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 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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.
incorporation or organization) Employer Identification No.)
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
Zero Coupon Convertible Subordinated Notes Due 1995
3-3/8% / 5-1/2% Step-up Convertible Subordinated Debentures Due 2005
1-1/8% Discount Convertible Subordinated Debentures Due 2007
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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. [ ]
--------------------------
As of February 1, 1995, the aggregate market value of the Class A Common Stock
held by non-affiliates of the Registrant was not less than $540 million.
--------------------------
As of February 1, 1995, there were 191,794,271 shares of Class A Special Common
Stock, 39,019,809 shares of Class A Common Stock and 8,786,250 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 1995.
<PAGE>
COMCAST CORPORATION
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C>
Item 1 Business.......................................................................................1
Item 2 Properties....................................................................................18
Item 3 Legal Proceedings.............................................................................18
Item 4 Submission of Matters to a Vote of Security Holders...........................................19
Item 4A Executive Officers of the Registrant..........................................................19
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters...............................................................21
Item 6 Selected Financial Data.......................................................................22
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................................23
Item 8 Financial Statements and Supplementary Data...................................................30
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure........................................54
PART III
Item 10 Directors and Executive Officers of the Registrant............................................54
Item 11 Executive Compensation........................................................................54
Item 12 Security Ownership of Certain Beneficial
Owners and Management.....................................................................54
Item 13 Certain Relationships and Related Transactions................................................54
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K...............................................................................55
SIGNATURES .............................................................................................64
</TABLE>
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This Annual Report on Form 10-K for the year ended December 31, 1994, at the
time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration Statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference this Annual Report.
<PAGE>
PART I
ITEM 1 BUSINESS
Comcast Corporation and its subsidiaries (the "Company") is engaged in the
development, management and operation of cable and cellular telephone
communications systems and the production and distribution of cable programming
(see "General Developments of Business"). The Company's consolidated domestic
cable operations served more than 3.3 million subscribers and passed more than
5.5 million homes as of December 31, 1994. The Company owns a 50% interest in
Garden State Cablevision L.P. ("Garden State"), a cable communications company
serving approximately 195,000 subscribers and passing approximately 288,000
homes. In the United Kingdom ("UK"), a subsidiary of the Company, Comcast UK
Cable Partners Limited ("Comcast UK Cable"), is constructing a cable
telecommunications network that will pass approximately 229,000 homes and holds
investments in cable television and telecommunications companies which have the
potential to serve an additional 1.2 million homes. The Company provides
cellular telephone communications services pursuant to licenses granted by the
Federal Communications Commission ("FCC") in markets with a population of over
7.9 million, including the area in and around the City of Philadelphia,
Pennsylvania, the State of Delaware and a significant portion of the State of
New Jersey.
The Company was organized in 1969 under the laws of the Commonwealth of
Pennsylvania and has its principal executive offices at 1500 Market Street,
Philadelphia, Pennsylvania, 19102-2148, (215) 665-1700.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note 12 to the Company's consolidated financial statements for information
about the Company's operations by industry segment.
GENERAL DEVELOPMENTS OF BUSINESS
QVC
In February 1995, the Company and Tele-Communications, Inc. ("TCI") acquired all
of the outstanding stock of QVC, Inc. ("QVC") for $46, in cash, per share. The
total cost of acquiring the outstanding shares of QVC not previously owned by
the Company and TCI (approximately 65% of such shares on a fully diluted basis)
was approximately $1.4 billion. Following the acquisition, the Company and TCI
own, through their respective subsidiaries, 57.45% and 42.55%, respectively, of
QVC. The Company will account for the QVC acquisition under the purchase method
of accounting and QVC will be consolidated with the Company beginning in
February 1995.
The acquisition of QVC, including the exercise of certain warrants held by the
Company, was financed with cash contributions from the Company and TCI of $296.3
million and $6.6 million, respectively, borrowings of $1.1 billion under a $1.2
billion QVC credit facility and existing cash and cash equivalents held by QVC.
QVC is a nationwide general merchandise retailer, operating as one of the
leading televised shopping retailers in the United States. Through its
merchandise-focused television programs (the "QVC Service"), QVC sells a wide
variety of products directly to consumers. The QVC Service currently reaches
approximately 50 million cable television subscribers in the United States.
The day to day operations of QVC will, except in certain limited circumstances,
be managed by the Company. With certain exceptions, direct or indirect transfers
to unaffiliated third parties by the Company or TCI of any stock in QVC are
subject to certain restrictions and rights in favor of the other.
Liberty Media Corporation ("Liberty"), a wholly-owned subsidiary of TCI, may, at
certain times following February 9, 2000, trigger the exercise of certain exit
rights. 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.
<PAGE>2
Maclean Hunter
On December 22, 1994, the Company, through Comcast MHCP Holdings, L.L.C. (the
"LLC"), acquired the U.S. cable television and alternate access operations of
Maclean Hunter Limited ("Maclean Hunter") from Rogers Communications Inc. and
all of the outstanding shares of Barden Communications, Inc. (collectively, such
acquisitions are referred to as the "Maclean Hunter Acquisition") for
approximately $1.2 billion (subject to certain adjustments) in cash. The Company
and the California Public Employees' Retirement System ("CalPERS") invested
approximately $305.0 million and $250.0 million, respectively, in the LLC, which
is owned 55% by a wholly-owned subsidiary of the Company and 45% by CalPERS, and
is managed by the Company. The Maclean Hunter Acquisition, including certain
transaction costs, was financed with cash contributions from the LLC of $555.0
million and borrowings of $715.0 million under an $850.0 million Maclean Hunter
credit facility. At any time after December 18, 2001, CalPERS may elect to
liquidate its interest in the LLC at a price based upon the fair value of
CalPERS' interest in the LLC, adjusted, under certain circumstances, for certain
performance criteria relating to the fair value of the LLC 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 the LLC. The Maclean Hunter Acquisition was accounted
for under the purchase method of accounting and Maclean Hunter is consolidated
with the Company as of December 31, 1994.
Comcast UK Cable
On September 27, 1994, Comcast UK Cable consummated an initial public offering
(the "IPO") of 15 million of its Class A Common Shares for net proceeds of
$209.4 million. Contemporaneously with the IPO, the Company and UK Cable
Partners Limited ("UKCPL"), which is owned by Warburg, Pincus Investors, L.P.
and Bankers Trust Investments PLC, restructured their interests in Comcast UK
Cable and terminated UKCPL's right to exchange its equity interests in Comcast
UK Cable for convertible debt of the Company (the "Exchange Option"). As a
result of the IPO and the restructuring, the Company beneficially owns
approximately 31.2% of the total outstanding Comcast UK Cable common shares.
Because the Class A Common Shares are entitled to one vote per share and the
Class B Common Shares are entitled to ten votes per share, the Company, through
its ownership of the Class B Common Shares, controls approximately 81.9% of the
total voting power of all outstanding Comcast UK Cable common shares and
continues to consolidate Comcast UK Cable. As a result of the termination of the
Exchange Option and consummation of the IPO, the Company recorded an aggregate
minority interest liability in Comcast UK Cable of $261.4 million. The Company
has recorded the increase in its proportionate share of Comcast UK Cable's net
assets as an increase in additional capital of $59.3 million.
Heritage
On January 26, 1995, the Company exchanged its interest in Heritage
Communications, Inc. with TCI for Class A common shares of TCI with a fair
market value of approximately $290 million. Shortly thereafter, the Company sold
certain of these shares for total proceeds of approximately $188 million. As a
result of these transactions, the Company will recognize a pre-tax gain of $141
million in the first quarter of 1995.
Telecommunications Joint Venture
On October 25, 1994, the Company announced a joint venture ("WirelessCo") with
Sprint Corporation ("Sprint"), TCI and Cox Cable Communications, Inc. ("Cox") to
provide wireless communications services. WirelessCo is owned 40% by Sprint, 30%
by TCI and 15% each by the Company and Cox. WirelessCo is participating in the
first of several FCC auctions of blocks of spectrum for licenses to provide
Personal Communications Services ("PCS"), having filed an application to
participate in 39 of 51 Major Trading Area ("MTA") markets nationwide. As of
February 21, 1995, WirelessCo's aggregate bids for 38 licenses covering a total
population of 168 million were $1.975 billion. There can be no assurances that
WirelessCo will be successful in bidding for or otherwise obtaining PCS licenses
for these or other MTAs. The Company has obtained letter of credit commitments
sufficient to cover its 15% share of the cost of PCS licenses for which
WirelessCo is the successful bidder. The Company may have material additional
capital requirements relating to the buildout of PCS systems if WirelessCo is
successful in the PCS bidding process. WirelessCo is accounted for under the
equity method of accounting.
<PAGE>3
The parties have also signed a joint venture formation agreement which provides
the basis upon which they will develop definitive agreements for their local
wireline telecommunications activities. The parties anticipate that the wireline
joint venture will be owned in the same percentages as WirelessCo. The parties'
ability to provide such local services on a nationwide basis, and the timing
thereof, will depend upon, among other things, the removal or modification of
legal barriers to local telephone competition. The parties anticipate that
Teleport Communications Group ("TCG"), which is owned 20% by the Company and by
other cable television operators, including TCI and Cox, will be contributed to
the local telephone venture. TCG is an alternative provider of local telephone
services. The contribution of TCG to the venture is expected to be subject to
certain conditions, including obtaining necessary governmental and other
approvals.
Cable Rate Regulation Developments
On March 30, 1994, the FCC: (i) modified its existing benchmark methodology to
require, absent a successful cost-of-service showing, reductions of
approximately 17% in the rates for regulated cable services in effect on
September 30, 1992, adjusted for inflation, channel modifications, equipment
costs and increases in certain operating costs. The modified benchmarks and
regulations are generally designed to cause an additional 7% reduction in the
rates for regulated cable services on top of the rate reductions implemented by
the Company in September 1993 under the prior FCC benchmarks and regulations;
(ii) adopted interim regulations to govern cost-of-service showings by cable
operators, establishing an industry-wide 11.25% after tax rate of return and a
rebuttable presumption that acquisition costs above original historic book value
of tangible assets should be excluded from the rate base; and (iii)
reconsidered, among other matters, its regulations concerning rates for the
addition of regulated services and the treatment of packages of "a la carte"
channels (see "Legislation and Regulation").
In July 1994, the Company reduced rates for regulated services in the majority
of its cable systems to comply with the modified benchmarks and regulations. In
addition, the Company is currently seeking to justify existing rates in certain
other of its cable systems on the basis of cost-of-service showings; however,
the interim cost-of-service regulations promulgated by the FCC do not support
positions taken by the Company in its cost-of-service filings to date. The
Company's reported cable service income reflects the estimated effects of cable
regulation. The Company is seeking reconsideration by the FCC of the interim
cost-of-service regulations and, if unsuccessful in justifying existing rates
under cost-of-service regulations, intends to seek judicial relief. However, no
assurance can be given that the Company will be able to offset, to any
substantial degree, the adverse impact of rate reductions in compliance with the
modified benchmarks and regulations or that it will be successful in
cost-of-service proceedings. If the Company is not successful in such efforts,
and there is no legislative, administrative or judicial relief in these matters,
the FCC regulations will continue to adversely affect the Company's results of
operations.
On November 10, 1994, the FCC announced modified "Going Forward" rules which,
among other things, permit cable operators to charge an additional $0.20 per
month per channel for channels added to the cable programming services tier, up
to a maximum of six channels, and to recover an additional $0.30 in monthly fees
paid to programmers for such channels. The ruling applies to channels added
between May 15, 1994 and December 31, 1996 and became effective January 1, 1995.
The FCC concurrently announced regulations permitting cable operators to create
new product tiers which would generally not be subject to rate regulation. The
Company is currently reviewing the ruling and is unable to predict the effect on
its future results of operations.
DESCRIPTION OF THE COMPANY'S BUSINESSES
Cable Communications
General
A cable communications system receives signals by means of special antennae,
microwave relay systems and earth stations. The system amplifies such signals,
provides locally originated programs and ancillary services and distributes
programs to subscribers through a fiber optic and coaxial cable system.
Cable communications systems generally offer subscribers the signals of all
national television networks; local and distant independent, specialty and
educational television stations; satellite-delivered non-broadcast channels;
locally originated programs; educational programs; home shopping and public
service announcements. In addition, each of the Company's systems offer, for an
extra monthly charge, one or more special services ("Pay Cable") such as Home
<PAGE>4
Box Office (Registered Trademark), Cinemax (Registered Trademark), Showtime
(Registered Trademark), The Movie Channel (Trademark) and The (Copyright)Disney
Channel, which generally offer, without commercial interruption, feature motion
pictures, live and taped sports events, concerts and other special features. A
majority of the Company's systems offer pay per view services, which permit a
subscriber to order, for a separate fee, movies and individual events.
Cable communications systems are generally constructed and operated under
non-exclusive franchises granted by state or local governmental authorities.
Franchises typically contain many conditions, such as time limitations on
commencement or completion of construction; conditions of service, including
number of channels, types of programming and free service to schools and other
public institutions; and the maintenance of insurance and indemnity bonds. The
provisions of franchises are subject to both the Cable Communications Policy Act
of 1984 (the "1984 Cable Act") and the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"-and together with the 1984 Cable
Act, the "Cable Acts" -- see "Legislation and Regulation").
The Company's franchises typically provide for periodic payments to the
governmental authority of franchise fees of up to 5% of revenues derived from
the operation of the cable system. Franchises are generally nontransferable
without the consent of the governmental authority. The Company's franchises
generally were granted for an initial term of 15 years. Although franchises
historically have been renewed and, under the Cable Acts, should continue to be
renewed for companies that have provided adequate service and have complied
generally with franchise terms, renewal may be more difficult as a result of the
1992 Cable Act and may include less favorable terms and conditions. Furthermore,
the governmental authority may choose to award additional franchises to
competing companies at any time (see "Competition" and "Legislation and
Regulation").
Company's Systems
The table below sets forth a summary of Homes Passed and Cable Subscriber
information for the Company's domestic cable communications systems for the five
years ended December 31, 1994, including the consolidated systems of Maclean
Hunter as of December 31, 1994. This table does not reflect Homes Passed or
subscriber information for the Company's investment in Garden State.
<TABLE>
<CAPTION>
At December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Homes Passed (1)
Consolidated Systems (2) 5,491 4,211 4,154 4,218 4,127
Managed Systems (3) 34 58 57 57 57
Cable Subscribers (4)
Consolidated Systems (2) 3,307 2,648 2,583 2,474 2,402
Managed Systems (3) 22 37 36 35 34
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<FN>
(1) A home is deemed "passed" if it can be connected to the distribution
system without further extension of the transmission lines.
(2) Consists of systems whose financial results are consolidated with those
of the Company as well as 50% of the Homes Passed and Cable Subscribers
of Storer Communications, Inc. ("Storer") prior to 1992. Homes Passed
decreased in 1992 due to the difference between 50% of the total of
Storer's Homes Passed as set forth for the years prior to 1992 and those
Homes Passed received in the Storer split-off (see Note 2 to the
Company's consolidated financial statements).
(3) Consists of systems managed by the Company in which the Company has less
than a 50% interest. The decrease from 1993 to 1994 is a result of the
Company's acquisition of a Managed System.
(4) A dwelling with one or more television sets connected to a system is
counted as one Cable Subscriber.
</FN>
</TABLE>
Revenue Sources
The Company's cable communications systems offer varying levels of service,
depending primarily on their respective channel capacities. At December 31,
1994, substantially all of the Company's systems had the capacity to carry in
excess of 35 channels.
<PAGE>5
Monthly service rates and related charges vary in accordance with the type of
service selected by the subscriber. The Company may receive an additional
monthly fee for Pay Cable service, the charge for which varies with the type and
level of service selected by the subscriber. Additional charges are often
imposed for installation services, commercial subscribers, program guides and
other services. The Company also generates revenue from pay per view services
and advertising sales. Subscribers typically pay on a monthly basis and
generally may discontinue services at any time (see "Legislation and
Regulation").
Programming and Suppliers
The Company generally pays either a monthly fee per subscriber or a percentage
of the Company's gross receipts for basic services, cable programming services
and premium programming services. Some of the programming suppliers provide
volume discount pricing structures or offer marketing support to the Company.
National manufacturers are the primary sources of supplies, equipment and
materials utilized in the construction and upgrading of the Company's cable
communications systems. Construction, rebuild and upgrade costs for these
systems 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.
UK Activities
The Company beneficially owns an approximate 31.2% equity interest and controls
approximately 81.9% of the total voting power of Comcast UK Cable. Comcast UK
Cable owns interests in three operating companies (the "Operating Companies"):
Birmingham Cable Corporation Limited ("Birmingham Cable"), in which Comcast UK
Cable owns a 27.5% interest, Cable London PLC ("Cable London"), in which Comcast
UK Cable owns a 48.9% interest, and Cambridge Holding Company Limited
("Cambridge Cable"), in which Comcast UK Cable owns a 50.0% interest. The
Operating Companies provide integrated cable television, residential telephone
and business telecommunications services to subscribers in their respective
franchise areas. In addition, on June 20, 1994, Comcast UK Cable acquired the
franchises for Darlington and Teesside (collectively, the "Teesside Franchises")
which comprise an area with approximately 229,000 homes. In January 1995,
Cambridge Cable was awarded licenses to provide cable communications services to
an additional 205,000 homes.
<PAGE>6
Operating Companies' Systems
The table below sets forth Homes Passed, Cable Subscriber and Telephony
Subscriber information for the Operating Companies' cable communications systems
for the five years ended December 31, 1994.
<TABLE>
<CAPTION>
At December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Homes Passed (1) (2)
Birmingham Cable 227 156 104 39 2
Cable London 171 121 78 49 10
Cambridge Cable 115 75 36 5
Cable Subscribers (2) (3)
Birmingham Cable 73 55 35 12
Cable London 42 30 20 9 2
Cambridge Cable 30 16 6 1
Telephony Subscribers (2)
Birmingham Cable 59 36 23 3
Cable London 32 18 12 3
Cambridge Cable 34 12
<FN>
(1) A home is deemed "passed" if it can be connected to the distribution system
without further extension of the transmission lines.
(2) Homes Passed, Cable Subscribers and Telephony Subscribers have not been
adjusted for the Company's proportionate ownership interests in the
respective Operating Companies.
(3) A dwelling with one or more television sets connected to a system is
counted as one Cable Subscriber.
</FN>
</TABLE>
Development and construction of the cable/telephony systems of the Teesside
Franchises commenced in the third quarter of 1994. Based on its December 31,
1994 proportionate ownership interests in the Operating Companies, including the
Teesside Franchises, Comcast UK Cable's interests represent approximately
700,000 homes.
Competition
Cable communications systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, interactive computer programs
and home video products, including videotape cassette recorders. The extent to
which cable service is competitive depends, in part, upon the cable system's
ability to provide, at a reasonable price to consumers, a greater variety of
programming than that available off-air or through other alternative delivery
sources (see "Legislation and Regulation").
Recent FCC and judicial decisions, if upheld by appellate courts, will enable
local telephone companies to provide a wide variety of "video dialtone" services
competitive with services provided by cable systems and to provide cable
services directly to subscribers (see "Legislation and Regulation"). Various
local telephone companies have requested regulatory approval for the initiation
of video programming services. Cable systems could be placed at a competitive
disadvantage if the delivery of video programming services by local telephone
companies becomes widespread since cable systems are required to obtain local
franchises to provide cable service and must comply with a variety of
obligations under such franchises. Issues of cross-subsidization by monopoly
local telephone companies pose strategic disadvantages for cable operators
seeking to compete with local telephone companies who provide video services.
The Company cannot predict at this time the likelihood of success of video
programming ventures by local telephone companies or the impact on the Company
of such competitive ventures.
Cable systems generally operate pursuant to franchises granted on a
non-exclusive basis. The 1992 Cable Act gives local franchising authorities
control over basic cable service rates, prohibits franchising authorities from
unreasonably denying requests for additional franchises and permits franchising
authorities to operate cable systems (see "Legislation and Regulation").
Well-financed businesses from outside the cable industry (such as the public
utilities
<PAGE>7
which own certain of the poles on which cable is attached) may become
competitors for franchises or providers of competing services. The costs of
operating a cable system where a competing service exists (referred to in the
cable industry as an "overbuild") will be substantially greater than if there
were no competition present. Actual and potential overbuilds exist in several of
the Company's systems.
Cable operators face additional competition from private satellite master
antenna television ("SMATV") systems that serve condominiums, apartment
complexes and private residential developments. The operators of these SMATV
systems often enter into exclusive agreements with apartment building owners or
homeowners' associations. While the 1984 Cable Act gives a franchised cable
operator the right to use existing compatible easements within its franchise
area on nondiscriminatory terms and conditions, there have been conflicting
judicial decisions interpreting the scope of the access right granted to serve
such private property. Various states have enacted laws to provide franchised
cable systems access to such private residential complexes. These laws have been
challenged in the courts with varying results. Due to the widespread
availability of reasonably priced earth stations, SMATV systems now can offer
both improved reception of local television stations and many of the same
satellite-delivered program services offered by franchised cable systems. The
ability of the Company to compete for subscribers in communities served by SMATV
operators is uncertain.
The availability of reasonably-priced home satellite dish earth stations ("HSD")
enables individual households to receive many of the satellite-delivered program
services formerly available only to cable subscribers. Furthermore, the 1992
Cable Act contains provisions, which the FCC has implemented with regulations,
to enhance the ability of HSD owners and other cable competitors to purchase
certain satellite-delivered cable programming at competitive costs.
In recent years, the FCC has adopted policies providing a more favorable
operating environment for new and existing technologies that provide, or have
the potential to provide, substantial competition to cable systems. These
technologies include, among others, the direct broadcast satellite ("DBS")
service whereby signals are transmitted by satellite to receiving facilities
located on the premises of subscribers. Programming is currently available to
the owners of HSDs through conventional, medium and high-powered satellites. One
consortium comprised of cable operators, including the Company and a satellite
company, commenced operation in 1990 of a medium-power DBS satellite system
using the Ku portion of the frequency spectrum and currently provides service
consisting of approximately 65 channels of programming, including broadcast
signals and pay-per-view services. Two companies began offering nationwide DBS
service in 1994 accompanied by extensive marketing efforts. Several other
companies are preparing to have high-power DBS systems in place. DBS systems are
expected to use video compression technology to increase the channel capacity of
their systems to provide movies, broadcast stations and other program services
competitive to those of cable systems. The extent to which DBS systems are
competitive to the service provided by cable systems depends, among other
things, on the availability of reception equipment at reasonable prices and on
the ability of DBS operators to provide competitive programming.
Cable communications systems also compete with wireless program distribution
services such as multichannel, multipoint distribution service ("MMDS") which
use low power microwave frequencies to transmit video programming over-the-air
to subscribers. There are MMDS operators who are authorized to provide or are
providing broadcast and satellite programming to subscribers in areas served by
the Company's cable systems. Additionally, the FCC recently initiated a
rulemaking proceeding in which it proposed to allocate frequencies in the 28 GHz
band for a new multichannel wireless video service similar to MMDS. The Company
is unable to predict whether wireless video services will have a material impact
on its operations.
Other new technologies may become competitive with non-entertainment services
that cable communications systems can offer. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and to businesses. The FCC also permits commercial and non-commercial
FM stations to use their subcarrier frequencies to provide non-broadcast
services including data transmissions. The FCC established an over-the-air
Interactive Video and Data Service that will permit two-way interaction with
commercial and educational programming along with informational and data
services. Telephone companies and other common carriers also provide facilities
for the transmission and distribution of data and other non-video services. The
FCC is currently conducting spectrum auctions for licenses to provide PCS. PCS
could enable license holders, including cable operators, to provide voice and
data services as well as video programming (see "Cellular Telephone
Communications").
<PAGE>8
Advances in communications technology as well as changes in the marketplace and
the regulatory and legislative environment are constantly occurring. Thus, it is
not possible to predict the effect that ongoing or future developments might
have on the cable industry.
Legislation and Regulation
The cable communications industry currently is regulated by the FCC, some state
governments and most local governments. In addition, legislative and regulatory
proposals by the Congress and federal agencies may materially affect the cable
communications industry. The following is a summary of federal laws and
regulations materially affecting the growth and operation of the cable
communications industry and a description of certain state and local laws.
The Cable Acts, both of which amended the Communications Act of 1934 (the
"Communications Act"), establish a national policy to guide the development and
regulation of cable systems. Principal responsibility for implementing the
policies of the Cable Acts is allocated between the FCC and state or local
franchising authorities.
Rate Regulation. Prior to April 1, 1993, virtually all of the Company's cable
systems were free to adjust cable rates without first obtaining governmental
approval. The 1992 Cable Act authorizes rate regulation for cable communications
services and equipment in communities that are not subject to "effective
competition," as defined in the 1992 Cable Act. Virtually all cable
communications systems are now subject to rate regulation for basic cable
service and equipment by local officials under the oversight of the FCC, which
has prescribed detailed criteria for such rate regulation. The 1992 Cable Act
also requires the FCC to resolve complaints about rates for nonbasic cable
programming services (other than programming offered on a per channel or per
program basis, which programming is not subject to rate regulation) and to
reduce any such rates found to be unreasonable. The 1992 Cable Act limits the
ability of cable systems to raise rates for basic cable service and certain
nonbasic cable programming services (collectively, the "Regulated Services").
On April 1, 1993, the FCC adopted regulations in accordance with the 1992 Cable
Act governing rates that may be charged to subscribers for Regulated Services
and ordered an interim freeze on existing rates. The FCC's rate regulations
became effective on September 1, 1993 and the FCC's rate freeze was extended
until the earlier of February 15, 1994 or the date on which a cable system's
basic cable service rate was regulated by a franchising authority.
In implementing the 1992 Cable Act, the FCC adopted a benchmark methodology as
the principal method of regulating rates for Regulated Services. Cable operators
were also permitted to justify rates using a cost-of-service methodology. As of
September 1, 1993, cable operators whose then current rates were above FCC
benchmark levels were required, absent a successful cost-of-service showing, to
reduce such rates to the benchmark level or by up to 10% of those rates in
effect on September 30, 1992, whichever reduction was less, adjusted for
equipment costs, inflation and programming modifications occurring subsequent to
September 30, 1992. Effective May 15, 1994, the FCC modified its benchmark
methodology to require reductions of up to 17% of the rates for Regulated
Services in effect on September 30, 1992, adjusted for inflation, programming
modifications, equipment costs and increases in certain operating costs. The
FCC's modified benchmark regulations were designed to cause an additional 7%
reduction in the rates for Regulated Services on top of any rate reductions
implemented under the FCC's initial benchmark regulations.
The FCC's initial "Going Forward" regulations limited rate increases for
Regulated Services to an inflation-indexed amount plus increases for channel
additions and certain external costs beyond the cable operator's control, such
as franchise fees, taxes and increased programming costs. Under these
regulations, cable operators are entitled to take a 7.5% mark-up on certain
programming cost increases. On November 10, 1994, the FCC modified these
regulations and instituted a three-year flat fee mark-up plan for charges
relating to new channels added to the cable programming service tier. As of
January 1, 1995, cable operators may charge subscribers for channels added to
the cable programming service tier after May 14, 1994, at a monthly rate of up
to 20 cents per added channel, but may not make adjustments to monthly rates
totalling more than $1.20 plus an additional 30 cents for programming license
fees per subscriber over the first two years of the three-year period. Cable
operators may charge an additional 20 cents plus the cost of the programming in
the third year (1997) for one additional channel added in that year. Operators
must make a one-time election to use either the 20 cents per channel adjustment
or the 7.5% mark-up on programming cost increases for all channels added after
December 31, 1994. The FCC is currently considering
<PAGE>9
whether to modify or eliminate the regulation allowing operators to receive the
7.5% mark-up on increases in existing programming license fees.
On November 10, 1994, the FCC adopted regulations permitting cable operators to
create new product tiers ("NPT") that will not be subject to rate regulation if
certain conditions are met. The FCC also revised its previously adopted policy
and concluded that packages of a la carte services are subject to rate
regulation by the FCC as cable programming service tiers. Because of the
uncertainty created by the FCC's prior a la carte package guidelines, the FCC
will allow cable operators, including the Company, under certain circumstances,
to treat previously offered a la carte packages as NPTs.
Franchising authorities are empowered to regulate the rates charged for
additional outlets and for the installation, lease and sale of equipment used by
subscribers to receive the basic cable service tier, such as converter boxes and
remote control units. The FCC's rules require franchising authorities to
regulate these rates on the basis of actual cost plus a reasonable profit, as
defined by the FCC. Cable operators required to reduce rates may also be
required to refund overcharges with interest.
Rate reductions will not be required where a cable operator can demonstrate that
existing rates for Regulated Services are justified and reasonable using
cost-of-service guidelines. On November 24, 1993, the FCC ruled that operators
choosing to justify rates through a cost-of-service submission must do so for
all Regulated Services. On February 22, 1994, the FCC adopted interim
cost-of-service regulations establishing, among other things, an industry-wide
11.25% after tax rate of return on an operator's allowable rate base and a
rebuttable presumption that acquisition costs above original historic book value
of tangible assets should be excluded from the allowable rate base. The FCC is
conducting a further rulemaking to determine whether these interim standards and
regulations should be made permanent.
In July 1994, the Company reduced rates for Regulated Services in the majority
of its cable systems to comply with the FCC's modified benchmarks and
regulations. In addition, the Company is seeking to justify existing rates in
certain of its cable systems in the States of Connecticut and New Jersey on the
basis of cost-of-service showings for both its basic cable service tier (at the
franchising authority) and its cable programming service tier (at the FCC);
however, the FCC's interim cost-of-service regulations do not support positions
taken by the Company in its cost-of-service filings to date. The Company is
seeking FCC reconsideration of the interim cost-of-service regulations, FCC
review of various adverse decisions issued by franchising authorities on its
basic cable service rates and a determination by the FCC of the validity of
cost-of-service rates for cable programming services in various systems. If
unsuccessful in such efforts, the Company intends to seek judicial relief.
However, no assurance can be given that the Company will be able to offset, to
any substantial degree, the adverse impact of rate reductions in compliance with
the FCC's modified benchmarks and regulations, or that it will be successful in
cost-of-service proceedings. If the Company is not successful in such efforts,
and there is no legislative, administrative or judicial relief in these matters,
the FCC regulations will continue to adversely affect the Company's results of
operations.
"Anti-Buy Through" Provisions. The 1992 Cable Act requires cable systems to
permit subscribers to purchase video programming offered by the operator 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, unless the system's
lack of addressable converter boxes or other technological limitations does not
permit it to do so. The statutory exemption for cable systems that do not have
the technological capability to offer programming in the manner required by the
statute is available until a system obtains such capability, but not later than
December 2002. The FCC may waive such time periods, if deemed necessary. Most of
the Company's 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 the requirement.
Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal
carriage requirements that allow local commercial television broadcast stations
to elect once every three years to require a cable system to carry the station,
subject to certain exceptions, or to negotiate for "retransmission consent" to
carry the station. A cable system generally is required to devote up to
one-third of its activated channel capacity for the mandatory carriage of local
commercial television stations. Local non-commercial television stations are
also given 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 are required to obtain retransmission
consent for all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WTBS), commercial radio
stations and certain low power television stations carried by such systems after
October 6, 1993.
<PAGE>10
On April 8, 1993, a special three-judge federal district court issued a decision
upholding the constitutional validity of the mandatory signal carriage
requirements. In June 1994, the United States Supreme Court vacated this
decision and remanded it to the district court to determine, among other
matters, whether the statutory carriage requirements are necessary to preserve
the economic viability of the broadcast industry. The mandatory broadcast signal
carriage requirements remain in effect pending the outcome of the further
proceedings in the district court.
Designated Channels. The 1984 Cable Act permits franchising authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. The 1984 Cable Act also requires a cable
system with 36 or more channels to designate a 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 has adopted rules
regulating: (i) the maximum reasonable rate a cable operator may charge for
commercial use of the designated channel capacity; (ii) the terms and conditions
for commercial use of such channels; and (iii) the procedures for the expedited
resolution of disputes concerning rates or commercial use of the designated
channel capacity.
Franchise Procedures. The 1984 Cable Act 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 and prohibits
non-grandfathered cable systems from operating without a franchise in such
jurisdictions. The 1992 Cable Act encourages competition with existing cable
systems by (i) allowing municipalities to operate their own cable systems
without franchises; (ii) preventing franchising authorities from granting
exclusive franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area; and (iii)
prohibiting (with limited exceptions) the common ownership of cable systems and
co-located MMDS or SMATV systems. The 1984 Cable Act also provides that in
granting or renewing franchises, local authorities may establish requirements
for cable-related facilities and equipment, but not for video programming or
information services other than in broad categories. Among the more significant
provisions of the 1984 Cable Act is a limitation on the payment of franchise
fees to 5% of cable system revenues and the opportunity for the cable operator
to obtain modification of franchise requirements by the franchise authority or
judicial action if warranted by changed circumstances. The Company's franchises
typically provide for payment of fees to franchising authorities of 5% of
"revenues" (as defined by each franchise agreement).
The 1984 Cable Act contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. The 1992 Cable Act makes
several changes to the renewal process which could make it easier for a
franchising authority to deny renewal. Moreover, even if the franchise is
renewed, the franchising authority may seek to impose 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 a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for such consent.
Historically, franchises have been renewed for cable operators that have
provided satisfactory services and have complied with the terms of their
franchises. The Company believes that it has generally met the terms of its
franchises and has provided quality levels of service and it anticipates that
its future franchise renewal prospects generally will be favorable.
Various courts have considered whether franchising authorities have the legal
right to limit franchise awards to a single cable operator and to impose certain
substantive franchise requirements (e.g., access channels, universal service and
other technical requirements). These decisions have been somewhat 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 1984 Cable Act and the FCC's regulations prohibit the
common ownership, operation, control or interest in a cable system and a local
television broadcast station whose predicted grade B contour (a measure of
significant signal strength as defined by the FCC's rules) covers any portion of
the community served by the cable system. In June 1992, the FCC revised its
cross-ownership rules to permit national television networks to own cable
systems under certain circumstances. As a part of the same action, the FCC also
voted to recommend to Congress that the broadcast/cable cross-ownership
restrictions contained in the 1984 Cable Act be repealed. Pursuant to the 1992
Cable Act, the FCC adopted rules prescribing national subscriber limits and
limits on the number of channels that can be occupied on a cable system by a
video programmer in which the operator has an attributable interest. The
effectiveness of these FCC horizontal ownership limits has been stayed because a
federal district court found the statutory limitation to be unconstitutional.
<PAGE>11
Telephone Company Ownership of Cable Systems. The 1984 Cable Act, FCC
regulations, and the 1982 federal court consent decree (the "MFJ") that settled
the antitrust suit against AT&T regulate the provision of video programming and
other information services by telephone companies. The 1984 Cable Act codified
FCC cross-ownership regulations that, in part, prohibit local exchange telephone
companies, including the seven Bell Operating Companies ("BOCs"), from providing
video programming directly to subscribers within their local exchange service
areas, except in rural areas or by specific waiver of FCC rules. The statutory
provision and corresponding FCC regulations are of particular competitive
importance because telephone companies already own much of the plant necessary
for cable communications operations, such as poles, underground conduit and
associated rights-of-way. Many of the BOCs have initiated federal court actions
challenging the statutory "telco-cable" cross-ownership restriction of the 1984
Cable Act and various federal district and appellate courts have concluded that
the cross-ownership restriction violates local telephone companies'
constitutional rights. Further judicial review of these decisions can be
anticipated.
In 1992, the FCC modified its regulations to enable local telephone companies to
provide a "video dialtone" service that would provide access for consumers to a
wide variety of services now provided by cable systems, as well as new services
that may develop. The FCC determined that local telephone companies must provide
consumers access to video dialtone services of others on a common carrier basis
and may provide directly to their telephone customers their own non-video
dialtone and non-video services, subject to certain cross-subsidization
safeguards. The FCC also decided to recommend to Congress that the statutory
telco-cable cross-ownership restriction should be repealed and that local
telephone companies should be permitted to provide video programming directly to
subscribers subject to appropriate safeguards. Various parties have appealed the
FCC's decision.
In its video dialtone proceeding the FCC also determined that the 1984 Cable Act
and the FCC's regulatory cross-ownership restrictions do not prohibit
interexchange carriers (i.e., long distance telephone companies) from entering
into joint ventures with cable operators or from acquiring cable communications
systems in areas where such interexchange carriers provide long distance
telephone services. The FCC also concluded that local telephone companies
offering broadband common carrier services to distribute video programming to
subscribers and the third party programmers using such common carrier services
are not required by federal law to obtain franchises from local franchising
authorities in order to provide such video programming services to the public.
The ultimate outcome of the FCC's video dialtone proceeding, the BOC litigation,
the FCC decisions on the video dialtone proposals of various BOCs and other
local telephone companies or the appeals of the FCC's decisions described above,
or the ultimate impact on the Company or its business of these judicial and
administrative proceedings cannot be determined at this time.
In July 1991, the U.S. District Court responsible for the MFJ issued an opinion
lifting the MFJ prohibition on the provision of information services by the
BOCs. This decision was upheld on appeal and enables the BOCs to acquire or
construct cable communications systems outside of their own service areas.
Independent telephone companies currently may provide cable communications
service outside of their service areas under the 1984 Cable Act.
The telephone industry continues to lobby Congress for legislation that will
permit local telephone companies to provide video programming directly to
consumers, and legislation has been introduced in Congress that would permit
local telephone companies, among other things, to provide such services under
certain conditions. The outcome of these FCC, legislative or judicial
proceedings and proposals or the effect of such outcome on cable system
operations cannot be predicted.
Pole Attachment. 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 can demonstrate that
they adequately regulate pole attachment rates, as is the case in certain states
in which the Company operates. In the absence of state regulation, the FCC
administers pole attachment rates on a formula basis. In some cases, utility
companies have increased pole attachment fees for cable systems that have
installed fiber optic cables and that are using such cables for the distribution
of non-video services. The FCC concluded that, in the absence of state
regulation, it has jurisdiction to determine whether utility companies have
justified their demand for additional rental fees and that the Communications
Act does not permit disparate rates based on the type of service provided over
the equipment attached to the utility's pole.
Other Statutory Provisions. The 1992 Cable Act precludes video programmers
affiliated with cable companies from favoring cable operators over competitors
and requires such programmers to sell their programming to other
<PAGE>12
multichannel video distributors. This provision limits the ability of cable
program suppliers affiliated with cable companies to offer exclusive programming
arrangements to cable companies. The Communications Act also includes
provisions, among others, concerning horizontal and vertical ownership of cable
systems, customer service, subscriber privacy, commercial leased access
channels, marketing practices, equal employment opportunity, franchise renewal
and transfer, award of franchises, obscene or indecent programming, regulation
of technical standards and equipment compatibility. The FCC has adopted
regulations implementing many of these statutory provisions and it has received
numerous petitions requesting reconsideration of various aspects of its
rulemaking proceedings.
Other FCC Regulations. In addition to the FCC regulations noted above, there are
other FCC regulations covering such areas as equal employment opportunity,
syndicated program exclusivity, network program non-duplication, registration of
cable systems, maintenance of various records and public inspection files,
microwave frequency usage, lockbox availability, origination cablecasting and
sponsorship identification, antenna structure notification, marking and
lighting, carriage of local sports programming, application of the fairness
doctrine and rules governing political broadcasts, limitations on advertising
contained in non-broadcast children's programming, consumer protection and
customer service, leased commercial access, ownership of home wiring, indecent
programming, programmer access to cable systems, programming agreements,
technical standards, consumer electronics equipment compatibility and DBS
implementation. The FCC has the authority to 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.
Other bills and administrative proposals pertaining to cable television have
previously been introduced in Congress or considered by other governmental
bodies over the past several years on matters such as rate regulation, customer
service standards, sports programming, franchising, copyright and telephone
company provision of cable services. It is probable that further attempts will
be made by Congress and other governmental bodies relating to the delivery of
communications services.
Copyright. Cable communications systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool, cable operators can obtain blanket
permission to retransmit copyrighted material on broadcast signals. The nature
and amount of future payments for broadcast signal carriage cannot be predicted
at this time. 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 the Company's ability to obtain suitable programming and
could substantially increase the cost of programming that remained available for
distribution to the Company's subscribers. The Company cannot predict the
outcome of this legislative activity.
In October 1989, the special rate court of the U.S. District Court for the
Southern District of New York imposed interim rates on the cable industry's use
of ASCAP-controlled music. Payment of these rates by cable programmers secures
licenses that cover the use of the music licensed by ASCAP by both the cable
programmers and their cable operator affiliates. The other major music
performing rights society, BMI, is not subject to rate-setting procedures in the
rate court. Both ASCAP and BMI historically have maintained that the
transmission of programming by cable programmers to cable operators and by cable
operators to their subscribers are separate public performances and should
therefore be subject to separate license agreements. Two federal court
decisions, however, have held that ASCAP and BMI cannot insist on separate
licenses for programmers and operators for cable network programming. Under
these decisions, ASCAP and BMI must make available to cable programming networks
licenses that cover the transmission of music all the way to the cable
subscriber. BMI has petitioned the Department of Justice to grant BMI the right
to come under a special rate court, like the one for ASCAP, for rate setting
purposes. Negotiations are in process concerning the obligation, if any, for
cable operators to compensate the music industry for the use of music in local
origination and pay-per-view programs.
State and Local Regulation
Because a cable communications system uses local streets and rights-of-way,
cable systems are subject to state and local regulation, typically imposed
through the franchising process. Cable communications systems generally are
operated pursuant to nonexclusive franchises, permits or licenses granted by a
municipality or other state or local government entity. Franchises generally are
granted for fixed terms and in many cases are terminable if the franchisee fails
to comply with material provisions. The terms and conditions of franchises vary
materially from
<PAGE>13
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable service rates, franchise fees, franchise term, system
construction and maintenance obligations, system channel capacity, design and
technical performance, customer service standards, franchise renewal, sale or
transfer of the franchise, territory of the franchisee, indemnification of the
franchising authority, use and occupancy of public streets and types of cable
services provided. A number of states subject cable communications systems to
the jurisdiction of centralized state governmental agencies, some of which
impose regulation of a character similar to that of a public utility. Attempts
in other states to regulate cable communications systems are continuing and can
be expected to increase. To date, those states in which the Company operates
that have enacted such state level regulation are Connecticut, New Jersey and
Delaware. State and local franchising jurisdiction is not unlimited, however,
and must be exercised consistently with federal law. The 1992 Cable Act
immunizes franchising authorities from monetary damage awards arising from
regulation of cable systems or decisions made on franchise grants, renewals,
transfers and amendments.
The foregoing does not purport to 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 communications systems
operate. Neither the outcome of these proceedings nor their impact upon the
cable communications industry or the Company can be predicted at this time.
UK Regulation
The operation of a cable television/telephony system in the UK is regulated
under both the Broadcasting Act 1990 (the "Broadcasting Act") (which replaced
the Cable and Broadcasting Act 1984 (the "UK Cable Act")) and the
Telecommunications Act 1984 (the "Telecommunications Act"). The operator of a
cable/telephony franchise covering over 1,000 homes must hold two principal
licenses: (i) a license (a "cable television license") issued in the past under
the UK Cable Act or since 1990 under the Broadcasting Act, which allows the
operator to provide cable television services in the franchise area, and (ii) a
telecommunications license issued under the Telecommunications Act, which allows
the operator to operate and use the physical network necessary to provide cable
television and telecommunications services. The Independent Television
Commission ("ITC") is responsible for the licensing and regulation of cable
television. The Department of Trade and Industry ("DTI") is responsible for
issuing, and the Office of Telecommunications ("OFTEL") is responsible for
regulating the holders of, the telecommunications licenses. In addition, an
operator is required to hold a license under the Wireless Telegraphy Acts of
1949-67 for the use of microwave distribution systems.
The cable television licenses held by the relevant subsidiaries of the Operating
Companies were issued under the UK Cable Act for 15-year periods and are
scheduled to expire beginning in late 2004. The telecommunications licenses held
by these subsidiaries of the Operating Companies are, in general, for 23-year
periods and are scheduled to expire beginning in late 2012. The cable television
licenses held by the Teesside Franchises were issued under the UK Cable Act for
15-year periods and are scheduled to expire in late 2005. The telecommunications
licenses held by the Teesside Franchises are for 15-year periods which can be
extended to 23-year periods in certain circumstances.
Cellular Telephone Communications
General
The Company is engaged in the development, management and operation of cellular
telephone communications systems in various service areas pursuant to licenses
granted by the FCC. Each service area is divided into segments referred to as
"cells" equipped with a receiver, signaling equipment and a low power
transmitter. The use of low power transmitters and the placement of cells close
to one another permits re-use of frequencies, thus substantially increasing the
volume of calls capable of being handled simultaneously over the number handled
by conventional mobile telephone systems. Each cell has a coverage area
generally ranging from two to more than 25 miles. A cellular telephone system
includes a computerized central switching facility known as the mobile telephone
switching office ("MTSO") which controls the automatic transfer of calls,
coordinates calls to and from cellular telephones and connects calls to the
local exchange carrier or to an interexchange carrier. The MTSO also records
information on system usage and subscriber statistics.
<PAGE>14
Each cell's facilities monitor the strength of the signal returned from the
subscriber's cellular telephone. When the signal strength declines to a
predetermined level and the transmission strength is greater at another cell in
or interconnected with the system, the MTSO automatically and instantaneously
passes the mobile user's call in progress to the other cell without
disconnecting the call ("hand off"). Interconnection agreements between cellular
telephone system operators and various local exchange carriers and interexchange
carriers establish the manner in which the cellular telephone system integrates
with other telecommunications systems.
As required by the FCC, all cellular telephones are designed for compatibility
with cellular systems in all markets within the United States so that a cellular
telephone may be used wherever cellular service is available. Each cellular
telephone system in the United States uses one of two groups of channels, termed
"Block A" and "Block B," which the FCC has allotted for cellular service. Minor
adjustments to cellular telephones may be required to enable the subscriber to
change from a cellular system on one frequency block to a cellular system on the
other frequency block.
While most MTSOs process information digitally, most radio transmission of
cellular telephone calls is done on an analog basis. Digital transmission of
cellular telephone calls offers advantages, including improved voice quality
under certain conditions, larger system capacity and the potential for lower
incremental costs for additional subscribers. The FCC allows carriers to provide
digital service and requires cellular carriers to provide analog service. The
conversion from analog to digital radio technology is expected to take a number
of years.
The Company provides services to its cellular telephone subscribers similar to
those provided by conventional landline telephone systems, including custom
calling features such as call forwarding, call waiting, conference calling,
directory assistance and voice mail. The Company is responsible for the quality,
pricing and packaging of cellular telephone service for each of the systems it
owns and controls.
Reciprocal agreements among cellular telephone system operators allow their
respective subscribers ("roamers") to place and receive calls in most service
areas throughout the country. Roamers are charged rates which are generally at a
premium to the regular service rate. In recent years, cellular carriers have
experienced increased fraud associated with roamer service, including Electronic
Serial Number ("ESN") cloning. The Company and other carriers have taken steps
to combat roamer fraud, but it is uncertain to what extent roamer fraud will
continue.
Allegations of harmful effects from the use of hand-held cellular phones have
caused the cellular industry to fund additional research to review and update
previous studies concerning the safety of the emissions of electromagnetic
energy from cellular phones. In August 1993, the FCC adopted a notice of
proposed rulemaking to consider the incorporation of the new standard for
radiofrequency exposure adopted by the American National Standards Institute in
association with the Institute of Electrical and Electronic Engineers, Inc. The
FCC is considering the application of the new standard to low power devices such
as hand-held mobile transceivers. In addition, the FCC is considering how the
new standard should apply to cellular transmitter sites.
<PAGE>15
Company's Systems
The table below sets forth summary information regarding the total population
("Pops") in the markets served by the Company's systems by Metropolitan
Statistical Area ("MSAs") and Rural Service Area ("RSAs") and aggregate
subscriber information as of December 31, 1994.
<TABLE>
<CAPTION>
Approximate Approximate Approximate
Market Ownership Pops Net Pops
<S> <C> <C> <C>
MSAs:
Atlantic City, NJ 37% 336,000 124,000
Aurora-Elgin, IL 69% 43,000 30,000
Joliet, IL 70% 35,000 25,000
Long Branch, NJ 100% 583,000 583,000
New Brunswick, NJ 100% 698,000 698,000
Philadelphia, PA 100% 4,959,000 4,959,000
Trenton, NJ 79% 334,000 264,000
Wilmington, DE 100% 611,000 611,000
------- -------
7,599,000 7,294,000
--------- ---------
RSAs:
Hunterdon County, NJ (1) 100% 115,000 115,000
Kent & Sussex, DE 50% 243,000 122,000
------- -------
358,000 237,000
------- -------
7,957,000 7,531,000
========= =========
<FN>
(1) In June 1994, the Company entered into an Exchange Agreement with McCaw
Cellular Communications, Inc. to acquire the entity that holds the Ocean
County, NJ RSA cellular license (450,000 Pops) in exchange for the
Company's Hunterdon County, NJ RSA license and approximately $52.5 million
in cash. The transaction is expected to close in 1995.
</FN>
</TABLE>
At December 31, 1994, the Company's cellular telephone business had
approximately 465,000 net subscribers in the markets listed above.
- -----------
Source: 1995 Rand McNally Commercial Atlas & Marketing Guide
Competition
The cellular telephone business is currently a regulated duopoly. The FCC has
divided the United States into 734 separate markets and generally grants two
licenses to operate cellular telephone systems in each market. One of the two
licenses was initially awarded to a company or group affiliated with the local
landline telephone carriers in the market (the "Wireline" license), and the
other license was initially awarded to a company, individual, or group not
affiliated with any landline telephone carrier (the "Non-Wireline" license).
The Company's systems are all Non-Wireline systems and compete directly with the
Wireline licensee in each market in attracting and retaining cellular telephone
customers and dealers. Competition between the two licensees in each market is
principally on the basis of services and enhancements offered, technical quality
of the system, quality and responsiveness of customer service, price and
coverage area. The Wireline licensees in the Company's principal markets are
Bell Atlantic Mobile Systems, Inc., a subsidiary of Bell Atlantic Corp., and
NYNEX Mobile Communications Co., a subsidiary of NYNEX Corp. The Company's
principal Wireline competitors are significantly larger and may have access to
more substantial financial resources than the Company. Also, Bell Atlantic Corp.
and NYNEX Corp. have sought FCC approval to consolidate their cellular holdings
and to create a fully integrated wireless system with their landline systems.
The request for FCC approval is pending. FCC approval may increase competition
in the Company's markets.
<PAGE>16
The FCC requires cellular licensees to provide service to resellers of cellular
service which purchase cellular service from licensees, usually in the form of
blocks of numbers, then resell the service to the public. Thus, a reseller may
be both a customer and a competitor of a licensed cellular operator. The FCC is
currently considering a proposal to permit resellers to install separate
switching facilities in cellular systems and receive direct assignments of
telephone numbers from local exchange carriers.
Cellular telephone systems, including the Company's systems, also face actual or
potential competition from other current and developing technologies.
Specialized Mobile Radio ("SMR") systems, such as those used by taxicabs, as
well as other forms of mobile communications service, may provide competition in
certain markets. SMR systems are permitted by FCC rules to be interconnected to
the public switched telephone network and are significantly less expensive to
build and operate than cellular telephone systems. SMR systems are, however,
licensed to operate on substantially fewer channels per system than cellular
telephone systems and generally lack cellular's ability to expand capacity
through frequency reuse by using many low-power transmitters and to hand-off
calls. The Company holds an equity interest in and is represented on the Board
of Directors of Nextel Communications, Inc. ("Nextel"), which has begun to
implement its proposal to use its available SMR spectrum in various metropolitan
areas more efficiently to increase capacity and to provide a broad range of
mobile radio communications services. This proposal, known as ESMR service,
could provide additional competition to existing cellular carriers, including
the Company. In 1994, the FCC decided to license SMR systems in the 800 MHz
bands for wide-area use, thus increasing potential competition with cellular.
The FCC is currently considering consolidation of the SMR spectrum into
contiguous blocks, which action would further the competitive potential of SMR
services.
One-way paging or beeper services that feature voice message, data services and
tones are also available in the Company's markets. These services may provide
adequate capacity and sufficient mobile capabilities for some potential cellular
subscribers.
Certain new technologies and regulatory proposals potentially could affect the
competitive position of cellular. The most prominent is PCS, which includes a
variety of digital, wireless communications systems currently primarily suited
for use in densely populated areas. At the power levels that the FCC's rules now
provide, each cell of a PCS system would have more limited coverage than a cell
in a cellular telephone system. Current proposals for PCS include advanced
cordless telephones, or CT-2, mobile data networks, and personal communications
networks that might provide services similar to those provided by cellular at
costs lower than those currently charged by cellular system operators. The FCC
has allocated spectrum and adopted rules for both narrow and broadband PCS
services. In 1994, the FCC completed a spectrum auction for nationwide
narrowband PCS licenses, undertook the first regional narrowband PCS auction,
and began the first auction of broadband PCS spectrum (see "General Developments
of Business - Telecommunications Joint Venture"). Broadband PCS service likely
will become a direct competitor to cellular service.
Applicants have received and others are seeking FCC authorization to construct
and operate global satellite networks to provide domestic and international
mobile communications services from geostationary and low earth orbit
satellites. In addition, the Omnibus Budget Reconciliation Act of 1993 ("1993
Budget Act") provided, among other things, for the release of 200 MHz of Federal
government spectrum for commercial use over a fifteen year period. The 1993
Budget Act also authorized the FCC to conduct competitive bidding for certain
radio spectrum licenses and required the FCC to adopt new rules that eliminate
the regulatory distinctions between common and private carriers for those
private carriers who interconnect with the public switched telephone network and
make their services available to a substantial portion of the public for profit.
These developments and further technological advances may make available other
alternatives to cellular service thereby creating additional sources of
competition.
Regulation
FCC Regulation
The FCC regulates the licensing, construction, operation and acquisition of
cellular telephone systems pursuant to the Communications Act. For licensing
purposes, the FCC divided the United States into separate markets: 306 MSAs and
428 RSAs. In each market, the allocated cellular frequencies are divided into
two blocks: Block A, initially awarded for utilization by Non-Wireline entities
such as the Company, and Block B, initially awarded for utilization by
affiliates of local Wireline telephone companies. There is no technical or
operational difference between Wireline and Non-Wireline systems other than
different frequencies.
<PAGE>17
Under the Communications Act, no party may transfer control of or assign a
cellular license without first obtaining FCC consent. FCC rules (i) prohibit an
entity controlling one system in a market from holding any interest in the
competing system in the market and (ii) prohibit an entity from holding
non-controlling interests in more than one system in any market, if the common
ownership interests present anticompetitive concerns under FCC policies.
Cellular radio licenses generally expire on October 1 of the tenth year
following grant of the license in the particular market and are renewable for
periods of ten years upon application to the FCC. The Company's first license
expiration date is October 1, 1995, which includes the license for the
Philadelphia MSA. Licenses may be revoked for cause and license renewal
applications denied if the FCC determines that a renewal would not serve the
public interest. Current FCC rules provide that competing renewal applications
for cellular licenses will be considered in comparative hearings, and establish
the qualifications for competing applications and the standards to be applied in
such hearings. Under current policies, the FCC will grant incumbent cellular
licensees a "renewal expectancy" if the licensee has provided substantial
service to the public, substantially complied with applicable FCC rules and
policies and the Communications Act and is otherwise qualified to hold an FCC
license. The Company believes that it will receive such a "renewal expectancy"
for the Philadelphia MSA.
The FCC requires landline telephone companies in each market to offer reasonable
terms and facilities for the interconnection of both cellular telephone systems
in that market to the landline telephone company's network. Cellular telephone
companies affiliated with the local exchange company are required to disclose
how their systems will interconnect with the landline network. The licensee not
affiliated with the local exchange company has the right to interconnect with
the landline network in a manner no less favorable than that of the licensee
affiliated with the local exchange company; and it may, at its discretion,
request reasonable interconnection arrangements that are different than those
provided to the affiliated licensee in that market, and the landline telephone
company must negotiate such requests in good faith. The FCC reiterated its
position on interconnection issues in a declaratory ruling which clarified that
landline operators are expected to provide within a reasonable time the
agreed-upon form of interconnection.
The FCC regulates the ability of cellular operators to bundle the provision of
service with hardware, the resale of cellular service by third parties and the
coordination of frequency usage with other cellular licensees. The FCC also
regulates the height and power of base station transmitting facilities and
signal emissions in the cellular system. Cellular systems also are subject to
Federal Aviation Administration and FCC regulations concerning the siting,
construction, marking and lighting of cellular transmitter towers and antennae.
In addition, the FCC also regulates the employment practices of cellular
operators.
The Communications Act currently restricts foreign ownership or control over
commercial mobile radio licenses, which include cellular radio service licenses.
The FCC recently has proposed to consider the opportunities that other nations
provide to United States companies in their communications industries as a
factor in deciding whether to permit higher levels of indirect foreign ownership
in companies controlling common carrier and certain other radio licenses.
On February 3, 1994, the FCC adopted rules implementing the 1993 Budget Act and
creating the Commercial Mobile Radio Services ("CMRS") category. Under the new
rules, almost all current common carrier mobile radio services, including
cellular radio, and many current private mobile radio services will be subject
to similar regulatory burdens as CMRS. The FCC decided not to require tariffs
from cellular licensees or other CMRS providers.
The FCC has proposed new rules that would impose requirements that cellular
carriers provide equal access to all interexchange carriers. At present, only
cellular systems affiliated with AT&T or BOCs have to provide equal access. The
FCC also is proposing that all CMRS providers provide interconnection to all
other CMRS providers.
State Regulation and Local Approvals
Except for the State of Illinois, the states in which the Company presently
operates currently do not regulate cellular telephone service. In the 1993
Budget Act, Congress gave the FCC the authority to preempt states from
regulating rates or entry into CMRS, including cellular. In the CMRS order,
described above, the FCC preempted the states and established a procedure for
states to petition the FCC for authority to regulate rates and entry into CMRS.
The scope of the allowable level of state regulation under the CMRS order is
unclear.
<PAGE>18
EMPLOYEES
As of December 31, 1994, the Company had 6,700 employees, excluding employees in
managed operations. Of these employees, 5,600 were associated with cable
communications and 800 were associated with cellular telephone communications.
The Company believes that its relationships with its employees are good.
As of December 31, 1994, QVC had 4,700 employees. The Company believes that
QVC's relationships with its employees are good.
ITEM 2 PROPERTIES
The principal physical assets of a cable communications system consist of a
central receiving apparatus, distribution cables, converters and local business
offices. The Company owns or leases the receiving and distribution equipment of
each system and owns or leases parcels of real property for the receiving sites
and local business offices. The physical components of cable communications
systems require maintenance and require periodic upgrading and rebuilding to
keep pace with technological advances. It is anticipated that a significant
number of the Company's systems will be upgraded or rebuilt over the next
several years.
The principal physical assets of a cellular telephone system include cell sites
and central switching equipment. The Company primarily leases its sites used for
its transmission facilities and its administrative offices. The physical
components of a cellular telephone system require maintenance and upgrading to
keep pace with technological advances. It is anticipated that the Company's
systems will be upgraded or rebuilt to digital technology over the next several
years.
