-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PijHeQPZ0F8tYqUUno1Q23C2NWk+eD0sstMc50IFw8hsJSdfmlVyzPLn9NjhORCb YnTUvv/w6XxD2/Folxc+nA== 0000912057-97-023424.txt : 19970704 0000912057-97-023424.hdr.sgml : 19970704 ACCESSION NUMBER: 0000912057-97-023424 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 19970703 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMCAST CABLE COMMUNICATIONS INC CENTRAL INDEX KEY: 0001040573 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-30745 FILM NUMBER: 97636244 BUSINESS ADDRESS: STREET 1: 1500 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2156651700 MAIL ADDRESS: STREET 1: 1500 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 S-4 1 S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ COMCAST CABLE COMMUNICATIONS, INC. (Exact name of registrant as specified in its charter) DELAWARE 4841 23-2175755 (State or other jurisdiction (Primary Standard (I.R.S. Employer of Industrial Classification Identification incorporation or organization) Code Number) Number)
1500 MARKET STREET, PHILADELPHIA, PENNSYLVANIA 19102-2148 (215) 665-1700 (Address and telephone number of registrant's principal executive offices) JOHN R. ALCHIN COMCAST CABLE COMMUNICATIONS, INC. 1500 MARKET STREET PHILADELPHIA, PENNSYLVANIA (215) 665-1700 (Name, address and telephone number of agent for service) ------------------------------ COPIES TO: BRUCE K. DALLAS DAVIS POLK & WARDWELL 450 LEXINGTON AVENUE NEW YORK, NEW YORK 10017 (212) 450-4000 ------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ------------------------------ If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE(2) 8 1/8% Exchange Notes due 2004........ $300,000,000 100% $1,700,000,000 $515,152 8 3/8% Exchange Notes due 2007........ $600,000,000 8 7/8% Exchange Notes due 2017........ $550,000,000 8 1/2% Exchange Notes due 2027........ $250,000,000
(1) Estimated solely for purposes of calculating the registration fee. (2) Calculated pursuant to Rule 457(f)(2). ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED JULY 3, 1997 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS , 1997 OFFER TO EXCHANGE 8 1/8% EXCHANGE NOTES DUE 2004 FOR ANY AND ALL OUTSTANDING 8 1/8% NOTES DUE 2004 8 3/8% EXCHANGE NOTES DUE 2007 FOR ANY AND ALL OUTSTANDING 8 3/8% NOTES DUE 2007 8 7/8% EXCHANGE NOTES DUE 2017 FOR ANY AND ALL OUTSTANDING 8 7/8% NOTES DUE 2017 8 1/2% EXCHANGE NOTES DUE 2027 FOR ANY AND ALL OUTSTANDING 8 1/2% NOTES DUE 2027 OF COMCAST CABLE COMMUNICATIONS, INC. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED Comcast Cable Communications, Inc. (the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange $1,000 principal amount of 8 1/8% Exchange Notes due 2004 (the "New Seven-Year Notes") for each $1,000 principal amount of the issued and outstanding 8 1/8% Notes due 2004 (the "Old Seven-Year Notes" and, together with the New Seven-Year Notes, the "Seven-Year Notes"); $1,000 principal amount of 8 3/8% Exchange Notes due 2007 (the "New Ten-Year Notes") for each $1,000 principal amount of the issued and outstanding 8 3/8% Notes due 2007 (the "Old Ten-Year Notes" and, together with the New Ten-Year Notes, the "Ten-Year Notes"); $1,000 principal amount of 8 7/8% Exchange Notes due 2017 (the "New Twenty-Year Notes") for each $1,000 principal amount of the issued and outstanding 8 7/8% Notes due 2017 (the "Old Twenty-Year Notes" and, together with the New Twenty-Year Notes, the "Twenty-Year Notes") and $1,000 principal amount of 8 1/2% Exchange Notes due 2027 (the "New Thirty-Year Notes") for each $1,000 principal amount of the issued and outstanding 8 1/2% Notes due 2027 (the "Old Thirty-Year Notes" and, together with the New Thirty-Year Notes, the "Thirty-Year Notes") of the Company. As of the date of this Prospectus, there were outstanding $300,000,000 principal amount of Old Seven-Year Notes, $600,000,000 principal amount of Old Ten-Year Notes, $550,000,000 principal amount of Old Twenty-Year Notes and $250,000,000 principal amount of Old Thirty-Year Notes (collectively, the "Old Notes"). The terms of the New Seven-Year Notes, the New Ten-Year Notes, the New Twenty-Year Notes and the New Thirty-Year Notes (collectively, the "New Notes" and, together with the Old Notes, the "Notes") are identical in all material respects to the Old Notes, except that the offer of the New Notes will have been registered under the Securities Act of 1933, as amended (the "Securities Act") and, therefore, the New Notes will not be subject to certain transfer restrictions, registration rights and related additional interest provisions applicable to the Old Notes. This Prospectus and Letter of Transmittal will be first sent to all Holders of Old Notes on or about , 1997. The New Notes will bear interest from May 1, 1997. Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on the Old Notes accrued from May 1, 1997 to the date of the issuance of the New Notes. Interest on the New Notes is payable semi-annually on May 1 and November 1 of each year, commencing November 1, 1997. The Seven-Year Notes, the Ten-Year Notes and the Twenty-Year Notes will be redeemable, in whole or in part, at the option of the Company at any time and the Thirty-Year Notes will be redeemable, in whole or in part, at the option of the Company at any time after May 1, 2009, in each case at a redemption price equal to the greater of (i) 100% of their principal amount, plus accrued interest thereon to the date of redemption, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined herein), plus accrued interest on the Notes to the date of redemption. If a redemption date does not fall on an interest payment date, then, with respect to the interest payment immediately succeeding the redemption date, only the unaccrued portion of such interest payment as of the redemption date shall be included in any calculation pursuant to clause (ii). See "Description of the Notes--Optional Redemption." Each holder of the Thirty-Year Notes may require the Company to repurchase all or a portion of the Thirty-Year Notes owned by such holder on May 1, 2009 at a purchase price equal to 100% of the principal amount thereof. The New Notes are being offered hereunder in order to satisfy certain obligations of the Company under Registration Rights Agreements, dated May 1, 1997, among the Company and the other signatories thereto (the "Registration Rights Agreements"). Based upon interpretations contained in letters issued to third parties by the staff of the Securities and Exchange Commission (the "Commission"), the Company believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by each holder thereof (other than a broker-dealer, as set forth below, and any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such New Notes. Eligible holders wishing to accept the Exchange Offer must represent to the Company in the Letter of Transmittal that such conditions have been met. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange of Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 90 days after the consummation of the Exchange Offer, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." The Company will not receive any proceeds from the Exchange Offer. The Company will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date (as defined herein). In the event the Company terminates the Exchange Offer and does not accept for exchange any Old Notes, the Company will promptly return tendered Old Notes to the holders thereof. See "The Exchange Offer." Prior to this Exchange Offer, there has been no public market for the Notes. The Company does not currently intend to list the New Notes on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance than an active public market for the New Notes will develop. ------------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AVAILABLE INFORMATION This Prospectus constitutes a part of a registration statement (the "Registration Statement," which term shall encompass any amendments thereto) filed by the Company with the Commission under the Securities Act. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all of the information contained in the Registration Statement and the exhibits and schedules thereto and reference is hereby made to the Registration Statement and the exhibits and schedules thereto for further information with respect to the Company and the securities offered hereby. Statements contained herein concerning the provisions of any documents filed as an exhibit to the Registration Statement or otherwise filed with the Commission are not necessarily complete, and in each instance reference is made to the copy of such document so filed. Each such statement is qualified in its entirety by such reference. The Registration Statement and the exhibits and schedules thereto can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can be obtained from the Public Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates. Such material may also be accessed electronically by means of the Commission's home page on the Internet at http://www.sec.gov. As a result of this Exchange Offer, the Company will become subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will file periodic reports and other information with the Commission. Such reports and other information can be inspected and copied at the addresses, and may be accessed electronically at the Internet address set forth above. The Company has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any of the Notes remain outstanding, it will furnish to the Trustee (as defined herein) and, upon request, to any holder or beneficial owner of Notes annual audited consolidated financial statements and quarterly unaudited consolidated financial statements, each accompanied by "Management's Discussion and Analysis of Financial Condition and Results of Operations." 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, AS USED IN THIS PROSPECTUS, THE "COMPANY" REFERS TO COMCAST CABLE COMMUNICATIONS, INC., A DELAWARE CORPORATION, AND ITS SUBSIDIARIES, AND "COMCAST" REFERS TO COMCAST CORPORATION, A PENNSYLVANIA CORPORATION, AND ITS SUBSIDIARIES, INCLUDING THE COMPANY. IN CONTEMPLATION OF THE OFFERING OF THE OLD NOTES (THE "OFFERING"), CERTAIN ASSETS THAT WERE OWNED BY COMCAST WERE TRANSFERRED TO THE COMPANY, AND CERTAIN ASSETS THAT WERE OWNED BY THE COMPANY WERE TRANSFERRED TO COMCAST (THE "REORGANIZATION"). ALL FINANCIAL INFORMATION CONTAINED HEREIN IS PRESENTED AS IF THE REORGANIZATION HAD OCCURRED ON JANUARY 1, 1992. OPERATING CASH FLOW FOR ANY PERIOD IS DEFINED FOR PURPOSES OF THIS PROSPECTUS AS OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION FOR SUCH PERIOD. OVERVIEW Comcast Cable Communications, Inc. is engaged in the development, management and operation of cable communications systems. The Company is currently the fourth-largest cable television system operator in the United States and, as of March 31, 1997, served 4.3 million customers of the 7.0 million households passed by the Company's systems. The Company is a wholly owned subsidiary of Comcast Corporation. Over 80% of the Company's customers are located in ten regional clusters. By acquiring and developing systems in geographic proximity, the Company has realized significant operating efficiencies through the consolidation of various managerial, administrative and technical functions. Consistent with this approach, the Company is currently consolidating the majority of its local customer service call centers into large regional operations. These regional call centers have technically advanced telephone systems that provide 24-hour per day call answering, telemarketing and other services. These centers will allow the Company to better serve its customer base, as well as to cross-market new products and services to its subscribers. The Company considers technological innovation to be an important component of its service offerings and customer satisfaction. Through the use of fiber optic cable and other technological improvements, the Company has increased system reliability, channel capacity and its ability to deliver advanced video and data services. The majority of the Company's subscribers are currently served by systems that have the capacity to carry in excess of 60 channels. The Company is currently implementing a significant network upgrade of most of its cable systems. The upgraded systems will generally have capacity in excess of 100 channels and will have two-way communication and digital transmission capabilities. The Company derives the majority of its revenues from recurring subscription services and generates additional revenues from non-subscription services such as advertising, pay-per-view, installation and commissions from electronic retailing. Monthly subscription rates and related charges vary according to the type of service selected (such as basic cable, premium cable, sports channels and special interest channels) as well as the type of equipment rented. In addition, in December 1996, the Company began marketing high-speed Internet access services provided via cable modems to customers served by two of its cable systems. The Company expects to expand the marketing of such services in selected cable systems during 1997. On behalf of the Company, Comcast seeks and secures long-term programming contracts that generally provide for payment based on either a monthly fee per subscriber per channel or a percentage of certain subscriber revenues. Comcast charges each of the Company's subsidiaries for programming on a basis which generally approximates the amount each such subsidiary would be charged if it purchased directly from the supplier, subject to limitations imposed by debt facilities for certain subsidiaries, and did not benefit from the purchasing power of the Company's consolidated operations. 3 Programming costs increase in the ordinary course of the Company's business as a result of increases in the number of subscribers, expansion of the number of channels provided to customers and contractual rate increases from programming suppliers. For the three months ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994, total programming costs of the Company were $142.7 million, $101.0 million, $417.0 million, $368.3 million and $264.1 million, respectively. The Company purchases certain other services, including insurance and employee benefits, from Comcast under cost-sharing arrangements on terms that reflect Comcast's actual cost. In addition, Comcast, through management agreements, manages the operations of the Company's subsidiaries, including rebuilds and upgrades. Comcast charged the Company's subsidiaries management fees of $29.0 million and $21.8 million during the three months ended March 31, 1997 and 1996, respectively, and $93.2 million, $83.5 million and $65.9 million during the years ended December 31, 1996, 1995 and 1994, respectively. See "Certain Relationships and Related Transactions." STRATEGIC ACQUISITIONS From time to time the Company acquires cable television systems. The Company's most significant recent acquisitions are as follows: SCRIPPS CABLE In November 1996, Comcast acquired the cable television operations ("Scripps Cable") of The E.W. Scripps Company in exchange for 93.048 million shares of Comcast's Class A Special Common Stock valued at $1.552 billion (the "Scripps Acquisition"). As of the date of the acquisition, Scripps Cable passed more than 1.2 million homes and served more than 800,000 subscribers, with 60% of its subscribers located in Sacramento, California and Chattanooga and Knoxville, Tennessee. Comcast accounted for the Scripps Acquisition under the purchase method. Following the Scripps Acquisition, Comcast contributed Scripps Cable to the Company at Comcast's historical cost. Scripps Cable was consolidated with the Company effective November 1, 1996. MACLEAN HUNTER In December 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 $1.249 billion in cash. As of the date of the acquisition, Maclean Hunter passed more than 1.0 million homes and served more than 540,000 subscribers. The Company and the California Public Employees' Retirement System ("CalPERS") invested $305.6 million and $250.0 million, respectively, in the LLC, which is owned 55% by the Company and 45% by CalPERS. The Maclean Hunter Acquisition was financed with cash contributions from the LLC of $555.6 million and borrowings under a credit facility of an indirect wholly owned subsidiary of the LLC. 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 Comcast's common stock. Except in certain limited circumstances, Comcast, at its option, may satisfy this liquidity arrangement by purchasing CalPERS' interest for cash, by issuing its common stock (subject to certain limitations) or by selling the LLC. The Company accounted for the Maclean Hunter Acquisition under the purchase method and Maclean Hunter was consolidated with the Company effective December 22, 1994. 4 COMCAST Comcast owns 100% of the Company's outstanding capital stock. Comcast is principally engaged in the development, management and operation of wired telecommunications including cable television and telephone services; wireless telecommunications including cellular, personal communications services and direct-to-home satellite television; and content through principal ownership of QVC, Inc., an electronic retailer, through C3 (Comcast Content & Communications Corporation), through majority ownership of Comcast Spectacor, L.P. and a controlling interest in E! Entertainment Television, Inc., and other programming investments. Comcast's consolidated and affiliated operations serve over ten million customers worldwide. Substantially all of Comcast's domestic cable operations are conducted through the Company. In addition to the Company's operations, as of March 31, 1997, Comcast had interests in domestic cable systems serving 228,000 subscribers and passing 331,000 homes, direct broadcast satellite operations serving approximately 136,000 subscribers and an interest in PRIMESTAR Partners L.P., which serves approximately 1.8 million subscribers. Additional information regarding Comcast is contained in reports filed by Comcast with the Commission. THE NOTES ARE OBLIGATIONS ONLY OF THE COMPANY AND ARE NOT GUARANTEED BY AND DO NOT OTHERWISE CONSTITUTE OBLIGATIONS OF COMCAST. The Company is a Delaware corporation formed in 1981 and has its principal executive offices at 1500 Market Street, Philadelphia, Pennsylvania, 19102-2148, (215) 665-1700. 5 THE EXCHANGE OFFER NOTES OFFERED................................ Up to $300,000,000 principal amount of 8 1/8% Exchange Notes due 2004; up to $600,000,000 principal amount of 8 3/8% Exchange Notes due 2007; up to $550,000,000 principal amount of 8 7/8% Exchange Notes due 2017; and up to $250,000,000 principal amount of 8 1/2% Exchange Notes due 2027. The terms of the New Notes and the Old Notes are identical in all material respects, except that the offer of the New Notes will have been registered under the Securities Act and therefore, the New Notes will not be subject to certain transfer restrictions, registration rights and related additional interest provisions applicable to the Old Notes. THE EXCHANGE OFFER........................... The Company is offering, upon the terms and subject to the conditions of the Exchange Offer, to exchange $1,000 principal amount of New Notes for each $1,000 principal amount of Old Notes. See "The Exchange Offer" for a description of the procedures for tendering Old Notes. The Exchange Offer is intended to satisfy obligations of the Company under the Registration Rights Agreements, dated May 1, 1997, between the Company and Goldman, Sachs & Co., Bear, Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette Securities Corporation (collectively, the "Initial Purchasers"). TENDERS, EXPIRATION DATE; WITHDRAWAL................................... The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1997, or such later date and time to which it is extended. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. FEDERAL INCOME TAX CONSEQUENCES................................. The exchange pursuant to the Exchange Offer will not result in any income, gain or loss to the holders or the Company for federal income tax purposes. See "Certain Federal Income Tax Consequences." USE OF PROCEEDS.............................. There will be no proceeds to the Company from the issuance of the New Notes pursuant to the Exchange Offer.
6 EXCHANGE AGENT............................... Bank of Montreal Trust Company is serving as Exchange Agent in connection with the Exchange Offer.
CONSEQUENCE OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER Based upon interpretations contained in letters issued to third parties by the staff of the Commission, the Company believes that, generally, any holder of Old Notes (other than a broker-dealer, as set forth below, and any holder who is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who exchanges its Old Notes for New Notes pursuant to the Exchange Offer may offer such New Notes for resale, resell such New Notes, or otherwise transfer such New Notes without compliance with the registration and prospectus delivery provisions of the Securities Act, provided such New Notes are acquired in the ordinary course of the holder's business and such holder has no arrangement or understanding with any person to participate in a distribution of such New Notes. Eligible holders wishing to accept the Exchange Offer must represent to the Company in the Letter of Transmittal that such conditions have been met and must represent, if such holder is not a broker-dealer, or is a broker-dealer but will not receive New Notes for its own account in exchange for Old Notes, that neither such holder nor the person receiving such New Notes, if other than the holder, is engaged in or intends to participate in the distribution of such New Notes. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes must represent that the Old Notes tendered in exchange therefor were acquired as a result of market-making activities or other trading activities and must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." To comply with the securities laws of certain jurisdictions, it may be necessary to qualify for sale or register the New Notes prior to offering or selling such New Notes. The Company does not currently intend to take any action to register or qualify the New Notes for resale in any such jurisdiction. If a holder of Old Notes does not exchange such Old Notes for New Notes pursuant to the Exchange Offer, such Old Notes will continue to be subject to the restrictions on transfer contained in the legend thereon. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of New Notes could not rely on the position of the staff of the Commission enunciated in Exxon Capital Holdings Corporation (available April 13, 1989) or similar no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Failure to comply with such requirements in such instance may result in such holder incurring liability under the Securities Act for which the holder is not indemnified by the Company. See "The Exchange Offer--Consequences of Failure to Exchange" and "Registration Rights; Additional Interest." 7 SUMMARY DESCRIPTION OF THE NEW NOTES The terms of the New Notes and the Old Notes are identical in all material respects, except that the offer of the New Notes will have been registered under the Securities Act and, therefore, the New Notes will not be subject to certain transfer restrictions, registration rights and related additional interest provisions applicable to the Old Notes. NOTES OFFERED................................ Up to $300,000,000 aggregate principal amount of 8 1/8% Exchange Notes due 2004 (the "New Seven-Year Notes"), up to $600,000,000 aggregate principal amount of 8 3/8% Exchange Notes due 2007 (the "New Ten-Year Notes"), up to $550,000,000 aggregate principal amount of 8 7/8% Exchange Notes due 2017 (the "New Twenty-Year Notes") and up to $250,000,000 aggregate principal amount of 8 1/2% Exchange Notes due 2027 (the "New Thirty Year Notes", and together with the New Seven-Year Notes, the New Ten-Year Notes and the New Twenty-Year Notes, the "New Notes"). MATURITY DATE................................ The New Seven-Year Notes will mature on May 1, 2004, the New Ten-Year Notes will mature on May 1, 2007, the New Twenty-Year Notes will mature on May 1, 2017 and the New Thirty-Year Notes will mature on May 1, 2027. SCHEDULED INTEREST PAYMENT DATES................................ May 1 and November 1, commencing November 1, 1997. The New Notes will bear interest from May 1, 1997. Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on such Old Notes accrued from May 1, 1997 to the date of the issuance of the New Notes. Consequently, holders who exchange their Old Notes for New Notes will receive the same interest payment on November 1, 1997 (the first interest payment date with respect to the Old Notes and the New Notes) that they would have received had they not accepted the Exchange Offer.
8 OPTIONAL REDEMPTION.......................... The New Seven-Year Notes, the New Ten-Year Notes and the New Twenty-Year Notes are redeemable, in whole or in part, at the option of the Company at any time and the New Thirty-Year Notes will be redeemable, in whole or in part, at the option of the Company at any time after May 1, 2009, in each case at a redemption price equal to the greater of (i) 100% of their principal amount, plus accrued interest thereon to the date of redemption, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus accrued interest on the Notes to the date of redemption. If a redemption date does not fall on an interest payment date, then, with respect to the interest payment immediately succeeding the redemption date, only the unaccrued portion of such interest payment as of the redemption date shall be included in any calculation pursuant to clause (ii). PURCHASE AT OPTION OF HOLDERS OF NEW THIRTY-YEAR NOTES............. Each holder of the New Thirty-Year Notes may require the Company to repurchase all or a portion of the New Thirty-Year Notes owned by such holder on May 1, 2009 at a purchase price equal to 100% of the principal amount thereof. RANKING...................................... The New Notes are unsecured and unsubordinated obligations of the Company and will rank PARI PASSU with all other unsecured and unsubordinated indebtedness and other obligations of the Company. The New Notes will be effectively subordinated to all liabilities of the Company's subsidiaries, including trade payables. On a pro forma basis as of March 31, 1997, after giving effect to the Offering, the Intercompany Note Transactions (as defined herein) and the application of the proceeds therefrom, the total indebtedness and other liabilities of the Company's subsidiaries (including trade payables and accrued liabilities) would have been approximately $2.4 billion.
9 COVENANTS.................................... The indenture for the New Notes, among other things, contains restrictions (with certain exceptions) on the ability of the Company and its Restricted Subsidiaries (as defined herein) to: (i) make dividend payments or other restricted payments; (ii) create liens or enter into sale and leaseback transactions; and (iii) enter into mergers, consolidations, or sales of all or substantially all of their assets.
RISK FACTORS Prospective investors should carefully consider the matters set forth under "Risk Factors." 10 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA The following summary consolidated financial and other data (other than operating statistics) as of the dates and for the periods indicated have been derived from the Company's consolidated financial statements and the Company's unaudited pro forma financial information. All consolidated financial and statistical information contained herein is presented as if the Reorganization had occurred on January 1, 1992. The summary consolidated financial and other data is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Company's consolidated financial statements, including the notes thereto, and the unaudited pro forma financial information of the Company appearing elsewhere in this Prospectus.
