8 to
our Current Report on Form 8-K filed on December 17, 1992,
as amended by Form 8 filed January 8, 1993).
10.17 Tax Sharing Agreement, dated December 2, 1992, between the
Company and Comcast Storer, Inc. (incorporated by
reference to Exhibit 9 to our Current Report on Form 8-K
filed on December 17, 1992, as amended by Form 8 filed
January 8, 1993).
10.18 Pledge Agreement, dated as of December 2, 1992, between
Comcast Cable Communications, Inc. and The Bank of New
York (incorporated by reference to Exhibit 10 to our
Current Report on Form 8-K filed on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
10.19 Pledge Agreement, dated as of December 2, 1992, between
Comcast Storer, Inc. and The Bank of New York
(incorporated by reference to Exhibit 11 to our Current
Report on Form 8-K filed on December 17, 1992, as amended
by Form 8 filed January 8, 1993).
10.20 Pledge Agreement, dated as of December 2, 1992, between
Storer Communications, Inc. and The Bank of New York
(incorporated by reference to Exhibit 12 to our Current
Report on Form 8-K filed on December 17, 1992, as amended
by Form 8 filed January 8, 1993).
10.21 Note Pledge Agreement, dated as of December 2, 1992,
between Comcast Storer, Inc. and The Bank of New York
(incorporated by reference to Exhibit 13 to our Current
Report on Form 8-K filed on December 17, 1992, as amended
by Form 8 filed January 8, 1993).
10.22 Guaranty Agreement, dated as of December 2, 1992, between
Storer Communications, Inc. and The Bank of New York
(incorporated by reference to Exhibit 14 to our Current
Report on Form 8-K filed on December 17, 1992, as amended
by Form 8 filed January 8, 1993).
10.23 Guaranty Agreement, dated as of December 2, 1992, between
Comcast Storer Finance Sub, Inc. and The Bank of New York
(incorporated by reference to Exhibit 15 to our Current
Report on Form 8-K filed on December 17, 1992, as amended
by Form 8 filed January 8, 1993).
10.24 Amended and Restated Stockholders Agreement, dated as of
February 9, 1995, among the Company, Comcast QVC, Inc.,
QVC Programming Holdings, Inc., Liberty Media Corporation,
QVC Investment, Inc. and Liberty QVC, Inc. (incorporated
by reference to Exhibit 10.5 to our Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995).
- --------
* Constitutes a management contract or compensatory plan or arrangement.
- 64 -
10.25(a) Credit Agreement, dated as of February 15, 1995, among
QVC, Inc. and the Banks listed therein (incorporated by
reference to Exhibit (b)(6) to Amendment No. 21 to the
Tender Offer Statement on Schedule 14D-1 filed on February
17, 1995 by QVC Programming Holdings, Inc., the Company
and Tele-Communications, Inc. with respect to the tender
offer for all outstanding shares of QVC, Inc.).
10.25(b)** Amendment No. 3, dated as of July 19, 1996, to the Credit
Agreement, dated as of February 15, 1995, among QVC, Inc.
and the Banks listed therein.
10.26 Comcast MHCP Holdings, L.L.C. Amended and Restated Limited
Liability Company Agreement, dated as of December 18,
1994, among Comcast Cable Communications, Inc., The
California Public Employees' Retirement System and, for
certain limited purposes, the Company (incorporated by
reference to Exhibit 10.1 to our Current Report on Form
8-K filed on January 6, 1995).
10.27 Credit Agreement, dated as of December 22, 1994, among
Comcast MH Holdings, Inc., the banks listed therein, The
Chase Manhattan Bank (National Association), NationsBank
of Texas, N.A. and the Toronto-Dominion Bank, as Arranging
Agents, The Bank of New York, The Bank of Nova Scotia,
Canadian Imperial Bank of Commerce and Morgan Guaranty
Trust Company of New York, as Managing Agents and
NationsBank of Texas, N.A., as Administrative Agent
(incorporated by reference to Exhibit 10.2 to our Current
Report on Form 8-K filed on January 6, 1995).
10.28 Pledge Agreement, dated as of December 22, 1994, between
Comcast MH Holdings, Inc. and NationsBank of Texas, N.A.,
as the secured party (incorporated by reference to Exhibit
10.3 to our Current Report on Form 8-K filed on January 6,
1995).
10.29 Pledge Agreement, dated as of December 22, 1994, between
Comcast Communications Properties, Inc. and NationsBank of
Texas, N.A., as the Secured Party (incorporated by
reference to Exhibit 10.4 to our Current Report on Form
8-K filed on January 6, 1995).
10.30 Affiliate Subordination Agreement (as the same may be
amended, modified, supplemented, waived, extended or
restated from time to time, this "Agreement"), dated as of
December 22, 1994, among the Company, Comcast MH Holdings,
Inc., (the "Borrower"), any affiliate of the Borrower that
shall have become a party thereto and NationsBank of
Texas, N.A., as Administrative Agent under the Credit
Agreement dated as of December 22, 1994, among the
Borrower, the Banks listed therein, The Chase Manhattan
Bank (National Association), NationsBank of Texas, N.A.
and The Toronto-Dominion Bank, as Arranging Agents, The
Bank of New York, The Bank of Nova Scotia, Canadian
Imperial Bank of Commerce and Morgan Guaranty Trust
Company of New York, as Managing Agents, and the
Administrative Agent (incorporated by reference to Exhibit
10.5 to our Current Report on Form 8-K filed on January 6,
1995).
10.31 Registration Rights and Price Protection Agreement, dated
as of December 22, 1994, by and between the Company and
The California Public Employees' Retirement System
(incorporated by reference to Exhibit 10.8 to our Current
Report on Form 8-K filed on January 6, 1995).
10.32** Credit Agreement, dated as of November 15, 1996, among
Comcast SCH Holdings, Inc., the banks listed therein,
Nationsbank of Texas, N.A., as Documentation Agent, The
Chase Manhattan Bank, as Syndication Agent, The Bank of
New York, The Chase Manhattan Bank and Nationsbank of
Texas, N.A., as Managing Agents, and The Bank of New York,
as Administrative Agent.
10.33 Indenture dated as of May 1, 1997, between Comcast Cable
Communications, Inc. and Bank of Montreal Trust Company,
as Trustee, in respect of Comcast Cable Communications,
Inc.'s 8-1/8% Notes due 2004, 8-3/8% Notes due 2007,
8-7/8% Notes due 2017, 8-1/2% Notes due 2027 and 6.20%
Notes due 2008 (incorporated by reference to Exhibit
4.1(a) to the Registration Statement on Form S-4 (File No.
333-30745) of Comcast Cable
Communications, Inc.).
- ----------
* Constitutes a management contract or compensatory plan or arrangement.
** Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant agrees
to furnish a copy of the referenced agreement to the Commission upon request.
- 65 -
10.34 Purchase and Sale Agreement dated as of January 19, 1999
among SBC Communications Inc., Comcast Cellular Holdings
Corporation, Comcast Financial Corporation and Comcast
Corporation.
21 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG LLP.
27.1 Financial Data Schedule.
99.1 Report of Independent Public Accountants to QVC, Inc., as
of December 31, 1998 and 1997 and for the years ended
December 31, 1998, 1997 and 1996.
- 66 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in Philadelphia,
Pennsylvania on February 26, 1999.
Comcast Corporation
By: /s/ Brian L. Roberts
Brian L. Roberts
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Dated
/s/ Ralph J. Roberts
- -------------------------------
Ralph J. Roberts Chairman of the Board of Directors; Director February 26, 1999
/s/ Julian A. Brodsky
- ------------------------------- Vice Chairman of the Board of Directors; February 26, 1999
Julian A. Brodsky Director
/s/ Brian L. Roberts
- ------------------------------- President; Director (Principal Executive February 26, 1999
Brian L. Roberts Officer)
/s/ Lawrence S. Smith
- ------------------------------- Executive Vice President February 26, 1999
Lawrence S. Smith (Principal Accounting Officer)
/s/ John R. Alchin
- ------------------------------- Senior Vice President, Treasurer (Principal February 26, 1999
John R. Alchin Financial Officer)
/s/ Gustave G. Amsterdam
- -------------------------------
Gustave G. Amsterdam Director February 26, 1999
/s/ Sheldon M. Bonovitz
- -------------------------------
Sheldon M. Bonovitz Director February 26, 1999
/s/ Joseph L. Castle II
- -------------------------------
Joseph L. Castle II Director February 26, 1999
/s/ Bernard C. Watson
- -------------------------------
Bernard C. Watson Director February 26, 1999
/s/ Irving A. Wechsler
- -------------------------------
Irving A. Wechsler Director February 26, 1999
/s/ Anne Wexler
- -------------------------------
Anne Wexler Director February 26, 1999
- 67 -
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED BALANCE SHEET
(In millions, except share data)
December 31,
ASSETS 1998 1997
Cash and cash equivalents............................................. $31.2 $12.8
Other current assets.................................................. 18.4 5.9
-------- --------
Total current assets................................................ 49.6 18.7
Investments in and amounts due from subsidiaries
eliminated upon consolidation....................................... 5,679.6 3,487.0
Property and equipment, net........................................... 14.0 38.5
Other assets, net..................................................... 23.5 45.5
-------- --------
$5,766.7 $3,589.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest...................................................... $30.5 $35.0
Other current liabilities............................................. 286.3 108.1
-------- --------
Total current liabilities........................................... 316.8 143.1
-------- --------
Long-term debt........................................................ 1,065.3 1,464.9
-------- --------
Deferred income taxes and other....................................... 458.1 303.8
-------- --------
Common equity put options............................................. 111.2 31.4
-------- --------
Stockholders' equity
Preferred stock - authorized, 20,000,000 shares;
5% series A convertible, no par value; issued,
6,370 at redemption value......................................... 31.9 31.9
5.25% series B mandatorily redeemable convertible,
$1,000 par value; issued, 540,690 and 513,211
at redemption value............................................... 540.7 513.2
Class A special common stock, $1 par value - authorized,
500,000,000 shares; issued, 328,630,366 and 317,025,969........... 328.6 317.0
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 31,690,063 and 31,793,487............. 31.7 31.8
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 9,444,375 and 8,786,250................ 9.4 8.8
Additional capital.................................................. 3,311.5 3,030.6
Accumulated deficit................................................. (1,488.2) (2,415.9)
Unrealized gains on marketable securities, including
securities held by subsidiaries................................... 1,049.5 140.7
Cumulative translation adjustments of subsidiaries.................. 0.2 (11.6)
-------- --------
Total stockholders' equity........................................ 3,815.3 1,646.5
-------- --------
$5,766.7 $3,589.7
======== ========
- 68 -
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(In millions, except per share data)
Year Ended December 31,
1998 1997 1996
REVENUES, principally intercompany fees eliminated
upon consolidation......................................... $320.1 $286.8 $212.0
GENERAL AND ADMINISTRATIVE EXPENSES........................... 83.2 69.5 55.6
--------- --------- ---------
OPERATING INCOME.............................................. 236.9 217.3 156.4
OTHER (INCOME) EXPENSE
Interest expense, including intercompany interest, net..... 239.1 231.2 263.6
Equity in net (income) losses of affiliates and other...... (976.2) 238.6 (16.3)
--------- --------- ---------
(737.1) 469.8 247.3
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT
AND EXTRAORDINARY ITEMS.................................... 974.0 (252.5) (90.9)
INCOME TAX BENEFIT............................................ (2.1) (16.6) (37.4)
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS...................... 976.1 (235.9) (53.5)
EXTRAORDINARY ITEMS........................................... (4.0) (2.8)
--------- --------- ---------
NET INCOME (LOSS)............................................. 972.1 (238.7) (53.5)
ACCUMULATED DEFICIT
Beginning of year.......................................... (2,415.9) (2,127.1) (1,914.3)
Retirement of common stock................................. (10.0) (17.7) (133.2)
Cash dividends, $.0933 per share per year.................. (34.4) (32.4) (26.1)
--------- --------- ---------
End of year................................................ ($1,488.2) ($2,415.9) ($2,127.1)
========= ========= =========
- 69 -
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED STATEMENT OF CASH FLOWS
(In millions)
Year Ended December 31,
1998 1997 1996
OPERATING ACTIVITIES
Net income (loss).......................................... $972.1 ($238.7) ($53.5)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 13.2 7.0 8.9
Non-cash interest expense, net........................... 3.7 106.8 136.2
Equity in net (income) losses of affiliates.............. (976.6) 275.2 (15.2)
Extraordinary items...................................... 4.0 2.8
Deferred income taxes and other.......................... 104.2 88.9 68.4
--------- -------- --------
120.6 242.0 144.8
Changes in working capital............................... 155.2 (80.1) 41.3
--------- -------- --------
Net cash provided by operating activities............ 275.8 161.9 186.1
--------- -------- --------
FINANCING ACTIVITIES
Retirement and repayment of debt .......................... (50.6) (59.5)
Issuance of preferred stock................................ 500.0
Issuances (repurchases) of common stock, net............... 28.9 470.2 (175.9)
Dividends.................................................. (36.0) (34.0) (26.8)
Other...................................................... (32.8) 12.7 43.0
--------- -------- --------
Net cash (used in) provided by financing activities.. (90.5) 889.4 (159.7)
--------- -------- --------
INVESTING ACTIVITIES
Net transactions with affiliates........................... (164.0) (1,026.4) 9.5
Capital expenditures....................................... (2.9) (18.6) (20.8)
Other...................................................... (3.2) (13.0)
--------- -------- --------
Net cash used in investing activities................ (166.9) (1,048.2) (24.3)
--------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS......................... 18.4 3.1 2.1
CASH AND CASH EQUIVALENTS, beginning of year.................. 12.8 9.7 7.6
--------- -------- --------
CASH AND CASH EQUIVALENTS, end of year........................ $31.2 $12.8 $9.7
========= ======== ========
- 70 -
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In millions)
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Year Expenses Reserves(A) of Year
Allowance for Doubtful Accounts
1998..................................... $108.8 $52.2 $40.3 $120.7
1997..................................... 94.0 55.1 40.3 108.8
1996..................................... 78.0 45.2 29.2 94.0
Allowance for Obsolete
Electronic Retailing Inventories
1998..................................... $44.5 $39.0 $22.6 $60.9
1997..................................... 34.7 37.0 27.2 44.5
1996..................................... 28.5 29.7 23.5 34.7
(A) Uncollectible accounts and obsolete inventory written off.
- 71 -
COMCAST CORPORATION
1987 STOCK OPTION PLAN
(As Amended and Restated, Effective December 15, 1998)
1. Purpose. COMCAST CORPORATION, a Pennsylvania corporation (the
"Company"), adopts the Comcast Corporation 1987 Stock Option Plan effective
January 5, 1987 (the "Plan"). The Plan is intended as an additional incentive to
employees and non-employee members of the Board of Directors (together the
"Optionees") to enter into or remain in the employ of the Company or any
Affiliate (as defined below) or to serve on the Board of Directors of the
Company or any Affiliate and to devote themselves to the Company's success by
providing them with an opportunity to acquire or increase their proprietary
interest in the Company through receipt of rights (the "Options") to acquire the
Company's Class A Special Common Stock, par value, $1.00 per share (except as
otherwise provided in Section 12, the "Common Stock"). Each Option granted under
the Plan to an employee of the Company or an Affiliate is intended to be an
incentive stock option ("ISO") within the meaning of Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") for federal income tax
purposes, except to the extent any such ISO grant would exceed the limitation of
subsection 6(a) and except for any Option specifically designated at the time of
grant as not being an ISO. No Option granted to a person who is not an employee
of the Company or any Affiliate on the date of grant shall be an ISO. For
purposes of the Plan, except as otherwise provided in Section 14, the term
"Affiliate" shall mean a corporation which is a parent corporation or a
subsidiary corporation with respect to the Company within the meaning of Section
424(e) or (f) of the Code.
2. Administration. The Plan shall be administered by the Subcommittee on
Performance Based Compensation of the Compensation Committee or any other
committee or subcommittee designated by the Board of Directors of the Company,
provided it is composed of two or more non-employee members of the Board of
Directors each of whom is an "outside director" within the meaning of Section
162(m)(4)(C) of the Code and applicable Treasury Regulations thereunder (the
"Committee"). Notwithstanding the foregoing, in the case non-employee directors
who are granted Options in accordance with the provisions of Section 8, the
directors to whom such Options will be granted, the timing of grants of such
Options, the Option Price (as such term is defined in subsection 6(b)) of such
Options and the number of Option Shares (as such term is defined in Section 4)
included in such Options shall be as specifically set forth in Section 8.
(a) Meetings. The Committee shall hold meetings at such times and
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
PHLEGAL: #54293 v6 (15W506!.WPD)
(b) Grants. Except with respect to options granted to non-employee
directors pursuant to Section 8, the Committee shall from time to time at its
discretion direct the Company to grant Options pursuant to the terms of the
Plan. The Committee shall have plenary authority to determine the Optionees to
whom and the times at which Options shall be granted, the number of Option
Shares (as defined in Section 4) to be granted and the price and other terms and
conditions thereof, including a specification with respect to whether an Option
is intended to be an ISO, subject, however, to the express provisions of the
Plan. In making such determinations the Committee may take into account the
nature of the Optionee's services and responsibilities, the Optionee's present
and potential contribution to the Company's success and such other factors as it
may deem relevant. Notwithstanding the foregoing, grants of Options to
non-employee directors shall be made in accordance with Section 8. The
interpretation and construction by the Committee of any provision of the Plan or
of any Option granted under it shall be final, binding and conclusive.
(c) Exculpation. No member of the Board of Directors or of the
Committee shall be personally liable for monetary damages as such for any action
taken or any failure to take any action in connection with the administration of
the Plan or the granting of Options under it unless (i) the director or member
of the Committee has breached or failed to perform the duties of his office and
(ii) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness; provided, however, that the provisions of this
subsection 2(c) shall not apply to the responsibility or liability of a director
or a member of the Committee pursuant to any criminal statute.
(d) Indemnification. Each member of the Board of Directors or of the
Committee shall be entitled without further act on his part to indemnity from
the Company to the fullest extent provided by applicable law and the Company's
by-laws in connection with or arising out of any action, suit or proceeding with
respect to the administration of the Plan or the granting of Options under it in
which he may be involved by reason of his being or having been a member of the
Board of Directors or the Committee, whether or not he continues to be such
member of the Board or the Committee at the time of the action, suit or
proceeding.
3. Eligibility. All employees of the Company or its Affiliates (who may
also be directors of the Company or its Affiliates) shall be eligible to receive
ISOs hereunder. All Optionees shall be eligible to receive Options hereunder.
The Committee, in its sole discretion, shall determine whether an individual
qualifies as an employee or as an Optionee. An Optionee may receive more than
one Option, but only on the terms and subject to the restrictions of the Plan,
provided, however, that non-employee directors may receive Options only pursuant
to Section 8.
4. Option Shares. The aggregate maximum number of shares of the Common
Stock for which Options may be issued under the Plan is 19,500,000 shares,
adjusted as provided in Section 9 (the "Option Shares"). Option Shares shall be
issued from authorized and unissued
-2-
PHLEGAL: #54293 v6 (15W506!.WPD)
Common Stock or Common Stock held in or hereafter acquired for the treasury of
the Company. If any outstanding Option granted under the Plan expires, lapses or
is terminated for any reason, the Option Shares allocable to the unexercised
portion of such Option may again by the subject of an Option granted pursuant to
the Plan. The maximum number of shares of the Common Stock for which Options may
be issued to any single employee of the Company or its Affiliates in any
calendar year, adjusted as provided in Section 9, shall be, in 1994, 2,300,000
shares, and thereafter 500,000 shares.
5. Term of Plan. The Plan is effective as of January 5, 1987. No Option may
be granted under the Plan after January 4, 1997.
6. Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by written documents (the "Option Documents") in such form as
the Committee shall from time to time approve, which Option Documents shall
comply with and be subject to the following terms and conditions and such other
terms and conditions which the Committee shall from time to time require which
are not inconsistent with the terms of the Plan. However, the provisions of this
Section 6 shall not be applicable to Options granted to non-employee directors,
except as otherwise provided in subsection 8(c).
(a) Number of Option Shares. Each Option Document shall state the
number of Option Shares to which it pertains. Notwithstanding that any such
Option is intended to be an ISO, such option shall not be an ISO to the extent
that it would not be so treated under the rules contained in Section 422(d) of
the Code, and the Regulations thereunder (dealing with the annual vesting
limit).
(b) Option Price. Each Option Document shall state the price at which
Option Shares may be purchased (the "Option Price"), which shall be at least
100% of the fair market value of the Common Stock at the time the Option is
granted as determined by the Committee; provided, however, that if an ISO is
granted to an Optionee who then owns, directly or by attribution under Section
424(d) of the Code, shares possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or an Affiliate,
then the Option Price shall be at least 110% of the fair market value of the
Option Shares at the time the Option is granted.
(c) Medium of Payment. An Optionee shall pay for Option Shares (i) in
cash, (ii) by certified check payable to the order of the company, or (iii) by a
combination of the foregoing. In addition, the Committee may provide in an
Option Document that payment may be made all or in part in Other Available
Shares held by the Optionee (a) in the case of payment for ISOs outstanding as
of March 28, 1990, for more than one year, or (b) in the case of payment for all
other Options (unless otherwise provided in an Option Document), for more than
six months or such shorter period of time as shall not, in the Committee's sole
discretion, have an adverse effect on the Company's financial statements;
provided, however, that Option Shares may not be
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paid for in shares of Class A Common Stock if such method of payment would
result in liability under Section 16(b) of the Securities Exchange Act of 1934
to an Optionee. Except as otherwise provided by the Committee, if payment is
made in whole or in part in shares of the Common Stock or Class A Common Stock
of the Company, then the Optionee shall deliver to the Company certificates
registered in the name of such Optionee representing shares of Common Stock or
Class A Common Stock legally and beneficially owned by such Optionee, free of
all liens, claims and encumbrances of every kind and having a fair market value
on the date of delivery that is not greater than the Option Price of the Option
Shares with respect to which such Option is to be exercised, accompanied by
stock powers duly endorsed in blank by the record holder of the shares
represented by such certificates. Notwithstanding the foregoing, the Committee,
in its sole discretion, may refuse to accept shares of Common Stock or Class A
Common Stock in payment of the Option Price. In that event, any certificates
representing shares of Common Stock or Class A Common Stock which were delivered
to the Company shall be returned to the Optionee with notice of the refusal of
the Committee to accept such shares in payment of the Option Price. The
Committee may impose such limitations and prohibitions on the use of shares of
the Common Stock or Class A Common Stock to exercise an Option as it deems
appropriate.
(d) Termination of Options. No Option shall be exercisable after the
first to occur of the following:
(i) Expiration of the Option term specified in the Option
Document, which for an ISO, shall not exceed (A) ten years from the date of
grant, or (B) five years from the date of grant if the Optionee on the date of
grant owns, directly or by attribution under Section 424(d) of the Code, shares
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or of an Affiliate, and which for any other
Option shall not exceed ten years and six months from the date of grant;
(ii) Expiration of three months from the date the Optionee's
employment with the Company or its Affiliates terminates for any reason other
than disability (within the meaning of Section 22(e)(3) of the Code)
("Disability"), death or as specified in subsection 6(d)(iv) or (v) below,
provided, however, that the Committee may specify in an Option Document that an
Option may be exercisable during a longer period following the date the
Optionee's employment with the Company or its Affiliates so terminates, but in
no event later than the expiration of the Option Term specified in such Option
Document;
(iii) Expiration of one year from the date the Optionee's
employment with the Company or its Affiliates terminates by reason of the
Optionee's Disability or death;
(iv) The date set by the Committee pursuant to Section 13 in
connection with a Terminating Event; or
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PHLEGAL: #54293 v6 (15W506!.WPD)
(v) A finding by the Committee, after full consideration of the
facts presented on behalf of both the Company and the Optionee, that the
Optionee has breached his employment contract with the Company or an Affiliate,
or has been engaged in any sort of disloyalty to the Company or an Affiliate,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his employment or has disclosed
trade secrets of the Company or an Affiliate. In such event, in addition to
immediate termination of the Option, the Optionee, upon a determination by the
Committee shall automatically forfeit all Option Shares for which the Company
has not yet delivered the share certificates upon refund by the Company of the
Option Price.
(e) Transfers. This subsection 6(e) shall not apply to Options
described in Section 6.1.
(i) In General. Except as provided in subsection 6(e)(ii), no
Option granted under the Plan may be transferred, except by will or by the laws
of descent and distribution. During the lifetime of the person to whom an Option
is granted, such Option may be exercised only by him.
(ii) Transferable Options. The Committee may, in its discretion,
at the time of grant of an Option that is not an ISO (an "NQO") or by amendment
of an Option Document for an ISO or an NQO, provide that Options granted to or
held by an Optionee may be transferred, in whole or in part, to one or more
transferees and exercised by any such transferee; provided further that (A) any
such transfer is without consideration and (B) each transferee is a member of
such Optionee's Immediate Family (as hereinafter defined); and provided further
that any ISO granted pursuant to an Option Document which is amended to permit
transfers during the lifetime of the Optionee shall, upon the effectiveness of
such amendment, be treated thereafter as an NQO. No transfer of an Option shall
be effective unless the Committee is notified of the terms and conditions of the
transfer and the Committee determines that the transfer complies with the
requirements for transfers of Options under the Plan and the Option Document.
Any person to whom an Option has been transferred may exercise any Options only
in accordance with the provisions of subsections 6(c), 6(d), 6(f) and this
subsection 6(e). For purposes of this subsection 6(e), the term "Immediate
Family" shall mean an Optionee's spouse and lineal descendants, any trust all
beneficiaries of which are any of such persons and any partnership all partners
of which are any of such persons.
(f) Other Provisions. The Option Documents shall contain such other
provisions including, without limitation, additional restrictions upon the
exercise of the Option or additional limitations upon the term of the Option, as
the Committee shall deem advisable.
(g) Amendment. The Committee shall have the right to amend Option
Documents issued to an Optionee subject to his consent, except that the consent
of the Optionee shall not be required for any amendment made under subsection
6(d)(iv).
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PHLEGAL: #54293 v6 (15W506!.WPD)
(h) Exercisability. To the extent that the grant of an Option would be
subject to Section 16(b) of the Securities Exchange Act of 1934 unless the
requirements for exemption therefrom in Rule 16b-3(c)(1), under such Act, or any
successor provision, are met, the Option Documents shall provide that such
Option is not exercisable until not less than six months have elapsed from the
date of grant.
6.1 Certain Options Awarded to Ralph J. Roberts. With respect to those
Options awarded to Ralph J. Roberts on January 8, 1992 (options to purchase
249,441 shares of Class A Special Common Stock at $16.25 per share), and January
6, 1993 (options to purchase 249,545 shares of Class A Special Common Stock at
$18.125 per share), and notwithstanding subsection 6(e) of this Plan, the
Committee may, in its discretion, amend such Options to provide that such
Options may be transferred by Mr. Roberts, in whole or in part, to one or more
transferees and exercised by any such transferee, provided that (i) any such
transfer is without consideration, and (ii) each transferee is a member of Mr.
Roberts' Immediate Family. "Immediate Family" shall mean Mr. Roberts' spouse,
children, grandchildren, any trust all beneficiaries of which are such persons,
and any partnership all partners of which are such persons. In the event the
Committee so amends such Options, the Committee shall include in such amended
Options such further provisions as it determines are necessary or appropriate at
the time of such amendment to permit the Company to deduct compensation expenses
recognized upon exercise of such options for federal or state income tax
purposes.
7. Exercise. No Option shall be deemed to have been exercised prior to the
receipt by the Company of written notice of such exercise and of payment in full
of the Option Price for the Option Shares to be purchased. Each such notice
shall specify the number of Option Shares to be purchased and shall (unless the
Option Shares are covered by a then current registration statement or a
Notification under Regulation A under the Securities Act of 1933 (the "Act")),
contain the Optionee's acknowledgment in form and substance satisfactory to the
Company that (2) such Option Shares are being purchased for investment and not
for distribution or resale (other than a distribution or resale which, in the
opinion of counsel satisfactory to the Company, may be made without violating
the registration provisions of the Act), (b) the Optionee has been advised and
understands that (i) the Option Shares have not be registered under the Act and
are "restricted securities" within the meaning of Rule 144 under the Act and are
subject to restrictions on transfer and (ii) the Company is under no obligation
to register the Option Shares under the Act or to take any action which would
make available to the Optionee any exemption from such registration, and (c)
such Option Shares may not be transferred without compliance with all applicable
federal and state securities laws. Notwithstanding the above, should the Company
be advised by counsel that issuance of shares should be delayed pending (A)
registration under federal or state securities laws or (B) the receipt of an
opinion that an appropriate exemption therefrom is available, the Company may
defer exercise of any Option granted hereunder until either such event in (A) or
(B) has occurred.
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8. Special Provisions Relating to Grants of Options to Non-employee
Directors. Options granted pursuant to the Plan to non-employee directors shall
be granted, without any further action by the Committee, in accordance with the
terms and conditions set forth in this Section 8. Options granted pursuant to
this Section 8 shall be evidenced by Option Documents in such form as the
Committee shall from time to time approve, which Option Documents shall comply
with and be subject to the following terms and conditions and such other terms
and conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan.
(a) Timing of Grants; Number of Shares Subject of Options;
Exercisability of Options; Option Price. Each non-employee director shall be
granted, commencing on February 1, 1995 and on each successive February 1 (the
"Grant Date") thereafter, an Option to purchase five thousand four hundred
(5,400) shares of Common Stock. Notwithstanding anything herein to the contrary,
each newly elected non-employee director who is first elected to the Board of
Directors after February 1, 1994 shall (i) be granted an Option to purchase nine
thousand (9,000) shares of Common Stock on the date on which such non-employee
director is elected to the Board of Directors (the "Election Date") and (ii) not
be entitled to the grant of an Option hereunder on the Grant Date immediately
following the non-employee director's Election Date if such Election Date is
within ninety (90) days of the Grant Date. No such Option shall be an ISO, and
each such Option shall first become exercisable six months after the date of
grant and shall then be exercisable in its entirety. The Option Price shall be
equal to 100% of the fair market value of the Common Stock on the date the
Option is granted.
(b) Termination of Options Granted Pursuant to Section 8.
(i) All options granted pursuant to this Section 8 shall be
exercisable until the first to occur of the following:
(A) Expiration of five (5) years from the date of grant;
(B) Expiration of ninety (90) days from the date the
Optionee's service as a non-employee director terminates for any
reason other than Disability or death or as otherwise specified in
subsection 8(b)(i)(D) below;
(C) Expiration of one (1) year from the date the Optionee's
service with Company as a non-employee director terminates due to the
Optionee's Disability or death; or
(D) The date the Optionee's directorship is terminated, if
the directorship is terminated on account of (1) any act of fraud,
intentional misrepresentation, embezzlement or theft, (2) commission
of a felony or (3) disclosure of
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PHLEGAL: #54293 v6 (15W506!.WPD)
trade secrets of the Company or an Affiliate. In such event, in
addition to the immediate termination of the Option, the Optionee
shall automatically forfeit all Option Shares for which the Company
has not yet delivered the share certificates upon refund by the
Company of the Option Price.
(c) Applicability of Certain Provisions of Section 6 to Options
Granted Pursuant to Section 8. The following provisions of Section 6 shall be
applicable to Options granted pursuant to this Section 8: Subsection 6(a)
(provided that no Option granted pursuant to this Section 8 shall be an ISO);
subsection 6(c) (provided that Option Documents relating to options granted
pursuant to this Section 8 shall provide that payment may be made in whole or
part in shares of Common Stock or Class A Common Stock held by the Optionee for
more than six months, subject to the limitation on payment in shares of Class A
Common Stock set forth in subsection 6(c) if such method of payment would result
in liability under Section 16(b) of the Securities Exchange Act of 1934);
subsection 6(e); subsection 6(g); and subsection 6(h).
9. Adjustments on Changes in Capitalization. The aggregate number of shares
and class of shares as to which Options may be granted hereunder, the number of
shares covered by each outstanding Option, and the Option Price thereof shall be
appropriately adjusted in the event of a stock dividend, stock split,
recapitalization or other change in the number or class of issued and
outstanding equity securities of the Company resulting from a subdivision or
consolidation of the Common Stock and/or other outstanding equity security or a
recapitalization or other capital adjustment (not including the issuance of
Common Stock on the conversion of other securities of the Company which are
convertible into Common Stock) affecting the Common Stock which is effected
without receipt of consideration by the Company. The Committee shall have
authority to determine the adjustments to be made under this Section and any
such determination by the Committee shall be final, binding and conclusive;
provided, however, that no adjustment shall be made which will cause an ISO to
lose its status as such without the consent of the Optionee and no adjustment
shall be made to the number of shares set forth in subsection 8(a). However, an
Option granted pursuant to subsection 8(a). However, an Option granted pursuant
to subsection 8(a) shall be subject to adjustment in accordance with the
provisions of this Section 9 after the date of grant.
10. Amendment of the Plan. The Board or the Committee may amend the Plan
from time to time in such manner as it may deem advisable. Nevertheless, neither
the Board nor the Committee may, without within twelve months before or after
such action obtaining approval by such vote of shareholders as may be required
by Pennsylvania law for any action requiring shareholder approval, or by a
majority of votes cast at a duly held shareholders' meeting at which a majority
of all voting stock is present and voting on such amendment, either in person or
in proxy (but not, in any event, less than the vote required pursuant to Rule
16b-3(b) under the Securities Exchange Act of 1934), change the class of
individuals eligible to receive an ISO, extend the expiration date of the Plan,
decrease the minimum Option Price of an ISO granted under the Plan or increase
the maximum number of shares as to which Options may be granted,
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PHLEGAL: #54293 v6 (15W506!.WPD)
except as provided in Section 9 hereof. In addition, the provisions of Section 8
that determine (i) which directors shall be granted Options pursuant to Section
8; (ii) the number of Option Shares subject to Options granted pursuant to
Section 8; (iii) the Option Price of Option Shares subject to Options granted
pursuant to Section 8; and (iv) the timing of grants of Options pursuant to
Section 8 shall not be amended more than once every six months, other than to
comport with changes in the Code or the Employee Retirement Income Security Act
of 1974, as amended, if applicable.
11. Continued Employment. The grant of an Option pursuant to the Plan shall
not be construed to imply or to constitute evidence of any agreement, express or
implied, on the part of the Company or any Affiliate to retain the Optionee in
the employ of the Company or an Affiliate or as a member of the Company's Board
of Directors or in any other capacity.
12. Withholding of Taxes.
(a) Whenever the Company proposes or is required to deliver or
transfer Option Shares in connection with the exercise of an Option, the Company
shall have the right to (i) require the recipient to remit to the Company an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements prior to the delivery or transfer of any certificate or
certificates for such Option Shares or (ii) take any action whatever that it
deems necessary to protect its interests with respect to tax liabilities. The
Company's obligation to make any delivery or transfer of Option Shares shall be
conditioned on the recipient's compliance, to the Company's satisfaction, with
any withholding requirement.
(b) Except as otherwise provided in this Section 12(b), any tax
liabilities incurred in connection with the exercise of an Option under the Plan
other than an ISO shall be satisfied by the Company's withholding a portion of
the Option Shares underlying the Option exercised having a fair market value
approximately equal to the minimum amount of taxes required to be withheld by
the Company under applicable law, unless otherwise determined by the Committee
with respect to any participant. Notwithstanding the foregoing, the Committee
may permit an Optionee to elect one or both of the following: (i) to have taxes
withheld in excess of the minimum amount required to be withheld by the Company
under applicable law; provided that the Optionee certifies in writing to the
Company that the Optionee owns a number of Other Available Shares that is at
least equal to the number to be withheld by the Company for the then-current
exercise on account of withheld taxes in excess of such minimum amount, and (ii)
to pay to the Company in cash all or a portion of the taxes to be withheld upon
the exercise of an Option. In all cases, the Option Shares so withheld by the
Company shall have a fair market value that does not exceed the amount of taxes
to be withheld minus the cash payment, if any, made by the Optionee. The fair
market value of such shares shall be determined based on the last reported sale
price of a share of Common Stock on the principal exchange on which the Common
Stock is listed or, if not so listed, on the Nasdaq Stock Market on the last
trading day prior to the date on which the Option is exercised. Any election
pursuant to this Section 12(b) must be in
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PHLEGAL: #54293 v6 (15W506!.WPD)
writing made prior to the date specified by the Committee, and in any event
prior to the date the amount of tax to be withheld or paid is determined. An
election pursuant to this Section may be made only by an Optionee or, in the
event of the Optionee's death, by the Optionee's legal representative. No shares
withheld pursuant to this Section 12(b) shall be available for subsequent grants
under the Plan. The Committee may add such other requirements and limitations
regarding elections pursuant to this Section 12(b) as it deems appropriate.
13. Terminating Events.
(a) The Sponsor shall give Optionees at least thirty (30) days' notice
(or, if not practicable, such shorter notice as may be reasonably practicable)
prior to the anticipated date of the consummation of a Terminating Event. Upon
receipt of such notice, and for a period of ten (10) days thereafter (or such
shorter period as the Board shall reasonably determine and so notify the
Optionees), each Optionee shall be permitted to exercise the Option to the
extent the Option are then exercisable; provided that, the Sponsor may, by
similar notice, require the Optionee to exercise the Option, to the extent the
Option is then exercisable, or to forfeit the Option (or portion thereof, as
applicable). The Committee may, in its discretion, provide that upon the
Optionee's receipt of the notice of a Terminating Event under this Section
13(a), the entire number of Shares covered by Options shall become immediately
exercisable. Upon the close of the period described in this Section 13(a) during
which an Option may be exercised in connection with a Terminating Event, such
Option (including such portion thereof that is not exercisable) shall terminate
to the extent that such Option have not theretofore been exercised.
(b) Notwithstanding Section 13(a), in the event the Terminating Event
is not consummated, the Option shall be deemed not to have been exercised and
shall be exercisable thereafter to the extent it would have been exercisable if
no such notice had been given.
14. Additional Definitions.
(a) "Affiliate." For purposes of this Section 14, "Affiliate" means,
with respect to any Person, any other Person that, directly or indirectly, is in
control of, is controlled by, or is under common control with, such Person. For
purposes of this definition, the term "control," including its correlative terms
"controlled by" and "under common control with," mean, with respect to any
Person, the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
(b) "Board" means the board of directors of the Sponsor.
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(c) "Change of Control" means any transaction or series of
transactions as a result of which any Person who was a Third Party immediately
before such transaction or series of transactions owns then-outstanding
securities of the Sponsor having more than 50 percent of the voting power for
the election of directors of the Sponsor.
(d) "Comcast Plan" means any restricted stock, stock bonus, stock
option or other compensation plan, program or arrangement established or
maintained by the Company or an Affiliate, including but not limited to this
Plan, the Comcast Corporation 1996 Stock Option Plan and the 1990 Restricted
Stock Plan.
(e) "Common Stock." For purposes of the definition of the term "Other
Available Shares" in Section 12(f), "Common Stock" means:
(i) the Sponsor's Class A Common Stock, par value, $1.00 per
share; and
(ii) the Sponsor's Class A Special Common Stock, par value, $1.00
per share
(f) "Other Available Shares" means, as of any date, the excess, if any
of:
(i) the total number of shares of Common Stock owned by an
Optionee; over
(ii) the sum of:
(x) the number of shares of Common Stock owned by such
Optionee for less than six months; plus
(y) the number of shares of Common Stock owned by such
Optionee that has, within the preceding six months,
been the subject of a withholding certification
pursuant to Section 12(b) or any similar withholding
certification under any other Comcast Plan; plus
(z) the number of shares of Common Stock owned by such
Optionee that has, within the preceding six months,
been received in exchange for Shares surrendered as
payment, in full or in part, of the exercise price for
an option to purchase any
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PHLEGAL: #54293 v6 (15W506!.WPD)
securities of the Sponsor or an Affiliate under any
Comcast Plan, but only to the extent of the number of
Shares surrendered.
For purposes of Section 6(c), the number of Other Available Shares shall be
determined separately for the Company's Class A Special Common Stock, par value,
$1.00 per share, and for the Company's Class A Common Stock, par value, $1.00
per share.
(g) "Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization.
(h) "Roberts Family." Each of the following is a member of the Roberts
Family:
(i) Ralph J. Roberts;
(ii) a lineal descendant of Ralph J. Roberts; or
(iii)a trust established for the benefit of any of Ralph J.
Roberts and/or a lineal descendant or descendants of Ralph
J. Roberts.
(i) "Sponsor" means Comcast Corporation, a Pennsylvania corporation,
including any successor thereto by merger, consolidation, acquisition of all or
substantially all the assets thereof, or otherwise.
(j) "Terminating Event" means any of the following events:
(i) the liquidation of the Sponsor; or
(ii) a Change of Control.
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PHLEGAL: #54293 v6 (15W506!.WPD)
(k) "Third Party" means any Person other than a Company, together with
such Person's Affiliates, provided that the term "Third Party" shall not include
the Sponsor, an Affiliate of the Sponsor or any member or members of the Roberts
Family.
Executed as of the 15th day of December, 1998
COMCAST CORPORATION
BY: /s/ Stanley Wang
ATTEST: /s/ Arthur R. Block
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PHLEGAL: #54293 v6 (15W506!.WPD)
COMCAST CORPORATION
1996 STOCK OPTION PLAN
(As Amended and Restated, Effective December 15, 1998)
1. Purpose of Plan
The purpose of the Plan is to assist the Company in retaining valued
employees, officers and directors by offering them a greater stake in the
Company's success and a closer identity with it, and to aid in attracting
individuals whose services would be helpful to the Company and would contribute
to its success.
2. Definitions
(a) "Affiliate" means, with respect to any Person, any other Person
that, directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. For purposes of this definition, the term
"control," including its correlative terms "controlled by" and "under common
control with," mean, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
(b) "Board" means the board of directors of the Sponsor.
(c) "Cash Right" means any right to receive cash in lieu of Shares
granted under the Plan and described in Paragraph 3(a)(iii).
(d) "Cause" means:
(i) for an employee of a Company, a finding by the
Committee, after full consideration of the facts presented on behalf
of both the Company and the employee, that the employee has breached
his employment contract with a Company, has disclosed trade secrets of
a Company or has been engaged in any sort of disloyalty to a Company,
including, without limitation, fraud, embezzlement, theft, commission
of a felony or proven dishonesty in the course of his employment.