The Company's management believes that substantially all of its physical assets
are in good operating condition.
ITEM 3 LEGAL PROCEEDINGS
1. In May 1994, the Company filed an appeal with the U.S. Court of Appeals for
the District of Columbia Circuit challenging the legality of various FCC
rate regulation Orders. The Company has also intervened in similar pending
actions. The Company intends to continue to assess the impact of the FCC's
rate regulations and to develop additional strategies to minimize the
adverse impact of such regulations and the other provisions of the 1992
Cable Act on the Company's business.
2. In June 1994, eight state attorneys general each filed similar civil
actions in state courts challenging the processes used by the Company to
implement changes in rates for services on September 1, 1993. Each of these
actions contends that the Company used improper "negative option" billing
practices, notwithstanding the Company's belief that it had complied with
federal policy and that the FCC had exclusive jurisdiction over such issues
at that time. The Company sued in federal court to enjoin the actions of
the state attorney general that coordinated the state proceedings. While
the FCC has subsequently issued determinations supportive of the Company's
position, no assurance can be given that the Company will succeed in each
of these cases. If the Company is not successful in such efforts, the
Company may be instructed to adjust certain of its cable rates and may be
liable for additional damages in a manner that may have an adverse impact
on the Company's operations.
3. In June 1994, Bell Atlantic Corp. filed applications before the FCC seeking
authority to construct, and to amend a prior application to construct,
video dialtone facilities throughout substantial areas of their telephone
service area. The Company now provides cable television service in certain
areas encompassed by those applications. In July 1994, the Company opposed
grant of the applications on grounds they fail to comply with FCC rules. No
assurance can be given that the Company will succeed in this matter. Grant
of the applications as currently proposed and the construction and
operation of such video dialtone facilities may have an adverse impact on
the Company's operations in the affected areas.
4. The Company is involved in lawsuits and administrative proceedings
regarding the ownership, operation and the transfer of the license for the
cellular telephone system in the Atlantic City, New Jersey MSA ("Atlantic
City MSA"). Although the Company cannot predict the ultimate outcome of
these proceedings, management of the Company, based upon its investigation
to date, believes that it has meritorious defenses in these proceedings,
<PAGE>19
and that the amount of ultimate liability, if any, will not materially
affect the financial position of the Company. Such proceedings include: (i)
a hearing at the FCC to determine the conduct and the qualifications of the
current Atlantic City MSA licensee and the Company; (ii) litigation in
state court in Oregon to determine, among other matters, contractual rights
of the Atlantic City MSA licensee and various claims against the Company,
including claims seeking punitive damages; and (iii) litigation in the
United States District Court for the District of Columbia based primarily
upon claims against the Company for tortious interference with prospective
business advantage involving the Atlantic City MSA.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through a solicitation
of proxies or otherwise, during the fourth quarter of the year ended December
31, 1994.
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The current term of office of each of the officers expires at the first meeting
of the Board of Directors of the Company following the next Annual Meeting of
Shareholders, presently scheduled to be held in June 1995, or as soon thereafter
as each of their successors is duly elected and qualified.
The following table sets forth certain information concerning the principal
executive officers of the Company, including their ages, positions and tenure as
of February 22, 1995.
<TABLE>
<CAPTION>
Officer
Name Age Since Position with the Company
<S> <C> <C> <C>
Ralph J. Roberts 74 1969 Chairman of the Board of Directors;
Director
Julian A. Brodsky 61 1969 Vice Chairman of the Board of
Directors; Director
Brian L. Roberts 35 1986 President; Director
John R. Alchin 46 1990 Senior Vice President; Treasurer
Lawrence S. Smith 47 1988 Senior Vice President - Accounting
and Administration
Stanley L. Wang 54 1981 Senior Vice President; General
Counsel; Secretary
</TABLE>
Ralph J. Roberts has served as a Director and Chairman of the Board of Directors
of the Company for more than five years. Mr. Roberts has been the President and
a Director of Sural Corporation, a privately-held investment company ("Sural"),
the Company's largest shareholder, for more than five years. Mr. Roberts devotes
a major portion of his time to the business and affairs of the Company. The
shares of the Company owned by Sural constitute approximately 78% of the voting
power of the two classes of the Company's voting common stock combined. Mr.
Roberts has voting control of Sural. Mr. Roberts is also a Director of Comcast
UK Cable Partners Limited, Cablevision Investment of Detroit, Inc. and Storer
Communications, Inc.
Julian A. Brodsky has served as Vice Chairman of the Board of Directors for more
than five years. Mr. Brodsky presently serves as the Treasurer and a Director of
Sural. Mr. Brodsky devotes a major portion of his time to the business and
affairs of the Company. Mr. Brodsky is a Director of Comcast UK Cable Partners
Limited, Cablevision Investment of Detroit, Inc., Storer Communications, Inc.,
RBB Fund, Inc. and Nextel Communications, Inc.
Brian L. Roberts has served as President of the Company and as a Director for
more than five years. Mr. Roberts presently serves as Vice President and a
Director of Sural. Mr. Roberts devotes a major portion of his time to the
affairs of the Company. Mr. Roberts is also a Director of Turner Broadcasting
System, Inc., Comcast UK Cable Partners Limited, Cablevision Investment of
Detroit, Inc. and Storer Communications, Inc. He is a son of Ralph J. Roberts.
<PAGE>20
John R. Alchin has served as Treasurer and Senior Vice President of the Company
for more than five years. Mr. Alchin is a Director of Comcast UK Cable Partners
Limited.
Lawrence S. Smith has served as Senior Vice President of the Company for more
than five years. Mr. Smith is the Principal Accounting Officer of the Company.
Mr. Smith is a Director of Comcast UK Cable Partners Limited.
Stanley L. Wang has served as Senior Vice President, Secretary and General
Counsel of the Company for more than five years. Mr. Wang is a Director of
Cablevision Investment of Detroit, Inc. and Storer Communications, Inc.
<PAGE>21
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Class A Special Common Stock and Class A Common Stock of the Company are
traded in the over-the-counter market and are included on the Nasdaq National
Market ("Nasdaq") under the symbols CMCSK and CMCSA, respectively. There is no
established public trading market for the Class B Common Stock of the Company.
The Class B Common Stock is convertible, 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. Such price ranges have been adjusted for
the Company's three-for-two stock split effective February 2, 1994 and rounded
to the nearest one-eighth.
<TABLE>
<CAPTION>
Class A
Special Class A
High Low High Low
<S> <C> <C> <C> <C>
1994
First Quarter.................. $23 1/8 $17 5/8 $23 1/8 $18 1/8
Second Quarter................. 18 3/4 15 19 1/8 15 1/8
Third Quarter.................. 17 3/4 15 18 15 1/8
Fourth Quarter................. 17 5/8 14 5/8 17 3/4 14 1/4
1993
First Quarter.................. $15 1/8 $12 1/8 $16 5/8 $12 7/8
Second Quarter................. 14 5/8 10 5/8 15 3/4 11 7/8
Third Quarter.................. 20 1/8 14 1/8 21 5/8 15
Fourth Quarter................. 25 7/8 19 5/8 27 7/8 20 7/8
</TABLE>
The Company began paying quarterly cash dividends on its Class A Common Stock in
1977. Since 1978, the Company has paid equal dividends on shares of both the
Class A Common Stock and the Class B Common Stock. Since December 1986, when the
Class A Special Common Stock was issued, the Company has paid equal dividends on
shares of the Class A Special, Class A and Class B Common Stock. The Company
declared dividends of $.0933 for each of the years ended December 31, 1994 and
1993 on shares of Class A Special, Class A and Class B Common Stock (as adjusted
for the Company's three-for-two stock split effective February 2, 1994).
It is the intention of the Board of Directors to continue to pay regular
quarterly cash dividends on all classes of the Company's stock; however, the
declaration and payment of future dividends and their amount depend upon the
results of operations, financial condition and capital needs of the Company,
contractual restrictions of the Company and its subsidiaries and other factors.
As of February 1, 1995, there were 2,407 record holders of the Company's Class A
Special Common Stock and 1,854 record holders of the Company's Class A Common
Stock. Sural Corporation is the sole record holder of the Company's Class B
Common Stock.
<PAGE>22
ITEM 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1994 (1) 1993 (1) 1992 (1) 1991 1990
-------- -------- -------- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Service income........................ $1,375,304 $1,338,228 $900,345 $721,000 $650,941
Operating income...................... 239,794 264,896 165,106 144,951 109,949
Equity in net losses
of affiliates....................... (40,884) (28,872) (104,306) (83,366) (79,765)
Loss before extraordinary items
and cumulative effect of
accounting changes.................. (75,325) (98,871) (217,935) (155,572) (178,406)
Extraordinary items................... (11,703) (17,620) (52,297)
Cumulative effect of accounting
changes............................. (742,734)
Net loss.............................. (87,028) (859,225) (270,232) (155,572) (178,406)
Loss per share before extraordinary
items and cumulative effect of
accounting changes (2).............. (.32) (.46) (1.08) (.87) (1.05)
Extraordinary items per share (2)..... (.05) (.08) (.26)
Cumulative effect of accounting
changes per share (2)............... (3.47)
Net loss per share (2)................ (.37) (4.01) (1.34) (.87) (1.05)
Cash dividends
declared per share (2).............. .0933 .0933 .0933 .0933 .08
Balance Sheet Data:
At year end:
Total assets........................ 6,762,984 4,948,276 4,271,898 2,793,584 2,456,573
Working capital (deficit)........... (52,132) 176,569 36,886 381,183 64,474
Long-term debt...................... 4,810,541 4,154,830 3,973,514 2,452,912 2,248,164
Stockholders'
equity (deficiency)............... (726,789) (870,531) (181,641) 19,480 (21,689)
Supplementary Financial Data:
Operating income
before depreciation
and amortization (3)................ 576,256 606,396 397,153 309,250 271,167
Net cash provided by
operating activities (4)............ 368,994 345,892 252,297 176,228 97,599
<FN>
(1) 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 the above selected financial
data.
(2) As adjusted for the Company's three-for-two stock split effective February
2, 1994.
(3) "Operating income before depreciation and amortization" (commonly referred
to in the Company's businesses as "operating cash flow") is presented as a
measure of the 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
telecommunications industry and the significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing companies in the industry. 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.
(4) Represents net cash provided by operating activities as presented in the
Company's Consolidated Statement of Cash Flows.
</FN>
</TABLE>
<PAGE>23
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has experienced significant growth in recent years both through
strategic acquisitions and growth in its existing businesses. The Company has
historically met its cash needs for operations through its cash flows from
operating activities. Cash requirements for acquisitions and capital
expenditures have been provided through the Company's financing activities as
well as its existing cash and cash equivalents and short-term investments.
General Developments of Business
QVC
In February 1995, the Company and Tele-Communications, Inc. ("TCI") acquired all
of the outstanding stock of QVC, Inc. ("QVC") for $46, in cash, per share. The
total cost of acquiring the outstanding shares of QVC not previously owned by
the Company and TCI (approximately 65% of such shares on a fully diluted basis)
was approximately $1.4 billion. Following the acquisition, the Company and TCI
own, through their respective subsidiaries, 57.45% and 42.55%, respectively, of
QVC. The Company will account for the QVC acquisition under the purchase method
of accounting and QVC will be consolidated with the Company beginning in
February 1995.
The acquisition of QVC, including the exercise of certain warrants held by the
Company, was financed with cash contributions from the Company and TCI of $296.3
million and $6.6 million, respectively, borrowings of $1.1 billion under a $1.2
billion QVC credit facility and existing cash and cash equivalents held by QVC.
QVC is a nationwide general merchandise retailer, operating as one of the
leading televised shopping retailers in the United States. Through its
merchandise-focused television programs (the "QVC Service"), QVC sells a wide
variety of products directly to consumers. The QVC Service currently reaches
approximately 50 million cable television subscribers in the United States.
The day to day operations of QVC will, except in certain limited circumstances,
be managed by the Company. With certain exceptions, direct or indirect transfers
to unaffiliated third parties by the Company or TCI of any stock in QVC are
subject to certain restrictions and rights in favor of the other.
Maclean Hunter
On December 22, 1994, the Company, through Comcast MHCP Holdings, L.L.C. (the
"LLC"), acquired the U.S. cable television and alternate access operations of
Maclean Hunter Limited ("Maclean Hunter") from Rogers Communications Inc. and
all of the outstanding shares of Barden Communications, Inc. (collectively, such
acquisitions are referred to as the "Maclean Hunter Acquisition") for
approximately $1.2 billion (subject to certain adjustments) in cash. The Company
and the California Public Employees' Retirement System ("CalPERS") invested
approximately $305.0 million and $250.0 million, respectively, in the LLC, which
is owned 55% by a wholly-owned subsidiary of the Company and 45% by CalPERS, and
is managed by the Company. The Maclean Hunter Acquisition, including certain
transaction costs, was financed with cash contributions from the LLC of $555.0
million and borrowings of $715.0 million under an $850.0 million Maclean Hunter
credit facility. At any time after December 18, 2001, CalPERS may elect to
liquidate its interest in the LLC at a price based upon the fair value of
CalPERS' interest in the LLC, adjusted, under certain circumstances, for certain
performance criteria relating to the fair value of the LLC 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 the LLC. The Maclean Hunter Acquisition was accounted
for under the purchase method of accounting and Maclean Hunter is consolidated
with the Company as of December 31, 1994.
Telecommunications Joint Venture
On October 25, 1994, the Company announced a joint venture ("WirelessCo") with
Sprint Corporation ("Sprint"), TCI and Cox Cable Communications, Inc. ("Cox") to
provide wireless communications services. WirelessCo is owned 40% by Sprint, 30%
by TCI and 15% each by the Company and Cox. WirelessCo is participating in the
first of several Federal Communications Commission ("FCC") auctions of blocks of
spectrum for licenses to provide Personal Communications Services ("PCS"),
having filed an application to participate in 39 of 51 Major Trading Area
<PAGE>24
("MTA") markets nationwide. As of February 21, 1995, WirelessCo's aggregate bids
for 38 licenses covering a total population of 168 million were $1.975 billion.
There can be no assurances that WirelessCo will be successful in bidding for or
otherwise obtaining PCS licenses for these or other MTAs. The Company has
obtained letter of credit commitments sufficient to cover its 15% share of the
cost of PCS licenses for which WirelessCo is the successful bidder. The Company
may have material additional capital requirements relating to the buildout of
PCS systems if WirelessCo is successful in the PCS bidding process. WirelessCo
is accounted for under the equity method of accounting.
The parties have also signed a joint venture formation agreement which provides
the basis upon which they will develop definitive agreements for their local
wireline telecommunications activities. The parties anticipate that the wireline
joint venture will be owned in the same percentages as WirelessCo. The parties'
ability to provide such local services on a nationwide basis, and the timing
thereof, will depend upon, among other things, the removal or modification of
legal barriers to local telephone competition. The parties anticipate that
Teleport Communications Group ("TCG"), which is owned 20% by the Company and by
other cable television operators, including TCI and Cox, will be contributed to
the local telephone venture. TCG is an alternative provider of local telephone
services. The contribution of TCG to the venture is expected to be subject to
certain conditions, including obtaining necessary governmental and other
approvals.
Storer
Prior to December 2, 1992, the Company held a 50% ownership interest in SCI
Holdings, Inc. ("SCI"), the parent company of Storer Communications, Inc.
("Storer"). On December 2, 1992, the Company completed certain transactions
pursuant to which (i) the value of SCI was divided proportionately between its
two 50% shareholders (the "Split-off") and (ii) SCI refinanced its indebtedness
(the "Refinancing Plan"). In connection with the Split-off, SCI was merged into
Storer and the Company became the sole shareholder of Storer.
AWACS
On March 5, 1992, the Company acquired from Metromedia Company ("Metromedia") a
50.01% direct and a 49.99% indirect interest in AWACS, Inc. ("AWACS"), the
non-wireline cellular telephone system serving the Philadelphia Metropolitan
Statistical Area, which includes eight counties in Pennsylvania and New Jersey
and contained a population of approximately 4.9 million people at that date.
Concurrently, the Company also acquired from Metromedia the outstanding
interests not owned by the Company in two New Jersey cellular telephone systems
which served a total population of approximately 1.3 million people at that
date.
-------------------------
Liquidity and Capital Resources
The Company has traditionally maintained significant levels of cash and cash
equivalents and short-term investments to meet its short-term needs. Cash and
cash equivalents and short-term investments as of December 31, 1994 and 1993
were $465.5 million and $679.8 million, respectively.
The Company's cash and cash equivalents and short-term investments are recorded
at cost which approximates their fair value. At December 31, 1994, the Company's
short-term investments of $130.1 million had a weighted average maturity of
approximately 16 months. However, due to the high degree of liquidity and the
intent of management to use these investments as needed to fund its commitments,
the Company considers these as current assets.
It is anticipated that during 1995 the domestic operations of the Company will
incur approximately $500 million of capital expenditures, including $250 million
for the upgrading and rebuilding of certain of the Company's cable
communications systems and $200 million for the upgrading of the Company's
cellular communications systems. The amount of such capital expenditures for
years subsequent to 1995 will depend on numerous factors, many of which are
beyond the Company's control. These factors include whether competition in a
particular market necessitates a system upgrade, whether a particular system has
sufficient capacity to handle new product offerings including the offering of
cable telephony and telecommunications services, whether and to what extent the
Company will be able to recover its investment under FCC rate guidelines and
whether the Company acquires additional systems in need of upgrading or
rebuilding. The Company, however, anticipates capital expenditures for years
subsequent to 1995 will continue to be significant.
<PAGE>25
The Company has historically utilized a strategy of financing its acquisitions
through senior debt at the acquired operating subsidiary level. Additional
financing has also been obtained by the Company through the issuance of
subordinated debt at the intermediate holding company and parent company levels.
At December 31, 1994 and 1993, the Company's long-term debt was $4.811 billion
and $4.155 billion, respectively. Maturities of long-term debt for the five
years commencing in 1995 are $182.9 million, $309.5 million, $388.1 million,
$802.4 million and $518.8 million. As of December 31, 1994, certain subsidiaries
of the Company had unused lines of credit of $553.0 million. The Company used
$100.0 million of such available funds through February 21, 1995, principally to
fund the acquisition of QVC.
On September 27, 1994, Comcast UK Cable Partners Limited ("Comcast UK Cable"), a
subsidiary of the Company, consummated an initial public offering (the "IPO") of
15 million of its Class A Common Shares for net proceeds of $209.4 million.
Comcast UK Cable converted $109.4 million of these proceeds to its functional
currency and the remaining $100.0 million was protected from currency risk
through the purchase of foreign exchange forward contracts. The net proceeds
from the IPO will be utilized by Comcast UK Cable for future advances and
capital contributions to its equity investees and subsidiary primarily relating
to the buildout of their telecommunications networks in the United Kingdom.
On January 26, 1995, the Company exchanged its interest in Heritage
Communications, Inc. with TCI for Class A common shares of TCI with a fair
market value of approximately $290 million. Shortly thereafter, the Company sold
certain of these shares for total proceeds of approximately $188 million. As a
result of these transactions, the Company will recognize a pre-tax gain of $141
million in the first quarter of 1995.
In June 1994, the Company entered into an Exchange Agreement with McCaw Cellular
Communications, Inc. to acquire the entity that holds the Ocean County, NJ RSA
cellular license (450,000 Pops) in exchange for the Company's Hunterdon County,
NJ RSA license and approximately $52.5 million in cash. The transaction is
expected to close in 1995.
The Company expects to continue to recognize significant losses and to continue
to pay dividends; therefore, it anticipates that it will continue to have a
deficiency in stockholders' equity that will increase for the foreseeable
future. The telecommunications industry, including cable and cellular
communications, is experiencing increasing competition and rapid technological
changes. The Company's future results of operations will be affected by its
ability to react to changes in the competitive environment and by its ability to
implement new technologies. However, management believes that competition,
technological changes and its deficiency in stockholders' equity will not
significantly affect its ability to obtain financing.
The Company has entered into certain foreign exchange forward contracts and
interest rate swap and cap agreements as a normal part of its risk and interest
rate management efforts.
Foreign exchange forward contracts, which mature at various times through 1996,
are used by Comcast UK Cable to hedge against the risk that monetary assets held
or denominated in currencies other than its functional currency are devalued as
a result of changes in exchange rates. The amount of these contracts was $100.0
million as of December 31, 1994. Foreign exchange contracts provide an effective
hedge against such monetary assets held since gains and losses realized on the
contracts are offset against gains or losses realized on the underlying hedged
assets.
The Company has entered into interest rate swap and cap agreements to limit the
Company's exposure to loss from adverse fluctuations in interest rates. At
December 31, 1994 and 1993, $415.0 million and $635.0 million, respectively, of
the Company's variable rate debt was protected by these products. Such
agreements mature on various dates in 1995 and the related differentials to be
paid or received are recognized over the terms of the agreements. The estimated
fair value of such instruments, based on discounted future cash flows of the
differentials, was not significant to the Company as of December 31, 1994 and
1993.
During 1994, the Company entered into other interest rate swap agreements to
manage its overall interest expense. At December 31, 1994, the Company had
swapped $400.0 million notional amount of fixed rate debt for variable rate
products (effective rates of 4.13% through 6.93% at December 31, 1994) which
mature between 2000 and 2004. Since these products are designated as matched
with certain of the Company's fixed rate debt, the differentials paid or
received are recognized as a component of interest expense over the terms of the
related agreements. Certain of these agreements have extensions, at the option
of the counterparty, or indexed amortization provisions which may extend the
lives of the agreements from three to five years. The estimated liability to
settle these instruments was
<PAGE>26
$39 million as of December 31, 1994. The estimated liability to settle the
extension and indexed amortization features for certain of these instruments is
not significant to the Company.
The credit risks associated with the Company's derivative financial instruments
are controlled through the evaluation and continual 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.
The Company's long-term debt had a carrying amount of $4.993 billion and an
estimated fair value of $4.768 billion as of December 31, 1994. The difference
between the carrying value and estimated fair value of the Company's long-term
debt was not significant as of December 31, 1993. The Company's weighted average
interest rate was approximately 7.75%, 8.45% and 9% for the years ended December
31, 1994, 1993 and 1992, respectively. The Company continually evaluates its
debt structure with the intention of reducing its debt service requirements when
desirable.
The Company believes that it will be able to meet its current and long-term
liquidity and capital requirements, including its fixed charges, through its
cash flows from operating activities, existing cash and cash equivalents,
short-term investments, lines of credit and other external financing.
Statement of Cash Flows
Cash and cash equivalents increased $174.9 million at December 31, 1994 from
December 31, 1993 and decreased $53.0 million at December 31, 1993 from December
31, 1992. Changes in cash and cash equivalents resulted from cash flows from
operating, financing and investing activities which are explained below.
Net cash provided by operating activities amounted to $369.0 million, $345.9
million and $252.3 million for the years ended December 31, 1994, 1993 and 1992,
respectively. The increase of $23.1 million in net cash provided by operating
activities from 1993 to 1994 was principally due to a decrease in the Company's
net cash interest expense primarily from the effects of lower levels of debt
outstanding and a lower average cost of debt and changes in working capital as a
result of the timing of receipts and disbursements. The $93.6 million increase
in net cash provided by operating activities from 1992 to 1993 includes $99.1
million from the Split-off.
Net cash provided by financing activities, which includes the issuances of
securities as well as borrowings, was $1.115 billion, $437.2 million and $1.730
billion for the years ended December 31, 1994, 1993 and 1992, respectively.
Proceeds of borrowings of $1.201 billion in 1994 included $1.015 billion
relating to the Maclean Hunter Acquisition. During 1994, the Company repurchased
or redeemed and retired $509.0 million of its long-term debt including the
Company's $150.0 million, 11-7/8% Senior subordinated debentures due 2004.
Additionally, net cash provided by financing activities excludes the conversion
of $186.2 million of long-term debt into 16.8 million shares of Class A Special
Common Stock of the Company. In 1994, the Company received an equity
contribution to a subsidiary of $250.0 million in connection with the Maclean
Hunter Acquisition and received proceeds from the issuance of common stock of
Comcast UK Cable of $209.4 million. During 1993, proceeds from borrowings of
$954.0 million included $200 million principal amount of 9-1/2% Senior
subordinated debentures due 2008, $250 million principal amount of 3-3/8% /
5-1/2% Step-up convertible subordinated debentures due 2005 and net proceeds of
$300 million from the issuance of $541.9 million principal amount of its 1-1/8%
Discount convertible subordinated debentures due 2007. During 1993, the Company
retired $493.0 million of long-term debt. Additionally, net cash provided by
financing activities excludes the conversion of $185.4 million of long-term debt
into 17.3 million shares of Class A Special Common Stock of the Company. During
1992, the Company sold 6.0 million shares of its Class A Special Common Stock
resulting in net proceeds of $101.3 million, issued $300.0 million principal
amount of 10-5/8% Senior subordinated debentures due 2012 and obtained $1.720
billion in borrowings relating to the AWACS acquisition and the Split-off. The
Company repaid $386.1 million of its long-term debt in 1992.
Net cash used in investing activities was $1.309 billion, $836.1 million and
$1.894 billion for the years ended December 31, 1994, 1993 and 1992,
respectively. Acquisitions in 1994 consisted principally of $1.2 billion paid,
including certain transaction costs, in connection with the Maclean Hunter
Acquisition. Net proceeds of $389.3 million from the sale of short-term
investments during 1994 were used principally to redeem and retire long-term
debt. In addition, during 1994, the Company made capital expenditures of $269.9
million and made additional cash investments in affiliates of $125.0 million.
During 1993, the Company purchased $384.9 million of short-term investments,
made $158.4 million of capital expenditures and made long-term investments of
$272.5 million. Investments in 1993 included the purchase of an interest in and
loans made to TCG of $77.8 million, the purchase
<PAGE>27
of additional interests in Nextel Communications, Inc. ("Nextel") totalling
$118.2 million and the purchase of additional shares of QVC totalling $32.1
million. Cash flows used in investing activities in 1992 included the AWACS
acquisition of $567 million and the Split-off of $1.4 billion.
Results of Operations
The effects of the QVC and Maclean Hunter acquisitions will be, and the effects
of the Split-off, AWACS acquisition and other acquisitions made in prior years
have been, to increase significantly the Company's service income and expenses
resulting in substantial increases in its operating income before depreciation
and amortization, depreciation and amortization expense and net interest
expense. The Split-off has the effect of reducing the Company's net losses for
years after 1992 primarily because Storer's interest expense and preferred stock
dividend requirements were reduced as a result of the Refinancing Plan. However,
it is expected that because of the depreciation and amortization and interest
expense associated with these acquisitions and their financing, the Company will
continue to realize substantial losses for the foreseeable future.
For the years ended December 31, 1994, 1993 and 1992, the Company realized
operating income before depreciation and amortization (commonly referred to in
the Company's businesses as "operating cash flow") of $576.3 million, $606.4
million and $397.2 million, respectively, representing a decrease of $30.1
million or 5% from 1993 to 1994 and an increase of $209.2 million or 53% from
1992 to 1993. These changes are a result of the items discussed below. 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 cable and cellular businesses. 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. See "Statement of Cash Flows" above for a
discussion of net cash provided by operating activities.
The Company realized service income of $1.375 billion, $1.338 billion and $900.3
million for the years ended December 31, 1994, 1993 and 1992, respectively,
representing increases of $37.1 million or 3% from 1993 to 1994 and $437.9
million or 49% from 1992 to 1993. For the years ended December 31, 1994, 1993
and 1992, approximately 77%, 82% and 81%, respectively, of the Company's service
income related to its cable division and 21%, 15% and 16%, respectively, related
to its cellular division.
Operating, selling, general and administrative expenses were $799.0 million,
$731.8 million and $503.2 million for the years ended December 31, 1994, 1993
and 1992, respectively, representing increases of $67.2 million or 9% from 1993
to 1994 and $228.6 million or 45% from 1992 to 1993. For the years ended
December 31, 1994, 1993 and 1992, approximately 69%, 74% and 73%, respectively,
of the Company's operating, selling, general and administrative expenses related
to its cable division and 21%, 15% and 16%, respectively, related to its
cellular division.
Depreciation and amortization expense was $336.5 million, $341.5 million and
$232.0 million for the years ended December 31, 1994, 1993 and 1992,
respectively, representing a decrease of $5.0 million or 1% from 1993 to 1994
and an increase of $109.5 million or 47% in 1993 from 1992. The decrease from
1993 to 1994 is due to certain of the Company's assets becoming fully
depreciated in 1993, partially offset by the effects of capital expenditures.
The increase in 1993 from 1992 is primarily due to the effects of the Split-off
and the effects of capital expenditures.
Interest expense to third parties was $313.5 million, $347.4 million and $231.3
million for the years ended December 31, 1994, 1993 and 1992, respectively,
representing a decrease of $33.9 million or 10% from 1993 to 1994 and an
increase of $116.1 million or 50% from 1992 to 1993. The decrease from 1993 to
1994 is due to the effects of lower levels of debt outstanding and a lower
average cost of debt. The increase in 1993 was due to a higher level of debt
outstanding primarily associated with the Split-off and the AWACS acquisition.
At December 31, 1994, the Company had approximately $3.070 billion or 61% of its
debt at variable rates.
For the years ended December 31, 1994, 1993 and 1992, the Company's earnings
before cumulative effect of accounting changes, extraordinary items, income
taxes (benefit), equity in net losses of affiliates and fixed charges (interest
expense and interest expense and preferred stock dividend requirement of a
subsidiary to an affiliate) were $269.8 million, $292.7 million and $212.7
million, respectively. These earnings were not adequate to cover the Company's
fixed charges of $313.5 million, $347.4 million and $312.3 million for the years
ended December 31,
<PAGE>28
1994, 1993 and 1992, respectively. These fixed charges include non-cash interest
and non-cash dividends (1992 only) of $53.5 million, $62.3 million and $98.0
million for the years ended December 31, 1994, 1993 and 1992, respectively. The
inadequacy of these earnings to cover fixed charges is primarily due to the
substantial non-cash charges for depreciation and amortization expense of $336.5
million, $341.5 million and $232.0 million for the years ended December 31,
1994, 1993 and 1992, respectively.
The Company believes that its losses and inadequacy of earnings to cover fixed
charges will not significantly affect the performance of its normal business
activities because of its existing cash and cash equivalents, short-term
investments, its ability to generate operating income before depreciation and
amortization and its ability to obtain external financing.
The Company recognized income taxes (benefit) of ($9.2) million, $15.2 million
and $14.0 million for the years ended December 31, 1994, 1993 and 1992,
respectively. Effective January 1, 1993, the Company changed its method of
accounting for income taxes to Statement of Financial Accounting Standards
("SFAS") No. 109 from Accounting Principles Board Opinion No. 11 (see Note 6 to
the Company's consolidated financial statements). The tax provision for 1993
includes an increase in income tax expense of approximately $21 million relating
to the federal income tax rate change from 34% to 35%.
The Company anticipates that, for the foreseeable future, interest expense will
be a significant cost to the Company and will have a significant adverse effect
on the Company's ability to realize net earnings. The Company believes it will
continue to be able to meet its obligations through its ability both to generate
operating income before depreciation and amortization and to obtain external
financing.
The Company recognized losses before extraordinary items and cumulative effect
of accounting changes of $75.3 million, $98.9 million and $217.9 million for the
years ended December 31, 1994, 1993 and 1992, respectively. These results of
operations include equity in net losses of affiliates of $40.9 million, $28.9
million and $104.3 million, respectively, for those years. The Company's 1992
equity in net loss includes $27.5 million as its portion of Storer's redemption
premium on preferred stock redeemed in connection with the Refinancing Plan.
The Company paid premiums and expensed unamortized debt acquisition costs
totalling $18.0 million during 1994, primarily as a result of the redemption of
its $150.0 million, 11-7/8% Senior subordinated debentures due 2004, resulting
in the Company recording an extraordinary loss, net of tax, of $11.7 million or
$.05 per share. The Company paid similar premiums of $27.1 million during 1993
in connection with the redemption of certain of its debt resulting in the
Company recording an extraordinary loss, net of tax, of $17.6 million or $.08
per share. On January 1, 1993, the Company recorded a one time non-cash charge
resulting from the adoption of SFAS No. 109, SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," totalling $742.7 million or
$3.47 per share, net of tax. In 1992, the Company recorded an extraordinary loss
of $52.3 million or $.26 per share as its portion of Storer's loss from its
early extinguishment of debt.
The Company believes that its operations are not materially affected by
inflation.
Cable Communications
The Company's cable division realized service income of $1.065 billion, $1.093
billion and $725.7 million for the years ended December 31, 1994, 1993 and 1992,
respectively, representing a decrease of $27.4 million or 3% from 1993 to 1994
and an increase of $367.1 million or 51% from 1992 to 1993. The cable division's
reduction in service income from 1993 to 1994 includes the estimated effects on
regulated rates as a result of cable rate regulation of $82.0 million in 1994
offset, in part, by the effects of subscriber growth and new product offerings
of $54.6 million. The increase in the cable division's service income from 1992
to 1993 includes $326.2 million resulting from the Split-off. The remaining
increase of $40.9 million is attributable to the net effects of increased rates
of $15.9 million and additional subscribers and new product offerings of $25.0
million.
Operating, selling, general and administrative expenses for the Company's cable
division were $547.8 million, $540.8 million and $369.4 million for the years
ended December 31, 1994, 1993 and 1992, respectively, representing increases of
$7.0 million or 1% from 1993 to 1994 and $171.4 million or 46% from 1992 to
1993. The Split-off accounted for $157.9 million or 92% of the increase from
1992 to 1993. The increase from 1993 to 1994 and the remaining increase from
1992 to 1993 is attributable to increases in the costs of labor, billing and
cable programming as a result of subscriber growth, partially offset by a
reduction of franchise fee expense. Franchise fees were reported
<PAGE>29
by the Company as a component of operating expenses prior to the implementation
of the Cable Television Consumer Protection and Competition Act of 1992 ("1992
Cable Act"). Effective September 1, 1993, the Company commenced charging
subscribers directly for such fees as permitted under the 1992 Cable Act and
recording amounts charged as an offset to operating expenses resulting in a
decrease in franchise fee expense of $15.9 million and $6.5 million from 1993 to
1994 and from 1992 to 1993, respectively. It is anticipated that the Company's
cost of cable programming will increase in the future as cable programming rates
increase and additional sources of cable programming become available.
Cellular Communications
The Company's cellular division realized service income of $286.1 million,
$202.0 million and $142.9 million for the years ended December 31, 1994, 1993
and 1992, respectively, representing increases of $84.1 million or 42% from 1993
to 1994 and $59.1 million or 41% from 1992 to 1993. The increase from 1992 to
1993 includes $13.7 million due to increased service income from AWACS. The
increase from 1993 to 1994 and the remaining increase from 1992 to 1993 is
attributable to subscriber growth partially offset by the effects of a decrease
in the average minutes-of-use per cellular subscriber in both years. The Company
expects the decrease in average minutes-of-use per cellular subscriber to
continue in the future.
Operating, selling, general and administrative expenses for the Company's
cellular division were $169.8 million, $109.9 million and $80.8 million for the
years ended December 31, 1994, 1993 and 1992, respectively, representing
increases of $59.9 million or 55% from 1993 to 1994 and $29.1 million or 36%
from 1992 to 1993. These increases are primarily due to increases in marketing
and commissions as a result of subscriber growth.
Cable Rate Regulation Developments
On March 30, 1994, the FCC: (i) modified its existing benchmark methodology to
require, absent a successful cost-of-service showing, reductions of
approximately 17% in the rates for regulated cable services in effect on
September 30, 1992, adjusted for inflation, channel modifications, equipment
costs and increases in certain operating costs. The modified benchmarks and
regulations are generally designed to cause an additional 7% reduction in the
rates for regulated cable services on top of the rate reductions implemented by
the Company in September 1993 under the prior FCC benchmarks and regulations;
(ii) adopted interim regulations to govern cost-of-service showings by cable
operators, establishing an industry-wide 11.25% after tax rate of return and a
rebuttable presumption that acquisition costs above original historic book value
of tangible assets should be excluded from the rate base; and (iii)
reconsidered, among other matters, its regulations concerning rates for the
addition of regulated services and the treatment of packages of "a la carte"
channels.
In July 1994, the Company reduced rates for regulated services in the majority
of its cable systems to comply with the modified benchmarks and regulations. In
addition, the Company is currently seeking to justify existing rates in certain
other of its cable systems on the basis of cost-of-service showings; however,
the interim cost-of-service regulations promulgated by the FCC do not support
positions taken by the Company in its cost-of-service filings to date. The
Company's reported cable service income reflects the estimated effects of cable
regulation. The Company is seeking reconsideration by the FCC of the interim
cost-of-service regulations and, if unsuccessful in justifying existing rates
under cost-of-service regulations, intends to seek judicial relief. However, no
assurance can be given that the Company will be able to offset, to any
substantial degree, the adverse impact of rate reductions in compliance with the
modified benchmarks and regulations or that it will be successful in
cost-of-service proceedings. If the Company is not successful in such efforts,
and there is no legislative, administrative or judicial relief in these matters,
the FCC regulations will continue to adversely affect the Company's results of
operations.
On November 10, 1994, the FCC announced modified "Going Forward" rules which,
among other things, permit cable operators to charge an additional $0.20 per
month per channel for channels added to the cable programming services tier, up
to a maximum of six channels, and to recover an additional $0.30 in monthly fees
paid to programmers for such channels. The ruling applies to channels added
between May 15, 1994 and December 31, 1996 and became effective January 1, 1995.
The FCC concurrently announced regulations permitting cable operators to create
new product tiers which would generally not be subject to rate regulation. The
Company is currently reviewing the ruling and is unable to predict the effect on
its future results of operations.
<PAGE>30
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, 1994 and 1993, 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,
1994. Our audits also included the financial statement schedule listed in the
Index at Item 14(b)(i). These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits. We did not audit the consolidated
financial statements of Storer Communications, Inc. ("Storer") as of and for the
year ended December 31, 1992, the consolidated financial statements of Comcast
International Holdings, Inc. ("International") as of and for each of the two
years in the period ended December 31, 1994 and the financial statements of
Garden State Cablevision L.P. ("Garden State") as of December 31, 1994 and 1993
and for each of the three years in the period ended December 31, 1994.
International is consolidated with the Company. The Company's investments in
Storer and Garden State have been accounted for under the equity method, except
that subsequent to December 2, 1992, Storer was consolidated with the Company.
The Company's combined equity in the net assets of International and Garden
State of $111.1 million and $43.8 million at December 31, 1994 and 1993,
respectively, and the Company's combined equity in the net losses of Storer
(through December 31, 1992), International (for the years ended December 31,
1994 and 1993) and Garden State for the years ended December 31, 1994, 1993 and
1992, of $38.7 million, $32.8 million and $145.1 million, respectively, are
included in the Company's consolidated financial statements. The financial
statements of Storer, International and Garden State were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included in the Company's consolidated financial
statements for Storer (through December 31, 1992), International (as of and for
each of the two years in the period ended December 31, 1994) and Garden State,
is based solely upon the reports of the 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 reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports 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, 1994 and 1993, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles. Also, in our opinion, the financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in the notes to consolidated financial statements, the Company
changed its method of accounting for income taxes effective January 1, 1993 to
conform with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 21, 1995
<PAGE>31
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ $335,320 $160,434
Short-term investments, at cost which
approximates fair value.......................................... 130,134 519,386
Accounts receivable, less allowance for doubtful
accounts of $11,272 and $11,792 ................................. 108,245 72,182
Prepaid charges and other............................................ 34,807 18,491
------ ------
Total Current Assets......................................... 608,506 770,493
------- -------
INVESTMENTS, principally in affiliates................................... 797,075 665,208
------- -------
PROPERTY AND EQUIPMENT................................................... 2,081,256 1,722,578
Accumulated depreciation............................................. (823,570) (701,591)
-------- --------
Property and equipment, Net.......................................... 1,257,686 1,020,987
--------- ---------
DEFERRED CHARGES
Franchise and license acquisition costs.............................. 3,569,745 2,314,736
Excess of cost over net assets acquired and other.................... 1,375,868 879,882
--------- -------
4,945,613 3,194,618
Accumulated amortization............................................. (845,896) (703,030)
-------- --------
Deferred charges, Net................................................ 4,099,717 2,491,588
--------- ---------
$6,762,984 $4,948,276
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses................................ $402,869 $255,759
Accrued interest..................................................... 60,219 61,808
Subscribers' advance payments and other.............................. 14,637 12,484
Current portion of long-term debt.................................... 182,913 263,873
------- -------
Total Current Liabilities.................................... 660,638 593,924
------- -------
LONG-TERM DEBT, Less current portion..................................... 4,810,541 4,154,830
--------- ---------
DEFERRED INCOME TAXES.................................................... 1,390,849 929,916
--------- -------
MINORITY INTEREST AND OTHER.............................................. 627,745 140,137
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred Stock, no par value - authorized, 20,000,000
shares; issued, none.............................................
Class A Special Common Stock, $1 par value - authorized,
500,000,000 shares; issued, 191,230,684 and 173,952,952.......... 191,231 173,953
Class A Common Stock, $1 par value - authorized,
200,000,000 shares; issued, 39,019,809 and 38,946,754............ 39,020 38,947
Class B Common Stock, $1 par value - authorized,
50,000,000 shares; issued, 8,786,250 ............................ 8,786 8,786
Additional capital................................................... 875,501 647,242
Accumulated deficit..................................................(1,827,647) (1,717,931)
Unrealized gains on marketable securities............................ 3,862
Cumulative translation adjustments................................... (17,542) (21,528)
------- -------
Total Stockholders' Deficiency............................... (726,789) (870,531)
-------- --------
$6,762,984 $4,948,276
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>32
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
SERVICE INCOME................................................ $1,375,304 $1,338,228 $900,345
---------- ---------- --------
COSTS AND EXPENSES
Operating................................................. 409,841 407,846 275,510
Selling, general and administrative....................... 389,207 323,986 227,682
Depreciation and amortization............................. 336,462 341,500 232,047
------- ------- -------
1,135,510 1,073,332 735,239
--------- --------- -------
OPERATING INCOME.............................................. 239,794 264,896 165,106
INVESTMENT (INCOME) EXPENSE
Interest expense.......................................... 313,477 347,448 231,318
Investment income......................................... (24,606) (29,249) (49,309)
Interest expense and preferred stock dividend
requirement of a subsidiary to an affiliate........... 80,970
Equity in net losses of affiliates........................ 40,884 28,872 104,306
Other..................................................... (5,402) 1,467 1,756
------ ----- -----
324,353 348,538 369,041
------- ------- -------
LOSS BEFORE INCOME TAXES (BENEFIT), EXTRAORDINARY
ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES................................................... (84,559) (83,642) (203,935)
INCOME TAXES (BENEFIT)........................................ (9,234) 15,229 14,000
------ ------ ------
LOSS BEFORE EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES................... (75,325) (98,871) (217,935)
EXTRAORDINARY ITEMS .......................................... (11,703) (17,620) (52,297)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES....................... (742,734)
------ -------- -------
NET LOSS ($87,028) ($859,225) ($270,232)
======== ========= =========
LOSS PER SHARE
Loss before extraordinary items and cumulative effect
of accounting changes................................. ($.32) ($.46) ($1.08)
Extraordinary items....................................... (.05) (.08) (.26)
Cumulative effect of accounting changes................... (3.47)
------ ------ ------
Net Loss ............................................. ($.37) ($4.01) ($1.34)
===== ====== ======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING .............................................. 236,262 213,939 201,815
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>33
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. ($87,028) ($859,225) ($270,232)
Noncash items included in net loss:
Depreciation and amortization......................... 336,462 341,500 232,047
Interest expense...................................... 53,490 62,316 53,628
Preferred stock dividend requirement of a
subsidiary to an affiliate........................ 44,393
Equity in net losses of affiliates.................... 40,884 28,872 104,306
Gain on sale of division.............................. (5,825)
Extraordinary items................................... 11,703 17,620 52,297
Cumulative effect of accounting changes............... 742,734
Deferred income taxes and other....................... 4,271 456 2,400
----- --- -----
353,957 334,273 218,839
Increase in accounts receivable and
prepaid charges and other............................. (40,877) (16,062) (4,514)
(Decrease) increase in accrued interest.................... (1,589) 6,548 16,100
Increase in accounts payable and accrued expenses
and subscribers' advance payments and other........... 57,503 21,133 21,872
------ ------ ------
Net cash provided by operating activities......... 368,994 345,892 252,297
------- ------- -------
FINANCING ACTIVITIES
Proceeds from borrowings.................................. 1,201,084 953,952 2,586,360
Debt issued and assumed directly in connection
with acquisitions..................................... (574,690)
Retirement and repayment of debt.......................... (508,986) (493,047) (386,056)
Issuance of common stock, net............................. 2,893 6,652 107,399
Issuance of common stock of a subsidiary, net............. 209,394
Equity contribution to a subsidiary....................... 250,000
Dividends................................................. (22,688) (20,739) (19,164)
Other..................................................... (16,492) (9,620) 16,021
------- ------ ------
Net cash provided by financing activities......... 1,115,205 437,198 1,729,870
--------- ------- ---------
INVESTING ACTIVITIES
Acquisitions.............................................. 1,292,589 9,315 2,544,953
Noncash portions of acquisitions.......................... (574,690)
(Sales) purchases of short-term investments, net.......... (389,252) 384,948 (335,641)
Increase in investments, principally in affiliates........ 125,034 272,529 150,334
Additions to property and equipment....................... 269,943 158,396 109,435
Proceeds from sale of division............................ (28,183)
Other..................................................... 39,182 10,902
------ ------ ---------
Net cash used in investing activities............. 1,309,313 836,090 1,894,391
--------- ------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.......................................... 174,886 (53,000) 87,776
Cash and Cash Equivalents, Beginning of Year.............. 160,434 213,434 125,658
------- ------- -------
CASH AND CASH EQUIVALENTS, End of Year........................ $335,320 $160,434 $213,434
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>34
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
Cumulative
Unrealized Trans-
Common Stock Add- Accum- Gains on lation
Class A itional ulated Marketable Adjust-
Special Class A Class B Capital Deficit Securities ments Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 $81,153 $39,409 $8,213 $439,741 ($548,571) $ ($465) $19,480
Net loss (270,232) (270,232)
Issuance of Common Stock 6,075 95,679 101,754
Exercise of options 657 192 573 15,082 16,504
Retirement of Common Stock (39) (627) (10,193) (10,859)
Cash dividends, $.0933 per share (19,164) (19,164)
Cumulative translation
adjustments (19,124) (19,124)
-------- ------- ------ -------- ----------- ------ -------- ---------
BALANCE, DECEMBER 31, 1992 87,846 38,974 8,786 540,309 (837,967) (19,589) (181,641)
Net loss (859,225) (859,225)
Issuance of Common Stock 145 1,756 1,901
Conversion of convertible subordinated
debt to Common Stock 11,537 174,824 186,361
Exercise of options 624 131 10,878 11,633
Retirement of Common Stock (94) (158) (6,630) (6,882)
Cash dividends, $.0933 per share (20,739) (20,739)
Stock dividend, 50%, effective
February 2, 1994 73,895 (73,895)
Cumulative translation
adjustments (1,939) (1,939)
-------- ------- ------ -------- ----------- ------ -------- ---------
BALANCE, DECEMBER 31, 1993 173,953 38,947 8,786 647,242 (1,717,931) (21,528) (870,531)
Net loss (87,028) (87,028)
Issuance of Common Stock 265 2,205 2,470
Conversion of convertible
subordinated
debt to Common Stock 16,765 166,690 183,455
Exercise of options 527 81 6,000 6,608
Retirement of Common Stock (279) (8) (5,898) (6,185)
Cash dividends, $.0933 per share (22,688) (22,688)
Unrecognized gain on issuance of
common stock of a subsidiary 59,262 59,262
Unrealized gains on marketable
securities 3,862 3,862
Cumulative translation
adjustments 3,986 3,986
-------- ------- ------ -------- ----------- ------ -------- ---------
BALANCE, DECEMBER 31, 1994 $191,231 $39,020 $8,786 $875,501 ($1,827,647) $3,862 ($17,542) ($726,789)
======== ======= ====== ======== =========== ====== ======== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>35
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of Comcast
Corporation and all wholly owned, majority-owned and controlled
subsidiaries (the "Company"). The Company is engaged in the development,
management and operation of cable and cellular telephone communications
systems and the production and distribution of cable programming. All
significant intercompany accounts and transactions among the consolidated
entities have been eliminated.
Cash Equivalents and Short-term Investments
Cash equivalents consist principally of U.S. Government obligations,
commercial paper, repurchase agreements and certificates of deposit with a
maturity of three months or less when purchased. Short-term investments
consist principally of U.S. Government obligations, commercial paper,
repurchase agreements and certificates of deposit with a maturity greater
than three months when purchased. The carrying amounts of the Company's
cash equivalents and short-term investments, classified as trading
securities, approximates their fair values, which are based on quoted
market prices, at December 31, 1994 and 1993.
Investments, Principally in Affiliates
Investments are accounted for on the equity method based on the Company's
ability to exercise significant influence over the operating and financial
policies of the investee. Equity method investments are recorded at
original cost and adjusted periodically to recognize the Company's
proportionate share of the investees' income or losses after the date of
investment, and additional contributions made and dividends received.
Unrestricted publicly traded investments, classified as available for sale,
are recorded at their fair value as of December 31, 1994 and at cost as of
December 31, 1993. Restricted publicly traded investments and investments
in privately held companies are stated at cost adjusted for any known
diminution in value.
Investment Income
Investment income includes interest income and gains, net of losses, on the
sales of marketable securities. Gross realized gains and losses are
recognized using the specific identification method and are not significant
to the Company's results of operations.
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 15-40 years
Operating facilities 5-20 years
Other equipment 2-10 years
Deferred Charges
Franchise and license acquisition costs are being amortized on a
straight-line basis over their legal or estimated useful lives up to 40
years. The costs of acquired businesses in excess of amounts allocated to
specific assets, based on their fair market values, are being amortized
over their estimated useful lives of up to 40 years. The Company
periodically evaluates the recoverability of its deferred charges using
objective methodologies. Such methodologies may include evaluations based
on the cash flows generated by the underlying assets or other determinants
of fair value.
Loss per Share
For the years ended December 31, 1994, 1993 and 1992, the Company's common
stock equivalents have an antidilutive effect on the loss per share and
therefore, have not been used in determining the total weighted average
number of common shares outstanding. Fully diluted loss per share for 1994,
1993 and 1992 is antidilutive and, therefore, has not been presented.
<PAGE>36
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
Stock Split
On December 21, 1993, the Company's board of directors authorized a
three-for-two stock split in the form of a 50% stock dividend payable on
February 2, 1994 to shareholders of record on January 12, 1994. The
dividend was paid in Class A Special Common Stock to the holders of Class A
Common, Class A Special Common and Class B Common Stock. Average number of
shares outstanding and related prices, per share amounts, share conversion
and stock option data have been retroactively restated to reflect the stock
split. In addition, the December 31, 1993 Stockholders' Deficiency section
of the Balance Sheet has been adjusted to reflect the stock split.
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 management as of December 31, 1994 and 1993, and have not been
comprehensively revalued for purposes of these consolidated financial
statements since such dates. Current estimates of fair value may differ
significantly from the amounts presented herein.
New Accounting Pronouncements
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" (see Note 6), SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" (see Note 7) and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits" (see Note 8).
Effective January 1, 1994, the Company adopted the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
(see Note 3).
Reclassifications
Certain reclassifications have been made to the prior years consolidated
financial statements to conform to those classifications used in 1994.
2. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
QVC
In February 1995, the Company and Tele-Communications, Inc. ("TCI")
acquired all of the outstanding stock of QVC, Inc. ("QVC") for $46, in
cash, per share. The total cost of acquiring the outstanding shares of QVC
not previously owned by the Company and TCI (approximately 65% of such
shares on a fully diluted basis) was approximately $1.4 billion. Following
the acquisition, the Company and TCI own, through their respective
subsidiaries, 57.45% and 42.55%, respectively, of QVC. The Company will
account for the QVC acquisition under the purchase method of accounting and
QVC will be consolidated with the Company beginning in February 1995.
The acquisition of QVC, including the exercise of certain warrants held by
the Company, was financed with cash contributions from the Company and TCI
of $296.3 million and $6.6 million, respectively, borrowings of $1.1
billion under a $1.2 billion QVC credit facility and existing cash and cash
equivalents held by QVC.
QVC is a nationwide general merchandise retailer, operating as one of the
leading televised shopping retailers in the United States. Through its
merchandise-focused television programs (the "QVC Service"), QVC sells a
wide variety of products directly to consumers. The QVC Service currently
reaches approximately 50 million cable television subscribers in the United
States.
<PAGE>37
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
The day to day operations of QVC will, except in certain limited
circumstances, be managed by the Company. With certain exceptions, direct
or indirect transfers to unaffiliated third parties by the Company or TCI
of any stock in QVC are subject to certain restrictions and rights in favor
of the other.
Liberty Media Corporation ("Liberty"), a wholly-owned subsidiary of TCI,
may, at certain times following February 9, 2000, trigger the exercise of
certain exit rights. 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.
Maclean Hunter
On December 22, 1994, the Company, through Comcast MHCP Holdings, L.L.C.
(the "LLC"), acquired the U.S. cable television and alternate access
operations of Maclean Hunter Limited ("Maclean Hunter") from Rogers
Communications Inc. ("RCI") and all of the outstanding shares of Barden
Communications, Inc. ("BCI," and collectively, such acquisitions are
referred to as the "Maclean Hunter Acquisition") for approximately $1.2
billion (subject to certain adjustments) in cash. The Company and the
California Public Employees' Retirement System ("CalPERS") invested
approximately $305.0 million and $250.0 million, respectively, in the LLC,
which is owned 55% by a wholly-owned subsidiary of the Company and 45% by
CalPERS, and is managed by the Company. The Maclean Hunter Acquisition,
including certain transaction costs, was financed with cash contributions
from the LLC of $555.0 million and borrowings of $715.0 million under an
$850.0 million Maclean Hunter credit facility. At any time after December
18, 2001, CalPERS may elect to liquidate its interest in the LLC at a price
based upon the fair value of CalPERS' interest in the LLC, adjusted, under
certain circumstances, for certain performance criteria relating to the
fair value of the LLC 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 the LLC. The Maclean Hunter Acquisition was accounted for under
the purchase method of accounting and Maclean Hunter is consolidated with
the Company as of December 31, 1994.
The allocation of the purchase price to the assets and liabilities of
Maclean Hunter is preliminary pending, among other things, the final
purchase price adjustment between the Company and RCI. The terms of the
Maclean Hunter Acquisition provide for, among other things, the
indemnification of the Company by RCI for certain liabilities, including
tax liabilities, relating to Maclean Hunter prior to the acquisition date.
Telecommunications Joint Venture
On October 25, 1994, the Company announced a joint venture ("WirelessCo")
with Sprint Corporation ("Sprint"), TCI and Cox Cable Communications, Inc.
("Cox") to provide wireless communications services. WirelessCo is owned
40% by Sprint, 30% by TCI and 15% each by the Company and Cox. WirelessCo
is participating in the first of several Federal Communications Commission
("FCC") auctions of blocks of spectrum for licenses to provide Personal
Communications Services ("PCS"), having filed an application to participate
in 39 of 51 Major Trading Area ("MTA") markets nationwide. As of February
21, 1995, WirelessCo's aggregate bids for 38 licenses covering a total
population of 168 million were $1.975 billion. There can be no assurances
that WirelessCo will be successful in bidding for or otherwise obtaining
PCS licenses for these or other MTAs. The Company has obtained letter of
credit commitments sufficient to cover its 15% share of the cost of PCS
licenses for which WirelessCo is the successful bidder. The Company may
have material additional capital requirements
<PAGE>38
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
relating to the buildout of PCS systems if WirelessCo is successful in the
PCS bidding process. WirelessCo is accounted for under the equity method of
accounting.
The parties have also signed a joint venture formation agreement which
provides the basis upon which they will develop definitive agreements for
their local wireline telecommunications activities. The parties anticipate
that the wireline joint venture will be owned in the same percentages as
WirelessCo. The parties' ability to provide such local services on a
nationwide basis, and the timing thereof, will depend upon, among other
things, the removal or modification of legal barriers to local telephone
competition. The parties anticipate that Teleport Communications Group
("TCG"), which is owned 20% by the Company and by other cable television
operators, including TCI and Cox, will be contributed to the local
telephone venture. TCG is an alternative provider of local telephone
services. The contribution of TCG to the venture is expected to be subject
to certain conditions, including obtaining necessary governmental and other
approvals.
Storer
Prior to December 2, 1992, the Company held a 50% ownership interest in SCI
Holdings, Inc. ("SCI"), the parent company of Storer Communications, Inc.
("Storer"). On December 2, 1992, the Company completed certain transactions
pursuant to which (i) the value of SCI was divided proportionately between
its two 50% shareholders (the "Split-off") and (ii) SCI refinanced its
indebtedness (the "Refinancing Plan"). In connection with the Split-off,
SCI was merged into Storer and the Company became the sole shareholder of
Storer.
To effect the Split-off and Refinancing Plan, the Company and SCI's other
50% shareholder each made capital contributions to SCI of $1.1 billion. In
addition, the Company redeemed $275 million of its long-term debt held by
Storer (the "Finance Sub Securities") and assumed $119 million of Storer's
outstanding debt. Effective December 2, 1992, the remaining Finance Sub
Securities became intercompany securities and have been eliminated in
consolidation. The other 50% shareholder redeemed all of its outstanding
Finance Sub Debt Securities. Storer used these proceeds to pay off its
outstanding bank debt, 15% twelve year Senior subordinated debentures, and
a majority of its Serial Zero Coupon Senior Notes. In connection with these
redemptions, the Company recognized as an extraordinary item its 50% share
of the premiums paid (net of tax) of $52.3 million.
In addition, on December 2, 1992, holders of the Storer preferred stock
were given the required thirty days notice of intent to redeem. The cash
required to fund the redemption was part of the capital contributions
discussed above. On January 4, 1993, $746.9 million was paid to redeem the
preferred stock, which included a redemption premium and accrued dividends.
The redemption of the preferred stock was presented as if it had been
consummated on December 31, 1992. Management believes such presentation
more accurately reflected the Company's financial position and capital
structure at December 31, 1992. The Company's equity in Storer's net loss
before extraordinary item for 1992 includes $27.5 million for its portion
of Storer's redemption premium on its preferred stock.
In connection with the Split-off, the Company and the former 50%
shareholder of Storer entered into various agreements providing for, among
other things, the sharing and cross indemnification of certain liabilities,
including tax liabilities and benefits relating to the pre-Split-off
period.