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------------------------------------- ----------------------------------- 1997 1996 1996 ------------------------ ----------------------- ------------------------ PRO PRO PRO FORMA(1) ACTUAL(2) FORMA(1) ACTUAL(2) FORMA(1) ACTUAL(2) 1995(2) ----------- ----------- ----------- ---------- ----------- ----------- --------- (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Service income....................... $ 501.1 $ 501.1 $ 457.3 $ 382.3 $ 1,893.8 $ 1,641.0 $ 1,454.9 Operating, selling, general and administrative expenses............ 340.0 340.0 304.8 245.0 1,237.0 1,034.4 912.5 Depreciation and amortization........ 138.8 138.8 137.7 95.3 561.7 420.3 376.2 Operating income..................... 22.3 22.3 14.8 42.0 95.1 186.3 166.2 Interest expense and preferred stock dividend requirements.............. 56.7 56.7 56.7 56.7 228.4 228.4 245.6 Loss before extraordinary items and cumulative effect of accounting changes............................ (29.2) (29.2) (29.0) (10.7) (85.7) (22.6) (48.9) Net loss (4)......................... (29.2) (29.2) (29.0) (10.7) (85.7) (22.6) (51.3) SUPPLEMENTARY FINANCIAL DATA: Operating income before depreciation and amortization (5)............... $ 161.1 $ 161.1 $ 152.5 $ 137.3 $ 656.8 $ 606.6 $ 542.4 Capital expenditures................. $ 106.6 $ 106.6 $ 69.0 $ 54.0 $ 352.5 $ 298.2 $ 238.5 Ratio of earnings to fixed charges (6)................................ -- -- -- -- -- -- -- BALANCE SHEET DATA (AT PERIOD END): Property and equipment, net.......... $ 1,592.4 $ 1,592.4 $ 1,035.6 $ 1,035.6 $ 1,545.5 $ 1,545.5 $ 1,025.2 Total assets......................... 6,121.5 6,166.5 4,021.9 4,066.9 6,168.3 6,213.3 4,045.0 Long-term debt, less current portion............................ 3,160.8 3,105.8 3,075.2 3,020.2 3,123.3 3,068.3 3,011.4 Stockholder's equity (deficiency).... 369.4 61.2 (831.9) (1,078.7) 402.4 95.3 (1,065.0) OPERATING STATISTICS (AT PERIOD END): Homes passed (000s) (7).............. 7,009 7,009 6,840 5,593 6,975 6,975 5,570 Subscribers (000s) (8)............... 4,312 4,312 4,220 3,429 4,280 4,280 3,407 Penetration (9)...................... 61.5% 61.5% 61.7% 61.3% 61.4% 61.4% 61.2% 1994(2)(3) 1993(2)(3) 1992(2) ----------- ----------- --------- STATEMENT OF OPERATIONS DATA: Service income....................... $ 1,065.3 $ 1,092.7 $ 714.9 Operating, selling, general and administrative expenses............ 688.6 655.3 475.1 Depreciation and amortization........ 232.7 241.8 156.6 Operating income..................... 144.0 195.6 83.2 Interest expense and preferred stock dividend requirements.............. 155.6 162.2 154.1 Loss before extraordinary items and cumulative effect of accounting changes............................ (23.0) (6.4) (174.0) Net loss (4)......................... (23.0) (391.7) (226.3) SUPPLEMENTARY FINANCIAL DATA: Operating income before depreciation and amortization (5)............... $ 376.7 $ 437.4 $ 239.8 Capital expenditures................. $ 173.4 $ 94.3 $ 67.9 Ratio of earnings to fixed charges (6)................................ -- 1.1 -- BALANCE SHEET DATA (AT PERIOD END): Property and equipment, net.......... $ 945.2 $ 748.7 $ 742.8 Total assets......................... 4,174.9 2,298.9 2,277.7 Long-term debt, less current portion............................ 2,853.1 2,059.8 2,127.2 Stockholder's equity (deficiency).... (958.1) (995.1) (604.3) OPERATING STATISTICS (AT PERIOD END): Homes passed (000s) (7).............. 5,491 4,211 4,154 Subscribers (000s) (8)............... 3,307 2,648 2,583 Penetration (9)...................... 60.2% 62.9% 62.2%
- ------------------------ (1) Unaudited pro forma consolidated statement of operations and supplementary financial data and operating statistics are presented as if the Scripps Acquisition occurred on January 1, 1996. See "Unaudited Pro Forma Financial Information" included elsewhere in this Prospectus. Unaudited pro forma consolidated balance sheet data is presented as if certain transactions completed between April 1, 1997 and May 1, 1997 occurred on each respective balance sheet date. These transactions consist of (i) repayment of $100.0 million of the Company's notes payable to affiliates (the "Notes Payable") with the proceeds from drawdowns under subsidiaries' existing credit facilities ($55.0 million) and existing cash held by an affiliate ($45.0 million), (ii) exchange of affiliate notes payable and notes receivable, and the accrued interest thereon, between the Company, Comcast and certain of their subsidiaries resulting in a reduction in the Company's Notes Payable of $308.2 million, $246.8 million and $307.1 million as of March 31, 1997 and 1996 and December 31, 1996, respectively, with a corresponding reduction in the Company's notes receivable from affiliate (the "Notes Receivable"), and (iii) elimination of the remaining Notes Receivable, and the accrued interest thereon (aggregating $539.7 million, $200.1 million and $522.8 million as of March 31, 1997 and 1996 and December 31, 1996, respectively), through a non-cash dividend to Comcast. Collectively, such transactions are referred to as the "Intercompany Note Transactions." 11 (2) See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of events, principally the Scripps Acquisition in 1996, the Maclean Hunter Acquisition in 1994 and the Split-Off (as defined below) in 1992, which affect the comparability of the information reflected in the above summary consolidated financial and other data. (3) The decrease in service income and operating income before depreciation and amortization from 1993 to 1994 is primarily a result of the effects of rate regulation imposed by the Cable Television Consumer Protection and Competition Act of 1992, effective September 1993, which was offset in part by the effects of subscriber growth and new product offerings. The Telecommunications Act of 1996 provides for rate deregulation of cable programming service fees by March 1999. See "Legislation and Regulation." (4) Net loss for the year ended December 31, 1995 includes an extraordinary item, net of tax, of $2.4 million relating to the refinancing of certain indebtedness of a subsidiary. Net loss for the year ended December 31, 1993 includes the cumulative effect of accounting changes, net of tax, of $385.3 million, primarily relating to the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1993. Net loss for the year ended December 31, 1992 includes an extraordinary item of $52.3 million relating to the Company's equity in net loss from the early extinguishment of debt by Storer Communications, Inc. ("Storer"), an indirect wholly owned subsidiary of the Company, in connection with the split-off of Storer between the Company and Storer's other shareholder in December 1992 (the "Split-Off"). Prior to December 1992, the Company had a 50% interest in Storer which was accounted for under the equity method. (5) Operating income before depreciation and amortization is commonly referred to in the cable communications business as "operating cash flow." Operating cash flow is a measure of a company's ability to generate cash to service its obligations, including debt service obligations, and to finance capital and other expenditures. In part due to the capital intensive nature of the cable communications business and the resulting significant level of non-cash depreciation and amortization expense, operating cash flow is frequently used as one of the bases for comparing businesses in the cable communications 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. (6) For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) before extraordinary items, cumulative effect of accounting changes, income tax expense (benefit), equity in net loss of affiliate (1992 only) and fixed charges. Fixed charges consist of interest expense, interest expense on notes payable to affiliates and preferred stock dividend requirements of a subsidiary to an affiliate (1992 only). For the three months ended March 31, 1997 and 1996, earnings, as defined above, were inadequate to cover fixed charges by $38.5 million and $14.8 million, respectively. On a pro forma basis, for the three months ended March 31, 1996 and for the year ended December 31, 1996, earnings, as defined above, were inadequate to cover fixed charges by $42.0 million and $118.4 million, respectively. For the years ended December 31, 1996, 1995, 1994 and 1992, earnings, as defined above, were inadequate to cover fixed charges by $27.1 million, $73.8 million, $24.8 million and $83.7 million, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." (7) A home is deemed "passed" if it can be connected to the distribution system without further extension of the transmission lines. (8) A dwelling with one or more television sets connected to a system is counted as one subscriber. (9) Penetration is calculated by dividing subscribers by homes passed. Penetration as of December 31, 1994 decreased from December 31, 1993 principally as a result of the Maclean Hunter Acquisition. As of the date of the acquisition, Maclean Hunter had lower penetration levels than those of the Company. 12 RISK FACTORS HOLDERS OF OLD NOTES SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY CONSIDER THE FOLLOWING MATTERS BEFORE ACCEPTING THE EXCHANGE OFFER. THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS. READERS ARE CAUTIONED THAT SUCH FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES WHICH COULD SIGNIFICANTLY AFFECT EXPECTED RESULTS IN THE FUTURE FROM THOSE EXPRESSED IN ANY SUCH FORWARD LOOKING STATEMENTS MADE BY, OR ON BEHALF OF THE COMPANY. CERTAIN FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE, WITHOUT LIMITATION, THE EFFECTS OF LEGISLATIVE AND REGULATORY CHANGES; THE POTENTIAL FOR INCREASED COMPETITION; TECHNOLOGICAL CHANGES; THE NEED TO GENERATE SUBSTANTIAL GROWTH IN THE SUBSCRIBER BASE BY SUCCESSFULLY LAUNCHING, MARKETING AND PROVIDING SERVICES IN IDENTIFIED MARKETS; PRICING PRESSURES WHICH COULD AFFECT DEMAND FOR THE COMPANY'S SERVICES; THE COMPANY'S ABILITY TO EXPAND ITS DISTRIBUTION; CHANGES IN LABOR, PROGRAMMING, EQUIPMENT AND CAPITAL COSTS; THE COMPANY'S CONTINUED ABILITY TO CREATE OR ACQUIRE PROGRAMMING THAT CUSTOMERS WILL FIND ATTRACTIVE; FUTURE ACQUISITIONS, STRATEGIC PARTNERSHIPS AND DIVESTITURES; GENERAL BUSINESS AND ECONOMIC CONDITIONS; AND CERTAIN OTHER RISKS. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon, and, except in certain limited circumstances, will no longer have any registration rights with respect to the Old Notes. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not intend to register the Old Notes under the Securities Act. The Company believes that, based upon interpretations contained in letters issued to third parties by the staff of the Commission, New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by each holder thereof (other than a broker-dealer, as set forth below, and any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such New Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such New Notes. Eligible holders wishing to accept the Exchange Offer must represent to the Company in the Letter of Transmittal that such conditions have been met and must represent, if such holder is not a broker-dealer, or is a broker-dealer but will not receive New Notes for its own account in exchange for Old Notes, that neither such holder nor the person receiving such New Notes, if other than the holder, is engaged in or intends to participate in the distribution of such New Notes. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must represent that the Old Notes tendered in exchange therefor were acquired as a result of market-making activities or other trading activities and must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with the resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 90 days after the consummation of the Exchange Offer they will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." However, to comply with the securities laws of certain jurisdictions, if applicable, the New Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. The Company does not currently intend to take any action to register or qualify the New Notes for resale in any such jurisdictions. In addition, the tender of Old Notes pursuant to the Exchange Offer will reduce the principal amount of 13 the Old Notes outstanding, which may have an adverse effect upon, and increase the volatility of, the market price of the Old Notes due to a reduction in liquidity. FACTORS AFFECTING FUTURE OPERATIONS The cable communications industry may be affected by, among other things: (i) changes in government law and regulation; (ii) changes in the competitive environment; (iii) changes in technology; (iv) franchise related matters; (v) market conditions that may adversely affect the availability of debt and equity financing; and (vi) general economic conditions. The cable communications industry is subject to extensive regulation on the federal, state and local levels. No assurance can be given as to what future actions Congress, the Federal Communications Commission ("FCC") or other regulatory authorities may take or the effects thereof on the cable communications industry in general or on the Company in particular. See "Legislation and Regulation." Cable communications companies operate under franchises granted by local authorities that are subject to renewal and renegotiation from time to time. No assurance can be given as to future franchise renewals. See "Legislation and Regulation." HOLDING COMPANY STRUCTURE; DEPENDENCE ON PAYMENTS FROM SUBSIDIARIES; EFFECTIVE SUBORDINATION The Company is a holding company and conducts all of its operations through subsidiaries. Consequently, the ability of the Company to pay its obligations, including its obligation to pay interest on and principal of the Notes, whether at the maturity thereof or upon an earlier redemption or purchase at the option of the Company or the holders of the Thirty-Year Notes, will be dependent upon the repayment to the Company of investments and advances made by the Company and upon the earnings of its subsidiaries and the distribution of those earnings to the Company. The subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes or to make funds available therefor. The ability of the subsidiaries to pay dividends or make other payments or advances to the Company will depend upon their operating results and will be subject to applicable laws and contractual restrictions, including, but not limited to, payments due to Comcast pursuant to certain management agreements (including programming arrangements) and other arrangements. See "Certain Relationships and Related Transactions." Certain of the Company's subsidiaries' loan agreements require that certain ratios be maintained and contain certain restrictions on dividend payments, payment of management fees and advances of funds to affiliated entities. The Indenture (as defined herein) will not limit the ability of subsidiaries of the Company to enter into agreements that prohibit or restrict dividends or other payments or advances to the Company. The Notes will be effectively subordinated to all liabilities of the Company's subsidiaries, including trade payables and the liquidation value of preferred stock of the Company's subsidiaries, if any, except to the extent that the Company is itself recognized as a creditor of any such subsidiary, in which case the Company would still be subordinated to any security interest in the asset of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. On a pro forma basis as of March 31, 1997, after giving effect to the Offering, the Intercompany Note Transactions (as defined herein) and the application of the proceeds therefrom, the total indebtedness and other liabilities of the Company's subsidiaries (including trade payables and accrued liabilities) would have been approximately $2.4 billion. RECENT AND ANTICIPATED LOSSES In recent years, the Company has experienced significant growth through both strategic acquisitions and growth in its existing businesses. The effects of the acquisitions have been to increase significantly the Company's revenues and expenses, resulting in substantial increases in operating income before depreciation and amortization, depreciation and amortization expense and net interest expense. As a result of the increases in depreciation and amortization expense and interest expense 14 associated with these acquisitions and their financing, it is expected that the Company will recognize significant losses for the foreseeable future. The Company's losses before extraordinary items for the three months ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994 were $29.2 million, $10.7 million, $22.6 million, $48.9 million and $23.0 million, respectively. On a pro forma basis as if the Scripps Acquisition (as defined herein) had occurred on January 1, 1996, the Company's loss for the three months ended March 31, 1996 and for the year ended December 31, 1996 was $29.0 million and $85.7 million, respectively. Failure to become profitable in the future could adversely affect the Company's ability to sustain operations and obtain additional required funds. Moreover, such a failure would adversely affect the Company's ability to pay the required payments on the Notes and the Company's other indebtedness. See "--Substantial Leverage." 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 online computer services and home video products, including videotape cassette recorders. The extent to which a cable communications system is competitive depends, in part, upon the cable system's ability to provide, at a reasonable price to consumers, a greater variety of programming and other communications services than are available off-air or through other alternative delivery sources and upon superior technical performance and customer service. The Telecommunication Act of 1996 (the "1996 Telecom Act") makes it easier for local exchange telephone companies ("LECs") and others to provide a wide variety of video services competitive with services provided by cable systems and to provide cable services directly to subscribers. Various LECs currently are providing video services within and outside their telephone service areas through a variety of distribution methods, including both the deployment of broadband wire facilities and the use of wireless transmission facilities. The Company cannot predict the likelihood of success of video service ventures by LECs or the impact on the Company of such competitive ventures. Cable communications systems generally operate pursuant to franchises granted on a non-exclusive basis. In addition, the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") prohibits franchising authorities from unreasonably denying requests for additional franchises and permits franchising authorities to operate cable systems. Well-financed businesses from outside the cable industry (such as the public utilities that own certain of the poles on which cable is attached) may become competitors for franchises or providers of competing services. The availability of reasonably-priced home satellite dish earth stations ("HSDs") 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 cable competitors to purchase and make available to HSD owners certain satellite-delivered cable programming at competitive costs. Cable operators face additional competition from private satellite master antenna television ("SMATV") systems that serve condominiums, apartment and office complexes and private residential developments. The FCC and Congress have 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, direct broadcast satellite ("DBS") service whereby signals are transmitted by satellite to receiving facilities located on customer premises. DirecTv, Inc., which includes AT&T Corp. ("AT&T") as an investor, began offering nationwide high-power DBS service in 1994 accompanied by extensive marketing efforts. PRIMESTAR Partners L.P. ("Primestar"), a consortium comprised of cable operators including Comcast and a satellite company, currently provides digital satellite service including broadcast signals and pay-per-view service. The Primestar partners recently announced an agreement to consolidate their DBS assets into a new publicly traded company. Primestar's services may compete with the services offered by the Company. Several other major 15 companies, including EchoStar Communications Corporation ("EchoStar") and American Sky Broadcasting ("ASkyB"), a joint venture between MCI Telecommunications Corporation ("MCI") and The News Corporation Limited ("News Corp."), have begun offering or are currently developing high-power DBS service. EchoStar has already commenced its domestic DBS service and offers approximately 120 channels of video programming. Recently announced plans for News Corp. to purchase an interest in EchoStar are currently the subject of litigation between News Corp. and EchoStar. Primestar, News Corp., MCI and ASkyB recently announced several agreements in which News Corp., MCI and ASkyB will sell to Primestar two satellites under construction and MCI will assign to Primestar an FCC DBS license. The satellites to be sold to Primestar, when operational, are expected to be capable of providing approximately 200 channels of DBS service in the US. DBS providers provide significant competition to cable service providers, including the Company. See "Business--Competition." 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. Several Regional Bell Operating Companies have acquired significant interests in major MMDS companies operating in certain of the Company's cable service areas. The Company is unable to predict whether wireless video services will have a material impact on its operations. Other new technologies, including Internet-based services, may become competitive with services that cable communications systems can offer. 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 communications industry or on the operations of the Company. SUBSTANTIAL LEVERAGE The Company has been and will continue to be highly leveraged. On a pro forma basis as of March 31, 1997, after giving effect to the Intercompany Note Transactions, the offering of the Old Notes (the "Offering") and the application of the net proceeds therefrom and the redemption of the Company's 10% Debentures (as defined herein), due 2003 the Company would have had consolidated indebtedness of $3.234 billion and stockholder's equity of $352.1 million. See "Capitalization." For the three months ended March 31, 1997, and, on a pro forma basis for the year ended December 31, 1996, after giving effect to the Scripps Acquisition, the Offering, the Intercompany Note Transactions and the application of the net proceeds therefrom as if they occurred on January 1, 1996, the Company's earnings (as defined herein) would have been insufficient to cover fixed charges by $38.5 million and $118.4 million, respectively. The Indenture does not restrict the ability of the Company or any of its subsidiaries to incur additional indebtedness. The degree to which the Company is leveraged could have important consequences to holders of the Notes, including (i) the ability of the Company to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements or other purposes may be limited; (ii) a substantial portion of the Company's cash flows from operations must be dedicated to the payment of the principal of and interest on its indebtedness and will not be available for other purposes; (iii) the Company's level of indebtedness could limit its flexibility in planning for, or reacting to, changes in its business; (iv) the Company is more highly leveraged than some of its competitors, which may place it at a competitive disadvantage; and (v) the Company's high degree of indebtedness will make it more vulnerable in the event of a downturn in its business. ABSENCE OF PUBLIC MARKET The New Notes are a new issue of securities for which there is currently no trading market. The Company does not intend to apply for listing of the New Notes on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation System. There can be no assurance that an active trading market for the New Notes will develop. If a trading market develops for the New Notes, future trading prices of such securities will depend on many factors, including prevailing interest rates, the Company's results of operations and financial condition and the market for similar securities. 16 CAPITALIZATION The following table sets forth the unaudited pro forma and as adjusted consolidated capitalization of the Company as of March 31, 1997. This table should be read in conjunction with the Company's consolidated financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
MARCH 31, 1997 ------------------------ PRO AS FORMA(1) ADJUSTED ----------- ----------- (DOLLARS IN MILLIONS) Cash, cash equivalents, short-term investments and cash held by an affiliate........................................... $ 69.3 $ 74.0(2) ----------- ----------- ----------- ----------- Current portion of long-term debt..................................... $ 35.0 $ 35.0 ----------- ----------- Long-term debt, less current portion: Notes offered hereby................................................ 1,690.8(3) Notes payable to banks and insurance companies...................... 3,032.8 932.7(3) 10% subordinated debentures, due 2003............................... 127.1 (3) Other............................................................... 0.9 0.9 ----------- ----------- 3,160.8 2,624.4 ----------- ----------- Notes payable to affiliate............................................ 574.3(3) ----------- ----------- Total debt...................................................... 3,195.8 3,233.7 ----------- ----------- Stockholder's equity: Common stock, $1 par value--authorized and issued, 1,000 shares..... Additional capital.................................................. 3,062.3 3,062.3 Accumulated deficit................................................. (2,692.9) (2,710.2)(4) ----------- ----------- Total stockholder's equity...................................... 369.4 352.1 ----------- ----------- Total capitalization.......................................... $ 3,565.2 $ 3,585.8 ----------- ----------- ----------- -----------
- ------------------------ (1) Unaudited pro forma consolidated capitalization of the Company represents actual capitalization adjusted for the pro forma effects of the Intercompany Note Transactions. (2) Increase in cash assumes $9.5 million of remaining net proceeds from the Offering after repayment of certain notes payable to banks and insurance companies, offset by $4.8 million in expenses, excluding Initial Purchasers' discounts and commissions, related to the Offering and the Exchange Offer. (3) As adjusted information gives effect to (i) the Offering and the application of the $1.675 billion of net proceeds therefrom and (ii) the redemption of the Company's 10% Debentures and the repayment of certain notes payable to banks with the proceeds from the issuance of notes payable to a subsidiary of Comcast. The terms of the notes payable issued to a subsidiary of Comcast are substantially the same as those of the 10% Debentures and the notes payable to banks referred to above. See "Description of Certain Indebtedness." (4) As adjusted information gives effect to an extraordinary loss, net of tax, of approximately $17.3 million to be recorded during the second quarter of 1997 in connection with the repayment of long-term debt with the proceeds from the Offering and the redemption of the Company's 10% Debentures. 17 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA The following selected consolidated financial and other data (other than operating statistics) as of the dates and for the periods indicated have been derived from the Company's consolidated financial statements and the Company's unaudited pro forma financial information. All consolidated financial and statistical information contained herein is presented as if the Reorganization (as defined herein) had occurred on January 1, 1992. The selected consolidated financial and other data is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Company's consolidated financial statements, including the notes thereto, and the unaudited pro forma financial information of the Company appearing elsewhere in this Prospectus.
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, ------------------------------------------------ ------------------------------------------------ 1997 1996 1996 ------------------------ ---------------------- ------------------------ PRO PRO PRO FORMA(1) ACTUAL(2) FORMA(1) ACTUAL(2) FORMA(1) ACTUAL(2) 1995(2) 1994(2)(3) ----------- ----------- ----------- --------- ----------- ----------- --------- ----------- (DOLLARS IN MILLIONS) STATEMENT OF OPERATIONS DATA: Service income............ $ 501.1 $ 501.1 $ 457.3 $ 382.3 $ 1,893.8 $ 1,641.0 $ 1,454.9 $ 1,065.3 Operating, selling, general and administrative expenses................ 340.0 340.0 304.8 245.0 1,237.0 1,034.4 912.5 688.6 Depreciation and amortization............ 138.8 138.8 137.7 95.3 561.7 420.3 376.2 232.7 Operating income.......... 22.3 22.3 14.8 42.0 95.1 186.3 166.2 144.0 Interest expense and preferred stock dividend requirements............ 56.7 56.7 56.7 56.7 228.4 228.4 245.6 155.6 Loss before extraordinary items and cumulative effect of accounting changes................. (29.2) (29.2) (29.0) (10.7) (85.7) (22.6) (48.9) (23.0) Net loss (4).............. (29.2) (29.2) (29.0) (10.7) (85.7) (22.6) (51.3) (23.0) SUPPLEMENTARY FINANCIAL DATA: Operating income before depreciation and amortization (5)........ $ 161.1 $ 161.1 $ 152.5 $ 137.3 $ 656.8 $ 606.6 $ 542.4 $ 376.7 Capital expenditures...... $ 106.6 $ 106.6 $ 69.0 $ 54.0 $ 352.5 $ 298.2 $ 238.5 $ 173.4 Ratio of earnings to fixed charges (6)............. -- -- -- -- -- -- -- -- BALANCE SHEET DATA (AT PERIOD END): Property and equipment, net..................... $ 1,592.4 $ 1,592.4 $ 1,035.6 $ 1,035.6 $ 1,545.5 $ 1,545.5 $ 1,025.2 $ 945.2 Total assets.............. 6,121.5 6,166.5 4,021.9 4,066.9 6,168.3 6,213.3 4,045.0 4,174.9 Long-term debt, less current portion......... 3,160.8 3,105.8 3,075.2 3,020.2 3,123.3 3,068.3 3,011.4 2,853.1 Stockholder's equity (deficiency)............ 369.4 61.2 (831.9) (1,078.7) 402.4 95.3 (1,065.0) (958.1) OPERATING STATISTICS (AT PERIOD END): Homes passed (000s) (7)... 7,009 7,009 6,840 5,593 6,975 6,975 5,570 5,491 Subscribers (000s) (8).... 4,312 4,312 4,220 3,429 4,280 4,280 3,407 3,307 Penetration (9)........... 61.5% 61.5% 61.7% 61.3% 61.4% 61.4% 61.2% 60.2% 1993(2)(3) 1992(2) ----------- --------- STATEMENT OF OPERATIONS DATA: Service income............ $ 1,092.7 $ 714.9 Operating, selling, general and administrative expenses................ 655.3 475.1 Depreciation and amortization............ 241.8 156.6 Operating income.......... 195.6 83.2 Interest expense and preferred stock dividend requirements............ 162.2 154.1 Loss before extraordinary items and cumulative effect of accounting changes................. (6.4) (174.0) Net loss (4).............. (391.7) (226.3) SUPPLEMENTARY FINANCIAL DATA: Operating income before depreciation and amortization (5)........ $ 437.4 $ 239.8 Capital expenditures...... $ 94.3 $ 67.9 Ratio of earnings to fixed charges (6)............. 1.1 -- BALANCE SHEET DATA (AT PERIOD END): Property and equipment, net..................... $ 748.7 $ 742.8 Total assets.............. 2,298.9 2,277.7 Long-term debt, less current portion......... 2,059.8 2,127.2 Stockholder's equity (deficiency)............ (995.1) (604.3) OPERATING STATISTICS (AT PERIOD END): Homes passed (000s) (7)... 4,211 4,154 Subscribers (000s) (8).... 2,648 2,583 Penetration (9)........... 62.9% 62.2%
- ------------------------ (1) Unaudited pro forma consolidated statement of operations and supplementary financial data and operating statistics are presented as if the Scripps Acquisition occurred on January 1, 1996. See "Unaudited Pro Forma Financial Information" included elsewhere in this Prospectus. Unaudited pro forma consolidated balance sheet data is presented as if certain transactions completed between April 1, 1997 and May 1, 1997 occurred on each respective balance sheet date. These transactions consist of (i) repayment of $100.0 million of the Company's notes payable to affiliates (the "Notes Payable") with the proceeds from drawdowns under subsidiaries' existing credit facilities ($55.0 million) and existing cash held by an affiliate ($45.0 million), (ii) exchange of affiliate notes payable and notes receivable, and the accrued interest thereon, between the Company, Comcast and certain of their subsidiaries resulting in a reduction in the Company's Notes Payable of $308.2 million, $246.8 million and $307.1 million as of March 31, 1997 and 1996 and December 31, 1996, 18 respectively, with a corresponding reduction in the Company's notes receivable from affiliate (the "Notes Receivable"), and (iii) elimination of the remaining Notes Receivable, and the accrued interest thereon (aggregating $539.7 million, $200.1 million and $522.8 million as of March 31, 1997 and 1996 and December 31, 1996, respectively), through a non-cash dividend to Comcast. Collectively, such transactions are referred to as the "Intercompany Note Transactions." (2) See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of events, principally the Scripps Acquisition in 1996, the Maclean Hunter Acquisition (as defined herein) in 1994 and the Split-Off (as defined below) in 1992, which affect the comparability of the information reflected in the above selected consolidated financial and other data. (3) The decrease in service income and operating income before depreciation and amortization from 1993 to 1994 is primarily a result of the effects of rate regulation imposed by the 1992 Cable Act, effective September 1993, which was offset in part by the effects of subscriber growth and new product offerings. The 1996 Telecom Act provides for rate deregulation of cable programming service fees by March 1999. See "Legislation and Regulation." (4) Net loss for the year ended December 31, 1995 includes an extraordinary item, net of tax, of $2.4 million relating to the refinancing of certain indebtedness of a subsidiary. Net loss for the year ended December 31, 1993 includes the cumulative effect of accounting changes, net of tax, of $385.3 million, primarily relating to the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1993. Net loss for the year ended December 31, 1992 includes an extraordinary item of $52.3 million relating to the Company's equity in net loss from the early extinguishment of debt by Storer Communications, Inc. ("Storer"), an indirect wholly owned subsidiary of the Company, in connection with the split-off of Storer between the Company and Storer's other shareholder in December 1992 (the "Split-Off"). Prior to December 1992, the Company had a 50% interest in Storer which was accounted for under the equity method. (5) Operating income before depreciation and amortization is commonly referred to in the cable communications business as "operating cash flow." Operating cash flow is a measure of a company's ability to generate cash to service its obligations, including debt service obligations, and to finance capital and other expenditures. In part due to the capital intensive nature of the cable communications business and the resulting significant level of non-cash depreciation and amortization expense, operating cash flow is frequently used as one of the bases for comparing businesses in the cable communications 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. (6) For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) before extraordinary items, cumulative effect of accounting changes, income tax expense (benefit), equity in net loss of affiliate (1992 only) and fixed charges. Fixed charges consist of interest expense, interest expense on notes payable to affiliates and preferred stock dividend requirements of a subsidiary to an affiliate (1992 only). For the three months ended March 31, 1997 and 1996, earnings, as defined above, were inadequate to cover fixed charges by $38.5 million and $14.8 million, respectively. On a pro forma basis, for the three months ended March 31, 1996 and for the year ended December 31, 1996, earnings, as defined above, were inadequate to cover fixed charges by $42.0 million and $118.4 million, respectively. For the years ended December 31, 1996, 1995, 1994 and 1992, earnings, as defined above, were inadequate to cover fixed charges by $27.1 million, $73.8 million, $24.8 million and $83.7 million, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." (7) A home is deemed "passed" if it can be connected to the distribution system without further extension of the transmission lines. (8) A dwelling with one or more television sets connected to a system is counted as one subscriber. (9) Penetration is calculated by dividing subscribers by homes passed. Penetration as of December 31, 1994 decreased from December 31, 1993 principally as a result of the Maclean Hunter Acquisition. As of the date of the acquisition, Maclean Hunter had lower penetration levels than those of the Company. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis of the financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements, including the notes thereto, included elsewhere in this Prospectus. All financial information contained herein is presented as if the Reorganization had occurred on January 1, 1992. OVERVIEW Comcast Cable Communications, Inc. and subsidiaries (the "Company"), a wholly owned subsidiary of Comcast Corporation ("Comcast"), is a holding company and conducts all of its operations through subsidiaries. The Company has experienced significant growth in recent years through both strategic acquisitions and growth in its existing business. 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, cash equivalents, short-term investments and cash held by an affiliate. GENERAL DEVELOPMENTS OF BUSINESS DEBT OFFERING On May 1, 1997, the Company completed the sale of $1.7 billion of notes (the "Old Notes") through a 144A offering with registration rights. The Old Notes were issued in four tranches: $300.0 million of 8 1/8% Notes due 2004 (the "Old Seven-Year Notes"), $600.0 million of 8 3/8% Notes due 2007 (the "Old Ten-Year Notes"), $550.0 million of 8 7/8% Notes due 2017 (the "Old Twenty-Year Notes") and $250.0 million of 8 1/2% Notes due 2027 (the "Old Thirty-Year Notes"). The Company used substantially all of the net proceeds from the offering to repay certain of its subsidiaries' notes payable to banks with the balance to be used for subsidiary general purposes. Interest on the Old Notes is payable semiannually on May 1 and November 1 of each year, commencing November 1, 1997. The Old Seven-Year Notes, the Old Ten-Year Notes and the Old Twenty-Year Notes are redeemable, in whole or in part, at the option of the Company at any time and the Old Thirty-Year Notes are redeemable, in whole or in part, at the option of the Company at any time after May 1, 2009, in each case at a redemption price equal to the greater of (i) 100% of their principal amount, plus accrued interest thereon to the date of redemption, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus accrued interest on the Old Notes to the date of redemption. Each holder of the Old Thirty-Year Notes may require the Company to repurchase all or a portion of the Old Thirty-Year Notes owned by such holder on May 1, 2009 at a purchase price equal to 100% of the principal amount thereof. The Old Notes are unsecured and unsubordinated obligations of the Company and rank PARI PASSU with all other unsecured and unsubordinated indebtedness and other obligations of the Company. The Old Notes are effectively subordinated to all liabilities of the Company's subsidiaries, including trade payables. The Old Notes are obligations only of the Company and are not guaranteed by and do not otherwise constitute obligations of Comcast. The indenture for the Old Notes, among other things, contains restrictions (with certain exceptions) on the ability of the Company and its Restricted Subsidiaries (as defined herein) to: (i) make dividend payments or other restricted payments; (ii) create liens or enter into sale and leaseback transactions; and (iii) enter into mergers, consolidations, or sales of all or substantially all of their assets. 20 SCRIPPS CABLE In November 1996, Comcast acquired the cable television operations ("Scripps Cable") of The E.W. Scripps Company in exchange for 93.048 million shares of Comcast's Class A Special Common Stock valued at $1.552 billion (the "Scripps Acquisition"). As of the date of the acquisition, Scripps Cable passed more than 1.2 million homes and served more than 800,000 subscribers, with 60% of its subscribers located in Sacramento, California and Chattanooga and Knoxville, Tennessee. Comcast accounted for the Scripps Acquisition under the purchase method. Following the Scripps Acquisition, Comcast contributed Scripps Cable to the Company (the "Scripps Contribution") at Comcast's historical cost. The Scripps Contribution was recorded as an increase in additional capital and Scripps Cable was consolidated with the Company effective November 1, 1996. MACLEAN HUNTER In December 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 $1.249 billion in cash. As of the date of the acquisition, Maclean Hunter passed more than 1.0 million homes and served more than 540,000 subscribers. The Company and the California Public Employees' Retirement System ("CalPERS") invested $305.6 million and $250.0 million, respectively, in the LLC, which is owned 55% by the Company and 45% by CalPERS. The Maclean Hunter Acquisition was financed with cash contributions from the LLC of $555.6 million and borrowings under a credit facility of an indirect wholly owned subsidiary of the LLC. The Company accounted for the Maclean Hunter Acquisition under the purchase method and Maclean Hunter was consolidated with the Company effective December 22, 1994. GROSSE POINTE CABLE, INC. In October 1994, the Company acquired the remaining 75% of issued and outstanding stock of Grosse Pointe Cable, Inc. ("Grosse Pointe") for $23.4 million, consisting of $21.1 million in cash and a $2.3 million promissory note due in October 1997. As of the date of the acquisition, Grosse Pointe passed more than 25,000 homes and served more than 16,000 subscribers. The Company accounted for the acquisition under the purchase method and Grosse Pointe was consolidated with the Company effective November 1, 1994. COMCAST CABLEVISION OF PHILADELPHIA, INC. In March 1994, a wholly owned subsidiary of Comcast, which held 92% of the issued and outstanding common stock of Comcast Cablevision of Philadelphia, Inc. ("Phila., Inc.") and which was subsequently contributed to a wholly owned subsidiary of the Company, completed certain transactions pursuant to which the then outstanding shares of Phila., Inc. were purchased for approximately $12.9 million in cash. The purchase price, including certain transaction costs, was primarily funded through a capital contribution from Comcast. LIQUIDITY AND CAPITAL RESOURCES The Company believes that it will be able to meet its current and long-term liquidity and capital requirements, including fixed charges, through its cash flows from operating activities, existing cash, cash equivalents, short-term investments, cash held by an affiliate and lines of credit and other external financing. As a result of the Scripps Contribution, the Company no longer has a stockholder's deficiency. However, the Company expects to continue to recognize significant losses for the foreseeable future, resulting in decreases in stockholder's equity. The cable communications industry is experiencing increasing competition and rapid technological changes. The Company's future results of operations 21 will be affected by its ability to react to changes in the competitive environment and by its ability to implement new technologies. However, the Company believes that competition, technological changes and its significant losses will not significantly affect its ability to obtain financing. CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND CASH HELD BY AN AFFILIATE Cash, cash equivalents, short-term investments and cash held by an affiliate as of March 31, 1997 and December 31, 1996 and 1995 were $114.3 million, $113.4 million and $39.2 million, respectively. As of March 31, 1997 substantially all of the Company's cash, cash equivalents, short-term investments and cash held by an affiliate was restricted to use by subsidiaries of the Company under contractual arrangements, including subsidiary credit agreements. The Company's cash equivalents and short-term investments are recorded at cost which approximates their fair value. As of December 31, 1996, short-term investments of $21.5 million included the Company's investment in Time Warner, Inc. ("Time Warner") common stock (the "Time Warner Stock") recorded at fair value of $20.7 million. See "--Investments." In 1995, the Company entered into a custodial account arrangement with Comcast Financial Agency Corporation ("CFAC"), a wholly owned subsidiary of Comcast, under which CFAC provides cash management services to the Company. Under this arrangement, the Company's cash receipts are deposited with and held by CFAC, as custodian and agent, which invests and disburses such funds at the direction of the Company. As of March 31, 1997 and December 31, 1996 and 1995, $66.5 million, $53.5 million and $26.9 million, respectively, of the Company's cash was held by CFAC. These amounts have been classified as cash held by an affiliate in the Company's consolidated balance sheet. INVESTMENTS In October 1996, the Company received 552,014 shares of Time Warner Stock in exchange (the "Exchange") for all of the shares of Turner Broadcasting System, Inc. ("TBS") stock (the "TBS Stock") held by the Company, as a result of the merger of Time Warner and TBS. As a result of the Exchange, the Company recognized a pre-tax gain of $19.8 million in 1996, representing the difference between the Company's historical cost basis in the TBS Stock and the new basis for the Company's investment in Time Warner Stock of $22.8 million, which was based on the closing price of the Time Warner Stock on the merger date of $41.375 per share. In January 1997, the Company sold its entire interest in Time Warner for $21.2 million. In connection with this sale, the Company recognized a pre-tax loss of $1.6 million, which is included in net investment income in the Company's condensed consolidated statement of operations for the three months ended March 31, 1997. INVESTMENT RIGHTS As a result of the Maclean Hunter Acquisition, 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 Comcast's common stock. Except in certain limited circumstances, Comcast, at its option, may satisfy this liquidity arrangement by purchasing CalPERS' interest for cash, by issuing its common stock (subject to certain limitations) or by selling the LLC. In addition, although the Company manages Maclean Hunter, certain limited transactions require the approval of CalPERS. CAPITAL EXPENDITURES It is anticipated that, during 1997, the Company will invest approximately $600 million in capital expenditures, the majority of which will be for the upgrading and rebuilding of certain of its cable communications systems. The amount of such capital expenditures for years subsequent to 1997 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 cable system upgrade, whether a particular cable system has sufficient capacity to handle new product offerings including the offering of cable 22 modem, cable telephony and telecommunications services, whether and to what extent the Company will be able to recover its investment under Federal Communications Commission ("FCC") rate guidelines and other factors, and whether the Company acquires additional cable systems in need of upgrading or rebuilding. The Company, however, anticipates capital expenditures for years subsequent to 1997 will continue to be significant. As of March 31, 1997, the Company does not have any significant contractual obligations for capital expenditures. FINANCING Other than the Scripps Acquisition, the Company has historically utilized a strategy of financing its acquisitions and other investing activities through senior debt at the operating subsidiary level. The Company has repaid or anticipates repaying a significant portion of its debt outstanding as of March 31, 1997 with the proceeds from the issuance of the Old Notes. The following information depicts the impact that these transactions would have had on certain aspects of the Company's outstanding long-term debt assuming that, as of March 31, 1997, the Old Notes had been issued and the Company had made these repayments (dollars in millions):