(ii) for a Non-Employee Director, a finding by the
Committee, after full consideration of the facts presented on behalf
of both the Company and the Director, that such Non-Employee Director
has disclosed trade secrets of a Company, or has been engaged in any
sort of disloyalty to a Company, including, without
PHLEGAL: #54302 v10 (15W#10!.WPD)
limitation, fraud, embezzlement, theft, commission of a felony or
proven dishonesty in the course of his service as a Non-Employee
Director.
(e) "Change of Control" means any transaction or series of
transactions as a result of which any Person who was a Third Party immediately
before such transaction or series of transactions owns then-outstanding
securities of the Sponsor having more than 50 percent of the voting power for
the election of directors of the Sponsor.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Comcast Plan" means any restricted stock, stock bonus, stock
option or other compensation plan, program or arrangement established or
maintained by the Company or an Affiliate, including but not limited to this
Plan, the Comcast Corporation 1997 Deferred Stock Option Plan, the Comcast
Corporation 1990 Restricted Stock Plan and the Comcast Corporation 1987 Stock
Option Plan.
(h) "Committee" means the committee described in Paragraph 5.
(i) "Common Stock" means the Sponsor's Class A Special Common Stock,
par value, $1.00.
(j) "Company" means the Sponsor and each of the Parent Companies and
Subsidiary Companies.
(k) "Date of Grant" means the date as of which an Option is granted.
(l) "Disability" means a disability within the meaning of section
22(e)(3) of the Code.
(m) "Election Date" means the date on which an individual is first
elected to the Board as a Non-Employee Director, or is elected to the Board as a
Non-Employee Director following a period of one year or more during which such
individual was not a member of the Board.
(n) "Fair Market Value." If Shares are listed on a stock exchange,
Fair Market Value shall be determined based on the last reported sale price of a
Share on the principal exchange on which Shares are listed on the last trading
day prior to the date of determination, or, if Shares are not so listed, but
trades of Shares are reported on the Nasdaq National Market, the last quoted
sale price of a Share on the Nasdaq National Market on the last trading day
prior to the date of determination.
(o) "Grant Date" means each February 1st after the date of adoption of
the Plan by the Board.
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PHLEGAL: #54302 v10 (15W#10!.WPD)
(p) "Immediate Family" means an Optionee's spouse and lineal
descendants, any trust all beneficiaries of which are any of such persons and
any partnership all partners of which are any of such persons.
(q) "Incentive Stock Option" means an Option granted under the Plan,
designated by the Committee at the time of such grant as an Incentive Stock
Option within the meaning of section 422 of the Code and containing the terms
specified herein for Incentive Stock Options; provided, however, that to the
extent an Option granted under the Plan and designated by the Committee at the
time of grant as an Incentive Stock Option fails to satisfy the requirements for
an incentive stock option under section 422 of the Code for any reason, such
Option shall be treated as a Non-Qualified Option.
(r) "Non-Employee Director" means an individual who is a member of the
Board, and who is not an employee of a Company, including an individual who is a
member of the Board and who previously was an employee of a Company.
(s) "Non-Qualified Option" means:
(i) an Option granted under the Plan, designated by the
Committee at the time of such grant as a Non-Qualified Option and
containing the terms specified herein for Non-Qualified Options; and
(ii) an Option granted under the Plan and designated by the
Committee at the time of grant as an Incentive Stock Option, to the
extent such Option fails to satisfy the requirements for an incentive
stock option under section 422 of the Code for any reason.
(t) "Option" means any stock option granted under the Plan and
described in either Paragraph 3(a)(i) or Paragraph 3(a)(ii).
(u) "Optionee" means a person to whom an Option has been granted under
the Plan, which Option has not been exercised in full and has not expired or
terminated.
(v) "Other Available Shares" means, as of any date, the excess, if any
of:
(i) the total number of Shares owned by an Optionee; over
(ii) the sum of:
(x) the number of Shares owned by such Optionee for
less than six months; plus
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(y) the number of Shares owned by such Optionee that
has, within the preceding six months, been the
subject of a withholding certification pursuant
to Paragraph 16(b) or any similar withholding
certification under any other Comcast Plan; plus
(z) the number of Shares owned by such Optionee that
has, within the preceding six months, been
received in exchange for Shares surrendered as
payment, in full or in part, of the exercise
price for an option to purchase any securities of
the Sponsor or an Affiliate under any Comcast
Plan, but only to the extent of the number of
Shares surrendered.
For purposes of this Paragraph 2(v), a Share that is subject to a deferral
election pursuant to another Comcast Plan shall not be treated as owned by an
Optionee until all conditions to the delivery of such Share have lapsed. For
purposes of Paragraphs 7(d), 8(d) and 16(b), the number of Other Available
Shares shall be determined separately for the Sponsor's Class A Special Common
Stock, par value, $1.00, and for the Sponsor's Class A Common Stock, par value,
$1.00.
(w) "Outside Director" means a member of the Board who is an "outside
director" within the meaning of section 162(m)(4)(C) of the Code and applicable
Treasury Regulations issued thereunder.
(x) "Parent Company" means all corporations that, at the time in
question, are parent corporations of the Sponsor within the meaning of section
424(e) of the Code.
(y) "Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization.
(z) "Plan" means the Comcast Corporation 1996 Stock Option Plan.
(aa) "Roberts Family." Each of the following is a member of the
Roberts Family:
(i) Ralph J. Roberts;
(ii) a lineal descendant of Ralph J. Roberts; or
(iii) a trust established for the benefit of any of Ralph J.
Roberts and/or a lineal descendant or descendants of Ralph J. Roberts.
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(bb) "Share" or "Shares" means:
(i) for all purposes of the Plan, a share or shares of
Common Stock or such other securities issued by the Sponsor as may be
the subject of an adjustment under Paragraph 11.
(ii) solely for purposes of Paragraphs 2(n), 2(v), 7(d),
8(d) and 16(b), the term "Share" or "Shares" also means a share or
shares of the Sponsor's Class A Common Stock, par value, $1.00.
(cc) "Sponsor" means Comcast Corporation, a Pennsylvania corporation,
including any successor thereto by merger, consolidation, acquisition of all or
substantially all the assets thereof, or otherwise.
(dd) "Subsidiary Companies" means all corporations that, at the time
in question, are subsidiary corporations of the Sponsor within the meaning of
section 424(f) of the Code.
(ee) "Ten Percent Shareholder" means a person who on the Date of Grant
owns, either directly or within the meaning of the attribution rules contained
in section 424(d) of the Code, stock possessing more than 10% of the total
combined voting power of all classes of stock of his employer corporation or of
its parent or subsidiary corporations, as defined respectively in sections
424(e) and (f) of the Code, provided that the employer corporation is a Company.
(ff) "Terminating Event" means any of the following events:
(i) the liquidation of the Sponsor; or
(ii) a Change of Control.
(gg) "Third Party" means any Person other than a Company, together
with such Person's Affiliates, provided that the term "Third Party" shall not
include the Sponsor, an Affiliate of the Sponsor or any member or members of the
Roberts Family.
(hh) "1933 Act" means the Securities Act of 1933, as amended.
(ii) "1934 Act" means the Securities Exchange Act of 1934, as amended.
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3. Rights To Be Granted
(a) Types of Options and Other Rights Available for Grant. Rights that
may be granted under the Plan are:
(i) Incentive Stock Options, which give an Optionee who is
an employee of a Company the right for a specified time period to
purchase a specified number of Shares for a price not less than the
Fair Market Value on the Date of Grant;
(ii) Non-Qualified Options, which give the Optionee the
right for a specified time period to purchase a specified number of
Shares for a price determined by the Committee; and
(iii) Cash Rights, which give an Optionee the right for a
specified time period, and subject to such conditions, if any, as
shall be determined by the Committee and stated in the option
document, to receive a cash payment of such amount per Share as shall
be determined by the Committee and stated in the option document, in
lieu of exercising a Non-Qualified Option.
(b) Limit on Grant of Options. The maximum number of Shares for which
Options may be granted to any single individual in any calendar year, adjusted
as provided in Section 11, shall be 1,000,000 Shares.
(c) Presumption of Incentive Stock Option Status. Each Option granted
under the Plan to an employee of a Company is intended to be an Incentive Stock
Option, except to the extent any such grant would exceed the limitation of
Paragraph 9 and except for any Option specifically designated at the time of
grant as an Option that is not an Incentive Stock Option.
4. Shares Subject to Plan
Subject to adjustment as provided in Paragraph 11, not more than
20,000,000 Shares in the aggregate may be issued pursuant to the Plan upon
exercise of Options. Shares delivered pursuant to the exercise of an Option may,
at the Sponsor's option, be either treasury Shares or Shares originally issued
for such purpose. If an Option covering Shares terminates or expires without
having been exercised in full, other Options may be granted covering the Shares
as to which the Option terminated or expired.
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5. Administration of Plan
(a) Committee. The Plan shall be administered by the Subcommittee on
Performance Based Compensation of the Compensation Committee of the Board or any
other committee or subcommittee designated by the Board, provided that the
committee administering the Plan is composed of two or more non-employee members
of the Board, each of whom is an Outside Director. Notwithstanding the
foregoing, if Non-Employee Directors are granted Options in accordance with the
provisions of Paragraph 8, the directors to whom such Options will be granted,
the timing of grants of such Options, the Option Price of such Options and the
number of Option Shares included in such Options shall be as specifically set
forth in Paragraph 8. No member of the Committee shall participate in the
resolution of any issue that exclusively involves an Option granted to such
member.
(b) Meetings. The Committee shall hold meetings at such times and
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
(c) Exculpation. No member of the Committee shall be personally liable
for monetary damages for any action taken or any failure to take any action in
connection with the administration of the Plan or the granting of Options
thereunder unless (i) the member of the Committee has breached or failed to
perform the duties of his office, and (ii) the breach or failure to perform
constitutes self-dealing, wilful misconduct or recklessness; provided, however,
that the provisions of this Paragraph 5(c) shall not apply to the responsibility
or liability of a member of the Committee pursuant to any criminal statute.
(d) Indemnification. Service on the Committee shall constitute service
as a member of the Board. Each member of the Committee shall be entitled without
further act on his part to indemnity from the Sponsor to the fullest extent
provided by applicable law and the Sponsor's By-laws in connection with or
arising out of any actions, suit or proceeding with respect to the
administration of the Plan or the granting of Options thereunder in which he may
be involved by reasons of his being or having been a member of the Committee,
whether or not he continues to be such member of the Committee at the time of
the action, suit or proceeding.
6. Eligibility
(a) Eligible individuals to whom Options may be granted shall be
employees, officers or directors of a Company who are selected by the Committee
for the grant of Options. Eligible individuals to whom Cash Rights may be
granted shall be individuals who are employees of a Company on the Date of
Grant. The terms and conditions of Options granted to individuals other than
Non-Employee Directors shall be determined by the Committee, subject to
Paragraph 7. The terms and conditions of Cash Rights shall be determined by the
Committee,
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subject to Paragraph 7. The terms and conditions of Options granted to
Non-Employee Directors shall be determined by the Committee, subject to
Paragraph 8.
(b) An Incentive Stock Option shall not be granted to a Ten Percent
Shareholder except on such terms concerning the option price and term as are
provided in Paragraph 7(b) and 7(g) with respect to such a person. An Option
designated as Incentive Stock Option granted to a Ten Percent Shareholder but
which does not comply with the requirements of the preceding sentence shall be
treated as a Non-Qualified Option. An Option designated as an Incentive Stock
Option shall be treated as a Non-Qualified Option if the Optionee is not an
employee of a Company on the Date of Grant.
7. Option Documents and Terms - In General
All Options granted to Optionees other than Non-Employee Directors
shall be evidenced by option documents. The terms of each such option document
shall be determined from time to time by the Committee, consistent, however,
with the following:
(a) Time of Grant. All Options shall be granted within 10 years from
the earlier of (i) the date of adoption of the Plan by the Board, or (ii)
approval of the Plan by the shareholders of the Sponsor.
(b) Option Price. The option price per Share with respect to any
Option shall be determined by the Committee, provided, however, that with
respect to any Incentive Stock Options, the option price per share shall not be
less than 100% of the Fair Market Value of such Share on the Date of Grant, and
provided further that with respect to any Incentive Stock Options granted to a
Ten Percent Shareholder, the option price per Share shall not be less than 110%
of the Fair Market Value of such Share on the Date of Grant.
(c) Restrictions on Transferability. No Option granted under this
Paragraph 7 shall be transferable otherwise than by will or the laws of descent
and distribution and, during the lifetime of the Optionee, shall be exercisable
only by him or for his benefit by his attorney-in-fact or guardian; provided
that the Committee may, in its discretion, at the time of grant of a
Non-Qualified Option or by amendment of an option document for an Incentive
Stock Option or a Non-Qualified Option, provide that Options granted to or held
by an Optionee may be transferred, in whole or in part, to one or more
transferees and exercised by any such transferee; provided further that (i) any
such transfer is without consideration and (ii) each transferee is a member of
such Optionee's Immediate Family; and provided further that any Incentive Stock
Option granted pursuant to an option document which is amended to permit
transfers during the lifetime of the Optionee shall, upon the effectiveness of
such amendment, be treated thereafter as a Non-Qualified Option. No transfer of
an Option shall be effective unless the Committee is notified of the terms and
conditions of the transfer and the Committee determines that the transfer
complies with the requirements for transfers of Options under the Plan and the
option document. Any person to whom an Option has been transferred may
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exercise any Options only in accordance with the provisions of Paragraph 7(g)
and this Paragraph 7(c).
(d) Payment Upon Exercise of Options. Full payment for Shares
purchased upon the exercise of an Option shall be made in cash, by certified
check payable to the order of the Sponsor, or, at the election of the Optionee
and as the Committee may, in its sole discretion, approve, by surrendering
Shares with an aggregate Fair Market Value equal to the aggregate option price,
or by delivering such combination of Shares and cash as the Committee may, in
its sole discretion, approve; provided, however, that Shares may be surrendered
in satisfaction of the option price only if the Optionee certifies in writing to
the Sponsor that the Optionee owns a number of Other Available Shares as of the
date the Option is exercised that is at least equal to the number of Shares to
be surrendered in satisfaction of the Option Price; provided further, however,
that the option price may not be paid in Shares if the Committee determines that
such method of payment would result in liability under section 16(b) of the 1934
Act to an Optionee. Except as otherwise provided by the Committee, if payment is
made in whole or in part in Shares, the Optionee shall deliver to the Sponsor
certificates registered in the name of such Optionee representing Shares legally
and beneficially owned by such Optionee, free of all liens, claims and
encumbrances of every kind and having a Fair Market Value on the date of
delivery that is not greater than the option price accompanied by stock powers
duly endorsed in blank by the record holder of the Shares represented by such
certificates. If the Committee, in its sole discretion, should refuse to accept
Shares in payment of the option price, any certificates representing Shares
which were delivered to the Sponsor shall be returned to the Optionee with
notice of the refusal of the Committee to accept such Shares in payment of the
option price. The Committee may impose such limitations and prohibitions on the
use of Shares to exercise an Option as it deems appropriate.
(e) Issuance of Certificate Upon Exercise of Options; Payment of Cash.
Only whole Shares shall be issuable upon exercise of Options. Any right to a
fractional Share shall be satisfied in cash. Upon satisfaction of the conditions
of Paragraph 10, a certificate for the number of whole Shares and a check for
the Fair Market Value on the date of exercise of any fractional Share to which
the Optionee is entitled shall be delivered to such Optionee by the Sponsor.
(f) Termination of Employment. For purposes of the Plan, a transfer of
an employee between two employers, each of which is a Company, shall not be
deemed a termination of employment. For purposes of Paragraph 7(g), an
Optionee's termination of employment shall be deemed to occur on the date an
Optionee ceases to serve as an active employee of a Company, as determined by
the Committee in its sole discretion, or, if the Optionee is a party to an
employment agreement with a Company, on the effective date of the Optionee's
termination of employment as determined under such agreement.
(g) Periods of Exercise of Options. An Option shall be exercisable in
whole or in part at such time or times as may be determined by the Committee and
stated in the
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PHLEGAL: #54302 v10 (15W#10!.WPD)
option document, provided, however, that if the grant of an Option would be
subject to section 16(b) of the 1934 Act, unless the requirements for exemption
therefrom in Rule 16b-3(c)(1), under such Act, or any successor provision, are
met, the option document for such Option shall provide that such Option is not
exercisable until not less than six months have elapsed from the Date of Grant.
Except as otherwise provided by the Committee in its discretion, no Option shall
first become exercisable following an Optionee's termination of employment for
any reason; provided further, that:
(i) In the event that an Optionee terminates employment with
the Company for any reason other than death or Cause, any Option held
by such Optionee and which is then exercisable shall be exercisable
for a period of 90 days following the date the Optionee terminates
employment with the Company (unless a longer period is established by
the Committee); provided, however, that if such termination of
employment with the Company is due to the Disability of the Optionee,
he shall have the right to exercise those of his Options which are
then exercisable for a period of one year following such termination
of employment (unless a longer period is established by the
Committee); provided, however, that in no event shall an Incentive
Stock Option be exercisable after five years from the Date of Grant in
the case of a grant to a Ten Percent Shareholder, nor shall any other
Option be exercisable after ten years from the Date of Grant.
(ii) In the event that an Optionee terminates employment
with the Company by reason of his death, any Option held at death by
such Optionee which is then exercisable shall be exercisable for a
period of one year from the date of death (unless a longer period is
established by the Committee) by the person to whom the rights of the
Optionee shall have passed by will or by the laws of descent and
distribution; provided, however, that in no event shall an Incentive
Stock Option be exercisable after five years from the Date of Grant in
the case of a grant to a Ten Percent Shareholder, nor shall any other
Option be exercisable after ten years from the Date of Grant.
(iii) In the event that an Optionee's employment with the
Company is terminated for Cause, each unexercised Option held by such
Optionee shall terminate and cease to be exercisable; provided
further, that in such event, in addition to immediate termination of
the Option, the Optionee, upon a determination by the Committee shall
automatically forfeit all Shares otherwise subject to delivery upon
exercise of an Option but for which the Sponsor has not yet delivered
the Share certificates, upon refund by the Sponsor of the option
price.
(h) Date of Exercise. The date of exercise of an Option shall be the
date on which written notice of exercise, addressed to the Sponsor at its main
office to the
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PHLEGAL: #54302 v10 (15W#10!.WPD)
attention of its Secretary, is hand delivered, telecopied or mailed first class
postage prepaid; provided, however, that the Sponsor shall not be obligated to
deliver any certificates for Shares pursuant to the exercise of an Option until
the Optionee shall have made payment in full of the option price for such
Shares. Each such exercise shall be irrevocable when given. Each notice of
exercise must (i) specify the Incentive Stock Option, Non-Qualified Option or
combination thereof being exercised; and (ii) include a statement of preference
(which shall binding on and irrevocable by the Optionee but shall not be binding
on the Committee) as to the manner in which payment to the Sponsor shall be made
(Shares or cash or a combination of Shares and cash). Each notice of exercise
shall also comply with the requirements of Paragraph 15.
(i) Cash Rights. The Committee may, in its sole discretion, provide in
an option document for an eligible Optionee that Cash Rights shall be attached
to Non-Qualified Options granted under the Plan. All Cash Rights that are
attached to Non-Qualified Options shall be subject to the following terms:
(i) Such Cash Right shall expire no later than the Non-
Qualified Option to which it is attached.
(ii) Such Cash Right shall provide for the cash payment of
such amount per Share as shall be determined by the Committee and
stated in the option document.
(iii) Such Cash Right shall be subject to the same
restrictions on transferability as the Non-Qualified Option to which
it is attached.
(iv) Such Cash Right shall be exercisable only when such
conditions to exercise as shall be determined by the Committee and
stated in the option document, if any, have been satisfied.
(v) Such Cash Right shall expire upon the exercise of the
Non- Qualified Option to which it is attached.
(vi) Upon exercise of a Cash Right that is attached to a
Non- Qualified Option, the Option to which the Cash Right is attached
shall expire.
8. Option Documents and Terms - Non-Employee Directors
Options granted pursuant to the Plan to Non-Employee Directors shall
be granted, without any further action by the Committee, in accordance with the
terms and conditions set forth in this Paragraph 8. Options granted pursuant to
Paragraph 8(a) shall be evidenced by option documents. The terms of each such
option document shall be consistent with Paragraphs 8(b) through 8(g), as
follows:
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PHLEGAL: #54302 v10 (15W#10!.WPD)
(a) Grant of Options to Non-Employee Directors. Each Non- Employee
Director shall be granted, commencing on the Grant Date next following the
adoption of this Plan by the Board and on each successive Grant Date thereafter,
a Non-Qualified Option to purchase 5,400 Shares. Notwithstanding the preceding
sentence, each newly elected Non- Employee Director:
(i) shall be granted a Non-Qualified Option to purchase
9,000 Shares on the Election Date; and
(ii) shall not be entitled to the grant of an Option
hereunder on the Grant Date immediately following the Non-Employee
Director's Election Date if such Election Date is within ninety (90)
days of the Grant Date.
(b) Option Price. The option price per Share with respect to any
Option granted under this Paragraph 8 shall be 100% of the Fair Market Value of
such Share on the Grant Date.
(c) Restrictions on Transferability. No Option granted under this
Paragraph 8 shall be transferable otherwise than by will or the laws of descent
and distribution and, during the lifetime of the Optionee, shall be exercisable
only by him or for his benefit by his attorney-in-fact or guardian; provided
that the Committee may, in its discretion, at the time of grant of an Option or
by amendment of an option document for an Option, provide that Options may be
transferred, in whole or in part, to one or more transferees and exercised by
any such transferee; provided further that (i) any such transfer is without
consideration, and (ii) each transferee is a member of such Optionee's Immediate
Family. No transfer of an Option shall be effective unless the Committee is
notified of the terms and conditions of the transfer and the Committee
determines that the transfer complies with the requirements for transfers of
Options under the Plan and the option document. Any person to whom an Option has
been transferred may exercise any Options only in accordance with the provisions
of Paragraph 8(f) and this Paragraph 8(c).
(d) Payment Upon Exercise of Options. Full payment for Shares
purchased upon the exercise of an Option shall be made in cash, by certified
check payable to the order of the Sponsor, or, at the election of the Optionee
and as the Committee may, in its sole discretion, approve, by surrendering
Shares with an aggregate Fair Market Value equal to the aggregate option price,
or by delivering such combination of Shares and cash as the Committee may, in
its sole discretion, approve; provided, however, that Shares may be surrendered
in satisfaction of the option price only if the Optionee certifies in writing to
the Sponsor that the Optionee owns a number of Other Available Shares as of the
date the Option is exercised that is at least equal to the number of Shares to
be surrendered in satisfaction of the Option Price; provided further, however,
that the option price may not be paid in Shares if the Committee determines that
such method of payment would result in liability under section 16(b) of the 1934
Act to an Optionee. Except as otherwise provided by the Committee, if payment is
made in
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whole or in part in Shares, the Optionee shall deliver to the Sponsor
certificates registered in the name of such Optionee representing Shares legally
and beneficially owned by such Optionee, free of all liens, claims and
encumbrances of every kind and having a Fair Market Value on the date of
delivery that is not greater than the option price accompanied by stock powers
duly endorsed in blank by the record holder of the Shares represented by such
certificates. If the Committee, in its sole discretion, should refuse to accept
Shares in payment of the option price, any certificates representing Shares
which were delivered to the Sponsor shall be returned to the Optionee with
notice of the refusal of the Committee to accept such Shares in payment of the
option price. The Committee may impose such limitations and prohibitions on the
use of Shares to exercise an Option as it deems appropriate.
(e) Issuance of Certificate Upon Exercise of Options; Payment of Cash.
Only whole Shares shall be issuable upon exercise of Options granted under this
Paragraph 8. Any right to a fractional Share shall be satisfied in cash. Upon
satisfaction of the conditions of Paragraph 10, a certificate for the number of
whole Shares and a check for the Fair Market Value on the date of exercise of
any fractional Share to which the Optionee is entitled shall be delivered to
such Optionee by the Sponsor.
(f) Periods of Exercise of Options. An Option granted under this
Paragraph 8 shall not be exercisable for six months after the Date of Grant, and
shall then be exercisable in its entirety. No Option shall first become
exercisable following an Optionee's termination of service as a Non-Employee
Director for any reason; provided further, that:
(i) In the event that an Optionee terminates service as a
Non-Employee Director for any reason other than death or Cause, any
Option held by such Optionee and which is then exercisable shall be
exercisable for a period of 90 days following the date the Optionee
terminates service as a Non-Employee Director; provided, however, that
if such termination of employment with the Company is due to the
Disability of the Optionee, he shall have the right to exercise those
of his Options which are then exercisable for a period of one year
following the date the Optionee terminates service as a Non-Employee
Director; provided, however, that in no event shall an Option be
exercisable after five years from the Grant Date.
(ii) In the event that an Optionee terminates service as a
Non-Employee Director by reason of his death, any Option held at death
by such Optionee which is then exercisable shall be exercisable for a
period of one year from the date of death by the person to whom the
rights of the Optionee shall have passed by will or by the laws of
descent and distribution; provided, however, that in no event shall an
Option be exercisable after five years from the Grant Date.
(iii) In the event that an Optionee's service as a Non-
Employee Director is terminated for Cause, each unexercised Option
shall
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terminate and cease to be exercisable; provided further, that in such
event, in addition to immediate termination of the Option, the
Optionee shall automatically forfeit all Shares otherwise subject to
delivery upon exercise of an Option but for which the Sponsor has not
yet delivered the Share certificates, upon refund by the Sponsor of
the option price.
(g) Date of Exercise. The date of exercise of an Option granted under
this Paragraph 8 shall be the date on which written notice of exercise,
addressed to the Sponsor at its main office to the attention of its Secretary,
is hand delivered, telecopied or mailed first class postage prepaid; provided,
however, that the Sponsor shall not be obligated to deliver any certificates for
Shares pursuant to the exercise of an Option until the Optionee shall have made
payment in full of the option price for such Shares. Each such exercise shall be
irrevocable when given. Each notice of exercise must (i) specify the Option
being exercised; and (ii) include a statement as to the manner in which payment
to the Sponsor shall be made (Shares or cash or a combination of Shares and
cash). Each notice of exercise shall also comply with the requirements of
Paragraph 15.
9. Limitation on Exercise of Incentive Stock Options.
The aggregate Fair Market Value (determined as of the time Options are
granted) of the Shares with respect to which Incentive Stock Options may first
become exercisable by an Optionee in any one calendar year under the Plan and
any other plan of the Company shall not exceed $100,000. The limitations imposed
by this Paragraph 9 shall apply only to Incentive Stock Options granted under
the Plan, and not to any other options or stock appreciation rights. In the
event an individual receives an Option intended to be an Incentive Stock Option
which is subsequently determined to have exceeded the limitation set forth
above, or if an individual receives Options that first become exercisable in a
calendar year (whether pursuant to the terms of an option document, acceleration
of exercisability or other change in the terms and conditions of exercise or any
other reason) that have an aggregate Fair Market Value (determined as of the
time the Options are granted) that exceeds the limitations set forth above, the
Options in excess of the limitation shall be treated as Non-Qualified Options.
10. Rights as Shareholders
An Optionee shall not have any right as a shareholder with respect to
any Shares subject to his Options until the Option shall have been exercised in
accordance with the terms of the Plan and the option document and the Optionee
shall have paid the full purchase price for the number of Shares in respect of
which the Option was exercised and the Optionee shall have made arrangements
acceptable to the Sponsor for the payment of applicable taxes consistent with
Paragraph 16.
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11. Changes in Capitalization
(a) Except as provided in Paragraph 11(b), in the event that Shares
are changed into or exchanged for a different number or kind of shares of stock
or other securities of the Sponsor, whether through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split-up or other
substitution of securities of the Sponsor, the Board shall make appropriate
equitable anti-dilution adjustments to the number and class of shares of stock
available for issuance under the Plan, and subject to outstanding Options, and
to the option prices and the amounts payable pursuant to any Cash Rights. Any
reference to the option price in the Plan and in option documents shall be a
reference to the option price as so adjusted. Any reference to the term "Shares"
in the Plan and in option documents shall be a reference to the appropriate
number and class of shares of stock available for issuance under the Plan, as
adjusted pursuant to this Paragraph 11. The Board's adjustment shall be
effective and binding for all purposes of this Plan.
(b) Paragraph 11(a) shall not apply to the number of Shares that
become subject to the grant of Options under Paragraph 8(a). Paragraph 11(a)
shall apply for the purpose of making appropriate equitable anti-dilution
adjustments to Options granted pursuant to Paragraph 8(a) before the effective
date of the relevant event giving rise to the adjustment under Paragraph 11(a).
12. Terminating Events
(a) The Sponsor shall give Optionees at least thirty (30) days' notice
(or, if not practicable, such shorter notice as may be reasonably practicable)
prior to the anticipated date of the consummation of a Terminating Event. Upon
receipt of such notice, and for a period of ten (10) days thereafter (or such
shorter period as the Board shall reasonably determine and so notify the
Optionees), each Optionee shall be permitted to exercise the Option to the
extent the Option are then exercisable; provided that, the Sponsor may, by
similar notice, require the Optionee to exercise the Option, to the extent the
Option is then exercisable, or to forfeit the Option (or portion thereof, as
applicable). The Committee may, in its discretion, provide that upon the
Optionee's receipt of the notice of a Terminating Event under this Paragraph
12(a), the entire number of Shares covered by Options shall become immediately
exercisable. Upon the close of the period described in this Paragraph 12(a)
during which an Option may be exercised in connection with a Terminating Event,
such Option (including such portion thereof that is not exercisable) shall
terminate to the extent that such Option have not theretofore been exercised.
(b) Notwithstanding Paragraph 12(a), in the event the Terminating
Event is not consummated, the Option shall be deemed not to have been exercised
and shall be exercisable thereafter to the extent it would have been exercisable
if no such notice had been given.
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13. Interpretation
The Committee shall have the power to interpret the Plan and to make
and amend rules for putting it into effect and administering it. It is intended
that the Incentive Stock Options granted under the Plan shall constitute
incentive stock options within the meaning of section 422 of the Code, and that
Shares transferred pursuant to the exercise of Non-Qualified Options shall
constitute property subject to federal income tax pursuant to the provisions of
section 83 of the Code. The provisions of the Plan shall be interpreted and
applied insofar as possible to carry out such intent.
14. Amendments
The Board or the Committee may amend the Plan from time to time in
such manner as it may deem advisable. Nevertheless, neither the Board nor the
Committee may, without obtaining approval within twelve months before or after
such action by such vote of shareholders as may be required by Pennsylvania law
for any action requiring shareholder approval, or by a majority of votes cast at
a duly held shareholders' meeting at which a majority of all voting stock is
present and voting on such amendment, either in person or in proxy (but not, in
any event, less than the vote required pursuant to Rule 16b-3(b) under the 1934
Act) change the class of individuals eligible to receive an Incentive Stock
Option, extend the expiration date of the Plan, decrease the minimum option
price of an Incentive Stock Option granted under the Plan or increase the
maximum number of shares as to which Options may be granted, except as provided
in Paragraph 11 hereof. In addition, the provisions of Paragraph 8 that
determine (i) which directors shall be granted Options; (ii) the number of
Shares subject to Options; (iii) the option price of Shares subject to Options;
and (iv) the timing of grants of Options shall not be amended more than once
every six months, other than to comport with changes in the Code or the Employee
Retirement Income Security Act of 1974, as amended, if applicable. No
outstanding Option shall be affected by any such amendment without the written
consent of the Optionee or other person then entitled to exercise such Option.
15. Securities Law
(a) In General. The Committee shall have the power to make each grant
under the Plan subject to such conditions as it deems necessary or appropriate
to comply with the then-existing requirements of the 1933 Act or the 1934 Act,
including Rule 16b-3 (or any similar rule) of the Securities and Exchange
Commission.
(b) Acknowledgment of Securities Law Restrictions on Exercise. To the
extent required by the Committee, unless the Shares subject to the Option are
covered by a then current registration statement or a Notification under
Regulation A under the 1933 Act, each notice of exercise of an Option shall
contain the Optionee's acknowledgment in form and substance satisfactory to the
Committee that:
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(i) the Shares subject to the Option are being purchased for
investment and not for distribution or resale (other than a
distribution or resale which, in the opinion of counsel satisfactory
to the Sponsor, may be made without violating the registration
provisions of the Act);
(ii) the Optionee has been advised and understands that (A)
the Shares subject to the Option have not been registered under the
1933 Act and are "restricted securities" within the meaning of Rule
144 under the 1933 Act and are subject to restrictions on transfer and
(B) the Sponsor is under no obligation to register the Shares subject
to the Option under the 1933 Act or to take any action which would
make available to the Optionee any exemption from such registration;
(iii) the certificate evidencing the Shares may bear a
restrictive legend; and
(iv) the Shares subject to the Option may not be transferred
without compliance with all applicable federal and state securities
laws.
(c) Delay of Exercise Pending Registration of Securities.
Notwithstanding any provision in the Plan or an option document to the contrary,
if the Committee determines, in its sole discretion, that issuance of Shares
pursuant to the exercise of an Option should be delayed pending registration or
qualification under federal or state securities laws or the receipt of a legal
opinion that an appropriate exemption from the application of federal or state
securities laws is available, the Committee may defer exercise of any Option
until such Shares are appropriately registered or qualified or an appropriate
legal opinion has been received, as applicable.
16. Withholding of Taxes on Exercise of Option
(a) Whenever the Company proposes or is required to deliver or
transfer Shares in connection with the exercise of an Option, the Company shall
have the right to (i) require the recipient to remit to the Sponsor an amount
sufficient to satisfy any federal, state and local withholding tax requirements
prior to the delivery or transfer of any certificate or certificates for such
Shares or (ii) take any action whatever that it deems necessary to protect its
interests with respect to tax liabilities. The Sponsor's obligation to make any
delivery or transfer of Shares on the exercise of an Option shall be conditioned
on the recipient's compliance, to the Sponsor's satisfaction, with any
withholding requirement. In addition, if the Committee grants Options or amends
option documents to permit Options to be transferred during the life of the
Optionee, the Committee may include in such option documents such provisions as
it determines are necessary or appropriate to permit the Company to deduct
compensation expenses recognized upon exercise of such Options for federal or
state income tax purposes.
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(b) Except as otherwise provided in this Paragraph 16(b), any tax
liabilities incurred in connection with the exercise of an Option under the Plan
other than an Incentive Stock Option shall be satisfied by the Sponsor's
withholding a portion of the Shares underlying the Option exercised having a
Fair Market Value approximately equal to the minimum amount of taxes required to
be withheld by the Sponsor under applicable law, unless otherwise determined by
the Committee with respect to any Optionee. Notwithstanding the foregoing, the
Committee may permit an Optionee to elect one or both of the following: (i) to
have taxes withheld in excess of the minimum amount required to be withheld by
the Sponsor under applicable law; provided that the Optionee certifies in
writing to the Sponsor that the Optionee owns a number of Other Available Shares
having a Fair Market Value that is at least equal to the Fair Market Value of
Option Shares to be withheld by the Company for the then-current exercise on
account of withheld taxes in excess of such minimum amount, and (ii) to pay to
the Sponsor in cash all or a portion of the taxes to be withheld upon the
exercise of an Option. In all cases, the Shares so withheld by the Company shall
have a Fair Market Value that does not exceed the amount of taxes to be withheld
minus the cash payment, if any, made by the Optionee. Any election pursuant to
this Paragraph 16(b) must be in writing made prior to the date specified by the
Committee, and in any event prior to the date the amount of tax to be withheld
or paid is determined. An election pursuant to this Paragraph 16(b) may be made
only by an Optionee or, in the event of the Optionee's death, by the Optionee's
legal representative. No Shares withheld pursuant to this Paragraph 16(b) shall
be available for subsequent grants under the Plan. The Committee may add such
other requirements and limitations regarding elections pursuant to this
Paragraph 16(b) as it deems appropriate.
17. Effective Date and Term of Plan
This amendment and restatement of the Plan is effective as of December
15, 1998. The Plan shall expire no later than the tenth anniversary of the date
the Plan was initially adopted by the Board, unless sooner terminated by the
Board. Any Option granted before the approval of the Plan by the Sponsor's
shareholders shall be expressly conditioned upon, and shall not be exercisable
until, such approval. If such shareholder approval is not received within 12
months before or after the date of the initial adoption of the Plan by the
Board, all Options granted under the Plan shall expire.
18. General
Each Option shall be evidenced by a written instrument containing such
terms and conditions not inconsistent with the Plan as the Committee may
determine. The issuance of Shares on the exercise of an Option shall be subject
to all of the applicable requirements of the corporation law of the Sponsor's
state of incorporation and other applicable laws, including
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federal or state securities laws, and all Shares issued under the Plan shall be
subject to the terms and restrictions contained in the Articles of Incorporation
and By-Laws of the Sponsor, as amended from time to time.
Executed as of the 15th day of December, 1998.
COMCAST CORPORATION
By: /s/ Stanley Wang
Attest: /s/ Arthur R. Block
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COMCAST CORPORATION
1996 DEFERRED COMPENSATION PLAN
(As Amended and Restated, Effective December 15, 1998)
1. ESTABLISHMENT OF PLAN
COMCAST CORPORATION, a Pennsylvania corporation, hereby amends and restates
the Comcast Corporation 1996 Deferred Compensation Plan (the "Plan"), effective
as of December 15, 1998. The Plan was adopted effective as of August 15, 1996,
to permit outside directors and eligible employees to defer the receipt of
compensation otherwise payable to such outside directors and eligible employees
in accordance with the terms of the Plan. The Plan is a continuation of the
Prior Plan, which was initially effective as of February 12, 1974. The Plan is
unfunded and is maintained primarily for the purpose of providing deferred
compensation to outside directors and to a select group of management or highly
compensated employees.
2. DEFINITIONS
2.1 "Account" means the bookkeeping accounts established pursuant to
Section 5.1 and maintained by the Administrator in the names of the respective
Participants, to which all amounts deferred and earnings allocated under the
Plan shall be credited, and from which all amounts distributed under the Plan
shall be debited.
2.2 "Active Participant" means:
2.2.1 Each Participant who is in active service as an Outside
Director; and
2.2.2 Each Participant who is actively employed by a Participating
Company as an Eligible Employee.
2.3 "Administrator" means the Committee.
2.4 "Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. For purposes of this definition, the term "control,"
including its correlative terms "controlled by" and "under common control with,"
mean, with respect to any Person, the possession, directly or indirectly, of the
power to direct or cause the direction of the management
PHLEGAL: #54263 v16 (15VB16!.WPD)
and policies of such Person, whether through the ownership of voting securities,
by contract or otherwise.
2.5 "Annual Rate of Pay" means, as of any date, an employee's annualized
base pay rate. An employee's Annual Rate of Pay shall not include sales
commissions or other similar payments or awards.
2.6 "Applicable Interest Rate" means:
2.6.1 Except as otherwise provided in Section 2.6.2, the
Applicable Interest Rate means 12% per annum, compounded
annually as of the last day of the Plan Year.
2.6.2 Except to the extent otherwise required by Section 9.2,
effective for the period extending from a Participant's
employment termination date to the date the Participant's
Account is distributed in full, the Administrator, in its
sole discretion, may designate the term "Applicable Interest
Rate" for such Participant's Account to mean the lesser of
(1) the rate in effect under Section 2.6.1 or (2) the Prime
Rate plus one percent, compounded annually as of the last
day of the Plan Year. Notwithstanding the foregoing, the
Administrator may delegate its authority to determine the
Applicable Interest Rate under this Section 2.6.2 to an
officer of the Company or committee of two or more officers
of the Company.
2.7 "Board" means the Board of Directors of the Company, or the Executive
Committee of the Board of Directors of the Company.
2.8 "Change of Control" means any transaction or series of transactions as
a result of which any Person who was a Third Party immediately before such
transaction or series of transactions directly or indirectly owns
then-outstanding securities of the Company having more than 50 percent of the
voting power for the election of directors of the Company.
2.9 "Committee" means the Subcommittee on Performance Based Compensation of
the Compensation Committee of the Board of Directors of the Company.
2.10 "Company" means Comcast Corporation, a Pennsylvania corporation,
including any successor thereto by merger, consolidation, acquisition of all or
substantially all the assets thereof, or otherwise.
2.11 "Company Stock" means Comcast Corporation Class A Special Common
Stock, par value, $1.00, including a fractional share, or such other securities
issued by Comcast
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Corporation as may be the subject to adjustment in the event that shares of
Company Stock are changed into or exchanged for a different number or kind of
shares of stock or other securities of the Company, whether through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split-up
or other substitution of securities of the Company. In such event, the Committee
shall make appropriate equitable anti-dilution adjustments to the number and
class of hypothetical shares of Company Stock credited to Participants' Accounts
under the Company Stock Fund. Any reference to the term "Company Stock" in the
Plan shall be a reference to the appropriate number and class of shares of stock
as adjusted pursuant to this Section 2.12. The Committee's adjustment shall be
effective and binding for all purposes of the Plan.
2.12 "Company Stock Fund" means a hypothetical investment fund pursuant to
which income, gains and losses are credited to a Participant's Account as if the
Account, to the extent deemed invested in the Company Stock Fund, were invested
in hypothetical shares of Company Stock, and all dividends and other
distributions paid with respect to Company Stock were held uninvested in cash,
and reinvested in additional hypothetical shares of Company Stock as of the next
succeeding December 31 (to the extent the Account continues to be deemed
invested in the Company Stock Fund through such December 31), based on the Fair
Market Value for such December 31.
2.13 "Compensation" means:
2.13.1 In the case of an Outside Director, the total cash
remuneration for services as a member of the Board and as a
member of any Committee of the Board; and
2.13.2 In the case of an Eligible Employee, the total cash
remuneration for services payable by a Participating
Company, excluding sales commissions or other similar
payments or awards.
2.14 "Deceased Participant" means:
2.14.1 A Participant whose employment, or, in the case of a
Participant who was an Outside Director, a Participant whose
service as an Outside Director, is terminated by death; or
2.14.2 An Inactive Participant who dies following termination of
active service.
2.15 "Disabled Participant" means:
2.15.1 A Participant whose employment or, in the case of a
Participant who is an Outside Director, a Participant whose
service as an Outside Director, is terminated by reason of
disability;
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PHLEGAL: #54263 v16 (15VB16!.WPD)
2.15.2 An Inactive Participant who becomes disabled (as determined
by the Committee) following termination of active service;
or
2.15.3 The duly-appointed legal guardian of an individual described
in Section 2.15.1 or 2.15.2 acting on behalf of such
individual.