AWACS
On March 5, 1992, the Company acquired from Metromedia Company
("Metromedia") a 50.01% direct and a 49.99% indirect interest in AWACS,
Inc. ("AWACS"), the non-wireline cellular telephone system serving the
Philadelphia Metropolitan Statistical Area, which includes eight counties
in Pennsylvania and New Jersey containing a population of approximately 4.9
million people at that date (the "AWACS Acquisition"). The Company also
acquired the minority interests in two New Jersey cellular telephone
systems serving a total population of approximately 1.3 million people at
that date, the balance of which systems were owned by the Company. The
Company acquired these interests in exchange for (i) zero coupon notes
issued by a subsidiary of the Company, which are due March 5, 2000, and
have an aggregate face amount payable at maturity of
<PAGE>39
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
approximately $1 billion, accreting from $425 million at 11% per annum (if
at maturity or an earlier redemption date 35%, subject to reduction in
certain circumstances, of the private market value, as determined by
applicable procedures, of the Company's cellular subsidiaries is greater
than the accreted value plus certain premiums, then such greater amount
will constitute the redemption price), (ii) approximately $567 million in
cash and (iii) participating preferred stock issued by a subsidiary of the
Company (described below).
The 49.99% indirect interest was obtained through the purchase of the Class
A Redeemable Preferred Stock ("LCH Preferred Stock") of LCH Communications,
Inc. ("LCH"), an indirect subsidiary of LIN Broadcasting Corporation. The
49.99% of the AWACS Common Stock was owned by LIN Cellular Communications
Corporation ("LIN-Penn"), a wholly-owned subsidiary of LCH. LCH, through
LIN-Penn, indirectly owned the remaining 49.99% of the common stock of
AWACS. LCH was required to redeem the LCH Preferred Stock (which redemption
was not expected to occur before 1996) for either, at its option, (a) an
amount in cash (the "Cash Redemption Price") equal to the sum of (i) all
accrued and unpaid dividends and (ii) the greater of (A) $850 million and
(B) the fair market value of the capital stock of LIN-Penn and 15% of the
value of LCH's operating business (the "Operating Business Portion"), or
(b) the capital stock of LIN-Penn and an amount in cash equal to the
Operating Business Portion.
On June 24, 1994, in connection with the settlement of certain disputes
between LCH and the Company, LCH redeemed the LCH Preferred Stock through
the transfer to the Company of 100% of the capital stock of LIN-Penn. As a
result of such redemption, the Company owns 100% of the common stock of
AWACS. Since the Company has historically accounted for the purchase of
AWACS as if it acquired a 100% direct interest, the redemption of the LCH
Preferred Stock has no effect on the Company's accounting for AWACS.
In addition to the interest in AWACS, the redemption of the LCH Preferred
Stock entitles the Company to an interest in certain publishing and
broadcasting operations. A subsidiary of the Company has issued to
Metromedia participating preferred stock which has economic attributes
based on the performance and ultimate value of the publishing and
broadcasting operations. Accordingly, these operations are excluded from
the Company's consolidated financial statements.
Pro forma Results
The Company would have reported unaudited revenues of $1.634 billion and
$1.597 billion, unaudited loss before extraordinary items and cumulative
effect of accounting changes of $123.3 million and $143.6 million,
unaudited net loss of $135.0 million and $898.9 million and unaudited net
loss per share of $.57 and $4.20 for the years ended December 31, 1994 and
1993, respectively, had the Maclean Hunter Acquisition occurred at the
beginning of each period. This unaudited pro forma information is based on
historical results of operations adjusted for acquisition costs, and in the
opinion of management, is not necessarily indicative of what the results
would have been had the Company operated the acquired entities since the
beginning of 1993.
3. INVESTMENTS
Investments consist of the following components:
<TABLE>
<CAPTION>
December 31,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Investments - Equity method............................... $389,851 $111,050
Investments - Public companies............................ 216,002 275,684
Investments - Privately held companies.................... 191,222 278,474
------- -------
$797,075 $665,208
======== ========
</TABLE>
<PAGE>40
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
Investments - Equity Method
Summarized financial information for equity method investments, excluding
the operations of Storer as described below, for 1994, 1993 and 1992 is as
follows (Dollars in thousands):
<TABLE>
<CAPTION>
Twelve Months Year Ended
Ended December 31, Year Ended Year Ended
October 31,1994 1994 December 31, December 31,
QVC Other Combined 1993 1992
<S> <C> <C> <C> <C> <C>
Combined Results of Operations
Revenues, net.........................$1,336,674 $362,132 $1,698,806 $165,688 $129,274
Depreciation and amortization......... 44,862 109,512 154,374 70,501 62,957
Operating income (loss)............... 153,568 (133,534) 20,034 (38,519) (29,443)
Net income (loss) as reported
by affiliates.................. $41,103 ($178,070) ($136,967) ($66,587) ($54,216)
Company's Equity in Net Income (Loss)
Equity in current period net income
(loss)........................... $6,286 ($46,540) ($40,254) ($28,872) ($26,288)
Amortization income (expense)......... 4,901 (5,531) (630)
------- -------- -------- -------- --------
Total equity in net income (loss)..... $11,187 ($52,071) ($40,884) ($28,872) ($26,288)
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
October 31, 1994 December 31, 1994 December 31,
QVC Other Combined 1993
<S> <C> <C> <C> <C>
Combined Financial Position
Current assets........................... $537,328 $214,586 $751,914 $58,255
Noncurrent assets........................ 472,029 1,587,256 2,059,285 628,116
Current liabilities...................... 398,245 239,964 638,209 72,917
Noncurrent liabilities................... 6,599 968,216 974,815 368,096
</TABLE>
As of December 31, 1994 and 1993, equity method investments include the
Company's interest in Garden State Cablevision L.P. ("Garden State") and
interests in its United Kingdom ("UK") cable television and
telecommunications businesses. In addition, effective January 1, 1994, the
Company commenced accounting for QVC (see Note 2-QVC), TCG (see Note
2-Telecommunications Joint Venture) and certain other investments under the
equity method of accounting due to changes in the nature of the
relationships between the Company and the investees which allow the Company
to exercise significant influence over their operating and financial
policies. The Company's prior year financial statements have not been
restated due to the insignificance of the Company's proportionate ownership
interests in the net income or loss of the investees for those periods. 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
twenty years, which is consistent with the estimated lives of the
underlying assets. In addition, QVC's fiscal year end is January 31 and
therefore, the Company records its equity in QVC's net income or loss two
months in arrears.
The original cost of investments accounted for under the equity method of
accounting totalled approximately $565.4 million and $253.4 million at
December 31, 1994 and 1993, respectively.
As of December 31, 1994 and 1993, the Company held 6.2 million shares and
5.9 million shares, respectively, of QVC Class A Common Stock representing
a 15.1% and 14.8% interest in QVC's then outstanding common stock. In
addition, the Company held 72,050 shares of QVC Class C Preferred Stock as
of December 31, 1994 and 1993. The historical cost of the Class A Common
Stock and Class C Preferred Stock held by the Company as of December 31,
1994 and 1993 was $69.6 million and $66.5 million, respectively, with an
estimated fair value of $291.8 million and $259.8 million, respectively. In
addition, as of December 31, 1994 and 1993, the Company held
<PAGE>41
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
warrants to purchase 1.7 million and 2.0 million shares of QVC Class A
Common Stock, respectively, at prices ranging from $9.64 to $17.49 with
estimated fair values of $44.0 million and $49.6 million at such dates.
On December 11, 1992, the Company contributed its interests in certain UK
cable television and telecommunications businesses to a majority owned
subsidiary ("Comcast UK Cable"). Comcast UK Cable holds, among other
things, the Company's investments in UK affiliates: Birmingham Cable
Corporation Limited, Cable London PLC, Cambridge Holding Company Limited
and Cable Programme Partners-1 Limited Partnership. On that date, Comcast
UK Cable's other shareholder, UK Cable Partners Limited ("UKCPL"), which is
owned by Warburg, Pincus Investors L.P. and Bankers Trust Investments PLC,
committed to invest an aggregate of up to UK (pound)70.0 million in Comcast
UK Cable, of which approximately UK (pound)57.2 million was invested
through September 27, 1994. The Company made equal investments, including
the cost of its investments previously contributed to Comcast UK Cable. On
September 27, 1994, Comcast UK Cable consummated an initial public offering
(the "IPO") of 15.0 million of its Class A Common Shares for net proceeds
of $209.4 million. Contemporaneously with the IPO, the Company and UKCPL
restructured their interests in Comcast UK Cable and terminated UKCPL's
right to exchange its equity interests in Comcast UK Cable for convertible
debt of the Company (the "Exchange Option"). As a result of the IPO and the
restructuring, the Company beneficially owns approximately 31.2% of the
total outstanding Comcast UK Cable common shares. Because the Class A
Common Shares are entitled to one vote per share and the Class B Common
Shares are entitled to ten votes per share, the Company, through its
ownership of the Class B Common Shares, controls approximately 81.9% of the
total voting power of all outstanding Comcast UK Cable common shares and
continues to consolidate Comcast UK Cable. As a result of the termination
of the Exchange Option and consummation of the IPO, the Company recorded an
aggregate minority interest liability in Comcast UK Cable of $261.4
million. The Company has recorded the increase in its proportionate share
of Comcast UK Cable's net assets as an increase in additional capital of
$59.3 million.
The Company holds a 20% interest in TCG with an original cost of $66.2
million and $66.1 million at December 31, 1994 and 1993, respectively. The
Company also had loans to TCG totaling $39.5 million and $11.7 million at
December 31, 1994 and 1993, respectively. TCG operates fiber optic networks
serving communities across the United States providing point-to-point
digital communication links to telecommunication-intensive businesses and
long-distance carriers. The Company accounted for its investment in TCG
under the cost method of accounting prior to 1994.
Through December 2, 1992, the Company recorded its 50% investment in Storer
under the equity method of accounting. Subsequent to December 2, 1992, the
Company consolidates the financial position and results of operations of
Storer.
The results of operations of Storer for 1992 (through December 2, 1992) are
as follows (Dollars in thousands):
<TABLE>
<S> <C>
Service income........................................ $595,668
Depreciation and amortization......................... 182,325
Operating income...................................... 106,178
Net loss as reported by Storer........................ ($324,341)
Interest and dividends not recognized
as income by Storer, net of taxes................. 63,711
------
($260,630)
=========
Equity in net loss.................................... ($78,018)
Equity in net loss from early extinguishment
of debt by Storer................................. (52,297)
-------
($130,315)
=========
</TABLE>
<PAGE>42
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
The net loss of $324.3 million for 1992 (through December 2, 1992)
separately reported by Storer differs from the net loss of $260.6 million
for 1992 utilized by the Company to record its equity in the net loss of
Storer. This difference is due to Storer not recognizing interest and
dividend income from securities issued by the Company and the other 50%
investor to Storer due to the related party nature of the securities.
However, the Company has recorded the interest and dividend requirements as
an expense in its consolidated statement of operations. Therefore, this
method of reporting presents the Company's equity in the net loss of Storer
as if it were consolidated with the Company.
Through December 2, 1992, the Company, pursuant to a consulting agreement,
had oversight responsibility for Storer systems serving approximately
one-half of the Storer subscribers. For its consulting services, the
Company received a fee of 3-1/2% of revenues of the systems it managed. For
the year ended December 31, 1992, the fee under the consulting agreement
was $10.8 million.
Investments - Public Companies
As of December 31, 1994 and 1993, the Company held 11.3 million shares of
common stock of Nextel Communications, Inc. ("Nextel") representing a 10.7%
and 12.9% interest in Nextel's then outstanding common stock. Nextel is a
Specialized Mobile Radio ("SMR") licensee developing an enhanced service
capability ("ESMR"). Assuming satisfactory technical performance of
Nextel's systems in Los Angeles and San Francisco and satisfaction of
certain other conditions, an additional $35 million investment will be made
on June 30, 1995 at a per share price of 90% of the then market price for
Nextel common stock. Effective September 30, 1994, certain restrictions
under prior agreements with Nextel relating to the Company's ability to
sell or otherwise transfer its investment in Nextel were removed. As a
result of the removal of such restrictions, the Company has recorded its
investment in Nextel common stock, with an historical cost of $175.9
million at December 31, 1994, at its estimated fair value, resulting in an
unrealized pre-tax loss of $14.0 million as of December 31, 1994. As of
December 31, 1993, the Company's investment in Nextel common stock had an
estimated fair value of $419.7 million and was reported at its historical
cost of $174.2 million. As of December 31, 1994 and 1993, the Company owns
options to acquire approximately 25.2 million shares of Nextel common
stock, principally at $16 per share, with an estimated fair value of $149.2
million and $660.0 million, respectively, which are recorded at their
historical cost of $23.5 million. Investments in options have been valued
using the Black-Scholes Option Pricing method.
The Company holds unrestricted equity investments in certain other publicly
traded companies with an historical cost of $10.7 million at December 31,
1994 and 1993. As of December 31, 1994, the Company has recorded these
investments at their estimated fair value of $30.6 million, resulting in an
unrealized pre-tax gain of $19.9 million. As of December 31, 1993, such
investments, with an estimated fair value of $50.1 million at that date,
were reported at their historical cost.
Investments - Privately Held Companies
On January 26, 1995, the Company exchanged its interest in Heritage
Communications, Inc. ("Heritage") with TCI for Class A common shares of TCI
with a fair market value of approximately $290.0 million. Shortly
thereafter, the Company sold certain of these shares for total proceeds of
approximately $188.0 million. As a result of these transactions, the
Company will recognize a pre-tax gain of $141.0 million in the first
quarter of 1995.
It is not practicable to estimate the fair value of the Company's other
investments in privately held companies with a recorded cost, excluding
Heritage, of $50.3 million and $141.5 million at December 31, 1994 and
1993, respectively, due to a lack of quoted market prices and excessive
costs involved in determining such fair value.
<PAGE>43
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Notes payable to banks and insurance companies, due
in installments through 2003....................................... $3,280,035 $2,387,169
Senior participating redeemable zero coupon notes, due 2000............ 361,538 361,984
10% Subordinated debentures, due 2003.................................. 122,858 121,309
10-1/4% Senior subordinated debentures, due 2001....................... 125,000 125,000
11-7/8% Senior subordinated debentures................................. 150,000
9-1/2% Senior subordinated debentures, due 2008........................ 200,000 200,000
10-5/8% Senior subordinated debentures, due 2012....................... 300,000 300,000
Convertible subordinated debt:
Zero coupon convertible subordinated notes, due 1995............... 4,345 37,931
3-3/8% / 5-1/2% Step-up convertible subordinated
debentures, due 2005........................................... 250,000 250,000
1-1/8% Discount convertible subordinated debentures, due 2007...... 314,546 302,474
7% Convertible subordinated debentures............................. 151,882
Other debt, due in installments principally through 1997............... 35,132 30,954
------ ------
4,993,454 4,418,703
Less current portion................................................... 182,913 263,873
------- -------
$4,810,541 $4,154,830
========== ==========
</TABLE>
The maturities of long-term debt outstanding as of December 31, 1994 for
the four years after 1995 are as follows:
(Dollars in thousands)
1996............................. $309,530
1997............................. 388,074
1998............................. 802,428
1999............................. 518,848
The holders of the Senior participating redeemable zero coupon notes due
2000 have the right, upon request of the holders of the majority of the
notes, to require the Company to redeem such notes at any time on or after
March 5, 1998. The accreted value of such notes, without giving effect to
the alternative formula based on the private market value of the cellular
business (see Note 2 - AWACS), of $361.5 million has been presented above
as a 1998 maturity. Approximately $169.3 million accreted value of Series A
notes is payable, at the Company's option, either in cash or the Company's
Class A Special Common Stock.
The following is a summary of the Company's convertible subordinated debt:
(1) The Zero coupon convertible subordinated notes due 1995 are
convertible, at the option of the holder, into Class A Special Common
Stock of the Company at a conversion price of $11.02 per share, based
on the face value of the debentures converted. The notes were issued at
a 39% discount, resulting in an effective annual yield to maturity of
7.2%. During 1994 and 1993, $34.1 million and $48.6 million,
respectively, of notes were converted into approximately 3.3 million
and 4.8 million shares of Class A Special Common Stock of the Company.
In January 1995, the remaining principal amount of the notes were
converted by the holders into 396,000 shares of Class A Special Common
Stock of the Company.
<PAGE>44
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
(2) The 3-3/8% / 5-1/2% Step-up convertible subordinated debentures due
2005 are convertible into Class A Special Common Stock of the Company
at a conversion price of $24.50 per share. Interest on the debentures
accrues at a rate per annum of 3-3/8% from and including the date of
issuance to and including September 8, 1997, from and after such time
the Company will have the right to redeem the debentures for cash.
Interest will accrue at a rate per annum of 5-1/2% from and including
September 9, 1997 to maturity, or earlier redemption.
(3) The 1-1/8% Discount convertible subordinated debentures due 2007 are
convertible into Class A Special Common Stock of the Company at a
conversion rate equal to 19.3125 shares per $1,000 principal amount at
maturity. The conversion price will not be adjusted for accrued
interest or original issue discount. The debentures were issued at
55.363% of their principal amount of $541.9 million at maturity
resulting in a 6% effective annual yield to maturity. At any time on or
after October 15, 1997, the Company may redeem such debentures for
cash.
(4) The 7% Convertible subordinated debentures due 2001 were redeemed on
February 27, 1994. In connection with such redemption, substantially
all of the debentures were converted into approximately 13.5 million
shares of Class A Special Common Stock of the Company.
On March 1, 1994, the Company redeemed for cash its 11-7/8% Senior
subordinated debentures at a redemption price of 105.0% of their principal
amount.
The Company paid premiums and expensed unamortized debt acquisition costs
totalling $18.0 million during 1994, primarily as a result of the
redemption of its $150 million, 11-7/8% Senior subordinated debentures due
2004, resulting in the Company recording an extraordinary loss, net of tax,
of $11.7 million or $.05 per share. The Company paid similar premiums of
$27.1 million during 1993 in connection with the redemption of certain of
its debt resulting in the Company recording an extraordinary loss, net of
tax, of $17.6 million or $.08 per share.
Fixed interest rates on notes payable to banks and insurance companies
range from 8.6% to 10.57%. 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 1%;
London Interbank Offered Rate (LIBOR) plus 3/4% to 2%; and
Certificate of deposit rate plus 7/8% to 2-1/8%.
As of December 31, 1994 and 1993, the Company's effective weighted average
interest rate on its variable rate bank and insurance company debt
outstanding was 7.63% and 4.73%, respectively.
The Company has entered into interest rate swap and cap agreements to limit
the Company's exposure to loss from adverse fluctuations in interest rates.
At December 31, 1994 and 1993, $415.0 million and $635.0 million,
respectively, of the Company's variable rate debt was protected by these
products. Such agreements mature on various dates in 1995 and the related
differentials to be paid or received are recognized over the terms of the
agreements.
During 1994, the Company entered into other interest rate swap agreements
to manage its overall interest expense. At December 31, 1994, the Company
had swapped $400.0 million notional amount of fixed rate debt for variable
rate products (effective rates of 4.13% through 6.93% at December 31, 1994)
which mature between 2000 and 2004. Since these products are designated as
matched with certain of the Company's fixed rate debt, the differentials
paid or received are recognized as a component of interest expense over the
terms of the related agreements. Certain of these agreements have
extensions, at the option of the counterparty, or indexed amortization
provisions which may extend the lives of the agreements from three to five
years.
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and continual monitoring
of the creditworthiness of the counterparties. Although the Company may
<PAGE>45
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
be exposed to losses in the event of nonperformance by the counterparties,
the Company does not expect such losses, if any, to be significant.
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, 1994, certain subsidiaries of the Company had unused
lines of credit of $553.0 million, of which $100.0 million was used through
February 21, 1995, principally to fund the acquisition of QVC.
As of December 31, 1994, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totalling $401.9 million to
cover potential fundings associated with several projects.
5. STOCKHOLDERS' EQUITY (DEFICIENCY)
The Company is authorized to issue, in one or more series, up to a maximum
of 20.0 million shares of preferred stock without par value. The shares can
be issued with such designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights and other special or
related rights as the Board of Directors shall from time to time fix by
resolution.
Class A Special Common Stock is nonvoting and each share of Class A Common
Stock is entitled to one vote. Each share of 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.
As of December 31, 1994, 21.1 million shares of Class A Special Common
Stock were reserved for issuance upon conversion of the Company's
convertible debentures.
The Company maintains qualified and nonqualified stock option plans for
employees, directors and other persons under which the option prices are
not less than the fair market value of the shares at the date of grant.
Under these plans, 16.5 million shares of Class A Special Common Stock,
362,000 shares of Class A Common Stock and 658,000 shares of Class B Common
Stock were reserved as of December 31, 1994. Option terms are from five to
ten years with options becoming exercisable at various dates.
<PAGE>46
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
Changes in the number of shares subject to outstanding but unexercised
options under the Company's option plans for the years ended December 31,
1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Common Stock
Class A
Special Class A Class B
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1992........................................ 7,276,785 959,144 1,518,750
Options granted at prices of $9.92 to $11.92 per share...... 1,179,375
Options exercised at prices of $.94 to $10.83 per share..... (985,802) (287,595) (860,625)
Options cancelled and terminated............................ (128,340) (4,086)
---------- ------- -------
BALANCE, DECEMBER 31, 1992...................................... 7,342,018 667,463 658,125
Options granted at prices of $12.00 to $22.08 per share..... 1,186,350
Options exercised at prices of $1.57 to $12.58 per share.... (935,515) (196,968)
Options cancelled and terminated............................ (80,125) (2,525)
---------- ------- -------
BALANCE, DECEMBER 31, 1993...................................... 7,512,728 467,970 658,125
Options granted at prices of $16.13 to $23.28 per share..... 5,165,216
Options exercised at prices of $1.73 to $11.92 per share.... (526,857) (81,472)
Options cancelled and terminated............................ (282,236) (24,935)
---------- ------- -------
BALANCE, DECEMBER 31, 1994...................................... 11,868,851 361,563 658,125
========== ======= =======
Average price of options outstanding at
December 31, 1994........................................... $13.73 $4.74 $5.70
====== ===== =====
</TABLE>
As of December 31, 1994, options to purchase 5.0 million shares of Class A
Special Common Stock, 206,000 shares of Class A Common Stock and 304,000
shares of Class B Common Stock were exercisable.
The Company has a restricted stock program whereby management employees may
be granted restricted shares of the Company's Class A Special Common Stock.
Shares are subject to certain vesting provisions. The shares awarded do not
have voting or dividend rights until vesting occurs. Restrictions on the
award expire annually, over a period not to exceed five years from the date
of the award. The Company recognizes compensation expense over the vesting
period. As of December 31, 1994, there were 1.3 million unvested shares
granted under the program of which 284,000 vested in January 1995. Total
compensation expense recognized in 1994, 1993 and 1992 under this program
was $4.4 million, $3.4 million and $2.6 million, respectively.
6. INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109 which generally
provides that deferred tax assets and liabilities be recognized 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
financial statements in the period of enactment.
Pursuant to the deferred method under Accounting Principles Board Opinion
No. 11, which was applied in 1992 and prior years, deferred income taxes
were recognized for income and expense items that are reported in different
years for financial reporting purposes and income tax purposes using the
tax rate applicable for the year of the calculation. Under the deferred
method, deferred taxes are not adjusted for subsequent changes in tax
rates.
The cumulative effect of the adoption of SFAS No. 109 increased the net
loss for the year ended December 31, 1993 by $731.8 million, or $3.42 per
share, and is reported as part of the cumulative effect of accounting
changes in the Company's Consolidated Statement of Operations for the year
ended December 31, 1993.
<PAGE>47
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
Property and equipment and deferred charges were increased by $171.1
million in order to adjust prior business combinations from net-of-tax to
pre-tax amounts as required by SFAS No. 109. As a result of the adoption of
SFAS No. 109, depreciation and amortization expense increased in 1993 from
1992 by approximately $13.6 million or $.06 per share and income tax
expense decreased by approximately $35.0 million or $.16 per share,
resulting in a net decrease in the loss before extraordinary items and
cumulative effect of accounting changes of approximately $21.4 million or
$.10 per share. Prior year financial statements were not restated to apply
the provisions of SFAS No. 109.
As a result of the Maclean Hunter Acquisition, the Company's deferred
income tax liability was increased by approximately $488.0 million for
temporary differences between the financial reporting basis and the income
tax reporting basis of the assets of Maclean Hunter and BCI at the date of
acquisition. Deferred charges were increased by the same amount as
prescribed by SFAS No. 109.
The redemption of the LCH Preferred Stock by LCH caused the Company's
direct ownership of the common stock of AWACS to increase from 50.01% to
100%. As of the date of the redemption, AWACS will join with the Company in
filing consolidated federal income tax returns.
Income tax expense (benefit) consists of the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Current expense
Federal................................................. $8,098 $5,099 $3,500
State................................................... 12,408 9,320 5,100
------ ----- -----
20,506 14,419 8,600
------ ------ -----
Deferred expense (benefit)
Federal................................................. (27,912) (216) 4,500
State................................................... (1,828) 1,026 900
------ ----- ---
(29,740) 810 5,400
------- --- -----
Income tax expense (benefit)............................ ($9,234) $15,229 $14,000
======= ======= =======
</TABLE>
<PAGE>48
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
The effective income tax expense (benefit) of the Company differs from the
statutory amount because of the effect of the following items:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Federal tax at statutory rate........................... ($29,596) ($29,275) ($87,119)
Non-deductible depreciation and amortization............ 3,235 3,153 40,627
Non-taxable investment income........................... (7,054)
State income taxes, net of federal benefit.............. 6,877 6,725 3,960
Non-deductible preferred stock dividends of
a subsidiary........................................ 15,094
Non-deductible equity in net losses of affiliates....... 10,550 4,838 48,492
Deductible permanent differences associated
with redemption of securities....................... (37,694)
Increase in corporate federal income tax rate........... 20,589
Increase in valuation allowance......................... 605 47,494
Other................................................... (905) (601)
---- ---- -------
Income tax expense (benefit)............................ ($9,234) $15,229 $14,000
======= ======= =======
</TABLE>
Deferred income tax expense (benefit) resulted from the following
differences between financial and income tax reporting:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Depreciation and amortization...................... ($36,357) ($34,694) $20,151
Accrued expenses not currently deductible.......... (22,287)
Deductible temporary differences associated
with redemption of securities.................. 7,031 10,078
Taxable gain on sale of investment to
affiliate...................................... (29,558)
Utilization of net operating loss carryforwards.... 28,299 4,729
Deferred tax assets arising from current
period losses ................................. (39,610)
Increase in corporate federal income tax rate
from 34% to 35%................................ 20,589
Increase in valuation allowance.................... 605 47,494
--- ------ -----
Deferred income tax expense (benefit).............. ($29,740) $810 $5,400
======== ==== ======
</TABLE>
<PAGE>49
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
Significant components of the Company's net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
December 31, December 31,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $288,812 $317,111
Differences between book and
tax basis of property and equipment
and deferred charges....................... 29,330 30,858
Other.......................................... 40,636 18,349
Less: Valuation allowance...................... (274,736) (274,131)
-------- --------
84,042 92,187
------ ------
Deferred tax liabilities:
Differences between book and tax
basis of property and equipment and
deferred charges........................... 1,431,742 979,841
Other.......................................... 43,149 42,262
------ ------
1,474,891 1,022,103
--------- ---------
Net deferred tax liability......................... $1,390,849 $929,916
========== ========
</TABLE>
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 Company has net
operating loss carryforwards of approximately $30.0 million for which a
deferred tax asset has been recorded, which expire primarily between 2001
and 2007.
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Company adopted SFAS No. 106. This statement
requires the Company to accrue the estimated cost of retiree benefits
earned during the years the employee provides services. The Company
previously expensed the cost of these benefits as claims were incurred. The
Company recorded the cumulative effect of the obligation, which is
unfunded, as of January 1, 1993, resulting in an increase in the Company's
accrued postretirement health care liability of approximately $13.5 million
and net loss of approximately $8.9 million or $.04 per share, net of tax.
The effect of SFAS No. 106 on loss before extraordinary items and the
cumulative effect of accounting changes was not significant to the
Company's results of operations.
8. POSTEMPLOYMENT BENEFITS
Effective January 1, 1993, the Company adopted SFAS No. 112. This statement
requires the Company to accrue the estimated costs of benefits for former
or inactive employees after employment but before retirement. The effect of
SFAS No. 112 on loss before extraordinary items and the cumulative effect
of accounting changes was not significant to the Company's results of
operations.
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of approximately $261.6
million, $278.6 million and $198.2 million during the years ended December
31, 1994, 1993 and 1992, respectively.
<PAGE>50
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
10. COMMITMENTS AND CONTINGENCIES
Commitments
During 1994, a subsidiary of the Company, Comcast UK Cable, entered into
certain foreign exchange forward contracts as a normal part of its risk
management efforts. Foreign exchange contracts, which mature at various
times through 1996, are used to protect Comcast UK Cable from the risk that
monetary assets held or denominated in currencies other than its functional
currency are devalued as a result of changes in exchange rates. The amount
of these contracts was $100.0 million as of December 31, 1994. Foreign
exchange contracts provide an effective hedge against such monetary assets
held since gains and losses realized on the contracts are offset against
gains or losses realized on the underlying hedged assets.
Minimum annual rental commitments for office space and equipment under
noncancellable operating leases are as follows:
(Dollars
in thousands)
1995 $12,217
1996 10,385
1997 9,661
1998 8,759
1999 7,782
Thereafter 31,967
Rental expense of $21.9 million, $19.3 million and $13.2 million for 1994,
1993 and 1992, respectively, has been charged to operations.
Contingencies
The Company is subject to claims which arise in the ordinary course of its
business and other legal proceedings. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
The Company is currently seeking to justify existing rates in certain of
its cable systems on the basis of cost-of-service showings; however, the
interim cost-of-service regulations promulgated by the FCC do not support
positions taken by the Company in its cost-of-service filings to date. The
Company's reported cable service income reflects the estimated effects of
cable regulation. The Company is seeking reconsideration by the FCC of the
interim cost-of-service regulations and, if unsuccessful in justifying
existing rates under cost-of-service regulations, intends to seek judicial
relief. However, no assurance can be given that the Company will be
successful in cost-of-service proceedings. If the Company is not successful
in such efforts, and there is no legislative, administrative or judicial
relief in these matters, the FCC regulations will continue to adversely
affect the Company's results of operations.
Garden State's auditors' report discloses a material uncertainty with
respect to the Cable Television Consumer Protection and Competition Act of
1992. Management believes that the ultimate resolution of this uncertainty
will not have a material impact on the Company's financial position or
results of operations.
<PAGE>51
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summary table of the estimated fair value of the Company's
financial instruments is made in accordance with the provisions of SFAS No.
107, "Disclosures About Fair Value of Financial Instruments." See Note 1
for a description of methodologies used for such disclosures.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
(Dollars in thousands)
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Investments - Public
companies - (see Note 3)........... $216,002 (1) $341,785 (1) $275,684 $1,439,076
<FN>
(1) Excludes publicly traded investments accounted for under the equity method.
</FN>
</TABLE>
The Company's long-term debt had a carrying amount of $4.993 billion and an
estimated fair value of $4.768 billion as of December 31, 1994. The
difference between the carrying value and estimated fair value of the
Company's long-term debt was not significant as of December 31, 1993. 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 the debt with similar terms and
remaining maturities are used to estimate fair value for debt issues for
which quoted market prices are not available.
The estimated liability to settle the Company's interest rate swap and cap
agreements was $39 million as of December 31, 1994. The estimated liability
to settle the extension and indexed amortization features for certain of
these instruments is not significant to the Company. The estimated
liability to settle the Company's interest rate swap and cap agreements as
of December 31, 1993 was not significant to the Company.
The difference between the carrying amount and the estimated fair value of
the Company's foreign exchange forward contracts is not significant at
December 31, 1994.
<PAGE>52
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
12. FINANCIAL DATA BY BUSINESS SEGMENT
(Dollars in thousands)
<TABLE>
<CAPTION>
Domestic Cable Cellular Corporate
Communications Communications and Other Total
<S> <C> <C> <C> <C>
1994
Service income................................... $1,065,316 $286,137 $23,851 $1,375,304
Depreciation and amortization.................... 229,534 89,916 17,012 336,462
Operating income (loss).......................... 287,960 26,413 (74,579) 239,794
Interest expense................................. 151,128 58,556 103,793 313,477
Assets........................................... 4,588,886 1,205,047 969,051 6,762,984
Long-term debt................................... 2,852,877 744,538 1,213,126 4,810,541
Capital expenditures and acquisitions............ 1,456,497 79,719 26,316 1,562,532
Equity in net income (losses) of
affiliates................................... 2,928 (43,812) (40,884)
1993
Service income................................... $1,092,746 $202,032 $43,450 $1,338,228
Depreciation and amortization.................... 240,523 84,740 16,237 341,500
Operating income (loss).......................... 311,448 7,403 (53,955) 264,896
Interest expense................................. 152,508 74,421 120,519 347,448
Assets........................................... 2,506,066 1,277,619 1,164,591 4,948,276
Long-term debt................................... 2,049,332 689,984 1,415,514 4,154,830
Capital expenditures and acquisitions............ 100,518 49,531 17,662 167,711
Equity in net losses of affiliates............... (9,197) (19,675) (28,872)
1992
Service income................................... $725,659 $142,926 $31,760 $900,345
Depreciation and amortization.................... 155,425 66,785 9,837 232,047
Operating income (loss).......................... 200,836 (4,707) (31,023) 165,106
Interest expense and preferred
stock dividend requirements.................. 158,010 58,534 95,744 312,288
Assets........................................... 2,433,875 1,293,364 544,659 4,271,898
Long-term debt................................... 2,097,890 789,585 1,086,039 3,973,514
Capital expenditures and acquisitions............ 1,589,967 1,022,552 41,869 2,654,388
Equity in net losses of affiliates............... (91,797) (12,509) (104,306)
</TABLE>
<PAGE>53
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Concluded)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter (1)(2) Quarter Quarter Quarter (2) Year
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1994
Service income.......................... $328,703 $340,640 $345,744 $360,217 $1,375,304
Operating income before
depreciation and amortization....... 141,520 148,553 146,125 140,058 576,256
Operating income........................ 64,275 65,304 63,310 46,905 239,794
Loss before extraordinary items......... (15,777) (12,756) (17,246) (29,546) (75,325)
Extraordinary items..................... (11,580) (123) (11,703)
Net loss................................ (27,357) (12,879) (17,246) (29,546) (87,028)
Loss per share before
extraordinary items................. (.07) (.05) (.07) (.13) (.32)
Extraordinary items per share........... (.05) (.05)
Net loss per share...................... (.12) (.05) (.07) (.13) (.37)
Cash dividends per share................ .0233 .0233 .0233 .0233 .0933
1993
Service income.......................... $325,225 $340,083 $335,405 $337,515 $1,338,228
Operating income before
depreciation and amortization....... 146,330 159,605 154,311 146,150 606,396
Operating income........................ 58,657 71,106 69,828 65,305 264,896
Loss before extraordinary items and
cumulative effect of accounting
changes............................. (23,856) (17,129) (35,655) (22,231) (98,871)
Extraordinary items..................... (17,620) (17,620)
Cumulative effect of accounting
changes............................. (742,734) (742,734)
Net loss................................ (766,590) (17,129) (35,655) (39,851) (859,225)
Loss per share before
extraordinary items and cumulative
effect of accounting changes........ (.11) (.08) (.17) (.10) (.46)
Extraordinary items per share........... (.08) (.08)
Cumulative effect of accounting
changes per share................... (3.47) (3.47)
Net loss per share...................... (3.58) (.08) (.17) (.18) (4.01)
Cash dividends per share................ .0233 .0233 .0233 .0233 .0933
<FN>
- ---------------
(1) Results of operations for the first quarter of 1993 were affected by the
cumulative effect of the adoption of SFAS No. 106, SFAS No. 109 and SFAS
No. 112.
(2) Results of operations for the first quarter of 1994 and fourth quarter of
1993 were affected by premiums paid in connection with the redemption of
certain of the Company's debt, shown as extraordinary items in the
Company's consolidated financial statements.
</FN>
</TABLE>
<PAGE>54
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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 the Registrant's definitive Proxy Statement for its Annual Meeting
of Shareholders presently scheduled to be held in June 1995, which shall be
filed with the Securities and Exchange Commission within 120 days of the end of
the Registrant's latest fiscal year.
<PAGE>55
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following Consolidated Financial Statements of the Company are
included in Part II, Item 8:
<TABLE>
<S> <C>
Independent Auditors' Report..............................................................30
Consolidated Balance Sheet--December 31, 1994 and 1993....................................31
Consolidated Statement of Operations--Years
Ended December 31, 1994, 1993 and 1992..................................................32
Consolidated Statement of Cash Flows--Years
Ended December 31, 1994, 1993 and 1992..................................................33
Consolidated Statement of Stockholders'
Equity (Deficiency)--Years Ended December 31, 1994, 1993 and 1992.......................34
Notes to Consolidated Financial Statements................................................35
(b) (i) The following financial statement schedule required to be filed by
Items 8 and 14(d) of Form 10-K is included in Part IV:
Schedule II -- Valuation and Qualifying Accounts..........................................66
</TABLE>
All other schedules are omitted because they are not applicable,
not required or the required information is included in the
financial statements or notes thereto.
(ii) The following consolidated financial statements of Storer
Communications, Inc. ("Storer") for the year ended December 31,
1992 are required to be filed by Item 14(d)(1) of Form 10-K and
are incorporated by reference to Storer's Annual Report on Form
10-K for the year ended December 31, 1993.
Storer Communications, Inc.
Independent Auditors' Report
Consolidated Statements of Operations
Consolidated Statements of Stockholder's Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
All schedules are omitted because they are not applicable, not
required or the required information is included in the financial
statements or notes thereto.
(c) 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(i)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994).
3.1(b) Amendment to Articles of Incorporation filed on July 14, 1994
(incorporated by reference to Exhibit 3(i)(2) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994).
3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3(ii) to the Company's 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 the Company's Registration
Statement on Form S-7 filed with the Commission on September 17,
1980, File No. 2-69178).
<PAGE>56
4.2 Specimen Class A Special Common Stock Certificate (incorporated
by reference to Exhibit 4(2) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1986).
4.3(a) Indenture (including form of Note), dated as of May 15, 1983,
between Storer Communications, Inc. and The Chase Manhattan
Bank, N.A., as Trustee, relating to 10% Subordinated Debentures
due May 2003 of Storer Communications, Inc. (incorporated by
reference to Exhibit 4.6 to the Registration Statement on Form
S-1 (File No. 2-98938) of SCI Holdings, Inc.).
4.3(b) First Supplemental Indenture, dated December 3, 1986
(incorporated by reference to Exhibit 4.5 to the Current Report
on Form 8-K of Storer Communications, Inc. dated December 3,
1986).
4.4 Amended and Restated Indenture dated as of June 5, 1992 among
Comcast Cellular Corporation, the Company and The Bank of New
York, as Trustee, relating to $500,493,000 Series A Senior
Participating Redeemable Zero Coupon Notes due 2000 and
$500,493,000 Series B Senior Participating Redeemable Zero
Coupon Notes due 2000 (incorporated by reference to Exhibit 4.3
to the Registration Statement on Form S-1 (File No. 33-46863) of
Comcast Cellular Corporation).
4.5 Indenture, dated as of October 17, 1991, between the Company and
Morgan Guaranty Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 2 to the Company's Current
Report on Form 8-K filed with the Commission on October 31,
1991).
4.6 Form of Debenture relating to the Company's 10-1/4% Senior
Subordinated Debentures due 2001 (incorporated by reference to
Exhibit 4(19) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991).
4.7 Form of Debenture relating to the Company's $300,000,000 10-5/8%
Senior Subordinated Debentures due 2012 (incorporated by
reference to Exhibit 4(17) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
4.8 Form of Debenture relating to the Company's $200,000,000 9-1/2%
Senior Subordinated Debentures due 2008 (incorporated by
reference to Exhibit 4(18) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
4.9 Indenture, dated as of February 20, 1991, between the Company
and Bankers Trust Company, as Trustee (incorporated by reference
to Exhibit 4.3 to the Company's Registration Statement on Form
S-3, File No. 33-32830, filed with the Commission on January 11,
1990).
4.10 Form of Debenture relating the Company's 3-3/8% / 5-1/2% Step-up
Convertible Subordinated Debentures Due 2005 (incorporated by
reference to Exhibit 4(14) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
4.11 Form of Debenture relating to the Company's 1-1/8% Discount
Convertible Subordinated Debentures Due 2007 (incorporated by
reference to Exhibit 4 to the Company's Current Report on Form
8-K filed with the Commission on November 15, 1993).
10.1(a) Credit Agreement, dated as of March 1, 1991, between Comcast
Holdings, Inc., The Chase Manhattan Bank (National Association),
as Agent, and various banks, and related agreements included
therein (incorporated by reference to Exhibit 10(1) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1990, as amended by Form 8 filed April 16, 1991).
10.1(b) Amendment No. 1, dated as of January 11, 1994, among Comcast
Holdings, Inc., the Chase Manhattan Bank (National Association),
the banks named therein, and for limited purposes, Comcast
Corporation and Comcast Cable Communications, Inc (incorporated
by reference to Exhibit 10(1)(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.1(c) Copies of promissory notes delivered to Banks (incorporated by
reference to Exhibit 10(1)(c) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
<PAGE>57
10.1(d) Consent and Amendment, dated as of January 13, 1994, among
Comcast Holdings, Inc., the Lenders named therein, and for
limited purposes, Comcast Corporation and Comcast Cable
Communications, Inc. (incorporated by reference to Exhibit
10(1)(d) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.1(e) Consent and Amendment, dated as of January 13, 1994, among
Comcast Holdings, Inc., the Nippon Credit Bank, Ltd., and for
limited purposes, Comcast Corporation and Comcast Cable
Communications, Inc. (incorporated by reference to Exhibit
10(1)(e) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.1(f) Amendment No. 2, dated as of May 15, 1994, to the Credit
Agreement dated as of March 1, 1991, between Comcast Holdings,
Inc., The Chase Manhattan Bank (National Association) as Agent,
and the Lenders therein, and, for limited purposes, Comcast
Corporation, Comcast Cable Communications, Inc. and Corestates
Bank, N.A., as 1987 Collateral Agent and 1991 Collateral Agent
(incorporated by reference to Exhibit 10.5 to the Company's
Current Report on Form 8-K filed on November 2, 1994).
10.1(g) Second Consent and Amendment, dated as of May 15, 1994, to the
Credit Agreement dated as of March 1, 1991, among Comcast
Holdings, Inc., the Lenders named therein, and for limited
purposes, Comcast Corporation and Comcast Cable Communications,
Inc.(incorporated by reference to Exhibit 10.6 to the Company's
Current Report on Form 8-K filed on November 2, 1994).
10.1(h) Second Consent and Amendment, dated as of May 15, 1994, to the
Credit Agreement dated as of March 1, 1991, among Comcast
Holdings, Inc., the Nippon Credit Bank, Ltd. and for limited
purposes, Comcast Corporation and Comcast Cable Communications,
Inc. (incorporated by reference to Exhibit 10.7 to the Company's
Current Report on Form 8-K filed on November 2, 1994).
10.2(a) Loan Agreements, dated as of March 31, 1987, among Comcast
Holdings, Inc. and certain lenders, and related agreements
included therein (incorporated by reference to Exhibit 10(29) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1987).
10.2(b) Amendment Agreements, dated as of March 1, 1991, among Comcast
Holdings, Inc. and certain lenders, and related agreements
included therein (incorporated by reference to Exhibit 10(2)(b)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1990, as amended by Form 8 filed April 16, 1991).
10.3 Guaranty by the Company to the City of Philadelphia, dated as of
October 30, 1987, (incorporated by reference to Exhibit 10(31)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1987).
10.4* 1982 Incentive Stock Option Plan, as amended (incorporated by
reference to Exhibit 10(12) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991).
10.5(a)*1986 Amended and Restated Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 10(11) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991).
10.5(b)*Amendment to 1986 Nonqualified Stock Option Plan, dated
September 16, 1994.
10.6(a)*Comcast Corporation 1987 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 99 to the
Company's Registration Statement on Form S-8 filed on December
16, 1994).
10.6(b)* Amendment to 1987 Stock Option Plan, dated September 16, 1994.
__________
*Constitutes a management contract or compensatory plan or arrangement.
<PAGE>58
10.7(a) Retirement-Investment Plan, as amended, including Amendment
Nos. 1, 2 and 3 (incorporated by reference to Exhibit 10(17)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990, as amended by Form 8 filed April
16, 1991).
10.7(b) Amendment Nos. 4, 5 and 6 to the Retirement-Investment Plan
(incorporated by reference to Exhibit 10(14) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991).
10.7(c) Amendment No. 7 to the Retirement-Investment Plan
(incorporated by reference to Exhibit 10(9)(c) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.7(d) Amendment No. 8 to the Retirement-Investment Plan
(incorporated by reference to Exhibit 10(9)(d) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.8* Amended and Restated Deferred Compensation Plan, dated
January 1, 1995.
10.9* 1990 Restricted Stock Plan, as amended and restated on
November 11, 1994.
10.10* 1992 Executive Split Dollar Insurance Plan (incorporated by
reference to Exhibit 10(12) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992).
10.11* Form of Compensation and Deferred Compensation Agreement and
Stock Appreciation Bonus Plan for Ralph J. Roberts
(incorporated by reference to Exhibit 10(13) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.12 Note Purchase Agreement, dated as of April 27, 1989, by and
among Comcast Cable of Maryland, Inc., Comcast Cablevision
of Maryland Limited Partnership, COM Maryland, Inc. and the
Purchasers Named on Schedule I Thereto relating to
$178,000,000 10.57% Senior Notes due 1999 (incorporated by
reference to Exhibit 10(25) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989).
10.13(a) Credit Agreement, dated as of March 4, 1992, among Comcast
Cellular Communications, Inc., The Bank of New York,
Barclays Bank, PLC, The Chase Manhattan Bank (National
Association), Provident National Bank, and The
Toronto-Dominion Bank (incorporated by reference to Exhibit
4 to the Company's Current Report on Form 8-K filed with the
Commission on March 19, 1992, as amended by Form 8 dated
April 24, 1992).
10.13(b) Amendment No. 1 to the Credit Agreement, dated as of
September 21, 1992, between Comcast Cellular Communications,
Inc., the banks named therein and The Toronto-Dominion Bank
Trust Company, as Administrative Agent (incorporated by
reference to Exhibit (17)(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992).
10.13(c) Amendment No. 2 to the Credit Agreement, dated April 12,
1993, between Comcast Cellular Communications, Inc., the
banks named therein and the Toronto-Dominion Bank Trust
Company, as administrative agent (incorporated by reference
to Exhibit 10(18)(c) to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.13(d) Amendment No. 3, dated as of September 2, 1994, to the
Credit Agreement dated as of March 4, 1992, between Comcast
Cellular Communications, Inc., the banks therein and the
Toronto-Dominion Bank Trust Company, as administrative agent
(incorporated by reference to Exhibit 10.4 to the Current
Report on Form 8-K of the Company filed on November 2,
1994).
10.14 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 the Company's Current Report on Form 8-K filed with the
Commission on December 17, 1992, as amended by Form 8 filed
January 8, 1993).
_______________
*Constitutes a management contract or compensatory plan or arrangement.
<PAGE>59
10.15 Credit Agreement, dated as of December 2, 1992, among
Comcast Storer, Inc. and The Bank of New York, The Bank of
Nova Scotia, Canadian Imperial Bank of Commerce, The Chase
Manhattan Bank (National Association), Chemical Bank, LTCB
Trust Company and The Toronto-Dominion Bank, as managing
agents, and The Bank of New York, as administrative agent
(incorporated by reference to Exhibit 5 to the Company's
Current Report on Form 8-K filed with the Commission on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.16 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 the Company's Current Report on Form 8-K filed
with the Commission on December 17, 1992, as amended by Form
8 filed January 8, 1993).
10.17 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 the Company's Current Report on Form 8-K filed
with the Commission on December 17, 1992, as amended by Form
8 filed January 8, 1993).
10.18 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 the Company's Current Report on
Form 8-K filed with the Commission on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
10.19 Tax Sharing Agreement, dated December 2, 1992, between the
Company and Comcast Storer, Inc. (incorporated by reference
to Exhibit 9 to the Company's Current Report on Form 8-K
filed with the Commission on December 17, 1992, as amended
by Form 8 filed January 8, 1993).
10.20 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 the Company's
Current Report on Form 8-K filed with the Commission on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.21 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 the Company's Current Report
on Form 8-K filed with the Commission on December 17, 1992,
as amended by Form 8 filed January 8, 1993).
10.22 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 the Company's
Current Report on Form 8-K filed with the Commission on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.23 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 the Company's Current Report
on Form 8-K filed with the Commission on December 17, 1992,
as amended by Form 8 filed January 8, 1993).
10.24 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 the Company's
Current Report on Form 8-K filed with the Commission on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
<PAGE>60
10.25 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 the Company's
Current Report on Form 8-K filed with the Commission on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.26(a) Stock Purchase Agreement, dated September 14, 1992, among
the Company, Comcast FCI, Inc. and Fleet Call, Inc.
(incorporated by reference to Exhibit A to Amendment No. 1
to the Company's Schedule 13D dated September 22, 1992 filed
with respect to Fleet Call, Inc.).
10.26(b) Letter Agreement, dated October 28, 1992, amending Stock
Purchase Agreement (incorporated by reference to Exhibit L
to Amendment No. 2 to the Company's Schedule 13D dated
February 23, 1993 filed with respect to Fleet Call, Inc.).
10.26(c) Letter Agreement, dated November 24, 1992, amending Stock
Purchase Agreement (incorporated by reference to Exhibit M
to Amendment No. 2 to the Company's Schedule 13D dated
February 23, 1993 filed with respect to Fleet Call, Inc.).
10.26(d) Notice, dated February 15, 1993, from Fleet Call, Inc. to
the Company pursuant to the Stock Purchase Agreement
(incorporated by reference to Exhibit N to Amendment No. 2
to the Company's Schedule 13D dated February 23, 1993 filed
with respect to Fleet Call, Inc.).
10.26(e) Acknowledgement, dated February 15, 1993, among the Company,
Comcast FCI, Inc. and Fleet Call, Inc. (incorporated by
reference to Exhibit O to Amendment No. 2 to the Company's
Schedule 13D dated February 23, 1993 filed with respect to
Fleet Call, Inc.).
10.26(f) Letter Agreement, dated February 15, 1993, amending the
Stock Purchase Agreement (incorporated by reference to
Exhibit P to Amendment No. 2 to the Company's Schedule 13D
dated February 23, 1993 filed with respect to Fleet Call,
Inc.).
10.26(g) Letter Agreement, dated July 22, 1993, among the Company,
Comcast FCI, Inc. and Nextel Communications, Inc. (formerly
Fleet Call, Inc.) (incorporated by reference to Exhibit A to
Amendment No. 3 to Schedule 13D dated July 27, 1993 filed by
the Company with respect to Nextel Communications, Inc.).
10.26(h) Amendment, dated August 4, 1994, to Stock Purchase Agreement
dated as of September 14, 1992 among Comcast Corporation,
Comcast FCI, Inc. and Nextel Communications, Inc.
(incorporated by reference to Exhibit C to Amendment No. 7
to the Schedule 13D of Comcast Corporation relating to
common stock of Nextel Communications, Inc. filed on August
9, 1994).
10.27 Option Agreement, dated September 14, 1992, between Fleet
Call, Inc. and Comcast FCI, Inc. (incorporated by reference
to Exhibit B to Amendment No. 1 to the Company's Schedule
13D dated September 22, 1992 filed with respect to Fleet
Call, Inc.).
10.28 Promissory Note, dated September 14, 1992, issued by Comcast
FCI, Inc. in favor of Fleet Call, Inc. (incorporated by
reference to Exhibit C to Amendment No. 1 to the Company's
Schedule 13D dated September 22, 1992 filed with respect to
Fleet Call, Inc.).
10.29 Stock Pledge Agreement, dated September 14, 1992, between
Comcast FCI, Inc. and Fleet Call, Inc. (incorporated by
reference to Exhibit D to Amendment No. 1 to the Company's
Schedule 13D dated September 22, 1992 filed with respect to
Fleet Call, Inc.).
10.30 Stockholders' Voting Agreement, dated September 14, 1992,
among Comcast FCI, Inc. and the other parties named therein
(incorporated by reference to Exhibit E to Amendment No. 1
to the Company's Schedule 13D dated September 22, 1992 filed
with respect to Fleet Call, Inc.).
<PAGE>61
10.31(a) Share Purchase Agreement, dated June 18, 1994, between
Comcast Corporation and Rogers Communications Inc.
(incorporated by reference to Exhibit 10(3) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994).
10.31(b) First Amendment to Share Purchase Agreement, dated as of
December 22, 1994, by and between Comcast Corporation and
Rogers Communications Inc., to the Share Purchase Agreement
dated June 18, 1994 (incorporated by reference to Exhibit
10.9 to the Company's Current Report on Form 8-K filed on
January 6, 1995).
10.32(a) Agreement and Plan of Merger, dated August 4, 1994, among
Comcast Corporation, Liberty Media Corporation, Comcast
QMerger, Inc. and QVC, Inc. (incorporated by reference to
Exhibit 99.49 to Amendment No. 21 to the Schedule 13D of
Comcast Corporation relating to common stock of QVC, Inc.
filed on August 8, 1994).
10.32(b) First Amendment to Agreement and Plan of Merger, dated as of
February 3, 1995, (incorporated by reference to Exhibit
(c)(35) to Amendment No. 17 to the Tender Offer Statement on
Schedule 14D-1 filed with the Securities and Exchange
Commission on February 6, 1995 by QVC Programming Holdings,
Inc., Comcast Corporation and Tele-Communications, Inc. with
respect to the tender offer for all outstanding shares of
QVC, Inc.).
10.33 CreditAgreement, 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 with the Securities and
Exchange Commission on February 17, 1995 by QVC Programming
Holdings, Inc., Comcast Corporation and Tele-Communications,
Inc. with respect to the tender offer for all outstanding
shares of QVC, Inc.).
10.34 Storer Communications Retirement Savings Plan, dated January
1, 1993, (incorporated by reference to Exhibit 4.1 to the
Form S-8 of Comcast Corporation filed on June 29, 1994).
10.35 Credit Agreement, dated as of September 14, 1994, among
Comcast Cable Tri-Holdings, Inc., The Bank of New York, The
Chase Manhattan Bank (National Association), PNC Bank,
National Association, as Managing Agents, and the Bank of
New York, as Administrative Agent, and the banks named
therein (incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K of the Company filed on November
2, 1994).
10.36 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, Comcast Corporation (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on January 6, 1995).
10.37 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 the Company's Current Report on
Form 8-K filed on January 6, 1995).
10.38 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 the Company's Current Report on Form 8-K filed on January
6, 1995).
10.39 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 the Company's Current Report on Form 8-K
filed on January 6, 1995).
<PAGE>62
10.40 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 Comcast Corporation, 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 the Company's Current Report
on Form 8-K filed on January 6, 1995).
10.41 Registration Rights and Price Protection Agreement, dated as
of December 22, 1994, by and between Comcast Corporation and
The California Public Employees' Retirement System
(incorporated by reference to Exhibit 10.8 to the Company's
Current Report on Form 8-K filed on January 6, 1995).
10.42 Agreement of Limited Partnership of WirelessCo, L.P., a
Delaware Limited Partnership, dated as of October 24, 1994,
by and among Sprint Spectrum, Inc., TCI Network, Inc.,
Comcast Telephony Services and Cox Communications Wireless,
Inc., each as a General Partner and a Limited Partner.
10.43/*/ Credit Agreement, dated as of November 18, 1994, among
Comcast Corporation and The Bank of New York, Chemical Bank
and The Toronto-Dominion Bank, as Managing Agents and
Issuing Banks, The Bank of New York and Chemical Bank, as
Co-Administrative Agents, The Toronto-Dominion Bank, as
Documentation Agent and The Bank of New York, as Paying
Agent, and the Banks listed therein.
10.44/*/ Guaranty Agreement, dated as of November 18, 1994, between
Comcast Cable Communications, Inc., and The Bank of New
York, as paying agent on behalf of itself, the Banks, the
Managing Agents, the Issuing Banks, the Co-Administrative
Agents and the Documentation Agent under and as defined in
the Credit Agreement dated as of November 18, 1994.
10.45/*/ Pledge Agreement, dated as of January 1, 1996, between
Comcast Corporation and The Bank of New York, as the Secured
Party.
10.46/*/ Affiliate Subordination Agreement, dated as of November 18,
1994, among Comcast Cable Communications, Inc., Comcast
Financial Corporation, and any affiliate of the borrower or
Comcast that shall have become a party hereto and The Bank
of New York, as Paying Agent under the Credit Agreement
dated as of November 18, 1994.
21 List of Subsidiaries.
23 Accountants' Consents.
27 Financial Data Schedule.
99.1 Report of Independent Public Accountants to Garden State
Cablevision L.P., as of December 31, 1994 and 1993 and for
the years then ended.
99.2 Report of Independent Public Accountants to Garden State
Cablevision L.P., as of December 31, 1993 and 1992 and for
the years then ended (incorporated by reference to Exhibit
99(1) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
99.3 Report of Independent Public Accountants to Comcast
International Holdings, Inc., as of December 31, 1994 and
1993 and for the years then ended.
<PAGE>63
/*/ 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.
(c) Reports on Form 8-K
The Company filed a Current Report on Form 8-K under Item 5 on
November 2, 1994 which included the Company's Unaudited Pro Forma
Condensed Consolidated Financial Statements and the Combined Financial
Statements for the U.S. Cable Television Operations of Maclean Hunter
as well as the Consolidated Financial Statements for QVC, Inc.
(formerly, QVC Network, Inc.) for the year ended January 31, 1994 and
for the quarter ended April 30, 1994, which were incorporated by
reference to QVC, Inc.'s Annual Report on Form 10-K and Quarterly
Report on Form 10-Q for those periods, respectively.
<PAGE>64
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 22, 1995.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ RALPH J. ROBERTS
- --------------------------
Ralph J. Roberts Chairman of the Board of February 22, 1995
Directors; Director
/s/ JULIAN A. BRODSKY
- --------------------------
Julian A. Brodsky Vice Chairman of the Board of February 22, 1995
Directors; Director
/s/ BRIAN L. ROBERTS
- --------------------------
Brian L. Roberts President; Director (Principal February 22, 1995
Executive Officer)
/s/ JOHN R. ALCHIN
- --------------------------
John R. Alchin Senior Vice President, Treasurer February 22, 1995
(Principal Financial Officer)
/s/ LAWRENCE S. SMITH
- --------------------------
Lawrence S. Smith Senior Vice President, Accounting February 22, 1995
and Administration (Principal
Accounting Officer)
/s/ DANIEL AARON
- --------------------------
Daniel Aaron Director February 22, 1995
/s/ GUSTAVE G. AMSTERDAM
- --------------------------
Gustave G. Amsterdam Director February 22, 1995
/s/ SHELDON M. BONOVITZ
- --------------------------
Sheldon M. Bonovitz Director February 22, 1995
/s/ JOSEPH L. CASTLE II
- --------------------------
Joseph L. Castle II Director February 22, 1995
</TABLE>
<PAGE>65
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ BERNARD C. WATSON
- --------------------------
Bernard C. Watson Director February 22, 1995
/s/ IRVING A. WECHSLER
- --------------------------
Irving A. Wechsler Director February 22, 1995
/s/ ANNE WEXLER
- --------------------------
Anne Wexler Director February 22, 1995
</TABLE>
<PAGE>66
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
Description of Year Expenses Reserves(A) of Year
<S> <C> <C> <C> <C>
1994
Allowance for
doubtful accounts $11,792 $21,321 $21,841 $11,272
======= ======= ======= =======
1993
Allowance for
doubtful accounts $9,817 $20,427 $18,452 $11,792
====== ======= ======= =======
1992
Allowance for
doubtful accounts $6,143 $16,834 $13,160 $9,817
====== ======= ======= ======
<FN>
(A) Uncollectible accounts written off.