MARCH 31, 1997 ------------------------------ ACTUAL "AS ADJUSTED" (1) ---------- ------------------ Contractual Maturities of Long-Term Debt: 1997 (2)....................................................................... $ 32.0 $ 32.0 1998........................................................................... 148.3 50.8 1999........................................................................... 370.8 111.6 2000........................................................................... 497.2 124.1 2001........................................................................... 962.2 271.6 Unused Lines of Credit........................................................... 785.0 915.0 Weighted Average Interest Rate................................................... 7.18% 7.93%
- ------------------------ (1) There can be no assurances that certain of the transactions contemplated by the "as adjusted" presentation will occur in the manner assumed herein or occur at all. The impact of the transactions which ultimately occur may yield results which differ from those presented above. (2) Represents maturities of long-term debt for the remaining nine months of 1997. The availability and use of the unused lines of credit is restricted by the covenants of the related debt agreements and to subsidiary general purposes and dividend declaration. The Company continually evaluates its debt structure with the intention of reducing its debt service requirements when desirable. 23 As of March 31, 1997 and December 31, 1996 and 1995, the Company's long-term debt, including current portion, was $3.141 billion, $3.184 billion and $3.046 billion, respectively, of which 68.6%, 70.8% and 76.8%, respectively, was at variable rates. Current portion of long-term debt as of December 31, 1996, includes $80.0 million relating to optional debt repayments made during the three months ended March 31, 1997. As of March 31, 1997, the Company and certain of its subsidiaries had unused irrevocable standby letters of credit totaling $106.3 million, substantially all of which cover potential fundings relating to companies in which Comcast, but not the Company, holds an equity interest. The Company's long-term debt had estimated fair values of $3.215 billion and $3.066 billion as of December 31, 1996 and 1995, respectively. The Company's weighted average interest rate was 7.18% and 7.48% during the three months ended March 31, 1997 and 1996, respectively, and 7.36%, 8.08% and 6.82% during the years ended December 31, 1996, 1995 and 1994, respectively. Between April 1, 1997 and May 1, 1997, the Company (i) repaid $100.0 million of the its notes payable to affiliates (the "Notes Payable") with the proceeds from drawdowns under subsidiaries' existing credit facilities ($55.0 million) and existing cash held by an affiliate ($45.0 million), (ii) completed the exchange of affiliate notes payable and notes receivable, and the accrued interest thereon, between the Company, Comcast and certain of their subsidiaries resulting in a reduction in the Company's Notes Payable of $307.6 million as of May 1, 1997, with a corresponding reduction in the Company's notes receivable from affiliate (the "Notes Receivable"), and (iii) eliminated the remaining Notes Receivable, and the accrued interest thereon (aggregating $546.3 million as of May 1, 1997), through a non-cash dividend to Comcast. Collectively, such transactions are referred to as the "Intercompany Note Transactions." On June 30, 1997, the Company redeemed all of its outstanding 10% Subordinated Debentures, due 2003 (the "10% Debentures"). An aggregate principal amount of $139.3 million of the 10% Debentures were redeemed at a redemption price of 100% of the principal amount thereof, together with accrued interest thereon. The Company redeemed the 10% Debentures with the proceeds from the issuance of a note payable to a subsidiary of Comcast. As of March 31, 1997 and December 31, 1996, the 10% Debentures had an accreted value of $127.1 million and $126.6 million, respectively. In connection with the repayment of certain of the Company's subsidiaries' notes payable to banks and the redemption of the 10% Debentures, during the second quarter of 1997, the Company will record an extraordinary loss, net of the related tax benefit, of approximately $17.3 million. On July 2, 1997, the Company repaid $435.0 million of its long-term debt outstanding as of March 31, 1997 with the proceeds from the issuance of a note payable to a subsidiary of Comcast. The terms of the notes payable issued to a subsidiary of Comcast on June 30, 1997 and July 2, 1997 are substantially the same as those of the 10% Debentures and the long-term debt referred to above. INTEREST RATE RISK MANAGEMENT The Company is exposed to market risk including changes in interest rates. To manage the volatility relating to these exposures, the Company enters into various derivative transactions pursuant to the Company's policies in areas such as counterparty exposure and hedging practices. Positions are monitored using techniques including market value and sensitivity analyses. The Company does not hold or issue any derivative financial instruments for trading purposes and is not a party to leveraged instruments. The credit risks associated with the Company's derivative financial instruments are controlled through the evaluation and monitoring of the creditworthiness of the counterparties. Although the Company may be exposed to losses in the event of nonperformance by the counterparties, the Company does not expect such losses, if any, to be significant. The use of interest rate risk management instruments, such as interest rate exchange agreements ("Swaps"), interest rate cap agreements ("Caps") and interest rate collar agreements ("Collars"), is 24 required under the terms of certain of the Company's outstanding debt agreements. The Company's policy is to manage interest costs using a mix of fixed and variable rate debt. Using Swaps, the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. Caps are used to lock in a maximum interest rate should variable rates rise, but enable the Company to otherwise pay lower market rates. Collars limit the Company's exposure to and benefits from interest rate fluctuations on variable rate debt to within a certain range of rates. The following table summarizes the terms of the Company's existing Swaps, Caps and Collars as of December 31, 1996 and 1995 (dollars in millions):
NOTIONAL AVERAGE ESTIMATED AMOUNT MATURITIES INTEREST RATE FAIR VALUE ----------- ------------ --------------- ----------- AS OF DECEMBER 31, 1996 Variable to Fixed Swaps.................................... $ 530.0 1997-1999 6.14% ($ 1.2) Caps....................................................... 250.0 1997 8.55% Collars.................................................... 400.0 1997-1998 7.09%/5.04% 0.2 AS OF DECEMBER 31, 1995 Variable to Fixed Swaps.................................... $ 250.0 1997 6.58% ($ 4.3) Caps....................................................... 250.0 1997 8.20% Collars.................................................... 250.0 1997 7.40%/5.11% (0.7)
The notional amounts of interest rate agreements, as presented in the above table, are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The estimated fair value approximates the proceeds (costs) to settle the outstanding contracts. While Swaps, Caps and Collars represent an integral part of the Company's interest rate risk management program, their incremental effect on interest expense for the years ended December 31, 1996, 1995 and 1994 was not significant. Of the existing derivative financial instruments as of December 31, 1996, during the three months ended March 31, 1997, a $50.0 million notional amount Swap with an interest rate of 6.88% and $150.0 million notional amount of Caps with an average interest rate of 8.50% expired. During the three months ended March 31, 1997, the Company entered into $160.0 million notional amount of Swaps that mature in 1998 through 1999 and have an average interest rate of 5.69%. STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1997 AND 1996 Cash and cash equivalents increased $8.6 million as of March 31, 1997 from December 31, 1996 and increased $7.4 million as of March 31, 1996 from December 31, 1995. 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 $129.2 million and $90.0 million for the three months ended March 31, 1997 and 1996, respectively. The increase of $39.2 million was principally due to the increase in the Company's operating income before depreciation and amortization, including the effects of the Scripps Contribution, and changes in working capital as a result of the timing of receipts and disbursements. See "--Results of Operations." Net cash (used in) provided by financing activities was $(20.0) million and $35.8 million for the three months ended March 31, 1997 and 1996, respectively. During the three months ended March 31, 1997, the Company borrowed $40.0 million under existing lines of credit and repaid $83.7 million of its long-term debt. In addition, during the three months ended March 31, 1997, net transactions with affiliates, which primarily resulted from the timing of disbursements, were $24.3 million. During the three months 25 ended March 31, 1996, the Company borrowed $63.0 million under existing lines of credit and repaid $61.7 million of its long-term debt. In addition, during the three months ended March 31, 1996, net transactions with affiliates, which primarily resulted from the timing of disbursements, were $34.5 million. Net cash used in investing activities was $100.6 million and $118.4 million for the three months ended March 31, 1997 and 1996, respectively. During the three months ended March 31, 1997, net cash used in investing activities included capital expenditures of $106.6 million and an increase in cash held by an affiliate of $13.0 million, offset by the proceeds from the sale of the Company's shares of Time Warner Stock of $21.2 million. During the three months ended March 31, 1996, net cash used in investing activities included capital expenditures of $54.0 million and an increase in cash held by an affiliate of $59.6 million. YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Cash and cash equivalents increased $26.8 million as of December 31, 1996 from December 31, 1995 and decreased $60.9 million as of December 31, 1995 from December 31, 1994. 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 $400.0 million, $176.2 million and $300.5 million for the years ended December 31, 1996, 1995 and 1994, respectively. The increase of $223.8 million from 1995 to 1996 was principally due to changes in working capital as a result of the timing of receipts and disbursements, the payment of deferred expenses charged by an affiliate in 1995 and the increase in the Company's operating income before depreciation and amortization, including the effects of the Scripps Contribution. See "--Results of Operations." The decrease of $124.3 million from 1994 to 1995 was principally due to the increase in payments of deferred expenses charged by an affiliate in 1995 and changes in working capital as a result of the timing of receipts and disbursements, offset by the increase in the Company's operating income before depreciation and amortization, principally due to the effects of the Maclean Hunter Acquisition. See "--Results of Operations." Net cash provided by financing activities was $311.6 million, $106.5 million and $1.486 billion for the years ended December 31, 1996, 1995 and 1994, respectively. During 1996, the Company borrowed $448.0 million under existing lines of credit and repaid $284.5 million of its long-term debt. In addition, during 1996, the Company received $59.7 million of proceeds from the issuance of notes payable to affiliates and net transactions with affiliates, which primarily resulted from the timing of disbursements, were $92.5 million. During 1995, the Company borrowed $720.0 million under new and existing lines of credit and repaid $665.6 million of its long-term debt, including $490.4 million in connection with the refinancing of certain indebtedness. In addition, during 1995, the Company received $50.9 million of proceeds from the issuance of notes payable to affiliates. Proceeds from borrowings of $1.124 billion in 1994 included $1.015 billion relating to the Maclean Hunter Acquisition. During 1994, the Company repaid $339.5 million of its long-term debt. In 1994, the Company received capital contributions from Comcast and CalPERS of $305.6 million and $250.0 million, respectively, in connection with the Maclean Hunter Acquisition. In addition, during 1994, the Company received $100.7 million of proceeds from the issuance of notes payable to affiliates and net transactions with affiliates, which primarily resulted from the timing of disbursements, were $54.6 million. Net cash used in investing activities was $684.8 million, $343.6 million and $1.770 billion for the years ended December 31, 1996, 1995 and 1994, respectively. During 1996, net cash used in investing activities included an increase in notes receivable from affiliate of $340.0 million and capital expenditures of $298.2 million. As the Scripps Contribution was a non-cash transaction, it had no significant impact on the Company's investing activities in its 1996 consolidated statement of cash flows. During 1995, net cash used in investing activities included an increase in notes receivable from affiliate of $52.2 million and capital expenditures of $238.5 million. Acquisitions in 1994 consisted principally of $1.249 billion paid in connection with the Maclean Hunter Acquisition. In addition, during 1994, net cash used in investing activities included an increase in notes receivable from affiliate of $300.0 million and capital expenditures of $173.4 million. 26 RESULTS OF OPERATIONS The effects of the Company's recent acquisitions have been to increase significantly the Company's revenues and expenses, resulting in substantial increases in its operating income before depreciation and amortization, depreciation and amortization expense and interest expense. As a result of the increases in depreciation and amortization expense and interest expense associated with these acquisitions and their financing, it is expected that the Company will continue to recognize significant losses for the foreseeable future. THREE MONTHS ENDED MARCH 31, 1997 AND 1996 Summarized consolidated financial information for the Company for the three months ended March 31, 1997 and 1996 is as follows (dollars in millions, "NM" denotes percentage is not meaningful):
THREE MONTHS ENDED INCREASE/ (DECREASE) MARCH 31, ---------------------- -------------------- 1997 1996 $ % ---------- ---------- --------- --------- Service income..................................................... $ 501.1 $ 382.3 $ 118.8 31.1% Operating, selling, general and administrative expenses............ 340.0 245.0 95.0 38.8 ---------- ---------- Operating income before depreciation and amortization(1)........... 161.1 137.3 23.8 17.3 Depreciation and amortization...................................... 138.8 95.3 43.5 45.6 ---------- ---------- Operating income................................................... 22.3 42.0 (19.7) (46.9) ---------- ---------- Interest expense................................................... 56.7 56.7 Interest expense on notes payable to affiliates.................... 9.1 8.6 0.5 5.8 Investment income, net............................................. (2.7) (2.7) NM Income tax benefit................................................. (9.3) (4.1) 5.2 NM Minority interest.................................................. (5.0) (5.8) (0.8) (13.8) ---------- ---------- Net loss........................................................... $ (29.2) $ (10.7) $ 18.5 NM% ---------- ---------- ---------- ----------
- ------------------------ (1) Operating income before depreciation and amortization is commonly referred to in the cable communications business as "operating cash flow." Operating cash flow is a measure of a company's ability to generate cash to service its obligations, including debt service obligations, and to finance capital and other expenditures. In part due to the capital intensive nature of the cable communications business and the resulting significant level of non-cash depreciation and amortization expense, operating cash flow is frequently used as one of the bases for comparing businesses in the cable communications 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. See "Statement of Cash Flows" above for a discussion of net cash provided by operating activities. As a result of the Scripps Contribution, the Company commenced consolidating the financial results of Scripps Cable effective November 1, 1996. The following table presents actual financial information for the three months ended March 31, 1997 and pro forma financial information for the three months ended March 31, 1996 as if the Scripps Contribution occurred on January 1, 1996. Pro forma financial information is presented herein for purposes of analysis and may not reflect what actual operating 27 results would have been had the Company owned Scripps Cable since January 1, 1996 (dollars in millions):
THREE MONTHS ENDED MARCH 31, INCREASE ---------------------- -------------------- 1997 1996 $ % ---------- ---------- --------- --------- Service income..................................................... $ 501.1 $ 457.3 $ 43.8 9.6% Operating, selling, general and administrative expenses............ 340.0 304.8 35.2 11.5 ---------- ---------- --------- Operating income before depreciation and amortization (a)................................................. $ 161.1 $ 152.5 $ 8.6 5.6% ---------- ---------- --------- ---------- ---------- ---------
- ------------------------ (a) See footnote (1) on page 27. Of the $43.8 million pro forma increase in service income for the three month period from 1996 to 1997, $10.0 million is attributable to subscriber growth, $32.0 million relates to changes in rates and $1.8 million relates to other product offerings. Of the $35.2 million pro forma increase in operating, selling, general and administrative expenses for the three month period from 1996 to 1997, $9.6 million is attributable to increases in the costs of cable programming as a result of subscriber growth, additional channel offerings and changes in rates, $5.0 million is attributable to increases in costs associated with the implementation of three regional customer service call centers and $20.6 million results from increases in the cost of labor, other volume related expenses and costs associated with new product offerings. The Company receives sales commissions from QVC, Inc. ("QVC"), an electronic retailer and a majority owned and controlled subsidiary of Comcast, based on a percentage of QVC sales to the Company's subscribers. In addition, the Company recognizes revenues relating to the carriage of certain QVC programming. For each of the three months ended March 31, 1997 and 1996, the Company's service income includes $1.9 million relating to QVC. Under management agreements, Comcast charged the Company's subsidiaries management fees of $29.0 million and $21.8 million during the three months ended March 31, 1997 and 1996, respectively. Such management fees are included in selling, general and administrative expenses in the Company's condensed consolidated statement of operations for the three months ended March 31, 1997 and 1996. On behalf of the Company, Comcast seeks and secures long-term programming contracts that generally provide for payment based on either a monthly fee per subscriber per channel or a percentage of certain subscriber revenues. Comcast charges each of the Company's subsidiaries for programming on a basis which generally approximates the amount each such subsidiary would be charged if it purchased directly from the supplier, subject to limitations imposed by debt facilities for certain subsidiaries, and did not benefit from the purchasing power of the Company's consolidated operations. Amounts charged to the Company by Comcast for programming (the "Programming Charges") are included in operating expenses in the Company's condensed consolidated statement of operations for the three months ended March 31, 1997 and 1996. The Company purchases certain other services, including insurance and employee benefits, from Comcast under cost-sharing arrangements on terms that reflect Comcast's actual cost. The Company reimburses Comcast for certain other expenses (primarily salaries) under cost-reimbursement arrangements. Under all of these arrangements, the Company incurred expenses of $171.4 million and $121.8 million, including $142.7 million and $101.0 million of Programming Charges, during the three months ended March 31, 1997 and 1996, respectively. The Programming Charges include $9.2 million and $6.7 million during the three months ended March 31, 1997 and 1996, respectively, relating to programming purchased by the Company, through Comcast, from suppliers in which Comcast holds an equity interest. It is anticipated that the Company's 28 cost of cable programming will increase in the future as cable programming rates increase and additional sources of cable programming become available. The $43.5 million increase in depreciation and amortization expense for the three month period from 1996 to 1997 is primarily attributable to the effects of the Scripps Contribution and the effects of capital expenditures. Interest expense remained consistent for the three month period from 1996 to 1997 due to a decrease in interest rates from 1996 to 1997, offset by the effects of an increase in the Company's outstanding long-term debt. 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 $2.7 million decrease in net investment income for the three month period from 1996 to 1997 is principally due to the loss recognized upon the sale of the Company's shares of Time Warner Stock in 1997 and a decrease in cash and short-term investments held by the Company from 1996 to 1997. The $5.2 million increase for the three month period from 1996 to 1997 in income tax benefit is primarily attributable to the increase in the Company's loss before income tax benefit. For the three months ended March 31, 1997 and 1996, the Company's earnings before income tax benefit and fixed charges (interest expense and interest expense on notes payable to affiliates) were $27.3 million and $50.5 million, respectively. Such earnings were not adequate to cover the Company's fixed charges of $65.8 million and $65.3 million for the three months ended March 31, 1997 and 1996, respectively. The Company's fixed charges include non-cash interest expense of $2.2 million and $3.2 million for the three months ended March 31, 1997 and 1996, respectively. The inadequacy of these earnings to cover fixed charges is primarily due to the substantial non-cash charges for depreciation and amortization expense. YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Summarized consolidated financial information for the Company for the three years ended December 31, 1996 is as follows (dollars in millions, "NM" denotes percentage is not meaningful):
YEAR ENDED DECEMBER INCREASE/ (DECREASE) 31, ---------------------- -------------------- 1996 1995 $ % ---------- ---------- --------- --------- Service income..................................................... $ 1,641.0 $ 1,454.9 $ 186.1 12.8% Operating, selling, general and administrative expenses............ 1,034.4 912.5 121.9 13.4 ---------- ---------- Operating income before depreciation and amortization(a)........... 606.6 542.4 64.2 11.8 Depreciation and amortization...................................... 420.3 376.2 44.1 11.7 ---------- ---------- Operating income................................................... 186.3 166.2 20.1 12.1 ---------- ---------- Interest expense................................................... 228.4 245.6 (17.2) (7.0) Interest expense on notes payable to affiliates.................... 32.1 28.2 3.9 13.8 Investment income.................................................. (25.9) (9.2) 16.7 NM Other.............................................................. 0.5 0.2 0.3 NM Income tax benefit................................................. (4.5) (24.9) (20.4) (81.9) Minority interest.................................................. (21.7) (24.8) (3.1) (12.5) Extraordinary item................................................. (2.4) (2.4) NM ---------- ---------- Net loss........................................................... ($ 22.6) ($ 51.3) ($ 28.7) (55.9%) ---------- ---------- ---------- ----------
(a) See footnote (1) on page 27. 29
YEAR ENDED DECEMBER INCREASE/ (DECREASE) 31, ---------------------- -------------------- 1995 1994 $ % ---------- ---------- --------- --------- Service income..................................................... $ 1,454.9 $ 1,065.3 $ 389.6 36.6% Operating, selling, general and administrative expenses............ 912.5 688.6 223.9 32.5 ---------- ---------- Operating income before depreciation and amortization(a)........... 542.4 376.7 165.7 44.0 Depreciation and amortization...................................... 376.2 232.7 143.5 61.7 ---------- ---------- Operating income................................................... 166.2 144.0 22.2 15.4 ---------- ---------- Interest expense................................................... 245.6 155.6 90.0 57.8 Interest expense on notes payable to affiliates.................... 28.2 20.9 7.3 34.9 Investment income.................................................. (9.2) (3.3) 5.9 NM Other.............................................................. 0.2 (3.4) 3.6 NM Income tax benefit................................................. (24.9) (1.8) 23.1 NM Minority interest.................................................. (24.8) (1.0) 23.8 NM Extraordinary item................................................. (2.4) 2.4 NM ---------- ---------- Net loss........................................................... ($ 51.3) ($ 23.0) $ 28.3 NM ---------- ---------- ---------- ----------
- ------------------------ (a) See footnote (1) on page 27. The Scripps Acquisition accounted for $52.3 million of the $186.1 million increase in service income from 1995 to 1996. Of the remaining increase of $133.8 million, $33.5 million is attributable to subscriber growth, $84.5 million is attributable to changes in rates, $4.7 million is attributable to growth in cable advertising sales and $11.1 million relates to other product offerings. The Maclean Hunter Acquisition accounted for $270.1 million of the $389.6 million increase in service income from 1994 to 1995. Of the remaining increase of $119.5 million, $46.0 million is attributable to subscriber growth, $54.6 million relates to changes in rates, which includes the change in the estimated effects of cable rate regulation, $14.0 million results from growth in cable advertising sales and $4.9 million relates to growth in other product offerings. For the years ended December 31, 1996, 1995 and 1994, the Company's service income includes $8.3 million, $7.9 million and $4.7 million, respectively, relating to QVC. The Scripps Acquisition accounted for $39.6 million of the $121.9 million increase in operating, selling, general and administrative expenses from 1995 to 1996. Of the remaining increase of $82.3 million, $27.5 million is attributable to increases in the costs of programming as a result of subscriber growth, additional channel offerings and changes in rates, $25.3 million is attributable to increases in costs associated with implementation of three regional customer service call centers and increases in the cost of labor, $6.8 million, excluding management fees charged to Scripps Cable, is attributable to an increase in management fees charged by Comcast as a result of the growth in the Company's service income, $4.2 million is attributable to growth in cable advertising sales and $18.5 million is attributable to increases in other volume related expenses. The Maclean Hunter Acquisition accounted for $162.4 million of the $223.9 million increase in operating, selling, general and administrative expenses from 1994 to 1995. Of the remaining increase of $61.5 million, $34.8 million is attributable to increases in the costs of cable programming as a result of subscriber growth, additional channel offerings and changes in rates, $5.5 million, excluding management fees charged to Maclean Hunter, is attributable to an increase in management fees charged by Comcast as a result of the growth in the Company's service income, $7.2 million is attributable to increases in expenses associated with the growth in cable advertising sales and $14.0 million results from increases in the cost of labor and other volume related expenses. Comcast charged the Company's subsidiaries management fees of $93.2 million, $83.5 million and $65.9 million during the years ended December 31, 1996, 1995 and 1994, respectively. Such management fees are included in selling, general and administrative expenses in the Company's consolidated statement of operations for the years ended December 31, 1996, 1995 and 1994. 30 Under the cost-sharing and cost-reimbursement arrangements referred to above, the Company incurred expenses of $505.0 million, $439.4 million and $327.7 million, including $417.0 million, $368.3 million and $264.1 million of programming costs, during the years ended December 31, 1996, 1995 and 1994, respectively. Such programming costs include $26.2 million, $21.7 million and $16.7 million during the years ended December 31, 1996, 1995 and 1994, respectively, relating to programming purchased by the Company, through Comcast, from suppliers in which Comcast holds an equity interest. The $44.1 million increase in depreciation and amortization expense from 1995 to 1996 is primarily attributable to the effects of capital expenditures during 1995 and 1996 and the effects of the Scripps Contribution in November 1996. The $143.5 million increase in depreciation and amortization expense from 1994 to 1995 is attributable to the effects of the Maclean Hunter Acquisition in December 1994 and the effects of capital expenditures during the periods. The $17.2 million decrease in interest expense from 1995 to 1996 is primarily attributable to a decrease in interest rates from 1995 to 1996, offset, in part, by an increase in the Company's outstanding long-term debt. The $90.0 million increase in interest expense from 1994 to 1995 is primarily due to increased levels of debt associated with the Maclean Hunter Acquisition. The $16.7 million increase in investment income from 1995 to 1996 is principally due to the gain recognized upon the exchange of the shares of TBS held by the Company for Time Warner Stock in 1996. The $5.9 million increase in investment income from 1994 to 1995 is principally due to an increase in the Company's cash, cash equivalents, short-term investments and cash held by an affiliate as compared to the prior year period. The $20.4 million decrease from 1995 to 1996 and the $23.1 million increase from 1994 to 1995 in income tax benefit are primarily attributable to changes in the Company's loss before income tax benefit. The $23.8 million increase in minority interest income from 1994 to 1995 is attributable to minority interest in the net loss of Maclean Hunter as a result of the Maclean Hunter Acquisition in December 1994. The Company incurred debt extinguishment costs totaling $3.6 million during 1995 in connection with the refinancing of certain indebtedness of a subsidiary, resulting in an extraordinary loss, net of tax, of $2.4 million. For the years ended December 31, 1996, 1995 and 1994, the Company's earnings before extraordinary items, income tax benefit and fixed charges (interest expense and interest expense on notes payable to affiliates) were $233.4 million, $200.0 million and $151.7 million, respectively. Such earnings were not adequate to cover the Company's fixed charges of $260.5 million, $273.8 million and $176.5 million for the years ended December 31, 1996, 1995 and 1994, respectively. The Company's fixed charges include non-cash interest expense of $8.2 million, $7.8 million and $14.3 million for the years ended December 31, 1996, 1995 and 1994, respectively. The inadequacy of these earnings to cover fixed charges is primarily due to the substantial non-cash charges for depreciation and amortization expense. - ------------------------ 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, cash equivalents, short-term investments and cash held by an affiliate, its ability to generate operating income before depreciation and amortization and its ability to obtain external financing. The Company believes that its operations are not materially affected by inflation. 31 REGULATORY DEVELOPMENTS The Company has settled the majority of outstanding proceedings challenging its rates charged for regulated cable services. In December 1995, the FCC adopted an order approving a negotiated settlement of rate complaints pending against the Company for cable programming service tiers ("CPSTs") which provided $6.6 million in refunds, plus interest, given in the form of bill credits during 1996, to 1.3 million of the Company's cable subscribers. As part of the negotiated settlement, the Company agreed to forego certain inflation and external cost adjustments for systems covered by its cost-of-service filings for CPSTs. The FCC and the Company recently negotiated an agreement in which the Company has committed to complete certain system upgrades and improvements by March 1999 in return for which it may move a limited number of currently regulated programming services in certain cable systems to a single migrated product tier on each system that will become an unregulated new product tier after December 1997. In addition, the Company will also provide free cable service connections, modems and modem service to certain public and private schools and to 250 public libraries in its franchise areas. The FCC is seeking public comment on the proposed agreement and the Company cannot predict the outcome of this proceeding. See "Legislation and Regulation -- Rate Regulation." The Company currently is seeking to justify rates for basic cable services and equipment in certain of its cable systems in the State of Connecticut on the basis of a cost-of-service showing. The State of Connecticut has ordered the Company to reduce such rates and to make refunds to subscribers. The Company has appealed the Connecticut decision to the FCC. Recent pronouncements from the FCC, which generally support the Company's position on appeal, have caused the State of Connecticut to reexamine its prior ruling. While the Company cannot predict the outcome of these matters, the Company believes that the ultimate resolution of these pending regulatory matters will not have a material adverse impact on the Company's financial position, results of operations or liquidity. 32 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), the Company will accept for exchange Old Notes which are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on 1997; provided, however, that if the Company, in its sole discretion, has extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, $300,000,000 aggregate principal amount of the Old Seven-Year Notes, $600,000,000 aggregate principal amount of the Old Ten-Year Notes, $550,000,000 aggregate principal amount of the Old Twenty-Year Notes, and $250,000,000 aggregate principal amount of the Old Thirty-Year Notes were outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about the date set forth on the cover page to all holders of Old Notes at the addresses set forth in the security register with respect to Old Notes maintained by the Bank of Montreal Trust Company, as Trustee (the "Trustee"). The Company's obligations to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth under "Certain Conditions to the Exchange Offer" below. The Company expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance of any Old Notes, by giving oral or written notice of such extension to the Exchange Agent (as defined below) and notice of such extension to the holders as described below. During any such extension, all Old Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by the Company. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified below under "Certain Conditions to the Exchange Offer." The Company will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the Old Notes as promptly as practicable, such notice in the case of any extension to be issued by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Holders of Old Notes do not have any appraisal or dissenters' rights under the General Corporation Law of the State of Delaware or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder. PROCEDURES FOR TENDERING OLD NOTES The tender to the Company of Old Notes by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to Bank of Montreal Trust Company (the "Exchange Agent") at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition, (i) certificates for such Old Notes must be received 33 by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the Old Notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States (collectively, "Eligible Institutions"). If Old Notes are registered in the name of a person other than the person signing the Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be accompanied by, a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder and signed exactly as the name or names of the registered holder or holders that appear on the Old Notes and with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or to not accept any particular Old Notes which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right in its sole discretion to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with the tenders of Old Notes for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal or any Old Notes or separate written instruments of transfer or exchange are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers or corporations or others acting in a fiduciary or representative capacity, such person should so indicate when signing and, unless waived by the Company, proper evidence satisfactory to the Company of its authority to so act must be submitted. By tendering, each holder will represent to the Company that, among other things, (i) the New Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, (ii) neither the holder nor any such other person has an arrangement or understanding with any person to participate in the 34 distribution of such New Notes, (iii) if the holder is not a broker-dealer, or is a broker-dealer but will not receive New Notes for its own account in exchange for Old Notes, neither the holder nor any such other person is engaged in or intends to participate in the distribution of such New Notes and (iv) neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. If the tendering holder is a broker-dealer (whether or not it is also an "affiliate") that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes, the holder will not be deemed to admit that it is an "Underwriter" within the meaning of the Securities Act. ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will accept, promptly after the Expiration Date, all Old Notes properly tendered and will issue the New Notes promptly after acceptance of the Old Notes. See "Certain Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the Company shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if the Company has given oral or written notice thereof to the Exchange Agent. In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if certificates representing Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfers into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. INTEREST ON THE NEW NOTES The New Notes will bear interest from May 1, 1997, payable semiannually on May 1 and November 1, of each year commencing on November 1, 1997. Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on the Old Notes accrued from May 1, 1997 until the date of the issuance of the New Notes. Consequently, holders who exchange their Old Notes for New Notes will receive the same interest payment on November 1, 1997 (the first payment date with respect to the Old Notes and the New Notes) that they would have received had they not accepted the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer promptly after the date of this Prospectus. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account in accordance with the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") procedures for transfer. However, the exchange for the Old Notes so 35 tendered will only be made after timely confirmation of such book-entry transfer of Old Notes into the Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's Message (as such term is defined in the next sentence) and any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from a participant tendering Old Notes that are the subject of such Book-Entry Confirmation that such participant has received and agrees to be bound by the terms of the Letter of Transmittal, and that the Company may enforce such agreement against such participant. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) on or prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates of all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), include a statement that such a holder is withdrawing its election to have such Old Notes exchanged, and the name of the registered holder of such Old Notes, and must be signed by the holder in the same manner as the original signature on the Letter of Transmittal (including any required signature guarantees) or be accompanied by evidence satisfactory to the Company that the person withdrawing the tender has succeeded to the beneficial ownership of the Old Notes being withdrawn. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the 36 case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "Procedures for Tendering Old Notes" above at any time on or prior to the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provisions of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer, if at any time before the acceptance of such Old Notes for exchange or the exchange of the New Notes for such Old Notes, such acceptance or issuance would violate applicable law or any interpretation of the staff of the Commission. The foregoing condition is for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, the Company will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "TIA"). EXCHANGE AGENT Bank of Montreal Trust Company has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at one of the addresses set forth below. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent, addressed as follows: Deliver To: BANK OF MONTREAL TRUST COMPANY, EXCHANGE AGENT By Mail or By Hand: 77 Water Street New York, New York 10005 Attention: Amy Roberts By Facsimile: (212) 701-7684 Confirm by Telephone: (212) 701-7653 DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. 37 FEES AND EXPENSES The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. No additional compensation will be paid to any such officers and employees who engage in soliciting tenders. The Company will not make any payment to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The estimated cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be approximately $1.0 million. TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer to be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon and, except in certain limited circumstances, will no longer have any registration rights or be entitled to the related additional interest with respect to the Old Notes. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not intend to register the Old Notes under the Securities Act. The Company believes that, based upon interpretations contained in letters issued to third parties by the staff of the Commission, New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by each holder thereof (other than a broker-dealer, as set forth below, and any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such New Notes are acquired in the ordinary course of such holders' business and such holder has no arrangement or understanding with any person to participate in the distribution of such New Notes. If any holder has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on the applicable interpretation of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, the New Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. The Company does not currently intend to take any action to register or qualify the New Notes for resale in any jurisdiction. 38 BUSINESS OVERVIEW Comcast Cable Communications, Inc. is engaged in the development, management and operation of cable communications systems. The Company is currently the fourth-largest cable television system operator in the United States and as of March 31, 1997, served 4.3 million customers of the 7.0 million households passed by the Company's systems. The Company is a wholly owned subsidiary of Comcast Corporation. Over 80% of the Company's customers are located in ten regional clusters. By acquiring and developing systems in geographic proximity, the Company has realized significant operating efficiencies through the consolidation of various managerial, administrative and technical functions. Consistent with this approach, the Company is currently consolidating the majority of its local customer service call centers into large regional operations. These regional call centers have technically advanced telephone systems that provide 24-hour per day call answering, telemarketing and other services. These centers will allow the Company to better serve its customer base, as well as to cross-market new products and services to its subscribers. The table below sets forth a summary of homes passed, subscribers and penetration rates for the Company's ten largest regional clusters as of March 31, 1997 (in thousands, except penetration):
GEOGRAPHIC CLUSTER HOMES PASSED SUBSCRIBERS PENETRATION - --------------------------------------------------------------------- ----------------- ------------- --------------- New Jersey........................................................... 914 585 64.0% Florida.............................................................. 897 554 61.8 Michigan............................................................. 960 494 51.5 Baltimore Area....................................................... 650 440 67.7 Philadelphia Area.................................................... 493 301 61.1 Southern California.................................................. 506 266 52.6 Tennessee............................................................ 397 257 64.7 Sacramento........................................................... 455 235 51.6 Indianapolis......................................................... 362 224 61.9 Alabama.............................................................. 310 205 66.1 ----- ----- SUBTOTAL............................................................. 5,944 3,561 59.9 Other Systems........................................................ 1,065 751 70.5 ----- ----- TOTAL................................................................ 7,009 4,312 61.5 ----- ----- ----- -----