2.16 "Election" means a written election on a form provided by the
Administrator, filed with the Administrator in accordance with Article 3,
pursuant to which an Outside Director or an Eligible Employee may:
2.16.1 Elect to defer all or any portion of the Compensation
payable for the performance of services as an Outside
Director or as an Eligible Employee following the time that
such election is filed;
2.16.2 Designate the time that part or all of the Account shall be
distributed; and
2.16.3 Designate the manner in which income, gains and losses will
be credited to the Account.
2.17 "Eligible Employee" means:
2.17.1 Each employee of a Participating Company who, as of December
31, 1989, was eligible to participate in the Prior Plan;
2.17.2 Each employee of a Participating Company who was, at any
time before January 1, 1995, eligible to participate in the
Prior Plan and whose Annual Rate of Pay is $90,000 or more
as of both (1) the date on which an Election with respect to
the deferral of Compensation is filed with the Administrator
and (2) the first day of each calendar year beginning after
December 31, 1994.
2.17.3 Each employee of a Participating Company whose Annual Rate
of Pay is $125,000 or more as of both (1) the date on which
an Election is filed with the Administrator and (2) the
first day of the Plan Year in which such Election is filed.
2.17.4 Each New Key Employee.
2.17.5 Each other employee of a Participating Company who is
designated by the Committee, in its discretion, as an
Eligible Employee.
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2.18 "Fair Market Value."
2.18.1 If shares of Company Stock are listed on a stock exchange,
Fair Market Value shall be determined based on the last
reported sale price of a Share on the principal exchange on
which Shares are listed on the last trading day prior to the
date of determination; or
2.18.2 If shares of Company Stock are not so listed, but trades of
Shares are reported on the Nasdaq National Market, the last
quoted sale price of a share on the Nasdaq National Market
on the last trading day prior to the date of determination.
2.18.3 If shares of Company Stock are not so listed nor trades of
Shares so reported, Fair Market value shall be determined by
the Committee in good faith.
2.19 "Former Eligible Employee" means an employee of a Participating
Company who, as of any relevant date, does not satisfy the requirements of an
"Eligible Employee" but who previously met such requirements under the Plan or
the Prior Plan.
2.20 "Grandfathered Participant" means an Inactive Participant who, on or
before December 31, 1991, entered into a written agreement with the Company to
terminate service to the Company or gives written notice of intention to
terminate service to the Company, regardless of the actual date of termination
of service.
2.21 "Hardship" means a Participant's serious financial hardship, as
determined by the Board on a uniform and nondiscriminatory basis pursuant to the
Participant's request under Section 7.3.
2.22 "Inactive Participant" means each Participant who is not in active
service as an Outside Director and is not actively employed by a Participating
Company.
2.23 "Income Fund" means a hypothetical investment fund pursuant to which
income, gains and losses are credited to a Participant's Account as if the
Account, to the extent deemed invested in the Income Fund, were credited with
interest at the Applicable Interest Rate.
2.24 "Insider" means an Eligible Employee or Outside Director who is
subject to the short-swing profit recapture rules of section 16(b) of the
Securities Exchange Act of 1934, as amended.
2.25 "New Key Employee" means each employee of a Participating Company
hired on or after August 15, 1996 whose annual rate of pay on his date of hire
is $125,000 or more.
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2.26 "Normal Retirement" means:
2.26.1 For a Participant who is an employee of a Participating
Company immediately preceding his termination of employment,
a termination of employment that is treated by the
Participating Company as a retirement under its employment
policies and practices as in effect from time to time; and
2.26.2 For a Participant who is an Outside Director immediately
preceding his termination of service, his normal retirement
from the Board.
2.27 "Outside Director" means a member of the Board who is not an employee
of a Participating Company.
2.28 "Parent Company" means all corporations that, at the time in question,
are parent corporations of the Company within the meaning of section 424(e) of
the Code.
2.29 "Participant" means each individual who has made an Election, and who
has an undistributed amount credited to an Account under the Plan, including an
Active Participant, a Deceased Participant, a Disabled Participant, a
Grandfathered Participant and an Inactive Participant.
2.30 "Participating Company" means:
2.30.1 the Company;
2.30.2 Comcast Cable Communications, Inc. and its subsidiaries;
2.30.3 Comcast Cellular Communications, Inc. and its subsidiaries;
2.30.4 Comcast International Holdings, Inc.;
2.30.5 Comcast UK Cable Partners Consulting, Inc.;
2.30.6 Comcast Online Communications, Inc.;
2.30.7 Comcast Satellite Communications, Inc.;
2.30.8 Comcast Telephony Communications, Inc. and its subsidiaries;
and
2.30.9 any other entities identified in the discretion of the
Subcommittee.
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2.31 "Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization.
2.32 "Plan" means the Comcast Corporation 1996 Deferred Compensation Plan,
as set forth herein, and as may be amended from time to time.
2.33 "Plan Year" means the calendar year.
2.34 "Prime Rate" means the annual rate of interest identified by PNC Bank
as its prime rate as of a Participant's employment termination date and as of
the first day of each calendar year beginning thereafter.
2.35 "Prior Plan" means the Comcast Corporation Deferred Compensation Plan.
2.36 "Retired Participant" means a Participant who has terminated service
pursuant to a Normal Retirement.
2.37 "Roberts Family." Each of the following is a member of the Roberts
Family:
2.37.1 Ralph J. Roberts;
2.37.2 A lineal descendant of Ralph J. Roberts; or
2.37.3 A trust established for the benefit of any of Ralph J.
Roberts and/or a lineal descendant or descendants of Ralph
J. Roberts.
2.38 "Severance Pay" means any amount identified by a Participating Company
as severance pay, or any amount which is payable on account of periods beginning
after the last date on which an employee (or former employee) is required to
report for work for a Participating Company.
2.39 "Subsidiary Companies" means all corporations that, at the time in
question, are subsidiary corporations of the Company within the meaning of
section 424(f) of the Code.
2.40 "Terminating Event" means any of the following events:
2.40.1 The liquidation of the Company; or
2.40.2 A Change of Control.
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2.41 "Third Party" means any Person, together with such Person's
Affiliates, provided that the term "Third Party" shall not include the Company,
an Affiliate of the Company or any member or members of the Roberts Family.
3. ELECTION TO DEFER COMPENSATION
3.1 Elections. Each Outside Director and Eligible Employee shall have the
right to defer all or any portion of the Compensation (including bonuses, if
any) which he or she shall receive in the following Plan Year by filing an
Election at the time and in the manner described in this Article 3; provided
that Severance Pay shall be included as "Compensation" for purposes of this
Section 3.1 only to the extent permitted by the Administrator in its sole
discretion. The amount of Compensation deferred by a Participant for a Plan Year
pursuant to an Election shall be withheld on a pro-rata basis from each periodic
installment payment of the Participant's Compensation for the Plan Year (in
accordance with the general pay practices of the Participating Companies), and
credited to the Participant's Account in accordance with Section 5.1. Except to
the extent permitted by the Administrator in its sole discretion, no Election
filed by a Former Eligible Employee shall be valid or effective.
3.2 Filing of Elections. An Election to defer all or any portion of the
Compensation payable for the performance of services as an Outside Director or
as an Eligible Employee shall be made on the form provided by the Administrator
for this purpose. Except as provided in Section 3.3, no such Election shall be
effective unless it is filed with the Administrator on or before the close of
business on December 31 of the Plan Year preceding the Plan Year to which the
Election applies.
3.3 Filing of Elections by New Key Employees. Notwithstanding Section 3.1
and Section 3.2, a New Key Employee may elect to defer all or any portion of his
or her compensation to be earned in the Plan Year in which the New Key Employee
was hired, beginning with the payroll period next following the filing of an
Election with the Administrator and before the close of such Plan Year by making
and filing the Election with the Administrator within 30 days of such New Key
Employee's date of hire. Elections by such New Key Employee for succeeding Plan
Years shall be made in accordance with Section 3.1 and Section 3.2.
3.4 Plan Years to which Elections May Apply. A separate Election may be
made for each Plan Year as to which an Outside Director or Eligible Employee
desires to defer all or any portion of his or her Compensation, but the failure
of an Outside Director or Eligible Employee to make an Election for any Plan
Year shall not affect such Employee's right to make an Election for any other
Plan Year.
3.5 Election of Distribution Date. Each Participant who elects to defer all
or any portion of his or her Compensation for any Plan Year shall, on the
Election, also elect the time of payment and form of distribution of the amount
of the deferred Compensation to which the particular Election relates; provided,
however, that, subject to acceleration pursuant to
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Section 3.6.3, Section 3.6.4, Section 7.1, Section 7.2 or Section 7.3, no
distribution may commence earlier than January 2nd of the second calendar year
beginning after the date the Election is filed with the Administrator, nor later
than January 2nd of the eleventh calendar year beginning after the date the
Election is filed with the Administrator. Each Participant may select a form of
distribution in accordance with Article 4.
3.6 Designation of Payment Date.
3.6.1 The designation of the time for distribution of benefits to
begin under the Plan may vary with each separate Election,
provided that except as otherwise provided in Section 3.6.3
or 3.6.4, no portion of a Participant's Account subject to
distribution in installments pursuant to Section 4.1.2 or
Section 4.1.3 may be deferred to a later date after such
distribution has begun.
3.6.2 Each Active Participant who has previously elected to
receive a distribution of part or all of his or her Account,
or who, pursuant to this Section 3.6.2, has elected to defer
payment for an additional period from the originally-elected
payment date, may elect to change the form of distribution
or defer the time of payment of such amount to begin for a
minimum of one and a maximum of ten additional years from
the previously-elected payment date, by filing an Election
with the Administrator on or before the close of business on
June 30 of the Plan Year preceding the Plan Year in which
the distribution would otherwise be made, provided that an
Election applicable to the 1997 Plan Year shall not be
effective unless it is filed with the Administrator on or
before the close of business on October 15, 1996.
3.6.3 A Deceased Participant's estate or beneficiary to whom the
right to payment under the Plan shall have passed may elect
to change the form of distribution from the form of
distribution that payment of the Deceased Participant's
Account would otherwise be made, and
3.6.3.1 Defer the time of payment of the Deceased
Participant's Account to begin for a minimum of
one additional year from the date payment would
otherwise begin (provided that if an Election is
made pursuant to this Section 3.6.3.1, the
Deceased Participant's Account shall be
distributed in full on or before the fifth
anniversary of the Deceased Participant's death);
or
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3.6.3.2 Accelerate the time of payment of such amount to
begin from the date payment would otherwise be
made to January 2nd of the calendar year beginning
after the Deceased Participant's death.
An Election pursuant to this Section 3.6.3 must be filed
with the Administrator on or before the close of business on
(i) the June 30 following the Participant's death on or
before May 1 of a calendar year, (ii) the 60th day following
the Participant's death after May 1 and before November 2 of
a calendar year or (iii) the December 31 following the
Participant's death after November 1 of a calendar year.
Such estate or beneficiary, as applicable, shall be entitled
to one and only one Election pursuant to this Section 3.6.3
with respect to a Participant's Account, but shall otherwise
be treated as the Participant for all other purposes of the
Plan.
3.6.4 A Disabled Participant may elect to:
3.6.4.1 Change the form of distribution from the form of
distribution that payment of the Disabled
Participant's Account would otherwise be made; and
3.6.4.2 Accelerate the time of payment of the Disabled
Participant's Account to begin from the date
payment would otherwise be made to January 2nd of
the calendar year beginning after the Participant
became disabled.
An Election pursuant to this Section 3.6.4 must be filed
with the Administrator on or before the close of business on
the later of (i) the June 30 following the date the
Participant becomes a Disabled Participant if the
Participant becomes a Disabled Participant on or before May
1 of a calendar year, (ii) the 60th day following the date
the Participant becomes a Disabled Participant if the
Participant becomes a Disabled Participant after May 1 and
before November 2 of a calendar year or (iii) the December
31 following the date the Participant becomes a Disabled
Participant if the Participant becomes a Disabled
Participant after November 1 of a calendar year.
3.6.5 A Retired Participant may elect to:
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3.6.5.1 Change the form of distribution from the form of
distribution that payment of the Retired
Participant's Account would otherwise be made, and
3.6.5.2 Defer the time of payment of the Retired
Participant's Account to begin for a minimum of
one additional year from the date payment would
otherwise begin (provided that if an Election is
made pursuant to this Section 3.6.5.2, the Retired
Participant's Account shall be distributed in full
on or before the fifth anniversary of the Retired
Participant's Normal Retirement).
An Election pursuant to this Section 3.6.5 must be filed
with the Administrator on or before the close of business on
the later of (i) the June 30 following the Participant's
Normal Retirement on or before May 1 of a calendar year,
(ii) the 60th day following the Participant's Normal
Retirement after May 1 and before November 2 of a calendar
year or (iii) the December 31 following a Participant's
Normal Retirement after November 1 of a calendar year.
3.6.6 Except as provided in Section 3.6.4, Section 3.6.5 or
Section 3.6.7, or if permitted by the Administrator in its
sole discretion pursuant to this Section 3.6.6, no Inactive
Participant who has previously elected to receive a
distribution of part or all of his her Account, or who,
pursuant to this Section 3.6.6, has elected to defer payment
for an additional period from the originally elected payment
date, may elect to defer the payment of such amount to any
subsequent date. An Inactive Participant, if permitted by
the Administrator in its sole discretion, may elect to defer
the payment of such amount for a minimum of one and a
maximum of ten additional years from the previously-elected
payment date, but not later than the date permitted by the
Administrator, by filing an Election with the Administrator
on or before the close of business on June 30 of the Plan
Year preceding the Plan Year in which the distribution would
otherwise be made.
3.6.7 Except as provided in Section 3.6.4 or Section 3.6.6, no
Grandfathered Participant who has previously elected to
receive a distribution of part or all of his or her Account,
or who, pursuant to this Section 3.6, has elected to defer
payment for an additional period from the originally-elected
payment date, may elect to defer the payment of such amount
to any subsequent date.
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3.6.8 Subject to acceleration pursuant to Section 3.6.3, Section
3.6.4, Section 7.1, Section 7.2 or Section 7.3, no
distribution of the amounts deferred by a Participant for
any Plan Year shall be made before the payment date
designated by the Participant on the most recently filed
Election with respect to such deferred amounts. Distribution
of the amounts deferred for any Plan Year by a Participant
(other than a Grandfathered Participant and an Inactive
Participant who makes an Election under Section 3.6.5) who
ceases to be an Active Participant shall be made on the
payment date designated by the Participant on the last
Election filed with respect to such deferred amounts before
the Participant ceased to be an Active Participant.
3.7 Distribution in Full Upon Terminating Event. The Company shall give
Participants at least thirty (30) days' notice (or, if not practicable, such
shorter notice as may be reasonably practicable) prior to the anticipated date
of the consummation of a Terminating Event. The Committee may, in its
discretion, provide in such notice that notwithstanding any other provision of
the Plan or the terms of any Election, upon the consummation of a Terminating
Event, the Account balance of each Participant shall be distributed in full.
4. FORMS OF DISTRIBUTION
4.1 Forms of Distribution. Amounts credited to an Account shall be
distributed, pursuant to an Election, from among the following forms of
distribution:
4.1.1 A lump sum payment.
4.1.2 Substantially equal annual installments over a five (5), ten
(10) or fifteen (15) year period.
4.1.3 Substantially equal monthly installments over a period not
exceeding fifteen (15) years.
Notwithstanding any Election to the contrary, distributions pursuant to
Elections made after December 10, 1996 shall be made in the form of a lump sum
payment unless the portion of a Participant's Account subject to distribution
pursuant to Section 4.1.2 or Section 4.1.3, as of both the date of the Election
and the benefit commencement date, is more than $10,000.
4.2 Valuation of Account For Purposes of Distribution. The amount of any
distribution made pursuant to Section 4.1 shall be based on the value of the
Participant's Account on the date of distribution and the applicable
distribution period. For this purpose, the value of a Participant's Account
shall be calculated by crediting income, gains and losses under the
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Company Stock Fund and the Income Fund, as applicable, through the date
immediately preceding the date of distribution.
5. BOOK ACCOUNTS
5.1 Deferred Compensation Account. A deferred Compensation Account shall be
established for each Outside Director and Eligible Employee when such Outside
Director or Eligible Employee becomes a Participant. The balance of each
Participant's Account as of January 1, 1997 shall include the balance of such
Participant's account under the Prior Plan as of December 31, 1996. Compensation
deferred pursuant to the Plan shall be credited to the Account on the date such
Compensation would otherwise have been payable to the Participant. Income, gains
and losses on the balance of the Account shall be credited to the Account as
provided in Section 5.2.
5.2 Crediting of Income, Gains and Losses on Accounts.
5.2.1 In General. Except as otherwise provided in this Section
5.2, the Administrator shall credit income, gains and losses
with respect to each Participant's Account as if it were
invested in the Income Fund.
5.2.2 Investment Fund Elections.
5.2.2.1 Each Active Participant, other than an Active
Participant who is an Insider, may elect to have
all or any portion of his Account (to the extent
credited through the December 31 preceding the
effective date of such Election) credited with
income, gains and losses as if it were invested in
the Company Stock Fund or the Income Fund.
5.2.2.2 An investment fund Election shall continue in
effect until revoked or superseded, provided that
notwithstanding any investment fund Election to
the contrary, as of the valuation date (as
determined under Section 4.2) for the distribution
of all or any portion of a Participant's Account
that is subject to distribution in the form of
installments described in Section 4.1.2 or 4.1.2,
such Account, or portion thereof, shall be deemed
invested in the Income Fund (and transferred from
the Company Stock Fund to the Income Fund, to the
extent necessary) until such Account, or portion
thereof, is distributed in full.
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5.2.2.3 In the absence of an effective Election, a
Participant shall be deemed to have elected to
have the Account credited with income, gains and
losses as if it were invested in the Income Fund.
5.2.2.4 Investment fund Elections under this Section 5.2.2
shall be effective as of the first day of each
Plan Year beginning on and after January 1, 1997,
provided that the election is filed with the
Committee on or before the close of business on
December 31 of the Plan Year preceding such Plan
Year. An Active Participant may only make an
investment fund Election with respect to the
Participant's accumulated Account as of December
31, and not with respect to Compensation to be
deferred for a Plan Year.
5.2.2.5 If an Active Participant who was not an Insider
becomes an Insider, then, notwithstanding the
foregoing, such Active Participant may elect to
transfer the portion of his Account, if any,
deemed invested in the Company Stock Fund to be
deemed invested in the Income Fund, effective as
of the first day of any calendar month beginning
after such Active Participant becomes an Insider.
5.2.2.6 If a Participant ceases to continue in service as
an Active Participant, then, notwithstanding any
Election to the contrary, such Participant's
Account shall be deemed invested in the Income
Fund, effective as of the first day of any
calendar year beginning after such Participant
ceases to continue in service as an Active
Participant.
5.2.3 Timing of Credits. Compensation deferred pursuant to the
Plan shall be deemed invested in the Income Fund on the date
such Compensation would otherwise have been payable to the
Participant. Accumulated Account balances subject to an
investment fund Election under Section 5.2.2 shall be deemed
invested in the applicable investment fund as of the
effective date of such Election. The value of amounts deemed
invested in the Company Stock Fund shall be based on
hypothetical purchases and sales of Company Stock at Fair
Market Value as of the effective date of an investment
Election.
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5.3 Status of Deferred Amounts. Regardless of whether or not the Company is
a Participant's employer, all Compensation deferred under this Plan shall
continue for all purposes to be a part of the general funds of the Company.
5.4 Participants' Status as General Creditors. Regardless of whether or not
the Company is a Participant's employer, an Account shall at all times represent
the general obligation of the Company. The Participant shall be a general
creditor of the Company with respect to this obligation, and shall not have a
secured or preferred position with respect to his or her Accounts. Nothing
contained herein shall be deemed to create an escrow, trust, custodial account
or fiduciary relationship of any kind. Nothing contained herein shall be
construed to eliminate any priority or preferred position of a Participant in a
bankruptcy matter with respect to claims for wages.
6. NON-ASSIGNABILITY, ETC.
The right of each Participant in or to any account, benefit or payment
hereunder shall not be subject in any manner to attachment or other legal
process for the debts of such Participant; and no Account, benefit or payment
shall be subject to anticipation, alienation, sale, transfer, assignment or
encumbrance.
7. DEATH OR DISABILITY OF PARTICIPANT
7.1 Death of Participant. A Deceased Participant's Account shall be
distributed in accordance with the last Election made by the Deceased
Participant before the Deceased Participant's death, unless the Deceased
Participant's estate or beneficiary to whom the right to payment under the Plan
shall have passed timely elects to accelerate or defer the time or change the
form of payment pursuant to Section 3.6.3.
7.2 Disability of Participant. A Disabled Participant's Account shall be
distributed in accordance with the last Election made by the Disabled
Participant before the Disabled Participant's termination of service or date of
disability, as applicable, unless the Disabled Participant timely elects to
accelerate the time or change the form of payment pursuant to Section 3.6.4.
7.3 Hardship Distributions. Notwithstanding the terms of an Election, if,
at the Participant's request, the Board determines that the Participant has
incurred a Hardship, the Board may, in its discretion, authorize the immediate
distribution of all or any portion of the Participant's Account.
7.4 Designation of Beneficiaries. Each Participant shall have the right to
designate one or more beneficiaries to receive distributions in the event of the
Participant's death by filing with the Administrator a beneficiary designation
on the form provided by the Administrator for such purpose. The designation of
beneficiary or beneficiaries may be changed
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by a Participant at any time prior to his or her death by the delivery to the
Administrator of a new beneficiary designation form. If no beneficiary shall
have been designated, or if no designated beneficiary shall survive the
Participant, the Participant's estate shall be deemed to be the beneficiary.
8. INTERPRETATION
8.1 Authority of Committee. The Committee shall have full and exclusive
authority to construe, interpret and administer this Plan and the Committee's
construction and interpretation thereof shall be binding and conclusive on all
persons for all purposes.
8.2 Claims Procedure. The Committee shall administer a reasonable claims
procedure with respect to the Plan in accordance with Department of Labor
Regulation section 2560.503-1, or any successor provision.
9. AMENDMENT OR TERMINATION
9.1 Amendment or Termination. Except as otherwise provided by Section 9.2,
the Company, by action of the Board or by action of the Committee, reserves the
right at any time, or from time to time, to amend or modify this Plan. The
Company, by action of the Board, reserves the right at any time, or from time to
time terminate this Plan.
9.2 Amendment of Rate of Credited Earnings. No amendment shall change the
Applicable Interest Rate with respect to the portion of a Participant's Account
that is attributable to an Election made with respect to Compensation earned in
a Plan Year and filed with the Administrator before the date of adoption of such
amendment by the Board. For purposes of this Section 9.2, an Election to defer
the payment of part or all of an Account for an additional period after a
previously-elected payment date (as described in Section 3.6) shall be treated
as a separate Election from any previous Election with respect to such Account.
10. MISCELLANEOUS PROVISIONS
10.1 No Right to Continued Employment. Nothing contained herein shall be
construed as conferring upon any Participant the right to remain in service as
an Outside Director or in the employment of a Participating Company as an
executive or in any other capacity.
10.2 Governing Law. This Plan shall be interpreted under the laws of the
Commonwealth of Pennsylvania.
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11. EFFECTIVE DATE
The effective date of the Plan this amendment and restatement of the Plan
shall be December 15, 1998.
IN WITNESS WHEREOF, COMCAST CORPORATION has caused this Plan to be executed
by its officers thereunto duly authorized, and its corporate seal to be affixed
hereto, as of the 15th day of December, 1998.
COMCAST CORPORATION
BY: /s/ Stanley Wang
ATTEST: /s/ Arthur R. Block
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COMCAST CORPORATION
1990 RESTRICTED STOCK PLAN
(As Amended and Restated, Effective December 15, 1998)
1. PURPOSE
The purpose of the Plan is to promote the ability of Comcast Corporation
(the "Company") to retain certain key employees and enhance the growth and
profitability of the Company by providing the incentive of long-term awards for
continued employment and the attainment of performance objectives.
2. DEFINITIONS
(a) "Active Grantee" means each Grantee who is actively employed by a
Participating Company.
(b) "Affiliate" means, with respect to any Person, any other person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. For purposes of this definition, the term "control,"
including its correlative terms "controlled by" and "under common control with,"
mean, with respect to any Person, the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
(c) "Award" means an award of Restricted Stock granted under the Plan.
(d) "Board" means the Board of Directors of the Company.
(e) "Change of Control" means any transaction or series of transactions as
a result of which any Person who was a Third Party immediately before such
transaction or series of transactions directly or indirectly owns
then-outstanding securities of the Company having more than 50 percent of the
voting power for the election of directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Comcast Plan" means any restricted stock, stock bonus, stock option or
other compensation plan, program or arrangement established or maintained by the
Company or an Affiliate, including but not limited to this Plan, the Comcast
Corporation 1997 Deferred Stock Option Plan, the Comcast Corporation 1996 Stock
Option Plan and the Comcast Corporation 1987 Stock Option Plan.
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(h) "Committee" means the Subcommittee on Performance Based Compensation of
the Compensation Committee of the Board.
(i) "Company" means Comcast Corporation, a Pennsylvania corporation,
including any successor thereto by merger, consolidation, acquisition of all or
substantially all the assets thereof, or otherwise.
(j) "Date of Grant" means the date on which an Award is granted.
(k) "Deceased Grantee" means:
(i) A Grantee whose employment by a Participating Company is
terminated by death; or
(ii) A Grantee who dies following termination of employment by a
Participating Company.
(l) "Disabled Grantee" means:
(i) A Grantee whose employment by a Participating Company is
terminated by reason of disability;
(ii) A Grantee who becomes disabled (as determined by the Committee)
following termination of employment by a Participating Company;
or
(iii)The duly-appointed legal guardian of an individual described in
Paragraph 2(l)(i) or 2(l)(ii) acting on behalf of such
individual.
(m) "Election" means a written election on a form provided by the
Committee, filed with the Committee in accordance with Paragraph 8, pursuant to
which a Grantee:
(i) Elects, within the time or times specified in Paragraph 8, to
defer the distribution date of Restricted Stock; and
(ii) Designates the distribution date of Restricted Stock.
(n) "Eligible Employee" means a management employee of a Participating
Company, as determined by the Committee.
(o) "Grantee" means an Eligible Employee who is granted an Award.
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(p) "Normal Retirement" means a Grantee's termination of employment that is
treated by the Participating Company as a retirement under its employment
policies and practices as in effect from time to time.
(q) "Other Available Shares" means, as of any date, the excess, if any of:
(i) the total number of Shares owned by a Grantee; over
(ii) the sum of:
(x) the number of Shares owned by such Grantee for less than six
months; plus
(y) the number of Shares owned by such Grantee that has, within
the preceding six months, been the subject of a withholding
certification pursuant to Paragraph 9(c)(ii) or any similar
withholding certification under any other Comcast Plan; plus
(z) the number of Shares owned by such Grantee that has, within
the preceding six months, been received in exchange for
Shares surrendered as payment, in full or in part, of the
exercise price for an option to purchase any securities of
the Company or an Affiliate under any Comcast Plan, but only
to the extent of the number of Shares surrendered.
For purposes of this Paragraph 2(q), a Share that is subject to a deferral
election pursuant to Paragraph 8 or another Comcast Plan shall not be treated as
owned by a Grantee until all conditions to the delivery of such Share have
lapsed. For purposes of Paragraph 9(c), the number of Other Available Shares
shall be determined separately for the Company's Class A Special Common Stock,
par value, $1.00, and for the Company's Class A Common Stock, par value, $1.00.
(r) "Parent Company" means all corporations that, at the time in question,
are parent corporations of the Company within the meaning of section 424(e) of
the Code.
(s) "Participating Company" means the Company and each of the Parent
Companies and Subsidiary Companies.
(t) "Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization.
(u) "Plan" means the Comcast Corporation 1990 Restricted Stock Plan, as set
forth herein, and as amended from time to time.
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(v) "Plan Year" means the 365-day period (or the 366-day period) extending
from January 3 to the next following January 2.
(w) "Restricted Stock" means Shares subject to restrictions as set forth in
an Award.
(x) "Retired Grantee" means a Grantee who has terminated employment
pursuant to a Normal Retirement.
(y) "Roberts Family." Each of the following is a member of the Roberts
Family:
(i) Ralph J. Roberts;
(ii) a lineal descendant of Ralph J. Roberts; or
(iii)a trust established for the benefit of any of Ralph J. Roberts
and/or a lineal descendant or descendants of Ralph J. Roberts.
(z) "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, as in
effect from time to time.
(aa) "Share" or "Shares" means:
(i) for all purposes of the Plan, a share or shares of Class A
Special Common Stock, $1.00 par value, of the Company.
(ii) solely for purposes of Paragraphs 2(q) and 9(c), the term "Share"
or "Shares" also means a share or shares of the Company's Class A
Common Stock, par value, $1.00.
(bb) "Subsidiary Companies" means all corporations that, at the time in
question, are subsidiary corporations of the Company within the meaning of
section 424(f) of the Code.
(cc) "Terminating Event" means any of the following events:
(i) the liquidation of the Company; or
(ii) a Change of Control.
(dd) "Third Party" means any Person, together with such Person's
Affiliates, provided that the term "Third Party" shall not include the Company,
an Affiliate of the Company or any member or members of the Roberts Family.
(ee) "1933 Act" means the Securities Act of 1933, as amended.
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(ff) "1934 Act" means the Securities Exchange Act of 1934, as amended.
3. RIGHTS TO BE GRANTED
Rights that may be granted under the Plan are rights to Restricted Stock,
which gives the Grantee ownership rights in the Shares subject to the Award,
subject to a substantial risk of forfeiture, as set forth in Paragraph 7, and to
deferred payment, as set forth in Paragraph 8.
4. SHARES SUBJECT TO THE PLAN
(a) Not more than 4,875,000 Shares in the aggregate may be issued under the
Plan pursuant to the grant of Awards, subject to adjustment in accordance with
Paragraph 10. The Shares issued under the Plan may, at the Company's option, be
either Shares held in treasury or Shares originally issued for such purpose.
(b) If Restricted Stock is forfeited pursuant to the times of an Award,
other Awards with respect to such Shares may be granted.
5. ADMINISTRATION OF THE PLAN
(a) Administration. The Plan shall be administered by the Committee.
(b) Grants. Subject to the express terms and conditions set forth in the
Plan, the Committee shall have the power, from time to time, to:
(i) select those Employees to whom Awards shall be granted under the
Plan, to determine the number of Shares to be granted pursuant to
each Award, and, pursuant to the provisions of the Plan, to
determine the terms and conditions of each Award, including the
restrictions applicable to such Shares; and
(ii) interpret the Plan's provisions, prescribe, amend and rescind
rules and regulations for the Plan, and make all other
determinations necessary or advisable for the administration of
the Plan.
The determination of the Committee in all matters as stated above shall be
conclusive.
(c) Meetings. The Committee shall hold meetings at such times and places as
it may determine. Acts approved at a meeting by a majority of the members of the
Committee or acts approved in writing by the unanimous consent of the members of
the Committee shall be the valid acts of the Committee.
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(d) Exculpation. No member of the Committee shall be personally liable for
monetary damages for any action taken or any failure to take any action in
connection with the administration of the Plan or the granting of Awards
thereunder unless (i) the member of the Committee has breached or failed to
perform the duties of his office, and (ii) the breach or failure to perform
constitutes self-dealing, wilful misconduct or recklessness; provided, however,
that the provisions of this Paragraph 5(d) shall not apply to the responsibility
or liability of a member of the Committee pursuant to any criminal statute.
(e) Indemnification. Service on the Committee shall constitute service as a
member of the Board. Each member of the Committee shall be entitled without
further act on his part to indemnity from the Company to the fullest extent
provided by applicable law and the Company' s Articles of Incorporation and
By-laws in connection with or arising out of any action, suit or proceeding with
respect to the administration of the Plan or the granting of Awards thereunder
in which he may be involved by reason of his being or having been a member of
the Committee, whether or not he continues to be such member of the Committee at
the time of the action, suit or proceeding.
6. ELIGIBILITY
Awards may be granted only to Eligible Employees, as determined by the
Committee. No Awards shall be granted to an individual who is not an employee of
a Participating Company.
7. RESTRICTED STOCK AWARDS
The Committee may grant Awards in accordance with the Plan. The terms and
conditions of Awards shall be set forth in writing as determined from time to
time by the Committee, consistent, however, with the following:
(a) Time of Grant. All Awards shall be granted within ten (10) years from
the date of adoption of the Plan by the Board.
(b) Shares Awarded. The provisions of Awards need not be the same with
respect to each Grantee. No cash or other consideration shall be required to be
paid by the Grantee in exchange for an Award.
(c) Awards and Agreements. A certificate shall be issued to each Grantee in
respect of Shares subject to an Award. Such certificate shall be registered in
the name of the Grantee and shall bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such Award. The Company may
require that the certificate evidencing such Restricted Stock be held by the
Company until all restrictions on such Restricted Stock have lapsed.
(d) Restrictions. Subject to the provisions of the Plan and the Award,
during a period set by the Committee commencing with the Date of Grant, which,
for Grantees who are subject
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to the short-swing profit recapture rules of section 16(b) of the 1934 Act by
virtue of their position as either a director, officer or holder of more than 10
percent of any class of equity securities of the Company, shall extend for at
least six (6) months from the Date of Grant, the Grantee shall not be permitted
to sell, transfer, pledge or assign Restricted Stock awarded under the Plan.
(e) Lapse of Restrictions. Subject to the provisions of the Plan and the
Award, restrictions upon Shares subject to an Award shall lapse at such time or
times and on such terms and conditions as the Committee may determine and as are
set forth in the Award; provided, however, that the restrictions upon such
Shares shall lapse only if the Grantee on the date of such lapse is, and has
been an employee of a Participating Company continuously from the Date of Grant.
The Award may provide for the lapse of restrictions in installments, as
determined by the Committee. The Committee may, in its sole discretion, waive,
in whole or in part, any remaining restrictions with respect to such Grantee's
Restricted Stock.
(f) Rights of the Grantee. Grantees may have such rights with respect to
Shares subject to an Award as may be determined by the Committee and set forth
in the Award, including the right to vote such Shares, and the right to receive
dividends paid with respect to such Shares.
(g) Termination of Grantee's Employment. A transfer of an Eligible Employee
between two employers, each of which is a Participating Company, shall not be
deemed a termination of employment. In the event that a Grantee terminates
employment with all Participating Companies, all Shares remaining subject to
restrictions shall be forfeited by the Grantee and deemed canceled by the
Company.
(h) Delivery of Shares. Except as otherwise provided by Paragraph 8, when
the restrictions imposed on Restricted Stock lapse with respect to one or more
Shares, the Company shall notify the Grantee that such restrictions no longer
apply, and shall deliver to the Grantee (or the person to whom ownership rights
may have passed by will or the laws of descent and distribution) a certificate
for the number of Shares for which restrictions have lapsed without any legend
or restrictions (except those that may be imposed by the Committee, in its sole
judgment, under Paragraph 9(a)). The right to payment of any fractional Shares
that may have accrued shall be satisfied in cash, measured by the product of the
fractional amount times the fair market value of a Share at the time the
applicable restrictions lapse, as determined by the Committee.
8. DEFERRAL ELECTIONS
Effective for Awards granted after September 16, 1997, a Grantee may elect
to defer the receipt of Restricted Stock as to which restrictions have lapsed as
provided by the Committee in the Award, consistent, however, with the following:
(a) Deferral Election.
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(i) Election. Each Grantee shall have the right to defer the receipt
of all or any portion of the Restricted Stock as to which the
Award provides for the potential lapse of applicable restrictions
by filing an Election to defer the receipt of such Restricted
Stock on a form provided by the Committee for this purpose.
(ii) Deadline for Deferral Election. No Election to defer the receipt
of Restricted Stock as to which the Award provides for the
potential lapse of applicable restrictions shall be effective
unless it is filed with the Committee on or before the last day
of the calendar year ending before the first day of the Plan Year
in which the applicable restrictions may lapse; provided that an
Election to defer the receipt of Restricted Stock as to which the
Award provides for the potential lapse of applicable restrictions
within the same Plan Year as the Plan Year in which the Award is
granted shall be effective if it is filed with the Committee on
or before the earlier of (A) the 30th day following the Date of
Grant or (B) the last day of the month that precedes the month in
which the applicable restrictions may lapse.
(b) Effect of Failure of Restrictions on Shares to Lapse. An Election shall
be null and void if the restrictions on Restricted Stock do not lapse before the
distribution date for such Restricted Stock identified in such Election by
reason of the failure to satisfy any condition precedent to the lapse of the
restrictions.
(c) Deferral Period. Except as otherwise provided in Paragraph 8(d), all
Restricted Stock that is subject to an Election shall be delivered to the
Grantee (or the person to whom ownership rights may have passed by will or the
laws of descent and distribution) without any legend or restrictions (except
those that may be imposed by the Committee, in its sole judgment, under
Paragraph 9(a)), on the distribution date for such Restricted Stock designated
by the Grantee on the most recently filed Election. Subject to acceleration or
deferral pursuant to Paragraph 8(d) or Paragraph 11, no distribution may be made
earlier than January 2nd of the second calendar year beginning after the date on
which the applicable restrictions may lapse, nor later than January 2nd of the
tenth calendar year beginning after the date on which the applicable
restrictions may lapse. The distribution date may vary with each separate
Election.
(d) Additional Deferral Election.
(i) Each Active Grantee who has previously made an Election to
receive a distribution of part or all of his or her Account, or
who, pursuant to this Paragraph 8(d)(i) has made an Election to
defer the distribution date for Restricted Stock for an
additional period from the originally-elected distribution date,
may elect to defer the distribution date for a minimum of two and
a maximum of ten additional years from the previously-elected
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distribution date, by filing an Election with the Committee on or
before the close of business on June 30 of the calendar year
preceding the calendar year in which the distribution would
otherwise be made.
(ii) A Deceased Grantee's estate or beneficiary to whom the right to
payment under the Plan shall have passed may elect to (A) defer
the distribution date for the Deceased Grantee's Restricted Stock
for a minimum of two additional years from the date payment would
otherwise be made (provided that if an Election is made pursuant
to this Paragraph 8(d)(ii)(A), the Deceased Grantee's deferred
Restricted Stock shall be distributed in full on or before the
fifth anniversary of the Deceased Grantee's death); or (B)
accelerate the distribution date for the Deceased Grantee's
Restricted Stock from the date payment would otherwise be made to
January 2nd of the calendar year beginning after the Deceased
Grantee's death. An Election pursuant to this Paragraph 8(d)(ii)
must be filed with the Committee on or before the close of
business on (x) the June 30 following the Grantee's death on or
before May 1 of a calendar year, (y) the 60th day following the
Grantee's death after May 1 and before November 2 of a calendar
year or (z) the December 31 following the Grantee's death after
November 1 of a calendar year. One and only one Election shall be
permitted pursuant to this Paragraph 8(d)(ii) with respect to a
Deceased Grantee.
(iii)A Disabled Grantee may elect to accelerate the distribution date
of the Disabled Grantee's Restricted Stock from the date payment
would otherwise be made to January 2nd of the calendar year
beginning after the Grantee became disabled. An Election pursuant
to this Paragraph 8(d)(iii) must be filed with the Committee on
or before the close of business on the (x) the June 30 following
the date the Grantee becomes a Disabled Grantee if the Grantee
becomes a Disabled Grantee on or before May 1 of a calendar year,
(y) the 60th day following the date the Grantee becomes a
Disabled Grantee if the Grantee becomes a Disabled Grantee after
May 1 and before November 2 of a calendar year or (z) the
December 31 following the date the Grantee becomes a Disabled
Grantee if the Grantee becomes a Disabled Grantee after November
2 of a calendar year.
(iv) A Retired Grantee may elect to defer the distribution date of the
Retired Grantee's Restricted Stock for a minimum of two
additional years from the date payment would otherwise be made
(provided that if an Election is made pursuant to this Paragraph
8(d)(iv), the Retired Grantee's Account shall be distributed in
full on or before the fifth anniversary of the Retired Grantee's
Normal Retirement). An Election pursuant to this Paragraph
8(d)(iv) must be filed with the Committee on or before the close
of
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business on the later of (x) the June 30 following the Grantee's
Normal Retirement on or before May 1 of a calendar year, (y) the
60th day following the Grantee's Normal Retirement after May 1
and before November 2 of a calendar year or (z) the December 31
following the Grantee's Normal Retirement after November 1 of a
calendar year.
(e) Status of Deferred Shares. A Grantee's right to delivery of Shares
subject to an Election under this Paragraph 8 shall at all times represent the
general obligation of the Company. The Grantee shall be a general creditor of
the Company with respect to this obligation, and shall not have a secured or
preferred position with respect to such obligation. Nothing contained in the
Plan or an Award shall be deemed to create an escrow, trust, custodial account
or fiduciary relationship of any kind. Nothing contained in the Plan or an Award
shall be construed to eliminate any priority or preferred position of a Grantee
in a bankruptcy matter with respect to claims for wages.
(f) Non-Assignability, Etc. The right of a Grantee to receive Shares
subject to an Election under this Paragraph 8 shall not be subject in any manner
to attachment or other legal process for the debts of such Grantee; and no right
to receive Shares hereunder shall be subject to anticipation, alienation, sale,
transfer, assignment or encumbrance.
9. SECURITIES LAWS; TAXES
(a) Securities Laws. The Committee shall have the power to make each grant
of Awards under the Plan subject to such conditions as it deems necessary or
appropriate to comply with the then-existing requirements of the 1933 Act and
the 1934 Act, including Rule 16b-3. Such conditions may include the delivery by
the Grantee of an investment representation to the Company in connection with
the lapse of restrictions on Shares subject to an Award, or the execution of an
agreement by the Grantee to refrain from selling or otherwise disposing of the
Shares acquired for a specified period of time or on specified terms.
(b) Taxes. Subject to the rules of Paragraph 9(c), the Company shall be
entitled, if necessary or desirable, to withhold the amount of any tax, charge
or assessment attributable to the grant of any Award or lapse of restrictions
under any Award. The Company shall not be required to deliver Shares pursuant to
any Award until it has been indemnified to its satisfaction for any such tax,
charge or assessment.
(c) Payment of Tax Liabilities; Election to Withhold Shares or Pay Cash to
Satisfy Tax Liability.
(i) In connection with the grant of any Award or the lapse of
restrictions under any Award, the Company shall have the right to
(A) require the Grantee to remit to the Company an amount
sufficient to satisfy any federal, state and/or local withholding
tax requirements prior to the
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PHLEGAL: #54110 v11 (15R211!.WPD)
delivery or transfer of any certificate or certificates for
Shares subject to such Award, or (B) take any action whatever
that it deems necessary to protect its interests with respect to
tax liabilities. The Company's obligation to make any delivery or
transfer of Shares shall be conditioned on the Grantee's
compliance, to the Company's satisfaction, with any withholding
requirement.