</FN>
</TABLE>
<PAGE>67
INDEX TO EXHIBITS
Exhibit
Number Exhibit
10.5(b)* Amendment to 1986 Nonqualified Stock Option Plan,
dated September 16, 1994.
10.6(b)* Amendment to 1987 Stock Option Plan, dated September
16, 1994.
10.8* Amended and Restated Deferred Compensation Plan,
dated January 1, 1995.
10.9* 1990 Restricted Stock Plan, as amended and restated
on November 11, 1994.
10.42 Agreement of Limited Partnership of WirelessCo, L.P.,
a Delaware Limited Partnership, dated as of October
24, 1994, by and among Sprint Spectrum, Inc., TCI
Network, Inc., Comcast Telephony Services and Cox
Communications Wireless, Inc., each as a General
Partner and a Limited Partner.
10.43/*/ Credit Agreement, as of November 18, 1994, among
Comcast Corporation, The Bank of New York, Chemical
Bank and The Toronto-Dominion Bank, as Managing
Agents and Issuing Banks, The Bank of New York and
Chemical Bank, as Co-Administrative Agents, The
Toronto-Dominion Bank, as Documentation Agent and The
Bank of New York, as Paying Agent, and the Banks
listed therein.
10.44/*/ Guaranty Agreement, dated as of November 18, 1994,
between Comcast Cable Communications, Inc., and The
Bank of New York, as paying agent on behalf of
itself, the Banks, the Managing Agents, the Issuing
Banks, the Co-Administrative Agents and the
Documentation Agent under and as defined in the
Credit Agreement dated as of November 18, 1994.
10.45/*/ Pledge Agreement, dated as of January 1, 1996,
between Comcast Corporation and The Bank of New York,
as the Secured Party.
10.46/*/ Affiliate Subordination Agreement, dated as of
November 18, 1994, among Comcast Cable
Communications, Inc., Comcast Financial Corporation,
and any affiliate of the borrower or Comcast that
shall have become a party hereto and The Bank of New
York, as Paying Agent under the Credit Agreement
dated as of November 18, 1994.
21 List of Subsidiaries.
23 Accountants' Consents.
27 Financial Data Schedule.
99.1 Report of Independent Public Accountants to Garden
State Cablevision L.P., as of December 31, 1994 and
1993 and for the years then ended.
99.3 Report of Independent Public Accountants to Comcast
International Holdings, Inc., as of December 31, 1994
and 1993 and for the years then ended.
- --------------
* 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.
Exhibit 10.5(b)
Amendment to the
Comcast Corporation 1986 Nonqualified Stock Option Plan
Dated September 16, 1994
The Compensation Committee of the Board of Directors of Comcast
Corporation amended the Comcast Corporation 1986 Nonqualified Stock Option Plan
(the "1986 Plan"), effective September 16, 1994, as follows:
A new Section 10 is added to the 1986 Plan to read, in its entirety, as
follows:
"10. 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 Paragraph
10(b), any tax liabilities incurred in connection with the
exercise of an Option for Class A Common Stock under the Plan
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 at the time of such election that the Optionee has
held for at least six months a number of shares of the same
class as that of the Option Shares that is at least equal to
that number of Option Shares to be withheld by the Company for
the then current exercise and that number of Option Shares
which were withheld by the Company in connection with all
other
<PAGE>
2
exercises of Options during the six month period prior
to such election, in each case 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 Class A Common Stock on the
principal exchange on which the Class A 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 Paragraph 10(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. In addition, with
respect to persons subject to reporting requirements under
Section 16(a) of the 1934 Act, such election must be made at
least six months prior to the date the amount of tax to be
withheld or paid is determined (which election will remain in
effect with regard to the exercise of an Option and all future
exercises of Options unless revoked upon six months prior
notice). An election pursuant to this paragraph 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 10(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 10(b) as it deems appropriate."
Exhibit 10.6(b)
Amendment to the Comcast Corporation 1987 Stock Option Plan
Dated September 16, 1994
The Subcommittee on Performance Based Compensation of the Compensation
Committee of the Board of Directors of Comcast Corporation amended the Comcast
Corporation 1987 Stock Option Plan (the "Plan"), effective September 16, 1994,
as follows:
Section 12 of the Plan is amended to read, in its entirety, as follows:
"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 Paragraph
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 at the time of such election that the Optionee has
held for at least six months a number of shares of the same
class as that of the Option Shares that is at least equal to
that number of Option Shares to be withheld by the Company for
the then current exercise and that number of Option Shares
which were withheld by the Company in connection with all
other exercises of Options during the six month period prior
<PAGE>
2
to such election, in each case 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 Paragraph 12(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. In addition, with respect to persons
subject to reporting requirements under Section 16(a) of the
1934 Act, such election must be made at least six months prior
to the date the amount of tax to be withheld or paid is
determined (which election will remain in effect with regard
to the exercise of an Option and all future exercises of
Options unless revoked upon six months prior notice). An
election pursuant to this paragraph 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 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 Paragraph 12(b) as it deems appropriate."
Exhibit 10.8
COMCAST CORPORATION
DEFERRED COMPENSATION PLAN
As Amended and Restated
Effective January 1, 1995
<PAGE>
TABLE OF CONTENTS
Page
I. ESTABLISHMENT OF PLAN 1
II. DEFINITIONS 1
III. ELECTION TO DEFER COMPENSATION 6
IV. FORMS OF DISTRIBUTION 11
V. BOOK ACCOUNTS 11
VI. NON-ASSIGNABILITY, ETC. 13
VII. DEATH OR DISABILITY OF PARTICIPANT 13
VIII. INTERPRETATION 15
IX. AMENDMENT OR TERMINATION 15
X. MISCELLANEOUS PROVISIONS 16
XI. EFFECTIVE DATE 16
<PAGE>
COMCAST CORPORATION
DEFERRED COMPENSATION PLAN
As Amended and Restated,
Effective January 1, 1995
I. ESTABLISHMENT OF PLAN
COMCAST CORPORATION, a Pennsylvania corporation, originally established
the Comcast Corporation Deferred Compensation Plan (the "Plan"), effective as of
February 12, 1974, 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
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. The Plan has been amended from time to time. Comcast
Corporation hereby amends and restates the Plan in its entirety, effective
January 1, 1995.
II. 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 "Administrator" means the Committee.
<PAGE>2
2.3 "Annual Rate of Pay" means, as of any date, the sum of:
2.3.1 an employee's annualized base pay rate, plus
2.3.2 the amount of bonus, if any, paid to such employee
pursuant to a Bonus Program during the 365-day period
ending on such date.
An employee's Annual Rate of Pay shall not include sales commissions or other
similar payments or awards.
2.4 "Board" means the Board of Directors of the Company, or the
Executive Committee of the Board of Directors of the Company.
2.5 "Bonus Program" means a plan or arrangement maintained by a
Participating Company for the benefit of a class or category of employees, which
provides for the payment of a cash bonus to eligible members of such class or
category upon the satisfaction of such conditions as may be provided under such
plan or arrangement, provided that the term "Bonus Program" shall not include
any arrangement for the payment of sales commissions or other similar payments
or awards.
2.6 "Committee" means the Subcommittee on Performance Based
Compensation of the Compensation Committee of the Board of Directors of
the Company.
2.7 "Company" means Comcast Corporation.
2.8 "Compensation" means:
2.8.1 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
<PAGE>3
2.8.2 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.
2.9 "Election" means a written election on a form provided by the
Administrator, filed with the Administrator in accordance with Article III,
pursuant to which an Outside Director or an Eligible Employee:
2.9.1 may 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; and/or
2.9.2 may designate the time that part or all of the Account
shall be distributed.
2.10 "Eligible Employee" means:
2.10.1 each employee of a Participating Company who , as of
December 31, 1989, was eligible to participate in the Plan;
2.10.2 each employee of a Participating Company who was, at any
time before January 1, 1995, eligible to participate in the
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 to be
<PAGE>4
earned after December 31 , 1994 is filed with the
Administrator and (2) the first day of each Plan Year
beginning after December 31, 1994.
2.10.3 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.
2.10.4 each New Key Employee.
2.11 "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.
2.12 "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.
2.13 "New Key Employee" means each employee of a Participating Company
hired on or after the Restatement Effective Date whose annual rate of pay on his
date of hire is $125,000 or more.
2.14 "Outside Director" means a member of the Board who is not an
employee of a Participating Company.
<PAGE>5
2.15 "Participant".
2.15.1 "Participant" means each individual who has made an
Election, and who has an undistributed amount credited to an
Account under the Plan.
2.15.2 "Active Participant" means (1) each Participant who is in
active service as an Outside Director and (2) each
Participant who is actively employed by a Participating
Company as an Eligible Employee.
2.15.3 "Grandfathered Participant" means an Inactive Participant
who, on or before December 31, 1991, enters 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.
2.15.4 "Inactive Participant" means each Participant who is not
in active service as an Outside Director and is not actively
employed by a Participating Company.
2.16 "Participating Company" means the Company and each Participating
Company (as such term is defined therein) in The Comcast Corporation
Retirement-Investment Plan, as amended.
<PAGE>6
2.17 "Plan" means the Comcast Corporation Deferred Compensation Plan,
As Amended and Restated, Effective January 1, 1995, as set forth in this
document, and as may be amended.
2.18 "Plan Year" means the calendar year.
2.19 "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.
2.20 "Restatement Effective Date" means January 1, 1995.
2.21 "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.
III. 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 III; 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
<PAGE>7
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. The Election shall be made on the form
provided by the Administrator for this purpose. Except as provided in Section
3.3, no 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 as to which the Election applies.
3.3 Filing of Elections by New Key Employees. Notwithstanding Section
3.1 Section and 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
<PAGE>8
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 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 Section 7.1 or Section 7.3:
3.5.1 With respect to Elections filed with the Administrator
before January 1, 1990, no distribution may be made
within five years of the date on which the Election is
filed with the Administrator.
3.5.2 Except as otherwise provided by Section 3.5.1, no
distribution may be made within one year of the date on
which the Election is filed with the Administrator.
Each Participant may select a form of distribution in accordance with Article
IV.
<PAGE>9
3.6 Designation of Benefit Commencement Date.
3.6.1 The designation of the time for distribution of
benefits to begin under the Plan may vary with each
separate Election.
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, has
elected to defer payment for an additional period from
the originally-elected payment date, may elect to defer
the payment of such amount for a minimum of one
additional year from the previously-elected payment
date by filing an Election with the Administrator on or
before the close of business on December 31 of the Plan
Year preceding the Plan Year in which the distribution
would otherwise be made.
3.6.3 Except as provided in Section 3.6.4, if permitted by
the Administrator in its sole discretion, an 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, has elected to defer
payment for an additional period from the originally
elected payment date, may elect to defer the payment of
such amount for
<PAGE>10
a minimum of one additional year 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 December 31 of the Plan Year preceding
the Plan Year in which the distribution would otherwise
be made.
3.6.4 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.
3.6.5 Subject to acceleration pursuant to Section 7.1 or
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
<PAGE>11
makes an Election under Section 3.6.3) 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.
IV. 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.
V. 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.
Compensation deferred pursuant to the Plan shall be credited to the Account on
the date such Compensation would otherwise have been payable to the
<PAGE>12
Participant. Earnings on the balance of the Account shall be credited to the
Account as provided in Section 5.2.
5.2 Crediting of Earnings on Accounts.
5.2.1 In General. Except as otherwise provided in Section
5.2.2, the Administrator shall credit each
Participant's Account with interest at the rate of 12%
per annum.
5.2.2 Termination of Employment During Deferral Period.
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 credit such
Participant's Account with interest at the lesser of
(1) the rate in effect under Section 5.2.1 or (2) the
Prime Rate plus one percent.
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
<PAGE>13
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.
VI. 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.
VII. DEATH OR DISABILITY OF PARTICIPANT
7.1 Death or Disability Before Commencement of Distributions. If a
Participant's employment (or, in the case of a Participant who is an Outside
Director, a Participant's service as an Outside Director) is terminated by
reason of death or disability, before the distribution of any portion of his
Account has begun, the Company shall, within ninety (90) days of the date of
such termination, commence distribution of the Account to the Participant (in
the event of disability) or to the beneficiary or beneficiaries (in the event of
death) selected by the Participant. Distributions under this Section 7.1 shall
be made
<PAGE>14
in accordance with the Election of the Participant under Section 4.1.
7.2 Death or Disability After Commencement of Distributions. If a
Participant's employment (or, in the case of a Participant who is an Outside
Director, a Participant's service as an Outside Director) is terminated by
reason of death or disability after distribution of his or her Account has
begun, the Company shall continue to make distributions to the Participant or
the Participant's beneficiary or beneficiaries in accordance with the Election
of the Participant under Section 4.1.
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 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
<PAGE>15
beneficiary shall survive the Participant, the Participant's estate shall be
deemed to be the beneficiary.
VIII. INTERPRETATION
8.1 Authority of Board. The Board shall have full and exclusive
authority to construe, interpret and administer this Plan and Board's
construction and interpretation thereof shall be binding and conclusive on all
persons for all purposes.
IX. 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 rate of earnings credited 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.
<PAGE>16
X. 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.
XI. EFFECTIVE DATE
The original effective date of the Plan was February 12, 1974. The Plan
has been amended from time to time. The effective date of this amendment and
restatement of the Plan shall be January 1, 1995.
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, this 11th day of November, 1994.
[CORPORATE SEAL] COMCAST CORPORATION
ATTEST: /s/ Arthur Block BY: /s/ Stanley Wang
_____________________ _______________________
Exhibit 10.9
COMCAST CORPORATION
1990 RESTRICTED STOCK PLAN
(As Amended and Restated, Effective November 11, 1994)
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)"Award" means an award of Restricted Stock granted under the Plan.
(b)"Board" means the Board of Directors of the Company.
(c)"Code" means the Internal Revenue Code of 1986, as amended.
(d)"Committee" means the Subcommittee on Performance Based Compensation of
the Compensation Committee of the Board.
(e)"Company" means Comcast Corporation.
(f)"Date of Grant" means the date on which an Award is granted.
(g)"Eligible Employee" means a management employee of the Company or a
subsidiary or affiliate of the Company, as determined by the Committee.
(h)"Grantee" means an Eligible Employee who is granted an Award.
(i)"Plan" means the Comcast Corporation 1990 Restricted Stock Plan, as set
forth herein, and as amended from time to time.
(j)"Plan Year" means the 12-consecutive-month period extending from
January 3 to January 2.
(k)"Restricted Stock" means Shares subject to restrictions as set forth in
an Award.
<PAGE>
2
(l)"Rule 16b-3" means Rule 16b-3 promulgated under the 1935 Act, as in
effect from time to time.
(m)"Share" or "Shares" means a share or shares of Class A Special Common
Stock, $1.00 par value, of the Company.
(n)"1933 Act" means the Securities Act of 1933, as amended.
(o)"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 3,250,000 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
<PAGE> 3
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 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 or to
the liability of a member of the Committee for the payment of taxes pursuant to
federal, state or local law.
(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 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 of a subsidiary or
affiliate of the 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
<PAGE>
4
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
shall extend for at least six (6) months from the Date of Grant (except as
otherwise provided by Paragraph 12), 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 the Company or of a subsidiary or affiliate of the 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 the Company or a subsidiary or affiliate
of the Company, shall not be deemed a termination of employment. In the event
that a Grantee
<PAGE>
5
terminates employment with the Company or its subsidiaries or affiliates, all
Shares remaining subject to restrictions shall be forfeited by the Grantee and
deemed cancelled 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
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.
(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
<PAGE>
6
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.
(iii) Deferral Period. Subject to Paragraph 8(b), all Restricted
Stock that is subject to a deferral election under this
Paragraph 8(a) 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
earlier of (A) the last day of the fifth Plan Year beginning
after the date as of which the applicable restrictions lapse
or (B) within sixty (60) days following the Grantee's
termination of employment for any reason.
(iv) Effect of Failure of Restrictions on Shares to Lapse. A
deferral election under this Paragraph 8(a) shall be null and
void in the event that the restrictions on Restricted Stock
identified in a deferral election do not lapse as of the end
of the Plan Year following the Plan Year in which the deferral
election is filed with the Committee by reason of the failure
to satisfy any condition precedent to the lapse of the
restrictions in such Plan Year.
(b)Additional Deferral Election. On or before the last day of the calendar
year ending before the first day of the Plan Year in which Restricted Stock
subject to a deferral election under Paragraph 8(a) is to be delivered to a
Grantee, the Grantee may elect to re-defer the receipt of all or any portion of
such Restricted Stock until the earlier of (i) the last day of the fifth Plan
Year beginning after the date on which the Restricted Stock would have been
delivered but for the Grantee's election pursuant to this Paragraph 8(b) or (ii)
within sixty (60) days following the Grantee's termination of employment for any
reason.
(c)Status of Deferred Shares. A Grantee's right to delivery of Shares
subject to a deferral election under Paragraph 8(a) or 8(b) 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
<PAGE>
7
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.
(d)Non-Assignability, Etc. The right of a Grantee to receive Shares
subject to a deferral 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 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.
<PAGE>
8
(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 has held for at least
six months a number of shares of the same class as that of the
Shares subject to the Award that is at least equal to the
number 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. In addition, with respect to persons subject to
reporting requirements under Section 16(a) of the 1934 Act,
such election must be made at least six months prior to the
date the amount of tax to be withheld or paid is determined
(which election will remain in effect with regard to all
future grants of Awards or lapses of restrictions, as
applicable, unless revoked upon six months prior notice). 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
<PAGE>
9
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
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. MERGERS, DISPOSITIONS AND CERTAIN OTHER TRANSACTIONS
If before the lapse of all restrictions on Restricted Stock, the Company
or any subsidiary or affiliate of the Company shall be merged into or
consolidated with or otherwise combined with or acquired by another person or
entity, or there is a reorganization or a liquidation or partial liquidation of
the Company, the Company may choose to take no action with regard to the Awards
outstanding, or, notwithstanding any other provision of the Plan, the Company
may eliminate any restrictions that may continue to apply to Restricted Stock or
the Company shall take such action as the Board shall determine to be reasonable
under the circumstances in order to permit Grantees to realize the value of
rights granted to them under the Plan.
12. AMENDMENT AND TERMINATION
The Plan may be terminated by the Board at any time. The Plan may be
amended by the Board at any time. No Award shall be affected by any such
termination or amendment without the written consent of the Grantee.
13. EFFECTIVE DATE
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10
The Plan shall become effective on the date on which the Plan is adopted
by the Board. The adoption of the Plan and the grant of Awards pursuant to the
Plan is subject to the approval of the shareholders of the Company to the extent
that such approval (a) is required pursuant to the By-law 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 requiring to satisfy the conditions on Rule 16b-3. If
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.
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 this 11th day of November, 1994
[CORPORATE SEAL] COMCAST CORPORATION
ATTEST: /s/ Arthur Block BY: /s/ Stanley Wang
_____________________ ___________________
Exhibit 10.42
AGREEMENT OF LIMITED PARTNERSHIP
OF
WIRELESSCO, L.P.,
A DELAWARE LIMITED PARTNERSHIP
dated as of October 24, 1994
among
SPRINT SPECTRUM, INC.
TCI NETWORK, INC.
COMCAST TELEPHONY SERVICES
and
COX COMMUNICATIONS WIRELESS, INC.
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
WIRELESSCO, L.P.,
A DELAWARE LIMITED PARTNERSHIP
------------------------------
This AGREEMENT OF LIMITED PARTNERSHIP is entered into as of the 24th day of
October, 1994, by and among Sprint Spectrum, Inc., a Kansas corporation
("Sprint"), TCI Network, Inc., a Colorado corporation ("TCI"), Comcast Telephony
Services, a Delaware general partnership ("Comcast"), and Cox Communications
Wireless, Inc., a Delaware corporation ("Cox"), each as a General Partner and a
Limited Partner, pursuant to the provisions of the Delaware Revised Uniform
Limited Partnership Act, on the following terms and conditions:
SECTION 1
THE PARTNERSHIP
1.1 Formation.
The Partners hereby form the Partnership as a limited partnership pursuant
to the provisions of the Act for the purposes and upon the terms and conditions
set forth in this Agreement.
1.2 Name.
The name of the Partnership shall be WirelessCo, L.P, and all business of
the Partnership shall be conducted in such name or, in the discretion of the
Management Committee, under any other names (but excluding a name that includes
the name of a Partner unless such Partner has consented thereto).
1.3 Purpose.
(a) Subject to, and upon the terms and conditions of this Agreement, the
purposes and business of the Partnership shall be to develop (through
acquisition, lease, construction, investment or otherwise) a seamless,
integrated, competitive Wireless Business providing Wireless Exclusive Services
and Non-Exclusive Services nationwide, and to operate, manage and maintain such
business. Without the unanimous consent of the Partners, the Partnership shall
not engage in any other business, including any of the Excluded Businesses.
During the term of the Trademark License and upon the terms and conditions
thereof, the Partnership's services will be marketed under the Sprint Brand. In
furtherance of its purposes, but subject to the terms and
<PAGE>
2
conditions of this Agreement, the Partnership may do any or all of the
following: provide certain services to other operators of Wireless Businesses
that provide Wireless Exclusive Services and Non-Exclusive Services pursuant to
Affiliation Agreements or other contractual relationships with such operators
(including PioneerCo); make and prosecute applications and bids for licenses for
such Wireless Business and renewals thereof; invest in Persons holding licenses
for such Wireless Businesses (including PioneerCo); and design, construct,
develop and dispose of systems for such Wireless Business.
(b) The Partnership shall have all the powers now or hereafter conferred by
the laws of the State of Delaware on limited partnerships formed under the Act
and, subject to the limitations of this Agreement, may do any and all lawful
acts or things that are necessary, appropriate, incidental or convenient for the
furtherance and accomplishment of the purposes of the Partnership. Without
limiting the generality of the foregoing, and subject to the terms of this
Agreement, the Partnership may enter into, deliver and perform all contracts,
agreements and other undertakings and engage in all activities and transactions
as may be necessary or appropriate to carry out its purposes and conduct its
business.
(c) Simultaneously with the execution of this Agreement, the Parents of the
Partners have entered into the Joint Venture Formation Agreement, pursuant to
which (subject to the satisfaction of certain conditions) NewTelco will be
formed by the Partners on the NewTelco Closing Date to engage in the businesses
described in the Joint Venture Formation Agreement. On the NewTelco Closing
Date, NewTelco and the Partnership will be combined in a manner to be agreed
upon by the Partners.
1.4 Principal Executive Office.
The principal executive office of the Partnership shall be located in such
place as determined by the Management Committee, and the Management Committee
may change the location of the principal executive office of the Partnership to
any other place within or without the State of Delaware upon ten (10) Business
Days prior notice to each of the Partners, provided that such principal
executive office shall be located in the United States. The Management Committee
may establish and maintain such additional offices and places of business of the
Partnership, within or without the State of Delaware, as it deems appropriate.
<PAGE>
3
1.5 Term.
The term of the Partnership shall commence on the date the certificate of
limited partnership described in Section 17-201 of the Act (the "Certificate")
is filed in the office of the Secretary of State of Delaware in accordance with
the Act and shall continue until the winding up and liquidation of the
Partnership and its business is completed following a Liquidating Event, as
provided in Section 14.
1.6 Filings; Agent for Service of Process.
(a) Promptly following the execution of this Agreement, the General
Partners shall cause the Certificate to be filed in the office of the Secretary
of State of Delaware in accordance with the Act. The Management Committee shall
take any and all other actions reasonably necessary to perfect and maintain the
status of the Partnership as a limited partnership under the laws of Delaware.
The General Partners shall cause amendments to the Certificate to be filed
whenever required by the Act. The Partners shall be provided with copies of each
document filed or recorded as contemplated by this Section 1.6 promptly
following the filing or recording thereof.
(b) The General Partners shall execute and cause to be filed original or
amended Certificates and shall take any and all other actions as may be
reasonably necessary to perfect and maintain the status of the Partnership as a
limited partnership or similar type of entity under the laws of any other states
or jurisdictions in which the Partnership engages in business.
(c) The registered agent for service of process on the Partnership shall be
The Corporation Trust Company or any successor as appointed by the Management
Committee in accordance with the Act. The registered office of the Partnership
in the State of Delaware is located at Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801.
1.7 Title to Property.
No Partner shall have any ownership interest in its individual name or
right in any real or personal property owned, directly or indirectly, by the
Partnership, and each Partner's Interest shall be personal property for all
purposes. The Partnership shall hold all of its real and personal property in
the name of the Partnership or its nominee and not in the name of any Partner.
<PAGE>
4
1.8 Payments of Individual Obligations.
The Partnership's credit and assets shall be used solely for the benefit of
the Partnership, and no asset of the Partnership shall be transferred or
encumbered for, or in payment of, any individual obligation of any Partner.
1.9 Independent Activities.
Each Partner and any of its Affiliates shall be required to devote only
such time to the affairs of the Partnership as such Partner determines in its
sole discretion may be necessary to manage and operate the Partnership to the
extent contemplated by this Agreement, and each such Person, except as expressly
provided herein, shall be free to serve any other Person or enterprise in any
capacity that it may deem appropriate in its discretion.
1.10 Definitions.
Capitalized words and phrases used in this Agreement have the following
meanings:
"Act" means the Delaware Revised Uniform Limited Partnership Act, as set
forth in Del. Code Ann. tit. 6, (S)(S) 17-101 to 17-1109.
"Accountants" means, as of any time, such firm of nationally recognized
independent certified public accountants that, as of such time, has been
appointed by the Management Committee as the accountants for the Partnership.
"Additional Capital Contributions" means, with respect to each Partner, the
Capital Contributions made by such Partner pursuant to Sections 2.3, 2.4 and
2.5, reduced by the amount of any liabilities of such Partner assumed by the
Partnership in connection with such Capital Contributions or which are secured
by any property contributed by such Partner as a part of such Capital
Contribution. In the event all or a portion of an Interest is Transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Additional Capital Contributions of the transferor to the extent they relate to
the transferred Interest.
"Additional Contribution Agreement" means a contribution agreement the
terms of which have been approved by the Unanimous Vote of the Management
Committee pursuant to which
<PAGE>
5
a Partner makes an Additional Capital Contribution to the Partnership pursuant
to Section 2.5.
"Additional Contribution Notice" means a written notice given to all
Partners, which shall (i) state the Additional Contribution Amount being
requested of all Partners and each Partner's proportionate share thereof
determined as provided in Section 2.3(a) (or, in the case of a required
Additional Capital Contribution in respect of a Declined Accelerated
Contribution, as provided in Section 2.3(c)), (ii) specify in reasonable detail
the purposes for which the Additional Contribution Amount is required, (iii)
identify a date (the "Contribution Date"), not more than forty-five (45) days
nor less than thirty (30) days after the date of such notice, upon which the
Additional Capital Contributions are to be made and (iv) specify the account of
the Partnership to which the contribution is to be made; provided that any
Additional Contribution Notice with respect to any portion of the Auction
Commitment of the Partners may require the Additional Capital Contribution to be
made on a date that is less than thirty (30) days, but not less than two (2)
days, after the date of such notice.
"Adjusted Capital Account Deficit" means, with respect to any Exclusive
Limited Partner, the deficit balance, if any, in such Exclusive Limited
Partner's Capital Account as of the end of the relevant Allocation Year, after
giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which such Exclusive Limited
Partner is obligated to restore pursuant to any provision of this Agreement or
is deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
"Adverse Act" means, with respect to any Partner, any of the following:
(i) Such Partner becomes a Defaulting Partner;
<PAGE>
6
(ii) Such Partner Disposes of all or any part of its Interest except as
required or permitted by this Agreement; provided, however, that no Adverse Act
shall be considered to have occurred until thirty (30) days following the
involuntary encumbrance of all or any part of such Interest if during such
thirty (30) day period the affected Partner acts diligently to, and prior to the
end of such thirty (30) day period does, remove any such encumbrance, including
effecting the posting of a bond to prevent foreclosure where necessary;
(iii) Such Partner has committed a material breach of any covenant
contained in this Agreement (other than as otherwise expressly enumerated in
this definition) or a material default on any obligation provided for in this
Agreement (other than as otherwise expressly enumerated in this definition) and
such breach or default continues for thirty (30) days after the date written
notice thereof has been given to such Partner by any other Partner (with a copy
to the Management Committee and each other Partner); provided that if such
breach or default is not a failure to pay money and is of such a nature that it
cannot reasonably be cured within such thirty (30) day period, but is curable
and such Partner in good faith begins efforts to cure it within such thirty (30)
day period and continues diligently to do so, such Partner shall have a
reasonable additional period thereafter to effect the cure (which shall not
exceed an additional ninety (90) days unless otherwise approved by the
Management Committee by Required Majority Vote; and provided further that if,
within thirty (30) days after the date written notice of such breach or default
has been given to such Partner, such Partner delivers written notice (the
"Contest Notice") to the Management Committee and all other Partners that it
contests such notice of breach or default, such breach or default shall not
constitute an Adverse Act unless and until (and assuming that such breach or
default has not theretofore been cured in full) (A) the disinterested
Representatives determine in good faith by Required Majority Vote that such
Partner has committed such a breach or default or (B) there is a Final
Determination that such Partner's actions or failures to act constituted such a
breach or default; and provided further that this clause (iii) shall not apply
in the event of a breach of Section 8.6 hereof, which breach shall constitute an
Adverse Act (if at all) pursuant to clause (vii) below;
(iv) The Bankruptcy of such Partner or the occurrence of any other event
which would permit a trustee or receiver to acquire control of the affairs or
assets of such Partner;
<PAGE>
7
(v) The occurrence of a Change in Control of such Partner without the
unanimous written consent of the other General Partners;
(vi) An IXC Transaction has occurred with respect to such Partner;
(vii) The occurrence of any event with respect to such Partner (A) that
causes such Partner or the Partnership to become a BOC or (B) that causes the
Partnership to become a BOC Affiliated Enterprise or an entity subject to any
restriction or limitation under Section II of the MFJ, provided, however, that
(a) in the case of an event specified in clause (B) above, such event must have
a material adverse effect on the business, assets, liabilities, results of
operations, financial condition or prospects of the Partnership and (b) no
Adverse Act shall be considered to have occurred if such Partner has taken
actions which have cured the event that would otherwise have constituted an
Adverse Act under clause (B) of this clause (vii) within ninety (90) days
following its receipt of notice from a General Partner of the occurrence of such
event; and provided further that if, within ninety (90) days after the date
written notice of such occurrence has been given to such Partner, such Partner
delivers a Contest Notice to the Management Committee and all other Partners
that it contests such occurrence (or contests whether such occurrence
constitutes an Adverse Act under this clause (vii)), such occurrence shall not
constitute an Adverse Act unless and until (and assuming that such event has not
theretofore been cured in full) (A) the disinterested Representatives determine
in good faith by Required Majority Vote that such occurrence constitutes an
Adverse Act under this clause (vii) or (B) there is a Final Determination that
such occurrence constitutes an Adverse Act under this clause (vii); or
(viii) Such Partner otherwise causes a dissolution of the Partnership in
contravention of the terms of this Agreement (other than solely by reason of the
Bankruptcy of such Partner).
An "Adverse Partner" is any Partner with respect to which an Adverse Act
has occurred.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person. For purposes of this
definition, the term "controls" (including its correlative meanings "controlled
by" and "under common control with") shall mean the possession,
<PAGE>
8
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Notwithstanding the foregoing, (i) neither
the Partnership, NewTelco nor any Person controlled by the Partnership or
NewTelco shall be deemed to be an Affiliate of any Partner or of any Affiliate
of any Partner and (ii) no Partner or any Affiliate thereof shall be deemed to
be an Affiliate of any other Partner or any Affiliate thereof solely by virtue
of its Interest in the Partnership or its partnership interest in NewTelco.
"Agreement" or "Partnership Agreement" means this Agreement of Limited
Partnership, including all Schedules hereto, as amended from time to time.
"Allocation Year" means (i) the period commencing on the effective date of
this Agreement and ending on December 31, 1994, (ii) any subsequent twelve (12)
month period commencing on January 1 and ending on December 31, or (iii) any
portion of the period described in clauses (i) or (ii) for which the Partnership
is required to allocate Profits, Losses, and other items of Partnership income,
gain, loss or deduction pursuant to Section 3.
"Auction Commitment" of any Partner means an amount equal to the product of
(i) such Partner's initial Percentage Interest as of the date of this Agreement
and (ii) the aggregate maximum amount of the Additional Capital Contributions
specified in the Management Committee Resolution (whether or not specified in
the Management Committee Resolution as required to be immediately available or
to be secured by the Letters of Credit) to be used for (a) the Partnership's
maximum budgeted expenditure in the PCS Auction for the payment of the purchase
price for PCS Licenses awarded to it, (b) capital contributions to be paid in
cash to PioneerCo under the partnership agreement of PioneerCo during the
Auction Period in connection with the formation of PioneerCo and the
contribution of the Cox Pioneer Preference License to PioneerCo and capital
contributions to be paid in cash during the Auction Period to other partnerships
formed to hold pioneer preference licenses for frequency blocks "A" and "B" in
connection with the formation of such partnerships and the payment of the
purchase price for such licenses, (c) capital contributions to be paid in cash
during the Auction Period for investments in or with entities that are eligible
to bid for PCS licenses in frequency blocks "C" and "F" in connection with the
formation of such entities and the payment of the purchase price for such
license s and (d) incidental expenses relating to the foregoing; provided, that
the amount specified in this clause
<PAGE>
9
(ii) shall be increased if and to the extent that the Management Committee by
Unanimous Vote approves an increase in the aggregate amount of such Additional
Capital Contributions, and shall be reduced following the PCS Auction as and to
the extent contemplated by the Wireless Strategic Plan to reflect the results of
the PCS Auction. In the event all or a portion of an Interest is Transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Auction Commitment of the transferor to the extent it relates to the transferred
Interest and has not been called in full.
"Auction Period" means the period from the date hereof to the effective
date of the Initial Business Plan.
"Available Cash" means as of any date the cash of the Partnership as of
such date less such portion thereof as the Management Committee determines to
reserve for Partnership expenses, debt payments, capital improvements,
replacements, and contingencies.
"Bankruptcy" means, with respect to any Person, a "Voluntary Bankruptcy" or
an "Involuntary Bankruptcy." A "Voluntary Bankruptcy" means, with respect to any
Person, the inability of such Person generally to pay its debts as such debts
become due (other than any obligation of such Person to make capital
contributions under this Agreement), or an admission in writing by such Person
of its inability to pay its debts generally or a general assignment by such
Person for the benefit of creditors; the filing of any petition or answer by
such Person seeking to adjudicate it bankrupt or insolvent, or seeking for
itself any liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of such Person or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking, consenting to, or acquiescing in the entry of an order for relief or
the appointment of a receiver, trustee, custodian or other similar official for
such Person or for any substantial part of its property; or corporate action
taken by such Person to authorize any of the actions set forth above. An
"Involuntary Bankruptcy" means, with respect to any Person, without the consent
or acquiescence of such Person, the entering of an order for relief or approving
a petition for relief or reorganization or any other petition seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or other similar relief under any present or future bankruptcy, insolvency or
similar statute, law or regulation, or the filing of any such petition against
such Person which petition shall not be dismissed within ninety (90) days, or,
without the consent or acquiescence of such
<PAGE>
10
Person, the entering of an order appointing a trustee, custodian, receiver or
liquidator of such Person or of all or any substantial part of the property of
such Person which order shall not be dismissed within sixty (60) days.
"BOC" means "BOC" or "Bell Operating Companies" as defined in Section IV.C
of the MFJ.
"BOC Affiliated Enterprise" has the same meaning as the term "affiliated
enterprise" as used with respect to "BOC" or "Bell Operating Companies" in
Section II.D of the MFJ.
"BTA" means a Basic Trading Area, as defined in the FCC Rules to be
codified at 47 C.F.R. (S) 24.13.
"Business Day" means a day of the year on which banks are not required or
authorized to close in the State of New York.
"Capital Account" means, with respect to any Partner, the Capital Account
maintained for such Partner in accordance with the following provisions:
(i) To each Partner's Capital Account there shall be credited such
Partner's Capital Contributions, such Partner's Special Contributions, if any,
such Partner's distributive share of Profits and any items in the nature of
income or gain which are specially allocated pursuant to Section 3.3 or Section
3.4, and the amount of any Partnership liabilities which are assumed by such
Partner or secured by any Property distributed to such Partner as permitted by
this Agreement.
(ii) To each Partner's Capital Account there shall be debited the amount of
cash and the Gross Asset Value of any Property distributed or deemed to be
distributed to such Partner pursuant to any provision of this Agreement, such
Partner's distributive share of Losses and any items in the nature of expenses
or losses which are specially allocated pursuant to Section 3.3 or Section 3.4,
and the amount of any liabilities of such Partner assumed by the Partnership or
which are secured by any property contributed by such Partner to the
Partnership.
(iii) In the event all or a portion of an Interest is transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
Interest.
(iv) In determining the amount of any liability for purposes of the
definitions of "Additional Capital
<PAGE>
11
Contributions" and "Original Capital Contribution" and subparagraphs (i) and
(ii) of this definition of "Capital Account," there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the Management Committee
determines that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including debits or credits relating
to liabilities which are secured by contributed or distributed property or which
are assumed by the Partnership or any Partner), are computed in order to comply
with such Regulations, the Management Committee may make such modification,
provided that it is not likely to have a material effect on the amounts
distributable to any Partner pursuant to Section 14 upon the dissolution of the
Partnership. The Management Committee also shall (i) make any adjustments that
are necessary or appropriate to maintain equality between the Capital Accounts
of the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b). Any such action
will require the Unanimous Vote of the Management Committee.
"Cable Partners" means Comcast, Cox and TCI.
"Capital Commitment" of any Partner means with respect to any Fiscal Year
or part thereof included in the Initial Three-Year Period, an amount equal to
the excess, if any, of (i) the product of (A) such Partner's initial Percentage
Interest and (B) the sum of (1) the aggregate amount of Additional Capital
Contributions expressly contemplated by the Initial Business Plan to be required
of the Partners in such Fiscal Year (including, with respect to the first Fiscal
Year in the Initial Three-Year Period, the Post-Auction Requirements) plus (2)
the Prior Years' Carryforward, over (ii) the cumulative Accelerated Contribution
Amounts requested of and made by such Partner in all prior Fiscal Years that the
Management Committee has determined shall be applied to reduce the Planned
Capital Amount for such Fiscal Year. In the event all or a portion of an
Interest is Transferred in accordance with this Agreement, the transferee shall
succeed to the Capital Commitment of the transferor to the
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12
extent it relates to the transferred Interest and has not been called in full.
"Capital Contribution" means, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any property (other than money)
contributed or deemed to be contributed to the Partnership with respect to the
Interest held by such Partner. The principal amount of a promissory note which
is not readily traded on an established securities market and which is
contributed to the Partnership by the maker of the note (or a Partner related to
the maker of the note within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(c)) shall not be included in the Capital Account of any Partner
until the Partnership makes a taxable disposition of the note or until (and to
the extent) principal payments are made on the note, all in accordance with
Regulations Section 1.704-1(b)(2)(iv)(d)(2).
"Carrier" has the meaning set forth in the definition of "IXC" below.
"Change in Control" means, with respect to any Partner that has a Parent
other than itself, such Partner's ceasing to be a Subsidiary of its Parent other
than in connection with a Permitted Transaction.
"Chief Executive Officer" means the chief executive officer of the
Partnership, including any interim chief executive officer.
"Code" means the Internal Revenue Code of 1986.
"Comcast Parent" means Comcast Corporation, a Pennsylvania corporation.
"Consumer Price Index" means the Consumer Price Index "All Urban Consumers:
U.S. city average, all items" (1982-1984 = 100) published by the Bureau of Labor
Statistics of the United States Department of Labor, or any equivalent successor
or substitute index selected by the Management Committee and published by the
Bureau of Labor Statistics or a successor or substitute governmental agency and
selected by the Management Committee.
"Contest Notice" has the meaning set forth in clause (iii) of the
definition of "Adverse Act."
"Contribution Date" has the meaning set forth in the definition of
"Additional Contribution Notice."
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13
"Controlled Affiliate" of any Person means the Parent of such Person and
each Subsidiary of such Parent. As used in Sections 6, 8.6, 8.10 and 8.12 the
term "Controlled Affiliate" shall also include any Affiliate of a Person that
such Person or its Parent can directly or indirectly unilaterally cause to take
or refrain from taking any of the actions required, prohibited or otherwise
restricted by such Section, whether through ownership of voting securities,
contractually or otherwise. As used in Sections 2.4, 5.1(c), 11.2, 12.4, 12.5
and 12.6, the term "Controlled Affiliate" shall also include any Affiliate of a
Person that such Person or its Parent can directly or indirectly unilaterally
cause to take or refrain from taking any action regarding the Partnership,
whether through ownership of voting securities, contractually or otherwise.
"Cox Parent" means Cox Cable Communications, Inc., a Delaware corporation;
provided, that if on January 1, 1996, Cox Cable Communications, Inc. is not
Publicly Held, the term Cox Parent shall thereafter mean the Person that would
be the Parent of Cox if a Permitted Transaction were deemed to have occurred on
such date with respect to Cox.
"Cox Pioneer Preference License" means the 30 MHz MTA "A" block PCS license
in the Los Angeles MTA for which Cox Parent has filed an application with the
FCC.
"Debt" means (i) any indebtedness for borrowed money or deferred purchase
price of property or evidenced by a note, bonds, or other instruments, (ii)
obligations to pay money as lessee under capital leases, (iii) obligations to
pay money secured by any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind existing on any asset owned or held by the Partnership
whether or not the Partnership has assumed or become liable for the obligations
secured thereby, (iv) any obligation under any interest rate swap agreement (the
principal amount of such obligation shall be deemed to be the notional principal
amount on which such swap is based), and (v) obligations under direct or
indirect guarantees of (including obligations (contingent or otherwise) to
assure a creditor against loss in respect of) indebtedness or obligations of the
kinds referred to in clauses (i), (ii), (iii) and (iv) above, provided that Debt
shall not include obligations in respect of any accounts payable that are
incurred in the ordinary course of the Partnership's business and are not
delinquent or are being contested in good faith by appropriate proceedings.
"Depreciation" means, for each Allocation Year, an amount equal to the
depreciation, amortization, or other cost
<PAGE>
14
recovery deduction allowable with respect to an asset for such Allocation Year,
except that if the Gross Asset Value of an asset differs from its adjusted basis
for federal income tax purposes at the beginning of such Allocation Year,
Depreciation shall be an amount which bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization, or other
cost recovery deduction for such Allocation Year bears to such beginning
adjusted tax basis; provided, however, that if the adjusted basis for federal
income tax purposes of an asset at the beginning of such Allocation Year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Management Committee.
"Dispose" (including its correlative meanings, "Disposed of", "Disposition"
and "Disposed"), with respect to any Interest means to Transfer, pledge,
hypothecate or otherwise dispose of such Interest, in whole or in part,
voluntarily or involuntarily, except by operation of law in connection with a
merger, consolidation or other business combination of the Partnership and
except that such term shall not include any pledge or hypothecation of, or
granting of a security interest in, an Interest that is approved by the
Management Committee in connection with any financing obtained on behalf of the
Partnership.
"ESMR" means any commercial mobile radio service, and the resale of such
service, authorized under the rules for Specialized Mobile Radio services
designated under Subpart S of Part 90 of the FCC's rules in effect on the date
hereof, including the networking, marketing, distribution, sales, customer
interface and operations functions relating thereto.
"Excluded Businesses" has the meaning set forth in Exhibit A to Exhibit
1.1(a) to the Joint Venture Formation Agreement.
"Exclusive Limited Partner" means any Limited Partner that is not also a
General Partner.
"FCC" means the Federal Communications Commission.
"Final Determination" means (i) a determination set forth in a binding
settlement agreement between the Partnership and the Partner alleged to have
committed the Adverse Act, which has been approved by a Required Majority Vote
of the Management Committee pursuant to Section 8.7 or (ii) a final judicial
determination, not subject to further appeal, by a court of competent
jurisdiction.
<PAGE>
15
"Fiscal Year" means (i) the period commencing on the date of this Agreement
and ending on December 31, 1994, (ii) any subsequent twelve (12) month period
commencing on January 1, and ending on December 31, or (iii) the period
commencing on the immediately preceding January 1 and ending on the date on
which all Property is distributed to the Partners pursuant to Section 14.2. When
used in connection with the Initial Business Plan or the Initial Three-Year
Period, "Fiscal Year" also means the period commencing on the effective date of
the Initial Business Plan and ending on December 31, 1995.
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time.
"General Partner" means any Person who (i) is referred to as such in the
first paragraph of this Agreement or has become a General Partner pursuant to
the terms of this Agreement, and (ii) has not, at any given time, ceased to be a
General Partner pursuant to the terms of this Agreement. "General Partners"
means all such Persons.
"Gross Asset Value" means, with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a Partner to
the Partnership shall be the gross fair market value of such asset, as
determined by the contributing Partner and the Management Committee in
accordance with Section 8.7;
(ii) The Gross Asset Value of all Partnership assets shall be adjusted to
equal their gross fair market value, as determined by the Management Committee,
as of the following times: (A) the acquisition of an Interest by any new Partner
in exchange for more than a de minimis Capital Contribution; (B) the
distribution by the Partnership to a Partner of more than a de minimis amount of
Property as consideration for an Interest; (C) the liquidation of the
Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and
(D) the conversion of a General Partner to an Exclusive Limited Partner if, and
only if, in the judgment of the Management Committee, such adjustment would
either cause the Person who is being converted to an Exclusive Limited Partner
to have a deficit balance in its Capital Account or increase the amount of such
a deficit balance;
(iii) The Gross Asset Value of any Partnership asset distributed to any
Partner shall be adjusted to equal the
<PAGE>
16
gross fair market value of such asset on the date of distribution as determined
by the distributee and the Management Committee in accordance with Section 8.7;
(iv) The Gross Asset Values of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulation Section 1.704-1(b)(2)(iv)(m) and subparagraph (vi) of the
definition of "Profits" and "Losses" and Section 3.3(g); provided, however, that
Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv) to
the extent the Management Committee determines that an adjustment pursuant to
subparagraph (ii) hereof is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
subparagraph (iv); and
(v) If Gross Asset Value is required to be determined for the purpose of
Sections 11.1 or 14.7, Gross Asset Value shall be determined in the manner set
forth in such Sections.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (i), (ii) or (iv) hereof, such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
"Hypothetical Federal Income Tax Amount" means for any Fiscal Year the
product of (A) the daily weighted average highest marginal federal income tax
rate applicable to domestic corporations in effect for such Fiscal Year
expressed as a percentage and (B) the excess, if any, of (i) the cumulative
amount of taxable income and gain reported by the Partnership on its Internal
Revenue Service Forms 1065 over its life determined as of the end of such Fiscal
Year, over (ii) the larger of zero (0) or the cumulative amount of taxable
income and gain reported by the Partnership on its Internal Revenue Service
Forms 1065 over its life determined as of the beginning of such Fiscal Year.
"Initial Three-Year Period" means the period from the effective date of the
Initial Business Plan through December 31, 1997.
"Intermediate Subsidiary" means, with respect to any Parent of a Partner, a
Subsidiary of such Parent that holds a direct or indirect equity interest in
such Partner.
<PAGE>
17
"Interest" means, as to any Partner, all of the interests of such Partner
in the Partnership, including any and all benefits to which the holder of an
interest in the Partnership may be entitled as provided in this Agreement and
under the Act, together with all obligations of such Partner to comply with the
terms and provisions of this Agreement.
"IXC" means each of AT&T Corp., MCI Communications Corporation and British
Telecommunications plc (each, a "Carrier") and each of their respective
Affiliates.
"IXC Transaction" means, with respect to any Partner, that (i) an IXC has
become the beneficial owner of an equity interest in such Partner or an equity
interest in any Intermediate Subsidiary (other than a Publicly Held Intermediate
Subsidiary) of the Parent of such Partner, (ii) an IXC has become the beneficial
owner of securities representing fifteen percent (15%) or more of the voting
power of the outstanding voting securities of the Parent of such Partner or any
Publicly Held Intermediate Subsidiary of such Parent, and, if such Parent or
Publicly Held Intermediate Subsidiary is subject to a State Statute or has a
shareholder rights plan, such Parent or Publicly Held Intermediate Subsidiary or
the board of directors or other governing body of such Parent or Publicly Held
Intermediate Subsidiary has approved such beneficial ownership or otherwise has
taken action to waive any applicable restrictions with respect to such ownership
under any State Statute or to permit the exercise by the IXC of its rights under
any shareholder rights plan, (iii) an IXC has become the beneficial owner of
securities representing twenty-five percent (25%) or more of the voting power of
the outstanding voting securities of any such Parent or Publicly Held
Intermediate Subsidiary, provided that, if such IXC is an Affiliate of a
Carrier, such Affiliate has identified a Carrier as a Person controlling such
Affiliate either (a) pursuant to General Instruction C to Schedule 13D, in a
Schedule 13D (filed with the Securities and Exchange Commission in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended) or (b)
pursuant to General Instruction C to Schedule 14D-1, in a Schedule 14D-1 (filed
with the Securities Exchange Commission in accordance with Section 14(d) of the
Securities Exchange Act of 1934, as amended), (iv) any such Parent or Publicly
Held Intermediate Subsidiary has sold or issued beneficial ownership in any
equity interest in such Parent or Publicly Held Intermediate Subsidiary to an
IXC or granted to an IXC any rights with respect to the governance of such
Parent or Publicly Held Intermediate Subsidiary that are not possessed generally
by the owners of outstanding equity interests in such Parent or Publicly Held
Intermediate Subsidiary; or (v) such
<PAGE>
18
Partner has otherwise become an Affiliate of an IXC. Solely for the purposes of
this definition the terms "beneficial owner" and "beneficial ownership" shall
have the same meaning as in Rule13d-3 under the Securities Exchange Act of 1934,
as amended.
"Joint Venture Formation Agreement" means the Joint Venture Formation
Agreement of even date herewith among each of the Parents providing for the
formation of NewTelco and certain other actions.
"Limited Partner" means any Person (i) who is referred to as such in the
first paragraph of this Agreement or who has become a Limited Partner pursuant
to the terms of this Agreement, and (ii) who, at any given time, holds an
Interest. "Limited Partners" means all such Persons.
"Management Committee" means the committee that will have the authority and
powers set forth in Section 5.1.
"Management Committee Resolution" means the resolution of the Management
Committee adopted by written consent simultaneously with the execution of this
Agreement that approves (among other things) the aggregate Auction Commitment.
"MFJ" means the Modification of Final Judgment agreed to by the American
Telephone and Telegraph Company and the U.S. Department of Justice and approved
by the U.S. District Court for the District of Columbia on August 24, 1982, as
reported in United States v. Western Electric Company, Inc., et al., 552 F.
Supp. 131 (D.D.C. 1982), aff'd sub nom Maryland v. United States, 460 U.S. 1001
(1983) and any subsequent orders or amendments issued in connection therewith.
Any reference in this Agreement to Section II of the MFJ shall also include any
subsequent statute, rule, regulation, order or decree which modifies or
supersedes Section II of the MFJ (or any material portion thereof) and imposes
any restriction(s) substantially similar to any of the material restrictions
imposed by Section II of the MFJ.
"Minimum Ownership Requirement" means, with respect to (i) any Original
Partner, as of any date, that the ratio (expressed as a percentage) of such
Original Partner's Percentage Interest to the aggregate Percentage Interests of
all Original Partners is at least eight percent (8%) or (ii) any Partner not an
Original Partner, as of any date, that such Partner's Percentage Interest is at
least eight percent (8%).
<PAGE>
19
"MTA" means a Major Trading Area as defined in FCC Rules to be codified at
47 C.F.R. (S) 24.13.
"NewTelco" means the Delaware limited partnership to be formed by the
Partners subsequent to the date hereof pursuant to the terms of the Joint
Venture Formation Agreement to conduct the Wireline Business (as defined in the
Joint Venture Formation Agreement).
"NewTelco Closing Date" means the date of formation of NewTelco pursuant to
the Joint Venture Formation Agreement.
"NewTelco Partnership Agreement" means the Agreement of Limited Partnership
of NewTelco to be entered into by the Partners on the NewTelco Closing Date in
accordance with the provisions of the Joint Venture Formation Agreement.
"Non-Exclusive Services" has the meaning set forth in Exhibit A to Exhibit
1.1(a) to the Joint Venture Formation Agreement.
"Nonrecourse Deductions" has the meaning set forth in Section 1.704-
2(b)(1) of the Regulations.
"Nonrecourse Liability" has the meaning set forth in Section 1.704- 2(b)(3)
of the Regulations.
"Original Capital Contribution" means, with respect to each Partner, the
Capital Contribution to be made by such Partner pursuant to Section 2.2. In the
event all or a portion of an Interest is transferred in accordance with the
terms of this Agreement, the transferee shall succeed to the Original Capital
Contribution of the transferor to the extent it relates to the transferred
Interest.
"Original Partners" means collectively Cox, Comcast, TCI and Sprint and any
successors or transferees thereof to the extent such successors or transferees
acquired their Interest in accordance with this Agreement.
"Parent" means, except as otherwise provided below with respect to a
Permitted Transaction, (i) with respect to Cox (and its Controlled Affiliates),
Cox Parent, (ii) with respect to Comcast (and its Controlled Affiliates),
Comcast Parent, (iii) with respect to TCI (and its Controlled Affiliates), TCI
Parent and (iv) with respect to Sprint (and its Controlled Affiliates), Sprint
Parent. With respect to any other Person hereafter admitted to the Partnership
as a Partner, the Parent
<PAGE>
20
with respect to such Partner shall be the Person identified as such in a
Schedule to be attached to this Agreement in connection with the admission of
such Partner. In the event of a Permitted Transaction, the new Parent of the
applicable Partner immediately following such Permitted Transaction will be the
ultimate parent entity (as determined in accordance with the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules and regulations promulgated
thereunder (the "HSR Act")) of such Partner (or such Partner if it is its own
ultimate parent entity); provided that if such ultimate parent entity is not a
Publicly Held Person then the next highest corporate entity in the ownership
chain from such ultimate parent entity through the Partner which is a Publicly
Held Person shall be deemed to be the new Parent. If there is no intermediate
Publicly Held Person or if the ultimate parent entity is an individual, the
Parent shall be the highest entity in the ownership chain from the ultimate
parent entity through the Partner which is not an individual. For purposes of
the definition of Controlled Affiliate, the Parent of a Person that is neither a
Partner nor a Controlled Affiliate of a Partner is the ultimate parent entity
(as determined in accordance with the HSR Act) of such Person.
"Parents' Undertaking" means a written instrument in substantially the form
of Exhibit 1.10(a) executed simultaneously with the execution of this Agreement
by each Parent of a Partner for the benefit of the Partnership, the Partners and
the other Parents.
"Partner Nonrecourse Debt" has the meaning set forth in Section 1.704-
2(b)(4) of the Regulations.
"Partner Nonrecourse Debt Minimum Gain" means an amount, with respect to
each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Regulations.
"Partner Nonrecourse Deductions" has the meaning set forth in Sections
1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
"Partners" means all General Partners and all Limited Partners. "Partner"
means any one of the Partners.
"Partnership" means the partnership formed pursuant to this Agreement and
the partnership continuing the business of
<PAGE>
21
this Partnership in the event of dissolution as herein provided.
"Partnership Minimum Gain" has the meaning set forth in Sections
1.704-2(b)(2) and 1.704-2(d) of the Regulations.
"PCS" means a radio communications system authorized under the rules for
broadband personal communications services designated as Subpart E of Part 24 of
the FCC's rules, including the network, marketing, distribution, sales, customer
interface and operations functions relating thereto.
"PCS Auction" means the series of simultaneous multiple round auctions for
broadband PCS licenses to be conducted by the FCC under the authority of Section
309(j) of the Communications Act, 47 U.S.C. (S) 309(j) (1993), in accordance
with the rules promulgated thereunder by the FCC.
"Percentage Interest" means, with respect to any Partner, (i) until the
Original Capital Contributions are made, the Percentage Interest of each Partner
set forth on Schedule 2.1 and (ii) thereafter, the ratio (expressed as a
percentage) of the sum of such Partner's Original Capital Contribution and
aggregate Additional Capital Contributions (other than Special Contributions) as
of such date to the sum of the aggregate Original Capital Contributions and
Additional Capital Contributions (other than Special Contributions) of all
Partners as of such date. Such Capital Contributions will be determined after
giving effect to all Capital Contributions made prior to and on the date as to
which the determination of Percentage Interests is made, subject to the
provisions regarding the adjustment of Percentage Interests set forth in Section
2.4(d). In the event all or any portion of an Interest is Transferred in
accordance with the terms of this Agreement, the transferee shall succeed to the
Percentage Interest of the transferor to the extent it relates to the
Transferred Interest.
"Permitted Transaction" with respect to a Partner means a transaction or
series of related transactions in which (i) such Partner ceases to be a
Subsidiary of its Parent or such Partner Transfers its Interest and (ii) the new
Parent of such Partner (or such Partner if it is its own Parent) or the Parent
of the transferee of the Interest after giving effect to such transaction, or
the last transaction in a series of related transactions, owns, directly or
indirectly through its Controlled Affiliates, all or a Substantial Portion of
the cable system assets (in the case of a Cable Partner) or long distance
telecommunications business assets (in the case of Sprint) owned
<PAGE>
22
by the Parent of such Partner, directly and indirectly through its Controlled
Affiliates, immediately prior to the commencement of such transaction or series
of transactions. As used herein, "Substantial Portion" means (x) in the case of
a Cable Partner, cable systems serving 75% or more of the aggregate number of
basic subscribers served by cable systems owned by the Parent of such Cable
Partner, directly and indirectly through its Controlled Affiliates, and (y) in
the case of Sprint, long distance telecommunications business assets serving 75%
or more of the aggregate number of customers served by the long distance
telecommunications business owned by the Parent of Sprint, directly and
indirectly through its Controlled Affiliates.
"Person" means any individual, partnership, corporation, trust, or other
entity.
"PioneerCo" means the Delaware limited partnership to be formed between the
Partnership and an Affiliate of Cox, as contemplated by the PioneerCo Term
Sheet, to own the Cox Pioneer Preference License and to operate a Wireless
Business in connection therewith.
"PioneerCo Term Sheet" means the term sheet attached as Exhibit 1.1(c) to
the Joint Venture Formation Agreement regarding the formation of PioneerCo.
"Planned Capital Amount" means for any Fiscal Year during the Initial
Three-Year Period the amount of Additional Capital Contributions contemplated to
be required of the Partners during such Fiscal Year as set forth in the Initial
Business Plan, as such amount may be revised by the Unanimous Vote of the
Management Committee.