The Company considers technological innovation to be an important component of its service offerings and customer satisfaction. Through the use of fiber optic cable and other technological improvements, the Company has increased system reliability, channel capacity and its ability to deliver advanced video and data services. The majority of the Company's subscribers are currently served by systems that have the capacity to carry in excess of 60 channels. The Company is currently implementing a significant network upgrade in most of its cable systems. A typical network upgrade would consist of the following: (i) deployment of fiber optic cable further into the traditional coaxial cable distribution system, (ii) reconfiguration and downsizing of the end customer's node to an approximate 500-1,000 home environment, and (iii) introduction and activation of two-way communication capability which will allow for signals and data to be sent from the end customer's home upstream to the cable system headend, as opposed to traditional one-way broadcast transmission. The upgraded systems will generally have capacity in excess of 100 channels. The Company derives the majority of its revenues from recurring subscription services and generates additional revenues from non-subscription services such as advertising, pay-per-view, installations 39 and commissions from electronic retailing. Monthly subscription rates and related charges vary according to the type of service selected (such as basic cable, premium cable, sports channels and special interest channels) as well as the type of equipment rented. In addition, in December 1996, the Company began marketing high-speed Internet access services provided via cable modems to customers served by two of its cable systems. The Company expects to expand the marketing of such services in selected cable systems during 1997. On behalf of the Company, Comcast seeks and secures long-term programming contracts that generally provide for payment based on either a monthly fee per subscriber per channel or a percentage of certain subscriber revenues. Comcast charges each of the Company's subsidiaries for programming on a basis which generally approximates the amount each such subsidiary would be charged if it purchased directly from the supplier, subject to limitations imposed by debt facilities for certain subsidiaries, and did not benefit from the purchasing power of the Company's consolidated operations. Programming costs increase in the ordinary course of the Company's business as a result of increases in the number of subscribers, expansion of the number of channels provided to customers and contractual rate increases from programming suppliers. The Company purchases certain other services, including insurance and employee benefits, from Comcast under cost-sharing arrangements on terms that reflect Comcast's actual cost. In addition, Comcast, through management agreements, manages the operations of the Company's subsidiaries, including rebuilds and upgrades. Comcast charged the Company's subsidiaries management fees of $29.0 million and $21.8 million during the three months ended March 31, 1997 and 1996, respectively, and $93.2 million, $83.5 million and $65.9 million during the years ended December 31, 1996, 1995 and 1994, respectively. See "Certain Relationships and Related Transactions." STRATEGIC ACQUISITIONS From time to time the Company acquires cable television systems. The Company's most significant recent acquisitions are as follows: SCRIPPS CABLE In November 1996, Comcast acquired Scripps Cable from E.W. Scripps in exchange for 93.048 million shares of Comcast's Class A Special Common Stock valued at $1.552 billion. As of the date of the acquisition, Scripps Cable passed more than 1.2 million homes and served more than 800,000 subscribers, with 60% of its subscribers located in Sacramento, California and Chattanooga and Knoxville, Tennessee. Comcast accounted for the Scripps Acquisition under the purchase method. Following the Scripps Acquisition, Comcast contributed Scripps Cable to the Company at Comcast's historical cost. Scripps Cable was consolidated with the Company effective November 1, 1996. MACLEAN HUNTER In December 1994, the Company, through the LLC, acquired Maclean Hunter from Rogers Communications Inc. and all of the outstanding shares of Barden Communications, Inc. for approximately $1.249 billion in cash. As of the date of the acquisition, Maclean Hunter passed more than 1.0 million homes and served more than 540,000 subscribers. The Company and CalPERS invested $305.6 million and $250.0 million, respectively, in the LLC, which is owned 55% by the Company and 45% by CalPERS. The Maclean Hunter Acquisition was financed with cash contributions from the LLC of $555.6 million and borrowings under a credit facility of an indirect wholly owned subsidiary of the LLC. 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 Comcast's common stock. Except in certain limited circumstances, Comcast, at its option, may satisfy this liquidity arrangement by purchasing CalPERS' interest for cash, by issuing its common stock (subject to certain limitations) or by selling the LLC. In 40 addition, although the Company manages Maclean Hunter, certain limited transactions require the approval of CalPERS. The Company accounted for the Maclean Hunter Acquisition under the purchase method and Maclean Hunter was consolidated with the Company effective December 22, 1994. GENERAL A cable communications system receives signals by means of special antennae, microwave relay systems, earth stations and fiber optics. 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; audio programming; electronic retailing and public service announcements. In addition, each of the Company's systems offer, for an extra monthly charge, one or more premium services ("Pay Cable") such as Home Box Office-Registered Trademark-, Cinemax-Registered Trademark-, Showtime-Registered Trademark-, The Movie Channel-TM- and Encore-Registered Trademark-, which generally offer, without commercial interruption, feature motion pictures, live and taped sporting events, concerts and other special features. Substantially all of the Company's systems offer pay-per-view services, which permit a subscriber to order, for a separate fee, individual feature motion pictures and special event programs. The Company has also started offering or is field testing other cable-based services including cable modems, video games and data transfer. See "--Online Services." In the future the Company may offer cable telephony services either using its existing cable plant or as a reseller. 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 provision of free services to schools and other public institutions; and the maintenance of insurance and indemnity bonds. Cable franchises are subject to the Cable Communications Policy Act of 1984 (the "1984 Cable Act," and together with the 1992 Cable Act, the "Cable Acts"), the 1992 Cable Act and the 1996 Telecom Act, as well as FCC, state and local regulations. See "Legislation and Regulation." The Company's franchises typically provide for periodic payment of fees to franchising authorities of 5% of "revenues" (as defined by each franchise agreement), which fees may be passed on to subscribers. Franchises are generally non-transferable without the consent of the governmental authority. Many of the Company's franchises 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." In addition, under the 1996 Telecom Act, certain providers of programming services may be exempt from local franchising requirements. REVENUE SOURCES The Company's cable communications systems offer varying levels of programming service, depending primarily on their respective channel capacities. As of March 31, 1997, a majority of the Company's subscribers were served by systems that had the capacity to carry in excess of 60 channels. Monthly service and equipment rates and related charges vary in accordance with the type of programming 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 advertising, pay-per- 41 view services and commissions from electronic retailing. 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 per channel or a percentage of certain revenues for programming purchased from Comcast. Programming costs increase in the ordinary course of the Company's business as a result of increases in the number of subscribers, expansion of the number of channels provided to customers and contractual rate increases from programming suppliers. On behalf of the Company, Comcast seeks and secures long-term programming contracts with suppliers, some of which provide volume discount pricing structures and/or offer marketing support to the Company. The Company anticipates that future contract renewals will result in programming costs exceeding current levels, particularly for sports programming. National manufacturers are the primary sources of supplies, equipment and materials utilized in the construction, rebuild and upgrade 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. The Company anticipates that its programming and construction, rebuild and upgrade costs will be significant in future periods. The amount of such costs will depend on numerous factors, many of which are beyond the Company's control. These factors include the effects of competition, whether a particular system has sufficient capacity to handle new product offerings including the offering of communications services, whether and to what extent the Company will be able to recover its investment under FCC rate guidelines and other factors, and whether the Company acquires additional systems in need of upgrading or rebuilding. Increases in such costs may have a significant impact on the Company's financial position, results of operations and liquidity. Comcast charges each of the Company's subsidiaries for programming on a basis which generally approximates the amount each such subsidiary would be charged if it purchased directly from the supplier, subject to limitations imposed by debt facilities for certain subsidiaries, and did not benefit from the purchasing power of the Company's consolidated operations. MANAGEMENT CONTRACTS Comcast, through management agreements, manages the operations of the Company's subsidiaries. The management agreements generally provide that Comcast will supervise the management and operations of the cable systems (including expansions or rebuilding), and arrange for and supervise (but not necessarily perform itself) certain administrative functions. As compensation for such services, the agreements provide for Comcast to charge management fees of up to 6% of gross revenues. Management fees of $29.0 million and $21.8 million were charged during the three months ended March 31, 1997 and 1996, respectively, and management fees of $93.2 million, $83.5 million and $65.9 million were charged during the years ended December 31, 1996, 1995 and 1994, respectively. See "Certain Relationships and Related Transactions." ONLINE SERVICES In December 1996, the Company began marketing high-speed cable modem services in areas served by two of its cable systems. High-speed cable modems are capable of providing access to online information, including the Internet, at faster speeds than that of conventional or Integrated Service Digital Network ("ISDN") modems. In August 1996, Comcast purchased a 14% interest in the At Home Corporation ("@Home"), which offers a network that distributes high-speed interactive content over the 42 cable industry's hybrid-fiber coaxial distribution architecture. The Company's @Home package includes a high-speed cable modem; 24-hour per day unlimited access to the Internet; electronic mail; an Internet guide designed by @Home, featuring a menu of local community content, in addition to the vast Internet content already available. @Home is owned by Comcast, Tele-Communications, Inc., Cox Communications, Inc. and Kleiner Perkins Caufield & Byers, a venture capital firm. The Company expects to expand the marketing of such services in selected cable systems during 1997. The Company anticipates that competition in the online services area will be significant. Competitors in this area include LECs, Internet service providers, long distance carriers and others, many of whom have more substantial financial resources than the Company. 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 online computer services and home video products, including videotape cassette recorders. The extent to which a cable communications system is competitive depends, in part, upon the cable system's ability to provide, at a reasonable price to consumers, a greater variety of programming and other communications services than are available off-air or through other alternative delivery sources and upon superior technical performance and customer service. See "Legislation and Regulation." The 1996 Telecom Act makes it easier for LECs and others to provide a wide variety of video services competitive with services provided by cable systems and to provide cable services directly to subscribers. See "Legislation and Regulation--The 1996 Telecom Act." Various LECs currently are providing video services within and outside their telephone service areas through a variety of distribution methods, including both the deployment of broadband wire facilities and the use of wireless transmission facilities. Cable systems could be placed at a competitive disadvantage if the delivery of video services by LECs becomes widespread since LECs are not required, under certain circumstances, to obtain local franchises to deliver such video services or to comply with the variety of obligations imposed upon cable systems under such franchises. See "Legislation and Regulation." Issues of cross-subsidization by LECs of video and telephony services also pose strategic disadvantages for cable operators seeking to compete with LECs which provide video services. The Company cannot predict the likelihood of success of video service ventures by LECs or the impact on the Company of such competitive ventures. Cable communications systems generally operate pursuant to franchises granted on a non-exclusive basis. The 1992 Cable Act 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 that own certain of the poles on which cable is attached) may become competitors for franchises or providers of competing services. See "Legislation and Regulation--The 1996 Telecom Act." Competition from other video service providers exists in the areas served by the Company. In addition, LECs in various states either have announced plans, obtained local franchise authorizations or are currently competing with the Company's cable communications systems in various areas. The availability of reasonably-priced HSDs 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 cable competitors to purchase and make available to HSD owners certain satellite-delivered cable programming at competitive costs. The 1996 Telecom Act and FCC regulations implementing that law preempt certain local restrictions on the use of HSDs and roof-top antennae to receive satellite programming and over-the-air broadcasting services. See "Legislation and Regulation--The 1996 Telecom Act." Cable operators face additional competition from private SMATV systems that serve condominiums, apartment and office complexes and private residential developments. The 1996 Telecom Act broadens 43 the definition of SMATV systems not subject to regulation as a franchised cable communications service. SMATV systems offer both improved reception of local television stations and many of the same satellite-delivered programming services offered by franchised cable communications systems. SMATV operators often enter into exclusive agreements with building owners or homeowners' associations, although some states have enacted laws to provide franchised cable systems access to such private complexes, and the 1984 Cable Act gives a franchised cable operator the right to use existing compatible easements within its franchise area under certain circumstances. These laws have been challenged in the courts with varying results. In addition, some companies are developing and/or offering packages of telephony, data and video services to these private residential and commercial developments. The ability of the Company to compete for subscribers in residential and commercial developments served by SMATV operators is uncertain. The FCC and Congress have 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, DBS service whereby signals are transmitted by satellite to receiving facilities located on customer premises. Programming is currently available to the owners of HSDs through conventional, medium and high-powered satellites. In 1990, Primestar, a consortium comprised of cable operators, including Comcast and a satellite company, commenced operation of a medium-power digital satellite system using the Ku portion of the frequency spectrum and currently provides service consisting of approximately 95 channels of programming, including broadcast signals and pay-per-view services. In January 1997, Primestar launched a replacement medium-power digital satellite which will enable it to increase its capacity to approximately 160 channels. In addition, through one of its owners which is also a Primestar affiliate, Primestar has obtained the right to provide service over a high-power DBS satellite and, using video compression technology, intends initially to offer approximately 70 channels of video programming in the future. This programming is intended to be offered to existing cable subscribers as an addition to their cable service. The Primestar partners recently announced an agreement to consolidate their DBS assets into a new publicly traded company. DirecTv, which includes AT&T as an investor, began offering nationwide high-power DBS service in 1994 accompanied by extensive marketing efforts. Several other major companies, including EchoStar and ASkyB, a joint venture between MCI and News Corp., have begun offering or are currently developing high-power DBS services. EchoStar has already commenced its domestic DBS service and offers approximately 120 channels of video programming. ASkyB is constructing satellites that reportedly, when operational, will provide approximately 200 channels of DBS service in the US. Recently announced plans for News Corp. to purchase an interest in Echostar are currently the subject of litigation between News Corp. and EchoStar. Primestar, News Corp., MCI and ASkyB recently announced several agreements in which News Corp., MCI and ASkyB will sell to Primestar two satellites under construction and MCI will assign to Primestar an FCC DBS license. 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 comparable to those of cable systems. Digital satellite service offered by DBS systems currently has certain advantages over cable systems with respect to programming capacity and digital quality, as well as certain current disadvantages that include high up-front customer equipment costs and a lack of local programming, local service and equipment distribution. While this service presents a competitive threat to cable, the Company currently is increasing channel capacity in many of its systems and upgrading its local customer service and technical support. The Company is currently in the process of implementing ten regional customer service call centers. As of March 31, 1997, three of these call centers were in operation, servicing more than 950,000 subscribers. These upgrades will enable the Company to introduce new premium channels, pay-per-view programming, interactive computer-based services and other communications services in order to enhance its ability to compete. 44 Cable communications systems also compete with wireless program distribution services such as 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. Several Regional Bell Operating Companies ("BOCs") have acquired significant interests in major MMDS companies operating in certain of the Company's cable service areas. Recent public announcements by Bell Atlantic Corporation ("Bell Atlantic"), a BOC operating in the northeastern U.S., indicate that plans to compete with the Company through the use of MMDS technology have been revised. Additionally, the FCC recently adopted new regulations allocating 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, including Internet-based services, may become competitive with services that cable communications systems can offer. The 1996 Telecom Act directed the FCC to establish, and the FCC has adopted, regulations and policies for the issuance of licenses for digital television ("DTV") to incumbent television broadcast licensees. DTV is expected to deliver high definition television pictures, multiple digital-quality program streams, as well as CD-quality audio programming and advanced digital services, such as data transfer or subscription video. The FCC also has authorized television broadcast stations to transmit textual and graphic information useful both to consumers and 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. LECs and other common carriers also provide facilities for the transmission and distribution to homes and businesses of interactive computer-based services, including the Internet, as well as data and other non-video services. The FCC has conducted spectrum auctions for licenses to provide personal communications services ("PCS"). PCS will enable license holders, including cable operators, to provide voice and data services. 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 communications industry or on the operations of the Company. EMPLOYEES As of March 31, 1997, the Company had a total of approximately 7,800 employees. The Company believes that its relationships with its employees are good. PROPERTY The principal physical assets of a cable communications system consist of a central receiving apparatus, distribution cables, converters, regional customer service call centers 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, regional customer service call centers and local business offices. The physical components of cable communications systems require maintenance and periodic upgrading and rebuilding to keep pace with technological advances. A significant number of the Company's systems will be upgraded or rebuilt over the next several years. The Company's management believes that substantially all of its physical assets are in good operating condition. LEGAL PROCEEDINGS The Company is not party to litigation which, in the opinion of the Company's management, will have a material adverse effect on the Company's financial position, results of operations or liquidity. 45 LEGISLATION AND REGULATION The Cable Acts and the 1996 Telecom Act amended the Communications Act of 1934 (as amended, the "Communications Act") and established a national policy to guide the development and regulation of cable systems. The FCC and state regulatory agencies are required to conduct numerous rule making and regulatory proceedings to implement the 1996 Telecom Act, and such proceedings 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 1996 TELECOM ACT The 1996 Telecom Act, the most comprehensive reform of the nation's telecommunications laws since the Communications Act, became effective in February 1996. Although the long-term goal of this act is to promote competition and decrease regulation of these industries, in the short-term, the law delegates to the FCC (and in some cases the states) broad new rule making authority. The 1996 Telecom Act deregulates rates for CPSTs in March 1999 for large Multiple System Operators ("MSOs"), such as the Company, and immediately for certain small operators. Deregulation will occur sooner for systems in markets where comparable video services, other than DBS, are offered by the LECs, or their affiliates, or by third parties utilizing the LECs' facilities or where "effective competition" is established under the 1992 Cable Act. The 1996 Telecom Act also modifies the uniform rate provisions of the 1992 Cable Act by prohibiting regulation of non-predatory, bulk discount rates offered to subscribers in commercial and residential developments and permits regulated equipment rates to be computed by aggregating costs of broad categories of equipment at the franchise, system, regional or company level. The 1996 Telecom Act eliminates the right of individual subscribers to file rate complaints with the FCC concerning certain CPSTs and requires the FCC to issue a final order within 90 days after receipt of CPST rate complaints filed by any franchising authority. The 1996 Telecom Act also modifies the existing statutory provisions governing cable system technical standards, equipment compatibility, subscriber notice requirements and program access, permits certain operators to include losses incurred prior to September 1992 in setting regulated rates and repeals the three-year anti-trafficking prohibition adopted in the 1992 Cable Act. FCC regulations implementing the 1996 Telecom Act preempt certain local restrictions on satellite and over-the-air antenna reception of video programming services, including zoning, land-use or building regulations, or any private covenant, homeowners' association rule or similar restriction on property within the exclusive use or control of the antenna user. The 1996 Telecom Act eliminates the requirement that LECs obtain FCC approval under Section 214 of the Communications Act before providing video services in their telephone service areas and removes the statutory telephone company/cable television cross-ownership prohibition, thereby allowing LECs to offer video services in their telephone service areas. LECs may provide service as traditional cable operators with local franchises or they may opt to provide their programming over unfranchised "open video systems," subject to certain conditions, including, but not limited to, setting aside a portion of their channel capacity for use by unaffiliated program distributors and satisfying certain other requirements. Under limited circumstances, cable operators also may elect to offer services through open video systems. The 1996 Telecom Act also prohibits a LEC from acquiring a cable operator in its telephone service area except in limited circumstances. The 1996 Telecom Act removes barriers to entry in the local telephone exchange market by preempting state and local laws that restrict competition and by requiring all LECs to provide nondiscriminatory access and interconnection to potential competitors, such as cable operators, wireless telecommunications providers and long distance companies. The 1996 Telecom Act also contains provisions regulating the content of video programming and computer services. Specifically, the new law prohibits the use of computer services to transmit "indecent" material to minors. Several special three-judge federal district courts have issued preliminary injunctions enjoining the enforcement of these provisions as unconstitutional to the extent they regulate 46 the transmission of indecent material. The U.S. Supreme Court is currently reviewing one of these decisions. In accordance with the 1996 Telecom Act, the television industry recently adopted a voluntary ratings system for violent and indecent video programming. The 1996 Telecom Act also requires all new television sets to contain a so-called "V-chip" capable of blocking all programs with a given rating. RATE REGULATION The 1992 Cable Act authorized rate regulation for cable communications services and equipment in communities that are not subject to "effective competition," as defined by federal law. Most 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 CPSTs (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 1996 Telecom Act provides for rate deregulation of CPSTs by March 1999. See "--The 1996 Telecom Act." FCC regulations, which became effective in September 1993, govern rates that may be charged to subscribers for basic cable service and certain CPSTs (together, the "Regulated Services"). The FCC uses a benchmark methodology as the principal method of regulating rates for Regulated Services. Cable operators are also permitted to justify rates using a cost-of-service methodology. In 1994, the FCC's benchmark regulations required operators to implement rate reductions for Regulated Services of up to 17% of the rates for such services in effect on September 30, 1992, adjusted for inflation, programming modifications, equipment costs and increases in certain operating costs. In July 1994, the Company reduced rates for Regulated Services in the majority of its cable systems to comply with the FCC's regulations. The FCC has also adopted comprehensive and restrictive regulations allowing operators to modify their regulated rates on a quarterly or annual basis using various methodologies that account for changes in the number of regulated channels, inflation and increases in certain external costs, such as franchise and other governmental fees, copyright and retransmission consent fees, taxes, programming fees and franchise related obligations. The Company cannot predict whether the FCC will modify these "going forward" regulations in the future. 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 reasonable using the FCC's cost-of-service rate regulations which require, among other things, the exclusion of 34% of system acquisition costs related to intangible and tangible assets used to provide Regulated Services. The FCC's cost-of-service regulations contain a rebuttable presumption of an industry-wide 11.25% after tax rate of return on an operator's allowable rate base, but the FCC has initiated a further rule making in which it proposes to use an operator's actual debt cost and capital structure to determine an operator's cost of capital or rate of return. The Company has settled the majority of outstanding proceedings challenging its rates charged for regulated cable services. In December 1995, the FCC adopted an order approving a negotiated settlement of rate complaints pending against the Company for CPSTs which provided $6.6 million in refunds, plus interest, given in the form of bill credits during 1996, to 1.3 million of the Company's cable subscribers. As part of the negotiated settlement, the Company agreed to forego certain inflation and external cost adjustments for systems covered by its cost-of-service filings for CPSTs. The FCC and the Company recently negotiated an agreement in which the Company has committed to complete certain system upgrades and improvements by March 1999 in return for which it may move a limited number of currently regulated programming services in certain cable systems to a single migrated product tier on 47 each system that will become an unregulated new product tier after December 1997. In addition, the Company will also provide free cable service connections, modems and modem service to certain public and private schools and to 250 public libraries in its franchise areas. The FCC is seeking public comment on the proposed agreement, and the Company cannot predict the outcome of this proceeding. The Company currently is seeking to justify rates for basic cable services and equipment in certain of its cable systems in the State of Connecticut on the basis of a cost-of-service showing. The State of Connecticut has ordered the Company to reduce such rates and to make refunds to subscribers. The Company has appealed the Connecticut decision to the FCC. Recent pronouncements from the FCC, which generally support the Company's position on appeal, have caused the State of Connecticut to reexamine its prior ruling. While the Company cannot predict the outcome of this action, the Company believes that the ultimate resolution of these pending regulatory matters will not have a material adverse impact on the Company's financial position, results of operations or liquidity. "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. Many 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 carriage of local commercial television stations whether pursuant to the mandatory carriage or retransmission consent requirements of the 1992 Cable Act. 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 1993. In March 1997, the U.S. Supreme Court affirmed a three-judge district court decision upholding the constitutional validity of the 1992 Cable Act's mandatory signal carriage requirements. The FCC will conduct a rule making in the future to consider the requirements, if any, for mandatory carriage of DTV signals. The Company cannot predict the ultimate outcome of such a rule making or the impact of new carriage requirements on the Company or its business. DESIGNATED CHANNELS The Communications 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 48 disputes concerning rates or commercial use of the designated channel capacity. The U.S. Supreme Court recently held parts of the 1992 Cable Act regulating "indecent" programming on local access channels to be unconstitutional, but upheld the statutory right of cable operators to prohibit or limit the provision of "indecent" programming on commercial leased access channels. 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. In January 1995, the FCC relaxed its restrictions on ownership of SMATV systems to permit a cable operator to acquire SMATV systems in the operator's existing franchise area so long as the programming services provided through the SMATV system are offered according to the terms and conditions of the cable operator's local franchise agreement. The 1996 Telecom Act provides that the cable/SMATV and cable/MMDS cross-ownership rules do not apply in any franchise area where the operator faces "effective competition" as defined by federal law. The Cable Acts also provide 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. The Cable Acts limit the payment of franchise fees to 5% of revenues derived from cable operations and permit 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 periodic payment of fees to franchising authorities of 5% of "revenues" (as defined by each franchise agreement), which fees may be passed on to subscribers. The 1996 Telecom Act generally prohibits franchising authorities from (i) imposing requirements in the cable franchising process that require, prohibit or restrict the provision of telecommunications services by an operator, (ii) imposing franchise fees on revenues derived by the operator from providing telecommunications services over its cable system, or (iii) restricting an operator's use of any type of subscriber equipment or transmission technology. The 1984 Cable Act contains renewal procedures designed to protect incumbent franchisees against arbitrary denials of renewal. The 1992 Cable Act made 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. As such, the Company 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 U.S. 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. 49 OWNERSHIP LIMITATIONS 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. An appeal of that decision has been consolidated with appeals challenging the FCC's regulatory ownership restrictions and is pending. The 1996 Telecom Act eliminates the statutory prohibition on the common ownership, operation or control of a cable system and a television broadcast station in the same service area and directs the FCC to review its broadcast-cable ownership restrictions to determine if they are necessary in the public interest. Pursuant to the mandate of the 1996 Telecom Act, the FCC eliminated its regulatory restriction on cross-ownership of cable systems and national broadcasting networks. LEC OWNERSHIP OF CABLE SYSTEMS The 1996 Telecom Act makes far-reaching changes in the regulation of LECs that provide cable services. The new law eliminates federal legal barriers to competition in the local telephone and cable communications businesses, preempts legal barriers to competition that previously existed in state and local laws and regulations, and sets basic standards for relationships between telecommunications providers. See "--The 1996 Telecom Act." The 1996 Telecom Act generally limits acquisitions and prohibits certain joint ventures between LECs and cable operators in the same market. The FCC adopted regulations implementing the 1996 Telecom Act requirement that LECs open their telephone networks to competition by providing competitors interconnection, access to unbundled network elements and retail services at wholesale rates. Numerous parties have appealed these regulations. The appeals have been consolidated and will be reviewed by the U.S. Court of Appeals for the Eighth Circuit, which has stayed the FCC's pricing and nondiscrimination regulations. The ultimate outcome of these rule makings, and the ultimate impact of the 1996 Telecom Act or any final regulations adopted pursuant to the new law on the Company or its businesses cannot be determined at this time. 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. The 1996 Telecom Act and the FCC's implementing regulations modify the current pole attachment provisions of the Communications Act by immediately permitting certain providers of telecommunications services to rely upon the protections of the current law and by requiring that utilities provide cable systems and telecommunications carriers with nondiscriminatory access to any pole, conduit or right-of-way controlled by the utility. The FCC recently initiated a rulemaking to consider revisions to its existing rate formula, which revisions may increase the fees paid by cable operators to utilities for pole attachments and conduit space. Additionally, within two years of enactment of the 1996 Telecom Act, the FCC is required to adopt new regulations to govern the charges for pole attachments used by companies providing telecommunications services, including cable operators. These new pole attachment rate regulations will become effective five years after enactment of the 1996 Telecom Act, and any increase in attachment rates resulting from the FCC's new regulations will be phased in over equal annual increments over a period of five years beginning on the effective date of the new FCC 50 regulations. The ultimate outcome of these rulemakings and the ultimate impact of any revised FCC rate formula or of any new pole attachment rate regulations on the Company or its businesses cannot be determined at this time. OTHER STATUTORY PROVISIONS The 1992 Cable Act, the 1996 Telecom Act and FCC regulations preclude any satellite video programmer affiliated with a cable company, or with a common carrier providing video programming directly to its subscribers, from favoring an affiliated company over competitors and requires such programmers to sell their programming to other multichannel video distributors. These provisions limit the ability of program suppliers affiliated with cable companies or with common carriers providing satellite delivered video programming directly to their subscribers to offer exclusive programming arrangements to their affiliates. The 1992 Cable Act requires operators to block fully both the video and audio portion of sexually explicit or indecent programming on channels that are primarily dedicated to sexually oriented programming or alternatively to carry such programming only at "safe harbor" time, periods currently defined by the FCC as the hours between 10 p.m. to 6 a.m. Several adult-oriented cable programmers have challenged the constitutionality of this statutory provision, but the U.S. Supreme Court recently refused to overturn a lower court's denial of a preliminary injunction motion seeking to enjoin the enforcement of this law. The FCC's regulations implementing this statutory provision became effective in May 1997. The Communications Act also includes provisions, among others, concerning horizontal and vertical ownership of cable systems, customer service, subscriber privacy, marketing practices, equal employment opportunity, obscene or indecent programming, regulation of technical standards and equipment compatibility. OTHER FCC REGULATIONS The FCC has numerous rule making proceedings pending that will implement various provisions of the 1996 Telecom Act; it also has adopted regulations implementing various provisions of the 1992 Cable Act and the 1996 Telecom Act that are the subject of petitions requesting reconsideration of various aspects of its rule making proceedings. 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 cable casting and sponsorship identification, antenna structure notification, marking and lighting, carriage of local sports broadcast programming, application of rules governing political broadcasts, limitations on advertising contained in non-broadcast children's programming, consumer protection and customer service, 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 communications have previously been introduced in Congress or considered by other governmental bodies over the past several years. It is probable that further attempts will be made by Congress and other governmental bodies relating to the regulation of 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 51 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. Cable operators distribute programming and advertising that use music controlled by the two major music performing rights organizations, ASCAP and BMI. 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. The same federal district court recently established a special rate court for BMI. BMI and cable industry representatives recently concluded negotiations for a standard licensing agreement covering the performance of BMI music contained in advertising and other information inserted by operators into cable programming and on certain local access and origination channels carried on cable systems. The Company's settlement with BMI did not have a significant impact on the Company's financial position, results of operations or liquidity. ASCAP and cable industry representatives have met to discuss the development of a standard licensing agreement covering ASCAP-controlled music in local origination and access channels and pay-per-view programming. Although the Company cannot predict the ultimate outcome of these industry negotiations or the amount of any license fees it may be required to pay for past and future use of ASCAP-controlled music, it does not believe such license fees will be significant to the Company's financial position, results of operations or liquidity. 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 non-exclusive 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 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. 52 MANAGEMENT DIRECTORS AND DESIGNATED EXECUTIVE OFFICERS The Company has no executive officers. Comcast, through management agreements with the Company's subsidiaries, manages the Company's operations. Certain officers of Comcast, however, are deemed by the Company to be executive officers of the Company (the "Designated Executive Officers") for purposes of the U.S. federal securities laws. See "Management Compensation" and "Certain Relationships and Related Transactions." The following table sets forth certain information with respect to directors and certain officers, including the Designated Executive Officers, of the Company as of June 1, 1997:
NAME AGE POSITION WITH THE COMPANY - ---------------------- --- ----------------------------------------------------------------------------------- Ralph J. Roberts 77 Chairman, Director Julian A. Brodsky 63 Vice Chairman, Director Brian L. Roberts 37 Vice Chairman, Director Lawrence S. Smith 49 Executive Vice President John R. Alchin 49 Senior Vice President and Treasurer Stanley L. Wang 56 Senior Vice President and Secretary, Director
Ralph J. Roberts has served as a Director and Chairman of the Board of Comcast and as a Director and Chairman 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") and Comcast's largest shareholder, for more than five years. Mr. Roberts devotes a significant portion of his time to the business and affairs of the Company. Mr. Roberts currently has voting control of Sural. Mr. Ralph J. Roberts has indicated his intention to transfer control of Sural to Mr. Brian L. Roberts upon receipt of various regulatory and other approvals required in connection with such transfer. Mr. Roberts is also a Director of Comcast UK Cable Partners Limited and Storer Communications, Inc. Julian A. Brodsky has served as a Director and Vice Chairman of both the Company and Comcast for more than five years. Mr. Brodsky presently serves as the Treasurer and a Director of Sural. Mr. Brodsky devotes a significant portion of his time to the business and affairs of the Company. Mr. Brodsky is also a Director of Comcast UK Cable Partners Limited, Storer Communications, Inc. and RBB Fund, Inc. Brian L. Roberts has served as a Director of both the Company and Comcast for more than five years. Mr. Roberts has also served as the Company's Vice Chairman for more than five years. Mr. Roberts presently serves as President of Comcast and as Vice President and a Director of Sural. Mr. Roberts devotes a significant portion of his time to the affairs of the Company. Mr. Roberts is also a Director of Teleport Communications Group, Inc., Comcast UK Cable Partners Limited and Storer Communications, Inc. He is a son of Ralph J. Roberts. Lawrence S. Smith was named Executive Vice President of both the Company and Comcast in December 1995. Prior to that time, Mr. Smith served as Senior Vice President of both the Company and Comcast for more than five years. Mr. Smith is the Principal Accounting Officer of the Company and Comcast. Mr. Smith is a Director of Teleport Communications Group, Inc. and Comcast UK Cable Partners Limited and is a Partnership Board Representative of Sprint Spectrum Holding Company, L.P. John R. Alchin has served as Treasurer and Senior Vice President of both the Company and Comcast for more than five years. Mr. Alchin is the Principal Financial Officer of the Company and Comcast. Mr. Alchin is a Director of Comcast UK Cable Partners Limited. Stanley L. Wang has served as a Director of the Company and as Senior Vice President and Secretary of both the Company and Comcast for more than five years. Mr. Wang is a Director of Storer Communications, Inc. and is Comcast's General Counsel. 53 MANAGEMENT COMPENSATION All of the Company's directors and Designated Executive Officers are employees of and are compensated by Comcast, and will receive no separate compensation from the Company. The Company reimburses all directors for expenses incurred in performing their duties as directors. PRINCIPAL STOCKHOLDERS Comcast owns 100% of the Company's outstanding capital stock. The following tables provide certain information regarding the beneficial ownership, as defined in Rule 13d-3 of the Exchange Act, of Comcast's Common Stock as of June 1, 1997 by (i) each stockholder known to the Company to be the beneficial owner of 5% or more of any class of Comcast's voting securities, (ii) each of the Company's directors and Designated Executive Officers and (iii) all directors and Designated Executive Officers as a group. So far as is known to the Company, the persons named in the tables below as beneficially owning the shares set forth therein have sole voting power and sole investment power with respect to such shares, unless otherwise indicated.