(ii) Except as otherwise provided in this Paragraph 9(c)(ii), any tax
liabilities incurred in connection with grant of any Award or the
lapse of restrictions under any Award under the Plan shall be
satisfied by the Company's withholding a portion of the Shares
subject to such Award having a fair market value approximately
equal to the minimum amount of taxes required to be withheld by
the Company under applicable law, unless otherwise determined by
the Committee with respect to any Grantee. Notwithstanding the
foregoing, the Committee may permit a Grantee to elect one or
both of the following: (A) to have taxes withheld in excess of
the minimum amount required to be withheld by the Company under
applicable law; provided that the Grantee certifies in writing to
the Company at the time of such election that the Grantee owns
Other Available Shares having a fair market value that is at
least equal to the fair market value to be withheld by the
Company in payment of withholding taxes in excess of such minimum
amount; and (B) to pay to the Company in cash all or a portion of
the taxes to be withheld in connection with such grant or lapse
of restrictions. In all cases, the Shares so withheld by the
Company shall have a fair market value that does not exceed the
amount of taxes to be withheld minus the cash payment, if any,
made by the Grantee. The fair market value of such Shares shall
be determined based on the last reported sale price of a Share on
the principal exchange on which Shares are listed or, if not so
listed, on the NASDAQ Stock Market on the last trading day prior
to the date of such grant or lapse of restriction. Any election
pursuant to this Paragraph 9(c)(ii) must be in writing made prior
to the date specified by the Committee, and in any event prior to
the date the amount of tax to be withheld or paid is determined.
An election pursuant to this Paragraph 9(c)(ii) may be made only
by a Grantee or, in the event of the Grantee's death, by the
Grantee's legal representative. No Shares withheld pursuant to
this Paragraph 9(c)(ii) shall be available for subsequent grants
under the Plan. The Committee may add such other requirements and
limitations regarding elections pursuant to this Paragraph
9(c)(ii) as it deems appropriate.
10. CHANGES IN CAPITALIZATION
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The aggregate number of Shares and class of Shares as to which Awards may
be granted and the number of Shares covered by each outstanding Award shall be
appropriately adjusted in the event of a stock dividend, stock split,
recapitalization or other change in the number or class of issued and
outstanding equity securities of the Company resulting from a subdivision or
consolidation of the Shares and/or other outstanding equity security or a
recapitalization or other capital adjustment (not including the issuance of
Shares and/or other outstanding equity securities on the conversion of other
securities of the Company which are convertible into Shares and/or other
outstanding equity securities) affecting the Shares which is effected without
receipt of consideration by the Company. The Committee shall have authority to
determine the adjustments to be made under this Paragraph 10 and any such
determination by the Committee shall be final, binding and conclusive.
11. TERMINATING EVENTS
The Committee shall give Grantees at least thirty (30) days' notice (or, if
not practicable, such shorter notice as may be reasonably practicable) prior to
the anticipated date of the consummation of a Terminating Event. The Committee
may, in its discretion, provide in such notice that upon the consummation of
such Terminating Event, any restrictions on Restricted Stock (other than
Restricted Stock that has previously been forfeited) shall be eliminated, in
full or in part. Further, the Committee may, in its discretion, provide in such
notice that notwithstanding any other provision of the Plan or the terms of any
Election made pursuant to Paragraph 8, upon the consummation of a Terminating
Event, all Restricted Stock subject to an Election made pursuant to Paragraph 8
shall be transferred to the Grantee.
12. AMENDMENT AND TERMINATION
The Plan may be terminated by the Board at any time. The Plan may be
amended by the Board or the Committee at any time. No Award shall be affected by
any such termination or amendment without the written consent of the Grantee.
13. EFFECTIVE DATE
The effective date of this amendment and restatement of the Plan is the
date on which it is adopted by the Board. The adoption of this amendment and
restatement of the Plan and the grant of Awards pursuant to this amendment and
restatement of the Plan is subject to the approval of the shareholders of the
Company to the extent that the Committee determines that such approval (a) is
required pursuant to the By-laws of the National Association of Securities
Dealers, Inc., and the schedules thereto, in connection with issuers whose
securities are included in the NASDAQ National Market System, or (b) is required
to satisfy the conditions on Rule 16b-3. If the Committee determines that
shareholder approval is required to satisfy the foregoing conditions, the Board
shall submit the Plan to the shareholders the Company for their approval at the
first annual meeting of shareholders held after the adoption of the Plan by the
Board.
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14. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant to the Plan
shall be governed in accordance with Pennsylvania law.
Executed as of the 15th day of December, 1998
COMCAST CORPORATION
BY: /s/ Stanley Wang
ATTEST: /s/ Arthur R. Block
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COMCAST CORPORATION
1996 CASH BONUS PLAN
(Amended and Restated, Effective December 15, 1998)
1. PURPOSE
The purpose of the Plan is to promote the ability of Comcast
Corporation (the "Company") and its Subsidiaries (as defined below) to retain
and recruit employees and enhance the growth and profitability of the Company by
providing the incentive of short-term and long-term cash bonus awards for
continued employment and the attainment of performance objectives.
2. DEFINITIONS
(a) "Affiliate" means, with respect to any Person, any other person
that, directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. For purposes of this definition, the term
"control," including its correlative terms "controlled by" and "under common
control with," mean, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
(b) "Applicable Percent" means the percentage that corresponds to a
Modified Target, as identified in Exhibit A.
(c) "Annual Amount at Risk" means the amount designated by the
Committee for each Plan Year as the maximum portion of the Award payable for
such Plan Year, provided that the "Annual Amount at Risk" for the last Plan Year
of an Award shall not include the Last Year Amount at Risk.
(d) "Award" or "Cash Bonus Award" means a cash bonus award granted
under the Plan.
(e) "Award Period" means the period extending from January 1 of the
first Plan Year for which there is an Annual Amount at Risk through December 31
of the last Plan Year for which there is an Annual Amount at Risk.
(f) "Base Year" means 1995, except as otherwise provided by the
Committee and provided in an Award.
(g) "Board" means the Board of Directors of the Company.
PHLEGAL: #300985 v11 (6G8P11!.WPD)
(h) "C" means the Consolidated Operating Cash Flow of the Company, the
Cable Division or the Cellular Division, as applicable, for the Base Year.
(i) "Cable Division" means the Company's cable television business, as
determined by the Committee in its sole discretion.
(j) "Cellular Division" means the Company's cellular telephone
business, as determined by the Committee in its sole discretion.
(k) "Change of Control" means any transaction or series of
transactions as a result of which any Person who was a Third Party immediately
before such transaction or series of transactions directly or indirectly owns
then-outstanding securities of the Company having more than 50 percent of the
voting power for the election of directors of the Company.
(l) "Committee" means the Subcommittee on Performance Based
Compensation of the Compensation Committee of the Board.
(m) "Company."
(i) Except as otherwise provided in Paragraph 2(m)(ii), "Company"
means Comcast Corporation, a Pennsylvania corporation, including any successor
thereto by merger, consolidation, acquisition of all or substantially all the
assets thereof, or otherwise.
(ii) For purposes of determining an Eligible Employee's employer,
"Company" means Comcast Corporation, a Pennsylvania corporation.
(n) "Compounded Annual Growth Rate" means the value determined under
the following mathematical formula:
n
C [(1+r) ]
where C, r and n have the definitions provided in this Paragraph 2 of the Plan.
(o) "Consolidated Operating Cash Flow" means the consolidated
operating income plus depreciation and amortization, of the Company, the Cable
Division or the Cellular Division, as applicable, for a Plan Year, as determined
by the Committee in accordance with generally accepted accounting principles. If
the results of operations of a business acquired or disposed of after December
31 of the Base Year would, under generally accepted accounting principles, be
included (in the case of an acquisition) or excluded (in the case of a
disposition) from the consolidated financial statements of the Company, the
Cable Division or the Cellular
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PHLEGAL: #300985 v11 (6G8P11!.WPD)
Division, as applicable, from the date of acquisition or disposition, and, in
such event, the Committee decides in its sole discretion that such inclusion or
exclusion will materially affect the comparability of such amount for the Plan
Year in which the acquisition or disposition occurs and each Plan Year
thereafter to that for the Base Year, then for the purpose of determining
whether the Target has been met for the Plan Year in which the acquisition or
disposition occurs and each Plan Year thereafter only, the Consolidated
Operating Cash Flow for the Base Year shall be restated to account for such
acquisition or disposition as if it had occurred on January 1 of the Base Year,
using actual historical financial information for the acquired or disposed of
business. The Committee may also decide in its sole discretion that an event
(such as a non-recurring item or the results of a start-up or development stage
business) in a Plan Year will materially affect the comparability of the results
of operations for such Plan Year to that for the Base Year, in which case the
Committee may restate the results of operations for such Plan Year to make an
equitable adjustment thereto.
(p) "Cumulative Annual Amount at Risk" means, for any Plan Year, the
sum of the Annual Amount at Risk for such Plan Year and each preceding Plan Year
in the Award Period.
(q) "Date of Grant" means the date on which an Award is granted.
(r) "Eligible Employee" means an employee of the Company or a
Subsidiary, as determined by the Committee.
(s) "Grantee" means an Eligible Employee who is granted an Award.
(t) "Last Year Amount at Risk" means the amount designated by the
Committee as the portion of the Award at risk for the last Plan Year in the
Award Period, provided that the "Last Year Amount at Risk" shall not include the
portion of the Award designated by the Committee as the Annual Amount at Risk
for the such Plan Year.
(u) "Modified Target" means for any Plan Year beginning after 1996,
Consolidated Operating Cash Flow for the Company, the Cable Division or the
Cellular Division, as applicable, which equals or exceeds a percentage of the
Compounded Annual Growth Rate for such Plan Year as established by the Committee
for the Company, the Cable Division or the Cellular Division, as applicable;
provided that any fractional percentage shall be rounded to the nearest
identified percentage.
(v) "n" means a value applied for purposes of determining the
Compounded Annual Growth Rate for the Company, the Cable Division or the
Cellular Division, as applicable, as follows:
(i) for purposes of determining Compounded Annual Growth Rate for
the first Plan Year beginning after the Base Year, n = 1.
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(ii) for purposes of determining Compounded Annual Growth Rate
for the second Plan Year beginning after the Base Year, n = 2.
(iii) for purposes of determining Compounded Annual Growth Rate
for the third Plan Year beginning after the Base Year, n = 3.
(iv) for purposes of determining Compounded Annual Growth Rate
for the fourth Plan Year beginning after the Base Year, n = 4.
(v) for purposes of determining Compounded Annual Growth Rate for
the fifth Plan Year beginning after the Base Year, n = 5.
(w) "Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization.
(x) "Plan" means the Comcast Corporation 1996 Cash Bonus Plan, as set
forth herein, and as amended from time to time.
(y) "Plan Year" means the calendar year.
(z) "r" means the interest rate established by the Committee for
purposes of determining the Compounded Annual Growth Rate for the Company, the
Cable Division or the Cellular Division, as applicable.
(aa) "Roberts Family." Each of the following is a member of the
Roberts Family:
(i) Ralph J. Roberts;
(ii) a lineal descendant of Ralph J. Roberts; or
(iii) a trust established for the benefit of any of Ralph J.
Roberts and/or a lineal descendant or descendants of Ralph J. Roberts.
(bb) "Subsidiary" means a corporation that, at the time in question,
is a subsidiary corporation of the Company, within the meaning of section 424(f)
of the Code.
(cc) "Target" means, for any Plan Year beginning after the Base Year,
Consolidated Operating Cash Flow for the Company, the Cable Division or the
Cellular Division, as applicable, which equals or exceeds the Compounded Annual
Growth Rate for such Plan Year, based on the annualized interest rate, "r,"
established by the Committee for the Company, the Cable Division or the Cellular
Division, as applicable.
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(dd) "Terminating Event" means any of the following events:
(i) the liquidation of the Sponsor; or
(ii) a Change of Control.
(ee) "Third Party" means any Person, together with such Person's
Affiliates, provided that the term "Third Party" shall not include the Company,
an Affiliate of the Company or any member or members of the Roberts Family.
(ff) "Total Annual Amounts at Risk" means the sum of the Annual
Amounts at Risk for an Award.
3. RIGHTS TO BE GRANTED
Rights that may be granted under the Plan are rights to cash payments,
payable in accordance with the terms of the Plan and the Award document.
4. ADMINISTRATION OF THE PLAN
(a) Administration. The Plan shall be administered by the Committee.
(b) Grants. Subject to the express terms and conditions set forth in
the Plan, the Committee shall have the power, from time to time, to:
(i) select those Eligible Employees to whom Awards shall be
granted under the Plan, to determine the amount of cash to be paid pursuant to
each Award, and, pursuant to the provisions of the Plan, to determine the terms
and conditions of each Award; and
(ii) interpret the Plan's provisions, prescribe, amend and
rescind rules and regulations for the Plan, and make all other determinations
necessary or advisable for the administration of the Plan.
The determination of the Committee in all matters as stated above shall be
conclusive.
(c) Meetings. The Committee shall hold meetings at such times and
places as it may determine. Acts approved at a meeting by a majority of the
members of the Committee or acts approved in writing by the unanimous consent of
the members of the Committee shall be the valid acts of the Committee.
(d) Exculpation. No member of the Committee shall be personally liable
for monetary damages for any action taken or any failure to take any action in
connection with the administration of the Plan or the granting of Awards
thereunder unless (i) the member of
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PHLEGAL: #300985 v11 (6G8P11!.WPD)
the Committee has breached or failed to perform the duties of his office, and
(ii) the breach or failure to perform constitutes self-dealing, wilful
misconduct or recklessness; provided, however, that the provisions of this
Paragraph 4(d) shall not apply to the responsibility or liability of a member of
the Committee pursuant to any criminal statute.
(e) Indemnification. Service on the Committee shall constitute service
as a member of the Board. Each member of the Committee shall be entitled without
further act on his part to indemnity from the Company to the fullest extent
provided by applicable law and the Company's Articles of Incorporation and
By-laws in connection with or arising out of any action, suit or proceeding with
respect to the administration of the Plan or the granting of Awards thereunder
in which he may be involved by reason of his being or having been a member of
the Committee, whether or not he continues to be such member of the Committee at
the time of the action, suit or proceeding.
5. ELIGIBILITY
Awards may be granted only to Eligible Employees of the Company and
its Subsidiaries, as determined by the Committee. No Awards shall be granted to
an individual who is not an Eligible Employee of the Company or a Subsidiary.
6. CASH BONUS AWARDS
The Committee may grant Awards in accordance with the Plan. The terms
and conditions of Awards shall be set forth in writing as determined from time
to time by the Committee, consistent, however, with the following:
(a) Time of Grant. All Awards shall be granted within five years from
the date of adoption of the Plan by the Board.
(b) Non-uniformity of Awards. The provisions of Awards need not be the
same with respect to each Grantee.
(c) Awards and Agreements. The terms of each Award shall be reflected
in an Award document in form and substance satisfactory to the Committee.
(d) Conditions to Payment of Awards. The Committee shall establish
such conditions on the payment of a bonus pursuant to an Award as it may, in its
sole discretion, deem appropriate. The conditions shall be set forth in the
Award document. The Award may provide for the payment of Awards in installments,
or upon the satisfaction of divisional or Company-wide performance targets, as
determined by the Committee. The Committee may, in its sole discretion, waive,
in whole or in part, any remaining conditions to payment of a Grantee's Award.
The Grantee shall not be permitted to sell, transfer, pledge or assign any
amount payable
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pursuant to the Plan or an Award (provided that the right to payment under an
Award may pass by will or the laws of descent and distribution).
(e) Termination of Grantee's Employment.
(1) A transfer of an Eligible Employee between two employers,
each of which is the Company or a Subsidiary (a "Transfer"), shall not be deemed
a termination of employment. The Committee may grant Awards pursuant to which
the Committee reserves the right to modify the calculation of an Award in
connection with a Transfer. In general, except as otherwise provided by the
Committee at the time an Award is granted or in connection with a Transfer, upon
the Transfer of a Grantee between divisions while an Award is outstanding and
unexpired, the outstanding Award shall be treated as having terminated and
expired, and a new Award shall be treated as having been made, effective as of
the effective date of the Transfer, for the portion of the Award which had not
expired or been paid, but subject to the performance and payment conditions
applicable generally to Awards for Grantees who are employees of the transferee
division, all as shall be determined by the Committee in an equitable manner.
(2) In the event that a Grantee terminates employment with the
Company and its Subsidiaries, all Awards remaining subject to conditions to
payment shall be forfeited by the Grantee and deemed canceled by the Company.
(f) Time of Grant. Subject to Paragraph 11, and as further provided in
Paragraphs 7, 8, 9 and 10, following the satisfaction of the conditions to
payment of an Award, the Company shall pay the Grantee (or the person to whom
the right to payment may have passed by will or the laws of descent and
distribution) the amount payable in connection with the lapse of such
restrictions.
7. CONDITIONS TO PAYMENT OF CASH BONUS AWARDS
Except as otherwise determined by the Committee and provided in the
terms of an Award:
(a) The restrictions on the payment of Awards of Grantees employed by
the Company shall be determined pursuant to Paragraph 8.
(b) The conditions to the payment of Awards of Grantees employed by
the Cable Division shall be determined pursuant to Paragraph 9.
(c) The conditions to the payment of Awards of Grantees employed by
the Cellular Division shall be determined pursuant to Paragraph 10.
8. CORPORATE TARGET AND CASH BONUS
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(a) Amount of Cash Bonus Award. The amount of an Award to Eligible
Employees of the Company shall be determined by the Committee.
(b) Target. The Target for Eligible Employees of the Company shall be
met for each Plan Year beginning after the Base Year if Consolidated Operating
Cash Flow for the Company equals or exceeds the Compounded Annual Growth Rate
for such Plan Year, where "r" equals 12 percent (0.12); provided that the
Modified Target and Applicable Percent for purposes of this Paragraph 8 shall be
determined in accordance with Exhibit A.
(c) Awards with Dates of Grant Before July 1, 1996. Except as
otherwise determined by the Committee and provided in the terms of an Award, the
following rules shall apply if the Date of Grant of the Award is before July 1,
1996.
(i) Payment of Cash Bonus Award. The Cash Bonus Award shall be
paid to a Grantee at the following times if the following conditions are
satisfied:
(v) 15 percent of the Award shall be paid on or before
March 15, 1997 if the Target is met for the 1996 Plan
Year and the Grantee is an active employee of the
Company or a Subsidiary continuously from the Date of
Grant to December 31, 1996.
(w) 30 percent of the Award (less any portion of the Award
previously paid to Grantee) (the "1997 Basic Award")
shall be paid on or before March 15, 1998 if the Target
is met for the 1997 Plan Year and the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
1997; provided, however, that if a Modified Target is
met for the 1997 Plan Year, the Applicable Percent of
the 1997 Award shall be paid.
(x) 45 percent of the Award (less any portion of the Award
previously paid to Grantee) (the "1998 Basic Award")
shall be paid on or before March 15, 1999 if the Target
is met for the 1998 Plan Year and the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
1998; provided, however, that if a Modified Target is
met for the 1998 Plan Year, the Applicable Percent of
the 1998 Award shall be paid.
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(y) 60 percent of the Award (less any portion of the Award
previously paid to Grantee) (the "1999 Basic Award")
shall be paid on or before March 15, 2000 if the Target
is met for the 1999 Plan Year and the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
1999; provided, however, that if a Modified Target is
met for the 1999 Plan Year, the Applicable Percent of
the 1999 Award shall be paid.
(z) 75 percent of the Award (less any portion of the Award
previously paid to Grantee) (the "2000 Basic Award")
shall be paid on or before March 15, 2001 if the Target
is met for the 2000 Plan Year and the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
2000; provided, however, that if a Modified Target is
met for the 2000 Plan Year, the Applicable Percent of
the 2000 Award shall be paid.
(ii) Payment of Supplemental Cash Bonus Award. If the Grantee is
an active employee of the Company or a Subsidiary continuously from the Date of
Grant to December 31, 2000, the Grantee shall be paid an additional portion of
the Cash Bonus Award on or before March 15, 2001. Such additional portion of the
Cash Bonus Award shall be equal to the sum of the following amounts, provided
that the amount determined under any of (v), (w), (x), (y) or (z) below shall
not be less than zero.
(v) 5 percent of the Award if the Target was met for the
1996 Plan Year or, if a Modified Target was met for the
1996 Plan Year, the Applicable Percent of 5 percent of
the Award.
(w) 10 percent of the Award (less the amount described in
Paragraph 8(c)(ii)(v)) (the "1997 Supplemental Award")
if the Target was met for the 1997 Plan Year or, if a
Modified Target was met for the 1997 Plan Year, the
Applicable Percent of the 1997 Supplemental Award.
(x) 15 percent of the Award (less the sum of the amounts
described in Paragraphs 8(c)(ii)(v) and
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(w)) (the "1998 Supplemental Award") if the Target was
met for the 1998 Plan Year or, if a Modified Target was
met for the 1998 Plan Year, the Applicable Percent of
the 1998 Supplemental Award.
(y) 20 percent of the Award (less the sum of the amounts
described in Paragraphs 8(c)(ii)(v), (w) and (x)) (the
"1999 Supplemental Award") if the Target was met for
the 1999 Plan Year or, if a Modified Target was met for
the 1999 Plan Year, the Applicable Percent of the 1999
Supplemental Award.
(z) 25 percent of the Award (less the sum of the amounts
described in Paragraphs 8(c)(ii)(v), (w), (x) and (y))
(the "2000 Supplemental Award") if the Target was met
for the 2000 Plan Year or, if a Modified Target was met
for the 2000 Plan Year, the Applicable Percent of the
2000 Supplemental Award.
(d) Awards With Dates of Grant After June 30, 1996. Except as
otherwise determined by the Committee and provided in the terms of an Award, the
following rules shall apply if the Date of Grant of an Award is after June 30,
1996.
(i) For the first Plan Year in the Award Period, the Annual
Amount at Risk for such Plan Year shall be paid on or before March 15 next
following such Plan Year if the Target is met for such Plan Year and the Grantee
is an active employee of the Company or a Subsidiary continuously from the Date
of Grant to December 31 of such Plan Year; provided, however, that if a Modified
Target is met for such Plan Year, the Applicable Percent of the Annual Amount at
Risk for such Plan Year shall be paid.
(ii) For each succeeding Plan Year in the Award Period, the
Cumulative Annual Amount at Risk (less any portion of the Award previously paid
to the Grantee) (the "Succeeding Plan Year Basic Award") shall be paid on or
before March 15 next following such Plan Year if the Target is met for such Plan
Year and the Grantee is an active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31 of such Plan Year; provided,
however, that if a Modified Target is met for such succeeding Plan Year, the
Applicable Percent of the Succeeding Plan Year Basic Award shall be paid.
(iii) If the Grantee is an active employee of the Company or a
Subsidiary continuously from the Date of Grant to December 31 of the last Plan
Year in the
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Award Period, the Grantee shall be paid an additional portion of the Cash Bonus
Award on or before March 15 of the next succeeding calendar year, determined as
the sum of the following amounts:
(x) A percentage of the Award if the Target was met for the
first Plan Year in the Award Period, or, if a Modified
Target was met for the first Plan Year in the Award
Period, the Applicable Percent of such amount.
(y) A percentage of the Award (less the sum of the amounts
described in Paragraph 8(d)(iii)(x) and this Paragraph
8(d)(iii)(y) for all preceding Plan Years) (the
"Supplemental Award") if the Target was met for a
succeeding Plan Year in the Award Period, or if a
Modified Target was met for such succeeding Plan Year,
the Applicable Percent of the Supplemental Award,
provided that the applicable amount for any Plan Year
shall not be less than zero.
(z) The portion of the Award assigned to each Plan Year
pursuant to this Paragraph 8(d)(iii) shall be equal to
the product of (i) the Last Year Amount at Risk times
(ii) the quotient obtained by dividing the Cumulative
Annual Amount at Risk for such Plan Year by the Total
Annual Amounts at Risk.
9. CABLE DIVISION TARGET AND CASH BONUS
(a) Amount of Cash Bonus Award. The amount of an Award to Eligible
Employees of the Cable Division shall be determined by the Committee.
(b) Target. The Target for Eligible Employees of the Cable Division
shall be met for each Plan Year beginning after the Base Year if Consolidated
Operating Cash Flow for the Cable Division equals or exceeds the Compounded
Annual Growth Rate for such Plan Year, where "r" equals 10 percent (0.10);
provided that the Modified Target and Applicable Percent for purposes of this
Paragraph 9 shall be determined in accordance with Exhibit A.
(c) Awards with Dates of Grant Before July 1, 1996. Except as
otherwise determined by the Committee and provided in the terms of an Award, the
following rules shall apply if the Date of Grant of the Award is before July 1,
1996.
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(i) Payment of Cash Bonus Award. The Cash Bonus Award shall be
paid to a Grantee at the following times if the following conditions are
satisfied:
(v) 15 percent of the Award shall be paid on or before
March 15, 1997 if the Target is met for the 1996 Plan
Year and the Grantee is an active employee of the
Company or a Subsidiary continuously from the Date of
Grant to December 31, 1996.
(w) 30 percent of the Award (less any portion of the Award
previously paid to Grantee) (the "1997 Basic Award")
shall be paid on or before March 15, 1998 if the Target
is met for the 1997 Plan Year and the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
1997; provided, however, that if a Modified Target is
met for the 1997 Plan Year, the Applicable Percent of
the 1997 Award shall be paid.
(x) 45 percent of the Award (less any portion of the Award
previously paid to Grantee) (the "1998 Basic Award")
shall be paid on or before March 15, 1999 if the Target
is met for the 1998 Plan Year and the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
1998; provided, however, that if a Modified Target is
met for the 1998 Plan Year, the Applicable Percent of
the 1998 Award shall be paid.
(y) 60 percent of the Award (less any portion of the Award
previously paid to Grantee) (the "1999 Basic Award")
shall be paid on or before March 15, 2000 if the Target
is met for the 1999 Plan Year and the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
1999; provided, however, that if a Modified Target is
met for the 1999 Plan Year, the Applicable Percent of
the 1999 Award shall be paid.
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PHLEGAL: #300985 v11 (6G8P11!.WPD)
(z) 75 percent of the Award (less any portion of the Award
previously paid to Grantee) (the "2000 Basic Award")
shall be paid on or before March 15, 2001 if the Target
is met for the 2000 Plan Year and the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
2000; provided, however, that if a Modified Target is
met for the 2000 Plan Year, the Applicable Percent of
the 2000 Award shall be paid.
(ii) Payment of Supplemental Cash Bonus Award. If the Grantee is
an active employee of the Company or a Subsidiary continuously from the Date of
Grant to December 31, 2000, the Grantee shall be paid an additional portion of
the Cash Bonus Award on or before March 15, 2001. Such additional portion of the
Cash Bonus Award shall be equal to the sum of the following amounts, provided
that the amount determined under any of (v), (w), (x), (y) or (z) below shall
not be less than zero.
(v) 5 percent of the Award if the Target was met for the
1996 Plan Year or, if a Modified Target was met for the
1996 Plan Year, the Applicable Percent of 5 percent of
the Award.
(w) 10 percent of the Award (less the amount described in
Paragraph 9(c)(ii)(v)) (the "1997 Supplemental Award")
if the Target was met for the 1997 Plan Year or, if a
Modified Target was met for the 1997 Plan Year, the
Applicable Percent of the 1997 Supplemental Award.
(x) 15 percent of the Award (less the sum of the amounts
described in Paragraphs 9(c)(ii)(v) and (w)) (the "1998
Supplemental Award") if the Target was met for the 1998
Plan Year or, if a Modified Target was met for the 1998
Plan Year, the Applicable Percent of the 1998
Supplemental Award.
(y) 20 percent of the Award (less the sum of the amounts
described in Paragraphs 9(c)(ii)(v), (w) and (x)) (the
"1999 Supplemental Award") if the Target was met for
the 1999 Plan Year or, if a Modified Target was met for
the 1999 Plan Year, the
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PHLEGAL: #300985 v11 (6G8P11!.WPD)
Applicable Percent of the 1999 Supplemental Award.
(z) 25 percent of the Award (less the sum of the amounts
described in Paragraphs 9(c)(ii)(v), (w), (x) and (y))
(the "2000 Supplemental Award") if the Target was met
for the 2000 Plan Year or, if a Modified Target was met
for the 2000 Plan Year, the Applicable Percent of the
2000 Supplemental Award.
(d) Awards With Dates of Grant After June 30, 1996. Except as
otherwise determined by the Committee and provided in the terms of an Award, the
following rules shall apply if the Date of Grant of an Award is after June 30,
1996.
(i) For the first Plan Year in the Award Period, the Annual
Amount at Risk for such Plan Year shall be paid on or before March 15 next
following such Plan Year if the Target is met for such Plan Year and the Grantee
is an active employee of the Company or a Subsidiary continuously from the Date
of Grant to December 31 of such Plan Year; provided, however, that if a Modified
Target is met for such Plan Year, the Applicable Percent of the Annual Amount at
Risk for such Plan Year shall be paid.
(ii) For each succeeding Plan Year in the Award Period, the
Cumulative Annual Amount at Risk (less any portion of the Award previously paid
to the Grantee) (the "Succeeding Plan Year Basic Award") shall be paid on or
before March 15 next following such Plan Year if the Target is met for such Plan
Year and the Grantee is an active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31 of such Plan Year; provided,
however, that if a Modified Target is met for such succeeding Plan Year, the
Applicable Percent of the Succeeding Plan Year Basic Award shall be paid.
(iii) If the Grantee is an active employee of the Company or a
Subsidiary continuously from the Date of Grant to December 31 of the last Plan
Year in the Award Period, the Grantee shall be paid an additional portion of the
Cash Bonus Award on or before March 15 of the next succeeding calendar year,
determined as the sum of the following amounts:
(x) A percentage of the Award if the Target was met for the
first Plan Year in the Award Period, or, if a Modified
Target was met for the first Plan Year in the Award
Period, the Applicable Percent of such amount.
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(y) A percentage of the Award (less the sum of the amounts
described in Paragraph 9(d)(iii)(x) and this Paragraph
9(d)(iii)(y) for all preceding Plan Years) (the
"Supplemental Award") if the Target was met for a
succeeding Plan Year in the Award Period, or if a
Modified Target was met for such succeeding Plan Year,
the Applicable Percent of the Supplemental Award,
provided that the applicable amount for any Plan Year
shall not be less than zero.
(z) The portion of the Award assigned to each Plan Year
pursuant to this Paragraph 9(d)(iii) shall be equal to
the product of (i) the Last Year Amount at Risk times
(ii) the quotient obtained by dividing the Cumulative
Annual Amount at Risk for such Plan Year by the Total
Annual Amounts at Risk.
10. CELLULAR DIVISION TARGET AND CASH BONUS
(a) Amount of Cash Bonus Award. The amount of an Award to Eligible
Employees of the Cellular Division shall be determined by the Committee.
(b) Target. The Target for Eligible Employees of the Cellular Division
shall be met for each Plan Year beginning after the Base Year if Consolidated
Operating Cash Flow for the Cellular Division equals or exceeds the Compounded
Annual Growth Rate for such Plan Year, where "r" equals 15 percent (0.15);
provided that the Modified Target and Applicable Percent for purposes of this
Paragraph 10 shall be determined in accordance with Exhibit A.
(c) Awards with Dates of Grant Before July 1, 1996. Except as
otherwise determined by the Committee and provided in the terms of an Award, the
following rules shall apply if the Date of Grant of an Award is before July 1,
1996.
(i) Payment of Cash Bonus Award - Performance Target Condition.
Half of the Cash Bonus Award (hereinafter, the "Cellular Performance Award")
shall be subject to service and performance conditions. If the Grantee is an
active employee of the Company or a Subsidiary continuously from the Date of
Grant to December 31, 2000, the Grantee shall be paid all or part of the
Cellular Performance Award on or before March 15, 2001. The Cellular Performance
Award shall be equal to the sum of the following amounts, provided that the
amount determined under any of (v), (w), (x), (y) or (z) below shall not be less
than zero.
(v) 20 percent of the Cellular Performance Award if the
Target was met for the 1996 Plan Year or, if a
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PHLEGAL: #300985 v11 (6G8P11!.WPD)
Modified Target was met for the 1996 Plan Year, the
Applicable Percent of 20 percent of the Cellular
Performance Award.
(w) 40 percent of the Cellular Performance Award (less the
amount described in Paragraph 10(c)(i)(v)) (the "1997
Cellular Performance Award") if the Target was met for
the 1997 Plan Year or, if a Modified Target was met for
the 1997 Plan Year, the Applicable Percent of the 1997
Cellular Performance Award.
(x) 60 percent of the Cellular Performance Award (less the
sum of the amounts described in Paragraphs 10(c)(i)(v)
and (w)) (the "1998 Cellular Performance Award") if the
Target was met for the 1998 Plan Year or, if a Modified
Target was met for the 1998 Plan Year, the Applicable
Percent of the 1998 Cellular Performance Award.
(y) 80 percent of the Cellular Performance Award (less the
amounts described in Paragraphs 10(c)(i)(v), (w) and
(x)) (the "1999 Cellular Performance Award") if the
Target was met for the 1999 Plan Year or, if a Modified
Target was met for the 1999 Plan Year, the Applicable
Percent of the 1999 Cellular Performance Award.
(z) 100 percent of the Cellular Performance Award (less the
amounts described in Paragraphs 10(c)(i)(v), (w), (x)
and (y)) (the "2000 Cellular Performance Award") if the
Target was met for the 2000 Plan Year or, if a Modified
Target was met for the 2000 Plan Year, the Applicable
Percent of the 2000 Cellular Performance Award.
(ii) Payment of Cash Bonus Award - Service Condition. Half of the
Cash Bonus Award (hereinafter, the "Cellular Service Award") shall be subject to
service conditions, and shall be paid to a Grantee at the following times if the
following conditions are satisfied:
(v) 20 percent of the Cellular Service Award shall be paid
on or before February 29, 1996.
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PHLEGAL: #300985 v11 (6G8P11!.WPD)
(w) 20 percent of the Cellular Service Award shall be paid
on or before February 28, 1998 if the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
1997.
(x) 20 percent of the Cellular Service Award shall be paid
on or before February 28, 1999 if the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
1998.
(y) 20 percent of the Cellular Service Award shall be paid
on or before February 29, 2000 if the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
1999.
(z) 20 percent of the Cellular Service Award shall be paid
on or before February 28, 2001 if the Grantee is an
active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31,
2000.
(d) Awards With Dates of Grant After June 30, 1996. Except as
otherwise determined by the Committee and provided in the terms of an Award, the
following rules shall apply if the Date of Grant of an Award is after June 30,
1996.
(i) Payment of Cash Bonus Award - Performance Target. Half of the
Cash Bonus Award (hereinafter, the "Cellular Performance Award") shall be
subject to service and performance conditions. If the Grantee is an active
employee of the Company or a Subsidiary continuously from the Date of Grant to
December 31 of the last Plan Year in the Award Period, the Grantee shall be paid
all or part of the Cellular Performance Award on or before March 15 of the next
succeeding calendar year. The Cellular Performance Award shall be equal to the
sum of the following amounts:
(x) A percentage of the Award if the Target was met for the
first Plan Year in the Award Period, or, if a Modified
Target was met for the first Plan Year in the Award
Period, the Applicable Percent of such amount.
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PHLEGAL: #300985 v11 (6G8P11!.WPD)
(y) A percentage of the Award (less the sum of the amounts
described in Paragraph 10(d)(i)(x) and this Paragraph
10(d)(i)(y) for all preceding Plan Years) (the
"Performance Award Amount") if the Target was met for a
succeeding Plan Year in the Award Period, or if a
Modified Target was met for such succeeding Plan Year,
the Applicable Percent of such Performance Award
Amount, provided that the applicable amount for any
Plan Year shall not be less than zero.
(z) The portion of the Award assigned to each Plan Year
pursuant to this Paragraph 10(d)(i) shall be equal to
the "Cumulative Cellular Performance Award." For
purposes of this Paragraph 10(d)(i), the term
"Cumulative Cellular Performance Award" means the
product of the Cellular Performance Award times a
fraction, the numerator of which is the value "n"
assigned to such Plan Year pursuant to Paragraph 2(v),
and the denominator of which is the total number of
Plan Years in the Award Period.
(ii) Payment of Cash Bonus Award - Service Condition. Half of the
Cash Bonus Award (hereinafter, the "Cellular Service Award") shall be subject to
service conditions, and shall be paid to a Grantee at the following times if the
following conditions are satisfied, provided that no payment of a Cellular
Service Award shall be made unless the Grantee shall have delivered to the
Company a duly executed employment agreement in form and substance satisfactory
to the Company:
(w) A percentage of the Cellular Service Award shall be
paid as soon as reasonably practicable following the
Date of Grant.
(x) A percentage of the Cellular Service Award shall be
paid on or before the last day of February of the third
Plan Year in the Award Period, if any, if the Grantee
is an active employee of the Company or a Subsidiary
continuously from the Date of Grant to December 31 of
the second Plan Year in the Award Period.
(y) A percentage of the Cellular Service Award shall be
paid on or before the last day of February of each
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succeeding Plan Year in the Award Period, if any, if
the Grantee is an active employee of the Company or a
Subsidiary continuously from the Date of Grant to
December 31 of the Plan Year preceding such succeeding
Plan Year in the Award Period.
(z) The percentage of the Cellular Service Award assigned
to each Plan Year pursuant to this Paragraph 10(d)(ii)
shall be equal to the quotient obtained by dividing the
Cellular Service Award by the number of Plan Years in
the Award Period.
11. TAXES
The Company shall withhold the amount of any federal, state, local or
other tax, charge or assessment attributable to the grant of any Award or lapse
of restrictions under any Award as it may deem necessary or appropriate, in its
sole discretion.
12. TERMINATING EVENTS
The Committee shall give Grantees at least thirty (30) days' notice
(or, if not practicable, such shorter notice as may be reasonably practicable)
prior to the anticipated date of the consummation of a Terminating Event. The
Committee may, in its discretion, provide in such notice that upon the
consummation of such Terminating Event, any remaining conditions to payment of a
Grantee's Award shall be waived, in whole or in part.
13. AMENDMENT AND TERMINATION
The Plan may be terminated by the Board or the Committee at any time.
The Plan may be amended by the Board or the Committee at any time. No Award
shall be affected by any such termination or amendment without the written
consent of the Grantee.
14. EFFECTIVE DATE
The effective date of this amendment and restatement of the Plan is
December 15, 1998, the date on which it was adopted by the Committee. To the
extent provided by the Committee, the rules of the Plan, as amended and
restated, shall apply to the determination of payments to be made pursuant to
the Plan on and after the effective date of this amendment and restatement of
the Plan.
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15. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant to the
Plan shall be governed in accordance with Pennsylvania law.
Executed this 15th day of December, 1998.