"Prime Rate" means the rate announced from time to time by Citibank, N.A.
as its prime rate.
"Prior Years' Carryforward", with respect to any Fiscal Year, means the
amount by which the aggregate amount of Additional Capital Contributions
actually made by the Partners with Contribution Dates during the Fiscal Year(s)
in the Initial Three-Year Period prior to such Fiscal Year (disregarding for
such purposes any Additional Capital Contribution representing an Accelerated
Contribution Amount during such Fiscal Year(s) that the Management Committee has
accelerated from a Planned Capital Amount for a Fiscal Year following such
Fiscal Year) was less than the aggregate amount of Additional Capital
Contributions that the Initial Business Plan contemplated would be requested
during such Fiscal Year(s).
<PAGE>
23
"Profits" and "Losses" means, for each Allocation Year, an amount equal to
the Partnership's taxable income or loss for such Allocation Year, determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss, or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments (without duplication):
(i) Any income of the Partnership that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses pursuant to
this definition of "Profits" and "Losses" shall be added to such taxable income
or loss ;
(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition of "Profits" and
"Losses," shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (ii) or (iii) of the definition of Gross Asset
Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Profits or Losses;
(iv) Gain or loss resulting from any disposition of Property with respect
to which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the Property disposed of,
notwithstanding that the adjusted tax basis of such Property differs from its
Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Allocation Year, computed in
accordance with the definition of Depreciation;
(vi) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) is required pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Partner's Interest, the amount of such
<PAGE>
24
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of the asset)
from the disposition of the asset and shall be taken into account for purposes
of computing Profits or Losses; and
(vii) Notwithstanding any other provision of this definition of "Profits"
or "Losses," any items which are specially allocated pursuant to Section 3.3 or
Section 3.4 shall not be taken into account in computing Profits or Losses.
The amounts of the items of Partnership income, gain, loss or deduction
available to be specially allocated pursuant to Sections 3.3 and 3.4 shall be
determined by applying rules analogous to those set forth in this definition of
"Profits" and "Losses."
"Property" means all real and personal property acquired by the Partnership
and any improvements thereto, and shall include both tangible and intangible
property.
"Publicly Held" means, with respect to any Person, that such Person has a
class of equity securities registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934.
"Publicly Held Intermediate Subsidiary" means, with respect to any Parent
of a Partner, an Intermediate Subsidiary of such Parent that is Publicly Held.
"Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code.
"Representative" means an individual designated by a General Partner as a
member of the Management Committee.
"Sprint Brand" means the trademark "Sprint" together with the related
"Diamond" logo.
"Sprint Parent" means Sprint Corporation, a Kansas corporation.
"State Statutes" means any business combination statute, anti-takeover
statute, fair price statute, control share acquisition statute or any other
state statute or regulation that contains any similar prohibition, limitation,
obligation, restriction or other provision adopted and in effect in the
jurisdiction of organization of such Person that affects the rights of any other
Person that acquires a specified percentage
<PAGE>
25
ownership interest in another Person without the consent or approval of the
board of directors or other governing body of such other Person, and, includes
(i) with respect to Cox Parent and TCI Parent, Section 203 of the Delaware
General Corporation Law; (ii) with respect to Comcast Parent, Subchapters E, F
and G of Chapter 25 of the Pennsylvania Business Corporation Law of 1988; and
(iii) with respect to Sprint Parent, Sections 17-12,100 and 17-1286 through
1298, et seq. of the Kansas Corporations Statute.
"Subsidiary" of any Person means a corporation, company or other entity (i)
more than fifty percent (50%) of whose outstanding shares or equity securities
are, as of the time of such determination, owned or controlled, directly or
indirectly through one or more Subsidiaries, by such Person, and the shares or
securities so owned entitle such Person and/or its Subsidiaries to elect at
least a majority of the members of the board of directors or other managing
authority of such corporation, company or other entity notwithstanding the vote
of the holders of the remaining shares or equity securities so entitled to vote
or (ii) which does not have outstanding shares or securities, as may be the case
in a partnership, joint venture or unincorporated association, but more than
fifty percent (50%) of whose ownership interest is, as of the time of such
determination, owned or controlled, directly or indirectly through one or more
Subsidiaries, by such Person, or in which the ownership interest so owned
entitles such Person and/or Subsidiaries to make the decisions for such
corporation, company or other entity.
"TCI Parent" means Tele-Communications, Inc., a Delaware corporation.
"Technical Information" means all technical information, regardless of form
and however transmitted and shall include, among other forms, computer software,
including computer program code, and system and user documentation, drawings,
illustrations, diagrams, reports, designs, specifications, formulae, know-how,
procedural protocols and methods and manuals.
"Technical Information Rights" means all intellectual property rights which
protect or cover Technical Information.
"Transfer" means, as a noun, any sale, exchange assignment or transfer and,
as a verb, to sell, exchange, assign or transfer.
<PAGE>
26
"Voluntary Bankruptcy" has the meaning set forth in the definition of
"Bankruptcy".
"Voting Percentage Interest" means, as of any date and with respect to any
Partner that as of such date is entitled to designate one or more members of the
Management Committee, the ratio (expressed as a percentage) of such Partner's
Percentage Interest to the aggregate Percentage Interests of all Partners that
are entitled to designate one or more members of the Management Committee.
"Wireless Business" means the use of radio spectrum for cellular, PCS,
ESMR, paging, mobile telecommunications and any other voice or data wireless
services, whether fixed or mobile conducted in the United States of America
(including its territories and possessions other than Puerto Rico), but not
including the delivery of video or the provision of satellite or broadband
microwave transmission services.
"Wireless Exclusive Services" has the meaning set forth in Exhibit A to
Exhibit 1.1(a) to the Joint Venture Formation Agreement.
1.11 Additional Definitions.
<TABLE>
<CAPTION>
Defined Term Defined in
<S> <C>
"1933 Act" Section 5.9(a)
"Accelerated Contribution Amount" Section 2.3(a)(ii)
"Accepting Offerees" Section 12.4(d)
"Additional Contribution Amount" Section 2.3(a)
"Additional Purchase Commitment" Section 12.6(c)(i)
"Adjusted Percentage Interest" Section 2.4(a)(iv)
"Affiliation Agreement" Section 6.1(d)
"Agents" Section 6.6(a)
"Annual Budget" Section 5.2(c)
"Approved Business Plan" Section 5.2(c)
"Bidding Partner" Section 14.7(e)
"Blocking Limited Partner" Section 5.1(k)(ii)
"Brief" Section 5.8(a)(ii)
"Business Plan" Section 5.2(a)
"Buying Partner" Section 12.6(c)
"Buy-Sell Price" Section 11.2(a)
"Cable Buying Partner" Section 12.6(c)(i)
"Certificate" Section 1.5
"Comcast Area" Section 6.4(a)(v)
"Competitive Activity" Section 6.1(a)
</TABLE>
<PAGE>
27
<TABLE>
<S> <C>
"Confidential Information" Section 6.6(a)
"Contributing Partner" Section 2.4(a)(ii)
"Control Notice" Section 12.5(b)
"Control Offer" Section 12.5(b)
"Control Offer Period" Section 12.5(b)
"Controlling Partner" Section 12.5(b)
"Cure Date" Section 2.4(c)(iii)
"Damages" Section 11.1(a)
"Deadlock Event" Section 5.8(b)
"Declining Partner" Section 2.4(a)(i)
"Declined Accelerated Contribution" Section 2.3(c)
"Declined Additional Contribution" Section 2.3(c)
"Default Budget" Section 5.2(d)
"Default Loan" Section 2.4(c)(ii)
"Default Loan Notice" Section 2.4(c)(ii)
"Defaulted Contribution" Section 2.3(b)(i)
"Defaulting Partner" Section 2.4(c)(i)
"Delinquent Partner" Section 2.4(b)
"Determination Date" Section 12.6(a)
"Election Notice" Section 11.2(a)
"Election Period" Section 11.2(b)
"Excess Contribution Amount" Section 2.3(a)(ii)
"Firm Offer" Section 12.4(b)
"First Appraiser" Section 11.4
"Floating Rate" Section 2.4(f)
"Free to Sell Period" Section 12.4(f)
"Funding Commitment" Section 2.4(a)(ii)
"General Partner Percentage Interests" Section 2.1
"Grace Period" Section 2.4(b)
"Gross Appraised Value" Section 11.4
"In-Territory Customers" Section 6.4(e)
"In-Territory Distributors" Section 6.4(e)
"Initial Business Plan" Section 5.2(a)
"Initial Offer" Section 14.7(b)
"Interested Person" Section 8.7
"Issuance Items" Section 3.3(h)
"Lending Commitment" Section 2.4(c)(ii)
"Lending Partner" Section 2.4(c)(ii)
"Letter of Credit" Section 2.3(b)(ii)
"Liquidating Events" Section 14.1(a)
"Limited Partner Percentage Interests" Section 2.1
"Loan Date" Section 2.4(c)(ii)
"Loan Date" Section 2.3(b)(i)
"Make-up Amount" Section 2.4(c)(iii)
"Mediator" Section 5.8(a)(ii)
"Net Equity" Section 11.3
"Net Equity Notice" Section 11.3
"Network Services Statement of
</TABLE>
<PAGE>
28
<TABLE>
<S> <C>
Principles" Section 8.9(a)
"Non-Adverse Partners" Section 11.1(a)
"Non-Defaulting Partners" Section 2.3(b)(i)
"Offer" Section 6.1(c)
"Offer Notice" Section 12.4(b)
"Offer Period" Section 12.4(c)
"Offer Price" Section 12.4(a)
"Offered Interest" Section 12.4
"Offerees" Section 12.4(b)
"Other Pennsylvania Company" Section 6.4(g)
"Ownership Restrictions" Section 8.12
"Overlap Cellular Area" Section 8.1(b)
"Partner Loan" Section 2.7
"Partnership's Businesses" Section 6.4(b)
"Paying Partner" Section 2.4(a)(ii)
"Payment Default" Section 2.4(c)(i)
"Penalty Amount" Section 2.4(b)
"Permitted Transfer" Section 12.2
"PhillieCo" Section 6.3(e)
"Preliminary Initial Business Plan" Section 5.2(a)
"Proposed Budget" Section 5.2(c)
"Proposed Business Plan" Section 5.2(c)
"Post-Auction Requirements" Section 2.3(a)
"Purchase Commitment" Section 11.2(b)
"Public Offering" Section 5.9(c)
"Purchase Notice" Section 11.2(b)
"Purchase Offer" Section 12.4(a)
"Purchaser" Section 12.4(a)
"Purchasing Partner" Section 11.2(b)
"Put Notice" Section 12.6(b)(i)
"receiving party" Section 6.5(a)
"Regulatory Allocations" Section 3.4
"Related Group" Section 5.1(c)
"Remaining Deficit Balance" Section 14.3
"Representative" Section 5.1(c)
"Requested Contribution" Section 2.3(a)(ii)
"Required Majority Vote" Section 5.1(i)
"Restricted Party" Section 6.5(a)
"Sale Notice" Section 12.4(e)
"Second Appraiser" Section 11.4
"Section 5.1 Election Period" Section 5.1(k)(ii)
"Seller" Section 12.4
"Selling Partner" Section 12.6(c)
"Senior Credit Agreement" Section 2.7
"Shortfall" Section 2.4(a)(ii)
"Shortfall Notice" Section 2.4(a)(ii)
"Special Contribution" Section 2.4(b)
"Sprint Cellular Business" Section 8.1(b)
</TABLE>
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29
<TABLE>
<S> <C>
"Sprint Obligation" Section 12.6(c)(i)
"Substantial Portion" Section 1.10
"Tagalong Notice" Section 12.5(a)
"Tagalong Offer" Section 12.5(a)
"Tagalong Period" Section 12.5(a)
"Tagalong Purchaser" Section 12.5(a)
"Tagalong Transaction" Section 12.5(a)
"Tax Matters Partner" Section 10.3(a)
"Third Appraiser" Section 11.4
"Timely Partner" Section 2.4(b)
"Trademark License" Section 8.2
"Transferring Partner" Section 12.5(a)
"Unanimous Partner Vote" Section 5.1(k)(i)
"Unanimous Vote" Section 5.1(j)
"Unfunded Shortfall" Section 2.3(c)
"Unpaid Amount" Section 2.4(b)
"Unreturned Capital" Section 11.2(a)
"Wireless Strategic Plan" Section 5.2(a)
</TABLE>
1.12 Terms Generally.
The definitions in Sections 1.10 and elsewhere in this Agreement shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The words "herein", "hereof" and "hereunder" and words of similar import refer
to this Agreement (including the Schedules) in its entirety and not to any part
hereof unless the context shall otherwise require. All references herein to
Articles, Sections, Exhibits and Schedules shall be deemed references to
Articles and Sections of, and Exhibits and Schedules to, this Agreement unless
the context shall otherwise require. Unless the context shall otherwise require,
any references to any agreement or other instrument or statute or regulation are
to it as amended and supplemented from time to time (and, in the case of a
statute or regulation, to any corresponding provisions of successor statutes or
regulations). Any reference in this Agreement to a "day" or number of "days"
(without the explicit qualification of "Business") shall be interpreted as a
reference to a calendar day or number of calendar days. If any action or notice
is to be taken or given on or by a particular calendar day, and such calendar
day is not a Business Day, then such action or notice shall be deferred until,
or may be taken or given on, the next Business Day.
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30
SECTION 2
PARTNERS' CAPITAL CONTRIBUTIONS
2.1 Percentage Interests; Preservation of Percentages of Interests Held as
General Partners and as Limited Partners.
The initial Percentage Interest of each Partner as of the date of this
Agreement is set forth on Schedule 2.1 and represents the sum of the "General
Partner Percentage Interest" and "Limited Partner Percentage Interest" of such
Partner as set forth in such Schedule 2.1. Except as expressly provided in this
Agreement, or as may result from a Transfer of Interests required or permitted
by this Agreement, the Percentage Interest of a Partner shall not be subject to
increase or decrease without such Partner's prior consent. For purposes of this
Agreement, each Partner is treated as though it holds a single Interest, even
though such Partner (unless and until it becomes an Exclusive Limited Partner)
holds ninety-nine percent (99.0%) of its Interest as a General Partner and one
percent (1.0%) of its Interest as a Limited Partner. Each Partner, unless and
until it becomes an Exclusive Limited Partner, will hold ninety-nine percent
(99.0%) of its Interest as a General Partner and one percent (1.0%) of its
Interest as a Limited Partner and the amount of any Capital Contributions made
by a Partner pursuant to Section 2 and any allocations and distributions to a
Partner pursuant to Section 3 or Section 4 shall, except as otherwise provided
therein, be allocated ninety-nine percent (99.0%) to the Interest held by the
Partner as a General Partner and one percent (1.0%) to the Interest held by the
Partner as a Limited Partner. In the event that a Partner Transfers all or any
portion of its Interest pursuant to this Agreement, ninety-nine percent (99.0%)
of the aggregate Interest so acquired by any Person shall be treated as
attributable to the Interest held by the transferring Partner as a General
Partner and one percent (1.0%) of the aggregate Interest so acquired shall be
treated as attributable to the Interest held by the transferring Partner as a
Limited Partner. In the event that the Interest of a Partner is otherwise
increased or decreased pursuant to this Agreement, the amount of the increase or
decrease, as the case may be, shall be allocated ninety-nine percent (99.0%) to
the Interest held by such Partner as a General Partner and one percent (1.0%) to
the Interest held by such Partner as a Limited Partner.
2.2 Partners' Original Capital Contributions.
Within five (5) Business Days after the execution and delivery of this
Agreement, the Partners shall make their
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31
respective Original Capital Contributions in cash by wire transfer of
immediately available funds to the Partnership's bank account. The name, address
and Original Capital Contribution of each of the Partners is as set forth on
Schedule 2.2.
2.3 Additional Capital Contributions.
(a) Additional Capital Contributions Generally. Subject to the limitations
of this Agreement, the Management Committee (or the Chief Executive Officer
pursuant to (x) the express provisions of Section 2.3(b), (y) the authority to
be granted in each Annual Budget to make requests for Additional Capital
Contributions in the amounts, during the periods and subject to the limitations
set forth therein, and (z) such authority as may be delegated to the Chief
Executive Officer from time to time by the Management Committee (which
delegation may occur only by a vote of the members of the Management Committee
required to take the action so delegated)) may in accordance with the following
procedures request the Partners to make Additional Capital Contributions to the
Partnership in cash from time to time to fund (i) in the case of Additional
Capital Contributions requested during the Auction Period, the expenditures
described in the definition of Auction Commitment in Section 1.10 and (ii)
following the Auction Period, the cash needs of the Partnership in conformity
with the Annual Budget then in effect, as it may be modified from time to time
in accordance with this Agreement; provided that the Capital Commitment
reflected in the Annual Budget for the first Fiscal Year of the Initial Three-
Year Period shall include that portion of the Auction Commitment that has not
been contributed to the Partnership as of the end of the Auction Period and that
the Management Committee determines will be required during such first Fiscal
Year for the purposes specified in the definition of Auction Commitment (the
"Post-Auction Requirements"). The aggregate amount of the Additional Capital
Contributions requested to be made as of any Contribution Date (the "Additional
Contribution Amount") shall be set forth in an Additional Contribution Notice
given to each Partner, shall not exceed the amount reasonably anticipated to be
required to fund the cash needs of the Partnership for the ensuing six months or
such shorter period as may be determined by the Management Committee, and
(i) during the Auction Period, shall not be greater than that amount
which, when added to the Additional Contribution Amounts stated in all prior
Additional Contribution Notices, equals the cumulative amount of Additional
Capital Contributions contemplated to be required of the Partners
<PAGE>
32
pursuant to the Management Committee Resolution, unless otherwise approved by
the Unanimous Vote of the Management Committee, and
(ii) during each Fiscal Year commencing with the first Fiscal Year in
the Initial Three-Year Period, shall not be greater than that amount which, when
added to the Additional Contribution Amounts stated in all prior Additional
Contribution Notices with Contribution Dates in the then-current Fiscal Year,
(x) does not exceed the cumulative amount of Additional Capital Contributions
contemplated to be required of the Partners during such Fiscal Year as set forth
in the Annual Budget for such Fiscal Year (including, with respect to the first
Fiscal Year in the Initial Three-Year Period, any Post-Auction Requirements)
unless otherwise approved by the Required Majority Vote of the Management
Committee and (y) if such Fiscal Year falls within the Initial Three-Year
Period, also does not exceed, unless otherwise approved by the Unanimous Vote of
the Management Committee, the sum of (A) the product of (1) 150% times (2) the
Planned Capital Amount for such Fiscal Year minus (for the first Fiscal Year of
the Initial Three-Year Period) any Post-Auction Requirements; provided, that the
amount determined in accordance with this clause (2) will be decreased by any
portion thereof the payment of which the Management Committee has previously
determined as provided below to accelerate into any prior Fiscal Year, (B) 100%
of the Prior Years' Carryforward and (C) for the first Fiscal Year of the
Initial Three-Year Period, any Post-Auction Requirements.
To the extent that the cumulative Additional Contribution Amounts stated in
Additional Contribution Notices with Contribution Dates in any given Fiscal Year
within the period covered by the Initial Three-Year Period exceed the sum of the
Planned Capital Amount for such Fiscal Year plus the Prior Years' Carryforward,
such excess shall constitute an "Excess Contribution Amount" and, if determined
by a Required Majority Vote of the Management Committee, an "Accelerated
Contribution Amount". The Accelerated Contribution Amount in any Fiscal Year
will be applied to reduce the Planned Capital Amount set forth in the Initial
Business Plan for subsequent Fiscal Years in such order of priority as the
Management Committee may determine in connection with its determination pursuant
to the immediately preceding sentence. The amount of the Additional Capital
Contribution requested of any Partner in an Additional Contribution Notice (the
"Requested Contribution") shall be equal to (i) with respect to Requested
Contributions with Contribution Dates during the Auction Period or during any
Fiscal Year in the Initial Three-Year Period, that amount which represents the
same
<PAGE>
33
percentage of the Additional Contribution Amount specified in such Additional
Contribution Notice as such Partner's initial Percentage Interest and (ii) with
respect to Requested Contributions with Contribution Dates during any Fiscal
Year after the period in the Initial Three-Year Period, that amount which
represents the same percentage of the Additional Contribution Amount specified
in such Additional Contribution Notice as such Partner's Percentage Interest as
of the date of such Additional Contribution Notice.
(b) Mandatory Additional Capital Contributions With Respect to the
Auction Commitment.
(i) A Partner may not decline to make any of its Requested
Contributions with Contribution Dates in the Auction Period.
(ii) Not later than November 18, 1994, each Partner shall provide the
Partnership with an irrevocable letter of credit (or the legal equivalent
thereof as approved by a Unanimous Vote of the Management Committee) ("Letter of
Credit") in the amount of such Partner's share of the portion of the Auction
Commitment as is designated in the Management Committee Resolution to be secured
by a Letter of Credit, which may be drawn by the Chief Executive Officer on
behalf of the Partnership to fund such Partner's Auction Commitment solely in
accordance with Section 2.3(b)(iii). Within two (2) Business Days after a
Partner makes a Requested Contribution in accordance with Section 2.3(b)(iii),
the Chief Executive Officer shall notify the issuing bank of such Partner's
Letter of Credit of the payment of the Requested Contribution and shall instruct
such bank to reduce the amount of the Letter of Credit by an amount equal to the
Requested Contribution made by such Partner. In addition, the Chief Executive
Officer shall, as directed by the Management Committee instruct the issuing bank
of each Partner's Letter of Credit to reduce the amount thereof as may be
appropriate to effect the results of the PCS Auction. Each Partner's Letter of
Credit shall be issued on behalf of such Partner by a bank reasonably
satisfactory to the other Partners with offices in New York City for payment of
amounts under the Letter of Credit. The expiry date of the Letter of Credit
shall be no sooner than September 30, 1995; provided that if the Auction
Commitment has not been fully contributed prior to August 31, 1995, each Partner
shall by September 15, 1995, extend the term of its Letter of Credit in the
amount of such Partner's Auction Commitment (as reduced pursuant to the second
sentence of this paragraph) until December 31, 1995, unless otherwise determined
by a Required Majority Vote of the Management Committee. Each such Letter of
<PAGE>
34
Credit shall be substantially in the form and substance of Exhibit 2.3(b)(iii)
attached hereto, with such changes as shall be approved by the Management
Committee.
(iii) To the extent necessary to satisfy on a timely basis in
accordance with the FCC's rules all (A) obligations of the Partnership with
respect to the payment of the purchase price for PCS licenses for frequency
blocks "A" and "B" awarded to it in the PCS Auction or (B) obligations to make
capital contributions under the partnership agreement of PioneerCo during the
Auction Period in connection with the formation of PioneerCo and the
contribution of the Cox Pioneer Preference License to PioneerCo and obligations
of the Partnership pursuant to partnership agreements or related agreements to
make capital contributions to other entities that are awarded pioneer preference
licenses for frequency blocks "A" and "B" in the PCS Auction in connection with
the formation of such entities and the payment of the purchase price for such
licenses, in either case as contemplated by and in accordance with the Wireless
Strategic Plan, the Chief Executive Officer is expressly authorized, without any
requirement of action by the Management Committee, to give an Additional
Contribution Notice to the Partners with respect to the Additional Capital
Contributions required to fund such payment obligations and commitments subject,
however, to the limitations of Section 2.3(a). If any Partner fails to make its
Requested Contribution as set forth in such Additional Contribution Notice on or
before the Contribution Date, the Chief Executive Officer is expressly
authorized to draw on the Partner's Letter of Credit.
(c) Mandatory Additional Capital Contributions After the Auction Period.
No Partner may decline to make any of its Requested Contributions with
Contribution Dates after the Auction Period unless, and then only to the extent
that, (i) with respect to Requested Contributions with Contribution Dates during
any Fiscal Year in the Initial Three-Year Period, the amount of the Requested
Contribution of such Partner, when added to the cumulative amount of all
Requested Contributions theretofore requested of and made by such Partner during
the same Fiscal Year, would exceed the sum of (A) such Partner's Capital
Commitment with respect to such Fiscal Year and (B) the product of such
Partner's initial Percentage Interest times any Excess Contribution Amount for
such Fiscal Year if and to the extent that such Partner's Representative(s)
voted for approval of the Annual Budget pursuant to which the Excess
Contribution Amount is being requested or voted in favor of requesting (or
delegating to the Chief Executive Officer the authority to request) such Excess
Contribution Amount, and (ii) with respect to Requested
<PAGE>
35
Contributions with Contribution Dates during any Fiscal Year after the Initial
Three-Year Period, none of such Partner's Representative(s) voted for approval
of the Annual Budget that provides for the Additional Contribution Amount being
requested and did not vote in favor of requesting (or delegating to the Chief
Executive Officer the authority to request) such Additional Contribution Amount
or such Partner was an Exclusive Limited Partner at the time of such vote.
Notwithstanding the foregoing, if it was a Declining Partner with respect to an
Accelerated Contribution Amount with a Contribution Date during a prior Fiscal
Year in the Initial Three-Year Period (with respect to any such Partner, its
"Declined Accelerated Contribution"), such Partner shall also be required to
make an Additional Capital Contribution to the Partnership (to the extent that
there is a Shortfall that is not fully allocated to one or more Contributing
Partners pursuant to Section 2.4(a) in connection with a Requested Contribution
with a Contribution Date during a subsequent Fiscal Year (an "Unfunded
Shortfall")) up to an amount equal to such Partner's initial Percentage Interest
of the portion of the Planned Capital Amount set forth in the Initial Business
Plan for such subsequent Fiscal Year that was accelerated to such prior Fiscal
Year (but only to the extent of such Declined Accelerated Contribution and, if
there is more than one such Partner, pro rata in proportion to the aggregate
amounts of the previously unfunded Declined Accelerated Contributions of each
such Partner). Any such required Additional Capital Contribution shall be
contributed by such Partner within ten (10) days of notice to such Partner by
the Chief Executive Officer that there exists an Unfunded Shortfall with respect
to which such Partner is required to make an Additional Capital Contribution
pursuant to the preceding sentence, which notice shall set forth the amount of
the Additional Capital Contribution required of such Partner and the applicable
Contribution Date and shall otherwise constitute an Additional Contribution
Notice for purposes of this Agreement.
(d) Cox Contribution Credit.
Cox shall contribute to the Partnership an undivided fractional interest in
the Cox Pioneer Preference License and other associated assets (the "License
Contribution"), with a deemed Gross Asset Value of $17,647,059, as determined
pursuant to the PioneerCo Term Sheet and the partnership agreement of PioneerCo
to be entered into pursuant thereto, which undivided interest the Partnership in
turn will contribute to the capital of PioneerCo. Such contribution shall be
made concurrently with the contribution by Cox Communications Pioneer, Inc. to
PioneerCo of the remaining undivided fractional interest in the Cox Pioneer
Preference License and such associated assets, which shall be made at the
<PAGE>
36
date and time provided in, and in accordance with, the PioneerCo Term Sheet and
the partnership agreement of PioneerCo. For purposes hereof, such contributions
to the Partnership and then to PioneerCo may be effected through the direct
conveyance by Cox Parent of the Cox Pioneer Preference License to PioneerCo. The
Gross Asset Value of the License Contribution shall be credited against the next
Additional Capital Contribution to be made by Cox under this Agreement to the
same extent as if Cox had contributed cash in the amount of such Gross Asset
Value.
2.4 Failure to Contribute Capital.
(a) Declining Partners.
(i) Any Partner that is entitled to decline to make a Requested
Contribution as provided in Sections 2.3(b) and 2.3(c) may do so by notice given
to the Chief Executive Officer (with a copy to the Management Committee) within
fifteen (15) days of the date the applicable Additional Contribution Notice was
given (any such Partner that timely exercises such right is herein referred to
as a "Declining Partner").
(ii) If any Partner is a Declining Partner with respect to an
Additional Contribution Notice, the Chief Executive Officer shall, within five
(5) days after the date notice was required to be received under Section
2.4(a)(i), give a notice (a "Shortfall Notice") to each Partner that made its
Requested Contribution in full (each a "Paying Partner") requesting the Paying
Partners to make Additional Capital Contributions in an aggregate amount equal
to the amount not contributed by the Declining Partner(s) in response to such
Additional Contribution Notice (the "Shortfall"). Each Paying Partner that is
willing to commit to fund all or any portion of the Shortfall (each a
"Contributing Partner") shall so notify the Chief Executive Officer and each
other Paying Partner within ten (10) days after the date the Shortfall Notice
was given, setting forth the maximum amount of the Shortfall, up to one hundred
percent (100%) thereof, that such Contributing Partner is willing to fund (the
"Funding Commitment"). Except as otherwise provided in Section 2.4(a)(iii), if
the aggregate Funding Commitments are less than or equal to one hundred percent
(100%) of the Shortfall, each Contributing Partner shall be entitled to make an
Additional Capital Contribution to the Partnership in response to a Shortfall
Notice in an amount equal to its Funding Commitment. If the aggregate Funding
Commitments made by the Contributing Partners exceed one hundred percent (100%)
of the Shortfall, then except as otherwise provided in Section 2.4(a)(iii), each
Contributing Partner shall be entitled to contribute an amount
<PAGE>
37
equal to the same percentage of the Shortfall as such Contributing Partner's
Percentage Interest represents of the total Percentage Interests of the
Contributing Partners (in each case before giving effect to any adjustments to
the Percentage Interests to be made in connection with the Additional
Contribution Notice with respect to which the Shortfall occurred), provided
that, if any Contributing Partner's Funding Commitment was for an amount less
than its proportionate share of the Shortfall as so determined, the portion of
the Shortfall not so committed to be funded shall, except as otherwise provided
in Section 2.4(a)(iii), continue to be allocated proportionally, in the manner
provided above in this sentence, among the other Contributing Partners until
each has been allocated by such process of apportionment an amount equal to its
Funding Commitment or until the entire Shortfall has been allocated among the
Contributing Partners. The amount of the Additional Capital Contribution to be
made by each Contributing Partner in response to the Shortfall Notice as
determined in accordance with this Section 2.4(a)(ii) shall be specified in a
notice delivered by the Chief Executive Officer to the Contributing Partner and
shall be paid to the account of the Partnership designated in the Shortfall
Notice within ten (10) days after the date of such notice.
(iii) Except as otherwise provided in Section 2.4(a)(iv), if the
Declining Partner is a Cable Partner and no Cable Partner's Percentage Interest,
when added to the Percentage Interests of all Controlled Affiliates of such
Partner, is equal to or greater than Sprint's Percentage Interest, when added to
the Percentage Interests of all Controlled Affiliates of Sprint (in each case
determined without regard to any Additional Capital Contribution made by any
Partner pursuant to the Additional Contribution Notice with respect to which the
Shortfall occurred), the Shortfall shall be allocated first among those of the
Contributing Partners that are Cable Partners in the manner provided in Section
2.4(a)(ii) as though Sprint were not a Contributing Partner, and if and to the
extent that the aggregate Funding Commitments made by such Cable Partners are
less than one hundred percent (100%) of the Shortfall, the balance of the
Shortfall up to Sprint's Funding Commitment shall be allocated to Sprint.
(iv) The Shortfall shall be allocated among the Cable Partners in the
manner set forth in Section 2.4(a)(iii) until any Cable Partner would have a
Percentage Interest, when added to the Percentage Interests of all Controlled
Affiliates of such Partner, that is equal to Sprint's Percentage Interest, when
added to the Percentage Interests of all Controlled Affiliates of
<PAGE>
38
Sprint, calculated in each case after giving effect to the adjustments to the
Percentage Interests to be made in connection with the Additional Contribution
Notice with respect to which the Shortfall occurred assuming that the Additional
Capital Contributions to be made pursuant to this Section 2.4(a) were made up to
the aggregate amount that would yield such result (as to each Partner, its
"Adjusted Percentage Interest"). Any portion of the Shortfall not yet allocated
shall continue to be allocated proportionately among all of the Contributing
Partners (including Sprint, if applicable) in the manner provided in Section
2.4(a)(ii) without regard to Section 2.4(a)(iii), but substituting the Adjusted
Percentage Interests of the Contributing Partners for the Percentage Interests
that would otherwise be used to determine such allocation, until each has been
allocated by such process an amount equal to its Funding Commitment or until the
entire Shortfall has been allocated among the Contributing Partners.
(b) Delinquent Partners.
In the event that any Partner other than a Declining Partner (a "Delinquent
Partner") fails to make all or any portion of its Requested Contribution on or
before the related Contribution Date, an additional amount shall accrue as a
penalty with respect to such unpaid amount (the "Unpaid Amount") at the
applicable Floating Rate from and including the Contribution Date until the
Unpaid Amount and the full amount of the penalty accrued thereon (as of any date
of determination, the "Penalty Amount") are paid as provided in this Section 2.4
or the failure to pay the same results in such Partner becoming a Defaulting
Partner. If the Delinquent Partner pays the Unpaid Amount to the Partnership at
any time during the period ending at the close of business on the tenth (10th)
day following the related Contribution Date (the "Grace Period"), the Delinquent
Partner shall, at the time of such payment, pay to each other Partner, if any,
that made its Requested Contribution in full on or before the related
Contribution Date and has no uncured Payment Defaults (each a "Timely Partner"),
a pro rata portion of the Penalty Amount (based on the percentage that the
amount of each Timely Partners' Requested Contribution represents of the total
amount of the Timely Partner's Requested Contributions), but in no event more
than the amount that such Timely Partner would have earned as interest on the
amount of its Requested Contribution, from and including the Contribution Date
to the date the Delinquent Partner pays the Unpaid Amount to the Partnership, if
the Timely Partner had made a loan in such amount to the Partnership with
interest at the Floating Rate applicable during the Grace Period. The Delinquent
Partner shall pay the balance of the Penalty Amount, if any, to the Partnership
and the amount so paid shall be deemed to be a "Special Contribution" by
<PAGE>
39
the Delinquent Partner to the capital of the Partnership. The portion of the
Penalty Amount paid to the Timely Partners shall not, for any purpose, be deemed
to be a Capital Contribution.
(c) Defaulting Partners.
(i) If a Delinquent Partner fails to pay the Unpaid Amount together
with the Penalty Amount to the Partnership or the Timely Partners as provided in
Section 2.4(b) on or before the expiration of the Grace Period, such failure
shall constitute a "Payment Default" and if such Payment Default is not
thereafter cured in full as provided in Section 2.4(c)(iii) the Delinquent
Partner shall for all purposes hereof be considered a "Defaulting Partner" with
the effect described herein.
(ii) If a Payment Default occurs with respect to any Additional
Contribution Notice, the Chief Executive Officer shall, within five (5) days
after the related Contribution Date, give a notice (a "Default Loan Notice") to
each Partner that was a Paying Partner with respect to such Additional
Contribution Notice requesting the Paying Partners to make loans (each a
"Default Loan") to the Partnership in an aggregate amount equal to the Unpaid
Amount. Each Paying Partner that is willing to commit to make a Default Loan
(each a "Lending Partner") shall so notify the Chief Executive Officer and each
other Paying Partner within ten (10) days after the date the Default Loan Notice
was given, setting forth the maximum portion of the Unpaid Amount, up to one
hundred percent (100%) thereof, that such Lending Partner is willing to lend to
the Partnership (the "Lending Commitment"). The amount of the Default Loan that
each Lending Partner shall be entitled to make to the Partnership in response to
a Default Loan Notice shall be determined in the same manner as provided in
Section 2.4(a) for the determination of the amount of the Additional Capital
Contribution that each Contributing Partner is entitled to make in response to a
Shortfall Notice. The amount of the Default Loan to be made by each Lending
Partner in response to the Default Loan Notice as so determined shall be paid to
the account of the Partnership designated in the Default Loan Notice within
fifteen (15) days after the date the Default Loan Notice was given. Each Default
Loan shall bear interest from the date made (the "Loan Date") until paid in full
or contributed to the Partnership as provided in this Section 2.4 at the
Floating Rate applicable following the Grace Period and shall be evidenced by a
promissory note of the Partnership in the form of Exhibit 2.3(c)(ii) hereto
(with any changes thereto requested by any lender under any Senior Credit
Agreement and consented to by the Lending Partner, which consent shall not be
unreasonably withheld).
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40
(iii) A Delinquent Partner may cure its Payment Default at any time
prior to the close of business on the ninetieth (90th) day following the Loan
Date (the "Cure Date") by transferring to an account of the Partnership
designated by the Chief Executive Officer as an Additional Capital Contribution
cash in an amount equal to the sum of the Unpaid Amount and the Penalty Amount
accrued thereon to the date of such transfer (the "Make-up Amount"). The portion
of the Make-up Amount equal to the Penalty Amount shall be deemed to be a
Special Contribution by the Delinquent Partner to the Partnership and the
balance thereof shall constitute an Additional Capital Contribution by the
Delinquent Partner to the Partnership. The Chief Executive Officer shall cause
the Partnership to apply the funds so received from the Delinquent Partner to
the payment in full of the unpaid principal of and accrued interest on each
Default Loan in accordance with the terms of the note evidencing the same.
(iv) If a Delinquent Partner has not timely cured its Payment Default
in full in accordance with Section 2.4(c)(iii), then the Lending Partners shall
contribute their respective Default Loans to the Partnership effective as of the
day following the Cure Date and surrender the notes evidencing the same to the
Partnership for cancellation. The unpaid principal amount of a Lending Partner's
Default Loan through the Cure Date shall constitute an Additional Capital
Contribution (and the accrued interest on such Default Loan shall constitute a
Special Contribution) by the Lending Partner to the Partnership as of the
effective date of such contribution.
(d) Adjustments to Percentage Interests. The Percentage Interests of the
Partners shall be adjusted in accordance with the definition of "Percentage
Interest" to give effect to Additional Capital Contributions made pursuant to
Section 2.3 and this Section 2.4, provided that if there are any Declining
Partners or Delinquent Partners with respect to any Additional Contribution
Notice, the determination of the amount of the adjustment of the Percentage
Interests for Additional Capital Contributions made in response to such notice
will be deferred until the later of the last day for the making of Additional
Capital Contributions in connection with any Shortfall and the expiration of the
Grace Period, provided, however, that such adjustment whenever determined shall
be effective as of the Contribution Date. If any Partner is a Defaulting Partner
with respect to an Additional Contribution Notice, the Percentage Interests of
the Partners will be further adjusted as and when Additional Capital
Contributions are made as contemplated by clause (iii) or (iv), as applicable,
of Section 2.4(c). Solely for purposes of calculating Percentage Interests, the
Gross Asset
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Value of the License Contribution made by Cox pursuant to Section 2.3(d) shall
not be treated as a Capital Contribution until the Contribution Date on which
the License Contribution is credited against an Additional Capital Contribution
to be made by Cox. The Management Committee shall provide notice of each
adjustment to all Partners and Schedule 2.1 shall be revised to reflect such
adjustment.
(e) Paying Partners. A Paying Partner that declines to make a Funding
Commitment or Lending Commitment as contemplated by this Section 2.4 shall not
be deemed to be a Delinquent Partner or Defaulting Partner as a result thereof,
nor shall the failure to make such a commitment constitute a Payment Default
with respect to such Partner.
(f) Floating Rate. Subject to the last two sentences of Section 2.7, the
term "Floating Rate" means the rate per annum (computed on the basis of the
actual number of days elapsed in a year of 365 or 366 days, as applicable),
compounded monthly, equal to the greater of (i) the Prime Rate (adjusted as and
when changes in the Prime Rate occur) plus (x) during the Grace Period, two
percent (2%) and (y) following the Grace Period, five percent (5%), and (ii) the
rate per annum applicable to borrowings by the Partnership under its principal
credit facility, if any, or, if a choice of rates is then available to the
Partnership, the highest such rate (in either case adjusted as and when changes
in such applicable rate occur) plus, following the Grace Period, two percent
(2%).
2.5 Other Additional Capital Contributions.
Each Partner may contribute from time to time such additional cash or other
Property as the Management Committee may approve by Unanimous Vote or as may be
expressly contemplated by this Agreement, provided that any Capital Contribution
of property (other than cash) made pursuant to this Section 2.5 shall be subject
to the terms and provisions of an Additional Contribution Agreement.
2.6 Partnership Funds.
The funds of the Partnership shall be deposited in such bank accounts or
invested in such investments as shall be designated by the Management Committee.
Partnership funds shall not be commingled with those of any Person other than a
wholly owned subsidiary of the Partnership without the consent of all Partners.
The Partnership shall not lend or advance funds to, or
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guarantee any obligation of, a Partner or any Affiliate thereof without the
prior written consent of all Partners.
2.7 Partner Loans; Other Borrowings.
In order to satisfy the Partnership's financial needs, the Partnership may,
if so approved by the requisite vote of the Management Committee, borrow from
(i) banks, lending institutions or other unrelated third parties, and may pledge
Partnership properties or the production of income therefrom to secure and
provide for the repayment of such loans and (ii) any Partner or an Affiliate of
a Partner. Loans made by a Partner or an Affiliate of a Partner (a "Partner
Loan") shall be evidenced by a promissory note of the Partnership in the form
attached hereto as Exhibit 2.7 and, subject to the last two sentences of this
Section 2.7, shall bear interest payable quarterly from the date made until paid
in full at a rate per annum to be determined by the Management Committee that is
no less favorable to the Partnership than if the loan had been made by an
independent third party. Unless a Partner declines to make such loan or is a
Defaulting Partner or a Partner subject to Bankruptcy, Partner Loans shall be
made pro rata in accordance with the respective Percentage Interests of the
Partners (or in such other proportion as the Management Committee may approve by
Unanimous Vote).
Unless otherwise determined by the Management Committee, all Partner Loans
shall be unsecured and the promissory notes evidencing the same shall be
nonnegotiable and, except as otherwise provided in this Section 2.7(c) or
Section 12.3(c), nontransferable. Repayment of the principal amount of and
accrued interest on all Partner Loans and Default Loans shall be subordinated to
the repayment of the principal of and accrued interest on any indebtedness of
the Partnership to third party lenders to the extent required by the applicable
provisions of the instruments creating such indebtedness to third party lenders
("Senior Credit Agreements"). All amounts required to be paid in accordance with
the terms of such notes and all amounts permitted to be prepaid shall be applied
to the notes held by the Partners in accordance with the order of payment
contemplated by Section 14.2(b)(ii) and (iii). Subject to the terms of
applicable Senior Credit Agreements, Partner Loans shall be repaid to the
Partners at such times as the Partnership has sufficient funds to permit such
repayment without jeopardizing the Partnership's ability to meet its other
obligations on a timely basis. Nothing contained in this Agreement or in any
promissory note issued by the Partnership hereunder shall require the
Partnership or any Partner to pay interest or any amount as a penalty at a rate
exceeding the maximum amount of interest
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43
permitted to be collected from time to time under applicable usury laws. If the
amount of interest or of such penalty payable by the Partnership or any Partner
on any date would exceed the maximum permissible amount, it shall be
automatically reduced to such amount, and interest or the amount of the penalty
for any subsequent period, to the extent less than that permitted by applicable
usury laws, shall, to that extent, be increased by the amount of such reduction.
An election by a Partner to purchase all or any portion of another Partner's
Interest pursuant to Sections 5.1, 11, 12.4, 12.5, 12.6 or 14.7 shall also
constitute an election to purchase an equivalent portion of any outstanding
Partner Loans held by such selling Partner, and each purchasing Partner shall be
obligated to purchase a percentage of such Partner Loans equal to the percentage
of the selling Partner's Interest such purchasing Partner is obligated to
purchase for a price equal to the outstanding principal and accrued and unpaid
interest on such Partner Loans through the date of the closing of such purchase
(except in the case of a transfer pursuant to Section 12.4, in which case the
terms of the Purchase Offer shall apply).
2.8 Other Matters.
(a) No Partner shall have the right to demand or, except as otherwise
provided in Sections 4.1 and 14.2, receive a return of all or any part of its
Capital Account or its Capital Contributions or withdraw from the Partnership
without the consent of all Partners. Under circumstances requiring a return of
all or any part of its Capital Account or Capital Contributions, no Partner
shall have the right to receive Property other than cash.
(b) The Exclusive Limited Partners shall not be liable for the debts,
liabilities, contracts or any other obligations of the Partnership. Except as
otherwise provided by any other agreements among the Partners or mandatory
provisions of applicable state law, an Exclusive Limited Partner shall be liable
only to make Capital Contributions to the extent required by Sections 2.2, 2.3,
2.5 and 14.3 and shall not be required to lend any funds to the Partnership or,
after such Capital Contributions have been made, to make any additional Capital
Contributions to the Partnership.
(c) No other Partner shall have any personal liability for the repayment of
any Capital Contributions of any Partner.
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(d) No Partner shall be entitled to receive interest on its Capital
Contributions or Capital Account.
SECTION 3
ALLOCATIONS
3.1 Profits.
After giving effect to the special allocations set forth in Sections 3.3 and
3.4, Profits for any Allocation Year shall be allocated in the following order
and priority:
(a) First, one hundred percent (100%) to the Partners, in proportion to, and
to the extent of, an amount equal to the excess, if any, of (i) the cumulative
Losses allocated to each such Partner pursuant to Section 3.5 for all prior
Allocation Years, over (ii) the cumulative Profits allocated to such Partner
pursuant to this Section 3.1(a) for all prior Allocation Years;
(b) Second, one hundred percent (100%) to the Partners, in proportion to,
and to the extent of, an amount equal to the excess, if any, of (i) the
cumulative Losses allocated to each such Partner pursuant to Section 3.2(c) for
all prior Allocation Years, over (ii) the cumulative Profits allocated to such
Partner pursuant to this Section 3.1(b) for all prior Allocation Years;
(c) Third, to the extent such Profits arise during or after the Allocation
Year in which all or substantially all of the Partnership's assets are disposed
of, to the Partners in such ratios and amounts as may be necessary to cause the
balances in their Capital Accounts to be as nearly as practicable in the same
ratio as their respective Percentage Interests; and
(d) The balance, if any, among the Partners in proportion to their
Percentage Interests.
3.2 Losses.
After giving effect to the special allocations set forth in Sections 3.3 and
3.4, Losses for any Allocation Year shall be allocated in the following order
and priority:
(a) First, one hundred percent (100%) to the Partners, in proportion to, and
to the extent of, the excess, if any, of (i) the cumulative Profits allocated to
each such Partner pursuant to Section 3.1(d) for all prior Allocation Years,
over
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45
(ii) the cumulative Losses allocated to such Partner pursuant to this
Section 3.2(a) for all prior Allocation Years; and
(b) Second, to the extent such Losses arise during or after the Allocation
Year in which all or substantially all of the Partnership's assets are disposed
of, to the Partners in such ratio and amounts as may be necessary to cause the
balances in their Capital Accounts to be as nearly as practicable in the same
ratio as their respective Percentage Interests; and
(c) The balance, if any, among the Partners in proportion to their
Percentage Interests.
3.3 Special Allocations.
The following special allocations shall be made in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Section 3, if there is a net decrease in Partnership Minimum Gain during any
Allocation Year, each Partner shall be specially allocated items of Partnership
income and gain for such Allocation Year (and, if necessary, subsequent
Allocation Years) in an amount equal to such Partner's share of the net decrease
in Partnership Minimum Gain, determined in accordance with Regulations Section
1.704-2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations. This Section
3.3(a) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(f) of the Regulations and shall be interpreted consistently
therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(i)(4) of the Regulations, notwithstanding any other provision of this
Section 3, if there is a net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt during any Allocation Year, each
Partner who has a share of the Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of
Partnership income and gain for such Allocation Year (and, if necessary,
subsequent Allocation Years) in an amount equal to such Partner's share of the
net decrease in Partner Nonrecourse Debt Minimum
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46
Gain attributable to such Partner Nonrecourse Debt, determined in accordance
with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Sections 1.704-2(i)(4) and 1.704-2(j)(2) of the
Regulations. This Section 3.3(b) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be
interpreted consistently therewith.
(c) Qualified Income Offset. In the event any Exclusive Limited Partner
unexpectedly receives any adjustments, allocations, or distributions described
in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-
1(b)(2)(ii)(d)(6) of the Regulations, items of Partnership income and gain shall
be specially allocated to each such Exclusive Limited Partner in an amount and
manner sufficient to eliminate, to the extent required by the Regulations, the
Adjusted Capital Account Deficit of such Exclusive Limited Partner as quickly as
possible, provided that an allocation pursuant to this Section 3.3(c) shall be
made only if and to the extent that such Exclusive Limited Partner would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Section 3 have been tentatively made as if this Section 3.3(c) were not in
the Agreement.
(d) Gross Income Allocation. In the event any Exclusive Limited Partner has
a deficit Capital Account at the end of any Allocation Year which is in excess
of the sum of (i) the amount such Exclusive Limited Partner is obligated to
restore pursuant to any provision of this Agreement, and (ii) the amount such
Exclusive Limited Partner is deemed to be obligated to restore pursuant to the
penultimate sentences of Sections 1.704-2(g)(1) and 1.704- 2(i)(5) of the
Regulations, each such Exclusive Limited Partner shall be specially allocated
items of Partnership income and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this Section 3.3(d) shall be
made only if and to the extent that such Exclusive Limited Partner would have a
deficit Capital Account in excess of such sum after all other allocations
provided for in this Section 3 have been made as if Section 3.3(c) and this
Section 3.3(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any Allocation Year
shall be specially allocated among the Partners in proportion to their
Percentage Interests.
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(f) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for
any Allocation Year shall be specially allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which such
Partner Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i)(1).
(g) Section 754 Adjustments. To the extent an adjustment to the adjusted tax
basis of any Partnership asset pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Regulations Section 1.704- 1(b)(2)(iv)(m)(2) or
1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts
as the result of a distribution to a Partner in complete liquidation of its
Interest, the amount of such adjustment to Capital Accounts shall be treated as
an item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Partners in accordance with their interests in the Partnership
in the event Regulations Section 1.704- 1(b)(2)(iv)(m)(2) applies, or to the
Partner to whom such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) Allocations Relating to Taxable Issuance of Partnership Interests. Any
income, gain, loss or deduction realized as a direct or indirect result of the
issuance of an Interest by the Partnership to a Partner (the "Issuance Items")
shall be allocated among the Partners so that, to the extent possible, the net
amount of such Issuance Items, together with all other allocations under this
Agreement to each Partner, shall be equal to the net amount that would have been
allocated to each such Partner if the Issuance Items had not been realized.
(i) Special Interest Allocation. In the event that the Partnership makes any
payment in respect of interest accrued on any Default Loan in any Allocation
Year, the deduction attributable to such payment shall be specially allocated to
the Delinquent Partner with respect to which such Default Loan was made.
3.4 Curative Allocations.
The allocations set forth in Sections 3.3(a), 3.3(b), 3.3(c), 3.3(d),
3.3(e), 3.3(f) and 3.3(g) (the "Regulatory Allocations") are intended to comply
with certain requirements of the Regulations. It is the intent of the Partners
that, to the extent possible, all Regulatory Allocations shall be offset either
with other Regulatory Allocations or with special
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48
allocations of other items of Partnership income, gain, loss or deduction
pursuant to this Section 3.4. Therefore, notwithstanding any other provision of
this Section 3 (other than the Regulatory Allocations), the Management Committee
shall make such offsetting special allocations of Partnership income, gain, loss
or deduction in whatever manner it determines appropriate so that, after such
offsetting allocations are made, each Partner's Capital Account balance is, to
the extent possible, equal to the Capital Account balance such Partner would
have had if the Regulatory Allocations were not part of the Agreement and all
Partnership items were allocated pursuant to Sections 3.1, 3.2, 3.3(h) and
3.3(i). In exercising its discretion under this Section 3.4, the Management
Committee shall take into account future Regulatory Allocations under Sections
3.3(a) and 3.3(b) that, although not yet made, are likely to offset other
Regulatory Allocations previously made under Section 3.3(e) and 3.3(f).
3.5 Loss Limitation.
The Losses allocated pursuant to Section 3.2 shall not exceed the maximum
amount of Losses that can be so allocated without causing (or increasing the
amount of) any Exclusive Limited Partner to have an Adjusted Capital Account
Deficit at the end of any Allocation Year. All Losses in excess of such
limitation shall be allocated to the Partners who are not Exclusive Limited
Partners in proportion to their Percentage Interests.
3.6 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by a Required
Majority Vote of the Management Committee using any permissible method under
Code Section 706 and the Regulations thereunder.
(b) The Partners are aware of the income tax consequences of the allocations
made by this Section 3 and hereby agree to be bound by the provisions of this
Section 3 in reporting their shares of Partnership income and loss for income
tax purposes.
(c) Solely for purposes of determining a Partner's proportionate share of
the "excess nonrecourse liabilities" of the Partnership within the meaning of
Section 1.752-3(a)(3) of
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49
the Regulations, the Partners' interests in Partnership profits are in
proportion to their Percentage Interests.
(d) To the extent permitted by Section 1.704-2(h)(3) of the Regulations, the
Management Committee shall endeavor to treat distributions of cash as having
been made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse
Debt only to the extent that such distributions would cause or increase an
Adjusted Capital Account Deficit for any Exclusive Limited Partner.
3.7 Tax Allocations: Code Section 704(c).
In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Partnership shall, solely for tax purposes, be allocated
among the Partners so as to take account of any variation between the adjusted
basis of such property to the Partnership for federal income tax purposes and
its initial Gross Asset Value (computed in accordance with the definition of
Gross Asset Value).
In the event the Gross Asset Value of any Partnership asset is adjusted
pursuant to subparagraph (ii) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made
by the Management Committee in any manner that reasonably reflects the purpose
and intention of this Agreement. Allocations pursuant to this Section 3.7 are
solely for purposes of federal, state, and local taxes and shall not affect, or
in any way be taken into account in computing, any Partner's Capital Account or
share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.
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50
SECTION 4
DISTRIBUTIONS
4.1 Available Cash.
Except as otherwise provided in Section 4.2 and 14.2, Available Cash, if
any, shall be distributed among the Partners in cash in proportion to their
Percentage Interests at such times and in such amounts as the Management
Committee shall determine by Required Majority Vote. The Partnership shall pay
in full all Partner Loans (in accordance with the order of payment contemplated
by Section 14.2(b)) prior to making any cash distributions to the Partners.
4.2 Tax Distributions.
Available Cash shall be distributed to the Partners in proportion to their
Percentage Interests within one hundred thirty-five (135) days after the end of
each Fiscal Year of the Partnership in an aggregate amount equal to the
Hypothetical Federal Income Tax Amount for such Fiscal Year.
4.3 Amounts Withheld.
All amounts withheld pursuant to the Code or any provision of any state or
local tax law from any payment or distribution to a Partner shall be treated as
amounts paid or distributed to such Partner pursuant to this Section 4 for all
purposes under this Agreement. The Management Committee is authorized to
withhold from payments and distributions to any Partner and to pay over to any
federal, state, or local government any amounts required to be so withheld
pursuant to the Code or any provisions of any other federal, state, or local
law.
SECTION 5
MANAGEMENT
5.1 Authority of the Management Committee.
(a) General Authority. Subject to the limitations and restrictions set forth
in this Agreement, the General Partners shall conduct the business and affairs
of the Partnership, and all powers of the Partnership, except those specifically
reserved to the Partners by the Act or this Agreement, are hereby granted to and
vested in the General Partners, which shall conduct such business and exercise
such powers through their Representatives on the Management Committee.
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51
(b) Delegation. The Management Committee shall have the power to delegate
authority to such officers, employees, agents and representatives of the
Partnership as it may from time to time deem appropriate. Any delegation of
authority to take any action must be approved in the same manner as would be
required for the Management Committee to approve such action directly.
(c) Number and Term of Office. The Management Committee initially shall have
six voting members, one of which shall be designated by each Cable Partner and
three of which shall be designated by Sprint. Each General Partner shall give
written notice to the other General Partners on or prior to the date hereof of
the Person(s) selected to be its initial Representative(s). The Chief Executive
Officer shall be a non-voting member of the Management Committee. During the
term of this Agreement, except as otherwise provided below, each General Partner
shall be entitled to designate one Representative to the Management Committee,
provided that (i) for so long as Sprint is entitled to representation on the
Management Committee (except as otherwise provided below), Sprint shall be
entitled to designate three Representatives to the Management Committee;
provided, however, that at any time any other Partner holds a greater Voting
Percentage Interest than Sprint (except as otherwise provided below), Sprint
shall be entitled to designate only two Representatives to the Management
Committee; and provided, further, that at any time any other Partner holds a
greater Voting Percentage Interest than Sprint and Sprint's Percentage Interest
is less than twenty percent (20%), Sprint shall be entitled to designate only
one Representative to the Management Committee, and (ii) those Partners, if any,
that are Controlled Affiliates of the same Parent (a "Related Group") shall
collectively be entitled to designate only the largest number of Representatives
as is entitled to be designated by any single member of the Related Group, which
Representative(s) shall be designated by the Partner that has the largest
Percentage Interest of the Partners in the Related Group. Any Partner whose
Percentage Interest, together with the Percentage Interest(s) of each other
Partner, if any, that is a member of the same Related Group, is, in the
aggregate, less than the Minimum Ownership Requirement shall, for so long as its
Percentage Interest or the aggregate Percentage Interest of its Related Group,
as applicable, is less than the Minimum Ownership Requirement, not be entitled
to designate a Representative to the Management Committee, and the
Representative of such Partner or Related Group, as applicable, shall
immediately cease to be a member of the Management Committee, without any
further act by the affected Partner.
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Any Partner who becomes an Adverse Partner shall immediately forfeit the
right to designate a member of the Management Committee, and the
Representative(s) of the affected Partner shall immediately cease to be a member
of the Management Committee, without any further act by the affected Partner;
provided that if a Partner becomes an Adverse Partner as the result of the
occurrence of an Adverse Act described in clause (iii), (iv), (vi) or (vii) of
the definition of such term in Section 1.10, such Partner will regain (or its
transferee will be entitled to, as applicable) the right to designate a
Representative on the Management Committee (if otherwise so entitled thereto
under this Agreement) if (i) a Partner that is an Adverse Partner other than as
a result of the occurrence of an Adverse Act described in clause (iii) of the
definition of such term in Section 1.10 Transfers its Interest in compliance
with Section 12 to a Person that is not an Adverse Partner and does not become
an Adverse Partner as a result of such Transfer, (ii) in the case of a Partner
that is an Adverse Partner as a consequence of the occurrence of an Adverse Act
described in clause (iii) of the definition of such term in Section 1.10, there
is a Final Determination that such Partner's actions or failure to act did not
constitute such an Adverse Act, (iii) a Partner that is an Adverse Partner as a
consequence of Bankruptcy ceases to be in a state of Bankruptcy, (iv) a Partner
that is an Adverse Partner as a consequence of the occurrence of any IXC
Transaction ceases to have the relationship with the IXC which caused such IXC
Transaction to occur, or (v) a Partner that is an Adverse Partner as a
consequence of the occurrence of an event described in clause (vii) of the
definition of the term "Adverse Act" in Section 1.10 takes actions that
eliminate the circumstances that constituted such an Adverse Act within the
meaning of such clause (vii). The membership of the Management Committee shall
be increased or decreased from time to time in accordance with the preceding
sentences.