BENEFICIAL OWNERSHIP OF CLASS A COMMON STOCK --------------------------- AMOUNT BENEFICIALLY PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS - ---------------------------------------------------------------------------------------- ------------ ------------- The Capital Group Companies, Inc........................................................ 2,654,000(1) 8.3% 333 South Hope Street Los Angeles, CA 90071 Neuberger & Berman LLC.................................................................. 1,642,000(2) 5.2% 605 Third Avenue New York, NY 10158-3698
AMOUNT BENEFICIALLY OWNED(3) PERCENT OF CLASS(3) -------------------------------------------- --------------------------------------- CLASS CLASS NAME OF BENEFICIAL OWNER CLASS A A SPECIAL CLASS B CLASS A A SPECIAL CLASS B - ---------------------------- ----------- ------------- ---------------- ----------- ------------- ----------- Alchin, John R. ............ 239,125(7) (13) (13) Brodsky, Julian A. ......... 280,559(4) 1,811,242 (13) (13) Roberts, Brian L. .......... 4,061(5) 516,362(8) (13) (13) Roberts, Ralph J. .......... 2,164,107(6) 10,506,929(9) 9,444,375(12) 6.8% 3.6% 100% Smith, Lawrence S. ......... 319,784 10) (13) (13) Wang, Stanley L. ........... 40,891 205,039 11) (13) (13) All directors and Designated Executive Officers as a group (6 persons)......... 2,489,618 13,598,481 9,444,375(12) 7.8% 4.7% 100% (4)(5)(6) (7)(8)(9)(10) (11)
- ------------------------ (1) The information contained in this table with respect to The Capital Group Companies, Inc. ("TCG") is based upon filings made on Form 13F by TCG and its wholly owned subsidiaries, Capital Research and Management Company ("Capital Research") and Capital Guardian Trust Company ("Capital Guardian"), setting forth information as of March 31, 1997. Based upon such filings, 1,950,000 and 704,000 of these shares are beneficially owned by Capital Research and Capital Guardian, respectively. 54 (2) The information contained in this table with respect to Neuberger & Berman LLC ("Neuberger") is based upon filings made on Form 13F by Neuberger, its wholly owned subsidiary, Neuberger & Berman Management, Inc., and Neuberger & Berman Institutional Asset Management, setting forth information as of March 31, 1997. Based upon such filings, 575,000 shares are beneficially owned by Neuberger and 1,000,000 and 67,000 shares are beneficially owned by Neuberger & Berman Management, Inc. and Neuberger & Berman Institutional Asset Management, respectively. (3) With respect to each beneficial owner, the shares issuable upon exercise of his currently exercisable options and options exercisable within 60 days of June 1, 1997 are deemed to be outstanding for purposes of computing the percentage of the class of Common Stock owned. Includes the following shares of Class A Special Common Stock and Class B Common Stock, respectively, for which the named individuals, and all directors and Designated Executive Officers as a group, hold currently exercisable options or options exercisable within 60 days of June 1, 1997: John R. Alchin, 189,565 shares and none; Julian A. Brodsky, 984,646 shares and none; Brian L. Roberts, 374,517 shares and none; Ralph J. Roberts, 4,412,566 and 658,125 shares; Lawrence S. Smith, 275,555 shares and none; Stanley L. Wang, 144,652 shares and none; and all directors and Designated Executive Officers as a group, 6,381,501 and 658,125 shares. (4) Includes 20,000 shares of Class A Common Stock owned by a charitable foundation of which he and members of his family are directors and officers, as to which shares he disclaims beneficial ownership. (5) Includes 1,356 shares of Class A Common Stock owned by his wife, as to which shares he disclaims beneficial ownership. (6) At June 1, 1997, Sural owned 1,845,037 shares of Class A Common Stock. Mr. Roberts, Chairman of the Board of Directors of Comcast, and members of his family own all of the voting securities of Sural. Pursuant to Rule 13d-3 of the Exchange Act, Mr. Roberts is deemed to be the beneficial owner of the shares of Class A Common Stock owned by Sural. Also includes 319,070 shares owned directly by Mr. Roberts. See also the last two sentences of note (12) below. (7) Includes 15 shares of Class A Special Common Stock owned in the Comcast Corporation Retirement-Investment Plan, as to which shares he disclaims beneficial ownership. (8) Includes 678 shares of Class A Special Common Stock owned by his wife, 20,542 shares owned in the Comcast Corporation Retirement-Investment Plan, and 58,140 shares owned by a charitable foundation of which he and his wife are directors and officers, as to all of which shares he disclaims beneficial ownership. (9) Includes 5,315,772 shares of Class A Special Common Stock owned by Sural and 61,800 shares owned by a charitable foundation of which he and his wife are trustees and as to which shares he disclaims beneficial ownership. See also the last sentence of Note (12) below. (10) Includes 20,901 shares of Class A Special Common Stock owned in a Keogh Plan, as to which shares he disclaims beneficial ownership. (11) Includes 15 shares of Class A Special Common Stock owned in the Comcast Corporation Retirement-Investment Plan, as to which shares he disclaims beneficial ownership. (12) At June 1, 1997, Sural was the sole owner of Comcast's Class B Common Stock. Pursuant to Rule 13d-3 of the Exchange Act, Mr. Ralph J. Roberts is deemed to be the beneficial owner of the shares of Class B Common Stock owned by Sural. In addition to the shares owned by Sural, Mr. Roberts has options to purchase 658,125 shares of Class B Common Stock, all of which are currently exercisable. Since each share of Class B Common Stock is entitled to fifteen votes, the shares of Class A Common Stock and Class B Common Stock owned by Sural constitute approximately 82% of the voting power of the two classes of Comcast's voting Common Stock combined 55 (83% if all other shares of Class A Common Stock which he is deemed to beneficially own and shares underlying his options to purchase Class B Common Stock currently exercisable or exercisable within 60 days of June 1, 1997 are included). The Class B Common Stock is convertible on a share-for-share basis into Class A Common Stock or Class A Special Common Stock. If Sural and Mr. Roberts were to convert the Class B Common Stock which they are deemed to beneficially own into Class A Common Stock, Mr. Roberts would beneficially own 11,608,482 shares of Class A Common Stock (approximately 28% of the Class A Common Stock). Mr. Ralph J. Roberts has indicated his intention to transfer control of Sural to Mr. Brian L. Roberts upon receipt of various regulatory and other approvals required in connection with such transfer. (13) Less than one percent of the applicable class. 56 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Comcast, through management agreements, manages the operations of the Company's subsidiaries, including rebuilds and upgrades. The management agreements generally provide that Comcast will supervise the management and operations of the cable systems, and arrange for and supervise (but not necessarily perform itself) certain administrative functions. As compensation for such services, the agreements provide for Comcast to charge management fees of up to 6% of gross revenues. Comcast charged the Company's subsidiaries management fees of $29.0 million and $21.8 million during the three months ended March 31, 1997 and 1996, respectively, and $93.2 million, $83.5 million and $65.9 million during the years ended December 31, 1996, 1995 and 1994, respectively. On behalf of the Company, Comcast seeks and secures long-term programming contracts that generally provide for payment based on either a monthly fee per subscriber per channel or a percentage of certain subscriber revenues. Comcast charges each of the Company's subsidiaries for programming on a basis which generally approximates the amount each such subsidiary would be charged if it purchased directly from the supplier, subject to limitations imposed by debt facilities for certain subsidiaries, and did not benefit from the purchasing power of the Company's consolidated operations. The Company purchases certain other services, including insurance and employee benefits, from Comcast under cost-sharing arrangements on terms that reflect Comcast's actual cost. The Company reimburses Comcast for certain other costs (primarily salaries) under cost-reimbursement arrangements. Under all of these arrangements, the Company incurred total expenses of $171.4 million, $121.8 million, $505.0 million, $439.4 million and $327.7 million, including $142.7 million, $101.0 million, $417.0 million, $368.3 million and $264.1 million of programming costs, during the three months ended March 31, 1997 and 1996 and during the years ended December 31, 1996, 1995 and 1994, respectively. Such programming costs include $9.2 million, $6.7 million, $26.2 million, $21.7 million and $16.7 million during the three months ended March 31, 1997 and 1996 and during the years ended December 31, 1996, 1995 and 1994, respectively, relating to programming purchased by the Company, through Comcast, from suppliers in which Comcast holds an equity interest. Comcast has agreed to permit certain subsidiaries of the Company to defer payment of a portion of the management fees and programming expenses charged to the Company. As of March 31, 1997 and December 31, 1996 and 1995, $319.5 million, $291.8 million and $225.2 million, respectively, were deferred under these arrangements. The Company receives sales commissions from QVC, an electronic retailer and a majority owned and controlled subsidiary of Comcast, based on a percentage of QVC sales to the Company's subscribers. In addition, the Company recognizes revenues relating to the carriage of certain QVC programming. For the three months ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 1995 and 1994, the Company's service income includes $1.9 million, $1.9 million, $8.3 million, $7.9 million and $4.7 million, respectively, relating to QVC. In 1995, the Company entered into a custodial account arrangement with Comcast Financial Agency Corporation ("CFAC"), a wholly owned subsidiary of Comcast, under which CFAC provides cash management services to the Company. Under this arrangement, the Company's cash receipts are deposited with and held by CFAC, as custodian and agent, which invests and disburses such funds at the direction of the Company. As of March 31, 1997 and December 31, 1996 and 1995, $66.5 million, $53.5 million and $26.9 million, respectively, of the Company's cash was held by CFAC. The Company and its 80% or more owned subsidiaries join with Comcast in filing a consolidated federal income tax return. Comcast allocates income tax expense or benefit to the Company as if the Company were filing a separate federal income tax return. Subsequent to the Company's initial adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1993, tax benefits from both losses and tax credits are made available to the Company as it is able to realize such benefits on a separate return basis. The subsidiaries of the Company pay Comcast 57 for income taxes an amount equal to the amount of tax each subsidiary would pay if they filed separate tax returns, subject to limitations for certain subsidiaries. Certain of the Company's subsidiaries' loan agreements contain restrictive covenants which, among other things, limit the Company's ability to enter into arrangements for the acquisition or disposition 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, payment of management fees and advances of funds to affiliated entities. In addition, the stock of certain subsidiaries is pledged as collateral for notes payable to banks and insurance companies. As of March 31, 1997, the Company and certain of its subsidiaries had unused irrevocable standby letters of credit totaling $106.3 million, substantially all of which cover potential fundings relating to companies in which Comcast, but not the Company, holds an equity interest. Between April 1, 1997 and May 1, 1997, the Company (i) repaid $100.0 million of the Notes Payable with the proceeds from drawdowns under subsidiaries' existing credit facilities ($55.0 million) and existing cash held by an affiliate ($45.0 million), (ii) completed the exchange of affiliate notes payable and notes receivable, and the accrued interest thereon, between the Company, Comcast and certain of their subsidiaries resulting in a reduction in the Company's Notes Payable of $307.6 million as of May 1, 1997, with a corresponding reduction in the Company's Notes Receivable, and (iii) eliminated the remaining Notes Receivable, and accrued interest thereon (aggregating $546.3 million as of May 1, 1997), through a non-cash dividend to Comcast. Interest income accrued on the Notes Receivable during the three months ended March 31, 1997 and 1996 and during the years ended December 31, 1996, 1995 and 1994 was $18.0 million, $9.9 million, $52.9 million, $40.1 million and $3.9 million, respectively. Interest expense on the Notes Payable during the three months ended March 31, 1997 and 1996 and during the years ended December 31, 1996, 1995 and 1994 was $9.1 million, $8.6 million, $32.1 million, $28.2 million and $20.9 million, respectively. 58 DESCRIPTION OF CERTAIN INDEBTEDNESS SUBSIDIARY CREDIT AGREEMENTS As of May 31, 1997, certain of the Company's subsidiaries are party to credit agreements (each a "Subsidiary Credit Agreement" and collectively the "Subsidiary Credit Agreements") pursuant to which such subsidiaries may borrow an aggregate of up to $2.050 billion. As of May 31, 1997, an aggregate amount of $1.155 billion was outstanding under these credit agreements. The obligations of the financial institutions to lend under Subsidiary Credit Agreement revolving facilities expire, and amounts, if any, outstanding thereunder are due and payable, on the following dates with respect to the following committed amounts: $600.0 million in January 2002, $750.0 million in December 2003 and $700.0 million in September 2004. On July 2, 1997, the Company repaid $435.0 million of its long-term debt outstanding under a Subsidiary Credit Agreement as of May 31, 1997 with the proceeds from the issuance of a note payable to a subsidiary of Comcast. Loans under the Subsidiary Credit Agreements bear interest at floating rates. As of May 31, 1997, the weighted average effective interest rate on amounts outstanding under the Subsidiary Credit Agreements was 6.74% per annum. The Company has pledged the shares of common stock of certain of its subsidiaries to secure the obligations of such subsidiary under the relevant Subsidiary Credit Agreement. In addition, under one of the Subsidiary Credit Agreements, the subsidiary has pledged the shares of each of its direct subsidiaries to secure its obligations under such Subsidiary Credit Agreement. Each of the Subsidiary Credit Agreements include customary covenants, including restrictive covenants which, subject to certain exceptions, impose certain limitations on the subsidiaries' (and their respective subsidiaries') abilities to, among other things: (a) guaranty obligations of others, (b) incur liens, (c) pay dividends or redeem or repurchase capital stock, (d) merge with certain other entities, (e) dispose of a material portion of such subsidiary's assets (other than in the ordinary course of business), (f) incur indebtedness, (g) engage in certain transactions with affiliates, (h) allow any of its subsidiaries to enter into restrictions on their ability to pay dividends, (i) allow any of its subsidiaries to issue capital stock or (j) acquire the business or assets of other entities. Certain of the Subsidiary Credit Agreements provide for subordination of amounts due to affiliates to the obligations of the subsidiary under such Subsidiary Credit Agreement. Each of the Subsidiary Credit Agreements includes financial covenants requiring the subsidiary to maintain certain financial ratios at specified levels. Each of the Subsidiary Credit Agreements contains customary events of default, including but not limited to (a) nonpayment of principal, interest, fees or other amounts when due, (b) violation of covenants, (c) failure of any representation or warranty to be true in all material respects when made, (d) cross-default and cross-acceleration, (e) bankruptcy events, (f) judgments rendered against such subsidiary in excess of certain amounts and (g) change of control. As of March 31, 1997, the Company and each subsidiary party to a Subsidiary Credit Agreement was in substantial compliance with their obligations under the Subsidiary Credit Agreements and related documents. 10% DEBENTURES DUE 2003 Pursuant to an Indenture dated as of May 15, 1983, between Storer Communications, Inc. ("Storer"), an indirect wholly owned subsidiary of the Company, and The Chase Manhattan Bank, N.A. as Trustee, Storer issued 10% Subordinated Debentures, due May 15, 2003 (the "10% Debentures"). On June 30, 1997, the Company redeemed the 10% Debentures. An aggregate principal amount of $139.3 million of the 10% Debentures were redeemed at a redemption price of 100% of the principal amount thereof, together with accrued interest thereon. The Company redeemed the 10% Debentures with the proceeds from the issuance of a note payable to a subsidiary of Comcast. As of March 31, 1997 and 59 December 31, 1996, the 10% Debentures had an accreted value of $127.1 million and $126.6 million, respectively. OTHER Between April 1, 1997 and May 1, 1997, the Company (i) repaid $100.0 million of the Notes Payable with the proceeds from drawdowns under subsidiaries' existing credit facilities ($55.0 million) and existing cash held by an affiliate ($45.0 million), (ii) completed the exchange of affiliate notes payable and notes receivable, and the accrued interest thereon, between the Company, Comcast and certain of their subsidiaries resulting in a reduction in the Company's Notes Payable of $307.6 million as of May 1, 1997, with a corresponding reduction in the Company's Notes Receivable, and (iii) eliminated the remaining Notes Receivable, and accrued interest thereon (aggregating $546.3 million as of May 1, 1997), through a non-cash dividend to Comcast. Interest income accrued on the Notes Receivable during the three months ended March 31, 1997 and 1996 and during the years ended December 31, 1996, 1995 and 1994 was $18.0 million, $9.9 million, $52.9 million, $40.1 million and $3.9 million, respectively. Interest expense on the Notes Payable during the three months ended March 31, 1997 and 1996 and during the years ended December 31, 1996, 1995 and 1994 was $9.1 million, $8.6 million, $32.1 million, $28.2 million and $20.9 million, respectively. The terms of the notes payable issued to a subsidiary of Comcast on June 30, 1997 and July 2, 1997 are substantially the same as those of the 10% Debentures and the long-term debt referred to above. 60 DESCRIPTION OF THE NOTES The New Notes are to be issued under an Indenture, dated as of May 1, 1997 (the "Indenture"), between the Company and Bank of Montreal Trust Company, as Trustee, which has been filed as an exhibit to the Registration Statement, of which the Prospectus constitutes a part. The following summary of certain provisions of the Indenture and the Notes does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part thereof by the TIA. References in this "Description of the Notes" to the "Company" are to Comcast Cable Communications, Inc. and not any of its subsidiaries. All defined terms used hereunder and not previously defined are defined under " --Certain Definitions." Copies of the Indenture are available at the corporate trust office of the Trustee. The terms of the New Notes are identical in all material respects to the terms of the Old Notes, except for certain transfer restrictions and registration rights relating to the Old Notes and except that, if the Exchange Offer is not consummated by October 28, 1997, holders that have complied with their obligations under the Registration Rights Agreements will be entitled, subject to certain exceptions, to additional interest at a rate in an amount equal to 25 basis points per annum on Old Notes held by such holder. The rate of additional interest will increase by an additional 25 basis points per each subsequent 90-day period until the Exchange Offer is consummated, up to a maximum rate of additional interest of 100 basis points. GENERAL The Indenture provides for issuance from time to time of debentures, notes (including the Notes) or other evidences of indebtedness of the Company ("Securities") in an unlimited amount. Additional Securities may be issued under the Indenture from time to time. The New Notes will be unsecured and unsubordinated obligations of the Company and will rank PARI PASSU with all other unsecured and unsubordinated indebtedness and other obligations of the Company. The New Notes will be effectively subordinated to all liabilities of the Company's subsidiaries, including trade payables. On a pro forma basis as of March 31, 1997, after giving effect to the Offering, the Intercompany Note Transactions and the application of the proceeds therefrom, the total indebtedness and other liabilities of the Company's subsidiaries (including trade payables and accrued liabilities) would have been approximately $2.4 billion. The New Notes will bear interest at the rates per annum shown on the front cover of this Prospectus from May 1, 1997, payable semiannually (to holders of record at the close of business on April 15 or October 15 immediately preceding the interest payment date) on May 1 and November 1 of each year commencing November 1, 1997. The Seven-Year Notes will mature on May 1, 2004; the Ten-Year Notes will mature on May 1, 2007; the Twenty-Year Notes will mature on May 1, 2017 and the Thirty-Year Notes will mature on May 1, 2027. Principal of, premium, if any, and interest on the Notes will be payable, and the Notes may be exchanged or transferred, at the office or agency of the Company in the Borough of Manhattan, the City of New York (which initially will be the corporate trust office of the Trustee at 77 Water Street, 4th Floor, New York, New York, 10005); PROVIDED that, at the option of the Company, payment of interest may be made by check mailed to the address of the holder as such address appears in the security register. The New Notes will be issued only in registered form in denominations of $1,000 and integral multiples thereof. No service charge will be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. The Company is a holding company and conducts all of its operations through subsidiaries. Consequently, the ability of the Company to pay its obligations, including its obligation to pay interest on 61 and principal of the Notes, whether at the maturity thereof or upon an earlier redemption or purchase at the option of the Company or the holders of the Thirty-Year Notes, will be dependent upon the repayment to the Company of investments and advances made by the Company and upon the earnings of its subsidiaries and the distribution of those earnings to the Company. The subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes or to make funds available therefor. The ability of the subsidiaries to pay dividends or make other payments or advances to the Company will depend upon their operating results and will be subject to applicable laws and contractual restrictions, including, but not limited to, payments due to Comcast pursuant to certain management agreements (including programming arrangements) and other arrangements. Certain of the Company's subsidiaries' loan agreements require that certain ratios and cash flow levels be maintained and contain certain restrictions on dividend payments, payment of management fees and advances of funds to affiliated entities. The Indenture will not limit the ability of subsidiaries of the Company to enter into agreements that prohibit or restrict dividends or other payments or advances to the Company. See "Risk Factors--Holding Company Structure; Dependence on Payments from Subsidiaries; Effective Subordination." PURCHASE AT OPTION OF HOLDERS OF THIRTY-YEAR NOTES Each holder of the Thirty-Year Notes will have the right to require the Company to repurchase all or a portion of the Thirty-Year Notes owned by such holder (the "Put Option") on May 1, 2009 (the "Put Option Exercise Date") at a purchase price equal to 100% of the principal amount of the Thirty-Year Notes tendered by such holder plus accrued interest thereon. On or before the Put Option Exercise Date, the Company shall deposit with a paying agent (or the Trustee) money sufficient to pay the principal of and any accrued interest on any Thirty-Year Notes tendered for repayment. On and after the Put Option Exercise Date, interest will cease to accrue on the Thirty-Year Notes or any portion thereof tendered for purchase, unless the Company fails to pay the purchase price. If a holder elects to exercise the Put Option, such holder must provide the Company with notice of its intention to exercise the Put Option during the period from and including March 1, 2009 through and including April 1, 2009. Such notice, once given, will be irrevocable unless waived by the Company. The Company will comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act if required and will file Schedule 13E-4 or any other schedule if required thereunder in connection with any offer by the Company to purchase the Thirty-Year Notes. BOOK-ENTRY NOTES With respect to Thirty-Year Notes held under the book-entry system maintained by the Depositary Trust Company ("DTC"), DTC, its nominee, Cede & Co. or any of DTC's direct or indirect participants (as defined herein) as registered holders of the Thirty-Year Notes, will be entitled to tender the Thirty-Year Notes on the Put Option Exercise Date for repayment and any such tenders will be effected by means of DTC's Repayment Option Procedures. During the period from and including March 1, 2009 to and including April 1, 2009 or, if such April 1, 2009 is not a business day, the next succeeding business day, DTC will receive instructions from its participants (acting on behalf of owners of beneficial interests in the Thirty-Year Notes) to tender the Thirty-Year Notes for repayment under DTC's Repayment Option Procedures. Such tenders for repayment will be made by DTC by means of a book-entry credit of the Thirty-Year Notes to the account of the Trustee, provided that DTC receives instructions from tendering participants by Noon on April 1, 2009. Promptly after the recording of any such book-entry credit, DTC will provide the Trustee an Agent Put Daily Activity Report in accordance with its Repayment Option Procedures, identifying the Thirty-Year Notes and the aggregate principal amount thereof as to which such tenders for repayment have been made. OWNERS OF BENEFICIAL INTERESTS IN THIRTY-YEAR NOTES WHO WISH TO EFFECTUATE THE TENDER AND REPAYMENT OF SUCH THIRTY-YEAR NOTES 62 MUST INSTRUCT THEIR RESPECTIVE DTC PARTICIPANT OR PARTICIPANTS A REASONABLE PERIOD OF TIME IN ADVANCE OF APRIL 1, 2009. CERTIFICATED NOTES Tenders for repayment of Notes not held under the book-entry system on the Put Option Exercise Date shall be made according to the following procedures. The Trustee must receive at the principal office of the Trustee in New York City, during the period from and including March 1, 2009 to and including April 1, 2009 or if such April 1, 2009 is not a business day, the next succeeding business day, (i) the Thirty-Year Notes with the form entitled "Option to Elect Repayment" on the reverse of the Thirty-Year Notes duly completed, or (ii) a telegram, telex, facsimile transmission or letter from a member of a national securities exchange or the National Association of Securities Dealers, Inc., or a commercial bank or a trust company in the United States of America, setting forth the name of the registered holder of the Thirty-Year Notes, the principal amount of the Thirty-Year Notes to be repaid, the certificate number or a description of the tenor and terms of the Thirty-Year Notes, a statement that the option to elect repayment is being exercised thereby and a guarantee that the Thirty-Year Notes to be repaid with the form entitled "Option to Elect Repayment" on the reverse of the Thirty-Year Notes duly completed will be received by the Trustee not later than five business days after the date of such telegram, telex, facsimile transmission or letter and such Thirty-Year Notes and form duly completed are received by the Trustee by such fifth business day. Any such notice received by the Trustee during the period from and including March 1, 2009 to and including April 1, 2009 shall be irrevocable, unless waived by the Company. All questions as to the validity, eligibility (including time of receipt) and the acceptance of any Thirty-Year Notes for repayment will be determined by the Company, whose determination will be final and binding absent manifest error. OPTIONAL REDEMPTION The Seven-Year Notes, Ten-Year Notes and Twenty-Year Notes will be redeemable, in whole or in part, at the option of the Company at any time and the Thirty-Year Notes will be redeemable, in whole or in part, at the option of the Company at any time after May 1, 2009, in each case at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes, plus accrued interest thereon to the date of redemption, or (ii) as determined by a Quotation Agent (as defined below), the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus accrued interest on the Notes to the date of redemption. If a redemption date does not fall on an interest payment date, then, with respect to the interest payment immediately succeeding the redemption date, only the unaccrued portion of such interest payment as of the redemption date shall be included in any calculation pursuant to clause (ii). "Adjusted Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of the principal amount) equal to the Comparable Treasury Price for such redemption date, plus 0.25%. "Comparable Treasury Issue" means the United States Treasury security selected by a Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "Comparable Treasury Price" means, with respect to any redemption date, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains three or fewer such Reference Treasury Dealer Quotations, the average of all such Quotations. 63 "Quotation Agent" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Reference Treasury Dealer" means (i) each of Goldman, Sachs & Co.; Bear, Stearns & Co. Inc.; Donaldson, Lufkin & Jenrette Securities Corporation and their respective successors; PROVIDED, HOWEVER, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer; and (iii) any other Primary Treasury Dealer selected by the Trustee after consultation with the Company. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such redemption date. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of the Notes to be redeemed. Unless the Company defaults in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption. If less then all the Notes are to be redeemed, the Trustee shall select, in such manner as it shall deem fair and appropriate, the particular Notes to be redeemed or any portion thereof that is an integral multiple of $1,000. The Notes will not be entitled to any sinking fund. CERTAIN COVENANTS LIMITATION ON LIENS SECURING INDEBTEDNESS The Company shall not, and shall not permit any Restricted Subsidiary to, create, incur or assume any Lien (other than any Permitted Lien) on Restricted Property to secure the payment of Indebtedness of the Company or any Subsidiary if immediately after the creation, incurrence or assumption of such Lien, the aggregate outstanding principal amount of all Indebtedness of the Company and the Subsidiaries that is secured by Liens (other than Permitted Liens) on Restricted Property (other than (x) Indebtedness that is so secured equally and ratably with (or on a basis subordinated to) the Notes and (y) the Notes), plus the aggregate amount of all Attributable Debt of the Company and the Restricted Subsidiaries with respect to all Sale and Leaseback Transactions outstanding at such time (other than Sale and Leaseback Transactions permitted by the second paragraph under "--Limitation on Sale and Leaseback Transactions"), would exceed four times Annualized Cash Flow, unless the Company secures the outstanding Notes equally and ratably with (or prior to) all Indebtedness secured by such Lien, so long as such Indebtedness shall be so secured. LIMITATION ON RESTRICTED PAYMENTS The Company shall not, and shall not permit any Restricted Subsidiary to, make any Restricted Payment if (a) at the time of such proposed Restricted Payment, a Default or Event of Default shall have occurred and be continuing or shall occur as a consequence of such Restricted Payment or (b) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments that shall have been made on or after April 1, 1997 would exceed the sum of: (i) $200 million plus 64 (ii) an amount equal to the difference between (A) the Cumulative Cash Flow Credit and (B) 1.2 multiplied by Cumulative Interest Expense. For purposes of this "Limitation on Restricted Payments" covenant, the amount of any Restricted Payment, if other than cash, shall be its fair market value as determined by the Board of Directors of the Company, whose good faith determination shall be conclusive. The foregoing provisions do not prevent: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment complied with the above provisions and (ii) the retirement or redemption of any shares of the Company's Capital Stock or warrants, rights or options to acquire Capital Stock of the Company, in exchange for, or out of the proceeds of a substantially concurrent sale of, Qualified Stock or warrants, rights or options to acquire Qualified Stock. For purposes of determining the aggregate permissible amount of Restricted Payments in accordance with clause (b) of the first paragraph of this covenant, all amounts expended pursuant to clause (i) of this paragraph shall be included to the extent that such amounts were not previously included in calculating Restricted Payments and all retirements, redemptions, exchanges and sales pursuant to clause (ii) of this paragraph shall be excluded. If the Company makes a Restricted Payment which, at the time of the making of such Restricted Payment, would in the good faith determination of the Company be permitted under the requirements of this covenant, such Restricted Payment shall be deemed to have been made in compliance with this covenant notwithstanding any subsequent adjustments made in good faith to the Company's financial statements affecting Cumulative Cash Flow Credit or Cumulative Interest Expense for any period. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction involving any Principal Property or any part thereof after the date of original issuance of the Notes unless, after giving effect to such Sale and Leaseback Transaction, the aggregate amount of all Attributable Debt of the Company and the Restricted Subsidiaries with respect to all Sale and Leaseback Transactions outstanding at such time (other than Sale and Leaseback Transactions permitted by the next paragraph), plus the aggregate principal amount of all Indebtedness of the Company and the Subsidiaries that is secured by Liens (other than Permitted Liens) on Restricted Property (other than (x) Indebtedness that is so secured equally and ratably with (or on a basis subordinated to) the Notes and (y) the Notes), would not exceed four times Annualized Cash Flow. The restriction in the foregoing paragraph shall not apply to any Sale and Leaseback Transaction if (i) the lease is for a period of not in excess of three years, including renewal of rights, (ii) the lease secures or relates to industrial revenue or similar financing, (iii) the transaction is solely between the Company and a Restricted Subsidiary or between or among Restricted Subsidiaries, or (iv) the Company or such Restricted Subsidiary, within 270 days after the sale is completed, applies an amount equal to or greater of (a) the net proceeds of the sale of the Principal Property or part thereof leased or (b) the fair market value of the Principal Property or part thereof leased (as determined in good faith by the Board of Directors of the Company) either to (1) the retirement (or open market purchase) of Notes, other long-term Indebtedness of the Company ranking on a parity with or senior to the Notes or long-term Indebtedness of a Restricted Subsidiary or (2) the purchase by the Company or any Restricted Subsidiary of other property, plant or equipment related to the business of the Company or any Restricted Subsidiary having a value at least equal to the value of the Principal Property or part thereof leased. FINANCIAL INFORMATION Whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, the Company shall prepare, and shall deliver to any holder or beneficial owner of Notes upon request (without charge) and to the Trustee, no later than 15 calendar days after the dates specified in such Sections were the 65 Company subject thereto, annual audited consolidated financial statements and quarterly unaudited consolidated financial statements, each accompanied by a "Management's Discussion and Analysis of Results of Operations and Financial Condition" written report, similar to those that would be required to be filed with the Commission if the Company were subject to Section 13(a) or 15(d) of the Exchange Act. In addition, for so long as any Notes remain outstanding, the Company shall furnish to holders of Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any beneficial owner of the Notes, if not obtainable from the Commission, information of the type described above, upon the request of any such holder. CONSOLIDATION, MERGER AND SALE OF ASSETS The Company shall not consolidate with, merge with or into, or sell, convey, transfer, lease, or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to any person (other than a consolidation with or merger with or into or a sale, conveyance, transfer, lease or other disposition to a Wholly Owned Restricted Subsidiary with a positive net worth; PROVIDED that, in connection with any such merger of the Company with a Wholly Owned Restricted Subsidiary, no consideration (other than common stock in the surviving person or the Company) shall be issued or distributed to the stockholders of the Company) or permit any person to merge with or into the Company unless: (i) the Company shall be the continuing person, or the person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of the Company shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of the obligations of the Company on all of the Notes and under the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iii) the Company delivers to the Trustee an officers' certificate and opinion of counsel, in each case stating that such consolidation, merger, or transfer and such supplemental indenture complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with; PROVIDED, HOWEVER, that the foregoing limitations shall not apply if, in the good faith determination of the board of directors of the Company, whose determination shall be evidenced by a board resolution, the principal purpose of such transaction is to change the state of incorporation of the Company; and PROVIDED further that any such transaction shall not have as one of its purposes the evasion of the foregoing limitations. EVENTS OF DEFAULT An Event of Default will occur with respect to an issue of Notes if: (a) the Company defaults in the payment of principal of (or premium if any, on) any such Note when the same becomes due and payable at maturity, upon acceleration, redemption, or otherwise; (b) the Company defaults in the payment of interest (including additional interest under the Registration Rights Agreement) on any such Note when the same becomes due and payable, and such default continues for a period of 30 days; (c) the Company defaults in the performance of or breaches any other covenant or agreement of the Company in the Indenture with respect to such Notes or under such Notes and such default or breach continues for a period of 30 consecutive days after written notice by the Trustee or by the holders (as defined in the Indenture) of 25% or more in aggregate principal amount of such Notes; (d) there occurs with respect to any issue or issues of Indebtedness of the Company or any Subsidiary (other than such Notes) having an outstanding principal amount of $50 million or more in the aggregate for all such issues of all such persons, whether such Indebtedness now exists or shall hereafter be created, (A) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its stated maturity and/or (B) the failure to make a principal payment at the final (but not any interim) fixed maturity; (e) any final judgment or order (not covered by insurance) for the payment of money in excess of $50 66 million in the aggregate for all such final judgments or orders (treating any deductibles, self-insurance, or retention as not so covered) shall be rendered against the Company or any Subsidiary and shall not be paid or discharged, and there shall be any period of 60 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such persons to exceed $50 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (f) a court having jurisdiction enters a decree or order for (i) relief in respect of the Company or any Subsidiary in an involuntary case under any applicable bankruptcy, insolvency, or other similar law now or hereafter in effect, (ii) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar official of the Company or any Subsidiary or for all or substantially all of the property and assets of the Company or any Subsidiary or (iii) the winding up or liquidation of the affairs of the Company or any Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (g) the Company or any Subsidiary (i) commences a voluntary case under any applicable bankruptcy, insolvency, or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (ii) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar official of the Company or any Subsidiary or for all or substantially all of the property and assets of the Company or any Subsidiary or (iii) effects any general assignment for the benefit of creditors. If an Event of Default (other than an Event of Default specified in clause (f) or (g) above that occurs with respect to the Company) occurs with respect to an issue of Notes and is continuing under the Indenture, then, and in each and every such case, either the Trustee or the holders of not less than 25% in aggregate principal amount of such Notes then outstanding under the Indenture by written notice to the Company (and to the Trustee if such notice is given by the holders (the "Acceleration Notice")), may, and the Trustee at the request of such holders shall, declare the principal amount of and accrued interest, if any, on such Notes to be immediately due and payable. Upon a declaration of acceleration, such principal amount of and accrued interest, if any, on such Notes shall be immediately due and payable. If an Event of Default specified in clause (f) or (g) above occurs with respect to the Company, the principal amount of and accrued interest, if any, on each issue of Notes then outstanding shall be and become immediately due and payable without any notice or other action on the part of the Trustee or any holder. Upon certain conditions such declarations may be rescinded and annulled and past defaults may be waived by the holders of a majority in aggregate principal amount of an issue of Notes that has been accelerated. Furthermore, subject to various provisions in the Indenture, the holders of at least a majority in aggregate principal amount of an issue of Notes by notice to the Trustee, may waive an existing Default or Event of Default with respect to such Notes and its consequences, except a Default in the payment of principal of or interest on such Notes or in respect of a covenant or provision of the Indenture which cannot be modified or amended without the consent of the holders of each such Notes. Upon any such waiver, such Default shall cease to exist, and any Event of Default with respect to such Notes shall be deemed to have been cured, for every purpose of the Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. For information as to the waiver of defaults, see "--Modification and Waiver." The holders of at least a majority in aggregate principal amount of an issue of Notes may direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to such Notes. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of holders of such issue of Notes not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from holders of such issue of Notes. A holder may not pursue any remedy with respect to the Indenture or any issue of Notes unless: (i) the holder gives the Trustee written notice of a continuing Event of Default; (ii) the holders of at least 25% in aggregate principal amount of such Notes make a written request to the Trustee to pursue the 67 remedy; (iii) such holder or holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability, or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (v) during such 60-day period, the holders of a majority in aggregate principal amount of such Notes do not give the Trustee a direction that is inconsistent with the request. However, such limitations do not apply to the right of any holder of a Note to receive payment of the principal of or interest, if any, on such Note, or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, which right shall not be impaired or affected without the consent of the holder. The Indenture will require certain officers of the Company to certify, on or before a date not more than 90 days after the end of each fiscal year, as to their knowledge of the compliance of the Company with all conditions and covenants under the Indenture, such compliance to be determined without regard to any period of grace or requirement of notice provided under the Indenture. DEFEASANCE The Indenture provides that, except as otherwise provided in this paragraph, the Company may terminate its obligations with respect to an issue of Notes and the Indenture with respect to such Notes if: (i) all such Notes previously authenticated and delivered with certain exceptions, have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it under the Indenture; or (ii)(A) such Notes mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption, (B) the Company irrevocably deposits in trust with the Trustee, as trust funds solely for the benefit of the holders of such Notes, for that purpose, money or U.S. government obligations or a combination thereof sufficient (unless such funds consist solely of money, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee), without consideration of any reinvestment, to pay principal of and interest on such Notes to maturity or redemption, as the case may be, and to pay all other sums payable by it under the Indenture, and (C) the Company delivers to the Trustee an officers' certificate and an opinion of counsel, in each case stating that all conditions precedent provided for in the Indenture relating to the satisfaction and discharge of the Indenture with respect to such Notes have been complied with. With respect to the foregoing clause (i), only the Company's obligations to compensate and indemnify the Trustee and its right to recover excess money held by the Trustee under the Indenture shall survive. With respect to the foregoing clause (ii), only the Company's obligations with respect to the issue of defeased Notes to execute and deliver such Notes for authentication, to set the terms of such Notes, to maintain an office or agency in respect of such Notes, to have moneys held for payment in trust, to register the transfer or exchange of such Notes, to deliver such Notes for replacement or to be canceled, to compensate and indemnify the Trustee and to appoint a successor trustee, and its right to recover excess money held by the Trustee shall survive until such Notes are no longer outstanding. Thereafter, only the Company's obligations to compensate and indemnify the Trustee, and its right to recover excess money held by the Trustee shall survive. The Indenture provides that, except as otherwise provided in this paragraph, the Company (i) will be deemed to have paid and will be discharged from any and all obligations in respect of an issue of Notes, and the provisions of the Indenture will no longer be in effect with respect to such Notes ("legal defeasance") and (ii) may omit to comply with any term, provision or condition of the Indenture described above under "--Certain Covenants" and such omission shall be deemed not to be an Event of Default under clause (c) of the first paragraph of "--Events of Default" with respect to such Notes ("covenant defeasance"); PROVIDED that the following conditions shall have been satisfied: (A) the Company has irrevocably deposited in trust with the Trustee as trust funds solely for the benefit of the holders of such Notes, for payment of the principal of and interest on such Notes, money or U.S. government obligations or a combination thereof sufficient (unless such funds consist solely of money, 68 in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee) without consideration of any reinvestment and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, to pay and discharge the principal of and accrued interest on such Notes to maturity or earlier redemption (irrevocably provided for under arrangements satisfactory to the Trustee), as the case may be; (B) such deposit will not result in a breach or violation of, or constitute a default under, the Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound; (C) no Default or Event of Default with respect to such Notes shall have occurred and be continuing on the date of such deposit; (D) the Company shall have delivered to the Trustee an opinion of counsel that (1) the holders of such Notes will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this provision of the Indenture and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (which opinion, in the case of a legal defeasance, shall be based upon a change in law) and (2) the Holders of such Notes have a valid security interest in the trust funds subject to no prior liens under the Uniform Commercial Code, and (E) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel, in each case stating that all conditions precedent provided for in the Indenture relating to the defeasance contemplated of such Notes have been complied with. In the case of legal defeasance under clause (i) above, the opinion of counsel referred to in clause (D)(1) above may be replaced by a ruling directed to the Trustee received from the Internal Revenue Service to the same effect. Subsequent to legal defeasance under clause (i) above, the Company's obligations with respect to the issue of defeased Notes to execute and deliver such Notes for authentication, to set the terms of such Notes, to maintain an office or agency in respect of such Notes, to have moneys held for payment in trust, to register the transfer or exchange of such Notes, to deliver such Notes for replacement or to be canceled, to compensate and indemnify the Trustee and to appoint a successor trustee, and its right to recover excess money held by the Trustee shall survive until such Notes are no longer outstanding. After such Notes are no longer outstanding, in the case of legal defeasance under clause (i) above, only the Company's obligations to compensate and indemnify the Trustee and its right to recover excess money held by the Trustee shall survive. MODIFICATION AND WAIVER The Company and the Trustee may amend or supplement the Indenture or the Notes without notice to or the consent of any holder: (i) to cure any ambiguity, defect, or inconsistency in the Indenture; PROVIDED that such amendments or supplements shall not adversely affect the interests of the holders in any material respect; (ii) to comply with the provisions described under "--Certain Covenants--Consolidation, Merger and Sale of Assets"; (iii) to comply with any requirements of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act; (iv) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; (v) to establish the form or forms or terms of the Notes as permitted by the Indenture; (vi) to provide for uncertificated Notes and to make all appropriate changes for such purpose; (vii) to secure the Notes pursuant to the provisions of "--Certain Covenants--Limitation on Liens Securing Indebtedness"; or (viii) to make any change that does not materially and adversely affect the rights of any holder. Subject to certain conditions, without prior notice to any holder of an issue of Notes, modifications and amendments of the Indenture may be made by the Company and the Trustee with the written consent of the holders of a majority in principal amount of such Notes, and compliance by the Company with any provision of the Indenture with respect to such Notes may be waived by written notice to the Trustee by the holders of a majority in principal amount of such Notes outstanding; PROVIDED, HOWEVER, that no such modification, amendment or waiver may, without the consent of each holder affected thereby, (i) change the stated maturity of the principal of, or any installment of interest on, any Note; (ii) reduce the principal amount of, or premium, if any, or interest on, any Note; (iii) change the place or 69 currency of payment of principal of, or premium, if any, or interest on, any Note; (iv) change the provisions for calculating the optional redemption price, including the definitions relating thereto; (v) impair the right to institute suit for the enforcement of any payment of any Note on or after the due date therefor; (vi) reduce the above-stated percentage of outstanding Notes the consent of whose holders is necessary to modify or amend or to waive certain provisions of or defaults under the Indenture; (vii) waive a default in the payment of principal of or interest on the Notes; or (viii) modify any of the provisions of this paragraph, except to increase any required percentage or to provide that certain other provisions cannot be modified or waived with the consent of the holder of each Note affected thereby. It shall not be necessary for the consent of the holders under this section of the Indenture to approve the particular form of any proposed amendment, supplement, or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement, or waiver under this section of the Indenture becomes effective, the Company shall give to the holders affected thereby a notice briefly describing the amendment, supplement, or waiver. The Company will mail supplemental indentures to holders upon request. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. With respect to any issue of Notes, neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee, or otherwise, to any holder of any such Note for or as an inducement to any consent, waiver, or amendment of any of the terms or provisions of such Notes or the Indenture with respect to such Notes unless such consideration is offered to be paid or agreed to be paid to all holders of such Notes that consent, waive, or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver, or agreement. NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR EMPLOYEES The Indenture provides that no recourse shall be had under or upon any obligation, covenant, or agreement of the Company in the Indenture or any supplemental indenture, or in any of the Notes or because of the creation of any indebtedness represented thereby, against any incorporator, stockholder, officer, director, employee of the Company or of any successor person thereof under any law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise. Each holder, by accepting the Notes, waives and releases all such liability. CONCERNING THE TRUSTEE The Indenture provides that, except during the continuance of a Default, the Trustee will not be liable, except for the performance of such duties as are specifically set forth in such Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture and will use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and provisions of the TIA incorporated by reference therein contain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; PROVIDED, HOWEVER, that if it acquires any conflicting interest, it must eliminate such conflict or resign. 70 CERTAIN DEFINITIONS "Affiliate" means, as applied to any person, any other person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as applied to any person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities, by contract, or otherwise. "Annualized Cash Flow" means, at any date, Operating Cash Flow for the last two fiscal quarters for which financial statements are available immediately prior or on such date multiplied by two. "Attributable Debt" means, with respect to a lease in a Sale and Leaseback Transaction, the total net amount of rent required to be paid during the remaining primary term of such lease, discounted at a rate per annum equal to the interest rate implicit in such lease, calculated in accordance with GAAP. The net amount of rent required to be paid under any such lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of maintenance, repairs, insurance, taxes, assessments, utility, operating and labor costs and similar charges. "Capitalized Lease" means, as applied to any person, any lease of any property (whether real, personal, or mixed) of which the discounted present value of the rental obligations of such person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such person; and "Capitalized Lease Obligation" is defined to mean the rental obligations, as aforesaid, under such lease. "Capital Stock" means, with respect to any person, any and all shares, interests, participations, or other equivalents (however designated, whether voting or non-voting) of such person's capital stock or other ownership interests, whether now outstanding or issued after the date of the Indenture, including, without limitation, all common stock and preferred stock. "Commission" means the Securities and Exchange Commission. "Cumulative Cash Flow Credit" means: (a) cumulative Operating Cash Flow during the period commencing on April 1, 1997 and ending on the last day of the most recent month preceding the date of the proposed Restricted Payment for which financial information is available or, if cumulative Operating Cash Flow for such period is negative, minus the amount by which cumulative Operating Cash Flow is less than zero, plus (b) the aggregate net proceeds received by the Company from the issue or sale (other than to a Subsidiary) of Qualified Stock on or after April 1, 1997, plus (c) the aggregate net proceeds received by the Company from the issuance or sale (other than to a Subsidiary) of Qualified Stock on or after April 1, 1997, upon the conversion of, or exchange for, Indebtedness of the Company or any Subsidiary or from the exercise of any options, warrants or other rights to acquire Capital Stock of the Company, plus (d) the aggregate amount of contributions to the capital of the Company on or after April 1, 1997 other than in connection with the Intercompany Note Transactions, plus (e) dividends or similar distributions received in cash by the Company or any Restricted Subsidiary from any Unrestricted Subsidiary. For purposes of this definition, the net proceeds in property other than cash received by the Company as contemplated by clauses (b), (c) and (d) above shall be valued at the fair market value of such property (as determined by the Board of Directors of the Company, whose good faith determination 71 shall be conclusive) at the date of receipt by the Company. For purposes of this definition, the net proceeds from the issuance of shares of Qualified Stock of the Company upon conversion of Indebtedness shall be deemed to be an amount equal to (i) the accreted value of such Indebtedness on the date of such conversion and (ii) the additional consideration, if any, received by the Company upon such conversion thereof, less any cash payment on account of fractional shares (such consideration, if in property other than cash, to be determined by the Board of Directors of the Company, whose good faith determination shall be conclusive). "Cumulative Interest Expense" means, for the period commencing on April 1, 1997 and ending on the last day of the most recent month preceding the proposed Restricted Payment for which financial information is available, the aggregate of the interest expense of the Company and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with generally accepted accounting principles, including interest expense attributable to Capitalized Lease Obligations. "Currency Agreement" means any foreign exchange contract, currency swap agreement, or other similar agreement or arrangement designed to protect against fluctuation in currency values. "Default" means an event or condition that, with the passage of time or the giving of notice or both, would become an Event of Default. "Disqualified Capital Stock" means, with respect to any person, with respect to any issue of Notes, Capital Stock of such person that, by its terms or by the terms of any security into which it is convertible, exercisable, or exchangeable, is, or upon the happening of any event or the passage of time would be, required to be redeemed or repurchased (including at the option of the holder thereof) by such person or any of its Subsidiaries, in whole or in part, on or prior to the Stated Maturity of such Notes; PROVIDED that Capital Stock will not be deemed to be Disqualified Capital Stock if it may only be so redeemed or repurchased solely in consideration of Qualified Stock. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of the date of determination, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations contained in the Indenture shall be computed in conformity with GAAP applied on a consistent basis. "Guarantee" means any obligation, contingent or otherwise, of any person directly or indirectly guaranteeing any Indebtedness or other obligation of any other person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities, or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Indebtedness" means, with respect to any person at any date of determination (without duplication), (i) all indebtedness of such person for borrowed money, (ii) all obligations of such person evidenced by bonds, debentures, notes, or other similar instruments, (iii) all obligations of such person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such person to pay the deferred and unpaid purchase price of 72 property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business), (v) all obligations of such person as lessee under Capitalized Leases, (vi) all Indebtedness of other persons secured by a Lien on any asset of such person, whether or not such Indebtedness is assumed by such person; PROVIDED that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of other persons Guaranteed by such person to the extent such Indebtedness is Guaranteed by such person, (viii) all Disqualified Capital Stock of such person, and (ix) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of any person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, PROVIDED (i) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (ii) that Indebtedness shall not include any liability for federal, state, local, or other taxes. "Interest Rate Agreements" means any obligations of any person pursuant to any interest rate swaps, caps, collars, and similar arrangements providing protection against fluctuations in interest rates. For purposes of the Indenture, the amount of such obligations shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such person, based on the assumption that such obligation had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such obligation provides for the netting of amounts payable by and to such person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such person, then in each such case, the amount of such obligations shall be the net amount so determined, plus any premium due upon default by such person. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of the Indenture, the Company or any Subsidiary shall be deemed to own subject to a Lien any asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Operating Cash Flow" means, for any period, the sum of the following for the Company and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with generally accepted principles: (i) aggregate operating revenues minus (ii) aggregate operating expenses (including technical, programming, sales, selling, general and administrative expenses and salaries and other compensation paid to any general partner, director, officer or employee of the Company or any Subsidiary, but excluding interest, depreciation and amortization and the amount of non-cash compensation in respect of the Company's employee incentive stock programs for such period and, to the extent otherwise included in operating expenses, any losses resulting from a writeoff or write down of investments by the Company or any Subsidiary in Affiliates); PROVIDED, HOWEVER, that Operating Cash Flow for any period shall be calculated after giving effect on a PRO FORMA basis (in accordance with Regulation S-X promulgated under the Exchange Act) for the acquisition or disposition of any assets (other than in the ordinary course of business) as if such acquisition or disposition occurred at the beginning of such period. Operating Cash Flow as defined herein may differ from "operating cash flow" as reported by the Company as Supplementary Financial Data. "Permitted Liens" means (i) any Lien on any Restricted Property acquired after the date of the Indenture (including by way of merger or consolidation) by the Company or any Restricted Subsidiary, which Lien is created, incurred or assumed contemporaneously with such acquisition, or within 270 days thereafter, to secure or provide for the payment or financing of any part of the purchase price thereof, or any Lien upon any Restricted Property acquired after the date of the Indenture existing at the 73 time of such acquisition, (whether or not assumed by the Company or any Restricted Subsidiary), PROVIDED that every such Lien referred to in this clause (i) shall attach only to the Restricted Property so acquired; (ii) any Lien on any Restricted Property in favor of the Company or any Restricted Subsidiary; (iii) any Lien on Restricted Property incurred in connection with the issuance of tax-exempt governmental obligations (including, without limitation, industrial revenue bonds and similar financings); (iv) any Lien granted by any Restricted Subsidiary on Restricted Property to the extent limitations on the incurrence of such Liens are prohibited by any agreement to which such Restricted Subsidiary is subject as of the date of the Indenture; and (v) any renewal of or substitution for any Lien permitted by any of the preceding clauses (i) through (iv), including any Lien securing reborrowing of amounts previously secured within 270 days of the repayment thereof, PROVIDED that no such renewal or substitution shall extend to any Restricted Property other than the Restricted Property covered by the Lien being renewed or substituted. "Principal Property" means, as of any date of determination, any property or assets used primarily for the provision of cable communications services owned by the Company or any Restricted Subsidiary other than (1) any such property which, in the good faith opinion of the Board of Directors, is not of material importance to the business conducted by the Company and the Restricted Subsidiaries taken as a whole and (2) any shares of any class of stock or any other security of any Unrestricted Subsidiary. "Qualified Stock" means any Capital Stock of the Company other than Disqualified Capital Stock. "Restricted Payment" means the payment or declaration of any dividend by the Company, either in cash or in property (except dividends payable in common stock or common shares of Capital Stock of the Company), or the making by the Company of any other distribution, on account of any shares of any class of its Capital Stock, now or hereafter outstanding, or the redemption, purchase, retirement or other acquisition for value by the Company or any Restricted Subsidiary, directly or indirectly, of any shares of any class of the Company's Capital Stock, now or hereafter outstanding (it being understood that the dividend of Notes Receivable in connection with the Intercompany Note Transactions shall not be deemed a Restricted Payment). "Restricted Property" means, as of any date of determination, any Principal Property (or any portion thereof), any shares of stock of a Restricted Subsidiary owned by the Company or a Restricted Subsidiary or any Indebtedness of a Restricted Subsidiary owed to the Company or a Restricted Subsidiary. "Restricted Subsidiary" means any Subsidiary organized and existing under the laws of the United States of America and the principal business of which is the cable communications industry carried on within the United States of America other than: (i) each Subsidiary the major part of whose business consists of finance, banking, credit, leasing, insurance, financial services or other similar operations, or any combination thereof; and (ii) each Subsidiary formed or acquired after the date hereof for the purpose of acquiring the business or assets of another person and which does not acquire all or any substantial part of the business or assets of the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that any Subsidiary may be designated a Restricted Subsidiary by board resolution, effective as of the date such board resolution is adopted and delivered to the Trustee, if, after giving effect to such designation as if such designation were the incurrence at such time of all Indebtedness of such Subsidiary and the entering into at such time of all Sale and Leaseback Transactions to which such Subsidiary is a party, the Company would be in compliance with the covenants under "--Certain Covenants--Limitation on Liens Securing Indebtedness" and "--Limitation on Sale and Leaseback Transactions"; PROVIDED FURTHER, that any such designation may be revoked by further board resolution, effective as of the date such further board resolution is adopted and delivered to the Trustee if, after giving effect to such revocation as if such revocation were the incurrence at such time of all Indebtedness of the Company and the Restricted Subsidiaries and the entering into at such time of all Sale and Leaseback Transactions to which the Company or any Restricted Subsidiary is a party, the Company 74 would be in compliance with the covenants under "--Certain Covenants--Limitation on Liens Securing Indebtedness" and "--Limitation on Sale and Leaseback Transactions." "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Subsidiary of any property, whether owned by the Company or such Restricted Subsidiary at the date of the original issuance of the Notes or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person by whom funds have been or are to be advanced on the security of such property. "Stated Maturity" means (i) with respect to any Indebtedness, the date specified in such Indebtedness as the fixed date on which the final installment of principal of such Indebtedness is due and payable and (ii) with respect to any scheduled installment of principal of or interest on any Indebtedness, the date specified in such Indebtedness as the fixed date on which such installment is due and payable. "Subsidiary" means with respect to any person, any corporation, association or other business entity of which more than 50% of all votes represented by all classes of outstanding Voting Stock is owned directly or indirectly, by such person and one or more other Subsidiaries of such person. Unless specified otherwise, "Subsidiary" shall be deemed to refer to a Subsidiary of the Company. "Unrestricted Subsidiary" means any Subsidiary of the Company other than a Restricted Subsidiary. All Subsidiaries of an Unrestricted Subsidiary shall be Unrestricted Subsidiaries. "Voting Stock" means, with respect to any person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers, or other voting members of the governing body of such person. "Wholly Owned" means, with respect to any Subsidiary of any person, such Subsidiary if all of the outstanding common stock or other similar equity ownership interests (but not including preferred stock that is not Voting Stock) in such Subsidiary (other than any director's qualifying shares or investments by foreign nationals mandated by applicable law) is owned directly or indirectly by such person. EXCHANGES OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES The New Notes will be represented by one or more notes in registered, global form without interest coupons (collectively, the "Global Notes"). The Global Notes will be deposited upon issuance with the Trustee as custodian for DTC in New York, New York, and registered in the name of DTC, or its nominee, in each case, for credit to an account of a direct or indirect participant in DTC as described below. A beneficial interest in a Global Note may not be exchanged for a New Note in certificated form unless (i) DTC (x) notifies the Company that it is unwilling or unable to continue as Depositary for the Global Note or (y) has ceased to be a clearing agency registered under the Exchange Act, and in either case the Company is unable to locate a qualified successor within 90 days, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the New Notes in certificated form or (iii) there shall have occurred and be continuing an Event of Default with respect to the New Notes. In all cases, certificated New Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depositary (in accordance with its customary procedures). Any certificated New Note issued in exchange for an interest in a Global Note will bear the legend restricting transfers that is borne by such Global Note. Any such exchange will be effected through the DWAC system and an appropriate adjustment will be made in the records of the Security Registrar to reflect a decrease in the principal amount of the relevant Global Note. 75 CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL NOTES THE DESCRIPTIONS OF THE OPERATIONS AND PROCEDURES OF DTC THAT FOLLOW ARE PROVIDED SOLELY AS A MATTER OF CONVENIENCE. THESE OPERATIONS AND PROCEDURES ARE SOLELY WITHIN THE CONTROL OF DTC AND ARE SUBJECT TO CHANGES BY IT FROM TIME TO TIME. THE COMPANY TAKES NO RESPONSIBILITY FOR THESE OPERATIONS AND PROCEDURES AND URGES INVESTORS TO CONTACT DTC OR ITS PARTICIPANTS DIRECTLY TO DISCUSS THESE MATTERS. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants ("participants") and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical transfer and delivery of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations. Indirect access to the DTC system is available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). DTC has advised the Company that its current practice, upon the issuance of Global Notes, is to credit, on its internal system, the respective principal amount of the individual beneficial interests represented by such Global Notes to the accounts with DTC of the participants through which such interests are to be held. Ownership of beneficial interests in Global Notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominees (with respect to interests of participants) and the records of participants and indirect participants (with respect to interests of persons other than participants). As long as DTC, or its nominee, is the registered holder of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner and holder of the Notes represented by such Global Note for all purposes under the Indenture and the Notes. Except in the limited circumstances described above under "Exchanges of Book-Entry Notes for Certificated Notes," owners of beneficial interests in a Global Note will not be entitled to have any portions of such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Notes in definitive form and will not be considered the owners or holders of the Global Note (or any Notes represented thereby) under the Indenture or the Notes. NOTICES Notices to holders of Notes will be given by mail to the addresses of such holders as they may appear in the applicable Register. 