COMCAST CORPORATION
BY: /s/ Stanley Wang
ATTEST: /s/ Arthur R. Block
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EXHIBIT A
Applicable Percents and Modified Targets
Achievement Range Percent Vested
100% 100%
95 - 99% 95%
90 - 94% 90%
85 - 89% 80%
80 - 84% 70%
75 - 79% 50%
70 - 74% 30%
less than 70% 0%
-21-
Exhibit 10.34 Material Contract
PURCHASE AND SALE AGREEMENT
dated as of
January 19, 1999
among
SBC COMMUNICATIONS INC.,
COMCAST CELLULAR HOLDINGS CORPORATION
COMCAST FINANCIAL CORPORATION
and
COMCAST CORPORATION
PAGE
TABLE OF CONTENTS
----------------------
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions....................................................1
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale.............................................12
SECTION 2.02. Closing.......................................................12
SECTION 2.03. Initial Purchase Price Adjustment.............................13
SECTION 2.04. Final Purchase Price Adjustment...............................13
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS AND SELLER GUARANTOR
SECTION 3.01. Corporate Existence and Power.................................15
SECTION 3.02. Corporate Authorization.......................................15
SECTION 3.03. Governmental Authorization....................................16
SECTION 3.04. Non-Contravention.............................................16
SECTION 3.05. Capitalization................................................17
SECTION 3.06. Ownership of Shares...........................................17
SECTION 3.07. Company; Subsidiaries and Joint Ventures......................18
SECTION 3.08. SEC Filings; Financial Statements.............................19
SECTION 3.09. Absence of Certain Changes....................................19
SECTION 3.10. No Undisclosed Liabilities....................................20
SECTION 3.11. Intercompany Accounts.........................................21
SECTION 3.12. Material Contracts............................................21
SECTION 3.13. Litigation....................................................23
SECTION 3.14. Compliance with Laws and Court Orders; No Defaults............23
SECTION 3.15. Real Property.................................................24
SECTION 3.16. Properties....................................................25
SECTION 3.17. Insurance.....................................................26
SECTION 3.18. Intellectual Property.........................................27
SECTION 3.19. Finders' Fees.................................................27
SECTION 3.20. Labor Matters.................................................28
SECTION 3.21. Employee Benefit Plans........................................28
SECTION 3.22. Environmental Matters.........................................30
SECTION 3.23. Regulatory Matters............................................31
SECTION 3.24. Assets of the Excluded Subsidiaries...........................32
SECTION 3.25. Sufficiency of Transfers......................................32
PAGE
SECTION 3.26. Year 2000 Compliance..........................................32
SECTION 3.27. No Other Representations and Warranties.......................32
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 4.01. Corporate Existence and Power.................................33
SECTION 4.02. Corporate Authorization.......................................33
SECTION 4.03. Governmental Authorization....................................33
SECTION 4.04. Non-Contravention.............................................33
SECTION 4.05. Litigation....................................................34
SECTION 4.06. Compliance with Laws and Court Orders; No Defaults............34
SECTION 4.07. Finders' Fees.................................................34
SECTION 4.08. Purchase for Investment.......................................35
SECTION 4.09. No Other Representations and Warranties.......................35
ARTICLE 5
COVENANTS OF SELLERS AND SELLER GUARANTOR
SECTION 5.01. Conduct of the Company........................................35
SECTION 5.02. Access to Information.........................................37
SECTION 5.03. Notices of Certain Events.....................................38
SECTION 5.04. Resignations..................................................39
SECTION 5.05. Non-competition...............................................39
SECTION 5.06. Transfer of the Excluded Subsidiaries.........................40
SECTION 5.07. Intercompany Accounts.........................................40
SECTION 5.08. Nonsolicitation...............................................41
SECTION 5.09. Confidentiality...............................................41
SECTION 5.10. Exchange of Preferred Stock for Common Stock..................42
SECTION 5.11. Regulatory Compliance.........................................42
SECTION 5.12. Expenditures..................................................43
ARTICLE 6
COVENANTS OF BUYER
SECTION 6.01. Notices of Certain Events.....................................43
SECTION 6.02. Confidentiality...............................................44
SECTION 6.03. Access........................................................44
SECTION 6.04. Redemption of the Senior Notes................................45
SECTION 6.05. Cellular Services.............................................45
ii
PAGE
ARTICLE 7
COVENANTS OF BUYER, SELLERS AND SELLER GUARANTOR
SECTION 7.01. Best Efforts..................................................46
SECTION 7.02. Certain Filings...............................................47
SECTION 7.03. Public Announcements..........................................48
SECTION 7.04. Seller Trademarks; Tradenames.................................48
SECTION 7.05. 38 GHz Authorizations.........................................49
SECTION 7.06. Illinois Properties...........................................49
ARTICLE 8
TAX MATTERS
SECTION 8.01. Tax Representations...........................................50
SECTION 8.02. Sellers Tax Covenants.........................................51
SECTION 8.03. Buyer Tax Covenants...........................................52
SECTION 8.04. Tax Sharing...................................................54
SECTION 8.05. Other Tax Matters.............................................54
SECTION 8.06. Cooperation on Tax Matters....................................54
SECTION 8.07. Certain Disputes..............................................55
SECTION 8.08. Sellers Tax Indemnification of Buyer..........................55
ARTICLE 9
EMPLOYEE BENEFITS
SECTION 9.01. Benefits Following the Closing Date...........................58
SECTION 9.02. Post-Closing Benefit Liabilities..............................59
SECTION 9.03. Thrift Plan...................................................59
SECTION 9.04. Retention Payments............................................60
SECTION 9.05. Pre-closing Bonus Period......................................61
SECTION 9.06. Cooperation...................................................61
SECTION 9.07. No Third Party Beneficiaries..................................61
ARTICLE 10
CONDITIONS TO CLOSING
SECTION 10.01. Conditions to Obligations of Buyer and Sellers for
Closing....................................................61
SECTION 10.02. Conditions to Obligation of Buyer for Closing................62
SECTION 10.03. Conditions to Obligation of Sellers and Seller Guarantor
for Closing................................................64
iii
PAGE
ARTICLE 11
SURVIVAL; INDEMNIFICATION
SECTION 11.01. Survival.....................................................65
SECTION 11.02. Indemnification..............................................65
SECTION 11.03. Procedures...................................................66
SECTION 11.04. Calculation of Damages.......................................67
SECTION 11.05. Assignment of Claims.........................................68
SECTION 11.06. Exclusivity..................................................68
ARTICLE 12
SELLER GUARANTEE
SECTION 12.01. Seller Guarantor.............................................68
SECTION 12.02. Guaranty Unconditional.......................................69
SECTION 12.03. Waivers of the Seller Guarantor..............................69
SECTION 12.04. Discharge Only upon Performance in Full; Restatement
in Certain Circumstances...................................69
SECTION 12.05. Subrogation..................................................70
ARTICLE 13
TERMINATION
SECTION 13.01. Grounds for Termination......................................70
SECTION 13.02. Effect of Termination........................................71
ARTICLE 14
MISCELLANEOUS
SECTION 14.01. Notices......................................................71
SECTION 14.02. Amendments and Waivers.......................................72
SECTION 14.03. Expenses.....................................................73
SECTION 14.04. Successors and Assigns.......................................73
SECTION 14.05. Governing Law................................................73
SECTION 14.06. Jurisdiction.................................................73
SECTION 14.07. Waiver of Jury Trial.........................................73
SECTION 14.08. Counterparts; No Third Party Beneficiaries...................73
SECTION 14.09. Table of Contents: Headings..................................74
SECTION 14.10. Entire Agreement.............................................74
iv
SCHEDULES
Schedule 1.1 -- Balance Sheet
Schedule 1.2 -- Base Working Capital Report
Schedule 1.3 -- Performance and Similar Bonds
Schedule 3.04 -- Non-Contravention
Schedule 3.07(a) -- Subsidiaries
Schedule 3.07(c) -- Joint Ventures
Schedule 3.07(d) -- Obligations to Joint Ventures
Schedule 3.09 -- Absence of Certain Changes
Schedule 3.10 -- Liabilities
Schedule 3.11 -- Intercompany Accounts
Schedule 3.12 -- Material Contracts
Schedule 3.12(c) -- Subscriber Activations
Schedule 3.15(a) -- Owned Real Property
Schedule 3.15(b) -- Leased Real Property
Schedule 3.16 -- Liens
Schedule 3.17 -- Insurance
Schedule 3.18 -- Intellectual Property
Schedule 3.21 -- Employee Benefits
Schedule 3.21(f) -- Employee Benefit Plans
Schedule 3.22 -- Environmental Matters
Schedule 3.23(a) -- Regulatory Matters
Schedule 4.03 -- Governmental Authorization
Schedule 5.05 -- Non-Competition
Schedule 5.08 -- Nonsolicitation
Schedule 5.12 -- Expenditures
Schedule 7.04 -- Seller Trademarks and Tradenames
Schedule 7.05 -- 38 GHz Authorizations
Schedule 8.01(a) -- Tax Representations
Schedule 8.01(b) -- Tax Filing Jurisdictions
Schedule 9.04(a) -- Retention Payments
Schedule 9.04(b) -- Salary Allowance Ranges
Schedule 10.01 -- Governmental Required Consents
v
PURCHASE AND SALE AGREEMENT
AGREEMENT dated as of January 19, 1999 among SBC Communications Inc., a
Delaware corporation ("Buyer"), Comcast Cellular Holdings Corporation, a
Delaware corporation ("Holdings") and Comcast Financial Corporation, a Delaware
corporation ("Comcast Financial") (collectively, "Sellers" and, each
individually, a "Seller") and Comcast Corporation, a Pennsylvania corporation
("Seller Guarantor").
W I T N E S S E T H :
WHEREAS, Buyer desires to purchase from Sellers, and Sellers desire to sell
to Buyer, all the issued and outstanding shares of capital stock of Comcast
Cellular Corporation, a Delaware corporation (the "Company"); and
WHEREAS, Buyer desires to pay Seller Guarantor, and Seller Guarantor
desires to receive payment from Buyer, for Seller Guarantor's agreement not to
compete set forth in Section 5.05 hereof.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
"Administrative Agent" means the Administrative Agent under the Credit
Agreement.
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person;
provided that neither the Company nor any Included Subsidiary shall be
considered an Affiliate of either Seller or of Seller Guarantor. For purposes
hereof, "control" (and the derivative terms "controlling" and "controlled")
shall have the meaning assigned to such terms in Rule 405 promulgated under the
Securities Act.
"Agreed Rate" means the rate of interest announced from time to time by
Morgan Guaranty Trust Company of New York as its prime rate in New York City.
"Bank Debt Amount" means the aggregate principal amount of all loans
outstanding under the Credit Agreement as of the Closing Date, together with
interest thereon.
"Base Balance Sheet" means the consolidated balance sheet of the Company
and the Included Subsidiaries as of September 30, 1998, attached hereto as
Schedule 1.1 hereto.
"Base Balance Sheet Date" means September 30, 1998.
"Base Working Capital Amount" means thirty six million one hundred eighty
six thousand U.S. dollars ($36,186,000); provided that if the Illinois
Properties are transferred to one or more of Sellers' Affiliates pursuant to
Section 7.06 hereof, the Base Working Capital Amount shall equal thirty five
million six hundred nineteen thousand seven hundred and fifty U.S. dollars
($35,619,750).
"Base Working Capital Report" means the report of the Company Working
Capital Amount as of the Base Balance Sheet Date set forth on Schedule 1.2
hereto.
"Benefit Arrangement" means any employment, severance or similar contract
or arrangement or any plan, policy, fund, program or contract or arrangement
providing for compensation, bonus, profit-sharing, stock option, or other stock
related rights or other forms of incentive or deferred compensation, vacation
benefits, insurance coverage (including any self-insured arrangements), health
or medical benefits, disability benefits, worker's compensation, supplemental
unemployment benefits, severance benefits and post-employment or retirement
benefits (including compensation, pension, health, medical or life insurance or
other benefits) that (i) is not an Employee Plan, (ii) is entered into,
maintained, administered or contributed to, as the case may be, by Sellers, any
of their Affiliates or the Company or any of the Included Subsidiaries and (iii)
covers any employee or former employee of the Company or any Included
Subsidiary.
"Buyer Group" means, with respect to Federal Taxes, the affiliated group of
corporations (as defined in Section 1504(a) of the Code) of which the Buyer is a
member, and with respect to Combined State Taxes, the consolidated, combined or
unitary group of which Buyer or any of its Affiliates is a member.
2
"Cellular Telephone System" means any business that provides, operates or
manages commercial mobile radio service systems, as defined in 47 C.F.R. ss.20.3
and ss.20.9 as in effect on the date hereof ("CMRS"), consisting of cellular
radiotelephone service or broadband Personal Communications Services (each as
defined in 47 C.F.R. ss.22.99 and ss.24.5 as in effect on the date hereof), but
shall exclude any business that provides, resells, operates or manages paging,
long distance, wireline telephony or transport services, any fixed wireless
services used for purposes other than the provision of CMRS or any non-CMRS
services in the Wireless Communications Services (as defined in 47 C.F.R.
ss.27.4 as in effect on the date hereof).
"Closing Date" means the date of the Closing.
"Closing Date Balance Sheet" means the consolidated balance sheet of the
Company and the Included Subsidiaries as of the Closing Date.
"Closing Long Term Debt" means the Company Long Term Debt as of the Closing
Date.
"Closing Working Capital Amount" means the Company Working Capital Amount
as of the Closing Date.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Combined State Tax" means, with respect to each such state or any local
taxing jurisdiction and with respect to any Person, any income or franchise Tax
payable to any state or local taxing jurisdiction in which such Person or its
Subsidiaries file Returns with (i) a member of the Seller Group, if such Person
is the Company, and (ii) a member of the Buyer Group, if such Person is Buyer,
on a consolidated, combined or unitary basis for purposes of such income or
franchise Tax.
"Common Stock" means the common stock, par value $0.01 share, of the
Company.
"Communications Act" means the Communications Act of 1934, as amended, and
any rules and regulations promulgated thereunder.
"Company Group" means the Company and the Included Subsidiaries, taken as a
whole.
3
"Company Long Term Debt" means, as of the date in question, without
duplication and disregarding any obligations of the Company or any of the
Included Companies, on the one hand, to the Company or any other Included
Subsidiary, on the other hand, (i) all obligations of the Company and the
Included Subsidiaries for borrowed money, including any accrued interest thereon
and the current portion thereof (for the avoidance of doubt, the 9 1/2% Senior
Notes due 2007 issued pursuant to the Indenture and the Bank Debt Amount and the
current portions thereof and any accrued interest thereon are included in the
Company Long Term Debt), (ii) all obligations of the Company and the Included
Subsidiaries in respect of letters of credit, bankers' acceptances or other
similar instruments or reimbursement obligations with respect thereto, (iii) all
obligations of the Company and the Included Subsidiaries to pay the deferred
purchase price of property (excluding any trade payables in the ordinary course
of business), (iv) all obligations of the Company and the Included Subsidiaries
under capitalized leases and (v) all obligations of other Persons of the types
described in clauses (i) through (iv) above guaranteed by the Company or any
Included Subsidiary, except, in each case, any obligations under performance
bonds or similar bonds for the benefit of municipalities arising in the ordinary
course of business and listed on Schedule 1.3 hereto or any such obligation
arising on or after the date hereof in the ordinary course of business
consistent with past practices.
"Company Tax Indemnification Period" means (a) with respect to any Tax
described in clause (i) of the definition of "Tax," any Pre-Closing Tax Period
of the Company or any Included Subsidiary, (b) with respect to any Tax described
in clause (ii) of the definition of "Tax," any Pre-Closing Tax Period and the
Tax year of any member of a group described in such clause (ii) that includes
(but does not end on) the Closing Date, and (c) with respect to any Tax
described in clause (iii) of the definition of "Tax," the survival period of the
obligation under the applicable contract or arrangement.
"Company Tax Sharing Agreements" means all existing Tax sharing agreements
or arrangements (whether or not written) binding the Company or its Subsidiaries
including the Tax Sharing Agreement among Seller Guarantor and the Company dated
as of October 14, 1997 (the "Tax Sharing Agreement") and any agreements or
arrangements which afford any other person the benefit of any Tax Asset of the
Company or its Subsidiaries, afford the Company or its Subsidiaries the benefit
of any Tax Asset of any other person or require or permit the transfer or
assignment of income, revenues, receipts, or gains.
"Company Working Capital Amount" means, as of the date in question, (i) the
consolidated current assets (other than deferred taxes (as defined under SFAS
109) and any intercompany balances) of the Company and the Included
Subsidiaries, minus (ii) without duplication, all debts, liabilities and
obligations of
4
the Company and the Included Subsidiaries (other than (v) all liabilities and
obligations arising under Article 9 hereof, (w) all liabilities and obligations
related to taxes, (x) all intercompany balances, (y) all minority interests and
(z) the Company Long Term Debt), determined in each case (other than in case of
clauses (v) and (z)) in accordance with generally accepted accounting principles
consistent with past practice and the principles applied in preparation of the
Base Balance Sheet, plus (iii) each Excess Investment Amount, if any, minus (iv)
each Shortfall Investment Amount, if any.
"Credit Agreement" means the Credit Agreement dated as of October 14, 1997
among Comcast Cellular Communications, Inc., a wholly-owned Subsidiary of the
Company, the banks listed therein, The Bank of New York, Barclays Bank PLC, The
Chase Manhattan Bank, PNC Bank National Association, and The Toronto-Dominion
Bank, as Arranging Agents, and Toronto Dominion (Texas), Inc., as Administrative
Agent.
"Employee" means any individual employed by the Company or any Included
Subsidiary as of the Closing Date, excluding any Inactive Employees.
"Employee Plan" means any "employee benefit plan", as defined in Section
3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by Seller Guarantor, any of its
Affiliates, the Company or any Included Subsidiary and (iii) covers any employee
or former employee of the Company or any Included Subsidiary.
"Environmental Laws" means any federal, state or local law (including,
without limitation, common law), treaty, judicial decision, regulation, rule,
judgment, order, decree, injunction, permit or governmental restriction or
requirement or any agreement with any governmental authority, in each case as
now in effect, relating to the protection of the environment or the effect of
Hazardous Substances on human health.
"Environmental Permits" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of governmental
authorities relating to or required by Environmental Laws and affecting, or
relating in any way to, the business of the Company or any Included Subsidiary.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" of any entity means any other entity which, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
5
"Excess Investment Amount" for each Category means the excess, if any, of
(x) the amounts actually expended by the Company and the Included Subsidiaries
from the date hereof through the Closing Date in respect of such Category over
(y) 105% of the Required Expenditure Amount for such Category, calculated in
each case in accordance with generally accepted accounting principles applied on
a basis consistent with those used in the 1999 Expenditures Plan and in
accordance with the accounting policies and practices used in the preparation of
the 1999 Expenditures Plan. The expenditure of any such excess amount shall have
been approved by Buyer in accordance with Section 5.12 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Excluded Subsidiaries" means (i) Comcast Publishing Holdings Corporation,
a Pennsylvania corporation, (ii) Comcast Directory Services, Inc., a Delaware
corporation, (iii) Comcast Publishing Holdings Financial Corporation, a Delaware
corporation, and (iv) the Illinois Properties, but only if the Illinois
Properties are transferred to one or more of Sellers' Affiliates pursuant to
Section 7.06 hereof.
"FAA" means the Federal Aviation Administration or its successor agency.
"FCC" means the Federal Communications Commission or its successor agency.
"FCC License" means any license, authorization, certification or permit
issued by the FCC.
"Federal Tax" means any Tax imposed under Subtitle A of the Code.
"Final Determination" means (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to Taxes other than
Federal Taxes, any final determination of liability in respect of a Tax that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise (including the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended returns or
appeals from adverse determinations) or (ii) the payment of Tax by Buyer,
Sellers or any of their Affiliates, whichever is responsible for payment of such
Tax under applicable law, with respect to any item disallowed or adjusted by a
Taxing
6
Authority, provided that such responsible party determines that no action should
be taken to recoup such payment and the other party agrees.
"Former Employee" means any former employee of the Company or any Included
Subsidiary (i) who is not, as of the Closing Date, employed by Sellers or any of
their Affiliates, and (ii) whose last employer, among Affiliates of Sellers, was
the Company or an Included Subsidiary.
"Governmental Entity" means any governmental or regulatory authority,
court, agency, commission, body or other governmental entity.
"Hazardous Substances" means any substance, waste, pollutant, contaminant
or any toxic, radioactive or hazardous substance, in each case in any
concentrations regulated under, defined in, or identified pursuant to, any
Environmental Laws.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Illinois Management Contract" means the Agreement dated January 1, 1989,
as amended, by and between Aurora/Elgin Cellular Telephone Company, Inc. and
Joliet Cellular Telephone Company, Inc. and Cellular One--Chicago, a division of
Southwestern Bell Mobile Systems, Inc.
"Illinois Properties" means (i) all of the capital stock of Aurora/Elgin
Cellular Telephone Company, Inc. owned by the Company and the Included
Subsidiaries, (ii) all of the capital stock of Joliet Cellular Telephone
Company, Inc. owned by the Company and the Included Subsidiaries and (iii)
American Cellular Network Corp.'s interest in Kankakee Cellular L.L.C.
"Inactive Employee" means any individual included on the payroll records of
the Company or any Included Subsidiary as an employee of such entity as of the
Closing Date, but who is absent from active employment on that date by reason of
long- or short-term disability, military service or other approved leave of
absence.
"Included Subsidiary" means any Subsidiary of the Company other than an
Excluded Subsidiary.
"Indenture" means the Indenture dated as of May 8, 1997 by and between the
Company and The Bank of New York, as Trustee, respect of the 9 1/2% Senior Notes
due 2007.
7
"Intellectual Property Right" means any trademark, service mark, trade
name, mask work, invention, patent, trade secret, copyright, computer software
program and applications, know-how (including any registrations or applications
for registration of any of the foregoing) or any other similar type of
proprietary intellectual property right.
"Knowledge of Sellers," "Sellers' Knowledge" or any other similar knowledge
qualification in this Agreement means to the actual knowledge, after due inquiry
into the subject matter of the representations and warranties set forth in
Article 3, of (i) the senior officers of Holdings and the Company (including, in
any event, David Watson, Anna Hillman, David Juliano, Jeffrey Smith, Karen
Heisler and Raymond Dombroski); and (ii) any other senior officers of Seller
Guarantor or its Subsidiaries that have managerial authority with respect to the
subject matter of the representations and warranties set forth in Article 3.
"Lien" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest or encumbrance in respect of such property or
asset. For the purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any property or asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such property or
asset.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the business, properties, assets or results of operations of
such Person and its Subsidiaries, taken as whole, except any such effect
resulting from or arising in connection with (i) this Agreement or the
transactions contemplated hereby, (ii) changes or conditions affecting the
commercial mobile radio services industry generally, including without
limitation changes in the regulation thereof, or (iii) changes in economic or
political conditions generally.
"Multiemployer Plan" means each Employee Plan that is a multiemployer plan,
as defined in Section 3(37) of ERISA.
"Organizational Documents" means, with respect to an entity, the
certificate of incorporation, articles of incorporation, charter, by-laws,
certificate of limited partnership, partnership agreement, certificate of
formation, limited liability company agreement, operating agreement or other
similar organizational instrument or document governing such entity.
"PBGC" means the Pension Benefit Guaranty Corporation.
8
"Person" means an individual, corporation, partnership, association, trust
or other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.
"Post-Closing Tax Period" means any Tax period (or portion thereof)
beginning after the close of business on the Closing Date.
"Pre-Closing Tax Period" means any Tax period (or portion thereof) ending
on or before the close of business on the Closing Date.
"Preferred Stock" means Series A Preferred Stock of the Company.
"Required Expenditure Amount" in respect of any Category means (A) the
amount set forth in Schedule 5.12 in the column "Monthly Requirement" in respect
of such Category multiplied by (B) the number of days elapsed from the date
hereof through the Closing Date divided by 30.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Seller Group" means, with respect to Federal Taxes, the affiliated group
of corporations (as defined in Section 1504(a) of the Code) of which Sellers are
members, and with respect to Combined State Taxes, the consolidated, combined or
unitary group of which Sellers or any of their Affiliates is a member.
"Shares" means all outstanding shares of Common Stock.
"Shortfall Investment Amount" for each Category means the excess if any, of
(x) 95% of the Required Expenditure Amount for such Category over (y) the amount
actually expended by the Company and the Included Subsidiaries from the date
hereof through the Closing Date in respect of such Category, calculated in each
case in accordance with generally accepted accounting principles applied on a
basis consistent with those used in the 1999 Expenditures Plan and in accordance
with the accounting policies and practices used in the preparation of the 1999
Expenditures Plan.
"Subsidiary" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by such Person.
"Tax" means, with respect to any Person, (i) any net income, alternative or
add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value
9
added, transfer, franchise, profits, license, withholding on amounts paid to or
by such Person or its Subsidiaries, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest, penalty, addition to tax or
additional amount imposed by any governmental authority (domestic or foreign)
responsible for the imposition of any such tax (a "Taxing Authority"), (ii) any
liability of such Person or its Subsidiaries for the payment of any amounts of
the type described in (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group with any other corporation at any time
on or prior to the Closing Date, if such Person is the Company, and (iii)
liability of such Person or its Subsidiaries for the payment of any amounts as a
result of being party to any Tax Sharing Agreement or with respect to the
payment of any amounts of the type described in (i) or (ii) as a result of any
express or implied obligation to indemnify any other Person.
"Tax Asset" means, with respect to any Person, any net operating loss, net
capital loss, excess credit, or any other similar tax attribute of such Person
or its Subsidiaries which could reduce Taxes.
"Title IV Plan" means an Employee Plan subject to Title IV of ERISA other
than any Multiemployer Plan.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
Applicable Tax Rate .................... 8.08(c)
Claim .................................. 11.03(a)
Buyer Post-Retirement Medical Plan ..... 9.01(a)
Buyer Thrift Plan ...................... 9.03(a)
Category ............................... 5.12
Closing ................................ 2.02
Closing Date Balance Sheet ............. 2.04
Company Intellectual Property Rights ... 3.18(a)
Company Plans .......................... 9.02(a)
Company Securities ..................... 3.05(b)(iii)
Company Subsidiary Securities .......... 3.07(b)
Damages ................................ 11.02
Estimated Closing Long Term Debt ....... 2.03(a)
Estimated Closing Working Capital Amount 2.03(a)
FAA Rules .............................. 5.11
10
Term Section
FCC Consents ..................... 10.02(g)(i)
FCC Opinion ...................... 10.02(g)
FCC Rules ........................ 5.11
Final Purchase Price ............. 2.04(e)
Indemnified Party ................ 11.03(a)
Indemnifying Party ............... 11.03(a)
Independent Accountants .......... 2.04(d)
Initial Purchase Price Adjustment 2.03(b)
Joint Venture Affiliate .......... 3.07(c)(i)
Licenses ......................... 3.23(a)
Loss ............................. 8.08(a)
1999 Expenditures Plan ........... 5.12
1999 Seller Group Return ......... 8.02(d)
Permitted Liens .................. 3.16
Potential Contributor ............ 11.05
Purchase Price ................... 2.01
Regulatory Material Adverse Effect 7.01
Restricted Activities ............ 5.05(a)
Retention Date ................... 9.04
Retention Payment ................ 9.04
Returns .......................... 8.01(a)(i)
SEC Reports ...................... 3.08(a)
Sections 271 and 272 ............. 5.11
Securities Sale .................. 8.08(f)
Seller Guarantor Plan ............ 9.02(a)
Seller Guarantor Thrift Plan ..... 9.03(a)
Seller Guarantor Welfare Plans ... 9.01(c)
Seller Obligations ............... 12.01
Seller Trademarks and Tradenames . 7.04(a)
Senior Notes ..................... 6.04(a)
Tax Attributes ................... 8.02(d)
Tax Attribute Shortfall .......... 8.08(f)
Tax Benefit ...................... 8.08(c)
38 GHz Licenses .................. 7.05
38 GHz Facilities ................ 7.05
Third Party Claim ................ 11.03(b)
Transition Period ................ 9.01(c)
11
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, each of the Sellers agree to sell to Buyer and
Buyer agrees to purchase from Sellers, the Shares at the Closing. The purchase
price for the Shares (the "Purchase Price") is one billion five hundred seventy
three million seven hundred thousand United States dollars ($1,573,700,000) in
cash. The Purchase Price shall be paid as provided in Section 2.02 and shall be
subject to adjustment as provided in (i) Sections 2.03 and 2.04, and (ii)
Section 7.06 if Sellers transfer the Illinois Properties to one or more of their
Affiliates pursuant to Section 7.06.
SECTION 2.02. Closing. The closing (the "Closing") of the purchase and sale
of the Shares hereunder shall take place at the offices of Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York, as soon as possible, but in
no event later than five business days after satisfaction (or waiver) of the
conditions set forth in Article 10 (except for the conditions which by their
terms are to be satisfied at or immediately prior to the Closing, but subject to
satisfaction of such conditions), or at such other time or place as Buyer and
Holdings may agree. At the Closing:
(a) Buyer shall deliver to the Administrative Agent an amount equal to the
Bank Debt Amount in immediately available funds by wire transfer to the account
of the Administrative Agent designated by Seller by notice to Buyer not later
than two business days prior to the Closing Date.
(b) Buyer shall deliver to Holdings an amount equal to the Purchase Price,
as adjusted pursuant to Section 2.03, in immediately available funds by wire
transfer to an account of Holdings designated by Holdings by notice to Buyer,
not later than two business days prior to the Closing Date (or if not so
designated, then by certified or official bank check payable in immediately
available funds to the order of Holdings in such amount).
(c) In exchange for Seller Guarantor's agreement set forth in Section 5.05,
Buyer shall deliver to Seller Guarantor an amount equal to one hundred million
United States dollars ($100,000,000) in immediately available funds by wire
transfer to an account of Seller Guarantor designated by Seller Guarantor by
notice to Buyer, not later than two business days prior to the Closing Date (or
if not so designated, then by certified or official bank check payable in
immediately available funds to the order of Seller Guarantor in such amount).
12
(d) Sellers shall deliver to Buyer certificates for the Shares duly
endorsed in blank for transfer or accompanied by stock powers duly endorsed in
blank, with any required transfer stamps affixed thereto.
(e) Holdings shall deliver to Buyer a certificate of a senior officer of
Holdings to the effect that the payment by Buyer pursuant to Section 2.02(a)
constitutes payment in full of all amounts outstanding at such time under the
Credit Agreement.
SECTION 2.03. Initial Purchase Price Adjustment. (a) No later than two days
prior to the Closing Date, Holdings shall in good faith prepare, based on the
books and records of the Company and the Included Subsidiaries and other
information then available, (i) Holdings' best estimate of (A) the Closing
Working Capital Amount (the "Estimated Closing Working Capital Amount") and (B)
the Closing Long Term Debt (the "Estimated Closing Long Term Debt") and (ii)
Holdings' basis for such estimate.
(b) The Purchase Price payable pursuant to Section 2.01 shall be (A)
decreased by the amount equal to the Estimated Closing Long Term Debt and (B)
increased by the amount by which the Estimated Working Capital Amount exceeds
the Base Working Capital Amount or decreased by the amount by which the Base
Working Capital Amount exceeds the Estimated Working Capital Amount (such
adjustment, the "Initial Purchase Price Adjustment").
SECTION 2.04. Final Purchase Price Adjustment. (a) As promptly as
practicable, but no later than 60 days, after the Closing Date, Buyer will cause
to be prepared and delivered to Holdings the Closing Date Balance Sheet, and a
report of (x) the Closing Working Capital Amount and (y) the Closing Long Term
Debt.
(b) The Closing Date Balance Sheet ("Closing Date Balance Sheet") shall
fairly present the consolidated financial position of the Company and the
Included Subsidiaries as of the close of business on the Closing Date in
accordance with generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the Base Balance Sheet. The
report of the Closing Working Capital Amount shall include line items
substantially consistent with those in the Base Working Capital Report, and be
prepared in accordance with accounting policies and practices consistent with
those used in the preparation of the Base Working Capital Report.
(c) If Holdings disagrees with Buyer's calculations of the Closing Working
Capital Amount or the Closing Long Term Debt delivered pursuant to Section
2.04(a), Holdings may, within 30 days after delivery of the documents
13
referred to in Section 2.04(a), deliver a notice to Buyer disagreeing with such
calculations and setting forth Holdings' calculation of such amounts. Any such
notice of disagreement shall specify those items or amounts as to which Holdings
disagrees, and Holdings shall be deemed to have agreed with all other items and
amounts contained in the Closing Date Balance Sheet and the calculation of the
Purchase Price Adjustment delivered pursuant to Section 2.04(a).
(d) If a notice of disagreement shall be delivered pursuant to Section
2.04(b), Buyer and Holdings shall, during the 30 days following such delivery,
use their best efforts to reach agreement on the disputed items or amounts in
order to determine, as may be required, the amount of the Closing Working
Capital Amount or of the Closing Long Term Debt. If, during such period, Buyer
and Holdings are unable to reach such agreement, they shall promptly thereafter
cause Arthur Andersen LLP (the "Independent Accountants"), promptly to review
this Agreement and the disputed items or amounts for the purpose of calculating
the Purchase Price Adjustment. In making such calculation, the Independent
Accountants shall consider only those items or amounts in the Closing Date
Balance Sheet or Buyer's calculations of the Closing Working Capital Amount or
the Closing Long Term Debt, as the case may be, as to which Holdings has
disagreed. The Independent Accountants shall deliver to Buyer and Holdings, as
promptly as practicable, a report setting forth such calculations. Such report
shall be final and binding upon Buyer and Holdings. The cost of such review and
report shall be borne equally by Buyer and Holdings.
(e) Buyer and Holdings agree that they will, and agree to cause their
respective independent accountants and the Company and each Included Subsidiary
to, cooperate and assist in the preparation of the Closing Date Balance Sheet
and the calculation of the Closing Working Capital Amount and the Closing Long
Term Debt and in the conduct of the audits and reviews referred to in this
Section, including without limitation, the making available to the extent
necessary of books, records, work papers and personnel. Upon a final
determination of the Closing Working Capital Amount and the Closing Long Term
Debt, Buyer and Holdings shall calculate the adjustment that would have been
required pursuant to Section 2.03(a) if the Closing Working Capital Amount (as
finally determined) were substituted for the Estimated Closing Working Capital
Amount and the Closing Long Term Debt (as finally determined) were substituted
for the Estimated Closing Long Term Debt (such adjustment, the "Final Purchase
Price Adjustment").
(f) Within 10 days following a determination of the Final Purchase Price
Adjustment, (i) if the amount of the reduction in the Purchase Price required by
the Final Purchase Price Adjustment exceeds the amount of the reduction in the
Purchase Price required by the Initial Purchase Price Adjustment, Holdings shall
14
pay to Buyer, as an adjustment to the Purchase Price, in the manner and with
interest as provided below, the amount of such excess and (ii) if the amount of
the reduction in the Purchase Price required by the Initial Purchase Price
Adjustment exceeds the amount of the reduction in the Purchase Price required by
the Final Purchase Price Adjustment, Buyer shall pay to Holdings, in the manner
and with interest as provided below, the amount of such excess.
(g) Any payment pursuant to Section 2.04(e) shall be made by delivery by
Buyer or Holdings, as the case may be, of a certified or official bank check
payable in immediately available funds to the other party or by causing such
payments to be credited to such account of such other party as may be designated
by such other party. The amount of any payment to be made pursuant to this
Section shall bear interest from and including the Closing Date to but excluding
the date of payment at a rate per annum equal to the Agreed Rate in effect from
time to time during the period from the Closing Date to the date of payment.
Such interest shall be payable at the same time as the payment to which it
relates and shall be calculated daily on the basis of a year of 365 days and the
actual number of days elapsed.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS AND SELLER GUARANTOR
Each of Sellers and Seller Guarantor represents and warrants to Buyer as of
the date hereof and as of the Closing Date that:
SECTION 3.01. Corporate Existence and Power. Each of Sellers and Seller
Guarantor is a corporation validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all requisite corporate powers to
perform their respective obligations under this Agreement.
SECTION 3.02. Corporate Authorization. The execution, delivery and
performance by each of Sellers and Seller Guarantor of this Agreement have been
duly authorized by all necessary corporate action on the part of Sellers and
Seller Guarantor. This Agreement constitutes a valid and binding agreement of
Sellers and Seller Guarantor enforceable in accordance with its terms, except as
(i) the enforceability hereof may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally and (ii)
the availability of equitable remedies may be limited by equitable principles of
general applicability.
SECTION 3.03. Governmental Authorization. The execution, delivery and
performance by each of Sellers and Seller Guarantor of this Agreement require no
15
action by or in respect of, or filing with, any governmental body, agency, or
official other than (i) compliance with any applicable requirements of the HSR
Act; (ii) compliance with any applicable requirements of the Exchange Act and
the Securities Act; (iii) compliance with any applicable requirements of the FCC
and of the Communications Act; (iv) compliance with any applicable requirements
imposed by state public utilities commissions or similar state regulatory bodies
in Delaware, Illinois, Maryland, New Jersey and Pennsylvania; (v) compliance
with any contractual requirements of any lease entered into with a governmental
entity; and (vi) actions or filings the failure of which to occur have not had
and would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on Sellers and their Subsidiaries, taken as a whole,
or materially delay the ability of Sellers to perform their obligations under
this Agreement.
SECTION 3.04. Non-Contravention. Except as set forth in Section 3.03 or
disclosed in Schedule 3.04, the execution, delivery and performance by each of
Sellers and Seller Guarantor of this Agreement do not and will not
(a)(i) violate the Organizational Documents of Sellers or Seller
Guarantor, (ii) assuming compliance with the matters referred to in Section
3.03, violate any applicable law, rule, regulation, judgment, injunction,
order or decree, except for violations which, individually or in the
aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on Seller Guarantor and its Subsidiaries, taken as
a whole, or (iii) require any consent or other action by any Person under,
constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Sellers or
Seller Guarantor or to a loss of any benefit to which Sellers or Seller
Guarantor is entitled under, any agreement or other instrument binding upon
Sellers or Seller Guarantor or any license, franchise, permit or other
similar authorization held by Sellers or Seller Guarantor, except for
consents, actions, defaults, terminations, cancellations, accelerations or
losses which, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect on Seller
Guarantor and its Subsidiaries, taken as a whole; or
(b)(i) violate the Organizational Documents of the Company or any
Included Subsidiary, (ii) assuming compliance with the matters referred to
in Section 3.03, violate any applicable law, rule, regulation, judgment,
injunction, order or decree, except for violations which, individually or
in the aggregate, have not had and would not reasonably be expected to have
a Material Adverse Effect on the Company Group, (iii) require any consent
or other action by any Person under, constitute a default under, or give
rise
16
to any right of termination, cancellation or acceleration of any right or
obligation of the Company or any Included Subsidiary or to a loss of any
benefit to which the Company or any Included Subsidiary is entitled under,
any agreement or other instrument binding upon the Company or any Included
Subsidiary or any license, franchise, permit or other similar authorization
held by the Company or any Included Subsidiary, except for consents,
actions, defaults, terminations, cancellations, accelerations or losses (x)
under the Credit Agreement or the Indenture (in the event that the Change
of Control Triggering Event (as defined in the Indenture) has occurred) or
(y) which, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect on the Company
Group or (iv) result in the creation or imposition of any Lien on any
material asset of the Company or any Included Subsidiary, other than any
Permitted Liens.
SECTION 3.05. Capitalization. (a) The authorized capital stock of the
Company consists of (A) 1,000 shares of Common Stock, and (B) 10,000 shares of
preferred stock of which 5,200 shares have been designated as the Preferred
Stock. As of the date hereof, 100 shares of Common Stock and 1,912.336 shares of
Preferred Stock are outstanding. As of the Closing Date, pursuant to Section
5.10 hereof, the outstanding capital stock of the Company will consist only of
shares of Common Stock.
(b) All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable. Except as
set forth in Section 3.05(a) or contemplated by Section 5.10 hereof, there are
no outstanding (i) shares of capital stock or voting securities of the Company,
(ii) securities of the Company convertible into or exchangeable for shares of
capital stock or voting securities of the Company or (iii) options or other
rights to acquire from the Company, or other obligation of the Company to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company (the items in
clauses 3.05(b)(i), 3.05(b)(ii) and 3.05(b)(iii) being referred to collectively
as the "Company Securities"). Except as contemplated by Section 5.10 hereof,
there are no outstanding obligations of the Company or any Included Subsidiary
to repurchase, redeem or otherwise acquire any Company Securities.
SECTION 3.06. Ownership of Shares. Sellers are the record and beneficial
owners of all shares of Common Stock and Preferred Stock outstanding as of the
date hereof, free and clear of any Lien and any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
the Shares), and will transfer and deliver to Buyer at the Closing valid title
to the Shares free and clear of any Lien and any such limitation or restriction.
17
SECTION 3.07. Company; Subsidiaries and Joint Ventures. (a) The Company and
each Included Subsidiary is duly organized or formed, validly existing and in
good standing under the laws of the jurisdiction in which it is so organized or
formed and has all corporate or partnership powers and authority and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted, is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to be
so qualified has not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company
Group. All Included Subsidiaries and their respective jurisdictions of
incorporation or organization and qualifications to do business as a foreign
corporation are identified on Schedule 3.07(a).
(b) Except as disclosed in Schedule 3.07(a), all of the outstanding capital
stock of, or other voting securities or ownership interests in, each Included
Subsidiary is owned by the Company, directly or indirectly, free and clear of
any Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other voting securities or ownership interests). There are no
outstanding (i) securities of the Company or any Included Subsidiary convertible
into or exchangeable for shares of capital stock or other voting securities or
ownership interests in any Included Subsidiary or (ii) options or other rights
to acquire from the Company or any Included Subsidiary, or other obligation of
the Company or any Included Subsidiary to issue, any capital stock or other
voting securities or ownership interests in, or any securities convertible into
or exchangeable for any capital stock or other voting securities or ownership
interests in, any Included Subsidiary (the items in clauses 3.07(b)(i) and
3.07(b)(ii) being referred to collectively as the "Company Subsidiary
Securities"). There are no outstanding obligations of the Company or any
Included Subsidiary to repurchase, redeem or otherwise acquire any outstanding
Company Subsidiary Securities.
(c) Schedule 3.07(c) sets forth (i) the name of each corporation,
partnership, limited liability company or other entity (other than the Included
Subsidiaries) in which the Company holds a direct or indirect equity, profit,
voting or other interest ("Joint Venture Affiliate"), (ii) a description of the
interests of the Company, and (iii) the name of each owner of any such interest
and its percentage interest.
(d) Except as disclosed in Schedule 3.07(d), the interest of the Company in
each Joint Venture Affiliate is owned by the Company, directly or indirectly,
free and clear of any Liens and free of any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such interest).
18
Except as disclosed in Schedule 3.07(d), there are no outstanding (i) securities
or other interests of the Company or the Included Subsidiaries convertible into
or exchangeable for ownership interests in the Joint Venture Affiliates or (ii)
options or other rights to acquire from the Company or any Included Subsidiary
or other obligations of the Company or any Included Subsidiary to issue any
interests in or convertible into or exchangeable into any interest in the Joint
Venture Affiliates. Except as set forth in Schedule 3.07(d), there are no
outstanding obligations of the Company or the Included Subsidiaries to
repurchase, redeem or otherwise acquire any interest in any Joint Venture
Affiliate.
SECTION 3.08. SEC Filings; Financial Statements. (a) The Company has filed
all required reports, schedules, forms, statements and other documents with the
Securities and Exchange Commission since December 31, 1997, and will file all
reports, schedules, forms, statements and other documents with the Securities
and Exchange Commission which it shall be required to file on or after the date
hereof and up to and including the Closing Date (the "SEC Reports").
(b) As of its filing date, each SEC Report filed or to be filed pursuant to
the Exchange Act did not or will not, as the case may be, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(c) Each of the consolidated financial statements of the Company and its
Subsidiaries and the related consolidated statements of income and cash flow
included in or incorporated by reference in the SEC Reports, presents fairly the
consolidated financial position of the Company and its Subsidiaries as of the
dates thereof and their consolidated results of operations and cash flows, as
the case may be, for the periods then ended (subject to normal year-end
adjustments that will not be material in amount or effect in the case of the
unaudited interim financial statements) in conformity with United States
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto).
SECTION 3.09. Absence of Certain Changes. Except as disclosed in Schedule
3.09 and except for the transactions contemplated by this Agreement, since
December 31, 1997, the business of the Company and the Included Subsidiaries has
been conducted in the ordinary course consistent with past practices and there
has not been:
(a) any event, occurrence or development which has had or would reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company Group;
19
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any Included
Subsidiary of any outstanding shares of capital stock or other securities of the
Company or any Included Subsidiary;
(c) any amendment of any material term of any outstanding security of the
Company or any Included Subsidiary;
(d) any incurrence, assumption or guarantee by the Company or any Included
Subsidiary of any indebtedness for borrowed money other than in the ordinary
course of business consistent with past practices;
(e) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital contributions to
or investments in (i) any Persons in the ordinary course of business consistent
with past practices or (ii) wholly-owned Subsidiaries of the Company (other than
the Excluded Subsidiaries);
(f) any transaction or commitment made, or any contract, agreement or
arrangement entered into, by the Company or any Included Subsidiary relating to
their assets or business (including the acquisition or disposition of any
assets), in either case, material to the Company Group, other than transactions
and commitments in the ordinary course of business consistent with past
practices and those contemplated by this Agreement;
(g) any material change in any method of accounting or accounting practice
by the Company or any Included Subsidiary, except for any such change required
by reason of a change in generally accepted accounting principles; or
(h) any other event listed in Section 5.01 hereto.