Each Representative shall hold office at the pleasure of the Partner that
designated such Representative. Any Partner may at any time, and from time to
time, by written notice to the other Partners remove any or all of the
Representatives designated by such Partner, with or without cause, and appoint
substitute Representatives to serve in their stead. Each Partner shall be
entitled to name an alternate Representative to serve in the place of any
Representative appointed by such Partner should any such Representative not be
able to attend a meeting or meetings, which alternate shall be deemed to be a
Representative hereunder with respect to any action taken at such meeting or
meetings. Each Partner shall bear the costs incurred by each Representative or
alternate designated by it to serve on the
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53
Management Committee, and no Representative or alternate shall be entitled to
compensation from the Partnership for serving in such capacity.
The written notice of a Partner's appointment of a Representative or
alternate shall in each case set forth such Representative's or alternate's
business and residence addresses and business telephone number. Each Partner
shall promptly give written notice to the other Partners of any change in the
business or residence address or business telephone number of any of its
Representatives. Each Partner shall cause its Representatives on the Management
Committee to comply with the terms of this Agreement. In the absence of prior
written notice to the contrary, any action taken by a Representative of a
Partner shall be deemed to have been duly authorized by the Partner that
appointed such Representative.
(d) Vacancy. In the event any Representative dies or is unwilling or unable
to serve as such or is removed from office by the Partner that designated him or
her, such Partner shall promptly designate a successor to such Representative.
(e) Place of Meeting/Action by Written Consent. The Management Committee may
hold its meetings at such place or places within or outside the State of
Delaware as the Management Committee may from time to time determine or as may
be designated in the notice calling the meeting. If a meeting place is not so
designated, the meeting shall be held at the Partnership's principal office.
Notwithstanding anything to the contrary in this Section 5.1, the Management
Committee may take without a meeting any action contemplated to be taken by the
Management Committee under this Agreement if such action is approved by the
unanimous written consent of a Representative of each of the Partners (which may
be executed in counterparts). The initial meeting of the Management Committee
shall take place on such date and at such time and place as the Partners shall
agree. The Management Committee may meet in person or by means of conference
telephone or similar communications equipment. Each Representative shall have
the right to participate in any meeting by means of conference telephone or
similar communications equipment.
(f) Regular Meetings. The Management Committee shall hold regular meetings
no less frequently than quarterly and shall establish meeting times, dates and
places and requisite notice requirements and adopt rules or procedures
consistent with the terms of this Agreement. At such meetings the members of the
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54
Management Committee shall transact such business as may properly be brought
before the meeting.
(g) Special Meetings. Special meetings of the Management Committee may be
called by any Representative. Notice of each such meeting shall be given to each
member of the Management Committee by telephone, telecopy, telegram or similar
method (in which case notice shall be given at least twenty-four (24) hours
before the time of the meeting) or sent by first-class mail (in which case
notice shall be given at least five (5) days before the meeting), unless a
longer notice period is established by the Management Committee. Each such
notice shall state (i) the time, date, place (which shall be at the principal
office of the Partnership unless otherwise agreed to by all Representatives) or
other means of conducting such meeting and (ii) the purpose of the meeting to be
so held. Any Representative may waive notice of any meeting in writing before,
at or after such meeting. The attendance of a Representative at a meeting shall
constitute a waiver of notice of such meeting, except when a Representative
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not properly called.
(h) Voting. The Representative(s) of each General Partner or of the General
Partners in a Related Group shall together have voting power equal to the Voting
Percentage Interest held by such General Partner or the aggregate Voting
Percentage Interest of the General Partners in such Related Group, as
applicable, as in effect from time to time. If a General Partner or a Related
Group designates only one Representative, such Representative shall be entitled
to vote the entire voting power held by such General Partner or the General
Partners in such Related Group, as applicable. If a General Partner or Related
Group designates more than one Representative, such Representatives shall vote
the entire voting power of such General Partner or the General Partners in such
Related Group as a single unit. None of the Partners (other than the Partners in
a Related Group) shall enter into any agreements with any other Partner
regarding the voting of their Interests or of Representatives on the Management
Committee.
(i) Required Majority Decisions. Except as provided in Section 5.1(j) or as
otherwise expressly provided in this Agreement, all actions required or
permitted to be taken by the Management Committee (including the matters listed
on Schedule 5.1(i)) must be approved by the affirmative vote, at a meeting at
which a quorum is present, of Representatives with voting power of seventy-five
percent (75%) or more of the Voting Percentage
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Interests of all Partners whose Representatives are not required by Section 8.7
or any other express provision of this Agreement to abstain from such vote (a
"Required Majority Vote").
(j) Unanimous Vote (Management Committee). No action may be taken by the
Partnership in connection with any of the matters listed on Schedule 5.1(j)
without the prior approval of the Management Committee by the unanimous vote of
all of the Representatives who are not required to abstain from the vote with
respect to the particular matter as provided for in Section 8.7 of this
Agreement or any other express provision of this Agreement, whether or not
present at a Management Committee meeting (a "Unanimous Vote").
(k) Unanimous Decisions (Partners). (i) No action may be taken by the
Partnership in connection with any of the matters listed on Schedule 5.1(k)
without the prior consent of all of the Partners (including Exclusive Limited
Partners) other than any Partner required to abstain from the vote with respect
to a particular matter by Section 8.7 or any other express provision of this
Agreement (a "Unanimous Partner Vote").
(ii) If any matter listed on Schedule 5.1(k) or otherwise required by
this Agreement to be approved by the unanimous consent of the Partners is not
approved solely as a result of the failure of one or more Exclusive Limited
Partners to consent to such action (each, a "Blocking Limited Partner"), the
remaining Partners (other than any Exclusive Limited Partner) may purchase all
but not less than all of the respective Interests of the Blocking Limited
Partner(s) pursuant to this Section 5.1(k)(ii) if the Management Committee
elects to initiate the procedures in this Section. For a period ending at 11:59
p.m. (local time at the Partnership's principal office) on the thirtieth (30th)
day following the date on which such Blocking Limited Partner failed to consent
to such matter, the Management Committee may elect to cause the Net Equity of
the Blocking Limited Partner's Interest to be determined in accordance with
Section 11.3. For purposes of such determination of Net Equity, the Management
Committee shall designate the First Appraiser as required by Section 11.4 and
the Blocking Limited Partner shall designate the Second Appraiser within ten
(10) days of receiving notice of the First Appraiser. For a period ending at
11:59 p.m. (local time at the Partnership's principal office) on the thirtieth
(30th) day following the date on which notice of the Net Equity of the Blocking
Limited Partner's Interest is given pursuant to Section 11.3 (the "Section 5.1
Election Period"), except as otherwise provided in Section 11.2(b), each of the
Partners (other than any Exclusive Limited Partner) may elect to
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purchase all or any portion of the Interests of the Blocking Limited Partners.
Such elections shall be made, and the purchase of the Blocking Limited Partner's
Interest shall occur, in the manner and pursuant to the procedures set forth in
Section 11.2 as if the Blocking Limited Partner were an Adverse Partner and the
Election Period referred to in Section 11.2 was the Section 5.1 Election Period;
provided that the Buy-Sell Price of the Blocking Limited Partner's Interest
shall be equal to the Net Equity thereof. Notwithstanding the foregoing, the
Blocking Limited Partner will not be subject to the buy-out provisions of this
Section 5.1(k)(ii) if the matter to which the Blocking Limited Partner refused
to consent would, if approved, have adversely affected the Exclusive Limited
Partner's rights and obligations under this Agreement in a manner different from
the other Partners.
(l) Proxies; Minutes. Each Representative entitled to vote at a meeting of
the Management Committee may authorize another Person to act for him by proxy;
provided that such proxy must be signed by the Representative and shall be
revocable by such Representative any time prior to such meeting. Minutes of each
meeting of the Management Committee shall be prepared by the Chief Executive
Officer or his or her designee and circulated to the Representatives. Written
consents to any action taken by the Management Committee shall be filed with the
minutes.
(m) Quorum. At any meeting of the Management Committee duly called or held,
the presence or participation in person, by conference telephone or similar
communications equipment or by proxy of Representatives with voting power equal
to at least a Required Majority Vote of the Voting Percentage Interests of all
Partners shall constitute a quorum for the taking of any action at such meeting.
5.2 Business Plan and Annual Budget.
(a) Simultaneously with the execution of this Agreement, the Management
Committee has adopted the Management Committee Resolution specifying the
aggregate Auction Commitment. Prior to the commencement of the PCS Auction, the
General Partners shall, and shall cause their respective Representatives on the
Management Committee to, use all commercially reasonable efforts and cooperate
in good faith with each other to develop and approve by Unanimous Vote of the
Management Committee a strategic plan for the Wireless Business during the
Auction Period (the "Wireless Strategic Plan"). Within sixty (60) days after the
completion of the PCS Auction relating to frequency blocks "A" and "B", the
General Partners shall, and shall cause
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their respective Representatives on the Management Committee to, use all
commercially reasonable efforts and cooperate in good faith with each other to
develop and approve a business plan ("Business Plan") for the Partnership
covering the balance of the Fiscal Year in which the PCS Auction is completed
and the succeeding Fiscal Years through the Fiscal Year ending December 31, 1999
(such initial Business Plan, if approved, being herein referred to as the
"Initial Business Plan"). The Initial Business Plan shall include capital
expenditure and operating budgets for each Fiscal Year covered thereby and shall
also specify for each Fiscal Year (or portion thereof) covered thereby the
aggregate amount of Additional Capital Contributions that would be requested of
the Partners during such Fiscal Year based on the assumptions (or varying sets
of assumptions) upon which the Initial Business Plan was prepared (which shall
be stated therein) and depending, if applicable, on the achievement of any
milestones specified therein.
(b) The approval of the Initial Business Plan shall require the Unanimous
Vote of the Management Committee.
(c) The Chief Executive Officer shall submit annually to the Management
Committee at least ninety (90) days prior to the start of each Fiscal Year after
the first full Fiscal Year (i) a proposed budget (the "Proposed Budget") for the
forthcoming Fiscal Year including an income statement prepared on an accrual
basis which shall show in reasonable detail the revenues and expenses projected
for the Partnership's business for the forthcoming Fiscal Year and a cash flow
statement which shall show in reasonable detail the receipts and disbursements
projected for the Partnership's business for the forthcoming Fiscal Year and the
amount of any corresponding cash deficiency or surplus, and the required
Additional Capital Contributions, if any, and any contemplated borrowings of the
Partnership and (ii) a proposed revised Business Plan ("Proposed Business Plan")
for the Fiscal Year covered by the Proposed Budget and the succeeding four
Fiscal Years in substantially the same or greater detail as the Initial Business
Plan and containing such additional categories of information as may be
appropriate to reflect the progress of the development of the Partnership's
business. Such Proposed Budget and Proposed Business Plan shall be prepared on a
basis consistent with the Partnership's audited financial statements. If such
Proposed Budget or such Proposed Business Plan is approved by the Management
Committee, then such Proposed Budget or such Proposed Business Plan, as the case
may be, shall be considered approved and shall constitute the "Annual Budget" or
the "Approved Business Plan," as the case may be, for all purposes of this
Agreement and shall supersede any previously
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approved Annual Budget or Approved Business Plan, as the case may be. Except as
provided on Schedule 5.1(j), the approval of each Proposed Budget and Proposed
Business Plan and action by the Partnership constituting any material deviation
from any Annual Budget or Approved Business Plan shall require the Required
Majority Vote of the Management Committee. No Approved Business Plan or Annual
Budget shall be inconsistent with the provisions of this Agreement, nor shall
this Agreement be deemed amended by any provision of an Approved Business Plan
or Annual Budget. If a Proposed Budget or Proposed Business Plan is not approved
by the Required Majority Vote of the Management Committee, then the General
Partners shall cause their Representatives to cooperate in good faith and confer
with the Chief Executive Officer and other senior officers of the Partnership
for the purpose of attempting to arrive at a Proposed Budget or Proposed
Business Plan, as the case may be, that can secure the approval of the
Management Committee.
(d) If, notwithstanding the foregoing procedures, on January 1 of any Fiscal
Year no Proposed Budget has been approved by the Management Committee for such
Fiscal Year, then the Annual Budget for the prior Fiscal Year, adjusted (without
duplication) to reflect increases or decreases resulting from the following
events, shall govern until such time as the Management Committee approves a new
Proposed Budget:
(i) the operation of escalation or de-escalation provisions in
contracts in effect at the time of approval of the prior Fiscal Year's
Annual Budget solely as a result of the passage of time or the occurrence
of events beyond the control of the Partnership to the extent such
contracts are still in effect;
(ii) elections made in any prior Fiscal Year under contracts
contemplated by the Annual Budget for the prior Fiscal Year regardless of
which party to such contracts makes such election;
(iii) increases or decreases in expenses attributable to the
annualized effect of employee additions or reductions during the prior
Fiscal Year contemplated by the Annual Budget for the prior Fiscal Year;
(iv) changes in interest expense attributable to any loans made to or
retired by the Partnership (including Partner Loans);
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(v) increases in overhead expenses in an amount equal to the total of
overhead expenses reflected in the Annual Budget for the prior Fiscal Year
multiplied by the increase in the Consumer Price Index for the prior year,
but in no event more than five percent (5%);
(vi) the anticipated incurrence of costs during such Fiscal Year for
any legal, accounting and other professional fees or disbursements in
connection with events or changes not contemplated at the time of
preparation of the Annual Budget for the prior Fiscal Year;
(vii) the continuation of the effects of a decision made by the
Management Committee or the Partners in the prior Fiscal Year with respect
to any of the matters referred to on Schedules 5.1(i), 5.1(j) or 5.1(k)
that are not reflected in the Annual Budget for the prior Fiscal Year; and
(viii) decreases in expense attributable to non-recurring items
reflected in the prior Fiscal Year's Annual Budget.
Any budget established pursuant to this Section 5.2(d) is herein referred
to as a "Default Budget."
(e) If a Proposed Business Plan is submitted for approval pursuant to this
Section 5.2 and is not approved by the requisite vote of the Management
Committee, the Business Plan most recently approved by the Management Committee
pursuant to Section 5.2(c) shall remain in effect as the Approved Business Plan;
provided, that, if a Proposed Budget is approved pursuant to Section 5.2(c) (and
the corresponding Proposed Business Plan is not so approved), the Approved
Business Plan then in effect shall be deemed to be amended so that the Fiscal
Year therein corresponding to the Fiscal Year for which such Annual Budget has
been approved shall be consistent with such Annual Budget.
(f) The day-to-day business and operations of the Partnership shall be
conducted in accordance with the Approved Business Plan and the Annual Budget
(or Default Budget) then in effect and the policies, strategies and standards
established by the Management Committee. The Management Committee and the
officers and employees of the Partnership shall implement the Annual Budget and
Approved Business Plan.
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5.3 Employees.
The Management Committee will appoint the senior management of the
Partnership and will establish policies and guidelines for the hiring of
employees to permit the Partnership to act as an operating company with respect
to its Wireless Business. The Management Committee may adopt appropriate
management incentive plans and employee benefit plans.
5.4 Limitation of Agency.
The Partners agree not to exercise any authority to act for or to assume
any obligation or responsibility on behalf of the Partnership except (i) as
approved by the Management Committee by Required Majority Vote, (ii) as approved
by written agreement among the General Partners and (iii) as expressly provided
herein. No Partner shall have any authority to act for or to assume any
obligations or responsibility on behalf of another Partner under this Agreement
except (i) as approved by written agreement among the Partners and (ii) as
expressly provided herein. Subject to Section 5.6, in addition to the other
remedies specified herein, each Partner agrees to indemnify and hold the
Partnership and the other Partners harmless from and against any claim, demand,
loss, damage, liability or expense (including reasonable attorneys' fees and
disbursements and amounts paid in settlement, but excluding any indirect,
special or consequential damages) incurred by or against such other Partners or
the Partnership and arising out of or resulting from any action taken by the
indemnifying Partner in violation of this Section 5.4.
5.5 Liability of Partners and Representatives.
No Partner, former Partner or Representative or former Representative, no
Affiliate of any thereof, nor any partner, shareholder, director, officer,
employee or agent of any of the foregoing, shall be liable in damages for any
act or failure to act in such Person's capacity as a Partner or Representative
or otherwise on behalf of the Partnership unless such act or omission
constituted bad faith, gross negligence, fraud or willful misconduct of the
indemnified person or a violation of this Agreement. Subject to Section 5.6,
each Partner, former Partner, Representative and former Representative, each
Affiliate of any thereof, and each partner, shareholder, director, officer,
employee and agent of any of the foregoing, shall be indemnified and held
harmless by the Partnership, its receiver or trustee from and against any
liability for damages and expenses, including reasonable attorneys' fees and
disbursements and
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amounts paid in settlement, resulting from any threatened, pending or completed
action, suit or proceeding relating to or arising out of such Person's acts or
omissions in such Person's capacity as a Partner or Representative or (except as
provided in Section 5.4) otherwise involving such Person's activities on behalf
of the Partnership, except to the extent that such damages or expenses result
from the bad faith, gross negligence, fraud or willful misconduct of the
indemnified Person or a violation by such Person of this Agreement or an
agreement between such Person and the Partnership. Any indemnity by the
Partnership, its receiver or trustee under this Section 5.5 shall be provided
out of and to the extent of Partnership Property only.
5.6 Indemnification.
Any Person asserting a right to indemnification under Section 5.4 or 5.5
shall so notify the Partnership or the other Partners, as the case may be, in
writing. If the facts giving rise to such indemnification shall involve any
actual or threatened claim or demand by or against a third party, the
indemnified Person shall give such notice promptly (but the failure to so notify
shall not relieve the indemnifying Person from any liability which it otherwise
may have to such indemnified Person hereunder except to the extent the
indemnifying Person is actually prejudiced by such failure to notify). The
indemnifying Person shall be entitled to control the defense or prosecution of
such claim or demand in the name of the indemnified Person, with counsel
satisfactory to the indemnified Person, if it notifies the indemnified Person in
writing of its intention to do so within twenty (20) days of its receipt of such
notice, without prejudice, however, to the right of the indemnified Person to
participate therein through counsel of its own choosing, which participation
shall be at the indemnified Person's expense unless (i) the indemnified Person
shall have been advised by its counsel that use of the same counsel to represent
both the indemnifying Person and the indemnified Person would present a conflict
of interest (which shall be deemed to include any case where there may be a
legal defense or claim available to the indemnified Person which is different
from or additional to those available to the indemnifying Person), in which case
the indemnifying Person shall not have the right to direct the defense of such
action on behalf of the indemnified Person, or (ii) the indemnifying Person
shall fail vigorously to defend or prosecute such claim or demand within a
reasonable time. Whether or not the indemnifying Person chooses to defend or
prosecute such claim, the Partners shall cooperate in the prosecution or defense
of such claim and shall furnish such records, information and testimony and
attend such
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conferences, discovery proceedings, hearings, trials and appeals as may
reasonably be requested in connection therewith. The indemnifying Person may not
take control of any investigation or defense, without the consent of any
indemnified Person, if the claims involved in such proceedings involve any
material risk of the sale, forfeiture or loss of, or the creation of any lien
(other than a judgment lien) on, any material property of such indemnified
Person or could entail a risk of criminal liability to such indemnified Person.
The indemnified Person shall not settle or permit the settlement of any
claim or action for which it is entitled to indemnification without the prior
written consent of the indemnifying Person, unless the indemnifying Person shall
have failed to assume the defense thereof after the notice and in the manner
provided above.
The indemnifying Person may not without the consent of the indemnified
Person agree to any settlement (i) that requires such indemnified Person to make
any payment that is not indemnified hereunder, (ii) does not grant a general
release to such indemnified Person with respect to the matters underlying such
claim or action, or (iii) that involves the sale, forfeiture or loss of, or the
creation of any lien on, any material property of such indemnified Person.
Notwithstanding the foregoing, the indemnifying Person may not in connection
with any such investigation, defense or settlement, without the consent of the
indemnified Person, take or refrain from taking any action which would
reasonably be expected to materially impair the indemnification of such
indemnified Person hereunder or would require such indemnified Person to take or
refrain from taking any action or to make any public statement, which such
indemnified Person reasonably considers to materially adversely affect its
interests.
Upon the request of any indemnified Person, the indemnifying Person shall
use reasonable efforts to keep such indemnified Person reasonably apprised of
the status of those aspects of such investigation and defense controlled by the
indemnifying Person and shall provide such information with respect thereto as
such indemnified Person may reasonably request.
5.7 Temporary Investments.
All Property in the form of cash not otherwise invested shall be deposited
for the benefit of the Partnership in one or more accounts of the Partnership or
any of its wholly owned subsidiaries, maintained in such financial institutions
as the
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Management Committee shall determine or shall be invested in short-term liquid
securities or other cash-equivalent assets or shall be left in escrow, and
withdrawals shall be made only for Partnership purposes on such signature or
signatures as the Management Committee may determine from time to time.
5.8 Deadlocks.
(a) Upon the occurrence of a Deadlock Event, the General Partners shall
first use their good faith efforts to resolve such matter in a mutually
satisfactory manner. If, after such efforts have continued for twenty (20) days,
no mutually satisfactory solution has been reached, the General Partners shall
resolve the Deadlock Event as provided herein:
(i) The General Partners shall (at the insistence of any of them)
refer the matter to the chief executive officers of their respective Parents for
resolution.
(ii) Should the chief executive officers of the Parents fail to
resolve the matter within ten (10) days after it is referred to them, each
General Partner (or any group of General Partners electing to act together)
shall prepare a brief (a "Brief"), which includes a summary of the issue, its
proposed resolution of the issue and considerations in support of such proposed
resolution, not later than ten (10) days following the failure of the chief
executive officers to resolve such dispute, and such Briefs shall be submitted
to such reputable and experienced mediation service as is selected by the
Management Committee by Required Majority Vote or, failing such selection, by
the Chief Executive Officer (the "Mediator"). During a period of twenty (20)
days, the Mediator and the General Partners shall attempt to reach a resolution
of the Deadlock Event.
(iii) In the event that after such twenty (20) day period (or such
longer period as the Management Committee may approve by Required Majority
Vote), the General Partners are still unable to reach resolution of the Deadlock
Event (such resolution to be evidenced by the requisite vote of the Management
Committee with respect to the underlying matters), the Deadlock Event shall
constitute a Liquidating Event as provided in Section 14.1(a)(iii) unless the
Management Committee determines by Required Majority Vote not to dissolve.
(b) A "Deadlock Event" shall be deemed to have occurred if (i) after
failing to approve a Proposed Budget or Proposed Business Plan for one Fiscal
Year, the Management Committee has failed to approve a Proposed Budget or
Proposed
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Business Plan for the next succeeding Fiscal Year prior to the commencement of
such succeeding Fiscal Year, or (ii) the position of Chief Executive Officer is
vacant for a period of more than sixty (60) days after at least two Partners
with an aggregate of at least thirty-three percent (33%) of the Voting
Percentage Interests have proposed a candidate to fill such vacancy.
5.9 Conversion to Corporate Form.
(a) In the event that the Management Committee shall determine by Required
Majority Vote (or such other vote as may be required by Item B. of Schedule
5.1(i)) that it is desirable or helpful for the business of the Partnership to
be conducted in a corporate rather than in a partnership form (for the purposes
of conducting a public offering or otherwise), the Management Committee shall
have the power to incorporate the Partnership in Delaware. In connection with
any such incorporation of the Partnership, the Partners shall receive, in
exchange for their Interests, shares of capital stock of such corporation having
the same relative economic interests and other rights as such Partners hold in
the Partnership as set forth in this Agreement, subject in each case to (i) any
modifications required solely as a result of the conversion to corporate form
and (ii) modifications to the provisions of Section 5.1 to conform to the
provisions relating to actions of stockholders and a board of directors set
forth in the Delaware General Corporation Law; provided, that the relative
number of representatives on the board of directors and relative voting power of
the outstanding equity interests of such corporation of each General Partner
shall be as nearly as practicable in proportion to the relative Voting
Percentage Interests of the General Partners immediately prior to such
incorporation. For purposes of the preceding sentence, each Partner's relative
economic interest in the Partnership shall equal such Partner's Net Equity as
compared to the Net Equity of all of the Partners, as determined in accordance
with Section 11.3 except that the Management Committee shall by Required
Majority Vote select a single Appraiser to determine Gross Appraised Value. At
the time of such conversion, the Partners shall enter into a stockholders'
agreement providing for (i) rights of first refusal and other restrictions on
transfer equivalent to those set forth in Sections 12.1 through 12.4; provided
that such restrictions shall not apply, following the initial Public Offering by
the corporate successor to the Partnership, to sales in broadly disseminated
Public Offerings or sales in accordance with Rule 144 under the Securities Act
of 1933 (the "1933 Act"), including the manner of sale required by Rule 144
(whether or not applicable to such sale) and (ii) an agreement to vote all
shares of capital stock held by them with
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respect to the election of directors of the corporation so as to duplicate as
closely as possible the management structure of the Partnership as set forth in
Section 5.1.
(b) Upon conversion to corporate form, the corporate successor to the
Partnership shall grant to each of the Partners certain rights to require such
successor to register under the 1933 Act the shares of capital stock received by
the Partners in exchange for their Partnership Interests. Such rights shall be
as approved by the Required Majority vote of the Management Committee, provided
that the registration rights of each Partner shall be identical on a
proportionate basis.
(c) Each Partner shall have preemptive rights, exercisable in accordance
with procedures to be established by the Management Committee in connection with
and following the conversion of the Partnership to corporate form, to purchase
equity securities proposed to be issued from time to time by a corporate
successor to the Partnership or its successor, provided, however, that no
Partner shall have any such preemptive right with respect to any equity
securities which, by a vote of the board of directors of such corporate
successor that is equivalent to a Required Majority Vote, have been approved for
issuance by such corporate successor in connection with (i) a Public Offering or
(ii) any acquisition (including by way of merger or consolidation) by the
corporate successor of the equity interests or assets of another entity that is
not a Partner or its Affiliate in a transaction pursuant to which the purchase
price is paid by delivery of such equity securities to the seller. A "Public
Offering" means an offering by the corporate successor pursuant to a
registration statement on a form applicable to the sale of securities to the
general public.
SECTION 6
PARTNERSHIP OPPORTUNITIES;
CONFIDENTIALITY
6.1 Engaging in Wireless Businesses.
(a) In General. For so long as any Person is a Partner, neither such Person
nor any of its Controlled Affiliates shall engage in any Competitive Activity in
the United States of America (including its territories and possessions other
than Puerto Rico) except (i) through the Partnership, (ii) subject to Section
6.1(d), as provided in Section 6.1(b) or 6.1(c) or (iii) as permitted by Section
6.3 or 6.4. The term "Competitive Activity" means to bid on, acquire or,
directly or indirectly,
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own, manage, operate, join, control, or finance or participate in the ownership,
management, operation, control or financing of, or be connected as a principal,
agent, representative, consultant, beneficial owner of an interest in any
Person, or otherwise with, or use or permit its name to be used in connection
with, any business or enterprise which (i) engages in the bidding for or
acquisition of any Wireless Business license or engages in any Wireless Business
and, in either such case, provides services within the Exclusive Services, or
(ii) offers, promotes or brands services that are within the Exclusive Services.
(b) Bidding for Wireless Business Licenses. Except as permitted by Section
6.4, no Partner nor any of its Controlled Affiliates shall bid in the PCS
Auction for any Wireless Business licenses unless (i) the Management Committee
consents to such bid following consultation by such Partner with the
Representatives of the other Partners; or (ii) (A) the Partnership has entered a
bid or bids for such license, but a third-party bid has been entered which
equals or exceeds the maximum amount that the Partnership has determined to bid
for such license, (B) if a vote was taken, such Partner's Representative(s)
voted in favor of the Partnership's increasing the amount it would bid for such
license, and (C) the Partnership has determined not to increase its bid in
response to such third party bid. Prior to the PCS Auction, the Partners will
agree upon procedures to facilitate the bid by a Partner under the circumstances
described in clause (ii) above and to permit the Partnership to re-enter the
bidding on its own behalf following any such bid; provided the purchase price of
a license purchased by or on behalf of a Partner pursuant to this Section 6.1(b)
shall be in addition to (and not credited against) such Partner's Auction
Commitment. This Section 6.1(b) will not permit a Partner or its Affiliate to
bid for or acquire a Wireless Business license if the bidding for or acquisition
of such license by a Partner or its Affiliate would otherwise violate (or cause
the Partnership or any of the other Partners or their respective Affiliates to
be in violation of) the FCC's rules or orders relating to Wireless Business
license cross-ownership, license attribution standards, and/or spectrum
attribution or aggregation requirements, including Sections 20.6, 24.204 and
24.229(c) of the FCC's rules.
(c) Acquiring Interests in Wireless Businesses. If any Partner or any of
its Controlled Affiliates proposes to engage in any Competitive Activity other
than as permitted by Section 6.1(b), 6.3 or 6.4, then such Partner shall first
offer to the Partnership the opportunity to engage, in lieu of such Partner and
its Affiliates, in such Competitive Activity (whether by acquiring such interest
itself or itself offering, promoting
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or branding such services) (the "Offer"), which Offer shall be made in writing
and shall set forth in reasonable detail the nature and scope of the activity
proposed to be engaged in, including all material terms of any proposed
acquisition. The Partnership (by Required Majority Vote of the Management
Committee pursuant to Section 8.7) shall have thirty (30) days from receipt of
the Offer to accept or reject it. If the Partnership fails to accept the Offer
within such thirty (30) day period, it shall be deemed to have rejected the
Offer, and the offering Partner or its Affiliate shall be permitted to engage in
such Competitive Activity on terms no more favorable to such Partner or its
Affiliate than those described in the Offer. If the Partnership accepts the
Offer, the offering Partner and its Affiliates shall not pursue such opportunity
to engage in such Competitive Activity; provided, however, that if the
Partnership accepts the Offer but does not within a commercially reasonable
period of time after such acceptance take reasonable steps to pursue such
opportunity, other than as a result of a violation of this Agreement or wrongful
acts or bad faith on the part of the offering Partner or its Controlled
Affiliates, then the offering Partner or its Controlled Affiliate shall be
permitted to pursue such opportunity on terms no more favorable to the offering
Partner than those terms described in the Offer. If the offering Partner or its
Controlled Affiliate does not take reasonable steps to pursue such opportunity
contemplated by the Offer within a reasonable period of time after acquiring the
right to do so in accordance with the foregoing provisions of this Section
6.1(c) (including, in the case of an acquisition, by entering into a definitive
agreement (subject solely to obtaining the requisite regulatory approvals and
other customary closing conditions) with respect to such acquisition within one
hundred twenty (120) days thereafter), then it shall lose its right to pursue
such opportunity and thereafter be required to reoffer the opportunity to do so
to the Partnership in accordance with, and shall otherwise comply with, this
Section 6.1(c). Notwithstanding the foregoing, a Partner shall not be permitted
to present an Offer to the Partnership (or otherwise engage in any Competitive
Activity in reliance on this Section 6.1(c)) (i) involving any Wireless Business
other than PCS until one year following the completion of the PCS Auction (the
"Lock-out Period") or (ii) in any license area in which the Partnership or any
of its Controlled Affiliates is otherwise engaged in the Wireless Business
(including pursuant to an Affiliation Agreement), in either case without a
Unanimous Vote of the Management Committee pursuant to Section 8.7.
(d) Affiliation Agreements. (i) Any Partner or Controlled Affiliate thereof
that acquires or owns a Wireless
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Business license, or directly engages in a Wireless Business providing services
included in the Exclusive Services, as permitted by the exceptions provided by
Sections 6.1(b) and 6.1(c) to the prohibitions on Competitive Activities
contained in Section 6.1(a), shall as a condition to the availability of such
exceptions, offer to enter into an affiliation agreement with respect to such
Wireless Business with the Partnership on terms and conditions comparable to
those which the Partnership offers to other affiliated Wireless Businesses in
similar situations (or if no such agreement then exists, such terms and
conditions shall include a provision for competitive pricing), under which such
Wireless Business will provide its services to the public as an affiliate of the
Partnership's business (as entered into with a Partner or its Controlled
Affiliate or any other person, an "Affiliation Agreement"). The Management
Committee may waive compliance with all or any part of this Section 6.1(d) with
respect to any transaction by Required Majority Vote of the Management Committee
pursuant to Section 8.7.
(ii) Each Partner and its Controlled Affiliates shall also use all
commercially reasonable efforts to cause any Affiliate of such Partner which
acquires or owns a Wireless Business license, or otherwise engages in any
Wireless Business, and provides services within the Exclusive Services, to (if
the Partnership so desires) enter into an Affiliation Agreement with the
Partnership.
(e) Geographic Restrictions. Unless approved by the unanimous consent of
the Partners, the Partnership will not engage in any Competitive Activities in
the Philadelphia, Cleveland, Richmond, El Paso, Jacksonville, Knoxville,
Charlotte or Omaha MTAs, including bidding for or acquiring any PCS licenses
therein; provided that, to the extent permitted by law, the Partnership may
enter into Affiliation Agreements with Persons engaged in Competitive Activities
in such MTAs.
(f) Unrestricted Activities. Nothing in this Section 6 shall prevent any
Person from (i) providing any Non-Exclusive Services or engaging in any Excluded
Business or (ii) complying with any applicable laws, rules or regulations,
including those requiring that any facilities be made available to any other
Person.
6.2 Enforceability and Enforcement.
(a) The Partners acknowledge and agree that the time, scope, geographic
area and other provisions of Section 6.1 have been specifically negotiated by
sophisticated parties and agree
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that such time, scope, geographic area, and other provisions are reasonable
under the circumstances. If, despite this express agreement of the Partners, a
court should hold any portion of Section 6.1 to be unenforceable for any reason,
the maximum restrictions of time, scope and geographic area reasonable under the
circumstances, as determined by the court, will be substituted for the
restrictions held to be unenforceable.
(b) The Partnership shall be entitled to preliminary and permanent
injunctive relief, without the necessity of proving actual damages or posting
any bond or other security, to prevent any breach of Section 6.1, which rights
shall be cumulative and in addition to any other rights or remedies to which the
Partnership may be entitled.
6.3 General Exceptions to Section 6.1.
The restrictions set forth in Section 6.1 on Competitive Activities shall
not be construed to prohibit any of the following actions by a Partner and its
Controlled Affiliates except to the extent any such action would (i) cause the
Partnership (including the ownership of its assets and the conduct of its
business) to be in violation of any law or regulation or otherwise result in any
restriction or other limitation on the Partnership's ownership of its assets or
conduct of its business or (ii) in any way impair, prevent or delay the ability
of the Partnership to bid for or acquire a Wireless Business license during the
Lock-out Period in any license area in which the Partnership plans to engage in
a Competitive Activity pursuant to or as set forth in the Wireless Strategic
Plan:
(a) The acquisition or ownership of any debt or equity securities
registered pursuant to the Securities Exchange Act of 1934, so long as such
securities (i) do not represent more than five percent (5%) of the aggregate
voting power of the outstanding capital stock of any Person that engages in a
Competitive Activity (assuming the conversion, exercise or exchange of all such
securities held by such Partner or its Controlled Affiliates that are
convertible, exercisable or exchangeable into or for voting stock) or (ii) in
the case of debt securities, entitle the holder to receive only interest or
other returns that are fixed, or vary by reference to an index or formula that
is not based on the value or results of operations of such Person;
(b) The acquisition (through merger, consolidation, purchase of stock or
assets, or otherwise) of a Person or an
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interest in a Person, which engages (directly or indirectly through an Affiliate
that is controlled by such Person) in any Competitive Activity if the
Competitive Activity does not constitute the principal activity, in terms of
revenues or fair market value, of the businesses acquired in such acquisition or
conducted by the Person in which such interest is acquired, provided, in each
case, that such Partner or Controlled Affiliate divests itself of the
Competitive Activity or interest therein as soon as is practicable, but in no
event later than twenty-four (24) months, after the acquisition unless the
Management Committee approves the entering into of an Affiliation Agreement with
respect to such Competitive Activity pursuant to Section 8.7;
(c) The continued holding of an equity interest in an Person that commences
a Competitive Activity following the acquisition of such equity interest if
neither the Partner nor its Controlled Affiliate has any responsibility or
control over the conduct of such Competitive Activity, does not permit its name
to be used in connection with such Competitive Activity and uses all
commercially reasonable efforts, including voting its equity interest, to cause
such Person either (i) to cease such Competitive Activity or (ii) to offer to
enter into an Affiliation Agreement with the Partnership;
(d) The conduct of any Competitive Activity that is a necessary component
of or an incidental part of the conduct of any Excluded Business by a Partner or
its Controlled Affiliates or the entering into of an arrangement with an
independent third party for the provision of any services included in the
Exclusive Services which is a necessary component of or an incidental part of
the conduct of such Excluded Business, so long as, in each case, such Partner or
Controlled Affiliate shall first use all commercially reasonable efforts to
negotiate agreements with the Partnership, which are reasonable in the
independent judgment of both parties, pursuant to which the Partnership would
provide such services included in the Exclusive Services on terms no less
favorable to the Partner or such Controlled Affiliate than such Partner or
Controlled Affiliate could obtain from an independent third party or could
provide itself;
(e) The ownership and operation by (i) a partnership of Sprint, TCI and Cox
of a PCS license and a Wireless Business in the Philadelphia MTA ("PhillieCo")
and (ii) any of Cox, Comcast and TCI or their Affiliates (acting singly or
jointly through a partnership or other entity) of a PCS License and an
associated Wireless Business in any of the Cleveland, Richmond, El Paso,
Jacksonville, Knoxville and Omaha MTAs, in each case so
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long as such owners or entities holding the licenses enter into Affiliation
Agreements with the Partnership, subject to applicable law;
(f) Any Partner may conduct any Competitive Activity involving the
provision of any product or service that is an ancillary value-added addition to
a Wireless Business and which does not itself require an FCC license (including
but not limited to operator services, location services and weather, sports and
other information services);
(g) The ownership and operation by Sprint of its cellular business within
the territories in which it currently operates; and
(h) The ownership by Cox or its Affiliate of PioneerCo. Notwithstanding
anything to the contrary in this Section 6, any investment fund in which a
Partner or any of its Affiliates has an investment (including pension funds)
that invests funds on behalf of and has a fiduciary duty to third party
investors shall be permitted to engage in or invest in entities engaged in any
activity whatsoever provided that, neither such Partner nor any of its
Controlled Affiliates, directly or indirectly, exercises any management or
operational control whatsoever in any such entity engaging in a Wireless
Business providing Exclusive Services.
6.4 Comcast Exceptions.
The restrictions set forth in Section 6.1 shall not apply with respect to
the following:
(a) Subject to the limitations set forth in this Section 6.4, Comcast and
its Controlled Affiliates may engage in any Competitive Activities with respect
to any Wireless Services in the Comcast Area.
(b) Comcast and its Controlled Affiliates may participate in a bid for
and/or acquire any interest in a 10 MHz PCS license only in any of the BTAs in
the Philadelphia MTA or the Allentown, Pennsylvania BTA. Comcast and its
Controlled Affiliates may acquire any interest in a 10 MHz PCS license in any of
the following cellular license areas in New Jersey: Hunterdon County, Middlesex
County, Monmouth County and Ocean County; provided, that at the time of such
acquisition Comcast and its Controlled Affiliates own a controlling interest in
a
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cellular license for such area and further provided, that the license area of
such 10 MHz license shall not extend beyond such area in other than an
immaterial manner. In the event Comcast and its Controlled Affiliates own a
controlling interest in any such 10 MHz PCS license, then Comcast and its
Controlled Affiliates will, to the extent permitted by applicable law, provide
for their customers receiving services under any such 10 MHz PCS license to
receive roaming services from any of the Partnership's or its Affiliate's
businesses providing services under any PCS license (the "Partnership's
Businesses"), subject to the conditions that (i) such roaming is technically
feasible, (ii) such roaming is at competitive rates and on other terms and
conditions reasonably acceptable to Comcast and its Controlled Affiliates, (iii)
the Partnership's Businesses support the features and services provided by
Comcast and its Controlled Affiliates to their customers and (iv) subject to the
same conditions, the Partnership's Businesses will provide for their customers
to receive reciprocal roaming services from Comcast and its Controlled
Affiliates in the areas described above at such times as neither PhillieCo nor
the Partnership owns or has an affiliation with respect to a Wireless Business
license for such areas. Notwithstanding the foregoing, if the ownership by
Comcast or any of its Controlled Affiliates of any 10 MHz PCS license outside of
the Philadelphia MTA (A) causes the Partnership (including the ownership of its
assets and the conduct of its business) to be in violation of any law or
regulation or otherwise results in any restriction or other limitation on the
Partnership's ownership of its assets or conduct of its business or (B) in any
way impairs, prevents or delays the ability of the Partnership to bid for or
acquire a Wireless Business license in any license area in which the Partnership
plans to engage in a Competitive Activity pursuant to or as set forth in the
Wireless Strategic Plan or its then-current Business Plan, Comcast and its
Controlled Affiliates will be prohibited from making such acquisition or, if
such acquisition has already occurred, will cure the circumstances described
above (including, if required, by divesting its ownership of the 10 MHz PCS
license) within a commercially reasonable period of time after its receipt of
notice from the Partnership of the existence of such circumstances; provided
that, in the event of such divestiture, Comcast and its Controlled Affiliates
will have the right to resell service in such area provided such resale shall
occur using the Partnership's facilities if they are available and it is
technically feasible to do so.
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(c) Comcast and its Controlled Affiliates may engage in any Competitive
Activities utilizing its currently held SMR assets within the territory covered
by its current SMR licenses.
(d) Comcast and its Controlled Affiliates may engage in any Competitive
Activities with respect to any Wireless Services in the Kankakee, Illinois RSA
cellular license area as well as the cellular license area served by Indiana
Cellular Holdings, Inc., Harrisburg Cellular Telephone Company, Aurora/Elgin
Cellular Telephone Company, Inc. and Joliet Cellular Telephone Company, Inc.;
provided that such Competitive Activities are confined to the geographic
territories of the cellular licenses currently held by such businesses.
(e) Comcast and its Controlled Affiliates may participate in regional
marketing activities within the Comcast Area for the purpose of: (i) selling to
its "In-Territory Customers" (as defined below) wireless services within the
Washington, D.C., New York and Philadelphia MTAs; and (ii) obtaining
distribution from its "In-Territory Distributors" (as defined below) of wireless
services within the Washington, D.C., New York and Philadelphia MTAs; provided
that (A) Comcast and its Controlled Affiliates do not maintain or deploy any
sales personnel, sales office or other direct sales presence, or otherwise
advertise or promote the Comcast brand or any other brand, in either the New
York MTA or the Washington, D.C. MTA outside of the Comcast Area, (B) Comcast
and its Controlled Affiliates do not own or lease any wireless transmission
facilities outside of the Comcast Area in connection therewith and (C) in
obtaining the distribution contemplated by Section 6.4(e)(ii), Comcast and its
Controlled Affiliates subcontract the provision of wireless services outside the
Comcast Area to a third party provider only if such services cannot be
subcontracted to the Partnership without material adverse consequences for
Comcast's and its Controlled Affiliates' ability to participate in such regional
marketing activities. For the purposes hereof, an "In-Territory Customer" is a
customer that has a business location in the Comcast Area and places the order
for the services described above through Comcast and its Controlled Affiliates
in the Comcast Area. For the purposes hereof, an "In-Territory Distributor" is a
distributor that has a business location in the Comcast Area and requires a
regional contract be entered into by Comcast and its Controlled Affiliates in
the Comcast Area. For purposes of this Section 6.4(e), the term "Comcast Area"
shall include any area in which Comcast and its Controlled Affiliates at such
time own a controlling interest in a PCS license which was permitted to be
acquired under Section 6.4(b).
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(f) Comcast and its Controlled Affiliates may hold an interest in Nextel,
Inc. ("Nextel"), provided that (i) none of Comcast's or its Controlled
Affiliates' Agents or Representatives participate in or are present at any
discussions, or receive any information, regarding Nextel's PCS bidding
strategies; and (ii) at the election of Comcast, no later than the first
anniversary date of the date hereof either (A) Comcast and its Controlled
Affiliates shall own securities representing less than 5.4% of the voting power
and equity of all of the outstanding capital stock of Nextel, (B) no Agent of
Comcast or any of its Controlled Affiliates shall be a director or officer of
Nextel, and no director of Nextel shall be an appointee of Comcast or its
Controlled Affiliates pursuant to any contractual right of Comcast and its
Controlled Affiliates to appoint any director of Nextel, or (C) Comcast shall
elect to become an Exclusive Limited Partner as of such date by giving written
notice of such election to the Partnership; provided, however, that if Comcast
and its Controlled Affiliates fail to satisfy either of clauses (A) or (B) above
at any time after the first anniversary hereof or acquire any additional common
stock or other voting securities (or securities convertible into or exchangeable
for common stock or voting securities) of Nextel (other than as a result of the
exercise of its existing stock option to acquire 25,000,000 shares and warrants
to acquire 230,000 shares and of the consummation of its existing required
purchase obligation in the amount of $50,000,000) then Comcast will
automatically (without any action required to be taken by the Partnership or any
Partner) become an Exclusive Limited Partner. Notwithstanding the preceding
sentence, if (1) such acquisition is the result of the exercise by Comcast and
its Controlled Affiliates of preemptive rights held by them as of the date
hereof, (2) Comcast and its Controlled Affiliates exercise any available
registration rights immediately following such exercise of preemptive rights and
otherwise seek to Transfer such common stock as soon as practicable; and (3) all
of the Nextel common stock so acquired is Transferred to a non-Affiliate of
Comcast and its Controlled Affiliates within one hundred and eighty (180) days
of the date of acquisition thereof, then Comcast will automatically (without any
action required by the Partnership or any Partner) be returned to the status of
General Partner if it satisfies either of clauses (A) or (B) above and is not
otherwise required to be an Exclusive Limited Partner under this Section 6.4(f).
If Comcast has become an Exclusive Limited Partner pursuant to this Section
6.4(f) and has on or before the first anniversary date hereof presented the
Partnership in writing with a plan providing for the disposition of an ownership
interest in Nextel such that following such disposition Comcast and its
Controlled Affiliates will satisfy the requirements of clause (A) above, then
Comcast
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will automatically (without any action required by the Partnership or any
Partner) be returned to the status of General Partner at such time as such plan
(or a substantially similar plan) is consummated if such consummation occurs
prior to the second anniversary of this Agreement and if Comcast is not
otherwise required to be an Exclusive Limited Partner under this Section 6.4(f).
If at any time following the date hereof Comcast and its Controlled Affiliates
own more than 31% of the common stock of Nextel on a fully diluted basis
(provided that at such time Nextel has a total market capitalization of at least
$2,000,000,000), or own 50% or more of the common stock of Nextel on a fully-
diluted basis (regardless of Nextel's total market capitalization), then the
other Partners will have the option, exercisable within ninety (90) days of the
date of the acquisition of such ownership interest to purchase the Interest of
Comcast at its Net Equity Value for cash at a closing to be held no later than
ninety (90) days from the date such option is exercised. Such purchase shall
occur in accordance with the procedures set forth in Section 11 as if Comcast is
an "Adverse Partner" and each of the other Partners is a "Purchasing Partner."
(g) The term "Comcast Area" means (i) the following cellular license areas
(or portions thereof) in New Jersey: Hunterdon NJ1 RSA, New Brunswick MSA, Long
Branch MSA, Trenton MSA, Allentown, PA MSA, Philadelphia MSA, Ocean NJ2 RSA,
Atlantic City MSA, Vineland-Millville MSA, and Wilmington, DE MSA; (ii)
Delaware; (iii) Maryland RSA2; (iv) counties in Pennsylvania in which Comcast
and its Controlled Affiliates engage in the cellular business on the date
hereof, and all counties in Pennsylvania contiguous thereto; (v) the
Philadelphia MTA; and (vi) minor overlaps into any territory adjoining any of
the areas included in (i) - (v) required to efficiently provide services in such
area.
(h) The obligations under Section 6.1(d) shall not apply to Comcast and its
Controlled Affiliates with respect to any Competitive Activities permitted
pursuant to this Section 6.4.
(i) Comcast and its Controlled Affiliates may co-brand or package any
Wireless Services permitted to be provided pursuant to this Section 6.4 together
with their cable television offerings; provided that in such event the only
brand name(s) which may be used for any such Wireless Services are any of the
following, any combination thereof or any variants thereof substantially similar
thereto: Comcast, Comcast Cellular, Comcast Metrophone, Metrophone, Comcast
Cellular One and Cellular
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One, which Comcast represents are currently utilized by its cellular business in
the Comcast Area as of the date hereof; provided further, however, that Comcast
may request that the Partnership approve the use by Comcast and its Controlled
Affiliates of another brand name (other than that of an inter-exchange carrier),
in which case the Partnership's consent to the use thereof will not be
unreasonably withheld.
6.5 Freedom of Action.
Except as set forth in this Section 6, no Partner or Affiliate shall have
any obligation not to (i) engage in the same or similar activities or lines of
business as the Partnership or develop or market any products or services that
compete, directly or indirectly, with those of the Partnership, (ii) invest or
own any interest publicly or privately in, or develop a business relationship
with, any Person engaged in the same or similar activities or lines of business
as, or otherwise in competition with, the Partnership, (iii) do business with
any client or customer of the Partnership, or (iv) employ or otherwise engage a
former officer or employee of the Partnership.
6.6 Confidentiality.
(a) Maintenance of Confidentiality. Each Partner and its Controlled
Affiliates (each a "Restricted Party") shall, and shall cause their respective
officers, directors, employees, attorneys, accountants, consultants and other
agents and advisors (collectively, "Agents") to, keep secret and maintain in
confidence the terms of this Partnership Agreement and all confidential and
proprietary information and data of the Partnership and the other Partners or
their Affiliates disclosed to it (in each case, a "receiving party") in
connection with the formation of the Partnership and the conduct of the
Partnership's business and in connection with the transactions contemplated by
the Joint Venture Formation Agreement (the "Confidential Information") and shall
not disclose Confidential Information, and shall cause their respective Agents
not to disclose Confidential Information, to any Person other than the Partners,
their Controlled Affiliates, their respective Agents that need to know such
Confidential Information, or the Partnership. Each Partner further agrees that
it shall not use the Confidential Information for any purpose other than
monitoring and evaluating its investment, determining and performing its
obligations and exercising its rights under this Agreement. The Partnership and
each Partner shall take all reasonable measures necessary to prevent any
unauthorized disclosure of the Confidential
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Information by any of their respective Controlled Affiliates or any of their
respective Agents.
(b) Permitted Disclosures. Nothing herein shall prevent the Partnership,
any Restricted Party or its Agents from using, disclosing, or authorizing the
disclosure of Confidential Information it receives in the course of the business
of the Partnership which:
(i) has been published or is in the public domain through no fault of
the receiving party;
(ii) prior to receipt hereunder (or under that certain Agreement for
Use and Non-Disclosure of Proprietary Information, dated as of May 4, 1994,
among Affiliates of the Partners) was properly within the legitimate
possession of the receiving party or, subsequent to receipt hereunder (or
under such Agreement), is lawfully received from a third party having
rights therein without restriction of the third party's right to
disseminate the Confidential Information and without notice of any
restriction against its further disclosure;
(iii) is independently developed by the receiving party through
parties who have not had, either directly or indirectly, access to or
knowledge of such Confidential Information;
(iv) is disclosed to a third party with the written approval of the
party originally disclosing such information, provided that such
Confidential Information shall cease to be confidential and proprietary
information covered by this Agreement only to the extent of the disclosure
so consented to;
(v) subject to the receiving party's compliance with paragraph (d)
below, is required to be produced under order of a court of competent
jurisdiction or other similar requirements of a governmental agency,
provided that such Confidential Information to the extent covered by a
protective order or equivalent shall otherwise continue to be Confidential
Information required to be held confidential for purposes of this
Agreement; or
(vi) subject to the receiving party's compliance with paragraph (d)
below, is required to be disclosed by applicable law or a stock exchange or
association on which
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such receiving party's securities (or those of its Affiliate) are listed.
(c) Notwithstanding this Section 6.5, any Partner may provide Confidential
Information (i) to other Persons considering the acquisition (whether directly
or indirectly) of all or a portion of such Partner's Interest in the Partnership
pursuant to Section 12 of this Agreement, (ii) to other Persons considering the
consummation of a Permitted Transaction with respect to such Person or (iii) to
any financial institution in connection with the provision of funds by such
financial institution to such Partner, so long as prior to any such disclosure
such other Person or financial institution executes a confidentiality agreement
that provides protection substantially equivalent to the protection provided the
Partners and the Partnership in this Section 6.5.
(d) In the event that any receiving party (i) must disclose Confidential
Information in order to comply with applicable law or the requirements of a
stock exchange or association on which such receiving party's securities or
those of its Affiliates are listed or (ii) becomes legally compelled (by oral
questions, interrogatories, requests for information or documents, subpoenas,
civil investigative demands or otherwise) to disclose any Confidential
Information, the receiving party shall provide the disclosing party with prompt
written notice so that in the case of clause (i), the disclosing party can work
with the receiving party to limit the disclosure to the greatest extent possible
consistent with legal obligations, or in the case of clause (ii), the disclosing
party may seek a protective order or other appropriate remedy or waive
compliance with the provisions of this Agreement. In the event that the
disclosing party is unable to obtain a protective order or other appropriate
remedy, or if the disclosing party so directs, the receiving party shall, and
shall cause its employees to, exercise all commercially reasonable efforts to
obtain a protective order or other appropriate remedy at the disclosing party's
reasonable expense. Failing the entry of a protective order or other appropriate
remedy or receipt of a waiver hereunder, the receiving party shall furnish only
that portion of the Confidential Information which it is advised by opinion of
its counsel is legally required to be furnished and shall exercise all
commercially reasonable efforts to obtain reliable assurance that confidential
treatment shall be accorded such Confidential Information, it being understood
that such reasonable efforts shall be at the cost and expense of the disclosing
party whose Confidential Information has been sought.
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(e) Any press release concerning the formation and operation of the
Partnership shall be approved in advance by a Required Majority Vote of the
Management Committee.
(f) The obligations under this Section 6.5 shall survive (i) as to all
Partners, the termination of the Partnership, (ii) as to any Partner, such
Partner's withdrawal therefrom (or otherwise ceasing to be a Partner) and (iii)
as to any Person, such Person's ceasing to be an Affiliate or Agent of a
Partner, in each case for a period of two (2) years from the date of such
termination, withdrawal or cessation, as the case may be; provided that in the
case of a withdrawal or cessation pursuant to clauses (ii) or (iii) above, such
obligations shall continue indefinitely with respect to any trade secret or
similar information which is proprietary to the Partnership and provides the
Partnership with an advantage over its competitors.
SECTION 7
ROLE OF EXCLUSIVE LIMITED PARTNERS
7.1 Rights or Powers.
The Exclusive Limited Partners shall not have any right or power to take
part in the management or control of the Partnership or its business and affairs
or to act for or bind the Partnership in any way.
7.2 Voting Rights.
The Exclusive Limited Partners shall have the right to vote only on the
matters specifically reserved for the vote or approval of Partners (including
the Exclusive Limited Partners) set forth in this Agreement, including those
matters listed on Schedule 5.1(k) hereto.
SECTION 8
TRANSACTIONS WITH PARTNERS; OTHER AGREEMENTS
8.1 Sprint Cellular.
(a) The Partners shall negotiate in good faith terms pursuant to which
Sprint will make available or transfer to the Partnership assets, expertise and
services relating to its cellular operations, including certain senior level
management and technical expertise from its cellular headquarters and regional
operations, as well as other core employees and
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capabilities such as administrative services and intellectual property.
(b) In the event (i) the Partnership is the winning bidder for a PCS
license with respect to a license area and Sprint and its Controlled Affiliates
have an ownership interest in a cellular business or businesses (a "Sprint
Cellular Business") having a service area which is included within such license
area in whole or in part (an "Overlap Cellular Area") or (ii) the Partnership
has decided, within thirty (30) months from the date of this Agreement, to
acquire a PCS license in a license area which includes an Overlap Cellular Area;
and as a result of Sprint's ownership interest in a Sprint Cellular Business the
Partnership would not be awarded on an unconditional basis (in the event of
clause (i) above) or be permitted to acquire (in the event of clause (ii) above)
such PCS license under FCC rules and regulations relating to CMRS spectrum cap
limitations; then Sprint agrees that it will divest such portion of such Sprint
Cellular Business, within the time period provided by FCC rules in the event of
clause (i) above, and as soon as commercially reasonable (e.g., to avoid "fire
sale" prices) in the event of clause (ii) above, or take any other action as is
necessary, so that the Partnership will not be impaired from holding or
acquiring such PCS license. Nothing herein prevents one or more Partners from
acquiring a PCS license, subject to an obligation to affiliate with the
Partnership to the extent allowed by law, if Sprint is unable to divest the
overlap property in a timely manner. This Section 8.1(b) shall not require
Sprint to divest, or take any other action with respect to, any of the Sprint
Cellular Businesses listed on Schedule A-4 of Exhibit A to Exhibit 1.1(a) to the
Joint Venture Formation Agreement.
8.2 Sprint Brand Licensing Agreement.
As promptly as practicable following the execution of this Agreement, the
Partnership will enter into a brand licensing agreement with Sprint Parent (the
"Trademark License") to provide the Partnership with a national brand license to
market its national Wireless Business containing substantially the terms set
forth in the term sheet attached as Exhibit 1.1(d) to the Joint Venture
Formation Agreement and in Paragraph 8 of Exhibit E to the NewTelco Summary of
Terms attached as Exhibit 1.1(a) to the Joint Venture Formation Agreement.
8.3 Joint Marketing Agreement.
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Following the execution of this Agreement, each Partner agrees to (i)
negotiate in good faith regarding the definitive terms of a joint marketing
agreement among the Partnership, each of the Partners and certain of their
Affiliates reflecting the principles attached as Exhibit E to Exhibit 1.1(a) to
the Joint Venture Formation Agreement, with such modifications and additions as
the Partners shall negotiate in good faith and (ii) subject to the agreement of
the Partners as to such definitive documentation, to use all commercially
reasonable efforts to cause such agreement to be executed and delivered as
promptly as practicable following the execution of this Agreement.
8.4 Network Services Agreement.
(a) Following the execution of this Agreement, each Partner agrees to (i)
negotiate in good faith regarding the definitive terms of a network services
agreement to be entered into between the Partnership and Sprint reflecting the
principles attached as Exhibit F to Exhibit 1.1(a) to the Joint Venture
Formation Agreement (the "Network Services Statement of Principles") with such
modifications and additions as the Partners shall negotiate in good faith and
(ii) subject to the agreement of the Partners as to such definitive
documentation, to use all commercially reasonable efforts to cause such
agreement to be executed and delivered as promptly as practicable following the
execution of this Agreement.
(b) Pending the execution by Sprint and the Partnership of a definitive
network services agreement, the Partners agree that (so long as Sprint or its
Controlled Affiliate is a Partner) the Partnership shall be required to purchase
the telecommunications services described in clauses (i) through (iv) of
paragraph 1 of the Network Services Term Sheet at the prices contemplated by
paragraph 2 of the Network Services Term Sheet.