76 REGISTRATION RIGHTS; ADDITIONAL INTEREST Holders of New Notes are not entitled to any registration rights with respect to the New Notes. Holders of Old Notes are entitled to certain registration rights pursuant to the Registration Rights Agreements. Pursuant to the Registration Rights Agreements, the Company has agreed to file with the Commission and have declared effective on or prior to September 28, 1997 a registration statement (the "Exchange Offer Registration Statement") under the Securities Act with respect to the Exchange Offer. The Company also agreed that, after the effectiveness of the Exchange Offer Registration Statement, it would, subject to certain conditions, offer to the holders of Old Notes who are able to make certain representations the opportunity to exchange their Old Notes for New Notes. In the event that applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer ("Commission Blockage") or do not permit any holder of Old Notes, subject to certain limitations, to participate in such Exchange Offer, the Company has agreed to file with the Commission a shelf registration statement (the "Shelf Registration Statement") to cover resales of the applicable Old Notes. The Registration Statement of which this Prospectus is a part constitutes the Exchange Offer Registration Statement. The Registration Rights Agreements provide that (i) the Company will use its reasonable best efforts to have the Exchange Offer Registration Statement (and, if applicable, a Shelf Registration Statement) declared effective by the Commission on or prior to September 28, 1997. If the Exchange Offer has not been consummated by October 28, 1997 (unless there exists a Commission Blockage) (such event, a "Registration Default"), the Company will pay additional interest to each holder of Old Notes, during the first 90-day period immediately following the occurrence of such Registration Default at a rate equal to 25 basis points per annum on Old Notes held by such holder. The rate of additional interest will increase by an additional 25 basis points for each subsequent 90-day period until the Exchange Offer is consummated, up to a maximum rate of additional interest of 100 basis points. All accrued additional interest shall be paid to holders in the same manner as interest payments on the Notes on semi-annual payment dates which correspond to interest payment dates for the Notes. Following the cure of all Registration Defaults, the payment of additional interest will cease. The Registration Rights Agreements also provide that the Company (i) shall make available for a period of 90 days after the consummation of the Exchange Offer a prospectus meeting the requirements of the Securities Act to any broker-dealer for use in connection with any resale of New Notes and (ii) shall pay all expenses incident to the Exchange Offer (including the expenses of one counsel to the holders of the Notes) and will indemnify certain holders of the Notes (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act. Holders of Old Notes will be required to make certain representations to the Company (as described in the Registration Rights Agreements) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreements in order to have their Old Notes included in the Shelf Registration Statement and benefit from the provisions regarding additional interest discussed above. In addition, for so long as the Old Notes are outstanding, the Company will continue to provide to holders of Old Notes and to prospective purchasers of the Old Notes the information required by Rule 144A(d)(4). The Company will provide a copy of the Registration Rights Agreements to prospective investors upon request. 77 CERTAIN FEDERAL INCOME TAX CONSEQUENCES In the opinion of Davis Polk & Wardwell, tax counsel to the Company, the following summary describes the material federal income tax considerations applicable to the exchange of Old Notes for New Notes and the ownership and disposition of the New Notes by holders who acquire the New Notes. The summary applies only to a holder of Old Notes that acquired such Old Notes from the Company pursuant to their original issuance and will be an initial holder of the New Notes pursuant to the exchange hereunder. This discussion is based on laws, regulations, rulings and decisions now in effect, all of which are subject to change, possibly retroactively. The discussion does not cover all aspects of federal income taxation that may be relevant to holders, in light of their specific circumstances, particularly holders who own 10% or more of the stock of the Company or holders subject to special treatment under the federal income tax laws (such as insurance companies, financial institutions, tax exempt organizations, foreign persons and taxpayers subject to the alternative minimum tax). It also does not address state, local, foreign or other tax laws. The description assumes that holders of the New Notes will hold the New Notes as "capital assets" within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). TAX CONSEQUENCES TO U.S. HOLDERS EXCHANGE OF NOTES There will be no federal income tax consequences to holders exchanging Old Notes for New Notes pursuant to the Exchange Offer and a holder will have the same adjusted basis and holding period in the New Notes as it had in the Old Notes immediately before the exchange. SALE, EXCHANGE OR RETIREMENT OF THE NOTES Upon the sale, exchange or retirement of a New Note, a holder will recognize taxable gain or loss equal to the difference between the amount realized on the sale, exchange or retirement and such holder's adjusted tax basis in the New Note. A holder's adjusted tax basis in a New Note will equal the cost of the Old Note to such holder reduced by any payments on the Note received by the holder. EACH HOLDER SHOULD CONSULT HIS TAX ADVISOR IN DETERMINING THE FEDERAL, STATE, LOCAL AND ANY OTHER TAX CONSEQUENCES TO THE PARTICULAR HOLDER OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES. PLAN OF DISTRIBUTION Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 90 days after the consummation of the Exchange Offer it will make this Prospectus, as amended or supplemented, available to any such broker-dealer for use in connection with any such resale. The Company will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealer for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it 78 for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For period of 90 days after the consummation of the Exchange Offer the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed in the Registration Rights Agreement to indemnify each broker-dealer reselling New Notes pursuant to this Prospectus, and their officers, directors and controlling persons, against certain liabilities in connection with the offer and sale of the New Notes, including liabilities under the Securities Act, or to contribute to payments that such broker-dealers may be required to make in respect thereof. VALIDITY OF THE NOTES The validity of the Notes will be passed upon for the Company by Davis Polk & Wardwell. EXPERTS The consolidated balance sheet of the Company as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholder's equity (deficiency) and of cash flows for each of the three years in the period ended December 31, 1996 and the consolidated balance sheet of Comcast SCH Holdings, Inc. and subsidiaries as of December 31, 1996 and the related consolidated statements of operations, stockholder's equity and of cash flows for the period from November 1, 1996 to December 31, 1996, as well as the combined balance sheet of the Predecessor Corporation as of December 31, 1995 and the related combined statements of operations, stockholder's deficiency and of cash flows for the period from January 1, 1996 to October 31, 1996 and for the years ended December 31, 1995 and 1994 appearing in this registration statement and the related financial statement schedules included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the registration statement, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 79 INDEX TO FINANCIAL STATEMENTS AND UNAUDITED PRO FORMA FINANCIAL INFORMATION COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheet as of March 31, 1997 and December 31, 1996 (unaudited)....................................................................... F-2 Condensed Consolidated Statement of Operations for the three months ended March 31, 1997 and 1996 (unaudited)......................................................... F-3 Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 1997 and 1996 (unaudited)......................................................... F-4 Condensed Consolidated Statement of Stockholder's Equity for the three months ended March 31, 1997 (unaudited)........................................................ F-5 Notes to Condensed Consolidated Financial Statements for the three months ended March 31, 1997 and 1996 (unaudited)............................................... F-6 Independent Auditors' Report........................................................ F-12 Consolidated Balance Sheet as of December 31, 1996 and 1995......................... F-13 Consolidated Statement of Operations for the years ended December 31, 1996, 1995 and 1994.............................................................................. F-14 Consolidated Statement of Cash Flows for the years ended December 31, 1996, 1995 and 1994.............................................................................. F-15 Consolidated Statement of Stockholder's Equity (Deficiency) for the years ended December 31, 1996, 1995 and 1994.................................................. F-16 Notes to Consolidated Financial Statements for the years ended December 31, 1996, 1995 and 1994..................................................................... F-17 Unaudited Pro Forma Financial Information........................................... F-32 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1996........................................................... F-33 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the three months ended March 31, 1996....................................................... F-34 Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations........ F-35 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES Independent Auditors' Report........................................................ F-37 Consolidated and Combined Balance Sheet as of December 31, 1996 and 1995........................................................ F-38 Consolidated Statement of Operations for the period from November 1, 1996 to December 31, 1996................................................................. F-39 Combined Statement of Operations for the period from January 1, 1996 to October 31, 1996 and for the years ended December 31, 1995 and 1994........................... F-40 Consolidated Statement of Cash Flows for the period from November 1, 1996 to December 31, 1996................................................................. F-41 Combined Statement of Cash Flows for the period from January 1, 1996 to October 31, 1996 and for the years ended December 31, 1995 and 1994........................... F-42 Consolidated and Combined Statement of Stockholders' Equity (Deficiency) for the period from November 1, 1996 to December 31, 1996, for the period from January 1, 1996 to October 31, 1996 and for the years ended December 31, 1995 and 1994....... F-43 Notes to Consolidated and Combined Financial Statements for the periods from January 1, 1996 to October 31, 1996 and November 1, 1996 to December 31, 1996 and for the years ended December 31, 1995 and 1994............................................ F-44
F-1 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
MARCH 31, 1997 MARCH 31, DECEMBER 31, PRO FORMA (SEE NOTE 10) 1997 1996 ------------------------ ----------- -------------- ASSETS CURRENT ASSETS Cash and cash equivalents........................... $ 47.0 $ 47.0 $ 38.4 Short-term investments.............................. 0.8 0.8 21.5 Cash held by an affiliate........................... 21.5 66.5 53.5 Accounts receivable, less allowance for doubtful accounts of $13.1, $13.1 and $12.0................ 54.3 54.3 70.4 Inventories......................................... 28.6 28.6 28.1 Other current assets................................ 17.7 17.7 19.8 ---------- ----------- -------------- Total current assets.............................. 169.9 214.9 231.7 ---------- ----------- -------------- INVESTMENTS........................................... 1.2 1.2 1.2 ---------- ----------- -------------- PROPERTY AND EQUIPMENT................................ 2,488.2 2,488.2 2,401.6 Accumulated depreciation............................ (895.8) (895.8) (856.1) ---------- ----------- -------------- Property and equipment, net......................... 1,592.4 1,592.4 1,545.5 ---------- ----------- -------------- DEFERRED CHARGES 5,588.9 5,588.9 5,586.7 Accumulated amortization............................ (1,230.9) (1,230.9) (1,151.8) ---------- ----------- -------------- Deferred charges, net............................... 4,358.0 4,358.0 4,434.9 ---------- ----------- -------------- $ 6,121.5 $ 6,166.5 $ 6,213.3 ---------- ----------- -------------- ---------- ----------- -------------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses............... $ 226.2 $ 226.2 $ 230.7 Accrued interest.................................... 27.0 27.0 25.5 Current portion of long-term debt................... 35.0 35.0 115.7 Current portion of notes payable to affiliates...... 2.4 2.6 Due to affiliates................................... 176.6 176.6 152.3 ---------- ----------- -------------- Total current liabilities......................... 464.8 467.2 526.8 ---------- ----------- -------------- LONG-TERM DEBT, less current portion.................. 3,160.8 3,105.8 3,068.3 ---------- ----------- -------------- MINORITY INTEREST AND OTHER........................... 239.5 239.5 246.3 ---------- ----------- -------------- NOTES PAYABLE TO AFFILIATES, less current portion..... 405.8 404.5 ---------- ----------- -------------- DUE TO AFFILIATE...................................... 319.5 319.5 291.8 ---------- ----------- -------------- DEFERRED INCOME TAXES, due to affiliate............... 1,567.5 1,567.5 1,580.3 ---------- ----------- -------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY Common stock, $1 par value--authorized and issued, 1,000 shares.............................. Additional capital.................................. 3,062.3 3,062.3 3,050.6 Accumulated deficit................................. (2,692.9) (2,153.2) (2,124.0) Unrealized loss on marketable securities............ (1.4) Notes receivable from affiliate..................... (847.9) (829.9) ---------- ----------- -------------- Total stockholder's equity........................ 369.4 61.2 95.3 ---------- ----------- -------------- $ 6,121.5 $ 6,166.5 $ 6,213.3 ---------- ----------- -------------- ---------- ----------- --------------
See notes to condensed consolidated financial statements. F-2 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (DOLLARS IN MILLIONS)
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 --------- --------- SERVICE INCOME........................................................ $ 501.1 $ 382.3 --------- --------- COSTS AND EXPENSES Operating........................................................... 225.3 161.6 Selling, general and administrative................................. 114.7 83.4 Depreciation and amortization....................................... 138.8 95.3 --------- --------- 478.8 340.3 --------- --------- OPERATING INCOME...................................................... 22.3 42.0 OTHER (INCOME) EXPENSE Interest expense.................................................... 56.7 56.7 Interest expense on notes payable to affiliates..................... 9.1 8.6 Investment income, net.............................................. (2.7) --------- --------- 65.8 62.6 --------- --------- LOSS BEFORE INCOME TAX BENEFIT AND MINORITY INTEREST................................................... (43.5) (20.6) INCOME TAX BENEFIT.................................................... (9.3) (4.1) --------- --------- LOSS BEFORE MINORITY INTEREST......................................... (34.2) (16.5) MINORITY INTEREST..................................................... (5.0) (5.8) --------- --------- NET LOSS.............................................................. ($ 29.2) ($ 10.7) --------- --------- --------- ---------
See notes to condensed consolidated financial statements. F-3 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (DOLLARS IN MILLIONS)
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 --------- --------- OPERATING ACTIVITIES Net loss............................................................. ($ 29.2) ($ 10.7) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.................................... 138.8 95.3 Non-cash interest expense........................................ 0.5 0.4 Non-cash interest expense on notes payable to affiliates......... 1.7 2.8 Deferred expenses charged by an affiliate........................ 27.7 15.9 Loss on sale of investment....................................... 1.6 Minority interest................................................ (5.0) (5.8) Deferred income tax benefit, due to affiliate.................... (19.8) (14.0) --------- --------- 116.3 83.9 Decrease in accounts receivable.................................. 16.1 10.9 Increase in inventories.......................................... (0.5) Decrease in other current assets................................. 2.1 0.6 Decrease in accounts payable and accrued expenses................ (4.5) (19.1) Increase in accrued interest..................................... 1.5 13.7 Decrease in other non-current liabilities........................ (1.8) --------- --------- Net cash provided by operating activities...................... 129.2 90.0 --------- --------- FINANCING ACTIVITIES Proceeds from borrowings........................................... 40.0 63.0 Repayments of long-term debt....................................... (83.7) (61.7) Proceeds from notes payable to affiliates.......................... 2.0 Repayment of notes payable to affiliates........................... (0.6) (0.6) Net transactions with affiliates................................... 24.3 34.5 Other.............................................................. (1.4) --------- --------- Net cash (used in) provided by financing activities............ (20.0) 35.8 --------- --------- INVESTING ACTIVITIES Sale (purchases) of short-term investments......................... 21.2 (0.9) Capital expenditures............................................... (106.6) (54.0) Increase in cash held by an affiliate.............................. (13.0) (59.6) Other.............................................................. (2.2) (3.9) --------- --------- Net cash used in investing activities.......................... (100.6) (118.4) --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS................................ 8.6 7.4 CASH AND CASH EQUIVALENTS, beginning of period....................... 38.4 11.6 --------- --------- CASH AND CASH EQUIVALENTS, end of period............................. $ 47.0 $ 19.0 --------- --------- --------- ---------
See notes to condensed consolidated financial statements. F-4 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (UNAUDITED) (DOLLARS IN MILLIONS)
UNREALIZED NOTES LOSS ON RECEIVABLE ADDITIONAL ACCUMULATED MARKETABLE FROM CAPITAL DEFICIT SECURITIES AFFILIATE TOTAL ----------- ------------- --------------- ----------- --------- BALANCE, JANUARY 1, 1997.................... $ 3,050.6 ($2,124.0) ( $1.4) ( $829.9) $ 95.3 Net loss.................................. (29.2) (29.2) Change in unrealized loss on marketable securities, net of deferred taxes of $0.7.................................... 1.4 1.4 Interest income on notes receivable from affiliate............................... 18.0 (18.0 ) Income taxes on interest income on notes receivable from affiliate............... (6.3 ) (6.3) ----------- ------------- ----- ----------- --------- BALANCE, MARCH 31, 1997..................... $ 3,062.3 ( $2,153.2 ) $ ( $847.9 ) $ 61.2 ----------- ------------- ----- ----------- --------- ----------- ------------- ----- ----------- ---------
See notes to condensed consolidated financial statements. F-5 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1997 AND 1996 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The condensed consolidated balance sheet as of December 31, 1996 has been condensed from the audited balance sheet as of that date. The condensed consolidated balance sheet as of March 31, 1997 and the condensed consolidated statements of operations and of cash flows for the three months ended March 31, 1997 and 1996 and the condensed consolidated statement of stockholder's equity for the three months ended March 31, 1997 have been prepared by Comcast Cable Communications, Inc. (the "Company") and have not been audited by the Company's independent auditors. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of March 31, 1997 and for all periods presented have been made. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company's December 31, 1996 audited financial statements. The results of operations for the period ended March 31, 1997 are not necessarily indicative of operating results for the full year. BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all wholly owned or controlled subsidiaries. All significant intercompany accounts and transactions among consolidated entities have been eliminated. On April 24, 1997, Comcast Corporation ("Comcast"), the Company's parent, completed a restructuring of the legal organization of certain of its subsidiaries (the "Reorganization"). The Reorganization involved Comcast's contribution to the Company of ownership interests in certain of its consolidated subsidiaries, all of which were under Comcast's direct or indirect control (the "Contributed Subsidiaries"). The Reorganization has been accounted for in a manner similar to a pooling of interests. Accordingly, the Company's consolidated financial statements include the accounts of the Contributed Subsidiaries for all periods presented. In addition, certain expenses directly related to the Company's operations which were historically paid by Comcast on behalf of the Company have been reflected in the Company's consolidated statement of operations for all periods presented. 2. ACQUISITION In November 1996, Comcast acquired the cable television operations ("Scripps Cable") of The E.W. Scripps Company ("E.W. Scripps") in exchange for 93.048 million shares of Comcast's Class A Special Common Stock valued at $1.552 billion (the "Scripps Acquisition"). Comcast accounted for the Scripps Acquisition under the purchase method. Following the Scripps Acquisition, Comcast contributed Scripps Cable to the Company (the "Scripps Contribution") at Comcast's historical cost and Scripps Cable was consolidated with the Company effective November 1, 1996. The allocation of the purchase price to the assets and liabilities of Scripps Cable is preliminary pending a final appraisal and the final purchase price adjustment between the Company and E.W. Scripps. The terms of the Scripps Acquisition provide for, among other things, the indemnification of the F-6 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --CONTINUED THREE MONTHS ENDED MARCH 31, 1997 AND 1996 Company by E.W. Scripps for certain liabilities, including tax liabilities, relating to Scripps Cable prior to the acquisition date. UNAUDITED PRO FORMA INFORMATION The following unaudited pro forma information for the three months ended March 31, 1996 has been presented as if the Scripps Contribution had occurred on January 1, 1996. 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 Scripps Cable since January 1, 1996 (dollars in millions).
THREE MONTHS ENDED MARCH 31, 1996 --------------------- Service income....................................................... $ 457.3 Net loss............................................................. (29.0)
3. INVESTMENTS In October 1996, the Company received 552,014 shares of Time Warner, Inc. ("Time Warner") Common Stock (the "Time Warner Stock") in exchange (the "Exchange") for all of the shares of the Turner Broadcasting System, Inc. ("TBS") Stock (the "TBS Stock") held by the Company as a result of the merger of Time Warner and TBS. As a result of the Exchange, the Company recognized a pre-tax gain of $19.8 million in 1996, representing the difference between the Company's historical cost basis in the TBS Stock and the new basis for the Company's investment in Time Warner Stock of $22.8 million, which was based on the closing price of the Time Warner Stock on the merger date of $41.375 per share. As of December 31, 1996, the shares of Time Warner Stock held by the Company were recorded at their fair value of $20.7 million and were included in short-term investments in the Company's condensed consolidated balance sheet. The unrealized loss on this investment of $2.1 million was reported in the Company's December 31, 1996 condensed consolidated balance sheet as a decrease in stockholder's equity, net of deferred income tax benefit of $0.7 million. In January 1997, the Company sold its entire interest in Time Warner for $21.2 million. In connection with this sale, the Company recognized a pre-tax loss of $1.6 million, which is included in net investment income in the Company's condensed consolidated statement of operations. 4. LONG-TERM DEBT DEBT OFFERING On May 1, 1997, the Company completed the sale of $1.7 billion of notes (the "Old Notes") through a 144A offering with registration rights. The Old Notes were issued in four tranches: $300.0 million of 8 1/8% Notes due 2004 (the "Old Seven-Year Notes"), $600.0 million of 8 3/8% Notes due 2007 (the "Old Ten-Year Notes"), $550.0 million of 8 7/8% Notes due 2017 (the "Old Twenty-Year Notes") and $250.0 million of 8 1/2% Notes due 2027 (the "Old Thirty-Year Notes"). The Company used substantially all of the net proceeds from the offering to repay certain of its subsidiaries' notes payable to banks with the balance to be used for subsidiary general purposes. Interest on the Old Notes is payable semiannually on May 1 and November 1 of each year, commencing November 1, 1997. The Old Seven-Year Notes, the Old Ten-Year Notes and the Old Twenty-Year Notes are redeemable, in whole or in part, at the option of the Company at any time and the Old Thirty-Year Notes are redeemable, in whole or in part, at the option of the Company at any time after F-7 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --CONTINUED THREE MONTHS ENDED MARCH 31, 1997 AND 1996 May 1, 2009, in each case at a redemption price equal to the greater of (i) 100% of their principal amount, plus accrued interest thereon to the date of redemption, or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined), plus accrued interest on the Old Notes to the date of redemption. Each holder of the Old Thirty-Year Notes may require the Company to repurchase all or a portion of the Old Thirty-Year Notes owned by such holder on May 1, 2009 at a purchase price equal to 100% of the principal amount thereof. The Old Notes are unsecured and unsubordinated obligations of the Company and rank PARI PASSU with all other unsecured and unsubordinated indebtedness and other obligations of the Company. The Old Notes are effectively subordinated to all liabilities of the Company's subsidiaries, including trade payables. The Old Notes are obligations only of the Company and are not guaranteed by and do not otherwise constitute obligations of Comcast. The Indenture for the Old Notes, among other things, contains restrictions (with certain exceptions) on the ability of the Company and its Restricted Subsidiaries (as defined) to: (i) make dividend payments or other restricted payments; (ii) create liens or enter into sale and leaseback transactions; and (iii) enter into mergers, consolidations, or sales of all or substantially all of their assets. DEBT REPAYMENTS On June 30, 1997, the Company redeemed all of its outstanding 10% Subordinated Debentures, due 2003 (the "10% Debentures"). An aggregate principal amount of $139.3 million of the 10% Debentures were redeemed at a redemption price of 100% of the principal amount thereof, together with accrued interest thereon. The Company redeemed the 10% Debentures with the proceeds from the issuance of a note payable to a subsidiary of Comcast. As of March 31, 1997 and December 31, 1996, the 10% Debentures had an accreted value of $127.1 million and $126.6 million, respectively. On July 2, 1997, the Company repaid $435.0 million of its long-term debt outstanding as of March 31, 1997 with the proceeds from the issuance of a note payable to a subsidiary of Comcast. The terms of the notes payable issued to a subsidiary of Comcast on June 30, 1997 and July 2, 1997 are substantially the same as those of the 10% Debentures and the long-term debt referred to above. EXTRAORDINARY LOSS In connection with the repayment of certain of the Company's subsidiaries' notes payable to banks and the redemption of the 10% Debentures, during the second quarter of 1997, the Company will record an extraordinary loss, net of the related tax benefit, of approximately $17.3 million. DEBT ASSUMPTION During the three months ended March 31, 1996, a wholly owned subsidiary of Comcast assumed a $27.0 million note payable to a bank and $0.6 million of accrued interest thereon. In return, the Company became liable under a $27.6 million note payable to the subsidiary of Comcast (see Note 5). 5. NOTES PAYABLE TO AFFILIATES As of March 31, 1997 and December 31, 1996, notes payable to affiliates (the "Notes Payable") include $382.8 million and $383.4 million, respectively, principal amount of Notes Payable to Comcast and certain of its wholly owned subsidiaries. During the three months ended March 31, 1996, the F-8 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --CONTINUED THREE MONTHS ENDED MARCH 31, 1997 AND 1996 Company borrowed $29.6 million from certain wholly owned subsidiaries of Comcast. The 1996 borrowings include $27.6 million associated with the debt assumption described in Note 4. During each of the three months ended March 31, 1997 and 1996, the Company repaid $0.6 million principal amount of Notes Payable. The Notes Payable bear interest at rates ranging from the prime rate to 11.81% (weighted average interest rate of 9.31% as of March 31, 1997). No interest is due on certain of the Notes Payable until their maturity and accordingly, accrued interest relating to such Notes Payable of $25.4 million and $23.7 million as of March 31, 1997 and December 31, 1996, respectively, has been added to principal. See Note 10--"Unaudited Pro Forma Condensed Consolidated Balance Sheet." 6. NOTES RECEIVABLE FROM AFFILIATE As of March 31, 1997 and December 31, 1996, notes receivable from affiliate (the "Notes Receivable") include $730.7 million principal amount of notes receivable from Comcast. The Notes Receivable bear interest at rates ranging from 9.25% to 15.00% (weighted average interest rate of 9.83% as of March 31, 1997). No interest is due on the Notes Receivable until their maturity and accordingly, accrued interest on the Notes Receivable of $117.2 million and $99.2 million as of March 31, 1997 and December 31, 1996, respectively, has been added to principal. See Note 10--"Unaudited Pro Forma Condensed Consolidated Balance Sheet." 7. RELATED PARTY TRANSACTIONS The Company receives sales commissions from QVC, Inc. ("QVC"), an electronic retailer and a majority owned and controlled subsidiary of Comcast, based on a percentage of QVC sales to the Company's subscribers. In addition, the Company recognizes revenues relating to the carriage of certain QVC programming. For each of the three months ended March 31, 1997 and 1996, the Company's service income includes $1.9 million relating to QVC. Comcast, through management agreements, manages the operations of the Company's subsidiaries, including rebuilds and upgrades. The management agreements generally provide that Comcast will supervise the management and operations of the cable systems and arrange for and supervise (but not necessarily perform itself) certain administrative functions. As compensation for such services, the agreements provide for Comcast to charge management fees of up to 6% of gross revenues. Comcast charged the Company's subsidiaries management fees of $29.0 million and $21.8 million during the three months ended March 31, 1997 and 1996, respectively. These management fees are included in selling, general and administrative expenses in the Company's condensed consolidated statement of operations. Comcast has agreed to permit certain subsidiaries of the Company to defer payment of a portion of these expenses with the deferred portion being treated as a subordinated long-term liability due to affiliate which will not be paid until the subsidiaries' existing long-term debt is retired. In addition, payment of certain of these expenses has been deferred until the California Public Employees' Retirement System ("CalPERS") no longer has an interest in Comcast MHCP Holdings, L.L.C. (the "LLC"), a majority owned subsidiary of the Company. Management fees deferred during the three months ended March 31, 1997 and 1996, were $1.3 million and $1.0 million, respectively. Deferred management fees were $133.5 million and $132.2 million as of March 31, 1997 and December 31, 1996, respectively. On behalf of the Company, Comcast seeks and secures long-term programming contracts that generally provide for payment based on either a monthly fee per subscriber per channel or a percentage F-9 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --CONTINUED THREE MONTHS ENDED MARCH 31, 1997 AND 1996 of certain subscriber revenues. Comcast charges each of the Company's subsidiaries for programming on a basis which generally approximates the amount each such subsidiary would be charged if it purchased directly from the supplier, subject to limitations imposed by debt facilities for certain subsidiaries, and did not benefit from the purchasing power of the Company's consolidated operations. Amounts charged to the Company by Comcast for programming (the "Programming Charges") are included in operating expenses in the Company's condensed consolidated statement of operations. The Company purchases certain other services, including insurance and employee benefits, from Comcast under cost-sharing arrangements on terms that reflect Comcast's actual cost. The Company reimburses Comcast for certain other costs (primarily salaries) under cost-reimbursement arrangements. Under all of these arrangements, the Company incurred total expenses of $171.4 million and $121.8 million, including $142.7 million and $101.0 million of Programming Charges, during the three months ended March 31, 1997 and 1996, respectively. The Programming Charges include $9.2 million and $6.7 million during the three months ended March 31, 1997 and 1996, respectively, relating to programming purchased by the Company, through Comcast, from suppliers in which Comcast holds an equity interest. Comcast has agreed to permit certain of the Company's subsidiaries to defer payment of a portion of the Programming Charges with the deferred portion being treated as a subordinated long-term liability due to affiliate which will not be payable until the subsidiaries' existing long-term debt is retired. In addition, payment of certain of the Programming Charges has been deferred until CalPERS no longer has an interest in the LLC. Programming Charges deferred during the three months ended March 31, 1997 and 1996 were $26.4 million and $14.9 million, respectively. Deferred Programming Charges were $186.0 million and $159.6 million as of March 31, 1997 and December 31, 1996, respectively. Current due to affiliates in the Company's consolidated balance sheet primarily consists of amounts due to Comcast and its affiliates under the cost-sharing arrangements described above and amounts payable to Comcast and its affiliates as reimbursement for payments made, in the ordinary course of business, by such affiliates on behalf of the Company. The Company has entered into a custodial account arrangement with Comcast Financial Agency Corporation ("CFAC"), a wholly owned subsidiary of Comcast, under which CFAC provides cash management services to the Company. Under this arrangement, the Company's cash receipts are deposited with and held by CFAC, as custodian and agent, which invests and disburses such funds at the direction of the Company. As of March 31, 1997 and December 31, 1996, $66.5 million and $53.5 million, respectively, of the Company's cash was held by CFAC. These amounts have been classified as cash held by an affiliate in the Company's condensed consolidated balance sheet. During the three months ended March 31, 1997 and 1996, the Company recognized investment income of $1.1 million and $1.0 million, respectively, on cash held by CFAC. 8. STATEMENT OF CASH FLOWS--SUPPLEMENTAL INFORMATION The Company made cash payments for interest on its long-term debt of $54.7 million and $42.6 million during the three months ended March 31, 1997 and 1996, respectively. The Company made cash payments for interest on the Notes Payable of $7.4 million and $5.8 million during the three months ended March 31, 1997 and 1996, respectively. The Company made cash payments to the respective state taxing authorities for state income taxes of $0.8 million and $2.0 million during the three months ended March 31, 1997 and 1996, respectively. F-10 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONCLUDED THREE MONTHS ENDED MARCH 31, 1997 AND 1996 9. CONTINGENCIES The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position, results of operations or liquidity of the Company. The Federal Communications Commission ("FCC") and the Company recently negotiated an agreement in which the Company has committed to complete certain system upgrades and improvements by March 1999 in return for which it may move a limited number of currently regulated programming services in certain cable systems to a single migrated product tier on each system that will become an unregulated new product tier after December 1997. In addition, the Company will also provide free cable service connections, modems and modem service to certain public and private schools and to 250 public libraries in its franchise areas. The FCC is seeking public comment on the proposed agreement and the Company cannot predict the outcome of this proceeding. The Company currently is seeking to justify rates for basic cable services and equipment in certain of its cable systems in the State of Connecticut on the basis of a cost-of-service showing. The State of Connecticut has ordered the Company to reduce such rates and to make refunds to subscribers. The Company has appealed the Connecticut decision to the FCC. Recent pronouncements from the FCC, which generally support the Company's position on appeal, have caused the State of Connecticut to reexamine its prior ruling. While the Company cannot predict the outcome of these actions, the Company believes that the ultimate resolution of these pending regulatory matters will not have a material adverse impact on the Company's financial position, results of operations or liquidity. 10. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET The unaudited pro forma condensed consolidated balance sheet as of March 31, 1997 (the "Pro Forma Balance Sheet") is presented as if certain transactions completed between April 1, 1997 and May 1, 1997 occurred on March 31, 1997. These transactions consist of (i) repayment of $100.0 million of the Notes Payable from the proceeds from drawdowns under subsidiaries' existing credit facilities ($55.0 million) and existing cash held by an affiliate ($45.0 million), (ii) exchange of affiliate notes payable and notes receivable, and the accrued interest thereon, between the Company, Comcast and certain of their subsidiaries resulting in a reduction in the Company's Notes Payable of $308.2 million as of March 31, 1997, with a corresponding reduction in the Company's Notes Receivable, and (iii) elimination of the remaining Notes Receivable, and the accrued interest thereon (aggregating $539.7 million as of March 31, 1997), through a non-cash dividend to Comcast. F-11 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholder Comcast Cable Communications, Inc. Philadelphia, Pennsylvania We have audited the accompanying consolidated balance sheet of Comcast Cable Communications, Inc. (a wholly owned subsidiary of Comcast Corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholder's equity (deficiency) and of cash flows for each of the three years in the period ended December 31, 1996. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Comcast Cable Communications, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, in 1997, Comcast Corporation completed a restructuring of the legal organization of certain of its subsidiaries. The Company's consolidated financial statements have been presented giving effect to the reorganization for all periods presented in a manner similar to a pooling of interests. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Philadelphia, Pennsylvania April 24, 1997 (except for Note 5, as to which the date is May 1, 1997) F-12 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