SECTION 3.10. No Undisclosed Liabilities. There are no liabilities of the
Company or Included Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, other than:
(a) liabilities provided for in the Base Balance Sheet or disclosed in the
notes thereto;
(b) liabilities arising in the ordinary course subsequent to the Base
Balance Sheet Date, none of which liabilities has had or would reasonably be
20
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company Group;
(c) liabilities disclosed in, related to or arising under any agreements,
instruments or other matters disclosed in this Agreement or any Schedule hereto
(and to the Knowledge of Sellers, none of the liabilities arising under such
agreements or instruments was caused by any breach of contract, breach of
warranty, tort, infringement or violation of law);
(d) liabilities with respect to or arising out of any Excluded Subsidiary;
(e) liabilities disclosed in Schedule 3.10; and
(f) other undisclosed liabilities which are not required (in accordance
with generally accepted accounting principles consistently applied) to be
provided for in the Base Balance Sheet or disclosed in the notes thereto and
which would not, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect on the Company Group.
SECTION 3.11. Intercompany Accounts. Schedule 3.11 contains a complete list
of all intercompany balances as of the Base Balance Sheet Date between Holdings
and its Affiliates, on the one hand, and the Company and the Included
Subsidiaries, on the other hand. Since the Base Balance Sheet Date there has not
been any accrual of liability by the Company or any Included Subsidiary to
Holdings or any of its Affiliates or other transaction between the Company or
any Included Subsidiary and Holdings and any of its Affiliates, except in the
ordinary course of business of the Company and the Included Subsidiaries
consistent with past practice.
SECTION 3.12. Material Contracts. (a) Except as disclosed in Schedule 3.12,
neither the Company nor any Included Subsidiary is a party to or bound by:
(i) any lease of personal property providing for annual rentals of
$500,000 or more;
(ii) any agreement for the purchase of materials, supplies, goods,
services, equipment or other assets that provides for either (A) annual
payments by the Company and the Included Subsidiaries of $500,000 or more
or (B) aggregate payments by the Company and the Included Subsidiaries of
$2,000,000 or more;
(iii) any agreement providing for the sale by the Company or the
Included Subsidiaries of services (other than in respect of cellular
services
21
with customers thereof), equipment or other assets that provides for either
(A) annual payments to the Company and the Included Subsidiaries of
$500,000 or more or (B) aggregate payments to the Company and the Included
Subsidiaries of $2,000,000 or more;
(iv) any agency, dealer, reseller, roaming, interconnect or other
similar agreement, other than any such agreement (A) that is in all
material respects similar to the relevant form of such agreement furnished
to Buyer prior to the date hereof or (B) providing for either (x) annual
payments to or from the Company and the Included Subsidiaries of $1,000,000
or more or (y) aggregate payments to or from the Company and the Included
Subsidiaries of $3,000,000 or more (other than, in case of clause (B), any
agency or dealer agreement);
(v) any partnership, joint venture or other similar agreement or
arrangement relating to the formation, creation, operation, management or
control of any partnership or joint venture;
(vi) any agreement relating to the acquisition or disposition of any
material business (whether by merger, sale of stock, sale of assets or
otherwise);
(vii) other than the Credit Agreement and the Indenture, any agreement
relating to indebtedness for borrowed money or the deferred purchase price
of property (in either case, whether incurred, assumed, guaranteed or
secured by any asset);
(viii) any material license, franchise or similar agreement (including
without limitation all FCC Licenses);
(ix) any agreement that materially limits the freedom of the Company
or the Included Subsidiaries to compete in any line of business or with any
Person or in any area or which would so limit the freedom of the Company or
any Included Subsidiary after the Closing Date;
(x) any agreement with Holdings or any of its Affiliates;
(xi) any agreement with any director or officer of the Company or any
Included Subsidiary or with any "associate" or any member of the "immediate
family" (as such terms are respectively defined in Rules 12b-2 and 16a-1 of
the Securities Act) of any such director or officer (other than any Benefit
Arrangement or Employee Plan disclosed to Buyer pursuant to other
provisions hereof); or
22
(xii) any other agreement, commitment, arrangement or plan not made in
the ordinary course of business that is material to the Company Group.
(b) Each agreement, contract, plan, lease, arrangement or commitment
disclosed in Schedule 3.11 to this Agreement or required to be disclosed
pursuant to this section is a valid and binding agreement of the Company or the
Included Subsidiary, as the case may be, and is in full force and effect, and
neither the Company nor any Included Subsidiary nor, to the Knowledge of
Sellers, any other party thereto is in material default or breach in any respect
under the terms of any such agreement, contract, plan, lease, arrangement or
commitment.
(c) The subscriber activations under agency agreements listed on Schedule
3.12(c) account for no less than 85% of all subscriber activations by the
Company and the Included Subsidiaries for the twelve-month period ending
December 31, 1998.
SECTION 3.13. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the Knowledge of Sellers threatened against,
either Seller, Seller Guarantor, the Company or the Included Subsidiaries or any
of their respective properties before any court or arbitrator or any
governmental body, agency or official which, individually or in the aggregate,
has had or would reasonably be expected to have a Material Adverse Effect on the
Company Group, or which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay, or could reasonably be expected to prevent, alter or
materially delay, the transactions contemplated by this Agreement.
SECTION 3.14. Compliance with Laws and Court Orders; No Defaults. (a)
Neither the Company nor any Included Subsidiary is in violation of any
applicable law, rule, regulation, judgment, injunction, order or decree, except
for violations which, individually or in the aggregate, have not had and would
not reasonably be expected to have a Material Adverse Effect on the Company
Group.
(b) Neither the Company nor any of the Included Subsidiaries is in default
under, and no condition exists that with notice or lapse of time or both would
constitute a default under, any agreement or other instrument binding upon the
Company or such Included Subsidiary or any license, franchise, permit or similar
authorization held by the Company or any Included Subsidiary, except for
defaults or potential defaults which, individually or in the aggregate, have not
had and would not reasonably be expected to have a Material Adverse Effect on
the Company Group.
23
SECTION 3.15. Real Property. (a) Schedule 3.15(a) lists and briefly
describes all real property owned by any of the Company and the Included
Subsidiaries. Each such description is correct in all material respects. Except
as disclosed in Schedule 3.15(a), with respect to each such parcel of owned real
property:
(i) the identified owner has good and marketable title to the parcel
of real property, free and clear of any lien, mortgage, encumbrance,
security interest, easement, covenant, or other restriction or title
matter, except for (w) any mechanic's, materialmen's, and similar liens,
(x) any liens for real estate taxes or assessments not yet due and payable
or for real estate taxes or assessments that the taxpayer is contesting in
good faith through appropriate proceedings (provided the applicable real
property is not subject to imminent threat of loss), (y) any recorded and
unrecorded easements, covenants, and other similar restrictions and (z) any
utility easements, building and use restrictions, zoning restrictions and
other easements and restrictions existing generally with respect to
properties of a similar character, in each case that, individually and in
the aggregate, do not materially interfere with, restrict or limit the
current use of the property or impose any material financial or performance
obligation on the owner or user of such property;
(ii) there are no pending condemnation proceedings, lawsuits, or
administrative actions relating to the parcel of real property (and, to the
Knowledge of Sellers, there are no threatened condemnation proceedings,
lawsuits or administrative actions relating to the property) that would
reasonably be expected to materially and adversely affect the current use,
occupancy or value thereof;
(iii) there are no outstanding options or rights of first refusal to
purchase the parcel of real property, or any portion thereof or interest
therein;
(iv) there are no leases or grants of occupancy rights to others
affecting the parcel of real property, in each case of any significance;
and
(v) there are no material casualty events affecting the parcel of real
property not fully covered by insurance (except for customary deductibles).
Holdings will make available to Buyer prior to the Closing Date true and
complete copies, to the extent available to Holdings, of property surveys, title
24
commitments (including copies of recorded agreements and matters) and deeds for
each parcel of owned real estate.
(b) Schedule 3.15(b) lists and briefly describes all real property leased
or subleased to or by any of the Companies and their Subsidiaries. Each such
description is correct in all material respects. Holdings has delivered to Buyer
correct and complete copies of the leases and subleases listed in Schedule
3.15(b) (other than cell site leases and oral licenses for kiosks). There are no
amendments, consents for alterations, or other documents recording variations to
such leases which materially and adversely affect the rental payments, the term,
or the current use of the properties subject thereto. Except as disclosed in
Schedule 3.15(b), (i) each lease or sublease listed in Schedule 3.15(b) is
legal, valid, binding, enforceable, and in full force and effect, except as (x)
the enforceability may be limited by bankruptcy, insolvency, moratorium, or
other similar laws affecting creditors' rights generally, and (y) such property
may be subject to mortgages, deeds of trust, or other liens against the lessor's
interest in such property, (ii) none of the Company and the Included
Subsidiaries is in breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default by any of the
Company and the Included Subsidiaries or permit termination, modification or
acceleration by any third party thereunder, and (iii) to the Knowledge of
Sellers, no third party has repudiated or has the right to terminate or
repudiate (except for the normal exercise of remedies in connection with a
default thereunder or any termination rights set forth in the lease or sublease)
any provision thereof, except in case of each of clauses (i), (ii) or (iii), for
such illegality, invalidity, failures to be binding, unenforceability,
ineffectiveness, breaches, defaults, terminations, modifications, accelerations
and repudiations that, individually and in the aggregate, would not have a
Material Adverse Effect on the Company Group.
SECTION 3.16. Properties. (a) The Company and the Included Subsidiaries
have good title to, or in the case of leased property and assets have valid
leasehold interests in, all personal property and assets (whether real,
personal, tangible or intangible) reflected on the Base Balance Sheet or
acquired or entered into after the Base Balance Sheet Date, except for property
and assets sold since the Base Balance Sheet Date in the ordinary course of
business consistent with past practices or where the failure to have such good
title or valid leasehold interests would not have a Material Adverse Effect on
the Company Group. None of such property or assets (whether real or personal) is
subject to any Liens, except:
(i) Liens disclosed in Schedule 3.16;
25
(ii) Liens disclosed on the Base Balance Sheet or notes thereto or
securing liabilities reflected on the Base Balance Sheet or notes thereto;
(iii) Liens for taxes not yet due or being contested in good faith;
(iv) mechanic's, materialman's, carrier's, repairer's and other
similar Liens arising or incurred in the ordinary course of business or
that are not yet due and payable or are being contested in good faith;
(v) Liens incurred in the ordinary course of business since the Base
Balance Sheet Date; or
(vi) other Liens which do not materially detract, individually or in
the aggregate, from the value of any property or any asset (paragraphs (i)-
(vi) of this Section 3.16 are, collectively, the "Permitted Liens").
(b) The plant and equipment owned or used by the Company and the Included
Subsidiaries are in good operating condition and repair and have been reasonably
maintained consistent with standards generally followed in the industry (giving
due account to the age and length of use of same, ordinary wear and tear
excepted), are adequate and suitable for their present and intended uses and, in
the case of buildings and other structures (including the roofs thereof), are
structurally sound.
SECTION 3.17. Insurance. Schedule 3.17 contains a list of all insurance
policies and fidelity bonds maintained by or for the benefit of the Company and
the Included Subsidiaries. There is no material claim by the Company or any
Included Subsidiary pending under any of such policies or bonds relating to the
assets, business, operations, employees, officers or directors of the Company or
any Included Subsidiary as to which coverage has been questioned, denied or
disputed by the underwriters of such policy or bond or in respect of which such
underwriters have reserved their rights. To Sellers' Knowledge, there has been
no occurrence that may form the basis for a material claim by or on behalf of
the Company or any Included Subsidiary under any such policy or bond. All
premiums payable under all such policies and bonds have been paid timely in all
material respects, and the Company and the Included Subsidiaries have otherwise
complied in all material respects with the terms and conditions of all such
policies and bonds.
SECTION 3.18. Intellectual Property. (a) Schedule 3.18 contains a list of
all Intellectual Property Rights owned or licensed and used or held for use by
the Company or any Included Subsidiary ("Company Intellectual Property Rights"),
specifying as to each, as applicable: (i) the nature of such Intellectual
26
Property Right, (ii) the owner of such Intellectual Property Right, (iii) the
jurisdictions by or in which such Intellectual Property Right (A) is recognized
(without regard to registration) or (B) has been issued or registered or in
which an application for such issuance or registration has been filed, (iv) the
registration or application numbers and (v) the termination or expiration dates.
(b) Schedule 3.18 sets forth a list of all licenses, sublicenses and other
agreements (other than licenses to use standard software applications and other
commercially available licenses or use rights) as to which the Company or any
Included Subsidiary is a party and pursuant to which any Person is authorized to
use any Company Intellectual Property Right or pursuant to which the Company or
any Included Subsidiary is authorized to use or practice the Intellectual
Property Rights of any other Person, including (i) the identity of all parties
thereto, (ii) a description of the nature and subject matter thereof, (iii) the
applicable royalty and (iv) the term thereof. The Company is not, nor will it be
as a result of the execution, delivery or performance of this Agreement by it or
Sellers, be in violation of any licenses, sublicenses or other agreements as to
which the Company or any Included Subsidiary is a party and pursuant to which
the Company or any Included Subsidiary is authorized to use or practice any
Intellectual Property Rights of any other Person.
(c) (i) Except as disclosed in Schedule 3.18, neither the Company nor any
Included Subsidiary is a defendant in any action, suit, investigation or
proceeding relating to, or otherwise has been notified of, any alleged claim of
infringement of any Intellectual Property Right, and Sellers have no Knowledge
of any other such infringement by the Company or any Included Subsidiary and
(ii) none of the Sellers have any outstanding claim or suit for, nor any
Knowledge of, any continuing infringement by any other Person of any Company
Intellectual Property Rights. No Company Intellectual Property Right is subject
to any outstanding judgment, injunction, order, decree or agreement restricting
the use thereof by the Company or any Included Subsidiary or restricting the
licensing thereof by the Company or any Included Subsidiary to any Person.
Neither the Company nor any Included Subsidiary has entered into any agreement
to indemnify any other Person against any charge of infringement of any
Intellectual Property Right (other than any agency agreement entered into in the
ordinary course of business consistent with past practices).
SECTION 3.19. Finders' Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Sellers, Seller Guarantor or their Subsidiaries who might be entitled
to any fee or commission from Buyer or any of its Affiliates or the Company in
connection with the transactions contemplated by this Agreement.
27
SECTION 3.20. Labor Matters. Neither the Company nor any of the Included
Subsidiaries is a party or otherwise bound by, or as of the date hereof is
negotiating in connection with entering into, a collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization. The Company and the Included Subsidiaries are in compliance with
all currently applicable laws respecting employment and employment practices,
terms and conditions of employment and wages and hours, and are not engaged in
any unfair labor practice, except for noncompliance with laws or engagement in
practices which have not had and would not reasonably be expected to have a
Material Adverse Effect on the Company Group. There is no unfair labor practice
complaint pending or, to the Knowledge of Sellers, threatened against the
Company or the Included Subsidiaries before the National Labor Relations Board,
except for complaints made after the date of this Agreement which have not had
and would not reasonably be expected to have a Material Adverse Effect on the
Company Group.
SECTION 3.21. Employee Benefit Plans. (a) Schedule 3.21 identifies each
Employee Plan. Each of the Sellers has delivered or made available to Buyer
copies of the Employee Plans (and, if applicable, related trust agreements) and
all amendments thereto and written interpretations thereof, together with the
most recent annual report (Form 5500 including, if applicable, Schedule B
thereto) and the most recent actuarial valuation report prepared in connection
with any Employee Plan. Schedule 3.21 identifies each Employee Plan which is a
Multiemployer Plan or a Title IV Plan or a plan which provides for
post-retirement health, medical or life insurance benefits.
(b) Neither the Company nor any Included Subsidiary has engaged in a
transaction with respect to any Employee Plan that, assuming the taxable period
of such transaction expired on the date hereof, is reasonably likely to subject
the Company or any Included Subsidiary to a tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in an amount that would be
material. Neither the Company nor any ERISA Affiliate of the Company has engaged
in, or is a successor or parent corporation to an entity that has engaged in, a
transaction described in Sections 4069 or 4212(c) of ERISA or incurred any
liability under Title IV of ERISA arising in connection with the termination of,
or a complete or partial withdrawal from, any plan covered or previously covered
by Title IV of ERISA or any liability under Section 4971 of the Code that in
either case could become a material liability of the Company or any Included
Subsidiary or the Buyer or any of its ERISA Affiliates after the date hereof. No
condition exists that would reasonably be expected to constitute grounds for
termination by the PBGC of any employee benefit plan that is subject to Title IV
of ERISA that is maintained by the Company, the Included Subsidiaries or any of
their ERISA Affiliates. All material contributions required to be made by the
Company or the
28
Included Subsidiaries under the terms of any Employee Plan or Benefit
Arrangement have been timely made or have been reflected on the Base Balance
Sheet. No Title IV plan nor any money-purchase pension plan of the Company or
any ERISA Affiliate has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code. Under each Title IV Plan
which is a single-employer plan, as of the last day of the most recent plan year
ended prior to the date hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the plan's
most recent actuarial valuation) did not exceed the then market value of the
assets of such plan, and there has been no material change in the financial
condition of such plan since the last day of the most recent plan year.
(c) Each of the Sellers has provided Buyer with the most recent
determination letter of the Internal Revenue Service relating to each Employee
Plan that is intended to be qualified under Section 401(a) of the Code, and, to
the Knowledge of Sellers, no event has occurred since the date of such
determination letter that is likely to adversely affect such qualified status.
Each Employee Plan has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all applicable statutes, orders,
rules and regulations, including but not limited to ERISA and the Code.
(d) Schedule 3.21 identifies each Benefit Arrangement. Each of the Sellers
has delivered or made available to Buyer copies or descriptions of each Benefit
Arrangement (and, if applicable, related trust agreements) and all amendments
thereto. Each Benefit Arrangement has been maintained in substantial compliance
with its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations and has been maintained in good standing
with applicable regulatory authorities.
(e) Except as set forth on Schedule 3.21, neither the Company nor any
Included Subsidiary has any material current or projected liability in respect
of post-employment or post-retirement health or medical or life insurance
benefits for retired, former or current employees of the Company or the Included
Subsidiaries, except as required to avoid excise tax under Section 4980B of the
Code. The Company or any Included Subsidiary may amend or terminate any Employee
Plan providing for such health, medical or life insurance benefits at any time
without incurring any liability whatsoever.
(f) Except as provided in Schedule 3.21(f) and as contemplated by Article 9
hereof, the consummation of the transactions contemplated by this Agreement will
not (x) entitle any Employees to severance pay or (y) accelerate the time of
payment or vesting or trigger any payment or funding (through a
29
grantor trust or otherwise) of compensation or benefits under, increase the
amount payable or trigger any other material obligation pursuant to, any
Employee Plan or Benefit Arrangement.
SECTION 3.22. Environmental Matters. Except as disclosed on Schedule 3.22
and except as to matters that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company Group:
(a) no notice, request for information, order, complaint or penalty has
been received, and there are no judicial, administrative or other actions, suits
or proceedings pending or threatened which allege a violation of, or potential
liability under, any Environmental Law, in each case relating to the Company or
any Included Subsidiary and arising out of any Environmental Law;
(b) the Company and each Included Subsidiary have all Environmental Permits
necessary for their operations to comply with all applicable Environmental Laws
and are in compliance with the terms of such Environmental Permits and with all
other applicable Environmental Laws;
(c) there has been no written environmental audit, study, investigation,
review or other material analysis conducted within the past five years by, or
currently in the possession of, Sellers, Seller Guarantor, the Company or any
Included Subsidiary of any property currently owned or leased by the Company or
any Included Subsidiary which has not been delivered to Buyer prior to the
Closing Date;
(d) no property currently or formerly owned or operated by the Company or
any Included Subsidiary has been contaminated with any Hazardous Substance by
the Company or any Included Subsidiary in a manner that would reasonably be
expected to require remediation under any Environmental Law;
(e) the Company and the Included Subsidiaries are not subject to any
liability for any Hazardous Substance disposal or contamination on any property
which would reasonably be expected to require remediation under any
Environmental Law;
(f) the Company and the Included Subsidiaries are not subject to any order,
decree, injunction or other arrangement with any Governmental Body, or to any
indemnity or other agreement with any third party which may lead to liability to
the Company or any Included Subsidiary, in each case relating to any
Environmental Law or any Hazardous Substance;
30
(g) no facility owned or operated by the Company or any Included Subsidiary
contains any underground storage tanks, asbestos-containing material, or
polychlorinated biphenyls, in each case in violation of any Environmental Law;
and
(h) the Standard Industrial Classification Code for the business operations
for the Company and the Included Subsidiaries is 4812.
SECTION 3.23. Regulatory Matters. (a) The Company and the Included
Subsidiaries hold all licenses, franchises, certificates, consents, permits,
qualifications and authorizations (including, without limitation, FCC Licenses,
and licenses, authorizations and certificates of public convenience and
necessity from applicable state and local authorities) from all governmental
authorities necessary for the lawful conduct of the Company's business
(collectively, the "Licenses"), other than the Licenses the lack of which,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Material Adverse Effect on the Company Group. Schedule 3.23
sets forth each certificate of convenience and necessity obtained by the Company
or the Included Subsidiaries from any state public utilities commission. To the
Sellers' Knowledge, no event has occurred or fact exists with respect to the
Licenses (other than the requirement to file applications for renewal and obtain
renewals in the ordinary course) which permits, or after notice or lapse of time
or both would permit, revocation or termination of any of the Licenses or would
result in any other impairment of the rights of the holder of any of the
Licenses or which might limit the operation of the Cellular Telephone System as
it is now conducted, except for revocations, limitations or terminations which,
individually or in the aggregate have not had and would not reasonably be
expected to have a Material Adverse Effect on the Company Group. The Company and
the Included Subsidiaries have performed their respective obligations under such
Licenses with such exceptions which, individually or in the aggregate, have not
had and would not reasonably be expected to have a Material Adverse Effect on
the Company Group. The FCC actions granting the FCC Licenses, together with all
underlying construction permits have not been reversed, stayed, enjoined,
annulled or suspended, and there is not pending or, to the Knowledge of Sellers,
threatened, any application, petition, objection or other pleading with the FCC
or other governmental entity which challenges or questions the validity of or
any rights of the holder under any License, except for such reversals, stays,
injunctions, annulments, suspensions, applications, petitions, objections or
other pleadings, which have not had and would not reasonably be expected to have
a Material Adverse Effect on the Company Group.
(b) Except as set forth in Schedule 3.23, all of the cell sites and
microwave paths of the Company and the Included Subsidiaries in respect of
31
which a filing with the FCC was required have been constructed and are currently
operated in all material respects as represented to the FCC in currently
effective filings, and, with such exceptions which have not had and would not
reasonably be expected to have a Material Adverse Effect on the Company Group,
modifications to such cell sites and microwave paths have been preceded by the
submission to the FCC of all required filings.
SECTION 3.24. Assets of the Excluded Subsidiaries. The Excluded
Subsidiaries have no title or interest in any property or assets (whether real,
personal, tangible or intangible) other than (i) capital stock or other
ownership interest in other Excluded Subsidiaries and (ii) a 51% general
partnership interest in Comcast Directory Assistance Partnership, a Delaware
general partnership.
SECTION 3.25. Sufficiency of Transfers. Except as otherwise contemplated by
this Agreement with respect to the Excluded Subsidiaries, the 38 GHz Facilities
and the Seller Trademarks and Tradenames, the transactions contemplated by this
Agreement shall transfer to Buyer all the assets, properties and rights that are
(i) used in connection with the business of the Company Group (other than
properties or assets disposed of in the ordinary course of business consistent
with past practices) and (ii) necessary to operate the business of the Company
as it is being conducted as of the date hereof.
SECTION 3.26. Year 2000 Compliance. The Company has reviewed its operations
and that of its Included Subsidiaries and any third parties with which the
Company Group has a material relationship to evaluate the extent to which the
business or operations of the Company will be affected by the Year 2000 Problem.
As a result of such review, the Company has no reason to believe, and does not
believe, that the Year 2000 Problem will have a Material Adverse Effect on the
Company Group. The "Year 2000 Problem" as used herein means any significant risk
that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind will not, in the case of dates or time periods occurring after December
31, 1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000.
SECTION 3.27. No Other Representations and Warranties. Except for
representations and warranties contained in this Agreement, none of Sellers,
Seller Guarantor, their Affiliates, or any other Person makes any other express
or implied representation or warranty on behalf of Sellers or Seller Guarantor
to Buyer.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers and Seller Guarantor as of the
date hereof and as of the Closing Date, that:
SECTION 4.01. Corporate Existence and Power. Buyer is a corporation validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate powers to perform its obligations
under this Agreement.
SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by Buyer of this Agreement have been duly authorized by all
necessary corporate action on the part of Buyer. This Agreement constitutes a
valid and binding agreement of Buyer enforceable in accordance with its terms,
except as (i) the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by Buyer of this Agreement require no action by or in respect of, or
filing with, any governmental body, agency, or official other than (i)
compliance with any applicable requirements of the HSR Act; (ii) compliance with
any applicable requirements imposed by any state public utilities commissions or
similar state regulatory bodies having jurisdiction over Buyer or its
Subsidiaries; (iii) compliance with any applicable requirements of the FCC and
of the Communications Act; and (iv) actions or filings the failure of which to
occur have not had and would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Buyer and its Subsidiaries, taken
as a whole, or materially delay the ability of Buyer to perform its obligations
under this Agreement. Except as set forth in Schedule 4.03, Buyer is not
required to seek or obtain the waiver of any rules or policies of the FCC or to
divest itself of any of its present holdings to qualify to hold the FCC Licenses
or to obtain the FCC consents required in order to consummate the transactions
contemplated by this Agreement.
SECTION 4.04. Non-Contravention. Except as disclosed in Schedule 4.03, the
execution, delivery and performance by Buyer of this Agreement does not and will
not (i) violate the certificate of incorporation or bylaws of Buyer, (ii)
assuming compliance with the matters referred to in Section 4.03, violate any
applicable law, rule, regulation, judgment, injunction, order or decree, except
for violations which have not had and would not reasonably be expected to have a
33
Material Adverse Effect on Buyer, or (iii) require any consent or other action
by any Person under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of Buyer or
to a loss of any benefit to which Buyer is entitled under, any agreement or
other instrument binding upon Buyer or any license, franchise, permit or other
similar authorization held by Buyer, except for consents, actions, defaults,
terminations, cancellations, accelerations or losses which, individually or in
the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on Buyer and its Subsidiaries, taken as a whole.
SECTION 4.05. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Buyer threatened against or
affecting, Buyer, or its Subsidiaries or any of their respective properties
before any court or arbitrator or any governmental body, agency or official (a)
which, individually or in the aggregate, has had or would reasonably be expected
to have a Material Adverse Effect on the Buyer and its Subsidiaries, taken as a
whole or (b) which in any manner challenges or seeks to prevent, enjoin, alter
or materially delay, or which could reasonably be expected to prevent, alter or
materially delay, the transactions contemplated by this Agreement.
SECTION 4.06. Compliance with Laws and Court Orders; No Defaults. (a)
Neither Buyer nor any of its Subsidiaries is in violation of any applicable law,
rule, regulation, judgment, injunction, order or decree, except for violations
which have not had and would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Buyer and its Subsidiaries, taken
as a whole.
(b) Neither Buyer nor any of its Subsidiaries is in default under, and no
condition exists that with notice or lapse of time or both would constitute a
default under, any agreement or other instrument binding upon Buyer or its
Subsidiaries or any license, franchise, permit or similar authorization held by
Buyer or its Subsidiaries, except for defaults or potential defaults which have
not had and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Buyer and its Subsidiaries, taken as a
whole.
SECTION 4.07. Finders' Fees. Except for Salomon Smith Barney Inc., whose
fees will be paid by Buyer, there is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Buyer or its Subsidiaries who might be entitled to any fee or commission from
Sellers, Seller Guarantor or any of their Affiliates in connection with the
transactions contemplated by this Agreement.
34
SECTION 4.08. Purchase for Investment. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof. Buyer (either alone or together with its
advisors) has sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of its investment
in the Shares and is capable of bearing the economic risks of such investment.
SECTION 4.09. No Other Representations and Warranties. Except for
representations and warranties contained in this Agreement, none of Buyer, its
Affiliates, or any other Person makes any other express or implied
representation or warranty on behalf of Buyer to Sellers or Seller Guarantor.
ARTICLE 5
COVENANTS OF SELLERS AND SELLER GUARANTOR
Each of Sellers and Seller Guarantor agree, jointly and severally, that:
SECTION 5.01. Conduct of the Company. Except as otherwise contemplated by
this Agreement, from the date hereof until the Closing Date, Sellers shall use
their reasonable best efforts to cause the Company and each of the Included
Subsidiaries to conduct its businesses in the ordinary course consistent with
past practices, to preserve intact the Company's and the Included Subsidiaries'
business organization and to maintain their existing relations and goodwill with
customers, suppliers, distributors, creditors, lessors, employees and business
associates. Without limiting the generality of the foregoing, except as
otherwise contemplated by this Agreement, from the date hereof until the Closing
Date, Sellers will not permit the Company or any Included Subsidiary to:
(a) adopt or propose any change in its Organizational Documents;
(b) merge or consolidate with any other Person or acquire assets of any
other Person with a value in excess of $5,000,000, except for such transactions
among the Company and the wholly-owned Included Subsidiaries;
(c) amend any term of any outstanding security of the Company or any of the
Included Subsidiaries;
(d) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee, encumber, or authorize the issuance, sale, pledge, disposition,
grant, transfer, lease, license, guarantee or encumbrance of, any shares of
capital stock of the Company or any of the Included Subsidiaries (other than the
issuance of shares
35
by a wholly owned Included Subsidiary of the Company to the Company or another
wholly owned Included Subsidiary), or securities convertible or exchangeable or
exercisable for any shares of such capital stock, or any options, warrants or
other rights of any kind to acquire any shares of such capital stock or such
convertible or exchangeable securities, or any other ownership interest of the
Company or any of the Included Subsidiaries, any property or assets (including,
without limitation, by merger, consolidation, spinoff or other dispositions of
stock or assets) of the Company or any of the Included Subsidiaries;
(e) create or incur any material Lien on any material asset other than in
the ordinary course of business consistent with past practices;
(f) make any material loan, advance or capital contributions to or
investments in any Person other than loans, advances or capital contributions to
or investments in wholly owned Included Subsidiaries made in the ordinary course
consistent with past practices;
(g) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock (except for dividends paid (x) by any direct or indirect wholly
owned Included Subsidiary to the Company or to any other direct or indirect
wholly owned Included Subsidiary or (y) pursuant to the Tax Sharing Agreement)
or enter into any agreement with respect to the voting of its capital stock;
(h) reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its capital stock;
(i) (i) incur any indebtedness for borrowed money or guarantee such
indebtedness of another Person, or issue or sell any debt securities or warrants
or other rights to acquire any debt security of the Company or any of the
Included Subsidiaries, except for indebtedness for borrowed money incurred in
the ordinary course of business consistent with past practices or in connection
with transactions otherwise permitted under this Section 5.01, or (ii)
terminate, cancel, waive any rights under or request any material change in, or
agree to any material change in, any contract or agreement material to the
Company Group or, except in connection with transactions permitted under this
Section 5.01, enter into any contract or agreement material to the business,
results of operations or financial condition of the Company Group, in either
case other than in the ordinary course of business consistent with past
practices;
(j) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with past
36
practice or except as required by changes in generally accepted accounting
principles;
(k) make any material Tax election or take any position on any Tax Return
filed on or after the date of this Agreement or adopt any method therefor that
is inconsistent with elections made, positions taken or methods used in
preparing or filing similar Tax Returns in prior periods;
(l) except as may be required by contractual commitments or corporate
policies with respect to severance pay in existence on the date hereof, (i)
increase the compensation payable or to become payable to its officers or
employees (except for increases in the ordinary course of business and
consistent with past practice in salaries or wages of employees of the Company
or any of the Included Subsidiaries), (ii) establish, adopt, enter into or amend
any collective bargaining, bonus, profit sharing, thrift, compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, officer or employee, except to
the extent required by applicable law, or (iii) increase the benefits payable
under any existing severance pay policies or employment or other agreements;
(m) acquire any assets, or any ownership interest in any assets:
(i) that are used to provide any new information services or
electronic publishing services that Buyer could not provide after the
Closing on account of or in compliance with Sections 271 and 272 of the
Communications Act;
(ii) that are used in the provision of any telecommunications services
in any of the following states: California, Texas, Missouri, Oklahoma,
Kansas, Arkansas, Nevada, Connecticut, Illinois, Indiana, Michigan, Ohio
and Wisconsin; and
(iii) that are used in the provision of local exchange telephone
service in any state in the United States;
(n) engage in the conduct of any business in any state other than the
businesses conducted as of the date hereof and in the states where so conducted;
or
(o) agree or commit to do any of the foregoing.
SECTION 5.02. Access to Information. (a) From the date hereof until the
Closing Date, each of the Sellers will upon reasonable notice (i) give, and will
37
cause the Company and each Included Subsidiary to give, Buyer, its counsel,
financial advisors, auditors and other authorized representatives full access to
the offices, properties, books and records of the Company and the Included
Subsidiaries and to the books and records of Sellers or Seller Guarantor
relating to the Company and the Included Subsidiaries, (ii) furnish, and will
cause the Company and each Included Subsidiary to furnish, to Buyer, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to the Company or
the Included Subsidiaries as such Persons may reasonably request and (iii)
instruct the employees, counsel and financial advisors of Sellers, the Seller
Guarantor, the Company or the Included Subsidiaries to cooperate with Buyer in
its investigation of the Company or the Included Subsidiaries. Any investigation
pursuant to this Section shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of Sellers, Seller Guarantor or
the Company. Notwithstanding the foregoing, Buyer shall not have access to
personnel records of the Company and the Included Subsidiaries relating to
individual performance or evaluation records, medical histories or other
information which in Sellers' good faith opinion is sensitive or the disclosure
of which could subject the Company or any Included Subsidiary to risk of
liability.
(b) On and after the Closing Date, each of the Sellers will afford promptly
to Buyer and its agents reasonable access to its books of account, financial and
other records (including, without limitation, accountant's work papers),
information, employees and auditors to the extent necessary or useful for Buyer
in connection with any audit, investigation, dispute or litigation or any other
reasonable business purpose relating to the Company or any Included Subsidiary;
provided that any such access by Buyer shall not unreasonably interfere with the
conduct of the business of such Seller. Buyer shall bear all of the
out-of-pocket costs and expenses (including, without limitation, attorneys'
fees, but excluding reimbursement for general overhead, salaries and employee
benefits) reasonably incurred in connection with the foregoing.
SECTION 5.03. Notices of Certain Events. Holdings shall promptly notify
Buyer of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement;
38
(c) any contact with any Person seeking to act as a bargaining
representative for a labor union or any other labor organization (in each case
with respect to the employees of the Company or any Included Subsidiary) that
comes to the Knowledge of Sellers; and
(d) any actions, suits, claims, investigations or proceedings commenced or,
to its Knowledge, threatened against either Seller, the Company or the Included
Subsidiaries that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.13 or that relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 5.04. Resignations. Sellers will deliver to Buyer the resignations
of all officers and directors of the Company and each Included Subsidiary who
will be officers, directors or employees of Seller Guarantor or any of its
Affiliates after the Closing Date from their positions with the Company or any
Included Subsidiary at or prior to the Closing Date.
SECTION 5.05. Non-competition. (a) Seller Guarantor agrees that for a
period of three years after the Closing Date, neither it nor any of its
Subsidiaries shall engage, as a principal or as stockholder in any corporation,
in marketing (whether as principal, agent or reseller) any Cellular Telephone
System within any area served by any Cellular Telephone System owned or managed
by the Company or its Subsidiaries as of the Closing Date and transferred to
Buyer at the Closing (the "Restricted Activities"); provided that (i) Seller
Guarantor or any of its Affiliates may operate under an agency agreement with
Buyer or one of its Affiliates to sell, as an agent, services provided by the
Cellular Telephone Systems on terms consistent with the terms offered on the
date hereof by the Company or its Affiliates to agents of the Cellular Telephone
Systems of comparable size and significance, (ii) nothing in this Agreement
shall prohibit or restrict Seller Guarantor, directly or indirectly, from (a)
acquiring or owning any equity or other ownership interest in any Person that
engages, directly or indirectly, in any Restricted Activity if (A) such
Restricted Activities account for less than 15% of such Person's total annual
revenues, (B) Seller Guarantor divests any assets engaged in the Restricted
Activities within 12 months of acquiring such business or assets and (C) during
such 12-month period Seller Guarantor shall not use (x) the name "Comcast" (or
any name including the name "Comcast") or (y) any Seller Trademarks and
Tradenames in such Restricted Activities; (b) acquiring any assets of a business
that engages, directly or indirectly, in any Restricted Activity if (A) such
Restricted Activities account for less than 15% of such assets' total annual
revenues, (B) Seller Guarantor divests any assets engaged in the Restricted
Activities within 12 months of acquiring such business or assets and (C) during
such 12-month period Seller Guarantor shall not use (x) the name "Comcast" (or
any name including the name "Comcast") or (y) any Seller
39
Trademarks and Tradenames in such Restricted Activities; (c) owning any equity
securities beneficially owned by Seller Guarantor as of the date hereof and
listed on Schedule 5.05 or any securities into which such securities may be
converted or exchanged (it being understood that Seller Guarantor will not
actively participate in the management of any Person listed on Schedule 5.05);
(d) acquiring or owning less than 5% of a class of the outstanding publicly
listed equity securities of any Person (whether or not such Person engages in
any Restricted Activities).
(b) If any provision contained in this section shall for any reason be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Section, but this
Section shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. It is the intention of the parties
that if any of the restrictions or covenants contained herein is held to cover a
geographic area or to be for a length of time which is not permitted by
applicable law, or in any way construed to be too broad or to any extent
invalid, such provision shall not be construed to be null, void and of no
effect, but to the extent such provision would be valid or enforceable under
applicable law, a court of competent jurisdiction shall construe and interpret
or reform this section to provide for a covenant having the maximum enforceable
geographic area, time period and other provisions (not greater than those
contained herein) as shall be valid and enforceable under such applicable law.
Seller Guarantor acknowledges that Buyer would be irreparably harmed by any
breach of this section and that there would be no adequate remedy at law or in
damages to compensate Buyer for any such breach. Seller Guarantor agrees that
Buyer shall be entitled to injunctive relief requiring specific performance by
Seller Guarantor of this Section, and Seller Guarantor consents to the entry
thereof.
SECTION 5.06. Transfer of the Excluded Subsidiaries. Prior to or
concurrently with the Closing, Sellers shall cause the Company and the Included
Subsidiaries to transfer all of the capital stock of the Excluded Subsidiaries
owned by the Company or its Subsidiaries to one or more of the Affiliates of
Holdings. The parties hereto agree that any such transfer may be implemented
prior to the Closing Date by the transferees purchasing such capital stock for
cash consideration to be determined by Sellers. Sellers shall use their
commercially reasonable efforts to cause such transfers to be consummated on the
terms which result in the Company and the Included Subsidiaries not incurring
any liabilities upon the consummation of such transfers.
SECTION 5.07. Intercompany Accounts. All intercompany accounts between
Sellers or their Affiliates, on the one hand, and the Company or any Included
Subsidiary, on the other hand, shall be paid in full in cash or otherwise
40
fully discharged at or prior to the Closing Date (irrespective of the terms of
payment of such intercompany accounts).
SECTION 5.08. Nonsolicitation. Subject to the last three sentences of this
Section 5.08, Seller Guarantor, on behalf of itself and its Affiliates, hereby
agrees that from and after the date hereof until the second anniversary of the
Closing Date neither Seller Guarantor nor any of its Affiliates shall hire or
solicit for employment (or hire any third party intermediary to do the same) any
employee that as of the date hereof is an employee of the Company or is listed
on Schedule 5.08 hereto; provided, that nothing in this Section 5.08 shall
prevent Seller Guarantor from (x) engaging in a general solicitation for
employment that is not specifically directed at any employees of the Company or
any Included Subsidiary (or from hiring or employing any employee who responds
to such general solicitation and whose employment with the Company or the
Included Subsidiary has terminated prior to such response) or (y) engaging in
solicitation directed at any employee of the Company or any Included Subsidiary
who has been terminated without cause on or after the Closing Date (or from
hiring or employing any such employee). During the sixty-day period commencing
on the date hereof, neither Seller Guarantor nor any of its Affiliates shall
solicit the employment, after the Closing Date, of any person whose name is set
forth in Part I of Schedule 5.08. After the expiration of such sixty-day period,
no provision of this Agreement (including without limitation Sections 5.01 and
5.08) shall be construed to prohibit Seller Guarantor or any of its Affiliates
from employing or soliciting the employment of any person whose name is set
forth in Part I of Schedule 5.08. Seller Guarantor and Buyer shall comply with
their obligations set forth in Part II of Schedule 5.08.
SECTION 5.09. Confidentiality. From and after the Closing Date until the
second anniversary of the Closing Date. Seller Guarantor and its Affiliates will
hold, and will use their commercially reasonable efforts to cause their
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
confidential documents and information concerning the Company or the Included
Subsidiaries in the possession of Seller Guarantor or its Affiliates, except to
the extent that such information can be shown to have been (i) in the public
domain through no fault of Seller Guarantor, (ii) lawfully acquired by Seller
Guarantor after the Closing Date on a nonconfidential basis from sources other
than the Company or any other Person having a duty not to disclose such
information or (iii) required by law or the rules of any stock exchange on which
Seller Guarantor's securities are listed or traded; provided that Seller
Guarantor may disclose such information to its officers, directors, employees,
accountants, counsel, consultants, advisors and agents in connection with the
transactions contemplated by this Agreement so
41
long as such Persons are informed by Seller Guarantor of the confidential nature
of such information and are directed by Seller Guarantor to treat such
information confidentially. Before disclosing any such information under
compulsion of judicial or administrative process or by other requirements of
law, Seller Guarantor shall to the extent practicable, give Buyer sufficient
notice before such disclosure to afford Buyer opportunity to contest such
disclosure. The obligation of Seller Guarantor and its Affiliates to hold any
such information in confidence shall be satisfied if they exercise the same care
with respect to such information as they would take to preserve the
confidentiality of their own similar information. If this Agreement is
terminated, Seller Guarantor and its Affiliates will, and will use their best
efforts to cause their respective officers, directors, employees, accountants,
counsel, consultants, advisors and agents to, promptly destroy or deliver to
Buyer, upon request, all documents and other materials, and all copies thereof,
obtained by Seller Guarantor or its Affiliates or on their behalf from Buyer in
connection with this Agreement that are subject to such confidence.
SECTION 5.10. Exchange of Preferred Stock for Common Stock. After the date
hereof and prior to the Closing Date, the Company will issue shares of Common
Stock to Comcast Financial in exchange for all of the outstanding shares of
Preferred Stock. Immediately following such exchange and as of the Closing Date,
no shares of Preferred Stock will be outstanding.