8.5 Preferred Provider.
The Partnership shall contract with each Partner, its Affiliates and third
parties, as appropriate, on a negotiated arms-length basis, for services it may
require, which may include billing and information systems and marketing and
sales services. The Partnership may in the normal course of its business enter
into transactions with the Partners and their respective Affiliates provided
that, subject to Section 8.5(b) below, the Management Committee by the requisite
vote pursuant to Section 8.7 has determined that the price and other terms of
such transactions are fair to the Partnership and that the price and
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other terms of such transaction are not less favorable to the Partnership than
those generally prevailing with respect to comparable transactions involving
non-Affiliates of Partners. Subject to the foregoing, the Management Committee,
acting in accordance with Section 8.7, may in its discretion elect from time to
time to provide rights of first opportunity to various Partners or their
Affiliates to provide services to the Partnership; provided that the Management
Committee shall have adopted, by Unanimous Vote, procedures (including conflict
avoidance procedures) relating generally to such right of first opportunity
arrangements, and the provision of such rights and all matters related to the
exercise thereof shall be subject to and effected in a manner consistent with
such procedures. The Partnership is expressly authorized to enter into the
agreements expressly referred to in this Section 8.
8.6 MFJ
Each Partner agrees that neither it nor any of its Controlled Affiliates
shall take any action which (i) causes such Partner or the Partnership to become
a BOC or (ii) which causes the Partnership to become a BOC Affiliated Enterprise
or an entity subject to any restriction or limitation under Section II of the
MFJ if, in the case of an event specified in clause (ii) above, such event would
have a material adverse effect on the business, assets, liabilities, results or
operations, financial condition or prospects of the Partnership.
8.7 Interested Party Transactions.
Any contract, agreement, relationship or transaction between the
Partnership or any of its subsidiaries, on the one hand, and any Partner or any
Person in which a Partner (including its Controlled Affiliates) has a direct or
indirect material financial interest or which has a direct or indirect material
financial interest in such Partner (provided that a Person shall not be deemed
to have a such an interest solely as a result of its ownership of less than 10%
(by value) of the outstanding economic interests in a Publicly Held Parent of a
Partner (or a Publicly Held Intermediate Subsidiary of such Parent) (each, an
"Interested Person") on the other hand, shall be approved and all decisions with
respect thereto (including a decision to accept or reject an Offer pursuant to
Section 6.1(c), the determination to amend, terminate or abandon any such
contract or agreement, whether there has been a breach thereof and whether to
exercise, waive or release any rights of the Partnership with respect thereto)
shall be made (after full disclosure by the interested Partner of all material
facts relating to such matter) by the
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Management Committee (with the Representatives of the interested Partner(s)
absent from the deliberations and abstaining from the vote with respect thereto)
by the requisite affirmative vote of the Representatives of the disinterested
General Partners. For purposes of the foregoing, a disinterested General Partner
is a General Partner that is not a party to, and does not have an Interested
Person that is a party to, the contract, agreement, relationship or transaction
in question.
8.8 Access to Technical Information
Subject to the provisions of Sections 6 and 10.4 of this Agreement and to
applicable confidentiality restrictions, the Partnership shall grant to each
Partner and its Controlled Affiliates access to Technical Information. Such
access shall be granted at such reasonable times and locations and on such other
reasonable terms as the Management Committee may approve by Required Majority
Vote pursuant to Section 8.7. Subject to Section 6, the Partnership shall grant
to any such Partner or its Controlled Affiliate a license to use any Technical
Information Rights to which it is granted access pursuant to this Section 8.8,
which license shall provide for royalties and fees and other terms and
conditions that are generally prevailing with respect to comparable transactions
involving unrelated third parties and are at least as favorable to such Partner
or its Controlled Affiliate as those generally prevailing with respect to
comparable licenses (if any) granted to non-Affiliates of Partners.
8.9 Parent Undertaking.
Simultaneously with the execution of this Agreement, each Parent has
executed and delivered to the Partnership and the other Partners a Parent
Undertaking substantially in the form of Exhibit 8.9. Cox agrees that the Person
that will be its Parent as of January 1, 1996 as provided in the definition of
said term in Section 1.10, if other than Cox Parent, will execute and deliver to
the Partnership and each other Partner a Parent Undertaking on or before
December 31, 1995.
8.10 Certain Additional Covenants.
(a) Each Cable Partner agrees that for so long prior to the fifth
anniversary of the date of this Agreement as it is a Partner, neither it nor any
of its Controlled Affiliates will engage in any transaction or series of related
transactions, other than a Permitted Transaction, in which cable system assets
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owned directly or indirectly by the Parent of such Partner are Transferred if,
after giving effect to such transaction or the last transaction in such series
of related transactions, the number of basic subscribers served by the cable
systems owned by the Parent of such Partner, directly and indirectly through its
Controlled Affiliates, is equal to twenty-five percent (25%) or less of the
number of basic subscribers served by the cable systems owned by the Parent of
such Partner, directly and indirectly through its Controlled Affiliates, before
giving effect to such transaction or the first transaction in such series of
related transactions.
(b) Sprint agree that for so long prior to the fifth anniversary of the
date of this Agreement as it is a Partner, neither it nor any of its Controlled
Affiliates will engage in any transaction or series of related transactions,
other than a Permitted Transaction, in which long distance telecommunications
business assets owned directly or indirectly by the Parent of Sprint are
Transferred if, after giving effect to such transaction or the last transaction
in such series of related transactions, the number of customers served by the
long distance telecommunications business owned by the Parent of Sprint,
directly and indirectly through its Controlled Affiliates, is equal to
twenty-five percent (25%) or less of the number of customers served by the long
distance telecommunications business owned by the Parent of Sprint, directly and
indirectly through its Controlled Affiliates, before giving effect to such
transaction or the first transaction in such series of related transactions.
8.11 PioneerCo Preemptive Rights.
As contemplated by the PioneerCo Term Sheet, the Partners intend that the
definitive partnership agreement relating to PioneerCo will grant to an
Affiliate of Cox and the Partnership certain put and call rights that may result
in the acquisition by the Partnership of such Affiliate's interest in PioneerCo
in exchange for an additional Interest in the Partnership. At the time of such
exchange, each of the Partners (other than Cox) will be permitted to make
Additional Capital Contributions in cash up to the amount necessary to permit
such Partner to avoid any reduction in its Percentage Interest as a consequence
of such exchange (assuming that all such other Partners were to exercise such
right).
8.12 Foreign Ownership
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Each Partner agrees that neither it nor any of its Controlled Affiliates
will take any action that (i) causes the Partnership to violate any federal laws
or regulations restricting foreign ownership of the Partnership (including 47
U.S.C. 310(b) and the rules and regulations promulgated thereunder by the FCC)
(the "Ownership Restrictions") or (ii) would cause the Partnership to be in
violation of the Ownership Restrictions assuming that Sprint Parent is 28%
foreign-owned (as measured by the Ownership Restrictions). After the date
hereof, the Partners will consider in good faith additional provisions to be
included in this Agreement (i) regarding the relative rights of the Partners and
their Controlled Affiliates with respect to foreign ownership and (ii) to permit
the Partners and the Partnership to cure any violation of the Ownership
Restrictions.
SECTION 9
REPRESENTATIONS AND WARRANTIES
Each Partner hereby represents and warrants that as of the date hereof:
(a) Due Incorporation or Formation; Authorization of Agreement. Such
Partner is a corporation duly organized or a partnership duly formed, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation and has the corporate or partnership power and
authority to own its property and carry on its business as owned and carried on
at the date hereof and as contemplated hereby. Such Partner is duly licensed or
qualified to do business and in good standing in each of the jurisdictions in
which the failure to be so licensed or qualified would have a material adverse
effect on its financial condition or its ability to perform its obligations
hereunder. Such Partner has the corporate or partnership power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and
the execution, delivery and performance of this Agreement has been duly
authorized by all necessary corporate or partnership action. Assuming the due
execution and delivery by the other parties hereto, this Agreement constitutes
the legal, valid and binding obligation of such Partner enforceable against such
Partner in accordance with its terms, subject as to enforceability to limits
imposed by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and the availability of equitable remedies.
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(b) No Conflict with Restrictions; No Default. Neither the execution,
delivery and performance of this Agreement nor the consummation by such Partner
of the transactions contemplated hereby (i) will conflict with, violate or
result in a breach of any of the terms, conditions or provisions of any law,
regulation, order, writ, injunction, decree, determination or award of any
court, any governmental department, board, agency or instrumentality, domestic
or foreign, or any arbitrator, applicable to such Partner or any of its
Controlled Affiliates, (ii) will conflict with, violate, result in a breach of
or constitute a default under any of the terms, conditions or provisions of the
articles of incorporation, bylaws or partnership agreement of such Partner or
any of its Controlled Affiliates or of any material agreement or instrument to
which such Partner or any of its Controlled Affiliates is a party or by which
such Partner or any of its Controlled Affiliates is or may be bound or to which
any of its material properties or assets is subject (other than any such
conflict, violation, breach or default that has been validly and unconditionally
waived), (iii) will conflict with, violate, result in a breach of, constitute a
default under (whether with notice or lapse of time or both), accelerate or
permit the acceleration of the performance required by, give to others any
material interests or rights or require any consent, authorization or approval
under any indenture, mortgage, lease agreement or instrument to which such
Partner or any of its Controlled Affiliates is a party or by which such Partner
or any of its Controlled Affiliates is or may be bound, or (iv) will result in
the creation or imposition of any lien upon any of the material properties or
assets of such Partner or any of its Controlled Affiliates, which in any such
case could reasonably be expected to have a material adverse effect on the
Partnership or to materially impair such Partner's ability to perform its
obligations under this Agreement or to have a material adverse effect on the
consolidated financial condition of such Partner or its Parent.
(c) Governmental Authorizations. Any registration, declaration or filing
with, or consent, approval, license, permit or other authorization or order by,
any governmental or regulatory authority, domestic or foreign, that is required
to be obtained by such Partner in connection with the valid execution, delivery,
acceptance and performance by such Partner under this Agreement or the
consummation by such Partner of any transaction contemplated hereby has been or
will be completed, made or obtained on or before the effective date of this
Agreement, except for any FCC or other regulatory approvals, licenses, permits
or other authorizations required to be obtained by the
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Partnership in connection with the acquisition and ownership of Wireless
Business licenses relating to PCS.
(d) Litigation. There are no actions, suits, proceedings or investigations
pending or, to the knowledge of such Partner or its Parent, threatened against
or affecting such Partner or any of its Controlled Affiliates or any of their
properties, assets or businesses in any court or before or by any governmental
department, board, agency or instrumentality, domestic or foreign, or any
arbitrator which could, if adversely determined (or, in the case of an
investigation could lead to any action, suit or proceeding, which if adversely
determined could), reasonably be expected to materially impair such Partner's
ability to perform its obligations under this Agreement or to have a material
adverse effect on the consolidated financial condition of such Partner or its
Parent; and such Partner or any of its Controlled Affiliates has not received
any currently effective notice of any default, and such Partner or any of its
Controlled Affiliates is not in default, under any applicable order, writ,
injunction, decree, permit, determination or award of any court, any
governmental department, board, agency or instrumentality, domestic or foreign,
or any arbitrator which default could reasonably be expected to materially
impair such Partner's ability to perform its obligations under this Agreement or
to have a material adverse effect on the consolidated financial condition of
such Partner or its Parent.
(e) MFJ. Such Partner is not a BOC, a BOC Affiliated Enterprise or an
entity subject to any restrictions under Section II of the MFJ.
SECTION 10
ACCOUNTING, BOOKS AND RECORDS
10.1 Accounting, Books and Records.
The Partnership shall maintain at its principal office separate books of
account for the Partnership which (i) shall fully and accurately reflect all
transactions of the Partnership, all costs and expenses incurred, all charges
made, all credits made and received, and all income derived in connection with
the conduct of the Partnership and the operation of its business in accordance
with GAAP or, to the extent inconsistent therewith, in accordance with this
Agreement and (ii) shall include all documents and other materials with respect
to the Partnership's business as are usually entered and maintained by persons
engaged in similar businesses. The Partnership shall use the accrual method of
accounting in preparation of its annual reports and for
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tax purposes and shall keep its books and records accordingly. Subject to
Section 10.4, any Partner or its designated representative shall have the right,
at any reasonable time and for any lawful purpose related to the affairs of the
Partnership or the investment in the Partnership by such Partner, (i) to have
access to and to inspect and copy the contents of such books or records, (ii) to
visit the facilities of the Partnership and (iii) to discuss the affairs of the
Partnership with its officers, employees, attorneys, accountants, customers and
suppliers. The Partnership shall not charge such Partner for such examination
and each Partner shall bear its own expenses in connection with any examination
made for any such Partner's account.
10.2 Reports.
(a) In General. The chief financial officer of the Partnership shall be
responsible for the preparation of financial reports of the Partnership and the
coordination of financial matters of the Partnership with the Accountants.
(b) Periodic and Other Reports. The Partnership shall cause to be delivered
to each Partner the financial statements listed in clauses (i) through (iii)
below, prepared, in each case, in accordance with GAAP (and, if required by any
Partner for purposes of reporting under the Securities Exchange Act of 1934,
Regulation S-X), and such other reports as any Partner may reasonably request
from time to time, provided that, if the Management Committee so determines
within thirty (30) days thereof, such other reports shall be provided at such
requesting Partner's sole cost and expense. Such financial statements shall be
accompanied by an analysis, in reasonable detail, of the variance between the
financial condition and results of operations reported therein and the
corresponding amounts for the applicable period or periods in the Approved
Business Plan. The monthly and quarterly financial statements referred to in
clauses (ii) and (iii) below may be subject to normal year-end audit
adjustments.
(i) As soon as practicable following the end of each Fiscal Year (and
in any event not later than seventy-five (75) days after the end of such
Fiscal Year) and at such time as distributions are made to the Partners
pursuant to Section 14.2 following the occurrence of a Liquidating Event, a
balance sheet of the Partnership as of the end of such Fiscal Year and the
related statements of operations, Partners' Capital Accounts and changes
therein, and cash flows for such
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Fiscal Year, together with appropriate notes to such financial statements
and supporting schedules, all of which shall be audited and certified by
the Accountants, and in each case, to the extent the Partnership was in
existence, setting forth in comparative form the corresponding figures for
the immediately preceding Fiscal Year (in the case of the balance sheet)
and the two (2) immediately preceding Fiscal Years (in the case of the
statements).
(ii) As soon as practicable following the end of each of the first
three fiscal quarters of each Fiscal Year (and in any event not later than
forty (40) days after the end of each such fiscal quarter), a balance sheet
of the Partnership as of the end of such fiscal quarter and the related
statements of operations, Partners' Capital Accounts and changes therein,
and cash flows for such fiscal quarter and for the Fiscal Year to date, in
each case, to the extent the Partnership was in existence, setting forth in
comparative form the corresponding figures for the prior Fiscal Year's
fiscal quarter and interim period corresponding to the fiscal quarter and
interim period just completed.
(iii) As soon as practicable following the end of each of the first
two calendar months of each fiscal quarter (and in any event not later than
thirty (30) days after the end of such calendar month), a balance sheet as
of the end of such month and statements of operations for the interim
period through such month and the monthly period then ended, setting forth
in comparative form the corresponding figures from the Business Plan for
such month and the interim period through such month.
The quarterly or monthly statements described in clauses (ii) and (iii)
above shall be accompanied by a written certification of the chief financial
officer of the Partnership that such statements have been prepared in accordance
with GAAP or this Agreement, as the case may be.
10.3 Tax Returns and Information.
(a) Sprint, acting in its capacity as a General Partner, shall act as the
"Tax Matters Partner" of the Partnership within the meaning of Section
6231(a)(7) of the Code (and in any similar capacity under applicable state or
local law)
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(the "Tax Matters Partner"). If Sprint shall cease to be a General Partner, then
the Partner with the greatest Voting Percentage Interest, acting in its capacity
as a General Partner, shall thereafter act as the Tax Matters Partner. The Tax
Matters Partner shall take reasonable action to cause each other Partner to be
treated as a "notice partner" within the meaning of Section 6231(a)(9) of the
Code. All reasonable expenses incurred by a Partner while acting in its capacity
as Tax Matters Partner shall be paid or reimbursed by the Partnership. Each
Partner shall have the right to have five (5) Business Days advance notice from
the Tax Matters Partner of the time and place of, and to participate in (i) any
material aspect of any administrative proceeding relating to the determination
of Partnership items at the Partnership level and (ii) any material discussions
with the Internal Revenue Service relating to the allocations pursuant to
Section 3 of this Agreement. The Tax Matters Partner shall not initiate any
action or proceeding in any court, extend any statute of limitations, or take
any other action contemplated by Sections 6222 through 6232 of the Code that
would legally bind any other Partner or the Partnership without approval of the
Management Committee by a Required Majority Vote. The Tax Matters Partner shall
from time to time upon request of any other Partner confer, and cause the
Partnership's tax attorneys and Accountants to confer, with such other Partner
and its attorneys and accountants on any matters relating to a Partnership tax
return or any tax election.
(b) The Tax Matters Partner shall cause all federal, state, local and other
tax returns and reports (including amended returns) required to be filed by the
Partnership to be prepared and timely filed with the appropriate authorities and
shall cause all income or franchise tax returns or reports required to be filed
by the Partnership to be sent to each Partner for review at least fifteen (15)
Business Days prior to filing. Unless otherwise determined by the Management
Committee, all such income or franchise tax returns of the Partnership shall be
prepared by the Accountants. The cost of preparation of any returns by the
Accountants or other outside preparers shall be borne by the Partnership. In the
event of a Transfer of all or part of an Interest, the Tax Matters Partner shall
at the request of the transferee cause the Partnership to elect, pursuant to
Section 754 of the Code, to adjust the basis of the Partnership's property;
provided, however, that such transferee shall reimburse the Partnership promptly
for all costs associated with such basis adjustment, including bookkeeping,
appraisal and other similar costs. Except as otherwise expressly provided
herein, all other elections required or permitted to be made by the Partnership
under the Code (or applicable state or local tax law) shall be
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made in such manner as may be determined by the Management Committee to be in
the best interests of the Partners as a group.
(c) The Tax Matters Partner shall cause to be provided to each Partner as
soon as possible after the close of each Fiscal Year (and, in any event, no
later than one hundred thirty-five (135) days after the end of each Fiscal
Year), a schedule setting forth such Partner's distributive share of the
Partnership's income, gain, loss, deduction and credit as determined for federal
income tax purposes and any other information relating to the Partnership that
is reasonably required by such Partner to prepare its own federal, state, local
and other tax returns. At any time after such schedule and information have been
provided, upon at least two (2) Business Days' notice from a Partner, the Tax
Matters Partner shall also provide each Partner with a reasonable opportunity
during ordinary business hours to review and make copies of all work papers
related to such schedule and information or to any return prepared under
paragraph (b) above. The Tax Matters Partner shall also cause to be provided to
each Partner, at the time that the quarterly financial statements are required
to be delivered pursuant to Section 10.2(b)(ii) above, an estimate of each
Partner's share of all items of income, gain, loss, deduction and credit of the
Partnership for the fiscal quarter just completed and for the Fiscal Year to
date for federal income tax purposes.
10.4 Proprietary Information.
Notwithstanding anything to the contrary in this Section 10, an Exclusive
Limited Partner shall only have access to such information regarding the
Partnership as is required by applicable law and shall not have access for such
time as the Management Committee deems reasonable to such information relating
to the Partnership's business which the Management Committee reasonably believes
to be in the nature of trade secrets or other information the disclosure of
which the Management Committee in good faith believes is not in the best
interest of the Partnership or could damage the Partnership or its business or
which the Partnership is required by law or by agreement with a third party to
keep confidential.
SECTION 11
ADVERSE ACT
11.1 Remedies.
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(a) If an Adverse Act has occurred with respect to any Partner, (x) in the
case of an Adverse Act specified in clause (vii) of the definition of such term
in Section 1.10, any General Partner may elect or (y) in the case of any other
Adverse Act, the Management Committee (with the Representatives of the affected
Partner abstaining) may elect:
(i) to cause the Partnership to commence the procedures specified in
Section 11.2 for the purchase of the Adverse Partner's Interest; or
(ii) to seek to enjoin such Adverse Act or to obtain specific
performance of the Adverse Partner's obligations or Damages (as defined and
subject to the limitations specified below) in respect of such Adverse Act.
Notwithstanding anything to the contrary contained in this Section 11, (x) none
of the remedies specified above (nor any other provision of this Section 11)
shall apply to an Adverse Act specified in clause (vi) of the definition of such
term in Section 1.10, (y) the remedies specified in clause (ii) shall not be
available to the Partners with respect to an Adverse Act specified in clause
(vii) of such definition unless the circumstances under which such event arose
also constituted a breach by the Adverse Partner of the covenant contained in
Section 8.6 of this Agreement, and (z) the remedy specified in clause (i) above
and the right to seek Damages under clause (ii) above may not be pursued and
Section 11.1(b) will not apply to an Adverse Act specified in clause (iii) of
such definition until such time as there is a Final Determination that the
Partner's actions or failure to act constituted an Adverse Act, if the affected
Partner timely delivered a Contest Notice.
In the event of an Adverse Act specified in any clause of the definition of
such term in Section 1.10 other than clause (vii), the vote of the Management
Committee required to elect a remedy specified in clause (i) or (ii) above shall
be the Required Majority Vote of Representatives of the Partners that are not
actual or alleged Adverse Partners (the "Non- Adverse Partners"), provided that
in the event more than one (1) Partner is alleged to be an Adverse Partner, such
vote shall be taken separately with respect to each alleged Adverse Partner
excluding from such vote only the Partner(s) that is alleged to be an Adverse
Partner as a result of the specific facts or circumstances with respect to which
such vote is being taken. The election of a remedy specified in clause (i) or
(ii) above may be exercised by notice given to the Adverse Partner (x) in case
of an Adverse Act
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specified in clause (i) of the definition of the term "Adverse Act" in Section
1.10, within ninety (90) days after the occurrence of such Adverse Act or (y) in
the case of any other Adverse Act with respect to which such remedy is
available, within ninety (90) days after the Management Committee or the Partner
making such election, as the case may be, obtains actual knowledge of the
occurrence of such Adverse Act, including, if applicable, that any cure period
has expired; provided that, if an election pursuant to clause (ii) above is made
to seek an injunction, specific performance or other equitable relief and a
final judgment in such action is rendered denying such equitable remedy, then,
by notice given within ten (10) days thereafter, the Management Committee may
elect to pursue the remedies specified in clause (i) above unless (x) prior to
the giving of such notice, the Adverse Partner has cured in full (or caused to
be cured in full) the Adverse Act in question (other than an Adverse Act
specified in clause (i) of the definition of such term in Section 1.10, which
may only be cured with the Unanimous Vote of, and on the terms prescribed by,
the Management Committee) and no other Adverse Act with respect to such Partner
has occurred and is continuing or (y) the final judgment denying equitable
relief specifically held that there was no Adverse Act.
The foregoing remedies shall not be deemed to be mutually exclusive, and
selection or resort to any thereof shall not preclude selection or resort to the
others. The resort to any remedy pursuant to this Section 11.1(a) shall not for
any purpose be deemed to be a waiver of any other remedy available hereunder or
under applicable law. Except as provided in Section 11.1(b), the failure to
elect a remedy within the time periods provided in the preceding paragraph shall
be conclusively presumed to be a waiver of the remedies provided in this Section
11 with respect to the subject Adverse Act; and provided further, that if an
election is made pursuant to clause (i) above, the amount the Partnership may
recover in any action for Damages shall be reduced by an amount equal to any
positive difference between the Net Equity of the Adverse Partner's Interest and
the applicable Buy-Sell Price.
Unless resort to such remedy has been waived as set forth in the
immediately preceding paragraph, the Partnership shall be entitled to recover
from the Adverse Partner in an appropriate proceeding any and all damages,
losses and expenses (including reasonable attorneys' fees and disbursements)
(collectively, "Damages") suffered or incurred by the Partnership as a result of
such Adverse Act; provided that the Partnership shall not have or assert any
claim against the Adverse Partner for punitive Damages
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or for indirect, special or consequential Damages suffered or incurred by the
Partnership as a result of an Adverse Act.
(b) If the Partnership is dissolved pursuant to Section 14.1(a) at any time
as a result of a Liquidating Event that occurs prior to a remedy having been
elected pursuant to Section 11.1(a) with respect to any Adverse Partner, the
time periods for such election shall thereupon expire and the Management
Committee shall deduct from any amounts to be paid to such Adverse Partner that
amount which it reasonably estimates to be sufficient to compensate the Non-
Adverse Partners for Damages incurred by them as a result of the Adverse Act
(subject to the limitations of Section 11.1(a)) and shall pay the same to the
Non-Adverse Partners.
11.2 Adverse Act Purchase.
(a) Determination of Net Equity of Adverse Partner's Interest. If the
Management Committee or any General Partner makes an election pursuant to
Section 11.1(a)(i) to commence the purchase procedures set forth in this Section
11.2, the Net Equity of the Adverse Partner's Interest shall be determined in
accordance with this Section 11 as of the last day of the fiscal quarter
immediately preceding the fiscal quarter in which notice of such election (the
"Election Notice") was given to the Adverse Partner, and the Adverse Partner
shall be obligated to sell to the Purchasing Partners, if any, all but not less
than all of the Adverse Partner's Interest in accordance with this Section 11.2
at a purchase price (the "Buy-Sell Price") equal to (A) in the case of any
Adverse Act (other than an Adverse Act identified in clause (i) of the
definition of such term that occurs during a Fiscal Year covered by the Initial
Business Plan or the two succeeding Fiscal Years, an Adverse Act identified in
clause (iv) of the definition of such term or, unless such Adverse Act occurred
in connection with any breach by such Partner of its obligations under Section
8.6, an Adverse Act identified in clause (vii) of the definition of such term),
ninety percent (90%) of the Net Equity thereof as so determined, (B) in the case
of an Adverse Act specified in clause (iv) or, unless such Adverse Act occurred
in connection with any breach by such Partner of its obligations under Section
8.6, clause (vii) of the definition of such term in Section 1.10, the Net Equity
thereof and (C) in the case of an Adverse Act specified in clause (i) of the
definition of such term in Section 1.10 that occurred during a Fiscal Year
covered by the Initial Business Plan or the two succeeding Fiscal Years, the
lesser of (A) ninety percent (90%) of the Net Equity thereof as so determined or
(B) eighty percent (80%) of the remainder of (1) the sum of such Adverse
Partner's
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Original Capital Contribution and aggregate Additional Capital Contributions
minus (2) the cumulative distributions made to such Partner pursuant to Section
4 ("Unreturned Capital"), with the amount of such Unreturned Capital determined
as of the date on which the Adverse Partner's Interest is purchased. Such
Election Notice shall designate the First Appraiser as required by Section 11.4
and the Adverse Partner shall appoint the Second Appraiser within ten (10)
Business Days of receiving such notice designating the First Appraiser.
(b) Election to Purchase Interest of Adverse Partner. For a period ending
at 11:59 p.m. (local time at the Partnership's principal office) on the
thirtieth (30th) day following the day on which notice of the Adverse Partner's
Net Equity is given pursuant to Section 11.3 (the "Election Period"), except as
otherwise provided in Section 11.2(b)(i), each of the Partners (other than the
Adverse Partner and any Exclusive Limited Partners) may elect, by notice to the
Adverse Partner and each other Partner (the "Purchase Notice"), to purchase all
or any portion of the Interest of the Adverse Partner, which notice shall state
the maximum Percentage Interest that such Partner (a "Purchasing Partner") is
willing to purchase (each a "purchase commitment"). If the aggregate purchase
commitments made by the Purchasing Partners are equal to at least one hundred
percent (100%) of the Adverse Partner's Interest, then subject to the following
sentence, each Purchasing Partner shall be obligated to purchase, and the
Adverse Partner shall be obligated to sell to such Purchasing Partner, that
portion of the Adverse Partner's Interest that corresponds to the ratio of the
Percentage Interest of such Purchasing Partner to the aggregate Percentage
Interests of the Purchasing Partners, provided that, if any Purchasing Partner's
purchase commitment was for an amount less than its proportionate share of the
Adverse Partner's Interest as so determined, then the portion of the Adverse
Partner's Interest not so committed to be purchased shall continue to be
allocated proportionally in the manner provided above in this sentence among the
other Purchasing Partners until each has been allocated, by such process of
apportionment, a percentage of the Adverse Partner's Interest equal to the
maximum percentage such Purchasing Partner committed to purchase or until the
Adverse Partner's entire Interest has been allocated among the Purchasing
Partners. In the event that the other Partners do not elect to purchase the
entire Interest of the Adverse Partner, the Adverse Partner shall be under no
obligation to sell any portion of its Interest to any Partner.
(i) Except as otherwise provided in Section 11.2(b)(ii), if an Adverse
Partner is a Cable Partner and no
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Cable Partner's Percentage Interest, when added to the Percentage Interests
of all Controlled Affiliates of such Partner, is equal to or greater than
Sprint's Percentage Interest when added to the Percentage Interests of all
Controlled Affiliates of Sprint, then the Adverse Partner's Interest shall
be allocated first among those of the Purchasing Partners that are Cable
Partners as though Sprint were not a Purchasing Partner and if and to the
extent that the aggregate purchase commitments made by such Cable Partners
are less than one hundred percent (100%) of the Adverse Partner's Interest,
the balance of the Adverse Partner's Interest up to Sprint's purchase
commitment shall be allocated to Sprint.
(ii) The Adverse Partner's Interest shall be allocated among the Cable
Partners in the manner set forth in Section 11.2(b)(i) until any Cable
Partner would have a Percentage Interest, when added to the Percentage
Interests of all Controlled Affiliates of such Partner, equal to Sprint's
Percentage Interest, when added to the Percentage Interests of all
Controlled Affiliates of Sprint up to the amount that would yield such
result, calculated in each case after giving effect to the adjustments to
the Percentage Interests to be made in connection with the purchase of the
Adverse Partner's Interest by the Cable Partners in accordance with Section
11.2(b)(i) (as to each Partner, its "Adjusted Percentage Interest"). Any
portion of the Adverse Partner's Interest not yet allocated shall continue
to be allocated proportionately among all Purchasing Partners (including
Sprint, if applicable) in the manner set forth in this Section 11.2(b)
without regard to Section 11.2(b)(i), but substituting the Adjusted
Percentage Interests of the Purchasing Partners for the Percentage
Interests that would otherwise be used to determine such allocation until
each has been allocated an amount equal to its purchase commitment or until
the entire Interest of the Adverse Partner has been allocated among the
Purchasing Partners.
(c) Terms of Purchase; Closing. Unless the Purchasing Partners and the
Adverse Partner otherwise agree, the closing of the purchase and sale of the
Adverse Partner's Interest and Partner Loans shall occur at the principal office
of the Partnership at 10:00 a.m. (local time at the place of the closing) on the
first Business Day occurring on or after the thirtieth (30th) day following the
last day of the Election Period (subject to the provision of Section 11.5). At
the closing, each Purchasing Partner shall pay to the Adverse Partner, by cash
or other immediately available funds, that portion of the purchase price for the
Adverse Partner's Interest and Partner Loans and the Adverse Partner shall
deliver to each Purchasing Partner good title, free and clear of any liens,
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claims, encumbrances, security interests or options (other than those created by
this Agreement and those securing financing obtained by the Partnership), to the
portion of the Adverse Partner's Interest and Partner Loans thus purchased. Each
Purchasing Partner shall be liable to the Adverse Partner only for its
individual portion of the purchase price for the Adverse Partner's Interest and
Partner Loans.
At the closing, the Partners shall execute such documents and instruments
of conveyance as may be necessary or appropriate to effectuate the transactions
contemplated hereby, including the Transfer of the Adverse Partner's Interest
and Partner Loans to the Accepting Offerees and the assumption by each
Purchasing Partner of the Adverse Partner's obligations with respect to the
portion of the Adverse Partner's Interest Transferred to such Purchasing
Partner. The Partnership and each Partner shall bear its own costs of such
Transfer and closing, including attorneys' fees and filing fees. The cost of
determining Net Equity shall be borne one-half by the Adverse Partner and one-
half by the Partnership and the amount borne by the Partnership shall be treated
as an expense of the Partnership for purposes of such determination.
In the event that any Purchasing Partner shall fail to perform its
obligation to purchase hereunder, and no other Purchasing Partner elects to
purchase the portion of the Adverse Partner's Interest and Partner Loans thus
not purchased, the Adverse Partner will not be obligated to sell any portion of
its Interest or Partner Loans to any Purchasing Partner. If one or more of the
other purchasing Partners elects to purchase such portion of the Adverse
Partner's Interest and Partner Loans, such Purchasing Partner(s) shall be
provided an additional ten (10) days from the previously scheduled closing date
in which to tender payment therefor.
11.3 Net Equity.
The "Net Equity" of a Partner's Interest, as of any day, shall be the
amount that would be distributed to such Partner in liquidation of the
Partnership pursuant to Section 14 if (1) all of the Partnership's business and
assets were sold substantially as an entirety for Gross Appraised Value, (2) the
Partnership paid its accrued, but unpaid, liabilities and established reserves
pursuant to Section 14.3 for the payment of reasonably anticipated contingent or
unknown liabilities and (3) the Partnership distributed the remaining proceeds
to the Partners in liquidation, all as of such day, provided that in determining
such Net Equity, no reserve for contingent or unknown liabilities
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shall be taken into account if such Partner (or its successor in interest)
agrees to indemnify the Partnership and all other Partners for that portion of
any such reserve as would be treated as having been withheld pursuant to Section
14.3 from the distribution such Partner would have received pursuant to Section
14.2 if no such reserve were established.
The Net Equity of a Partner's Interest shall be determined, without audit
or certification, from the books and records of the Partnership by the
Accountants. The Net Equity of a Partner's Interest shall be determined within
thirty (30) days of the day upon which the Accountants are apprised in writing
of the Gross Appraised Value of the Partnership's business and assets, and the
amount of such Net Equity shall be disclosed to the Partnership and each of the
Partners by written notice ("Net Equity Notice"). The Net Equity determination
of the Accountants shall be final and binding in the absence of a showing of
manifest error.
11.4 Gross Appraised Value.
"Gross Appraised Value," as of any day, means the price at which a willing
seller would sell, and a willing buyer would buy, the business and assets of the
Partnership, free and clear of all liens and encumbrances, substantially as an
entirety and as a going concern in a single arm's-length transaction for cash,
without time constraints and without being under any compulsion to buy or sell.
Each provision of this Agreement that requires a determination of Gross
Appraised Value also provides the manner and time for the appointment of two (2)
appraisers (the "First Appraiser" and the "Second Appraiser"). If the Second
Appraiser is not timely designated, the determination of the Gross Appraised
Value shall be made by the First Appraiser. The First Appraiser, or each of the
First Appraiser and the Second Appraiser if the Second Appraiser is timely
designated, shall submit its determination of the Gross Appraised Value to the
Partnership, the Partners and the Accountants within forty-five (45) days of the
date of its selection (or the selection of the Second Appraiser, as applicable).
If there are two (2) Appraisers and their respective determinations of the Gross
Appraised Value vary by less than ten percent (10%) of the higher determination,
the Gross Appraised Value shall be the average of the two determinations. If
such determinations vary by ten percent (10%) or more of the higher
determination, the two Appraisers shall promptly designate a third appraiser
(the "Third Appraiser"). Neither the Partnership nor any Partner shall provide,
and the First Appraiser and Second Appraiser shall be
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instructed not to provide, any information to the Third Appraiser as to the
determinations of the First Appraiser and the Second Appraiser or otherwise
influence such Third Appraiser's determination in any way. The Third Appraiser
shall submit its determination of the Gross Appraised Value to the Partnership,
the Partners and the Accountants within forty-five (45) days of the date of its
selection. The Gross Appraised Value shall be equal to the average of the two
closest of the three determinations, provided that, if the difference between
the highest and middle determinations is no more than one hundred and five
percent (105%) and no less than ninety-five percent (95%) of the difference
between the middle and lowest determinations, then the Gross Appraised Value
shall be equal to the middle determination. The determination of the Gross
Appraised Value in accordance with the foregoing procedure shall be final and
binding on the Partnership and each Partner. If any Appraiser is only able to
provide a range in which Gross Appraised Value would exist, the average of the
highest and lowest value in such range shall be deemed to be such Appraiser's
determination of the Gross Appraised Value of the Partnership's business and
assets. Each Appraiser selected pursuant to the provisions of this Section shall
be an investment banking firm or other qualified Person with prior experience in
appraising businesses comparable to the business of the Partnership and that is
not an Interested Person with respect to any Partner.
11.5 Extension of Time.
If any Transfer of a Partner's Interest in accordance with this Section 11
or Sections 5.1, 12 or 14.7 requires the consent, approval, waiver, or
authorization of any government department, board, bureau, commission, agency or
instrumentality as a condition to the lawful and valid Transfer of such
Partner's Interest to the proposed transferee thereof, then each of the time
periods provided in this Section 11 or Sections 5.1, 12 or 14.7, as applicable,
for the closing of such Transfer shall be suspended for the period of time
during which any such consent, approval, waiver, or authorization is being
diligently pursued; provided, however, that in no event shall the suspension of
any time period pursuant to this Section 11.5 extend for more than three hundred
sixty-five (365) days other than in the case of a purchase of an Adverse
Partner's Interest. Each Partner agrees to use its diligent efforts to obtain,
or to assist the affected Partner or the Management Committee in obtaining, any
such consent, approval, waiver, or authorization and shall cooperate and use its
diligent efforts to respond as promptly as practicable to all inquiries received
by it, by the affected Partner or by the Management Committee from any
government
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department, board, bureau, commission, agency or instrumentality for initial or
additional information or documentation in connection therewith.
SECTION 12
DISPOSITIONS OF INTERESTS
12.1 Restriction on Dispositions.
Except as otherwise permitted by this Agreement, no Partner shall Dispose
of all or any portion of its Interest.
12.2 Permitted Transfers.
Subject to the conditions and restrictions set forth in Section 12.3, a
Partner may at any time Transfer all or any portion of its Interest (a) to any
Controlled Affiliate of such Partner, (b) in connection with a Permitted
Transaction involving the Parent of such Partner, (c) to the administrator or
trustee of such Partner to whom such Interest is transferred in an Involuntary
Bankruptcy, (d) pursuant to and in compliance with Sections 5.1, 11.2, 12.4,
12.5, 12.6 and 14.7 or (e) with the prior written consent of the other Partners
(each a "Permitted Transfer"). The rights of a Partner to engage in a Permitted
Transfer (other than pursuant to clauses (b) and (c) above) will also be subject
to the rights of the Partners under Section 12.5.
After any Permitted Transfer, the transferred Interest shall continue to be
subject to all the provisions of this Agreement, including the provisions of
this Section 12 with respect to the Disposition of Interests. Except in the case
of a Transfer of a Partner's entire Interest made in compliance herewith, no
Partner shall withdraw from the Partnership, except upon the Unanimous Vote of
the Management Committee. The withdrawal of a Partner, whether or not permitted,
shall not relieve the withdrawing Partner of its obligations under Section 5.4
or 15.19 and shall not relieve such Partner or any of its Affiliates of its
obligations under, or result in a termination of or otherwise affect, any
agreement between the Partnership and such Partner or Affiliate then in effect,
except to the extent provided therein.
12.3 Conditions to Permitted Transfers.
A Transfer shall not be treated as a Permitted Transfer unless and until
the following conditions are satisfied:
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(a) Except in the case of a Transfer involuntarily by operation of law, the
transferor and transferee shall execute and deliver to the Partnership such
documents as may be necessary or appropriate in the opinion of counsel to the
Partnership to effect such Transfer. In the case of a Transfer of Interests
involuntarily by operation of law, the Transfer shall be confirmed by
presentation to the Partnership of legal evidence of such Transfer, in form and
substance satisfactory to counsel to the Partnership. In all cases, the
Partnership shall be reimbursed by the transferor and/or transferee for all
costs and expenses that it reasonably incurs in connection with such Transfer
(including reasonable attorneys' fees and expenses, but excluding the portion of
the costs of determining Net Equity that are to be borne by the Partnership as
provided in Section 11.2(b));
(b) Except in the case of a Transfer involuntarily by operation of law, the
transferee of an Interest (other than, with respect to clauses (A) and (B)
below, a transferee that was a Partner prior to the Transfer) shall, by written
instrument in form and substance reasonably satisfactory to the Management
Committee (and, in the case of clause (C) below, the transferor Partner), (A)
make representations and warranties to the nontransferring Partners equivalent
to those set forth in Section 9, (B) accept and adopt the terms and provisions
of this Agreement, including this Section 12, and (C) assume the obligations of
the transferor Partner under this Agreement with respect to the transferred
Interest. The transferor Partner shall be released from all such assumed
obligations except (x) as otherwise provided in Section 6, (y) those obligations
or liabilities of the transferor Partner arising out of a breach of this
Agreement or pursuant to Section 5.4 or 15.19 and (z) in the case of a transfer
to any Person other than a Partner or any of its Controlled Affiliates, those
obligations or liabilities of the transferor Partner based on events occurring,
arising or maturing prior to the date of Transfer;
(c) Except in the case of a Transfer involuntarily by operation of law, the
transferor and its Affiliates will be obligated to sell to the transferee, and
the transferee will be obligated to buy from the transferor and its Affiliates,
all Partner Loans of the Partnership held directly or indirectly by the
transferor or an Affiliate thereof. If the transferee is a Partner or a
Controlled Affiliate thereof, the terms of such purchase will be as provided in
Section 2.7;
(d) Except in the case of a Transfer involuntarily by operation of law, if
required by the Management Committee, the
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transferee shall deliver to the Partnership an opinion, satisfactory in form and
substance to the Management Committee, of counsel reasonably satisfactory to the
Management Committee to the effect that the Transfer of the Partnership Interest
is in compliance with applicable state and Federal securities laws;
(e) Except in the case of a Transfer involuntarily by operation of law, if
required by the Management Committee, the transferee (other than a transferee
that was a Partner prior to the Transfer) shall deliver to the Partnership
evidence of the authority of such Person to become a Partner and to be bound by
all of the terms and conditions of this Agreement, and the transferee and
transferor shall each execute and deliver such other instruments as the
Management Committee reasonably deems necessary or appropriate to effect, and as
a condition to, such Transfer, including amendments to the Certificate or any
other instrument filed with the State of Delaware or any other state or
governmental agency;
(f) Unless otherwise approved by the Management Committee (with the
Representatives of the transferor General Partner abstaining), no Transfer of an
Interest shall be made except upon terms which would not, in the opinion of
counsel chosen by and mutually acceptable to the Management Committee and the
transferor Partner, result in the termination of the Partnership within the
meaning of Section 708 of the Code or cause the application of the rules of
Sections 168(g)(1)(B) and 168(h) of the Code or similar rules to apply to the
Partnership. If the immediate Transfer of such Interest would, in the opinion of
such counsel, cause a termination within the meaning of Section 708 of the Code,
then if, in the opinion of such counsel, the following action would not
precipitate such termination, the transferor Partner shall be entitled (or
required, as the case may be) (i) immediately to Transfer only that portion of
its Interest as may, in the opinion of counsel to the Partnership, be
transferred without causing such a termination and (ii) to enter into an
agreement to Transfer the remainder of its Interest, in one or more Transfers,
at the earliest date or dates on which such Transfer or Transfers may be
effected without causing such termination. The purchase price for the Interest
shall be allocated between the immediate Transfer and the deferred Transfer or
Transfers pro rata on the basis of the percentage of the aggregate Interest
being transferred each portion to be payable when the respective Transfer is
consummated, unless otherwise agreed by the parties to the Transfer. In the case
of a Transfer by one Partner to another Partner, the deferred purchase price
shall be deposited in an interest-bearing escrow account unless another method
of securing the payment thereof is
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agreed upon by the transferor Partner and the transferee Partner(s). In
determining whether a particular proposed Transfer will result in a termination
of the Partnership, counsel to the Partnership shall take into account the
existence of prior written commitments to Transfer made pursuant to this
Agreement and such commitments shall always be given precedence over subsequent
proposed Transfers;
(g) The transferor or transferee shall furnish the Partnership with the
transferee's taxpayer identification number, sufficient information to determine
the transferee's initial tax basis in the Interest transferred, and any other
information reasonably necessary to permit the Partnership to file all required
federal and state tax returns and other legally required information statements
or returns. Without limiting the generality of the foregoing, the Partnership
shall not be required to make any distribution otherwise provided for in this
Agreement with respect to any transferred Interest until it has received such
information;
(h) Except in the case of a Transfer of an Interest involuntarily by
operation of law, if the transferor is a General Partner, the transferor and
transferee shall provide the Partnership with an opinion of counsel, which
opinion of counsel shall be reasonably satisfactory to the other Partners, to
the effect that such Transfer will not cause the Partnership to become taxable
as a corporation for federal income tax purposes; and
(i) If the Parent of a transferee is not the same Person as the Parent of
the transferring Partner, then the Parent of the transferee (other than a
transferee Partner) shall execute and deliver to the Partnership and the other
Parents a Parents' Undertaking. If a Partner ceases to be a Controlled Affiliate
of its former Parent as a result of a Permitted Transaction, then the new Parent
of such Partner shall execute and deliver a Parents' Undertaking to the
Partnership and the other Parents.
Upon completion of any Permitted Transfer and compliance with the
provisions of this Section 12.3, the transferee of the Interest (if not already
a Partner) shall be admitted as a Partner without any further action.
12.4 Right of First Refusal.
Following the fifth anniversary of the date of this Agreement, a Partner
may Transfer all or any portion of its Interest (the "Offered Interest") if (i)
such Partner (the
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"Seller") first offers to sell the Offered Interest pursuant to the terms of
this Section 12.4, and (ii) the Transfer of the Offered Interest to the
Purchaser (as defined below) would not cause an Adverse Act under clause (vii)
of the definition thereof.
(a) Limitation on Transfers. No Transfer may be made under this Section
12.4 unless the Seller has received a bona fide written offer (the "Purchase
Offer") from a Person (including another Partner) who is not a Controlled
Affiliate of such Partner (the "Purchaser") to purchase the Offered Interest for
a purchase price (the "Offer Price") denominated and payable in United States
dollars at closing, which offer shall be in writing signed by the Purchaser and
shall be irrevocable for a period ending no sooner than the Business Day
following the end of the Offer Period, as hereinafter defined.
(b) Offer Notice. Prior to accepting the Purchase Offer, the Seller shall
give to the Partnership and each other Partner other than any Exclusive Limited
Partner written notice (the "Offer Notice") which shall include a copy of the
Purchase Offer and an offer (the "Firm Offer") to sell the Offered Interest to
the other Partners (the "Offerees") for the Offer Price, payable according to
the same terms as (or on more favorable terms than) those contained in the
Purchase Offer, provided that the Firm Offer shall be made without regard to the
requirement of any earnest money or similar deposit required of the Purchaser
prior to closing. If the Person making the Purchase Offer is not an entity that
is subject to the periodic reporting requirements of Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, the Seller shall also provide any
information concerning the ownership of the Person making the Purchase Offer
that may be reasonably requested by any other Partner, to the extent such
information is available to the Seller.
(c) Offer Period. The Firm Offer shall be irrevocable for a period (the
"Offer Period") ending at 11:59 P.M., local time at the Partnership's principal
place of business, on the sixtieth (60th) day following the day of the Offer
Notice.
(d) Acceptance of First Offer. At any time during the Offer Period, any
Offeree may accept the Firm Offer as to all or any portion of the Offered
Interest, by giving written notice of such acceptance to the Seller and each
other Offeree, which notice shall indicate the maximum Percentage Interest that
such Offeree is willing to purchase (the "purchase commitment"). If the
aggregate purchase commitments made by Offerees accepting the
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Firm Offer ("Accepting Offerees") are equal to at least one hundred percent
(100%) of the Offered Interest, then, except as otherwise provided in Section
12.4(d)(i) and, subject to the following sentence, each Accepting Offeree shall
be obligated to purchase, and the Seller shall be obligated to sell to such
Accepting Offeree that portion of the Offered Interest that corresponds to the
ratio of the Percentage Interest of such Accepting Offeree to the aggregate
Percentage Interests of the Accepting Offerees provided that if any Accepting
Offeree's purchase commitment was for an amount less than its proportionate
share of the Offered Interest as so determined, then the portion of the Offered
Interest not so committed to be purchased shall continue to be allocated
proportionally in the manner provided above in this sentence among the other
Accepting Offerees until each has been allocated, by such process of
apportionment, a percentage of the Offered Interest equal to the maximum
percentage such Accepting Offeree committed to purchase or until the entire
Offered Interest has been allocated among the Accepting Offerees. If Offerees do
not accept the Firm Offer as to all of the Offered Interest during the Offer
Period, the Firm Offer shall be deemed to be rejected in its entirety.
(i) Except as otherwise provided in Section 12.4(d)(ii), if a Seller
is a Cable Partner and no Cable Partner's Percentage Interest, when added
to the Percentage Interests of all Controlled Affiliates of such Partner,
is equal to or greater than Sprint's Percentage Interest, when added to the
Percentage Interests of all Controlled Affiliates of Sprint, then the
Offered Interest shall be allocated first among those of the Accepting
Offerees that are Cable Partners as though Sprint were not an Accepting
Offeree and if and to the extent that the aggregate purchase commitments
made by such Cable Partners are less than one hundred percent (100%) of the
Offered Interest, the balance of the Offered Interest up to Sprint's
purchase commitment shall be allocated to Sprint.
(ii) The Offered Interest shall be allocated among the Cable Partners
in the manner set forth in Section 12.4(d)(i) until any Cable Partner would
have a Percentage Interest, when added to the Percentage Interests of all
Controlled Affiliates of such Partner, that is equal to Sprint's Percentage
Interest, when added to the Percentage Interests of all Controlled
Affiliates of Sprint, up to the aggregate amount that would yield such
result, calculated in each case after giving effect to the adjustments to
Percentage Interests to be made in connection with the purchase of the
Offered Interest by the Cable Partners in accordance with Section
12.4(d)(i) (as to each Partner, its "Adjusted Percentage Interest"). Any
portion
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of the Offered Interest not yet allocated shall continue to be allocated
proportionately among all Accepting Offerees (including Sprint, if
applicable) in the manner set forth in this Section 12.4(d) without regard
to Section 12.4(d)(i), but substituting the Adjusted Percentage Interests
of the Offerees for the Percentage Interests that would otherwise be used
to determine such allocation, until each has been allocated an amount equal
to its purchase commitment or until the entire Offered Interest has been
allocated among the Accepting Offerees.
(e) Closing of Purchase Pursuant to Firm Offer. If all of the Offered
Interest has been subscribed for in accordance with the terms of Section
12.4(d), the Seller shall give notice to such effect (the "Sale Notice") to all
Offerees within five days after the end of the Offer Period. Unless the
Accepting Offerees and the Seller otherwise agree, the closing of any purchase
pursuant to this Section 12.4 shall be held at the principal office of the
Seller at 10:00 a.m. (local time at the place of closing) on the first Business
Day on or after the thirtieth (30th) day following the date on which the Sale
Notice is given (subject to the provisions of Section 11.5). At the closing,
each Accepting Offeree shall pay to the Seller, by cash or other immediately
available funds, that portion of the purchase price for the Offered Interest,
and the Seller shall deliver to each Accepting Offeree good title, free and
clear of any liens, claims, encumbrances, security interests or options (other
than those created by this Agreement and those securing financing obtained by
the Partnership), to the portion of the Offered Interest thus purchased. Each
Accepting Offeree shall be liable to the Seller only for its individual portion
of the purchase price for the Offered Interest.
At the closing, the Partners shall execute such documents and instruments
of conveyance as may be necessary or appropriate to effectuate the transactions
contemplated hereby, including the Transfer of the Offered Interest to the
Accepting Offerees and the assumption by each Accepting Offeree of the Seller's
obligations with respect to the portion of the Seller's Interest Transferred to
such Accepting Offerees. Each Partner and the Partnership shall bear its own
costs of such Transfer and closing, including attorneys' fees and filing fees.
(f) Sale Pursuant to Purchase Offer If Firm Offer Rejected. If the Firm
Offer is not accepted in the manner hereinabove provided, or the Accepting
Offerees fail to close the purchase on the closing date, then in either such
event, but subject to the last sentence of this Section 12.4(f) and subject to
Section 12.3, the Seller shall be free for the period
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described below (the "Free to Sell Period") to sell the Offered Interest to the
Purchaser upon terms and conditions that are the same as, or more favorable to
the Seller than, those contained in the Purchase Offer (including at the same or
greater price). The Free to Sell Period shall be the applicable of (i) if the
Firm Offer is not accepted, sixty (60) days after the last day of the Offer
Period or (ii) sixty (60) days (subject to the provisions of Section 11.5) after
the scheduled closing date, provided that if the last sentence of this Section
12.4(f) becomes applicable, then such sixty (60) day period shall be measured
from the fifth (5th) Business Day after the previously scheduled closing date
or, if applicable, from the subsequently scheduled closing date contemplated by
such sentence (assuming the required purchase elections are made). If the
Offered Interest is not so sold within the Free to Sell Period, the Seller's
right to transfer its Interest shall again be subject to the foregoing
restrictions. Notwithstanding the foregoing, if more than one Offeree elected to
purchase the Offered Interest and at least one Accepting Offeree tendered its
proportionate share of the purchase price therefor at the closing but any other
Accepting Offeree failed to make such tender, then any tendering Accepting
Offeree may elect, by notice given to the Seller within five (5) Business Days
thereafter, to purchase the portion of the Offered Interest for which payment
was not tendered (provided that, after giving effect to such election, the
entire Offered Interest is being purchased) and shall be provided an additional
fifteen (15) days from the previously scheduled closing date in which to tender
payment therefor.
(g) Restrictions on Notice. No notice initiating the procedures
contemplated by this Section 12.4 may be given by any Partner while any notice,
purchase or Transfer is pending under Section 11 or this Section 12.4 or after a
Liquidating Event has occurred. No notice initiating the procedures contemplated
by this Section 12.4 may be given by an Adverse Partner nor any Delinquent
Partner prior to the applicable Cure Date unless such Partner has cured the
underlying Payment Default, and no Seller shall be required to offer any portion
of its interest to an Adverse Partner during the period that the Partnership is
pursuing any remedy specified in Section 11.1 with respect to such Adverse
Partner. No Partner may accept a Purchase Offer during any period that, as
provided above, such Partner may not give the notice initiating the procedures
contemplated by this Section 12.4 or thereafter until it has given such notice
and otherwise complied with the provisions of this Section 12.4.
12.5 Tagalong Rights.
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(a) Direct Transfers. In the event that (i) a Partner proposes to Transfer
its Interest (as part of a single transaction or any series of related
transactions) to any person other than a Controlled Affiliate of such Partner
after the fifth anniversary of the date of this Agreement, and such Transfer
would cause the proposed transferee (a "Tagalong Purchaser") and its Controlled
Affiliates to own more than fifty-five percent (55%) of the Percentage Interests
(a "Tagalong Transaction") and (ii) if Section 12.4 is applicable, the Firm
Offer is not accepted in the manner provided in Section 12.4, the Tagalong
Transaction shall not be permitted hereunder unless the Tagalong Purchaser
offers to purchase the entire Interest of any other Partner that desires to sell
its Interest to the Tagalong Purchaser at the same price and on the same terms
and conditions as the Tagalong Purchaser has offered to the Partner proposing to
make such Transfer (the "Transferring Partner"). If such Transfer occurs as part
of a series of related transactions, the price and terms shall be the price and
terms most favorable to the Transferring Partner for which any portion of the
Percentage Interest of the Transferring Partner is transferred as part of such
series of transactions. Prior to effecting any Tagalong Transaction, the
Transferring Partner shall deliver to each other Partner a binding, irrevocable
offer (the "Tagalong Offer") by the Tagalong Purchaser to purchase the entire
Interest of the other Partners at the same price and on the same terms and
conditions as the Tagalong Purchaser has offered to the Partner proposing to
make such Transfer (the "Tagalong Notice"). The "Tagalong Offer" shall be
irrevocable for a period (the "Tagalong Period") ending at 11:59 p.m., local
time at the Partnership's principal place of business, (x) with respect to a
Tagalong Purchaser that is an existing Partner or a Controlled Affiliate of an
existing Partner, on the one hundred eightieth (180th) day following the date of
the Tagalong Notice and (y) with respect to any other Tagalong Purchaser, on the
first anniversary of the date of the Tagalong Notice. At any time during the
Tagalong Period, any Partner may accept the Tagalong Offer as to the entire
amount of its Interest by giving written notice of such acceptance to the
Tagalong Purchaser. The Tagalong Purchaser's purchase of the Interest of any
Partner that accepts the Tagalong Offer shall occur within sixty (60) days
following the expiration of the Tagalong Period, subject to Section 11.5.
(b) Indirect Transfers. Within five (5) days of the Parent of any Partner
(such Partner, a "Controlling Partner") acquiring, indirectly, Interests in the
Partnership causing such Parent to own, directly and indirectly through its
Controlled Affiliates, more than fifty-five percent (55%) of the Percentage
Interests, such Controlling Partner shall give to each other
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Partner written notice of such acquisition (a "Control Notice"), which shall
include an offer (the "Control Offer") by the Controlling Partner to purchase
the entire Interest of each other Partner at a price equal to the Net Equity
thereof (as determined pursuant to Section 11.3) and shall designate a First
Appraiser (as required by Section 11.4). The Representatives of the other
General Partners shall by Required Majority Vote pursuant to Section 8.7 appoint
the Second Appraiser. The Control Offer shall be irrevocable for a period (the
"Control Offer Period") ending at 11:59 p.m., local time at the Partnership's
principal place of business, on the one hundred eightieth (180th) day following
the date of the Net Equity Notice. At any time during the Control Offer Period,
any Partner may accept the Control Offer as to the entire amount of its Interest
by giving written notice of such acceptance to the Controlling Partner. The
Controlling Partner's purchase of the Interest of any Partners that accept the
Control Offer shall occur within sixty (60) days following the expiration of the
Control Offer Period, subject to Section 11.5. The costs of determining the Net
Equity shall be borne one-half by the Controlling Partner and one-half by the
Partnership.
12.6 Partner Put Rights.
(a) Determination of Net Equity of Partners' Interests. If the NewTelco
Partnership Agreement has not been executed by the Partners on or before the one
hundred eightieth (180th) day after the date of this Agreement (the
"Determination Date"), any Partner can cause the Net Equity of each Partner's
Interest to be determined as of the Determination Date in accordance with
Section 11.3 by giving notice to the Management Committee and each other Partner
of its desire to have Net Equity so determined. In such event, the initiating
Partner shall appoint the First Appraiser and the Representatives of the other
Partners shall appoint the Second Appraiser by Required Majority Vote pursuant
to Section 8.7.
(b) Put Procedure.
(i) Within thirty (30) days of delivery of the Net Equity Notice, each
Partner may elect to put its entire Interest to all other Partners not
electing to put their Interests pursuant to this Section 12.6(b) by giving
written notice of its election (a "Put Notice") to each other Partner and
the Management Committee.
(ii) Within fifteen (15) days of the expiration of the deadline for
delivering a Put Notice pursuant to Section
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12.6(b)(i), each Partner who did not deliver a Put Notice pursuant to
Section 12.6(b)(i) may elect to put its entire Interest to all other
Partners who do not elect to put their Interests pursuant to this Section
12.6(b) by delivering a Put Notice to each other Partner and the Management
Committee.
(iii) The procedure set forth in Section 12.6(b)(ii) shall be repeated
until either (A) all Partners have delivered a Put Notice, in which case a
Liquidating Event will occur pursuant to Section 14.1(a)(iv), or (B) a
period during which one or more Partners may deliver a Put Notice expires
without any Partner delivering a Put Notice, in which case each Partner
that has not delivered a Put Notice will be obligated to purchase the
Interest of each Partner that has delivered a Put Notice pursuant to the
procedures set forth in Section 12.6(c). An election by a Partner to put
its Interest by delivery of a Put Notice is binding and irrevocable.
(c) Purchase of Put Interests. Except as otherwise provided in Section
12.6(c)(i), each General Partner not electing to put its Interest pursuant to
Section 12.6(b) (a "Buying Partner") shall purchase a pro rata share (based on
the relative Percentage Interests of the Buying Partners) of the aggregate
Interests of the Partners that delivered Put Notices pursuant to Section 12.6(b)
(the "Selling Partners"). The purchase price of each Selling Partner's Interest
purchased pursuant to this Section 12.6(c) shall be equal to the lesser of (i)
the Net Equity of such Interest or (ii) the cumulative Capital Contribution of
the Selling Partner.
(i) Except as otherwise provided in Section 12.6(c)(ii), if any
Selling Partner is a Cable Partner, Sprint is a Buying Partner, and no
Cable Partner's Percentage Interest, when added to the Percentage Interests
of all Controlled Affiliates of such Partner, is equal to or greater than
Sprint's Percentage Interest, when added to the Percentage Interests of all
Controlled Affiliates of Sprint, then each Cable Partner that is a Buying
Partner (a "Cable Buying Partner") may elect by written notice to all other
Partners to purchase all or any portion of the Selling Partners' Interests
that would, without regard to this Section 12.6(c)(i), have been purchased
by Sprint (the "Sprint Obligation"), which notice shall state the maximum
share of the Sprint Obligation that such Cable Buying Partner is willing to
purchase (each an "additional purchase commitment"). If the aggregate
additional purchase commitments are equal to at least one hundred percent
(100%) of the Sprint Obligation, each Cable Buying Partner shall be
obligated to purchase that portion of the Sprint Obligation that
corresponds to the ratio of the
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Percentage Interest of such Cable Buying Partner to the aggregate
Percentage Interests of the Cable Buying Partners, provided that, if any
Cable Partner's additional purchase commitment was for an amount less than
its proportionate share of the Sprint Obligation as so determined, then the
portion of the Sprint Obligation not so committed to be purchased shall
continue to be allocated proportionally in the manner provided above in
this sentence among the other Cable Buying Partners until each has been
allocated, by such process of apportionment, a percentage of the Sprint
Obligation equal to the maximum percentage such Cable Buying Partner
committed to purchase or until the entire Sprint Obligation has been
allocated among the Cable Buying Partners. If and to the extent that the
aggregate Cable Partner's additional purchase commitments are less than one
hundred percent (100%) of the Sprint Obligation, the balance of the Sprint
Obligation shall be allocated to Sprint.
(ii) The Selling Partners' Interests shall be allocated among the
Cable Partners in the manner set forth in Section 12.6(c)(i), if
applicable, until any Cable Partner would have a Percentage Interest, when
added to the Percentage Interests of all Controlled Affiliates of such
Partner, that is equal to Sprint's Percentage Interest, when added to the
percentage Interests of all Controlled Affiliates of Sprint, after taking
into account a purchase of the Selling Partners' Interests by the Cable
Partners in accordance with Section 12.6(c)(i) up to the aggregate amount
that would yield such result (as to each Partner, its "Adjusted Percentage
Interest"). Any portion of the Selling Partners' Interests not yet
allocated shall continue to be allocated proportionately among all Buying
Partners (including Sprint, if applicable) in the manner set forth in this
Section 12.6(c) without regard to Section 12.6(c)(i), but substituting the
Adjusted Percentage Interests of the Buying Partners for the Percentage
Interests that would otherwise be used to determine such allocation until
each partner has been allocated an amount equal to its purchase commitment
or until the entire amount of the Interest has been allocated among the
Buying Partners.
(d) Terms of Purchase; Closing. Unless the Buying Partners and the Selling
Partners otherwise agree, the closing of the purchase and sale of the Selling
Partner's Interest and Partner Loans shall occur at the principal office of the
Partnership at 10:00 a.m. (local time at the place of the closing) on the first
Business Day occurring on or after the ninetieth (90th) day following the date
of the final Put Notice (subject to the provision of Section 11.5) or such
earlier date as the Buying and Selling Partners may agree. At the closing,
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each Buying Partner shall pay to the Selling Partner, by cash or other
immediately available funds, that portion of the purchase price of the Selling
Partner's Interest and Partner Loans for which such Buying Partner is liable,
and the Selling Partner shall deliver to each Buying Partner good title, free
and clear of any liens, claims, encumbrances, security interests or options
(other than those created by this Agreement and those securing financing
obtained by the Partnership), to the portion of the Selling Partner's Interest
and Partner Loans thus purchased. Each Buying Partner shall be liable to the
Selling Partner only for its individual portion of the purchase price and the
purchase price for such Selling Partner's Interest and Partner Loans.
At the closing, the Partners shall execute such documents and instruments
of conveyance as may be necessary or appropriate to effectuate the transactions
contemplated hereby, including the Transfer of the Interests and Partner Loans
of the Selling Partner to the Buying Partners and the assumption by each Buying
Partner of the Selling Partner's obligations with respect to the portion of the
Selling Partner's Interest Transferred to such Buying Partner. Each Partner and
the Partnership shall bear its own costs of such Transfer and closing, including
attorneys' fees and filing fees. The costs of determining Net Equity shall be
borne by the Partnership if no Partner or all Partners deliver a Put Notice, and
one-half by the Selling Partners and one-half by the Buying Partners (in each
case pro rata among the members of each group based on their respective
Percentage Interests) otherwise.
12.7 Prohibited Dispositions.
Any purported Disposition of all or any part of an Interest that is not a
Permitted Transfer shall be null and void and of no force or effect whatever;
provided that, if the Partnership is required to recognize a Disposition that is
not a Permitted Transfer (or if the Management Committee, in its sole
discretion, elects to recognize a Disposition that is not a Permitted Transfer),
the Interest Disposed of shall be strictly limited to the transferor's rights to
allocations and distributions as provided by this Agreement with respect to the
transferred Interest, which allocations and distributions may be applied
(without limiting any other legal or equitable rights of the Partnership) to
satisfy any debts, obligations, or liabilities for damages that the transferor
or transferee of such Interest may have to the Partnership.
12.8 Representations Regarding Transfers.
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Each Partner hereby represents and warrants to the Partnership and the
other Partners that such Partner's acquisition of Interests hereunder is made as
principal for such Partner's own account and not for resale or distribution of
such Interests.
12.9 Distributions and Allocations in Respect of Transferred Interests.
If any Interest is Transferred during any Fiscal Year in compliance with
the provisions of this Section 12, Profits, Losses, each item thereof, and all
other items attributable to the Transferred Interest for such Fiscal Year shall
be divided and allocated between the transferor and the transferee by taking
into account their varying Percentage Interests during the Fiscal Year in
accordance with Code Section 706(d), using any conventions permitted by law and
selected by the Management Committee. All distributions on or before the date of
such Transfer shall be made to the transferor, and all distributions thereafter
shall be made to the transferee. Solely for purposes of making such allocations
and distributions, the Partnership shall recognize such Transfer not later than
the end of the calendar month during which it is given notice of such Transfer,
provided that, if the Partnership is given notice of a Transfer at least ten
(10) Business Days prior to the Transfer, the Partnership shall recognize such
Transfer as of the date of such Transfer, and provided further that if the
Partnership does not receive a notice stating the date such Interest was
transferred and such other information as the Management Committee may
reasonably require within thirty (30) days after the end of the Fiscal Year
during which the Transfer occurs, then all such items shall be allocated, and
all distributions shall be made, to the Person who, according to the books and
records of the Partnership, was the owner of the Interest on the last day of
such Fiscal Year. Neither the Partnership nor the Management Committee shall
incur any liability for making allocations and distributions in accordance with
the provisions of this Section 12.9, whether or not the Management Committee or
the Partnership has knowledge of any Transfer of ownership of any Interest.
SECTION 13
CONVERSION OF INTERESTS
13.1 Termination of Status as General Partner.
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(a) A General Partner shall cease to be a General Partner upon the first to
occur of (i) the Transfer of such Partner's entire Interest as a Partner in a
Permitted Transfer (in which event the transferee of such Interest shall be
admitted as a successor General Partner and a Limited Partner upon compliance
with Section 12.3), (ii) the Unanimous Vote of the Management Committee to
approve a request by such General Partner to withdraw, (iii) any Adverse Act
with respect to such Partner, (iv) such Partner's failure to satisfy the Minimum
Ownership Requirement or (v) in the case of Comcast only, the occurrence of any
of the events described in Section 6.4(a)(v) that cause Comcast to become an
Exclusive Limited Partner. In the event a Person ceases to be a General Partner,
pursuant to clauses (ii), (iii), (iv) or (v), the Interest of such Person as a
General Partner shall automatically and without any further action by the
Partners be converted into an Interest solely as a Limited Partner, and such
Partner shall thereafter be an Exclusive Limited Partner.
(b) The Partners intend that the Partnership not dissolve as a result of
the cessation of any Person's status as a General Partner; provided, however,
that if it is determined by a court of competent jurisdiction that the
Partnership has dissolved, the provisions of Section 14.1 shall govern.
13.2 Restoration of Status as General Partner.
An Exclusive Limited Partner whose rights to representation on the
Management Committee have been restored as provided in Section 5.1(c) shall be
restored to the status of a General Partner and its Interest shall thereafter be
deemed held in part as a General Partner and in part as a Limited Partner as
provided in Section 2.1. If Comcast becomes an Exclusive Limited Partner
pursuant to Section 6.4(a)(v), it shall not be entitled to be restored to the
status of General Partner except as expressly provided in such Section.
SECTION 14
DISSOLUTION AND WINDING UP
14.1 Liquidating Events.
(a) In General. Subject to Section 14.1(b), the Partnership shall dissolve
and commence winding up and liquidating upon the first to occur of any of the
following ("Liquidating Events"):
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(i) The sale of all or substantially all of the Property;
(ii) A Unanimous Vote of the Management Committee to dissolve, wind
up, and liquidate the Partnership in accordance with Section 5.1;
(iii) The failure of the General Partners to resolve a Deadlock Event
as provided in Section 5.8(a)(iii) unless the Management Committee
determines by Required Majority Vote not to dissolve; and
(iv) The withdrawal of a General Partner, the assignment by a General
Partner of its entire Interest or any other event that causes a General
Partner to cease to be a general partner under the Act, provided that any
such event shall not constitute a Liquidating Event if the Partnership is
continued pursuant to this Section 14.1.
The Partners hereby agree that, notwithstanding any provision of the Act or the
Delaware Uniform Partnership Act, the Partnership shall not dissolve prior to
the occurrence of a Liquidating Event. Upon the occurrence of any event set
forth in Section 14.1(a)(iv), the Partnership shall not be dissolved or required
to be wound up if (x) at the time of such event there is at least one remaining
General Partner and that General Partner carries on the business of the
Partnership (any such remaining General Partner being hereby authorized to carry
on the business of the Partnership), or (y) within ninety (90) days after such
event all remaining Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of such event, of
one or more additional General Partners.
(b) Special Rules. The events described in Sections 14.1(a)(ii),
14.1(a)(iii) or 14.1(a)(iv) shall not constitute Liquidating Events until such
time as the Partnership is otherwise required to dissolve, and commence winding
up and liquidating, in accordance with Section 14.7.
14.2 Winding Up.
Upon the occurrence of a Liquidating Event, the Partnership shall continue
solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners
and neither the Management Committee nor any Partner shall take any action that
is inconsistent with, or not appropriate for, the winding up of the
Partnership's business and affairs. To the extent not
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inconsistent with the foregoing, this Agreement shall continue in full force and
effect until such time as the Partnership's Property has been distributed
pursuant to this Section 14.2 and the Certificate has been cancelled in
accordance with the Act. The Management Committee shall be responsible for
overseeing the winding up and dissolution of the Partnership, shall take full
account of the Partnership's liabilities and Property, shall cause the
Partnership's Property to be liquidated as promptly as is consistent with
obtaining the fair value thereof, and shall cause the proceeds therefrom, to the
extent sufficient therefor, to be applied and distributed in the following
order:
(a) First, to the payment of all of the Partnership's debts and liabilities
(other than Partner Loans) to creditors other than the Partners and to the
payment of the expenses of liquidation;
(b) Second, to the payment of all Partner Loans and all of the
Partnership's debts and liabilities to the Partners in the following order and
priority:
(i) first, to the payment of all debts and liabilities owed to any
Partner other than in respect of Partner Loans;
(ii) second, to the payment of all accrued and unpaid interest on
Partner Loans, such interest to be paid to each Partner and its Affiliates
(considered as a group) pro rata in proportion to the interest owed to each
such group; and
(iii) third, to the payment of the unpaid principal amount of all
Partner Loans, such principal to be paid to each Partner and its Affiliates
(considered as a group) pro rata in proportion to the outstanding principal
owed to each such group; and
(c) The balance, if any, to the Partners in accordance with their Capital
Accounts, after giving effect to all contributions, distributions, and
allocations for all periods.
(d) In the discretion of the Management Committee, a pro rata portion of
the distributions that would otherwise be made to the Partners pursuant to this
Section 14.2 may be:
(i) distributed to a trust established for the benefit of the Partners
for the purposes of liquidating Partnership assets, collecting amounts owed
to the Partnership, and paying any contingent or unforeseen liabilities or
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obligations of the Partnership or of the General Partners arising out of or
in connection with the Partnership. The assets of any such trust shall be
distributed to the Partners from time to time, in the reasonable discretion
of the Management Committee in the same proportions as the amount
distributed to such trust by the Partnership would otherwise have been
distributed to the Partners pursuant to Section 14.2; or
(ii) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion
of any installment obligations owed to the Partnership, provided that such
withheld amounts shall be distributed to the Partners as soon as
practicable.
Each Partner and each of its Affiliates (as to Partner Loans only) agrees that
by accepting the provisions of this Section 14.2 setting forth the priority of
the distribution of the assets of the Partnership to be made upon its
liquidation, such Partner or Affiliate expressly waives any right which it, as a
creditor of the Partnership, might otherwise have under the Act to receive
distributions of assets pari passu with the other creditors of the Partnership
in connection with a distribution of assets of the Partnership in satisfaction
of any liability of the Partnership, and hereby subordinates to said creditors
any such right.
14.3 Compliance With Certain Requirements of Regulations; Deficit Capital
Accounts.
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), (a) distributions shall be made
pursuant to this Section 14 to the Partners who have positive Capital Accounts
in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2), and (b) if any
Partner's Capital Account has any deficit balance (after giving effect to all
contributions, distributions, and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall contribute to
the capital of the Partnership the amount necessary to restore such deficit
balance to zero in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(3);
provided, however, that the obligation of an Exclusive Limited Partner to
contribute capital pursuant to this sentence shall be limited to the amount of
the deficit balance, if any, that existed in such Exclusive Limited Partner's
Capital Account at the time it became an Exclusive Limited Partner (taking into
account for this purpose any revaluation of Partnership assets pursuant to
subparagraph (ii)(D) of the definition of Gross Asset Value made as a result of
such Partner's becoming an Exclusive Limited Partner).
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14.4 Deemed Distribution and Recontribution.
Notwithstanding any other provision of this Section 14, in the event the
Partnership is liquidated within the meaning of Section 1.704-1(b)(2)(ii)(g) of
the Regulations but no Liquidating Event has occurred, the Property shall not be
liquidated, the Partnership's liabilities shall not be paid or discharged, and
the Partnership's affairs shall not be wound up. Instead, solely for federal
income tax purposes, the Partnership shall be deemed to have distributed the
Property in kind to the Partners, who shall be deemed to have assumed and taken
subject to all Partnership liabilities, all in accordance with their respective
Capital Accounts and, if any Partner's Capital Account has a deficit balance
that such Partner would be required to restore pursuant to Section 14.3 (after
giving effect to all contributions, distributions, and allocations for all
Fiscal Years, including the Fiscal Year during which such liquidation occurs),
such Partner shall contribute to the capital of the Partnership the amount
necessary to restore such deficit balance to zero in compliance with Regulations
Section 1.704-1(b)(2)(ii)(b)(3). Immediately thereafter, the Partners shall be
deemed to have recontributed the Property in kind to the Partnership, which
shall be deemed to have assumed and taken subject to all such liabilities.
14.5 Rights of Partners.
Except as otherwise provided in this Agreement, (a) each Partner shall look
solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership, and (b) no Partner shall have priority
over any other Partner as to the return of its Capital Contributions,
distributions, or allocations. If, after the Partnership ceases to exist as a
legal entity, a Partner is required to make a payment to any Person on account
of any activity carried on by the Partnership, such paying Partner shall be
entitled to reimbursement from each other Partner consistent with the manner in
which the economic detriment of such payment would have been borne had the
amount been paid by the Partnership immediately prior to its cessation.
14.6 Notice of Dissolution.
In the event a Liquidating Event occurs or an event described in Section
14.1(a)(iv) occurs that would, but for provisions of Section 14.1, result in a
dissolution of the Partnership, the Management Committee shall, within thirty
(30)
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days thereafter, provide written notice thereof to each of the Partners.
14.7 Buy/Sell Arrangements.
(a) As soon as practicable after the occurrence of an event described in
Section 14.1(a)(ii), 14.1(a)(iii) or, subject to the proviso contained therein,
Section 14.1(a)(iv), the Net Equity of the Interests shall be determined and
delivered to each General Partner. Such Net Equity shall be determined in
accordance with Section 11.3. For purpose of such determination of Net Equity
pursuant to this Section 14.7(a), the General Partner that (together with its
Controlled Affiliates) holds the largest Voting Percentage Interest shall
designate the First Appraiser as required by Section 11.4 and the General
Partner that (together with its Controlled Affiliates) holds the smallest Voting
Percentage Interest shall appoint the Second Appraiser within ten (10) days of
receiving notice of the First Appraiser.
(b) Within thirty (30) days after its receipt of the determination of Net
Equity, each General Partner (individually or together with one or more other
General Partners) must submit simultaneously to each other Partner sealed
statements (the "Initial Offer") notifying the other Partners in writing either
(i) that such General Partner or group of General Partners offers to sell all of
its Interest(s), or (ii) that such General Partner or group of General Partners
offers to buy all of the other Partners' Interests. Except as provided in
Section 14.7(g), each Exclusive Limited Partner shall be automatically deemed to
have offered to sell its Interest hereunder and shall for all purposes under
this Section 14.7 shall be treated as a General Partner that has offered to sell
its Interest.
(c) If the Initial Offers indicate that one General Partner or group of
General Partners wishes to buy and all of the other Partners wish to sell, the
Net Equity of the Interests shall thereupon be the price at which the Interests
will be sold.
(d) If the Initial Offers indicate that all Partners wish to sell their
Interests, the Partnership shall dissolve, and commence winding up and
liquidating in accordance with Section 14.2.
(e) If the Initial Offers indicate that more than one General Partner or
group of General Partners wishes to purchase the other Partners' Interests, then
the General Partners or groups of General Partners wishing to purchase (each
General
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Partner or group of Partners, a "Bidding Partner") shall begin the bidding
process described below and the highest bidder (determined as the amount bid per
each Percentage Interest in the Partnership) shall buy all other Partners'
Interests. Each of the Bidding Partners can make an initial offer to purchase
the Interests of the other Partners, which offer cannot be less than the Net
Equity of the Interests to be purchased and shall be made within fifteen (15)
days of receipt of the last of the Initial Offers. If no Bidding Partner makes
an initial offer within such fifteen (15) day period, the Partnership shall
dissolve, and commence winding up and liquidating in accordance with Section
14.2. If only one Bidding Partner makes an initial offer, such offer shall
thereupon be the price at which all other Partners' Interests shall be sold to
such Bidding Partner. If more than one Bidding Partner makes an initial offer,
each such Bidding Partner must respond within fifteen (15) days of receiving
such initial offer either by accepting the highest of such initial offers or
delivering a counteroffer to purchase the Interests of the other Partners. A
counteroffer must be at least one percent (1%) higher than the prior offer of
which the Bidding Partner has received notice. The bidding process shall
continue until all Bidding Partners have either responded by accepting the
highest immediate prior offer or failed to make a timely response, in which case
the highest immediate prior offer shall be deemed accepted. For purposes of this
Section 14.7, all offers, acceptances and counteroffers must be in writing, in a
form which is firm and binding and delivered to the Chief Executive Officer (who
shall promptly notify each other Partner of the identity of the bidder and the
amount of such bid); all offers must be responded to within fifteen (15) days of
receipt of notice of a prior offer. If no response to an offer or counteroffer
is received within such fifteen (15) day period, the highest immediate prior
offer shall be deemed to be accepted.
(f) The closing of the purchase and sale of each selling Partner's
Interests and Partner Loans shall occur at the principal office of the
Partnership at 10:00 a.m. (local time at the place of the closing) on the first
Business Day occurring on or after the thirtieth (30th) day following the date
of the final determination of the purchase price pursuant to Section 14.7(e)
(subject to Section 11.5). At the closing, the purchasing Partner(s) shall pay
to each selling Partner, by cash or other immediately available funds, the
purchase price for such selling Partners' Interest and Partner Loans, and the
selling Partner shall deliver to the purchasing Partner(s) good title, free and
clear of any liens, claims, encumbrances, security interests or options (other
than those created by this Agreement and those
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securing financing obtained by the Partnership), to the selling Partner's
Interest and Partner Loans thus purchased.
At the closing, the Partners shall execute such documents and instruments
of conveyance as may be necessary or appropriate to effectuate the transactions
contemplated hereby, including the Transfer of the Interests and Partner Loans
of the selling Partner(s) to the purchasing Partner(s) and the assumption by
each purchasing Partner of the selling Partner's obligations with respect to the
selling Partner's Interest Transferred to the purchasing Partner(s). Each
Partner shall bear its own costs of such Transfer and closing, including
attorneys' fees and filing fees. The costs of determining Net Equity shall be
borne by the Partners (pro rata based on their respective Percentage Interests
as of the occurrence of the Liquidating Event).
(g) Solely for the purposes of this Section 14.7, Comcast will have the
same rights and obligations as a General Partner hereunder even if it has become
an Exclusive Limited Partner under Section 6.4(a)(v) so long as Comcast would
not otherwise then be an Exclusive Limited Partner under Section 13.1(a).
SECTION 15
MISCELLANEOUS
15.1 Notices.
Any notice, payment, demand, or communication required or permitted to be
given by any provision of this Agreement shall be in writing and mailed
(certified or registered mail, postage prepaid, return receipt requested) or
sent by hand or overnight courier, or by facsimile (with acknowledgment
received), charges prepaid and addressed as follows, or to such other address or
number as such Person may from time to time specify by notice to the Partners:
(a) If to the Partnership, to the address or number set forth on Schedule
2.2;
(b) If to a Partner or its designated Representative(s), to the address or
number set forth in Schedule 2.2;
(c) If to the Management Committee, to the Partnership and to each Partner
and its designated Representative(s).
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Any Person may from time to time specify a different address by notice to the
Partnership and the Partners. All notices and other communications given to a
Person in accordance with the provisions of this Agreement shall be deemed to
have been given and received (i) four (4) Business Days after the same are sent
by certified or registered mail, postage prepaid, return receipt requested, (ii)
when delivered by hand or transmitted by facsimile (with acknowledgment received
and, in the case of a facsimile only, a copy of such notice is sent no later
than the next Business Day by a reliable overnight courier service, with
acknowledgment of receipt) or (iii) one (1) Business Day after the same are sent
by a reliable overnight courier service, with acknowledgment of receipt.
15.2 Binding Effect.
Except as otherwise provided in this Agreement, this Agreement shall be
binding upon and inure to the benefit of the Partners and their respective
successors, transferees, and assigns.
15.3 Construction.
This Agreement shall be construed simply according to its fair meaning and
not strictly for or against any Partner.
15.4 Time.
Time is of the essence with respect to this Agreement.
15.5 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 describe,
interpret, define or limit the scope, extent or intent of this Agreement.
15.6 Severability.
Every provision of this Agreement is intended to be severable. If any term
or provision hereof is illegal, invalid or unenforceable for any reason
whatsoever, that term or provision will be enforced to the maximum extent
permissible so as to effect the intent of the Partners, and such illegality,
invalidity or unenforceability shall not affect the validity or legality of the
remainder of this Agreement. If necessary to effect the intent of the Partners,
the Partners will negotiate in good faith to amend this Agreement to replace the
unenforceable
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language with enforceable language which as closely as possible reflects such
intent.
15.7 Incorporation by Reference.
Every exhibit and other appendix (other than schedules) attached to this
Agreement and referred to herein is not incorporated in this Agreement by
reference unless this Agreement expressly otherwise provides.
15.8 Further Action.
Each Partner, upon the reasonable request of the Management Committee,
agrees to perform all further acts and execute, acknowledge, and deliver any
documents which may be reasonably necessary, appropriate, or desirable to carry
out the intent and purposes of this Agreement.
15.9 Governing Law.
The internal laws of the State of Delaware (without regard to principles of
conflict of law) shall govern the validity of this Agreement, the construction
of its terms, and the interpretation of the rights and duties of the Partners.
15.10 Waiver of Action for Partition; No Bill For Partnership Accounting.
Each Partner irrevocably waives any right that it may have to maintain any
action for partition with respect to any of the Property; provided that the
foregoing shall not be construed to apply to any action by a Partner for the
enforcement of its rights under this Agreement. Each Partner waives its right to
seek a court decree of dissolution (other than a dissolution in accordance with
Section 14) or to seek appointment of a court receiver for the Partnership as
now or hereafter permitted under applicable law. To the fullest extent permitted
by law, each Partner covenants that it will not (except with the consent of the
Management Committee) file a bill for Partnership accounting.
15.11 Counterpart Execution.
This Agreement may be executed in any number of counterparts with the same
effect as if all the Partners had signed the same document. All counterparts
shall be construed together and shall constitute one agreement.
15.12 Sole and Absolute Discretion.
<PAGE>
124
Except as otherwise provided in this Agreement, all actions which the
Management Committee may take and all determinations which the Management
Committee may make pursuant to this Agreement may be taken and made at the sole
and absolute discretion of the Management Committee.
15.13 Specific Performance.
Each Partner agrees with the other Partners that the other Partners would
be irreparably damaged if any of the provisions of this Agreement are not
performed in accordance with their specific terms and that monetary damages
would not provide an adequate remedy in such event. Accordingly, in addition to
any other remedy to which the nonbreaching Partners may be entitled, at law or
in equity, the nonbreaching Partners shall be entitled to injunctive relief to
prevent breaches of this Agreement and specifically to enforce the terms and
provisions hereof.
15.14 Entire Agreement.
The provisions of this Agreement set forth the entire agreement and
understanding between the Partners as to the subject matter hereof and supersede
all prior agreements, oral or written, and other communications between the
Partners relating to the subject matter hereof.
15.15 Limitation on Rights of Others.
Nothing in this Agreement, whether express or implied, shall be construed
to give any Person other than the Partners any legal or equitable right, remedy
or claim under or in respect of this Agreement.
15.16 Waivers; Remedies.
The observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
by the party or parties entitled to enforce such term, but any such waiver shall
be effective only if in a writing signed by the party or parties against which
such waiver is to be asserted. Except as otherwise provided herein, no failure
or delay of any Partner in exercising any power or right under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such right or power, preclude any other or further exercise thereof or
the exercise of any other right or power.
<PAGE>
125
15.17 Jurisdiction; Consent to Service of Process.
(a) Each Partner hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of any New York State court
sitting in the County of New York or any Federal court of the United States of
America sitting in the Southern District of New York, and any appellate court
from any such court, in any suit, action or proceeding arising out of or
relating to the Partnership or this Agreement, or for recognition or enforcement
of any judgment, and each Partner hereby irrevocably and unconditionally agrees
that all claims in respect of any such suit, action or proceeding may be heard
and determined in such New York State court or, to the extent permitted by law,
in such Federal court.
(b) Each Partner hereby irrevocably and unconditionally waives, to the
fullest extent it may legally do so, any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to the Partnership or this Agreement in any New York State court
sitting in the County of New York or any Federal court sitting in the Southern
District of New York. Each Partner hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such suit, action or proceeding in any such court and further waives the
right to object, with respect to such suit, action or proceeding, that such
court does not have jurisdiction over such Partner.
(c) Each Partner irrevocably consents to service of process in the manner
provided for the giving of notices pursuant to this Agreement, provided that
such service shall be deemed to have been given only when actually received by
such Partner. Nothing in this Agreement shall affect the right of a party to
serve process in any other manner permitted by law.
15.18 Waiver of Jury Trial.
Each Partner waives, to the fullest extent permitted by applicable law, any
right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of or relating to the Partnership or this Agreement.
15.19 No Right of Set-Off.
No Partner shall be entitled to offset against any of its financial
obligations to the Partnership under this Agreement,
<PAGE>
126
any obligation owed to it or any of its Affiliates by any other Partner or any
of such other Partner's Affiliates.
IN WITNESS WHEREOF, the parties have entered into this Agreement of Limited
Partnership as of the day first above set forth.
[SIGNATURES FOLLOW ON A SEPARATE PAGE]
<PAGE>
127
GENERAL AND LIMITED PARTNERS:
SPRINT SPECTRUM, INC.
By: /s/ J. Richard Devlin
_________________________________________
Title: _________________________________
TCI NETWORK, INC.
By: /s/ Brendon Clouston
_________________________________________
Title: _________________________________
COMCAST TELEPHONY SERVICES
By: Comcast Telephony Services, Inc., Its General
Partner
By: /s/ Lawrence S. Smith
________________________________________
Title: _______________________________
COX COMMUNICATIONS WIRELESS, INC.
By: /s/ David M. Woodrow
_________________________________
<PAGE>
128
Title: ________________________________
THIS IS A SIGNATURE PAGE TO THE AGREEMENT OF LIMITED PARTNERSHIP OF WIRELESSCO,
L.P.
<PAGE>
129
SCHEDULE 2.1
INITIAL PERCENTAGE INTERESTS
INITIAL
PARTNER PERCENTAGE INTEREST
------- -------------------
Sprint 40%
TCI 30%
Comcast 15%
Cox 15%
<PAGE>
130
SCHEDULE 2.2
ORIGINAL CAPITAL CONTRIBUTIONS AND NOTICE ADDRESSES
ORIGINAL
PARTNER CAPITAL CONTRIBUTION
------- --------------------
SPRINT: $4,000
Sprint Spectrum, Inc.
2330 Shawnee Mission Parkway
Westwood, KS 66205
Telecopy No.: (913) 624-2256
Attn: Corporate Secretary
with copy to:
Sprint Spectrum, Inc.
2330 Shawnee Mission Parkway
Westwood, KS 66205
Telecopy No.: (913) 624-8426
Attn: Chief Financial Officer
TCI: $3,000
TCI Network, Inc.
5619 DTC Parkway
Englewood, CO 80111
Telecopy No.: (303) 488-3200
Attn: President
with copies to:
Baker & Botts, L.L.P.
885 Third Avenue
New York, NY 10022-4834
Telecopy No.: (212) 705-5125
Attn: Elizabeth Markowski, Esq.
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Telecopy No.: (303) 488-3200
Attn: General Counsel
<PAGE>
131
COX: $1,500
Cox Communications Wireless, Inc.
1400 Lake Hearn Drive
Atlanta, Georgia 30319-1464
Telecopy No.: (404) 843-5142
Attn: John R. Dillon
with copy to:
Dow, Lohnes & Albertson
1255 23rd Street, N.W.
Washington, DC 20037
Telecopy No.: (202) 857-2900
Attn: Leonard J. Baxt
COMCAST: $1,500
Comcast Telephony Services
1500 Market Street
Philadelphia, PA 19102-2148
Telecopy No.: (215) 981-7794
Attn: General Counsel
with copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telecopy No.: (212) 450-4800
Attn: Mr. Dennis S. Hersch
<PAGE>
132
Schedule 5.1(i)
Required Majority Vote
The following matters with respect to the Partnership, and all other matters
required by the Management Committee to be submitted to it, except as provided
for in Schedule 5.1(j) and Schedule 5.1(k) or as otherwise expressly provided in
this Agreement, require a Required Majority Vote:
A. the incurrence of any indebtedness by the Partnership or any Subsidiary of
the Partnership for loans made by any Partner or an Affiliate of a Partner,
provided, that in any event all Partners (other than a Defaulting Partner
or a Bankrupt Partner) shall be given the opportunity to participate pro
rata in accordance with the respective Percentage Interests of the Partners
in making such loans;
B. the conversion by the Partnership or any Subsidiary of the Partnership to
non-partnership form, provided, that such Required Majority Vote must
include the affirmative vote of any Partner that (or which is a member of a
consolidated group for federal income tax reporting purposes that) is
reasonably likely to suffer a material adverse effect for federal income
tax purposes in connection with the conversion to non-partnership form
(other than any material adverse effect which is also reasonably likely to
affect all Partners or their respective consolidated groups on a similar
pro rata basis);
C. the election or removal of the Chief Executive Officer and the other senior
management of the Partnership, except as provided in Item E. of Schedule
5.1(j); the compensation of the Chief Executive Officer and the other
senior management of the Partnership; and the adoption or amendment of
incentive compensation and benefit plans for executive officers and
employees;
D. subject to Item E. of Schedule 5.1(k), the declaration or payment of any
distribution by the Partnership on any Interest, except as required by
Section 4.2;
E. the adoption of a Business Plan or Annual Budget (or of any amendment
thereto or material deviation therefrom) other than as expressly provided
in Items A. or B. of Schedule 5.1(j);
<PAGE>
133
Schedule 5.1(i) -- page 2
F. the acquisition by the Partnership or any Subsidiary of the Partnership of
any assets (including stock or other equity interests) in a transaction or
series of transactions that have an aggregate purchase price in excess of
one percent (1%) of the book value of the consolidated assets of the
Partnership as determined in accordance with GAAP (or such greater or
lesser amount (subject to Item N. of Schedule 5.1(j) as may be approved
from time to time by the Management Committee);
G. the disposition by the Partnership or any Subsidiary of the Partnership of
any assets (including stock or other equity interests) in a transaction or
series of transactions that have an aggregate value in excess of one
percent (1%) of the book value of the consolidated assets of the
Partnership as determined in accordance with GAAP (or such greater or
lesser amount (subject to Item O. of Schedule 5.1(j) as may be approved
from time to time by the Management Committee);
H. the incurrence of any Debt by the Partnership or any Subsidiary of the
Partnership in an aggregate amount which, together with all other Debt of
the Partnership and its Subsidiaries (other than Debt to the Partners
incurred with the approval of the Management Committee pursuant Item D. of
Schedule 5.1(k)), is in excess of limits to be approved by the Management
Committee by Required Majority Vote);
I. the selection of, and changes in, the Accountants; and
J. the institution or settlement by the Partnership or any Subsidiary of the
Partnership of any legal action or other proceeding before any court or
other governmental or administrative authority which is reasonably likely
to have a material adverse effect on a Partner or any Affiliate of such
Partner (other than as a result of the diminution of the value if the
Interest of such Partner where such diminution affects all Partners and
their respective affiliates proportionately), provided, that such Required
Majority Vote shall include the affirmative vote of any Partner so
affected.
<PAGE>
134
Schedule 5.1(j)
Unanimous Vote
The following matters with respect to the Partnership require a Unanimous Vote:
A. the adoption of and any amendment to the Wireless Strategic Plan;
B. the adoption of the Initial Business Plan and the initial Annual Budget and
any amendment thereto or any material deviation therefrom during the first
Fiscal Year;
B. the approval of any amendments, modifications or supplements to Schedule
5.1(j);
C. the admission of new Partners or other equity holders, other than pursuant
to transfers expressly permitted by Section 12 of this Agreement;
D. the taking of any action that would result in a Voluntary Bankruptcy of the
Partnership or any subsidiary of the Partnership;
E. the approval of the initial Chief Executive Officer and the removal of such
initial Chief Executive Officer within one year of his or her appointment;
F. the approval of any transaction involving the Partnership or any subsidiary
of the Partnership which would have the effect of the Partnership's
becoming a BOC or the Partnership's or any Partner's becoming a BOC
Affiliated Enterprise or an entity subject to any restrictions under
Section II of the MFJ;
F. the approval or implementation of any material changes in the operations,
scope or direction of the business of the Partnership or any Subsidiary of
the Partnership (including any disposition of material assets or any other
transaction involving the Partnership) that is implemented for the primary
purpose of avoiding the Partnership's becoming a BOC, a BOC Affiliated
Enterprise or an entity subject to any restrictions under Section II of the
MFJ in connection with any proposed, pending or completed transaction
involving
<PAGE>
135
the Partnership or any Subsidiary of the Partnership, a Partner or any
entity that is related to a Partner;
G. the commingling of funds of the Partnership with those of any other Person
(other than a wholly owned subsidiary of the Partnership);
H. subject to Schedule 5.1(k), the taking of any action that would make it
impossible for the Partnership or any Subsidiary of the Partnership to
carry on its ordinary business or that is in contravention of this
Agreement or that would constitute a breach of or default under any senior
credit agreement of the Partnership any Subsidiary of the Partnership;
I. the incurrence of any indebtedness for borrowed money that is recourse to
any or all of the Partners and their Affiliates;
J. except as specifically provided for by this Agreement (including Section
2.3(d)), the satisfaction by any Partner of its obligations to make Capital
Contributions with property other than cash;
K. any direct or indirect purchase or other acquisition, or any direct or
indirect sale, by the Partnership or any subsidiary of the Partnership of
any Interest;
L. the merger, consolidation or other business combination by the Partnership
or any subsidiary of the Partnership into or with any other entity, or
entering into a joint venture, partnership or other like relationship with
any other entity, other than any transaction involving only the Partnership
and/or one or more wholly owned subsidiaries of the Partnership;
M. the approval of a nonjudicial dissolution by the Partnership or any
subsidiary of the Partnership and, subject to the provisions of this
Agreement, decisions with respect to the winding up by the Partnership or
any subsidiary of the Partnership including the making of liquidating
distributions on any Interest;
N. the acquisition of any assets by the Partnership or any subsidiary of the
Partnership (including stock or other equity interests) in a transaction or
series of transactions that have an aggregate purchase price in excess of
twenty percent (20%) of the book value of the
<PAGE>
136
consolidated assets of the Partnership as determined in accordance with
GAAP; and
O. the disposition of any assets by the Partnership or any subsidiary of the
Partnership (including stock or other equity interests) in a transaction or
series of transactions that have an aggregate value in excess of twenty
percent (20%) of the book value of the consolidated assets of the
Partnership as determined in accordance with GAAP.
<PAGE>
137
Schedule 5.1(k)
Unanimous Partner Vote
The following matters with respect to the Partnership require a Unanimous
Partner Vote:
A. the engagement by the Partnership or any Subsidiary of the Partnership in
any Excluded Business or any other business outside the scope of the
Partnership's business as set forth in Section 1.3 of this Agreement;
B. except with respect to the items listed on Schedules 5.1(i) and 5.1(j), the
approval of any amendments, modifications or supplements to this Agreement,
including this Schedule 5.1(k);
C. the loan or advancement by the Partnership or any Subsidiary of the
Partnership of funds to, or the guarantee of any obligations of, a Partner
or any Affiliate thereof;
D. the incurrence of any indebtedness for loans made by any Partner or
Affiliate of a Partner other than in accordance with Section 2.7 of this
Agreement;
E. the making of any non-pro rata cash or any in-kind distributions to a
Partner in respect of its Interest, other than in accordance with this
Agreement; and
F. the approval of any amendment, modification or supplement of, or deviation
from, the procedures to be followed for the winding up of the Partnership's
affairs, it being understood that the determination to dissolve the
Partnership merely requires a Unanimous Vote of the Management Committee.
Exhibit 21
LIST OF SUBSIDIARIES
Amcell - Tel, Inc.
Amcell Holding Corp.
Amcell of Atlantic City, Inc.
Amcell of Cumberland County, Inc.
Amcell of Hunterdon, Inc.
Amcell of Ocean County, Inc.
Amcell of Pennsylvania Holdings, Inc.
Amcell of Trenton, Inc.
Amcell of Vineland Holdings, Inc.
American Cellular Network Corp.
American Cellular Network Corp. of Delaware
American Cellular Network Corp. of Maryland
American Cellular Network Corp. of Pennsylvania
At Home Entertainment, Inc.
Aurora/Elgin Cellular Telephone Company, Inc.
AWACS Financial Corporation
AWACS Garden State, Inc.
AWACS Investment Holdings, Inc.
AWACS, Inc.
Box Office Enterprises, Inc.
Cable Enterprises, Inc.
Cable Management of Detroit
Cable Shopping Mall, Inc.
Cable TV of Jersey City, Inc.
Cablevision Investment of Detroit, Inc.
California Ad Sales, Inc.
Cell South of New Jersey, Inc.
Citizens Cable South, Inc.
Classic Services, Inc.
Clinton Cable TV Investors, Inc.
Coastal Cable TV, Inc.
COM Indiana, Inc.
COM Indianapolis, Inc.
COM Inkster, Inc.
COM Maryland, Inc.
COM Philadelphia, Inc.
COM Telephony Services, Inc.
Comcast Argentina, Inc.
Comcast Australia, Inc.
Comcast Brazil, Inc.
Comcast Cable Communications, Inc.
Comcast Cable Guide, Inc.
Comcast Cable Investors, Inc.
Comcast Cable of Indiana, Inc.
Comcast Cable of Maryland, Inc.
Comcast Cable Tri-Holdings, Inc.
Comcast CablePhone, Inc.
Comcast Cablevision Corporation of Alabama
<PAGE>2
Comcast Cablevision Corporation of California
Comcast Cablevision Corporation of Connecticut
Comcast Cablevision Corporation of Florida
Comcast Cablevision Corporation of the Southeast
Comcast Cablevision Investment Corporation
Comcast Cablevision of Arkansas, Inc.
Comcast Cablevision of Birmingham, Inc.
Comcast Cablevision of Boca Raton, Inc.
Comcast Cablevision of Bryant, Inc.
Comcast Cablevision of Burlington County, Inc.
Comcast Cablevision of Cambridge, Inc.
Comcast Cablevision of Carolina, Inc.
Comcast Cablevision of Central New Jersey, Inc.
Comcast Cablevision of Chesterfield County, Inc.
Comcast Cablevision of Clinton
Comcast Cablevision of Clinton, Inc.
Comcast Cablevision of Clinton, Inc.
Comcast Cablevision of Danbury, Inc.
Comcast Cablevision of Delmarva, Inc.
Comcast Cablevision of Detroit
Comcast Cablevision of Dothan, Inc.
Comcast Cablevision of Flint, Inc.
Comcast Cablevision of Fontana, Inc.
Comcast Cablevision of Fort Wayne Limited Partnership
Comcast Cablevision of Gadsden, Inc.
Comcast Cablevision of Garden State, Inc.
Comcast Cablevision of Gloucester County, Inc.
Comcast Cablevision of Groton, Inc.
Comcast Cablevision of Harford County, Inc.
Comcast Cablevision of Hopewell Valley, Inc.
Comcast Cablevision of Howard County, Inc.
Comcast Cablevision of Huntsville, Inc.
Comcast Cablevision of Indianapolis, Inc.
Comcast Cablevision of Indianapolis, L.P.
Comcast Cablevision of Inkster Limited Partnership
Comcast Cablevision of Inland Valley, Inc.
Comcast Cablevision of Laurel, Inc.
Comcast Cablevision of Lawrence, Inc.
Comcast Cablevision of Little Rock, Inc.
Comcast Cablevision of Lompoc, Inc.
Comcast Cablevision of London, Inc.
Comcast Cablevision of Lower Merion, Inc.
Comcast Cablevision of Macomb County, Inc.
Comcast Cablevision of Macomb, Inc.
Comcast Cablevision of Marianna, Inc.
Comcast Cablevision of Maryland Limited Partnership
Comcast Cablevision of Mercer County, Inc.
Comcast Cablevision of Meridian, Inc.
Comcast Cablevision of Middletown, Inc.
Comcast Cablevision of Mobile, Inc.
Comcast Cablevision of Monmouth County, Inc.
Comcast Cablevision of Mt. Clemens
<PAGE>3
Comcast Cablevision of Mt. Clemens, Inc.
Comcast Cablevision of New Haven, Inc.
Comcast Cablevision of New Haven, Inc.
Comcast Cablevision of Newport Beach, Inc.
Comcast Cablevision of North Orange, Inc.
Comcast Cablevision of Northwest New Jersey, Inc.
Comcast Cablevision of Oakland County, Inc.
Comcast Cablevision of Ocean County, Inc.
Comcast Cablevision of Paducah, Inc.
Comcast Cablevision of Panama City, Inc.
Comcast Cablevision of Perry, Inc.
Comcast Cablevision of Philadelphia, Inc.
Comcast Cablevision of Philadelphia, L.P.
Comcast Cablevision of Plainfield, Inc.
Comcast Cablevision of Quincy, Inc.
Comcast Cablevision of San Bernardino, Inc.
Comcast Cablevision of Santa Ana, Inc.
Comcast Cablevision of Santa Maria, Inc.
Comcast Cablevision of Seal Beach, Inc.
Comcast Cablevision of Shelby, Inc.
Comcast Cablevision of Simi Valley, Inc.
Comcast Cablevision of Southeast Michigan, Inc.
Comcast Cablevision of Sterling Heights, Inc.
Comcast Cablevision of Tallahassee, Inc.
Comcast Cablevision of the Meadowlands, Inc.
Comcast Cablevision of the Shoals, Inc.
Comcast Cablevision of Tupelo, Inc.
Comcast Cablevision of Tuscaloosa, Inc.
Comcast Cablevision of Utica, Inc.
Comcast Cablevision of Warren
Comcast Cablevision of West Florida, Inc.
Comcast Cablevision of West Palm Beach, Inc.
Comcast Cablevision of Westmoreland, Inc.
Comcast Cablevision of Willow Grove, Inc.
Comcast CAP of Philadelphia Holdings, Inc.
Comcast CAP of Philadelphia, Inc.
Comcast Cellular Communications, Inc.
Comcast Cellular Corporation
Comcast Cellular Holding Company, Inc.
Comcast Cellular Management, Inc.
Comcast Central Europe, Inc.
Comcast Central NJ Holding Company Inc.
Comcast Communications Properties, Inc.
Comcast Consulting Company, Inc.
Comcast Crystalvision, Inc.
Comcast Darlington Limited
Comcast DBS, Inc.
Comcast DC Radio, Inc.
Comcast Delaware Services, Inc.
Comcast Directory Assistance Partnership
Comcast Directory Services, Inc.
Comcast do Brasil S.A.
<PAGE>4
Comcast do Brasil S/C Ltda.
Comcast Europe Holdings, Inc.
Comcast FCI, Inc.
Comcast Financial Corporation
Comcast France Holdings, Inc.
Comcast Funding, Inc.
Comcast FW, Inc.
Comcast Garden State, Inc.
Comcast Heritage, Inc.
Comcast Holdings, Inc.
Comcast IAP, Inc.
Comcast International Holdings, Inc.
Comcast International Programming, Inc.
Comcast Investment Holdings, Inc.
Comcast ISD, Inc.
Comcast Management Corporation
Comcast Management Corporation
Comcast Merger, Inc.
Comcast Mexico, Inc.
Comcast MH Holdings, Inc.
Comcast MHCP Holdings, L.L.C.
Comcast MHCP, Inc.
Comcast Michigan Holdings, Inc.
Comcast Midwest Management, Inc.
Comcast MLP Partner, Inc.
Comcast Mobile Communications, Inc.
Comcast Multicable Media, Inc.
Comcast Network Communciations of Connecticut, Inc.
Comcast Network Communications of South Florida, Inc.
Comcast Network Communications of Southeast Michigan, Inc.
Comcast Network Communications of Southern California, Inc.
Comcast Network Communications of Southern New Jersey, Inc.
Comcast Network Communications of Tallahassee, Inc.
Comcast Network Communications, Inc.
Comcast PC Communications, Inc.
Comcast PCS Communications, Inc.
Comcast Prism, Inc.
Comcast Programming Holdings, Inc.
Comcast PTK, Inc.
Comcast Publishing Holdings Corporation
Comcast Publishing Holdings Financial Corporation
Comcast QVC, Inc.
Comcast Real Estate Holdings of Alabama, Inc.
Comcast Real Estate Holdings, Inc.
Comcast RSA, Inc.
Comcast RVC, Inc.
Comcast Satellite Communications California, Inc.
Comcast Satellite Communications Mid-Atlantic, Inc.
Comcast Satellite Communications Midwest, Inc.
Comcast Satellite Communications Northeast, Inc.
Comcast Satellite Communications South Central, Inc.
Comcast Satellite Communications Southeast, Inc.
<PAGE>5
Comcast Satellite Communications, Inc.
Comcast Sound Communications, Inc.
Comcast Sound Communications, Inc.
Comcast Storer Finance Sub, Inc.
Comcast Storer, Inc.
Comcast Technology, Inc.
Comcast Teesside Limited
Comcast Telephony Communications, Inc.
Comcast Telephony Services
Comcast Telephony Services II, Inc.
Comcast Telephony Services, Inc.
Comcast Teleport Partners, Inc.
Comcast Teleport, Inc.
Comcast TM, Inc.
Comcast U.K. Consulting, Inc.
Comcast U.K. Holdings, Inc.
Comcast UK Cable Partners Consulting, Inc.
Comcast UK Cable Partners Limited
Comcast UK Programming Limited
Comcast Venezuela PCS, Inc.
CSNJ Merger Co., Inc.
CVN - Michigan, Inc.
CVN Companies, Inc.
CVN Direct Marketing Corp.
CVN Distribution Co., Inc.
CVN Management, Inc.
DCCS S.A.
Deonica S.A.
Detroit Cable TV, Inc.
Diamonique (Pennsylvania) Corporation
Diamonique Corporation
Dinara S.A.
East Rutherford Realty, Inc.
Eastern TeleLogic Corporation
First Television Corporation
Grosse Pointe Cable, Inc.
Hebcom Enterprises, Inc.
Joliet Cellular Telephone Company, Inc.
Liberty City Funding Corporation
Long Branch Cellular Telephone Company
Maclean-Hunter Cable TV, Inc.
Maclean-Hunter, Inc.
MH Lightnet Inc.
MH Lightnet of Florida, Inc.
Mobile Enterprises, Inc.
Mt. Clemens Cable TV Investors, Inc.
Multicast do Brazil S.A.
Multiview Cable Corporation
New Brunswick Cellular Telephone Company
New England Microwave, Inc.
New Hope Cable TV, Inc.
Philadelphia Cable Investment Corporation
<PAGE>6
Philadelphia Mobile Communications, Inc.
Q2, Inc.
QDirect Ventures, Inc.
QExhibits, Inc.
QFlight, Inc.
QVC
QVC - QRT, Inc.
QVC Britain
QVC Britain II, Inc.
QVC Britain III, Inc.
QVC Britain, Inc.
QVC Chesapeake, Inc.
QVC Delaware, Inc.
QVC Holdings, Inc.
QVC International, Inc.
QVC Local, Inc.
QVC Mexico II, Inc.
QVC Mexico III, Inc.
QVC Mexico, Inc.
QVC Network of Colorado, Inc.
QVC of Thailand, Inc.
QVC Realty, Inc.
QVC San Antonio, Inc.
QVC, Inc.
SCI 11, Inc.
SCI 34, Inc.
SCI 36, Inc.
SCI 37, Inc.
SCI 38, Inc.
SCI 39, Inc.
SCI 44, Inc.
SCI 48, Inc.
SCI 55, Inc.
Selkirk Communications (Delaware) Corporation
Selkirk Communications (Hallandale), Inc.
Selkirk Communications, Inc.
Selkirk Systems, Inc.
Storer Administration, Inc.
Storer Broadcast Finance Corp.
Storer Cable Advertising Sales, Inc.
Storer Cable TV of Radnor, Inc.
Storer Communications, Inc.
Storer Disbursements, Inc.
Storer Finance Corp.
Suburban Cablevision
Westmoreland Financial Corporation
Wilmington Cellular Telephone Company
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of Comcast Corporation and its subsidiaries on Forms S-3 and S-8 of
our report dated February 21, 1995 appearing in the Annual Report on Form 10-K
of Comcast Corporation and its subsidiaries for the year ended December 31, 1994
and to the reference to us under the heading "Experts" in the Prospectus
contained in the following Registration Statements.
Registration Statements on Form S-8:
<TABLE>
<CAPTION>
Registration Statement Number
Title of Securities Registered
<S> <C>
The Comcast Corporation Retirement Investment Plan 33-41440
Storer Communications Retirement Savings Plan 33-54365
Stock Option Plans 33-25105
Stock Option Plans 33-56903
Registration Statements on Form S-3:
Title of Securities 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 33-40386
Class A Special Common Stock $1.00 par value 33-46988
Senior Debentures, Senior Subordinated Debentures and
Subordinated Debentures 33-57410
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
</TABLE>
DELOITTE & TOUCHE LLP
February 24, 1995
Philadelphia, Pennsylvania
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comcast Corporation:
As independent public accountants, we hereby consent to the incorporation of our
report dated February 17, 1995 on Comcast International Holdings, Inc. and
Subsidiaries included in Comcast Corporation's Form 10-K, into Comcast
Corporation's previously filed Registration Statements File No. 33-41440; File
No. 33-54365; File No. 33-25105; File No. 33-56903; File No. 33-40386; File No.
33-46988; File No. 33-57410; and File No. 33-50785. It should be noted that we
have not audited any financial statements of Comcast International Holdings,
Inc. and Subsidiaries subsequent to December 31, 1994 or performed any audit
procedures subsequent to the date of our report.
Arthur Andersen LLP
Philadelphia, PA.
February 28, 1995
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comcast Corporation:
As independent public accountants, we hereby consent to the incorporation of our
report dated February 6, 1995 on Garden State Cablevision L.P. included in
Comcast Corporation's Form 10-K, into Comcast Corporation's previously filed
Registration Statements File No. 33-41440; File No. 33-54365; File No. 33-25105;
File No. 33-56903; File No. 33-40386; File No. 33-46988; File No. 33-57410; and
File No. 33-50785. It should be noted that we have not audited any financial
statements of Garden State Cablevision L.P. subsequent to December 31, 1994 or
performed any audit procedures subsequent to the date of our report.
Arthur Andersen LLP
Philadelphia, PA.
February 24, 1995
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
QVC, Inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 33-41440, 33-54365, 33-25105, and 33-56903) on Form S-8 and (Nos.
33-40386, 33-46988, 33-57410, and 33-50785) on Form S-3 of Comcast Corporation
of our report dated March 4, 1994, with respect to the consolidated balance
sheets of QVC, Inc. and subsidiaries as of January 31, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended January 31, 1994,
which report appears in the Form 10-K of QVC, Inc. and subsidiaries for the year
ended January 31, 1994 which Form 10-K is incorporated by reference in the
Current Report on Form 8-K of Comcast Corporation filed on November 2, 1994. Our
report thereon refers to a change in accounting for income taxes.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
February 24, 1995
Exhibit 23.5
AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 33-40386, 33-46988, 33-57410 and 33-50785 and Form S-8 Nos.
33-41440, 33-25105, 33-54365 and 33-56903) of Comcast Corporation and in the
related Prospectuses of our report dated August 5, 1994 with respect to the
combined financial statements of the U.S. Cable Television Operations of Maclean
Hunter, Inc. as at December 31, 1993 and 1992 and for the years ended December
31, 1993, 1992 and 1991 included in Comcast Corporation's Current Report on Form
8-K dated November 2, 1994, filed with the Securities and Exchange Commission.
ERNST & YOUNG
Chartered Accountants
Toronto, Canada
February 24, 1995
Exhibit 23.6
The Board of Directors
Comcast Corporation:
We consent to the incorporation by reference in the following Registration
Statements of Comcast Corporation of our report dated February 12, 1993 relating
to the consolidated balance sheet of Storer Communications, Inc. and
subsidiaries (formerly SCI Holdings, Inc. and Storer Communications, Inc. and
subsidiaries) as of December 31, 1992 and the related consolidated statements of
operations, stockholders' equity (deficiency), cash flows and all related
schedules for each of the years in the two-year period ended December 31, 1992,
which report is incorporated by reference in the December 31, 1994 annual report
on Form 10-K of Comcast Corporation.
<TABLE>
<CAPTION>
Registration
Registration Statements of Form S-8 Statement Number
<S> <C>
Title of securities registered:
The Comcast Corporation Retirement Investment Plan 33-41440
Storer Communications Retirement Savings Plan 33-54365
Stock Option Plans 33-25105
Stock Option Plans 33-56903
Registration Statements of Form S-3
Title of securities 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 33-40386
Class A Special Common Stock $1.00 par value 33-46988
Senior Debentures, Senior Subordinated Debentures and
Subordinated Debentures 33-57410
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
</TABLE>
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
February 22, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of operations and consolidated balance sheet and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000022301
<NAME> COMCAST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 335,320
<SECURITIES> 130,134
<RECEIVABLES> 119,517
<ALLOWANCES> (11,272)
<INVENTORY> 0
<CURRENT-ASSETS> 608,506
<PP&E> 2,081,256
<DEPRECIATION> (823,570)
<TOTAL-ASSETS> 6,762,984
<CURRENT-LIABILITIES> 660,638
<BONDS> 4,810,541
<COMMON> 239,037
0
0
<OTHER-SE> (965,826)
<TOTAL-LIABILITY-AND-EQUITY> 6,762,984
<SALES> 1,375,304
<TOTAL-REVENUES> 1,375,304
<CGS> 0
<TOTAL-COSTS> (1,135,510)
<OTHER-EXPENSES> (10,876)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (313,477)
<INCOME-PRETAX> (84,559)
<INCOME-TAX> (9,234)
<INCOME-CONTINUING> (75,325)
<DISCONTINUED> 0
<EXTRAORDINARY> (11,703)
<CHANGES> 0
<NET-INCOME> (87,028)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
Exhibit 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Garden State Cablevision L.P.:
We have audited the accompanying balance sheets of Garden State Cablevision L.P.
(a Delaware Limited Partnership) as of December 31, 1994 and 1993, and the
related statements of operations, partners' (deficit) capital and cash flows for
the years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Garden State Cablevision L.P.
as of December 31, 1994 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 9, the Partnership is subject to regulations under the
Cable Television Consumer Protection and Competition Act of 1992 and is
currently seeking to justify its existing rates on the basis of cost-of-service
showings with the regulatory authorities. No provision for any liabilities that
may result from the outcome of this matter have been made in the accompanying
financial statements as the impact, if any, is uncertain and indeterminable at
this time.
ARTHUR ANDERSEN LLP
Philadelphia, PA.,
February 6, 1995
Exhibit 99.3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
Comcast International Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Comcast
International Holdings, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, stockholder's equity and cash flows for the years then ended. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Comcast International Holdings,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
- -----------------------------------
Philadelphia, Pennsylvania
February 17, 1995