SECTION 5.11. Regulatory Compliance. Seller Guarantor agrees that it will
use, and will cause the Company and each Included Subsidiary to use, their
reasonable best efforts to (a) cure no later than the Closing Date (i) any
violations and defaults under any applicable rules and regulations of the FCC
(the "FCC Rules") and the FAA (the "FAA Rules"), (b) substantially comply with
the FCC Licenses and the FAA Rules and cause the Company and each Included
Subsidiary to file or cause to be filed with the FCC and the FAA all reports and
other filings required to be filed under applicable FCC Rules and FAA Rules, and
(c) take all actions requested in writing by Buyer to cause the Company and each
Included Subsidiary on or before the Closing Date to be in compliance upon the
consummation of the Closing with the provisions of Sections 271 and 272 of the
Communications Act (including any orders issued by the FCC interpreting or
implementing such provisions) ("Sections 271 and 272"). Sellers shall (x) cause
the Company and the Included Subsidiaries to cooperate with Buyer in determining
steps required to comply with Sections 271 and 272 and (y) upon Buyer's written
request take all reasonable actions required by clause (c) of the immediately
preceding sentence; provided that (i) no action taken by the Company or any
Included Subsidiary pursuant to such written request from Buyer shall interfere
with their normal business operations or shall change the manner in which the
Company or any Included Subsidiary operates its business prior to the Closing
Date, (ii) no action taken by the Company or any Included Subsidiary
42
pursuant to such written request from Buyer shall be deemed a Material Adverse
Effect on the Company Group or a Regulatory Material Adverse Effect, (iii) Buyer
shall promptly reimburse the Company and the Included Subsidiaries for the
direct labor costs and out of pocket costs (including without limitation any
Damages) incurred by them in taking any action requested by Buyer to comply with
Sections 271 and 272 and (iv) upon the termination of this Agreement shall
promptly reimburse the Company and the Included Subsidiaries for the direct
labor costs and out of pocket costs incurred in reversing any action requested
by the Buyer to comply with Sections 271 and 272.
SECTION 5.12. Expenditures. From the date hereof until the Closing Date,
the Company shall conduct its operations and spending consistent in all material
respects with its 1999 expenditures plan attached as Schedule 5.12 hereto (the
"1999 Expenditures Plan"). Without limiting the generality of the foregoing, the
Company shall use its reasonable best efforts to spend on each category of
expenditures specified in Schedule 5.12 (each, a "Category") from the date
hereof through the Closing Date, an aggregate amount not greater than 105% and
not less than 95% of the estimated Required Expenditure Amount for such
Category. Notwithstanding the foregoing, with the prior written approval of
Buyer, which approval shall not be unreasonably withheld, the Company may spend
more than the Required Expenditure Amount for one or more of the Categories.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
SECTION 6.01. Notices of Certain Events. Buyer shall promptly notify
Holdings of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced or,
to its knowledge threatened against, relating to or involving or otherwise
affecting Buyer, or its Subsidiaries that, if pending on the date of this
Agreement,
43
would have been required to have been disclosed pursuant to Section 4.05 or that
relate to the consummation of the transactions contemplated by this Agreement.
SECTION 6.02. Confidentiality. Prior to the Closing Date and after any
termination of this Agreement, Buyer and its Affiliates will hold, and will use
their commercially reasonable efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all confidential documents and
information concerning the Company or the Included Subsidiaries furnished to
Buyer or its Affiliates in connection with the transactions contemplated by this
Agreement, except to the extent that such information can be shown to have been
(i) previously known on a nonconfidential basis by Buyer, (ii) in the public
domain through no fault of Buyer, (iii) later lawfully acquired by Buyer on a
nonconfidential basis from sources other than Sellers, Seller Guarantor, the
Company or the Included Subsidiaries or any other Person having a duty not to
disclose such information or (iv) required by law or the rules of any stock
exchange on which Buyer's securities are listed or traded; provided that Buyer
may disclose such information to its officers, directors, employees,
accountants, counsel, consultants, advisors and agents in connection with the
transactions contemplated by this Agreement so long as such Persons are informed
by Buyer of the confidential nature of such information and are directed by
Buyer to treat such information confidentially. Before disclosing any such
information under compulsion of judicial or administrative process or by other
requirements of law, Buyer shall to the extent practicable, give Holdings
sufficient notice before such disclosure to afford Holdings opportunity to
contest such disclosure. The obligation of Buyer and its Affiliates to hold any
such information in confidence shall be satisfied if they exercise the same care
with respect to such information as they would take to preserve the
confidentiality of their own similar information. If this Agreement is
terminated, Buyer and its Affiliates will, and will use their best efforts to
cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to, promptly destroy or deliver to Holdings,
upon request, all documents and other materials, and all copies thereof,
obtained by Buyer or its Affiliates or on their behalf from Sellers, the Company
or the Included Subsidiaries in connection with this Agreement that are subject
to such confidence.
SECTION 6.03. Access. Buyer will cause the Company and each Included
Subsidiary, on and after the Closing Date, to afford promptly to Sellers and
Seller Guarantor and their agents reasonable access to their properties, books,
records, employees and auditors to the extent necessary to permit Sellers to
determine any matter relating to its rights and obligations hereunder or to any
period ending on or before the Closing Date or to comply with any requirements
promulgated by
44
any regulatory authority; provided that any such access by Sellers shall not
unreasonably interfere with the conduct of the business of Buyer. Sellers or
Seller Guarantor shall bear all of the out-of-pocket costs and expenses
(including, without limitation, attorneys' fees, but excluding reimbursement for
general overhead, salaries and employee benefits) reasonably incurred in
connection with the foregoing. Sellers and Seller Guarantor will hold, and will
use their reasonable commercial efforts to cause their officers, directors,
employees, accountants, counsel, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all confidential documents and information
concerning the Company or any Included Subsidiary provided to them pursuant to
this Section.
SECTION 6.04. Redemption of the Senior Notes. (a) At its discretion, Buyer
may redeem or otherwise retire in whole or in part (whether by means of tender
offer, exchange offer or otherwise) the Company's 9 1/2% Senior Notes due 2007
(the "Senior Notes") outstanding under the Indenture, such redemption or
retirement to be consummated on reasonable commercial terms and as soon as
reasonably practicable after the Closing.
(b) After the Closing Buyer shall cause the Company to comply with all
terms of the Senior Notes and of the Indenture, including without limitation,
the obligation to make an Offer to Purchase (as defined in the Indenture)
pursuant to Section 4.14 of the Indenture if, and to the extent, the Company is
required to make such Offer to Purchase.
SECTION 6.05. Cellular Services. For a period beginning on the Closing Date
and ending on the tenth anniversary thereof Buyer agrees to provide to Seller
Guarantor or to any of its Subsidiaries free of charge the services of its
Cellular Telephone Systems that Buyer or its Subsidiaries are generally making
available to the public (whether or not such services are being provided by the
Company or any Subsidiary thereof); provided that Buyer shall not be required to
provide free of charge services with an aggregate value in excess of $250,000
per calendar year; provided, however, that such service (i) may not be offered
to or used by any person that is not then employed by Seller Guarantor or one of
its Subsidiaries and (ii) shall not include any services that the Cellular
Telephone System obtains from a third party, such as long distance charges and
roaming. For the purpose of valuing the services so provided, such services
shall be deemed to be provided at the pricing rates that are at least as
favorable to Seller Guarantor as the best large corporate user rates made
available by Buyer or its Subsidiaries at such time.
45
ARTICLE 7
COVENANTS OF BUYER, SELLERS AND SELLER GUARANTOR
Buyer and Sellers agree that:
SECTION 7.01. Best Efforts. Subject to the terms and conditions of this
Agreement, Buyer and Sellers will use their reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
reasonably necessary, proper or advisable under applicable laws and regulations
to consummate the transactions contemplated by this Agreement, including
preparing and filing as promptly as practicable all documentation to effect all
necessary applications, notices, petitions, filings and other documents and to
obtain as promptly as practicable all consents, registrations, approvals,
permits and authorizations required to be obtained from any third party and/or
any Governmental Entity in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby;
provided, however, that nothing in this Section 7.01 shall require, or be
construed to require, Buyer or Sellers or Seller Guarantor or their Affiliates
or the Company Group to agree to, or comply with, any conditions to the granting
of any such consent, registration, approval, permit or authorization by any
Governmental Entity (other than a divestiture of the FCC authorization for any
of the properties identified in Schedule 4.03 that is required in order to cause
Buyer and its Affiliates and the Company Group to be in compliance with the
Commercial Mobile Radio Services spectrum aggregation limits, as set forth in 47
C.F.R. ss. 20.6, and the Cellular Cross Ownership limits, as set forth in 47
C.F.R. ss. 22.942) if compliance with such conditions, individually or in the
aggregate, would be reasonably likely to have a Material Adverse Effect on the
Company Group or Buyer following the Closing (it being understood that, for this
purpose only, materiality shall take into account (i) any adverse effects
reasonably likely to arise from any restrictions on the ability of the Company
or any of its respective Subsidiaries to conduct its operations as currently
conducted, or as proposed as of the date of this Agreement to be conducted,
resulting from complying with the conditions to or from the grant of any such
consent, registration, approval, permit or authorization, (ii) any benefits
reasonably likely to be realized by Buyer on a consolidated basis (other than
those operational benefits reasonably likely to be realized directly from the
consummation of the transactions contemplated hereby) resulting from complying
with the conditions to or from the grant of any such consent, registration,
approval, permit or authorization, and (iii) any proceeds resulting from any
divestiture required by a Governmental Entity as a condition to its granting any
such consent, registration, approval, permit or authorization) (a "Regulatory
Material Adverse Effect"); provided further, that any divestiture by Buyer or
any of its Affiliates reasonably required to cause Buyer, following the Closing,
to be in compliance with the Commercial Mobile Radio Service
46
spectrum aggregation limits as set forth in 47 C.F.R. ss. 20.6 and the Cellular
Cross Ownership limits as set forth in 47 C.F.R. ss. 22.942 shall be deemed not
to have any adverse effect on Buyer or its Affiliates or the Company following
the Closing. Sellers, prior to the Closing Date, and Buyer, after the Closing
Date, agree to cause the Company and each Included Subsidiary to execute and
deliver such other documents, certificates, agreements and other writings and to
take such other actions as may be necessary or desirable in order to consummate
or implement expeditiously the transactions contemplated by this Agreement.
SECTION 7.02. Certain Filings. Each of the Sellers and Buyer shall
cooperate with one another (i) in determining whether any action by or in
respect of, or filing with, any governmental body, agency, official or authority
is required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement and (ii) in
taking such actions or making any such filings, furnishing information required
in connection therewith and seeking timely to obtain any such actions, consents,
approvals or waivers.
Notwithstanding the foregoing, each of the Sellers and Buyer shall use
their respective best efforts to:
(a) promptly, and in any event within 20 business days following the date
hereof, file with the FTC and the DOJ, the notification and report form required
for the transactions contemplated by this Agreement and any supplemental
information required in connection therewith pursuant to the HSR Act; provided,
that neither Buyer nor Sellers shall be deemed to be in breach of this Agreement
if such filing is not made within 20 business days. Each of the Sellers and
Buyer shall furnish to each other's counsel such necessary information and
reasonable assistance as the other may request in connection with its
preparation of any filing or submission that is necessary under the HSR Act.
Each of the Sellers and Buyer (x) shall keep each other appraised of the status
of any written communications with, and any written inquiries or requests for
additional information from, the FTC and the DOJ and other governmental
authorities and (y) shall use their respective commercially reasonable efforts
to comply promptly with any such inquiry or request.
(b) promptly, and in any event within 20 business days following the date
hereof, file any required application, report or other filing or request for
approval or notifications with the FCC and any state regulatory authority from
whom consent or clearance is required to be obtained in connection with the
transactions contemplated hereby; provided, that neither Buyer nor Sellers shall
be deemed to be in breach of this Agreement if such filing is not made within 20
business days. Each of the Sellers and Buyer shall furnish to each other's
counsel
47
such necessary information and reasonable assistance as the other may request in
connection with its preparation of any such filing or other submission. Each of
the Sellers and Buyer (x) shall keep each other appraised of the status of any
written communications with, and any written inquiries or requests for
additional information from, the FCC and any state regulatory authority and (y)
shall use their respective commercially reasonable efforts to comply promptly
with any such inquiry or request.
SECTION 7.03. Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
SECTION 7.04. Seller Trademarks; Tradenames. (a) Except as set forth in the
other subsections of this Section 7.04, after the Closing, Buyer shall not
permit the Company or its Subsidiaries to use any of the marks or names set
forth on Schedule 7.04 (collectively or individually as the context requires,
the "Seller Trademarks and Tradenames").
(b) After the Closing, the Company and its Subsidiaries shall have the
right to sell existing inventory and to use existing packaging, labeling,
supplies, advertising materials, technical data sheets and any similar materials
bearing any Seller Trademarks and Tradenames until the earlier of (i) three
months after the Closing Date and (ii) the date existing stocks are exhausted.
The Company and its Subsidiaries shall have the right to use the Seller
Trademarks and Tradenames in advertising that cannot be changed by them using
reasonable efforts for a period not to exceed three months after the Closing
Date. Buyer shall cause the Company and its Subsidiaries to comply with all
applicable laws or regulations in any use of packaging or labeling containing
the Seller Trademarks and Tradenames.
(c) The Company and its Subsidiaries shall not be obligated to change the
Seller Trademarks and Tradenames on goods in the hands of agents, distributors
and customers at the time of the expiration of a time period set forth in
subsection 7.04(b) above.
(d) Buyer agrees to cause the Company and its Subsidiaries to use
reasonable efforts to cease using the Seller Trademarks and Tradenames on
buildings, cars, trucks and other fixed assets as soon as possible within a
period not to exceed six months after the Closing Date. The obliteration of the
Seller Trademarks and Tradenames shall be deemed compliance with the covenant
not
48
to use the Seller Trademarks and Tradenames pursuant to this Section 7.04. Buyer
agrees to change the corporate name of the Company and any Included Subsidiary
to the extent necessary to remove any Seller Trademarks and Tradenames included
therein as soon as reasonably practicable and in any event within thirty days of
the Closing Date.
SECTION 7.05. 38 GHz Authorizations. Buyer and Sellers agree that certain
licenses issued by the FCC for the operation of 38 GHz fixed microwave
facilities listed on Schedule 7.05 hereto (the "38 GHz Licenses"), and the
associated transmission equipment and related assets (together with the 38 GHz
Licenses, the "38 GHz Facilities") shall not be transferred to Buyer in this
transaction. Sellers shall promptly seek the consent of the FCC to assign the 38
GHz Licenses to a Person controlled by Holdings other than the Company and the
Included Subsidiaries and shall use all commercially reasonable efforts to
complete such assignment of the 38 GHz Facilities prior to the Closing Date. The
parties hereto agree that any such transfers may be implemented by the
transferees purchasing the 38 GHz Facilities prior to the Closing Date for cash
consideration to be determined by Sellers. In the event the 38 GHz Facilities
have not been so assigned prior to or on the Closing Date, Buyer and Sellers
shall cooperate to complete such assignment as soon as practicable following the
Closing Date.
SECTION 7.06. Illinois Properties. If, as a result of the restrictions of
either the Commercial Mobile Radio Service spectrum aggregation limits, as set
forth in 47 C.F.R. ss. 20.6, or the Cellular Cross Ownership limits, as set
forth in 47 C.F.R. ss. 22.942, the Closing cannot be consummated after all
conditions to the Closing have been satisfied or waived in accordance with
Article 10 hereof (other than any condition relating to either such limit
(including without limitation requisite consents of the FCC) and any condition
which by its terms is to be satisfied at or immediately prior to the Closing),
then, at Buyer's written request stating that Buyer has a reasonable expectation
that the condition relating to such limits will be satisfied no later than 30
days after the date of such request, the Closing hereunder shall be delayed
until the date designated by Buyer (which date shall be no later than 30 days
after the date of such request) and if on such subsequent date the Closing
cannot be consummated as a result of a condition relating to either such limit,
then the Illinois Properties shall be transferred to Holdings or one of its
Affiliates on such date (subject to any regulatory notifications or regulatory
approvals required in connection with such transfers), the Purchase Price
payable hereunder shall be reduced by fifty million U.S. dollars ($50,000,000),
and the Closing shall be consummated on such date immediately after the
consummation of the transfer of the Illinois Properties. Subject in any event to
the Purchase Price being reduced pursuant to the immediately preceding sentence,
the parties hereto agree that any such transfers of the Illinois Properties may
be implemented by the transferees purchasing the Illinois Properties prior to
49
the Closing Date for cash consideration to be determined by Sellers. In
connection with the transfer of the Illinois Properties to Holdings or one of
its Affiliates Buyer agrees to, and shall cause its Affiliates to, (i) on and
after the date of Buyer's written request delivered pursuant to this Section
7.06, reasonably cooperate with Sellers and Seller Guarantor in making, filing
or obtaining any regulatory notifications or regulatory approvals required in
connection with such transfers, (ii) extend the term of the Illinois Management
Contract until the first anniversary of the Closing Date and (ii) consent to the
assignment of the Illinois Management Contract from the Company to Seller
Guarantor or one of its Affiliates.
ARTICLE 8
TAX MATTERS
SECTION 8.01. Tax Representations. (a) Each of Sellers represents and
warrants to Buyer as of the date hereof that, except as set forth in the Balance
Sheet (including the notes thereto) or on Schedule 8.01(a), (i) all Tax returns,
statements, reports and forms required to be filed with any Taxing Authority
with respect to any Pre-Closing Tax Period by or on behalf of the Company or the
Included Subsidiaries (collectively, the "Returns") other than those Returns the
failure of which to file would not have a Material Adverse Effect on the Company
Group, have, to the extent required to be filed on or before the date hereof,
been properly filed when due in accordance with all applicable laws; (ii) the
Returns correctly reflect the facts regarding the income, business, assets,
operations, activities and status of the Company and the Included Subsidiaries
in all material respects; (iii) all Taxes shown as due and payable on the
Returns that have been filed have been paid, or withheld and remitted to the
appropriate Taxing Authority; (iv) all Returns filed with respect to Tax years
of the Company and the Included Subsidiaries through the Tax year ended December
31, 1991, have been examined and closed or are Returns with respect to which the
applicable period for assessment under applicable law, after giving effect to
extensions or waivers, has expired; (v) neither the Company nor any of the
Included Subsidiaries (or any member of any affiliated, consolidated, combined
or unitary group of which the Company or any of the Included Subsidiaries is or
has been a member) has granted any extension or waiver of the statute of
limitations period applicable to any Return, which period (after giving effect
to such extension or waiver) has not yet expired; (vi) there is no claim, audit,
action, suit, proceeding, or investigation now pending or, to the Knowledge of
Sellers, threatened against or with respect to the Company or any of the
Included Subsidiaries in respect of any material Tax; and (vii) there are no
requests for rulings or determinations in respect of any Tax
50
pending between the Company or any of the Included Subsidiaries and any Taxing
Authority.
(b) Schedule 8.01(b) contains a list of all jurisdictions (whether foreign
or domestic) in which the Company or the Included Subsidiaries file or have
filed any Tax Return.
SECTION 8.02. Sellers Tax Covenants.
(a) Seller Guarantor shall include the Company and the Included
Subsidiaries in its consolidated Federal Tax Return and in any Combined State
Tax Return through the close of business on the Closing Date.
(b) Sellers shall (i) file when due (taking into account any extension of a
required filing date) all federal and state income Tax Returns that are filed on
a consolidated, combined or unitary basis on behalf of Sellers, the Company and
the Included Subsidiaries for any taxable period of the Company or the Included
Subsidiaries that ends on or before the Closing Date and (ii) pay all amounts
shown to be due on such Returns. Sellers and Buyer agree that Sellers shall
prepare and the Company and each of the Included Subsidiaries will file when due
(taking into account any extension of a required filing date) short period
income Tax Returns for the period ending on the Closing Date in each
jurisdiction in which any of the Company and the Included Subsidiaries files a
separate income Tax Return. Such short period Returns together with all amounts
shown to be due on such short period Returns shall be delivered by Holdings to
Buyer no later than 5 business days prior to the due date for the payment of
such Taxes. Sellers and Buyer agree that all federal and state income Tax
Returns for the period beginning January 1, 1999 and ending on the close of
business on the Closing Date will be prepared and filed on the basis of a
closing of the books of the Company and its Subsidiaries as of the close of
business on the Closing Date, as adjusted to reflect income shown on the
permanent records (including work papers) of the Company and its Subsidiaries
pursuant to Treasury Regulation Section 1.1502-76(b)(2)(i) and not on the basis
of ratable allocation pursuant to Treasury Regulation Section
1.1502-76(b)(2)(ii) or (iii). The calculation of the amount of any state income
Tax liability shall be made in accordance with comparable provisions under
applicable law. All such Returns not required to be filed on or before the date
hereof (i) will be filed when due in accordance with all applicable laws (taking
into account any extension of a required filing date) and (ii) as of the time of
filing, will correctly reflect the facts regarding the income, business, assets,
operations, activities and status of the Company and the Included Subsidiaries
in all material respects.
(c) From the date hereof, with respect to the Company and the Included
Subsidiaries, each of the Sellers agrees that it will not make or change any
51
material Tax election (except as set forth in Section 8.03(b)) or take any
position on any Tax Return filed on or after the date of this Agreement or adopt
any method therefor that is inconsistent with elections made, positions taken or
methods used in preparing or filing similar Tax Returns in prior periods.
(d) As of the due date (taking into account any extensions thereof) for the
Seller Group's federal income Tax Return for the Tax period ending on December
31, 1999 (the "1999 Seller Group Return"), the sum of (x) the aggregate tax
basis in depreciable or amortizable assets of the Company and the Included
Subsidiaries for Federal Tax purposes as of the close of business on the Closing
Date and (y) the aggregate net operating losses of the Company and the Included
Subsidiaries allowable as a net operating loss carryover to Post-Closing Tax
Periods under Section 172 of the Code (the "Tax Attributes") will be equal to or
greater than $300,000,000.
(e) No later than 60 days prior to the due date (taking into account any
extensions thereof) for the filing of the 1999 Seller Group Return, Holdings
shall deliver to Buyer a schedule setting forth (i) the aggregate tax basis in
depreciable or amortizable assets of the Company and the Included Subsidiaries
for Federal Tax purposes as of the close of business on the Closing Date and
(ii) a schedule setting forth the aggregate net operating losses of the Company
and the Included Subsidiaries allowable as a net operating loss carryover to
Post-Closing Tax Periods under Section 172 of the Code; provided, however, that
Holdings shall be considered to have complied with the requirements of this
sentence if Holdings delivers reasonable good faith estimates of the required
calculations and information in the time frame provided above and thereafter
promptly provides revised schedules on or before the date the 1999 Seller Group
Return is filed.
SECTION 8.03. Buyer Tax Covenants.
(a) Buyer agrees that it will not cause or permit the Company, its
Subsidiaries or any Affiliate of Buyer (i) to take any action on the Closing
Date other than in the ordinary course of business, including but not limited to
the distribution of any dividend or the effectuation of any redemption that
could give rise to any Tax liability or reduce any Tax Asset of the Seller Group
or any loss of either Seller or the Seller Group under this Agreement, or (ii)
from and after the Closing Date, without the prior written consent of Holdings,
which shall not be unreasonably withheld, to make or change any material tax
election, amend any tax Return or take any tax position on any tax Return that
reasonably could be expected to result in any increased tax liability or
reduction of any Tax Asset of any member of the Seller Group in respect of any
Pre-Closing Tax Period. Buyer agrees that Sellers are to have no liability for
any tax resulting from any action, referred to in the preceding sentence, of the
Company, its Subsidiaries, Buyer or
52
any Affiliate of Buyer on the Closing Date, and agrees to indemnify and hold
harmless Sellers and their Affiliates against any such tax and any liabilities,
cost, expense (including, without limitation, reasonable expenses of
investigation and attorney's fees and expenses), losses, damages, assessment or
assertion of such tax. Holdings agrees to give prompt notice to Buyer of the
assertion of any claim, or the commencement of any action or proceeding, in
respect of which indemnity may be sought under this Section 8.03(a). Buyer may
participate in and assume the defense of any such suit, action or proceeding at
its own expense. If Buyer assumes such defense, each of the Sellers shall have
the right (but not the duty) to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by Buyer.
Whether or not Sellers choose to defend or prosecute any claim, the parties
hereto shall cooperate in the defense or prosecution thereof.
(b) Buyer agrees that Seller Guarantor may, at its option, elect to
reattribute to itself certain Tax Assets of the Company and the Included
Subsidiaries, to the extent permitted by Treasury Regulation Section
1.1502-20(g). If Seller Guarantor makes such election, Buyer shall and shall
cause the Company and the Included Subsidiaries to comply with the requirements
of Treasury Regulation Section 1.1502-20(g).
(c) Buyer shall prepare, or cause to be prepared, all Returns required to
be filed by the Company and each of the Included Subsidiaries for any taxable
period of the Company or the Included Subsidiaries that includes (but does not
end on) the Closing Date. For this purpose, Sellers and Buyer agree that Sellers
shall prepare and the Company and each of the Included Subsidiaries will file
short period income tax Returns for the period ending on the Closing Date in
each jurisdiction in which any of the Company and the Included Subsidiaries
files a separate income tax Return. Any such Return shall be prepared in a
manner consistent with past practice and without a change of any election or any
accounting method and shall be submitted by Buyer to Holdings (together with
schedules, statements and, to the extent requested by Holdings, supporting
documentation) at least 45 days prior to the due date (including extensions) of
such Return. Holdings shall have the right at Holding's expense to review all
work papers and procedures used to prepare any such Return. If Holdings, within
30 business days after delivery of any such Return, notifies Buyer in writing
that it objects to any items in such Return, Buyer and Holdings shall negotiate
in good faith and use their best efforts to resolve such items. If Buyer and
Holdings are unable to reach such agreement within 30 days after receipt by
Buyer of such notice, the disputed items shall be resolved pursuant to Section
8.07. Upon resolution of all such items, the relevant Return shall be adjusted
to reflect such resolution and shall be binding upon the parties without further
adjustment.
53
(d) Buyer shall promptly pay or shall cause prompt payment to be made to
Holdings of all refunds of Taxes and interest thereon received by Buyer, any
Affiliate of Buyer, the Company, or the Included Subsidiaries attributable to
Taxes paid by Seller Guarantor, Sellers, the Company or the Included
Subsidiaries (or any predecessor or Affiliate of any of them) with respect to
any Pre-Closing Tax Period, except to the extent such refund is attributable to
the carryback of losses from the Post-Closing Tax Period.
SECTION 8.04. Tax Sharing. From the date hereof through the Closing Date,
the Tax Sharing Agreement shall remain in full force and effect and shall not be
amended without the consent of Buyer, and the parties shall make the payments
required thereunder. Any and all existing Company Tax Sharing Agreements and
arrangements (including but not limited to the Tax Sharing Agreement) shall be
terminated effective upon the Closing Date, and no additional payments shall be
made thereunder; provided, however, that in accordance with Section 5.07 of this
Agreement all intercompany accounts or accruals between Sellers or their
Affiliates, on the one hand, and the Company or the Included Subsidiaries, on
the other hand arising in respect of the Tax Sharing Agreement shall be settled
as of the Closing Date, without regard to Section 2 of the Tax Sharing
Agreement. After the Closing Date, neither the Company nor the Included
Subsidiaries shall have any further rights or liabilities thereunder for any
taxable year.
SECTION 8.05. Other Tax Matters. All transfer, documentary, sales, use,
stamp, registration, value added and other such Taxes and fees (including any
penalties and interest) incurred in connection with the transfer of the Shares
shall be borne and paid 50% by Buyer and 50% by Holdings; Holdings will file all
necessary Tax returns and other documentation with respect to all such Taxes and
fees, and, if required by applicable law, Buyer will, and will cause its
Affiliates to, join in the execution of any such Tax return and other
documentation. Buyer's 50% share of the Taxes and fees referred to in the
preceding sentence shall be paid by Buyer to Holdings no later than two business
days prior to the due date for the payment of such Taxes and fees.
SECTION 8.06. Cooperation on Tax Matters. (a) Buyer and each of the Sellers
shall cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the preparation and filing of any Tax return,
statement, report or form (including any report required pursuant to Section
6043 of the Code and all Treasury Regulations promulgated thereunder), any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include prompt notification of the other party in the event of receipt of
notice of any pending or threatened audits, or the commencement of any
litigation or other proceeding that reasonably could be expected to affect the
Tax liabilities of the Company or any
54
of the Included Subsidiaries for any Pre-Closing Tax Period, the retention and
(upon the other party's request) the provision of records and information that
are reasonably relevant to any such audit, litigation or other proceeding and
making employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The Company and
each of the Sellers agree to retain so long as reasonable all books and records
with respect to Tax matters pertinent to the Company and the Included
Subsidiaries relating to any Pre-Closing Tax Period, and to abide by all record
retention agreements entered into with any Taxing Authority.
(b) Buyer and Sellers further agree, upon request, to use all reasonable
efforts to obtain any certificate or other document from any governmental
authority or customer of the Company or the Included Subsidiaries or any other
person as may be necessary to mitigate, reduce or eliminate any Tax that could
be imposed (including, but not limited to, with respect to the transactions
contemplated hereby).
SECTION 8.07. Certain Disputes. To the extent provided in Sections 8.02,
8.03, and 8.06, disputes arising under such Sections and not resolved by mutual
agreement as stated therein shall be resolved by the Independent Accountants.
The Independent Accountants shall resolve any disputed items within 30 days of
having the item referred to it pursuant to such procedures as it may require.
The costs, fees and expenses of the Independent Accountants shall be borne
equally by Buyer and Holdings. Notwithstanding any other provision of this
Agreement, any payment to be made as a result of the resolution of a dispute
shall be made, and any other action to be taken as a result of the resolution of
a dispute shall be taken, on or before the later of (i) the date on which such
payment or action would otherwise be required or (ii) the third business day
following the date on which the dispute is resolved; provided that if a dispute
with respect to an item in a Return shall not be resolved on or before the date
that is three business days prior to the latest date on which such return may be
filed under applicable Tax law, the party responsible for filing such Return
pursuant to this Agreement shall file such return reflecting all disputed items
that have been resolved in the manner so resolved, and reflecting all unsolved
disputed items in the manner proposed by such party, and shall, upon the
resolution of all such unresolved disputed items, file an amended Return
reflecting the resolution thereof in the manner so resolved.
SECTION 8.08. Sellers Tax Indemnification of Buyer. (a) Each of the Sellers
hereby indemnifies Buyer against and agrees to hold Buyer harmless from any Tax
of the Company or the Included Subsidiaries with respect to the Company Tax
Indemnification Period and any liabilities, costs, expenses (including, without
limitation, reasonable expenses of investigation and attorneys' fees and
expenses), losses, damages, assessments, settlements or judgments incurred or
suffered by
55
Buyer or any of its Affiliates arising out of or incident to the imposition,
assessment or assertion of any such Tax described, including those incurred in
the contest in good faith in appropriate proceedings relating to the imposition,
assessment or assertion of any Tax (the sum of such amounts being referred to
herein as a "Loss"); provided, however, that neither Seller shall have liability
for the payment of any loss attributable to or resulting from any action
described in Section 8.03(a) hereof.
(b) For purposes of this Section, in the case of any Taxes that are imposed
on a periodic basis and are payable for a Taxable period that includes (but does
not end on) the Closing Date, the portion of such Tax related to the portion of
such Taxable period ending on the Closing Date shall (x) in the case of any
Taxes other than Taxes based upon or related to income, be deemed to be the
amount of such Tax for the entire Taxable period multiplied by a fraction the
numerator of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
Taxable period and (y) in the case of any Tax based upon or related to income be
deemed equal to the amount which would be payable if the relevant Taxable period
ended on the Closing Date. Any credits relating to a Taxable period that begins
before and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company and its Subsidiaries.
(c) If either Seller's indemnification obligation under this Section 8.08
arises in respect of an adjustment which makes allowable to Buyer, any of its
Affiliates or, effective upon the Closing, Company or its Subsidiaries any
deduction, amortization, exclusion from income or other allowance (a "Tax
Benefit") which would not, but for such adjustment, be allowable, then any
payment by either Seller to Buyer shall be an amount equal to (x) the amount
otherwise due but for this subsection (c) minus (y) the actual reduction in the
amount of Taxes paid by Buyer in the current Tax year as a result of the Tax
Benefit. In each subsequent year, Buyer shall pay such Seller the amount of the
actual reduction in Taxes of Buyer, Company or its Subsidiaries for such year
that are attributable to the Tax Benefit; provided that the aggregate payments
made by Buyer pursuant to this Section 8.08(c) shall not exceed the aggregate
payments made by Sellers pursuant to Section 8.08. If the amount of any Tax
Benefit is subsequently reduced or disallowed, such Seller shall be required to
indemnify Buyer for the amount of any additional Tax, penalties and interest
payable as a result of such reduction or disallowance.
(d) Buyer agrees to give prompt notice to Holdings of the assertion of any
claim, or the commencement of any suit, action or proceeding in respect of
56
which indemnity may be sought hereunder and of any Loss, which Buyer deems to be
within the ambit of this section (specifying with reasonable particularity the
basis therefor) and will give Holdings such information with respect thereto as
Holdings may reasonably request. Holdings shall have the right to represent the
interests of the Company and its Subsidiaries and to assume the defense of any
such suit, action or proceeding (including any Tax audit), and to employ counsel
of its choice at its expense; provided that (i) Holdings shall give notice to
Buyer, keep Buyer reasonably informed and consult with Buyer upon Buyer's
reasonable request from time to time with respect to any issue relating to such
suit, action or proceeding (including any Tax audit) that reasonably could be
expected to have a material adverse effect on Buyer, or after the Closing Date,
the Company or any of its Subsidiaries. If Holdings elects not to assume such
defense, Buyer may pay, compromise or contest the Tax at issue. Whether or not
Holdings chooses to defend or prosecute any claim, all of the parties hereto
shall cooperate in the defense or prosecution thereof.
(e) Neither Seller shall be liable under this section with respect to any
Tax resulting from any settlements effected without the consent of Holdings,
which shall not be unreasonably withheld, or resulting from any claim or demand
the defense of which such Holdings was not offered the opportunity to assume as
provided under Section 8.08(d) hereof to the extent either Seller's liability
under this section is adversely affected as a result thereof.
(f) If, as a result of a sale on or before December 31, 1999 by Sellers,
any other member of the Seller Group, the Company or the Included Subsidiaries
of marketable securities (a "Securities Sale"), the amount of Tax Attributes (as
defined in Section 8.02(d)) is less than $300,000,000 (a "Tax Attribute
Shortfall"), Holdings shall pay to Buyer an amount equal to (a) the Tax
Attribute Shortfall attributable to such Securities Sale multiplied by (b) 38%,
upon the earlier of (x) the time the 1999 Seller Group Return is filed or (y)
the time items related to such sale of marketable securities are adjusted as a
result of a Final Determination.
(g) If, at the time of filing the 1999 Seller Group Return, there is a Tax
Attribute Shortfall that is not attributable to a Securities Sale, Sellers shall
indemnify Buyer for such Tax Attribute Shortfall in accordance with the
provisions of Section 11.02(a), in which case the amount of Damages (as defined
in Section 11.02(a)) shall be equal to the amount of such Tax Attribute
Shortfall multiplied by 38%.
57
ARTICLE 9
EMPLOYEE BENEFITS
SECTION 9.01. Benefits Following the Closing Date. (a) During the period
commencing on the Closing Date and ending on the first anniversary thereof,
Buyer shall cause the Employees to be provided with employee benefits that are
no less favorable in the aggregate than the employee benefits provided to the
Employees under the Employee Plans and Benefit Arrangements (excluding for this
purpose plans which provide for equity-based awards and severance plans) as of
the Closing Date, as previously disclosed to Buyer by Seller Guarantor. Buyer
shall cause the Employees who retire during such one-year period to be provided
with post-retirement medical benefits under the South Western Bell Mobile
Systems post-retirement medical plan (the "Buyer Post-Retirement Medical Plan"),
provided such Employees satisfy the eligibility requirements for post-retirement
medical benefits under the Buyer Post-Retirement Medical Plan. Nothing contained
herein shall be construed to limit the ability of Buyer or its Affiliates to
terminate the employment of any Employee or to terminate any particular employee
benefit plan or compensatory arrangement following the Closing Date. Without
limiting the foregoing, during calendar year 1999, Buyer shall provide to each
Employee at least the number of days of paid time off that would have been
available to such Employee for 1999 under Seller Guarantor's paid time off
policies (as in effect on the Closing Date), less the number of days of paid
time off taken by such Employee between January 1, 1999 and the Closing Date,
inclusive.
(b) Buyer or its Affiliates shall cause Employees who remain employed by
the Company or its Affiliates on or after the Closing Date to receive credit for
periods of service from such Employees' most recent date of hire (or deemed most
recent date of hire), with Seller Guarantor, the Company or their respective
Affiliates or any other entity acquired by Seller Guarantor, the Company or
their respective Affiliates, to the extent such service is treated as credited
service under the comparable plans of Seller Guarantor, the Company or their
respective Affiliates as of the Closing Date for all purposes (except benefit
accrual under any defined benefit retirement plan) under the employee benefits
plans of Buyer or its Affiliates, as applicable (such credit to be determined
under the terms of Buyer's employee benefit plans).
(c) Seller Guarantor shall take all action necessary, consistent with
applicable law, to cause the Seller Guarantor Plans which provide welfare
benefits to Employees immediately prior to the Closing Date (the "Seller
Guarantor Welfare Plans") to continue to cover such Employees, to the extent
requested by Buyer, for the period commencing on the Closing Date and ending on
the later of December 31, 1999 or the date which is six months following the
Closing Date
58
(or such shorter period as requested by Buyer) (the "Transition Period"). Buyer
shall bear the cost of such coverage by reimbursing Seller Guarantor on a
monthly basis for the cost of providing such welfare benefit coverage during the
Transition Period (such costs to include expenses incurred by Seller Guarantor
in respect of the Employees in the payment of benefit claims incurred during the
Transition Period, employer and employee premiums, and a reasonable pro rata
share of welfare plan administrative costs). Notwithstanding the foregoing,
Seller Guarantor agrees that each Seller Guarantor Welfare Plan shall be
responsible for claims incurred by the Employees under such Plans prior to the
Closing Date. For purposes of this Section, a claim shall be deemed to be
"incurred" when the relevant service is provided or item is purchased. To the
extent that the Transition Period provided for herein expires during a calendar
year (either prior to December 31, 1999 or on or after January 1, 2000), Buyer
and its Affiliates shall use their best efforts to credit the dollar amount of
all expenses incurred by Employees and their eligible dependents during the plan
year in which the Transition Period expires for purposes of satisfying such plan
year's deductible and copayment limitations, under any welfare benefit plan
maintained by Buyer or its Affiliates.
SECTION 9.02. Post-Closing Benefit Liabilities. (a) Seller Guarantor shall
separately identify on Schedule 3.21 of this Agreement each Employee Plan or
Benefit Arrangement that is maintained by either the Company or any Included
Subsidiary exclusively for the benefit of Employees (the "Company Plans"). Each
Employee Plan or Benefit Arrangement that is not a Company Plan is hereinafter
referred to as a "Seller Guarantor Plan" or collectively as "Seller Guarantor
Plans." Except as expressly set forth in this Article 9, from and after the
Closing Date, neither Buyer nor the Company nor any Included Subsidiary shall
have any liability whatsoever with respect to any Seller Guarantor Plan.
(b) Seller Guarantor shall retain or assume all liability with respect to
Inactive Employees under any Seller Guarantor Plan. Subject to applicable law,
if, in the sole discretion of Buyer, any Inactive Employee is re-hired by Buyer
or otherwise returns from leave of absence to active employment with the Company
or an Included Subsidiary, such Inactive Employee shall be treated as an
Employee for purposes of this Article 9 as of the date of such return to active
employment.
SECTION 9.03. Thrift Plan. (a) Effective as of the Closing Date, Seller
Guarantor shall take all actions necessary to cause (i) the Company and each
Included Subsidiary to cease to be participating employers in any Seller
Guarantor Plan which is a "pension plan" within the meaning of Section 3(2) of
ERISA, including, without limitation, the Comcast Corporation Retirement
Investment Plan for Employees (the "Seller Guarantor Thrift Plan") and (ii) the
accrued
59
benefits of Employees under all such Seller Guarantor Plans to be fully vested
as of the Closing Date. As soon as practicable after the Closing Date, Buyer
shall take all action necessary to cause the retirement plan designated by Buyer
(the "Buyer Thrift Plan") to allow each Employee who is a participant in the
Seller Guarantor Thrift Plan as of the Closing Date to effect a direct rollover
in cash of their accrued benefits under the Seller Guarantor Thrift Plan to the
Buyer Thrift Plan. In connection with any such direct rollover elected by an
Employee, Buyer shall use its reasonable best efforts to allow, as soon as
practicable, any such Employee's outstanding loan under the Seller Guarantor
Thrift Plan to be directly rolled-over into the Buyer Thrift Plan. Seller
Guarantor shall use its reasonable best efforts to cause any such outstanding
loan not to become due, based upon the cessation of the Employee's participation
in the Seller Guarantor Thrift Plan, for a period of up to six months following
the Closing Date or the earlier termination of employment of the Employee by
Buyer.
SECTION 9.04. Retention Payments. (a) As of the later of December 31, 1999
or the expiration of the third month after the Closing Date (the later of such
two dates being referred to herein as the "Retention Date"), Buyer or its
Affiliate shall cause the Company to pay to each Employee whose name is set
forth in Schedule 9.04(a) hereto the cash amount set forth opposite such
Employee's name in such Schedule (the "Retention Payment"), provided that either
(i) such Employee remains employed by Buyer or its Affiliates as of the
Retention Date, and such Employee agrees that such Employee's right to severance
under any agreement between such Employee and the Company or any severance
policy covering any such Employee shall be reduced (but not below zero) by the
amount of such Employee's Retention Payment or (ii) such Employee's employment
has been involuntarily terminated prior to the Retention Date by Buyer or its
Affiliate other than for cause. Seller Guarantor and the Company shall share the
cost of such Retention Payment equally, provided, however, that the Company's
liability under this Section 9.04(a) shall not exceed $7.5 million. Promptly
after the Retention Date, Seller Guarantor shall reimburse Buyer for 50% of the
total cost of the Retention Payments. Such reimbursement shall be treated, for
Tax purposes, as an adjustment to the Purchase Price.
(b) Any Employee who is an exempt employee, other than an Employee who has
entered into an individual agreement with the Company providing for severance
benefits, whose employment is terminated by Buyer or its Affiliates within the
180 day-period following the Closing Date shall receive severance payments from
Buyer (in accordance with the terms of the severance plan to be established by
Buyer (but without regard to years of service or other eligibility criteria)) in
an amount which shall not be less than the amount calculated in accordance with
the salary allowance range set forth on Schedule 9.04(b) hereto.
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(c) For the avoidance of doubt, the amounts the Company shall be required
to pay pursuant to this Section 9.04 shall not be included as liabilities on the
Closing Date Balance Sheet nor shall such amounts be taken into account in any
way in computing the Initial Purchase Price Adjustment or Final Purchase Price
Adjustment.
SECTION 9.05. Pre-closing Bonus Period. Seller Guarantor shall be solely
responsible for the payment of any bonus amounts that have been earned by the
Employees in respect of any period prior to the Closing Date under the Comcast
Corporation Cash Bonus Plan or other compensation plans of Seller Guarantor.
SECTION 9.06. Cooperation. Seller Guarantor and Buyer agree to cooperate in
order to facilitate the transition of the Employees to employment with Buyer and
its Affiliates, including, without limitation, provision by Seller Guarantor to
Buyer of employee-related information and access to the Employees prior to the
Closing Date in accordance with Buyer's reasonable request.
SECTION 9.07. No Third Party Beneficiaries. No provision of this Article 9
shall create any third party beneficiary or other rights in any current or
former employee of Seller Guarantor, the Company, any Included Subsidiary or
Buyer (including any dependent or beneficiary thereof) or any other person.
ARTICLE 10
CONDITIONS TO CLOSING
SECTION 10.01. Conditions to Obligations of Buyer and Sellers for Closing.
The obligations of Buyer and Sellers to consummate the Closing are subject to
the satisfaction of the following conditions:
(a) Any applicable waiting period under the HSR Act relating to the
transfer of the Shares and any transactions related to such transfer shall have
expired or been terminated.
(b) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Closing.
(c) All actions by or in respect of or filings with or consents or
approvals from any Governmental Entity listed on Schedule 10.01, and any other
material action by or in respect of or material filings with or material
consents or material approvals from any Governmental Authority and required, in
each case, to permit the consummation of the Closing, shall have been taken,
made or obtained.
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SECTION 10.02. Conditions to Obligation of Buyer for Closing. The
obligation of Buyer to consummate the Closing is subject to the satisfaction of
the following further conditions:
(a) (i) Sellers and Seller Guarantor shall have performed in all material
respects all of their obligations hereunder required to be performed by them on
or prior to the Closing Date, (ii) the representations and warranties of Sellers
and Seller Guarantor contained in this Agreement (A) to the extent qualified by
Material Adverse Effect shall be true and correct and (B) to the extent not
qualified by Material Adverse Effect shall be true and correct, except that this
clause (B) shall be deemed satisfied so long as any failures of such
representations and warranties to be true and correct, taken together, do not
have a Material Adverse Effect on the Company Group, Sellers or Seller
Guarantor, in each case as of the Closing Date and (iii) Buyer shall have
received a certificate signed by a senior officer of Holdings to the foregoing
effect.
(b) All action by any Governmental Entity required in satisfaction of
Section 10.01(c) shall have been obtained pursuant to a Final Order, free of any
conditions (other than conditions that are not reasonably likely, either
individually or in the aggregate, to have a Regulatory Material Adverse Effect).
For the purposes of this Agreement, "Final Order" means an action or decision
that has been granted as to which (i) no request for a stay or any similar
request is pending, no stay is in effect, the action or decision has not been
vacated, reversed, set aside, annulled or suspended and any deadline for filing
such a request that may be designated by statue or regulation has passed, (ii)
no petition for rehearing or reconsideration or application for review is
pending and the time for the filing of any such petition or application has
passed, (iii) no Governmental Entity has undertaken to reconsider the action on
its own motion and the time within which it may effect such reconsideration has
passed and (iv) no appeal is pending (including other administrative or judicial
review) or in effect and any deadline for filing any such appeal that may be
specified by statute or rule has passed, which in any such case (i), (ii), (iii)
or (iv) is reasonably likely to result in vacating, reversing, setting aside,
annulling, suspending or modifying such action or decision (in any such case in
a manner which would have a Regulatory Material Adverse Effect following the
Closing); provided that, in the event that, prior to the granting of the FCC's
approval, no comments shall have been filed in, or with respect to any
proceeding, action or decision sought from the FCC in satisfaction of the
requirements of Section 10.01(c), the approvals by FCC will be deemed to have
been obtained pursuant to a Final Order.
(c) The capital stock of each Excluded Subsidiary shall have been
transferred to Holdings or one of its Affiliates.
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(d) Buyer shall have received all documents it may reasonably request
relating to the existence of Sellers, Seller Guarantor, the Company and the
Included Subsidiaries and the authority of Sellers and Seller Guarantor for this
Agreement, all in form and substance reasonably satisfactory to Buyer.
(e) Buyer shall have received a certification signed by each of the Sellers
to the effect that such Seller is not a "foreign person" as defined in Section
1445 of the Code.
(f) All intercompany debt of the Company and the Included Subsidiaries
shall have been repaid on or prior to the Closing Date.
(g) Sellers shall have furnished to Buyer an opinion (the "FCC Opinion") of
FCC counsel for Sellers, with customary qualifications, in form and substance
reasonably satisfactory to Buyer, dated the Closing Date, to the effect that:
(i) the Company and the Included Subsidiaries hold the FCC Licenses
listed on Annex A to the FCC Opinion and such FCC Licenses are in effect.
The FCC has granted its consent to the transfer of control of the FCC
Licenses listed in Annex A to the FCC Opinion to Buyer (the "FCC Consents")
and, except as may be disclosed on Annex B to the FCC Opinion, (A) the time
periods specified in the FCC's rules for the filing of petitions for
reconsideration of the grant of the FCC Consents and for the
reconsideration of the grant of the FCC Consents on the FCC's own motion
have expired and (B) to counsel's knowledge, based on review of the FCC's
publicly available records, no such petition reconsideration has been filed
and the FCC has not instituted review of the grant of any of the FCC
Consents on its own motion; and
(ii) to such counsel's knowledge, based upon a review of the FCC's
publicly available records, there is not, except as may be set forth in
Annex C to the FCC Opinion, any issued and outstanding notice of violation,
order to show cause, material complaint or investigatory proceeding by or
before the FCC against any of the FCC Licenses, which, individually or in
the aggregate, if determined adversely, might reasonably be expected to
result in any Material Adverse Effect on the Company Group.
(h) Sellers shall have furnished to Buyer the opinion of in-house counsel
for Seller Guarantor, dated the Closing Date, to the effect that:
63
(i) the Company has been duly incorporated and is an existing
corporation in good standing under the law of the State of Delaware;
(ii) all of the Company's outstanding capital stock, including the
Shares, have been duly authorized and validly issued and are fully paid and
non-assessable; and
(iii) this Agreement has been duly executed and delivered by each
Seller and by Seller Guarantor.
(i) Sellers shall have furnished to the Buyer opinions of the Company's
local counsel in Pennsylvania, New Jersey, Maryland, Delaware and Illinois in
form and substance reasonably satisfactory to Buyer, dated the Closing Date, to
the effect that all required approvals for the execution, delivery and
performance by each of Sellers and Seller Guarantor of this Agreement pursuant
to the requirements any state public utility commissions in the states of
Pennsylvania, New Jersey, Maryland, Delaware and Illinois have been obtained.
SECTION 10.03. Conditions to Obligation of Sellers and Seller Guarantor for
Closing. The obligation of Sellers and Seller Guarantor to consummate the
Closing is subject to the satisfaction of the following further conditions:
(a) (i) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of Buyer contained in this
Agreement (A) to the extent qualified by Material Adverse Effect shall be true
and correct and (B) to the extent not qualified by Material Adverse Effect shall
be true and correct, except that this clause (B) shall be deemed satisfied so
long as any failures of such representations and warranties to be true and
correct, taken together, do not have a Material Adverse Effect on Buyer, in each
case as of the Closing Date and (iii) Sellers and Seller Guarantor shall have
received a certificate signed by the Senior Officer of Buyer to the foregoing
effect.
(b) Sellers and Seller Guarantor shall have received all documents it may
reasonably request relating to the existence of Buyer and the authority of Buyer
for this Agreement, all in form and substance reasonably satisfactory to Sellers
and Seller Guarantor.
(c) Buyer shall have furnished to Sellers and Seller Guarantor the opinion
of in-house counsel for Buyer, dated the Closing Date, to the effect that this
Agreement has been duly executed and delivered by Buyer.
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ARTICLE 11
SURVIVAL; INDEMNIFICATION
SECTION 11.01. Survival. The representations and warranties of Sellers,
Seller Guarantor or Buyer contained in this Agreement or in any certificate or
other writing delivered pursuant hereto or in connection herewith shall not
survive the Closing Date; provided that (i) the representations and warranties
contained in Article 3 of this Agreement shall survive until the first
anniversary of the Closing Date except that the representations and warranties
in Sections 3.01, 3.02, 3.05, 3.06 and 3.19 shall have no expiration date and
the representations and warranties in Section 3.22 shall survive until the
expiration of the applicable statue of limitations and (ii) the representations
and warranties contained in Article 4 of this Agreement shall survive until the
first anniversary of the Closing Date. The covenants and agreements contained in
Sections 5.02, 5.05, 5.08 and 6.05 shall survive for the period set forth
therein, the covenants, agreements, representations and warranties contained in
Articles 8 and 9 and Section 11.02 to the extent it relates to Section 8.08(g)
shall survive until expiration of the statute of limitations applicable to the
matters covered thereby (giving effect to any waiver, mitigation or extension
thereof), if later, and all other covenants and agreements shall survive
indefinitely. Notwithstanding the preceding sentence, any covenant, agreement,
representation or warranty in respect of which indemnity may be sought under
this Agreement shall survive the time at which it would otherwise terminate
pursuant to the preceding sentence, if notice of the inaccuracy or breach
thereof giving rise to such right of indemnity shall have been given to the
party against whom such indemnity may be sought prior to such time.
SECTION 11.02. Indemnification. (a) Sellers and Seller Guarantor, jointly
and severally, hereby indemnify Buyer and its Affiliates against and agree to
hold them harmless from any and all damage, loss, liability and expense
(including without limitation reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) ("Damages") incurred or suffered by Buyer or any of its Affiliates
arising out of any misrepresentation or breach of warranty (disregarding all
qualifications and exceptions contained therein relating to materiality
(including the materiality as used in the definition of the Material Adverse
Effect)), or breach of any covenant or agreement made or to be performed by
Sellers or Seller Guarantor pursuant to this Agreement (other than pursuant to
all of Article 8 except for Section 8.08(g)); provided that (i) Sellers and
Seller Guarantor shall not be liable under this Section 11.02(a) unless the
aggregate amount of Damages with respect to all matters referred to in this
Section 11.02(a) exceeds $17,500,000 and then only to the extent of such excess
and (ii) maximum liability of Sellers and Seller Guarantor under this Section
11.02(a) shall not exceed $450,000,000.
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(b) Buyer hereby indemnifies Sellers and each of their Subsidiaries against
and agrees to hold them harmless from any and all Damages incurred or suffered
by Sellers, Seller Guarantor or their Subsidiaries arising out of any
misrepresentation or breach of warranty (disregarding all qualifications and
exceptions contained therein relating to materiality (including the materiality
as used in the definition of the Material Adverse Effect)), or breach of any
covenant or agreement made or to be performed by Buyer pursuant to this
Agreement (other than pursuant to Article 8); provided that (i) Buyer shall not
be liable under this Section 11.02(b) unless the aggregate amount of Damages
with respect to all matters referred to in this Section 11.02(b) exceeds
$17,500,000 and then only to the extent of such excess and (ii) Buyer's maximum
liability under this Section 11.02(b) shall not exceed $450,000,000.
(c) Notwithstanding anything else in this Agreement to the contrary,
Sellers and Seller Guarantor, jointly and severally, hereby indemnify Buyer and
each of its Subsidiaries against and agree to hold them harmless from any and
all Damages incurred or suffered by Buyer or its Subsidiaries arising out of or
relating in any way to the Excluded Subsidiaries, including, without limitation,
arising out of the transfer of capital stock of the Excluded Subsidiaries to
Holdings or its Affiliates pursuant to Section 5.06 hereof.
(d) Notwithstanding anything else in this Agreement to the contrary, Buyer
hereby indemnifies Sellers, Seller Guarantor and each of their Subsidiaries and
agrees to hold them harmless from any and all Damages incurred or suffered by
Sellers, Seller Guarantor or any of their Subsidiaries arising out of any breach
of Buyer's agreement set forth in Section 6.04(b).
SECTION 11.03. Procedures. (a) The party seeking indemnification under
Section 8.08 or 11.02 (the "Indemnified Party") agrees to give prompt notice to
the party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding
("Claim") in respect of which indemnity may be sought under such Section and
will provide the Indemnifying Party such information with respect thereto that
the Indemnifying Party may reasonably request. The failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party of its obligations
hereunder, except to the extent such failure shall have materially prejudiced
the Indemnifying Party.
(b) The Indemnifying Party shall be entitled to participate in the defense
of any Claim asserted by any third party ("Third Party Claim") and, subject to
the limitations set forth in this Section 11.03, shall be entitled to control
and appoint lead counsel for such defense, in each case at its expense.
66
(c) If the Indemnifying Party shall assume the control of the defense of
any Third Party Claim in accordance with the provisions of this Section
11.03(c), (i) the Indemnifying Party shall obtain the prior written consent of
the Indemnified Party (which shall not be unreasonably withheld) before entering
into any settlement of such Third Party Claim and (ii) the Indemnified Party
shall be entitled to participate in the defense of such Third Party Claim and to
employ separate counsel of its choice for such purpose. The fees and expenses of
such separate counsel shall be paid by the Indemnified Party.
(d) Each party shall cooperate, and cause their respective Affiliates to
cooperate, in the defense or prosecution of any Third Party Claim and shall
furnish or cause to be furnished such records, information and testimony, and
attend such conferences, discovery proceedings, hearings, trials or appeals, as
may be reasonably requested in connection therewith.
SECTION 11.04. Calculation of Damages. (a) The amount of any Damages
payable under Section 11.02 by the Indemnifying Party shall be net of any (i)
amounts recovered or recoverable by the Indemnified Party under applicable
insurance policies, (ii) Tax cost incurred by the Indemnified Party arising from
the receipt of indemnity payments and (iii) Tax Benefit realized by the
Indemnified Party arising from the incurrence or payment of any such Damages. In
computing the amount of any such Tax cost or Tax Benefit, the Indemnified Party
shall be deemed to fully utilize, at the highest marginal tax rate then in
effect, all Tax items arising from the receipt of any indemnity payment
hereunder or the incurrence or payment of any indemnified Damages. For purposes
hereof, the amount shall not be deemed recoverable if a claim by the Indemnified
Party has been submitted in good faith and was denied by the insurer.
(b) The Indemnifying Party shall not be liable under Section 11.02 for any
(i) Damages relating to any matter to the extent that (A) there is included in
the Closing Date Balance Sheet a specific liability or reserve relating to such
matter or (B) the Indemnified Party had otherwise been compensated for such
matter pursuant to the Purchase Price adjustment under Section 2.04, or (ii)
exemplary or punitive Damages (other than exemplary or punitive damages awarded
to any third party).
SECTION 11.05. Assignment of Claims. If the Indemnified Party receives any
payment from an Indemnifying Party in respect of any Damages pursuant to Section
11.02 and the Indemnified Party could have recovered all or a part of such
Damages from a third party, including, without limitation, under an insurance
policy described in Section 11.04(a) (a "Potential Contributor") based on the
underlying Claim asserted against the Indemnifying Party, the Indemnified Party
shall assign such of its rights to proceed against the Potential Contributor as
are
67
necessary to permit the Indemnifying Party to recover from the Potential
Contributor the amount of such payment.
SECTION 11.06. Exclusivity. Except as specifically set forth in this
Agreement and except for any claim for actual fraud, effective as of the Closing
Buyer waives any rights and claims Buyer may have against Sellers or Seller
Guarantor, whether in law or in equity, relating to the Company or the Shares or
the transactions contemplated hereby. The rights and claims waived by Buyer
include, without limitation, claims for contribution or other rights of recovery
arising out of or relating to any Environmental Law, claims for breach of
contract, breach of representation or warranty, negligent misrepresentation and
all other claims for breach of duty. After the Closing, Sections 8.08 and 11.02
will provide the exclusive remedy for any misrepresentation, breach of warranty,
covenant or other agreement (other than those contained in Sections 2.04, 5.02,
5.05, 5.08, 5.09, 6.02, 6.03, 6.05 and 7.04) or other claim (other than any
claim for actual fraud) arising out of this Agreement or the transactions
contemplated hereby.
ARTICLE 12
SELLER GUARANTEE
SECTION 12.01. Seller Guarantor. Seller Guarantor hereby irrevocably and
unconditionally guarantees to Buyer the prompt and full discharge by Sellers of
all of Sellers' covenants, agreements, obligations and liabilities under this
Agreement including, without limitation, the due and punctual payment of all
amounts which are or may become due and payable by Sellers hereunder, when and
as the same shall become due and payable (collectively, the "Seller
Obligations"), in accordance with the terms hereof. Seller Guarantor
acknowledges and agrees that, with respect to all Seller Obligations to pay
money, such guaranty shall be a guaranty of payment and performance and not of
collection and shall not be conditioned or contingent upon the pursuit of any
remedies against Sellers. If Sellers shall default in the due and punctual
performance of any Seller Obligation, including the full and timely payment of
any amount due and payable pursuant to any Seller Obligation, Seller Guarantor
will forthwith perform or cause to be performed such Seller Obligation and will
forthwith make full payment of any amount due with respect thereto at its sole
cost and expense.
SECTION 12.02. Guaranty Unconditional. The liabilities and obligations of
Seller Guarantor pursuant to this Agreement are unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
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(a) any acceleration, extension, renewal, settlement, compromise, waiver or
release in respect of any Seller Obligation, by operation of law or otherwise;
(b) the invalidity or unenforceability, in whole or in part, of this
Agreement;
(c) any modification or amendment of or supplement to this Agreement;
(d) any change in the corporate existence, structure or ownership of either
Seller or Seller Guarantor or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting any of them or their assets; or
(e) any other act, omission to act, delay of any kind by any party hereto
or any other Person, or any other circumstance whatsoever that might, but for
the provisions of this Section, constitute a legal or equitable discharge of the
obligations of Seller Guarantor hereunder.
SECTION 12.03. Waivers of the Seller Guarantor. Seller Guarantor hereby
waives any right, whether legal or equitable, statutory or non-statutory, to
require Buyer to proceed against or take any action against or pursue any remedy
with respect to Sellers, or any other Person or make presentment or demand for
performance or give any notice of nonperformance before Buyer may enforce its
rights hereunder against Seller Guarantor.
SECTION 12.04. Discharge Only upon Performance in Full; Restatement in
Certain Circumstances. Seller Guarantor's obligations hereunder shall remain in
full force and effect until the Seller Obligations shall have been performed in
full. If at any time any performance by any Person of any Seller Obligation is
rescinded or must be otherwise restored or returned, whether upon the
insolvency, bankruptcy or reorganization of Sellers or otherwise, Seller
Guarantor's obligations hereunder with respect to such Seller Obligation shall
be reinstated at such time as though such Seller Obligation had become due and
had not been performed.
SECTION 12.05. Subrogation. Upon performance by Seller Guarantor of any
Seller Obligation, Seller Guarantor shall be subrogated Buyer against such
Seller, with respect to such Seller Obligation; provided that Seller Guarantor
shall not enforce any Seller Obligation by way of subrogation against Seller
while any Seller Obligation is due and unperformed by such Seller.
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ARTICLE 13
TERMINATION
SECTION 13.01. Grounds for Termination. This Agreement may be terminated:
(a) at any time by mutual written agreement of each party hereto;
(b) by either Holdings or Buyer if the Closing shall not have been
consummated on or before September 30, 1999; provided, however, that (i) if
Buyer or Holdings determines that additional time is necessary in connection
with satisfaction of the conditions set forth in Sections 10.01(c) or 10.02(b),
the termination date may be extended for 60 calendar days by Buyer or Holdings
from time to time by written notice to the other party up to a date not beyond
January 31, 2000 and (ii) if Buyer delivers a written request pursuant to
Section 7.06 hereof on or after January 1, 2000, the termination date shall be
extended until the date that is five business days after the date designated in
such written request; provided, further, that the right to terminate this
Agreement pursuant to this clause (b) shall not be available to any party that
has wilfully breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the failure
to consummate the transactions contemplated hereby;
(c) by either Holdings or Buyer if there shall be any law or regulation
that makes consummation of the transactions contemplated hereby illegal or
otherwise prohibited or if consummation of the transactions contemplated hereby
would violate any nonappealable final order, decree or judgment of any court or
governmental body having competent jurisdiction; or
(d) by either Holdings or Buyer, if there has been a material
misrepresentation, breach of warranty or breach of covenant or other obligation
hereunder on the part of Buyer (in the case of termination by Holdings) or
Sellers or Seller Guarantor (in the case of termination by Buyer); or if any
condition to such party's obligations hereunder becomes incapable of fulfillment
through no fault of such party.
The party desiring to terminate this Agreement shall give notice of such
termination to the other party.
SECTION 13.02. Effect of Termination. If this Agreement is terminated as
permitted by Section 13.01, termination shall be without liability of either
party (or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement; provided
that if
70
such termination shall result from the willful (i) failure of either party to
fulfill a condition to the performance of the obligations of the other party,
(ii) failure to perform a covenant of this Agreement or (iii) breach by either
party hereto of any representation or warranty or agreement contained herein,
such party shall be fully liable for any and all Damages incurred or suffered by
the other party as a result of such failure or breach; and provided further that
no party shall be liable for exemplary or punitive damages. The provisions of
Sections 14.01, 14.03, 14.05, 14.06 and 14.07 shall survive any termination
hereof pursuant to Section 13.01.
ARTICLE 14
MISCELLANEOUS
SECTION 14.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Buyer, to:
SBC Communications, Inc.
175 East Houston
San Antonio, Texas 78205
Attention: Senior Executive Vice President
and General Counsel
Fax: (210) 351-2298
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Joseph B. Frumkin, Esq.
Fax: (212) 558-3588
if to Seller or Seller Guarantor, to:
Comcast Corporation
1500 Market Street
Philadelphia, PA 19102
Attention: General Counsel
Fax: (215) 981-7794
71
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Dennis S. Hersch, Esq.
Fax: (212) 450-4800
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
SECTION 14.02. Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 14.03. Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
SECTION 14.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto except that Buyer may transfer or
assign, in whole or from time to time in part, to one or more of its Affiliates,
the right to purchase all or a portion of the Shares, but no such transfer or
assignment will relieve Buyer of its obligations hereunder.
SECTION 14.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without regard to
the conflicts of law rules of such state.
72
SECTION 14.06. Jurisdiction. Except as otherwise expressly provided in this
Agreement, any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or in connection with, this Agreement or
the transactions contemplated hereby may be brought in the United States
District Court for the District of Delaware or any other Delaware state court,
and each of the parties hereby consents to the jurisdiction of such courts (and
of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient form. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 14.01 shall be deemed
effective service of process on such party.
SECTION 14.07. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 14.08. Counterparts; No Third Party Beneficiaries. This Agreement
may be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. No provision of this Agreement is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
SECTION 14.09. Table of Contents: Headings. The table of contents and
section and other headings contained in this Agreement are for reference
purposes only and are not intended to affect, describe, interpret, define or
limit the meaning, scope, extent or intent of this Agreement.
SECTION 14.10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement. No representation, inducement, promise, understanding, condition or
warranty not set forth herein has been made or relied upon by either party
hereto.
73
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
SBC COMMUNICATIONS INC.
By:
Name: James S. Kahan
Title: Senior Vice President-Corporate
Development
COMCAST CELLULAR HOLDINGS
CORPORATION
By:
Name:
Title:
COMCAST FINANCIAL CORPORATION
By:
Name:
Title:
COMCAST CORPORATION
By:
Name:
Title:
74
Exhibit 21 Subsidiaries of the Registrant
Entity Name Organization Place
1278844 Ontario Ltd. Ontario, Canada
Affiliate Marks Investments, Inc. DE
Affiliate Relations Holdings, Inc. DE
Affiliate Relations, Inc. DE
Amcell of Atlantic City, Inc. NJ
Amcell of Ocean County, Inc. DE
Amcell of Trenton, Inc. NJ
Amcell of Vineland Holdings, Inc. DE
American Cellular Network Corp. NJ
Anglia Cable Communications Limited UK
Aurora/Elgin Cellular Telephone Company, Inc. IL
Automated Information Services of Phoenix Limited Partnership NM
AWACS Financial Corporation DE
AWACS Garden State, Inc. DE
AWACS Investment Holdings, Inc. DE
AWACS Purchasing Corporation DE
AWACS Retail Stores, Inc. DE
AWACS, Inc. PA
Cablevision Investment of Detroit, Inc. MI
California Ad Sales, Inc. DE
Cambridge Cable Limited UK
Cambridge Holding Company Limited UK
CDirect Mexico I, Inc. DE
CDirect Mexico II, Inc. DE
Cell South of New Jersey, Inc. NJ
Classic Services, Inc. DE
Clinton Cable TV Investors, Inc. MI
Entity Name Organization Place
Coastal Cable TV, Inc. CT
COM Indiana, Inc. DE
COM Indianapolis, Inc. DE
COM Inkster, Inc. MI
COM Maryland, Inc. DE
COM MH, Inc. DE
COM Sacramento, Inc. CA
COM South, Inc. CO
COM Sports Holding Company, Inc. DE
COM Sports Ventures, Inc. DE
COM Telephony Services, Inc. DE
Comcast Argentina, Inc. DE
Comcast Biztravel, Inc. DE
Comcast Brazil, Inc. DE
Comcast Business Telephony Services, Inc. DE
Comcast Cable Communications, Inc. DE
Comcast Cable Communications, Inc. PA
Comcast Cable Funding, Inc. DE
Comcast Cable Investors, Inc. DE
Comcast Cable of Indiana, Inc. DE
Comcast Cable of Maryland, Inc. DE
Comcast Cable Tri-Holdings, Inc. DE
Comcast Cable Trust I DE
Comcast Cable Trust II DE
Comcast Cable Trust III DE
Comcast Cablevision Corporation of Alabama AL
Comcast Cablevision Corporation of California CA
Comcast Cablevision Corporation of Connecticut CT
Comcast Cablevision Corporation of Florida FL
Comcast Cablevision Corporation of the Southeast FL
Entity Name Organization Place
Comcast Cablevision Investment Corporation DE
Comcast Cablevision of Arkansas, Inc. DE
Comcast Cablevision of Birmingham, Inc. DE
Comcast Cablevision of Boca Raton, Inc. DE
Comcast Cablevision of Broward County, Inc. DE
Comcast Cablevision of Bryant, Inc. AR
Comcast Cablevision of Burlington County, Inc. DE
Comcast Cablevision of Cambridge, Inc. DE
Comcast Cablevision of Carolina, Inc. SC
Comcast Cablevision of Central New Jersey, Inc. DE
Comcast Cablevision of Chesterfield County, Inc. VA
Comcast Cablevision of Clinton MI
Comcast Cablevision of Clinton, Inc. CT
Comcast Cablevision of Clinton, Inc. MI
Comcast Cablevision of Danbury, Inc. DE
Comcast Cablevision of Delmarva, Inc. DE
Comcast Cablevision of Detroit MI
Comcast Cablevision of Detroit, Inc. MI
Comcast Cablevision of Dothan, Inc. AL
Comcast Cablevision of Flint, Inc. MI
Comcast Cablevision of Fontana, Inc. DE
Comcast Cablevision of Fort Wayne Limited Partnership IN
Comcast Cablevision of Gadsden, Inc. AL
Comcast Cablevision of Gloucester County, Inc. DE
Comcast Cablevision of Grosse Pointe, Inc. MI
Comcast Cablevision of Groton, Inc. CT
Comcast Cablevision of Hallandale, Inc. FL
Comcast Cablevision of Harford County, Inc. MD
Comcast Cablevision of Hopewell Valley, Inc. NJ
Comcast Cablevision of Howard County, Inc. MD
Entity Name Organization Place
Comcast Cablevision of Huntsville, Inc. AL
Comcast Cablevision of Indianapolis, Inc. DE
Comcast Cablevision of Indianapolis, L.P. DE
Comcast Cablevision of Inkster Limited Partnership MI
Comcast Cablevision of Inland Valley, Inc. DE
Comcast Cablevision of Jersey City, Inc. NJ
Comcast Cablevision of Laurel, Inc. MS
Comcast Cablevision of Lawrence, Inc. NJ
Comcast Cablevision of Little Rock, Inc. AR
Comcast Cablevision of Lompoc, Inc. DE
Comcast Cablevision of London, Inc. DE
Comcast Cablevision of Lower Merion, Inc. PA
Comcast Cablevision of Macomb County, Inc. MI
Comcast Cablevision of Macomb, Inc. MI
Comcast Cablevision of Marianna, Inc. DE
Comcast Cablevision of Maryland Limited Partnership MD
Comcast Cablevision of Maryland LLC DE
Comcast Cablevision of Mercer County, Inc. NJ
Comcast Cablevision of Meridian, Inc. MS
Comcast Cablevision of Middletown, Inc. DE
Comcast Cablevision of Mobile, Inc. AL
Comcast Cablevision of Monmouth County, Inc. DE
Comcast Cablevision of Mt. Clemens MI
Comcast Cablevision of Mt. Clemens, Inc. MI
Comcast Cablevision of New Haven, Inc. CT
Comcast Cablevision of New Jersey, Inc. NJ
Comcast Cablevision of Newport Beach, Inc. DE
Comcast Cablevision of North Orange, Inc. DE
Comcast Cablevision of Northwest New Jersey, Inc. DE
Comcast Cablevision of Ocean County, Inc. DE
Entity Name Organization Place
Comcast Cablevision of Paducah, Inc. KY
Comcast Cablevision of Panama City, Inc. DE
Comcast Cablevision of Perry, Inc. DE
Comcast Cablevision of Philadelphia, Inc. PA
Comcast Cablevision of Plainfield, Inc. DE
Comcast Cablevision of Quincy, Inc. DE
Comcast Cablevision of Sacramento CA
Comcast Cablevision of Sacramento, Inc. DE
Comcast Cablevision of San Bernardino, Inc. DE
Comcast Cablevision of Santa Ana, Inc. DE
Comcast Cablevision of Santa Maria, Inc. DE
Comcast Cablevision of Seal Beach, Inc. DE
Comcast Cablevision of Shelby, Inc. MI
Comcast Cablevision of Simi Valley, Inc. DE
Comcast Cablevision of Southeast Michigan, Inc. DE
Comcast Cablevision of Sterling Heights, Inc. MI
Comcast Cablevision of Tallahassee, Inc. DE
Comcast Cablevision of Taylor, Inc. MI
Comcast Cablevision of the Meadowlands, Inc. NJ
Comcast Cablevision of the Shoals, Inc. AL
Comcast Cablevision of the South CO
Comcast Cablevision of the South, Inc. CO
Comcast Cablevision of the South, LP DE
Comcast Cablevision of Tupelo, Inc. MS
Comcast Cablevision of Tuscaloosa, Inc. AL
Comcast Cablevision of Utica, Inc. MI
Comcast Cablevision of Warren MI
Comcast Cablevision of Warren, Inc. MI
Comcast Cablevision of West Florida, Inc. DE
Comcast Cablevision of West Palm Beach, Inc. DE
Entity Name Organization Place
Comcast Cablevision of Westmoreland, Inc. PA
Comcast Cablevision of Willow Grove, Inc. PA
Comcast Capital Corporation DE
Comcast Cellular Communications, Inc. DE
Comcast Cellular Communications, Inc. PA
Comcast Cellular Corporation DE
Comcast Cellular Holding Corporation DE
Comcast Central NJ Holding Company Inc. DE
Comcast CitySearch, Inc. DE
Comcast Commercial Online Communications, Inc. DE
Comcast Communications Properties, Inc. DE
Comcast Crystalvision, Inc. DE
Comcast Darlington Limited UK
Comcast DC Radio, Inc. DE
Comcast Directory Assistance Partnership DE
Comcast Directory Services, Inc. DE
Comcast do Brasil S/C Ltda Brazil
Comcast Entertainment Holdings LLC DE
Comcast Financial Agency Corporation DE
Comcast Financial Corporation DE
Comcast Florida Programming Investments, Inc. DE
Comcast Funding, Inc. DE
Comcast FW, Inc. DE
Comcast Garden State, Inc. DE
Comcast Hattiesburg Holding Company, Inc. DE
Comcast Heritage, Inc. DE
Comcast Holdings, Inc. DE
Comcast ICG, Inc. DE
Comcast Interactive Capital Group, Inc. DE
Comcast Interactive Investments, Inc. DE
Entity Name Organization Place
Comcast International Holdings, Inc. DE
Comcast International Programming, Inc. DE
Comcast Internet Access Services, Inc. DE
Comcast Internet Investments I, Inc. DE
Comcast Internet Services, Inc. DE
Comcast Investment Holdings, Inc. DE
Comcast Java, Inc. DE
Comcast Learning Ventures, Inc. DE
Comcast Life Insurance Holding Company DE
Comcast Long Distance, Inc. DE
Comcast MH Business Online Communications, Inc. DE
Comcast MH Holdings, Inc. DE
Comcast MH Telephony Communications of Florida, Inc. FL
Comcast MH Telephony Communications of Michigan, Inc. MI
Comcast MH Telephony Communications of New Jersey, Inc. NJ
Comcast MHCP Holdings, L.L.C DE
Comcast Michigan Holdings, Inc. MI
Comcast Midwest Management, Inc. DE
Comcast MTV, Inc. DE
Comcast Netherlands Inc. DE
Comcast Network Communications, Inc. DE
Comcast Online Communications, Inc. DE
Comcast Online Holdings, Inc. DE
Comcast PC Communications, Inc. DE
Comcast PC Investments, Inc. DE
Comcast Philadelphia Interconnect Partner, Inc. DE
Comcast Primestar Holdings DE
Comcast Programming Holdings, Inc. DE
Comcast Programming Ventures, Inc. DE
Comcast QVC, Inc. DE
Entity Name Organization Place
Comcast Real Estate Holdings of Alabama, Inc. AL
Comcast Real Estate Holdings, Inc. DE
Comcast SCH Holdings, Inc. CO
Comcast Sound Communications, Inc. CO
Comcast Sound Communications, Inc. IL
Comcast Sound Corporation DE
Comcast Spectacor, L.P. PA
Comcast Sports Holding Company, Inc. DE
Comcast Storer Finance Sub, Inc. DE
Comcast Storer, Inc. DE
Comcast Technology, Inc. DE
Comcast Teesside Limited UK
Comcast Telecommunications, Inc. PA
Comcast Telephony Communications Holdings, Inc. DE
Comcast Telephony Communications of California, Inc. CA
Comcast Telephony Communications of Connecticut, Inc. CT
Comcast Telephony Communications of Delaware, Inc. DE
Comcast Telephony Communications of Florida, Inc. FL
Comcast Telephony Communications of Georgia, Inc. GA
Comcast Telephony Communications of Indiana, Inc. IN
Comcast Telephony Communications of Maryland, Inc. MD
Comcast Telephony Communications of Michigan, Inc. MI
Comcast Telephony Communications of New Jersey, Inc. NJ
Comcast Telephony Communications of Pennsylvania, Inc. PA
Comcast Telephony Communications of South Carolina, Inc. SC
Comcast Telephony Communications, Inc. DE
Comcast Telephony Services DE
Comcast Telephony Services Holdings, Inc. DE
Comcast Telephony Services, Inc. DE
Comcast Teleport, Inc. DE
Entity Name Organization Place
Comcast TM, Inc. DE
Comcast U.K. Consulting, Inc. BVI
Comcast U.K. Holdings, Inc. DE
Comcast UK Holdings Limited Bermuda
Comcast UK Programming Limited Bermuda
Comcast WCS Communications, Inc. DE
ComCon Entertainment Holdings, Inc. DE
CVN Companies, Inc. MN
CVN Distribution Co., Inc. MN
Diamonique Corporation NJ
Diamonique Corporation PA
E! Entertainment Television International Holdings Inc. DE
E! Entertainment Television, Inc. DE
E! Online, Inc. DE
E! Online, LLC CA
East Coast Cable Limited UK
ER Marks, Inc. DE
Exclamation Music, Inc. DE
EZShop International, Inc. DE
First Television Corporation DE
Florida Telecommunications Services, Inc. FL
Hebcom Enterprises, Inc. DE
Hebenstreit Communications Corporation NM
Hebenstreit Communications Dallas Limited Partnership NM
Hebenstreit Communications of Philadelphia-Wilmington Limited NM
Partnership
Innovative Retailing, Inc. DE
Joliet Cellular Telephone Company, Inc. IL
Long Branch Cellular Telephone Company DE
M H Lightnet Inc. DE
Entity Name Organization Place
Mobile Enterprises, Inc. DE
Mt. Clemens Cable TV Investors, Inc. MI
MTCB S.A Brazil
New Brunswick Cellular Telephone Company DE
New England Microwave, Inc. CT
Ocean County Cellular Telephone Company WA
Pattison Development, Inc. PA
Pattison Realty, Inc. PA
Philadelphia 76ers, Inc. DE
Philadelphia 76ers, L.P. DE
Philadelphia Cable Investment Corporation DE
Philadelphia Flyers Enterprises Company Nova Scotia
Philadelphia Phantoms, Inc. PA
Philadelphia Phantoms, L.P. PA
Philadelphia Sports Media Joint Venture PA
Philadelphia Sports Media, Inc. PA
Philadelphia Sports Media, L.P. PA
Q Fit, Inc. DE
Q The Music, Inc. DE
Q2 Inc. NY
QDirect Ventures, Inc. DE
QExhibits, Inc. DE
QHealth, Inc. DE
QVC UK
QVC Britain UK
QVC Britain I, Inc. DE
QVC Britain II, Inc. DE
QVC Britain III, Inc. DE
QVC Canada Holdings II Ltd. Ontario
QVC Canada Holdings Ltd. Ontario
Entity Name Organization Place
QVC Chesapeake, Inc. VA
QVC de Mexico de C.V Mexico
QVC Delaware, Inc. DE
QVC Deutschland GMBH Germany
QVC EV-SERVICE GmbH Germany
QVC Germany I, Inc. DE
QVC Germany II, Inc. DE
QVC Holdings, Inc. DE
QVC International, Inc. DE
QVC Local, Inc. DE
QVC Mexico II, Inc. DE
QVC Mexico III, Inc. DE
QVC Mexico, Inc. DE
QVC Middle East, Inc. DE
QVC NS Holding Company Nova Scotia
QVC ProductWorks, Inc. DE
QVC Realty, Inc. PA
QVC San Antonio, Inc. TX
QVC Virginia, Inc. VA
QVC, Inc. DE
River City Cablevision, Inc. CA
SCI 11, Inc. DE
SCI 34, Inc. DE
SCI 36, Inc. DE
SCI 37, Inc. DE
SCI 38, Inc. DE
SCI 48, Inc. DE
SCI 55, Inc. DE
Selkirk Communications (Delaware) Corporation DE
Shop.eonline.com, LLC CA
Entity Name Organization Place
Southern East Anglia Cable Limited UK
Spectacor Adjoining Real Estate New Arena, L.P. PA
Spectrum Arena Limited Partnership PA
Storer Communications, Inc. DE
Vineland Cellular Telephone Company, Inc. DE
Westmoreland Financial Corporation DE
Wilmington Cellular Telephone Company DE
Wilmington Cellular Telephone Company LLC DE
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Stockholders
Comcast Corporation
Philadelphia, Pennsylvania
We consent to the incorporation by reference in the following Registration
Statements of Comcast Corporation and its subsidiaries (the "Company") on Form
S-3 and S-8 of our report dated February 22, 1999, appearing in the Annual
Report on Form 10-K of Comcast Corporation and its subsidiaries for the year
ended December 31, 1998.
Registration Statements on Form S-8:
Title of Securities Registered Registration Statement Number
The Comcast Corporation Retirement Investment Plan 33-41440
The Comcast Corporation Retirement Investment Plan 33-63223
Storer Communications Retirement Savings Plan 33-54365
Stock Option Plans 33-56903
The 1996 Comcast Corporation Stock Option Plan 333-08577
The 1996 Comcast Corporation Deferred Compensation Plan 333-18715
Comcast-Spectacor 401(k) Plan 333-69709
Registration Statements on Form S-3:
Title of Security Registered
Senior Debentures; Senior Subordinated Debentures;
Subordinated Debentures; Preferred Stock, without par
value; Depository Shares representing Preferred Stock;
Class A Common Stock, $1.00 par value; Class A Special
Common Stock, $1.00 par value and Warrants 33-50785
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedules of the Company, listed in Item
14(b)(i). These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
February 22, 1999
Philadelphia, Pennsylvania
Exhibit 23.2 Consent of KPMG LLP
Consent of Independent Auditors
The Board of Directors
QVC, Inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 33-41440, 33-63223, 33-54365, 33-56903, 333-08577, 333-18715 and
333-69709) on Form S-8 and (No. 33-50785) on Form S-3 of Comcast Corporation of
our report dated February 3, 1999, with respect to the consolidated balance
sheets of QVC, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations and comprehensive income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998 (such consolidated financial statements are not
separately presented herein), which report is included as an exhibit to the Form
10-K of Comcast Corporation for the year ended December 31, 1998.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 25, 1999
5
0000022301
COMCAST CORPORATION
1,000,000
YEAR
DEC-31-1998
DEC-31-1998
871
18
670
121
344
3,843
3,887
(1,362)
14,817
3,093
5,464
541
32
370
2,873
14,817
5,145
5,145
1,462
4,588
(1,467)
0
467
963
594
1,008
(31)
(4)
0
972
2.57
2.41
Current assets includes investments available for sale of $3,635.
Loss before income tax expense and other items excludes the effect of
minority interests, net of tax, of $44.3.
Exhibit 99.1
Independent Auditors' Report
The Board of Directors and Shareholders
QVC, Inc.:
We have audited the accompanying consolidated balance sheets of QVC, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations and comprehensive income, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of QVC, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 3, 1999