DECEMBER 31, 1996 DECEMBER 31, UNAUDITED -------------------- PRO FORMA (SEE NOTE 12) 1996 1995 ------------------------ --------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 38.4 $ 38.4 $ 11.6 Short-term investments.................................... 21.5 21.5 0.7 Cash held by an affiliate................................. 8.5 53.5 26.9 Accounts receivable, less allowance for doubtful accounts of $12.0, $12.0 and $10.7...................... 70.4 70.4 56.1 Inventories............................................... 28.1 28.1 15.2 Other current assets...................................... 19.8 19.8 11.9..... ---------- --------- --------- Total current assets.................................... 186.7 231.7 122.4 ---------- --------- --------- INVESTMENTS................................................. 1.2 1.2 20.2 ---------- --------- --------- PROPERTY AND EQUIPMENT...................................... 2,401.6 2,401.6 1,784.3 Accumulated depreciation.................................. (856.1) (856.1) (759.1) ---------- --------- --------- Property and equipment, net............................... 1,545.5 1,545.5 1,025.2 ---------- --------- --------- DEFERRED CHARGES Franchise acquisition costs............................... 3,812.9 3,812.9 2,549.1 Excess of cost over net assets acquired and other......... 1,773.8 1,773.8 1,251.8 ---------- --------- --------- 5,586.7 5,586.7 3,800.9 Accumulated amortization.................................. (1,151.8) (1,151.8) (923.7) ---------- --------- --------- Deferred charges, net..................................... 4,434.9 4,434.9 2,877.2 ---------- --------- --------- $ 6,168.3 $ 6,213.3 $ 4,045.0 ---------- --------- --------- ---------- --------- --------- LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY) CURRENT LIABILITIES Accounts payable and accrued expenses..................... $ 230.7 $ 230.7 $ 171.0 Accrued interest.......................................... 25.5 25.5 13.5 Current portion of long-term debt......................... 115.7 115.7 34.1 Current portion of notes payable to affiliates............ 2.6 1.4 Due to affiliates......................................... 152.3 152.3 60.5 ---------- --------- --------- Total current liabilities............................... 524.2 526.8 280.5 ---------- --------- --------- LONG-TERM DEBT, less current portion........................ 3,123.3 3,068.3 3,011.4 ---------- --------- --------- MINORITY INTEREST AND OTHER................................. 246.3 246.3 267.8 ---------- --------- --------- NOTES PAYABLE TO AFFILIATES, less current portion........... 404.5 313.6 ---------- --------- --------- DUE TO AFFILIATE............................................ 291.8 291.8 225.2 ---------- --------- --------- DEFERRED INCOME TAXES, due to affiliate..................... 1,580.3 1,580.3 1,011.5 ---------- --------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY (DEFICIENCY) Common stock, $1 par value--authorized and issued, 1,000 shares.................................... Additional capital........................................ 3,050.6 3,050.6 1,463.7 Accumulated deficit....................................... (2,646.8) (2,124.0) (2,101.4) Unrealized (loss) gain on marketable securities........... (1.4) (1.4) 9.7 Notes receivable from affiliate........................... (829.9) (437.0) ---------- --------- --------- Total stockholder's equity (deficiency)................. 402.4 95.3 (1,065.0) ---------- --------- --------- $ 6,168.3 $ 6,213.3 $ 4,045.0 ---------- --------- --------- ---------- --------- ---------
See notes to consolidated financial statements. F-13 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 --------- --------- --------- SERVICE INCOME............................................... $ 1,641.0 $ 1,454.9 $ 1,065.3 --------- --------- --------- COSTS AND EXPENSES Operating.................................................. 667.8 598.8 440.6 Selling, general and administrative........................ 366.6 313.7 248.0 Depreciation and amortization.............................. 420.3 376.2 232.7 --------- --------- --------- 1,454.7 1,288.7 921.3 --------- --------- --------- OPERATING INCOME............................................. 186.3 166.2 144.0 OTHER (INCOME) EXPENSE Interest expense........................................... 228.4 245.6 155.6 Interest expense on notes payable to affiliates............ 32.1 28.2 20.9 Investment income.......................................... (25.9) (9.2) (3.3) Other...................................................... 0.5 0.2 (3.4) --------- --------- --------- 235.1 264.8 169.8 --------- --------- --------- LOSS BEFORE INCOME TAX BENEFIT, MINORITY INTEREST AND EXTRAORDINARY ITEM......................................... (48.8) (98.6) (25.8) INCOME TAX BENEFIT........................................... (4.5) (24.9) (1.8) --------- --------- --------- LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM......................................... (44.3) (73.7) (24.0) MINORITY INTEREST............................................ (21.7) (24.8) (1.0) --------- --------- --------- LOSS BEFORE EXTRAORDINARY ITEM............................... (22.6) (48.9) (23.0) EXTRAORDINARY ITEM........................................... (2.4) --------- --------- --------- NET LOSS..................................................... ($ 22.6) ($ 51.3) ($ 23.0) --------- --------- --------- --------- --------- ---------
See notes to consolidated financial statements. F-14 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 --------- --------- --------- OPERATING ACTIVITIES Net loss.................................................. ($ 22.6) ($ 51.3) ($ 23.0) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization........................... 420.3 376.2 232.7 Non-cash interest expense............................... 2.0 1.9 6.2 Non-cash interest expense on notes payable to affiliates............................................ 6.2 5.9 8.1 Deferred expenses charged by an affiliate............... 66.6 103.3 79.0 Payments of deferred expenses charged by an affiliate... (115.8) (13.7) Gain on investment...................................... (19.8) Minority interest....................................... (21.7) (24.8) (1.0) Extraordinary item...................................... 2.4 Deferred income tax benefit, due to affiliate........... (44.6) (49.4) (12.7) --------- --------- --------- 386.4 248.4 275.6 Increase in accounts receivable......................... (5.8) (12.0) (5.1) Increase in inventories................................. (2.6) (5.6) (0.4) Increase in other current assets........................ (3.5) (0.5) (3.6) Decrease in accounts payable and accrued expenses....... (2.2) (53.0) (1.9) Increase (decrease) in accrued interest................. 12.6 (7.6) 3.1 Increase in other non-current liabilities............... 15.1 6.5 32.8 --------- --------- --------- Net cash provided by operating activities............. 400.0 176.2 300.5 --------- --------- --------- FINANCING ACTIVITIES Proceeds from borrowings.................................. 448.0 720.0 1,124.1 Repayments of long-term debt.............................. (284.5) (665.6) (339.5) Proceeds from notes payable to affiliates................. 59.7 50.9 100.7 Repayment of notes payable to affiliates.................. (1.4) (7.0) (14.0) Capital contributions..................................... 0.3 1.4 314.1 Equity contribution to a subsidiary....................... 250.0 Net transactions with affiliates.......................... 92.5 10.9 54.6 Other..................................................... (3.0) (4.1) (4.0) --------- --------- --------- Net cash provided by financing activities............. 311.6 106.5 1,486.0 --------- --------- --------- INVESTING ACTIVITIES Acquisitions, net of cash acquired........................ (5.0) (11.3) (1,284.9) Capital expenditures...................................... (298.2) (238.5) (173.4) Cash held by an affiliate................................. (26.6) (26.9) Increase in notes receivable from affiliates, net......... (340.0) (52.2) (300.0) Other..................................................... (15.0) (14.7) (11.3) --------- --------- --------- Net cash used in investing activities................. (684.8) (343.6) (1,769.6) --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................................... 26.8 (60.9) 16.9 CASH AND CASH EQUIVALENTS, beginning of year................ 11.6 72.5 55.6 --------- --------- --------- CASH AND CASH EQUIVALENTS, end of year...................... $ 38.4 $ 11.6 $ 72.5 --------- --------- --------- --------- --------- ---------
See notes to consolidated financial statements. F-15 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIENCY) (DOLLARS IN MILLIONS)
UNREALIZED (LOSS) NOTES GAIN ON RECEIVABLE ADDITIONAL ACCUMULATED MARKETABLE FROM CAPITAL DEFICIT SECURITIES AFFILIATE TOTAL ---------- ------------- ----------- ----------- --------- BALANCE, JANUARY 1, 1994.................... $1,073.0 ($2,027.1) $ ($ 40.8) ($ 994.9) Net loss.................................. (23.0) (23.0) Capital contributions..................... 355.8 355.8 Unrealized gain on marketable securities, net of deferred taxes of $2.9........... 5.4 5.4 Interest income on notes receivable from affiliates.............................. 3.9 (3.9) Income taxes on interest income on notes receivable from affiliates.............. (1.4) (1.4) Increase in notes receivable from affiliates.............................. (300.0) (300.0) --------- ------------ ---------- ---------- ------- BALANCE, DECEMBER 31, 1994.................. 1,431.3 (2,050.1) 5.4 (344.7) (958.1) Net loss.................................. (51.3) (51.3) Capital contributions..................... 6.3 6.3 Unrealized gain on marketable securities, net of deferred taxes of $2.3........... 4.3 4.3 Interest income on notes receivable from affiliates.............................. 40.1 (40.1) Income taxes on interest income on notes receivable from affiliates.............. (14.0) (14.0) Increase in notes receivable from affiliates, net......................... (52.2) (52.2) --------- ------------ ---------- ---------- ------- BALANCE, DECEMBER 31, 1995.................. 1,463.7 (2,101.4) 9.7 (437.0) (1,065.0) Net loss.................................. (22.6) (22.6) Capital contributions..................... 1,552.5 1,552.5 Unrealized loss on marketable securities, net of deferred taxes of ($6.0)......... (11.1) (11.1) Interest income on notes receivable from affiliate............................... 52.9 (52.9) Income taxes on interest income on notes receivable from affiliate............... (18.5) (18.5) Increase in notes receivable from affiliate............................... (340.0) (340.0) --------- ------------ ---------- ---------- ------- BALANCE, DECEMBER 31, 1996.................. $3,050.6 ($2,124.0) ($1.4) ($829.9) $ 95.3 --------- ------------ ---------- ---------- ------- --------- ------------ ---------- ---------- -------
See notes to consolidated financial statements. F-16 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1. BUSINESS Comcast Cable Communications, Inc., a Delaware corporation, and subsidiaries (the "Company") is a wholly owned subsidiary of Comcast Corporation ("Comcast"). The Company and its subsidiaries are engaged in the development, management and operation of cable communications systems. The Company's systems served approximately 4.3 million subscribers and passed approximately 7.0 million homes as of December 31, 1996. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all wholly owned or controlled subsidiaries. All significant intercompany accounts and transactions among consolidated entities have been eliminated. On April 24, 1997, Comcast completed a restructuring of the legal organization of certain of its subsidiaries (the "Reorganization"). The Reorganization involved Comcast's contribution to the Company of ownership interests in certain of its consolidated subsidiaries, all of which were under Comcast's direct or indirect control (the "Contributed Subsidiaries"). The Reorganization has been accounted for in a manner similar to a pooling of interests. Accordingly, the Company's consolidated financial statements include the accounts of the Contributed Subsidiaries for all periods presented. In addition, certain expenses directly related to the Company's operations which were historically paid by Comcast on behalf of the Company have been reflected in the Company's consolidated statement of operations for all periods presented. MANAGEMENT'S USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUES The estimated fair value amounts presented in these notes to consolidated financial statements have been determined by the Company using available market information and appropriate methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Such fair value estimates are based on pertinent information available to management as of December 31, 1996 and 1995, and have not been comprehensively revalued for purposes of these consolidated financial statements since such dates. A reasonable estimate of fair value of the amounts due to/from affiliates in the Company's consolidated balance sheet is not practicable to obtain because of the related party nature of these items and the lack of quoted market prices. F-17 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND CASH HELD BY AN AFFILIATE Cash equivalents principally consist of repurchase agreements with maturities of three months or less when purchased. Short-term investments consist of certificates of deposit with maturities of greater than three months when purchased. The carrying amounts of the Company's cash equivalents and short-term investments, classified as available for sale securities, approximate their fair values. As of December 31, 1996, short-term investments also include the Company's investment in Time Warner, Inc. ("Time Warner") common stock (the "Time Warner Stock") (see Note 4). Cash held by an affiliate consists of cash held by a subsidiary of Comcast under a cash management program (see Note 8). INVENTORIES Inventories, which include materials and supplies, are stated at average cost which is less than market. INVESTMENTS The Company's unrestricted publicly traded investment is classified as available for sale and is recorded at its fair value, with unrealized gains or losses resulting from changes in fair value between measurement dates recorded as a component of stockholder's equity (deficiency). Investments in privately held companies are stated at cost, adjusted for any known diminution in value. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is provided on a straight-line basis over estimated useful lives as follows: Buildings and improvements..................................... 15-40 years Operating facilities........................................... 5-20 years Other equipment................................................ 2-10 years
Improvements that extend asset lives are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation applicable to assets sold or retired are removed from the accounts and the gain or loss on disposition is recognized as a component of depreciation expense. In connection with the rebuild and upgrade of cable systems, the Company depreciates the remaining net book value of the assets over the estimated rebuild or upgrade period. Under this policy, the Company recorded additional depreciation expense of $20.3 million, $14.2 million and $7.4 million during the years ended December 31, 1996, 1995 and 1994, respectively. DEFERRED CHARGES Franchise acquisition costs are amortized on a straight-line basis over their legal or estimated useful lives of 12 to 40 years. The excess of cost over the fair value of net assets acquired is being amortized on a straight-line basis over estimated useful lives of 20 to 40 years. Debt acquisition costs are being amortized on a straight-line basis over the term of the related debt of up to 10 years. F-18 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 VALUATION OF LONG-LIVED ASSETS The Company periodically evaluates the recoverability of its long-lived assets, including property and equipment and deferred charges, using objective methodologies. Such methodologies include evaluations based on the cash flows generated by the underlying assets or other determinants of fair value. NOTES RECEIVABLE FROM AFFILIATE The notes receivable from affiliate (the "Notes Receivable") are due from Comcast and are presented in the Company's consolidated balance sheet as a component of stockholder's equity (deficiency) due to their related party nature (see Note 7). The Notes Receivable are increased by interest due under the terms of the notes and any additional amounts loaned to Comcast and are reduced by any cash payments of interest or principal. Interest due under the terms of the Notes Receivable, net of any related income taxes, has been recorded as an increase in additional capital. REVENUE RECOGNITION Service income is recognized as service is provided. Credit risk is managed by disconnecting services to customers who are delinquent. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS The estimated costs of retiree benefits and benefits for former or inactive employees, after employment but before retirement, are accrued and recorded as a charge to operations during the years the employees provide services. The Company's retiree benefit obligation is unfunded and all benefits are provided and paid by Comcast. Accordingly, the Company's liability for these costs is included in due to affiliates. A wholly owned subsidiary of the Company has agreements with certain former key executives that provide for supplemental retirement benefits. The actuarial present value of benefits payable under these agreements has been accrued. INVESTMENT INCOME Investment income includes interest income and gains, net of losses, on the sale or exchange of long-term investments. Gross realized gains and losses are recognized using the specific identification method. INCOME TAXES The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities and expected benefits of utilizing net operating loss carryforwards. The impact on deferred taxes of changes in tax rates and laws, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments, including interest rate exchange agreements ("Swaps"), interest rate cap agreements ("Caps") and interest rate collar agreements ("Collars"), to F-19 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 manage its exposure to fluctuations in interest rates. Swaps, Caps and Collars are matched with either fixed or variable rate debt and periodic cash payments are accrued on a settlement basis as an adjustment to interest expense. Any premiums associated with these instruments are amortized over their term. The Company does not hold or issue any derivative financial instruments for trading purposes and is not a party to leveraged instruments (see Note 5). The credit risks associated with the Company's derivative financial instruments are controlled through the evaluation and monitoring of the creditworthiness of the counterparties. Although the Company may be exposed to losses in the event of nonperformance by the counterparties, the Company does not expect such losses, if any, to be significant. 3. ACQUISITIONS SCRIPPS CABLE In November 1996, Comcast acquired the cable television operations ("Scripps Cable") of The E.W. Scripps Company ("E.W. Scripps") in exchange for 93.048 million shares of Comcast's Class A Special Common Stock valued at $1.552 billion (the "Scripps Acquisition"). As of the date of the acquisition, Scripps Cable passed more than 1.2 million homes and served more than 800,000 subscribers, with 60% of its subscribers located in Sacramento, California and Chattanooga and Knoxville, Tennessee. Comcast accounted for the Scripps Acquisition under the purchase method. Following the Scripps Acquisition, Comcast contributed Scripps Cable to the Company (the "Scripps Contribution") at Comcast's historical cost. The Scripps Contribution was recorded as an increase in additional capital and Scripps Cable was consolidated with the Company effective November 1, 1996. As the Scripps Contribution was a non-cash transaction, it had no significant impact on the Company's consolidated statement of cash flows. The allocation of the purchase price to the assets and liabilities of Scripps Cable is preliminary pending a final appraisal and the final purchase price adjustment between the Company and E.W. Scripps. The terms of the Scripps Acquisition provide for, among other things, the indemnification of the Company by E.W. Scripps for certain liabilities, including tax liabilities, relating to Scripps Cable prior to the acquisition date. MACLEAN HUNTER In December 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 $1.249 billion in cash. As of the date of the acquisition, Maclean Hunter passed more than 1.0 million homes and served more than 540,000 subscribers. The Company and the California Public Employees' Retirement System ("CalPERS" and together with the Company, the "Members") invested $305.6 million and $250.0 million, respectively, in the LLC, which is owned 55% by the Company and 45% by CalPERS. The Maclean Hunter Acquisition was financed with cash contributions from the LLC of $555.6 million and borrowings under a credit facility of an indirect wholly owned subsidiary of the LLC. The Company accounted for the Maclean Hunter Acquisition under the purchase method and Maclean Hunter was consolidated with the Company effective December 22, 1994. F-20 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 GROSSE POINTE CABLE, INC. In October 1994, the Company acquired the remaining 75% of issued and outstanding stock of Grosse Pointe Cable, Inc. ("Grosse Pointe") for $23.4 million, consisting of $21.1 million in cash and a $2.3 million promissory note due in October 1997. As of the date of the acquisition, Grosse Pointe passed more than 25,000 homes and served more than 16,000 subscribers. The Company accounted for the acquisition under the purchase method and Grosse Pointe was consolidated with the Company effective November 1, 1994. COMCAST CABLEVISION OF PHILADELPHIA, INC. In March 1994, a wholly owned subsidiary of Comcast, which held 92% of the issued and outstanding common stock of Comcast Cablevision of Philadelphia, Inc. ("Phila., Inc.") and which was subsequently contributed to a wholly owned subsidiary of the Company, completed certain transactions pursuant to which the then outstanding shares of Phila., Inc. were purchased for approximately $12.9 million in cash. The purchase price, including certain transaction costs, was primarily funded through a capital contribution from Comcast. UNAUDITED PRO FORMA INFORMATION The following unaudited pro forma information for the years ended December 31, 1996 and 1995 has been presented as if the Scripps Contribution had occurred on January 1, 1995. 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 Scripps Cable since January 1, 1995 (dollars in millions).
YEAR ENDED DECEMBER 31, -------------------- 1996 1995 --------- --------- Service income...................................................... $ 1,893.8 $ 1,734.4 Loss before extraordinary item...................................... (85.7) (124.5) Net loss............................................................ (85.7) (126.9)
4. INVESTMENTS As of December 31, 1995, the Company's investment in Turner Broadcasting System, Inc. ("TBS") stock (the "TBS Stock"), classified as available for sale, had an historical cost of $3.0 million and was recorded at its estimated fair value of $17.9 million, which was based on its quoted market price. The unrealized gain on this investment of $14.9 million has been reported in the Company's 1995 consolidated balance sheet as a decrease in stockholder's deficiency, net of deferred income taxes of $5.2 million. In October 1996, the Company received 552,014 shares of Time Warner Stock in exchange (the "Exchange") for all of the shares of the TBS Stock held by the Company as a result of the merger of Time Warner and TBS. As a result of the Exchange, the Company recognized a pre-tax gain of $19.8 million in 1996, representing the difference between the Company's historical cost basis in the TBS Stock and the new basis for the Company's investment in Time Warner Stock of $22.8 million, which was based on the closing price of the Time Warner Stock on the merger date of $41.375 per share. As of December 31, F-21 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996, the shares of Time Warner Stock held by the Company were recorded at fair value of $20.7 million and were included in short-term investments in the Company's consolidated balance sheet. The unrealized loss on this investment of $2.1 million has been reported in the Company's 1996 consolidated balance sheet as a decrease in stockholder's equity, net of deferred income tax benefit of $0.7 million. In January 1997, the Company sold its entire interest in Time Warner for $21.2 million and recognized a pre-tax loss of $1.6 million. 5. LONG-TERM DEBT
DECEMBER 31, -------------------------- 1996 1995 ------------ ------------ (DOLLARS IN MILLIONS) Notes payable to banks and insurance companies, due in installments through 2004...................................... $ 3,054.1 $ 2,917.5 10% Subordinated Debentures, due 2003, net of unamortized discount of $12.7 and $14.7.................................... 126.6 124.6 Other debt, due in installments principally through 1997......... 3.3 3.4 ------------ ------------ 3,184.0 3,045.5 Less current portion............................................. 115.7 34.1 ------------ ------------ $ 3,068.3 $ 3,011.4 ------------ ------------ ------------ ------------
During the period from January 1, 1997 to April 4, 1997, subsidiaries of the Company borrowed $95.0 million under existing credit facilities. Current portion of long-term debt as of December 31, 1996 includes $80.0 million relating to optional debt repayments made from January 1, 1997 through April 4, 1997. Maturities of long-term debt outstanding as of December 31, 1996 for the four years after 1997 are as follows (dollars in millions): 1998............................................................... $ 146.7 1999............................................................... 366.2 2000............................................................... 491.1 2001............................................................... 944.2
10% SUBORDINATED DEBENTURES The principal amount of the 10% Subordinated Debentures of $139.3 million matures in May 2003. The provision for mandatory annual sinking fund payments of $17.3 million has been satisfied through 1997. The debentures are subject to redemption at the option of the Company, at par, and are junior in right of payment to certain of the notes payable to banks and insurance companies. DEBT EXTINGUISHMENT The Company incurred debt extinguishment costs totaling $3.6 million during 1995 in connection with the refinancing of certain indebtedness of a subsidiary (the "Refinancing"), resulting in an extraordinary loss, net of tax, of $2.4 million. F-22 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 DEBT ASSUMPTION In 1996, a wholly owned subsidiary of Comcast assumed a $27.0 million note payable to a bank and $0.6 million of accrued interest thereon. In return, the Company became liable under a $27.6 million note payable to the subsidiary of Comcast (see Note 6). INTEREST RATES Fixed interest rates on notes payable to banks and insurance companies range from 8.60% to 10.57%. Variable interest rates on notes payable to banks vary based upon one or more of the following rates at the option of the Company: Base Rate (higher of federal funds rate plus 1/2% or prime rate) to Base Rate plus 3/4%; London Interbank Offered Rate (LIBOR) plus 3/8% to 1 7/8%; Certificate of deposit rate plus 3/4% to 1 5/8%. As of December 31, 1996 and 1995, the Company's effective weighted average interest rate on its outstanding variable rate notes payable to banks was 6.58% and 6.86%, respectively. INTEREST RATE RISK MANAGEMENT The Company is exposed to market risk including changes in interest rates. To manage the volatility relating to these exposures, the Company enters into various derivative transactions pursuant to the Company's policies in areas such as counterparty exposure and hedging practices. Positions are monitored using techniques including market value and sensitivity analyses. The use of interest rate risk management instruments, such as Swaps, Caps and Collars, is required under the terms of certain of the Company's outstanding debt agreements. The Company's policy is to manage interest costs using a mix of fixed and variable rate debt. Using Swaps, the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. Caps are used to lock in a maximum interest rate should variable rates rise, but enable the Company to otherwise pay lower market rates. Collars limit the Company's exposure to and benefits from interest rate fluctuations on variable rate debt to within a certain range of rates. The following table summarizes the terms of the Company's existing Swaps, Caps and Collars as of December 31, 1996 and 1995 (dollars in millions):
NOTIONAL AVERAGE ESTIMATED AMOUNT MATURITIES INTEREST RATE FAIR VALUE ----------- ----------- ------------- ------------- AS OF DECEMBER 31, 1996 Variable to Fixed Swaps.................... $ 530.0 1997-1999 6.14% ($ 1.2) Caps....................................... 250.0 1997 8.55% Collars.................................... 400.0 1997-1998 7.09%/5.04% 0.2 AS OF DECEMBER 31, 1995 Variable to Fixed Swaps.................... $ 250.0 1997 6.58% ($ 4.3) Caps....................................... 250.0 1997 8.20% Collars.................................... 250.0 1997 7.40%/5.11% (0.7)
F-23 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 The notional amounts of interest rate agreements, as presented in the above table, are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The estimated fair value approximates the proceeds (costs) to settle the outstanding contracts. While Swaps, Caps and Collars represent an integral part of the Company's interest rate risk management program, their incremental effect on interest expense for the years ended December 31, 1996, 1995 and 1994 was not significant. Of the existing derivative financial instruments as of December 31, 1996, during the three months ended March 31, 1997, a $50.0 million notional amount Swap with an interest rate of 6.88% and $150.0 million notional amount of Caps with an average interest rate of 8.50% expired. During the three months ended March 31, 1997, the Company entered into $160.0 million notional amount of Swaps that mature in 1998 and have an average interest rate of 5.69%. ESTIMATED FAIR VALUE The Company's long-term debt had estimated fair values of $3.215 billion and $3.066 billion as of December 31, 1996 and 1995, respectively. The estimated fair value of the Company's publicly traded debt is based on the quoted market price for that debt. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues for which quoted market prices are not available. DEBT COVENANTS Certain of the Company's subsidiaries' loan agreements contain restrictive covenants which, among other things, limit the Company's ability to enter into arrangements for the acquisition or disposition of property and equipment, investments, mergers and the incurrence of additional debt. Certain of these agreements require that certain ratios be maintained and contain certain restrictions on dividend payments, payment of management fees and advances of funds to affiliated entities. The Company's 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, 1996, substantially all of the Company's cash, cash equivalents, short-term investments and cash held by an affiliate is restricted to use by subsidiaries of the Company under contractual arrangements, including subsidiary credit agreements. Restricted net assets of the Company's subsidiaries were approximately $2.0 billion as of December 31, 1996. The restricted net assets of subsidiaries exceeds the Company's consolidated net assets as certain of the Company's subsidiaries have a stockholder's deficiency. LINES AND LETTERS OF CREDIT As of March 31, 1997, certain subsidiaries of the Company had unused lines of credit of $785.0 million. The availability and use of these unused lines of credit is restricted by the covenants of the related debt agreements and to subsidiary general purposes and dividend declaration. As of March 31, 1997, the Company and certain of its subsidiaries had unused irrevocable standby letters of credit totaling $106.3 million, substantially all of which cover potential fundings relating to companies in which Comcast, but not the Company, holds an equity interest. F-24 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 DEBT OFFERING On May 1, 1997, the Company completed the sale of $1.7 billion of notes (the "Old Notes") through a 144A offering with registration rights. The Old Notes were issued in four tranches: $300.0 million of 8 1/8% Notes due 2004, $600.0 million of 8 3/8% Notes due 2007, $550.0 million of 8 7/8% Notes due 2017 and $250.0 million of 8 1/2% Notes due 2027. The Company used substantially all of the net proceeds from the offering to repay certain of its subsidiaries' notes payable to banks with the balance to be used for subsidiary general purposes. 6. NOTES PAYABLE TO AFFILIATES As of December 31, 1996 and 1995, notes payable to affiliates (the "Notes Payable") include $383.4 million and $297.5 million, respectively, principal amount of Notes Payable to Comcast and certain of its wholly owned subsidiaries. During the years ended December 31, 1996, 1995 and 1994, the Company borrowed $87.3 million, $50.9 million and $100.7 million, respectively, from Comcast and certain wholly owned subsidiaries of Comcast. The 1996 borrowings include $27.6 million associated with the debt assumption described in Note 5. The remaining borrowings in 1996 and the 1995 and 1994 borrowings were used by the Company for debt service requirements and general purposes. During the years ended December 31, 1996, 1995 and 1994, the Company repaid $1.4 million, $7.0 million and $14.0 million principal amount of Notes Payable, respectively. During the year ended December 31, 1994, a Note Payable with a principal amount of $38.0 million was contributed to additional capital. The outstanding Notes Payable as of December 31, 1996 mature on various dates between 1997 and 2002. Maturities of Notes Payable as of December 31, 1996 for the four years after 1997 are as follows (dollars in millions): 1998................................................................ $1.7 1999................................................................ 177.7 2000................................................................ 0.5 2001................................................................ 12.8
The Notes Payable bear interest at rates ranging from the prime rate to 11.81% (weighted average interest rate of 9.31% and 9.79% as of December 31, 1996 and 1995, respectively). No interest is due on certain of the Notes Payable until their maturity and accordingly, accrued interest relating to such Notes Payable of $23.7 million and $17.5 million as of December 31, 1996 and 1995, respectively, has been added to principal. See Note 12--"Unaudited Pro Forma Consolidated Balance Sheet." F-25 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 7. NOTES RECEIVABLE FROM AFFILIATE As of December 31, 1996 and 1995, the Notes Receivable include $730.7 million and $390.7 million, respectively, principal amount of notes receivable from Comcast. During the years ended December 31, 1996, 1995 and 1994, the Company loaned $340.0 million, $80.0 million and $300.0 million, respectively, to Comcast to fund certain of Comcast's acquisitions and investments and for Comcast's general corporate purposes. During the year ended December 31, 1995, the Company received $27.8 million as repayment on a note receivable from a subsidiary of Comcast. The outstanding Notes Receivable as of December 31, 1996 mature on various dates between 1998 and 2006 (substantially all of the Notes Receivable mature after 2003) and bear interest at rates ranging from 9.25% to 15.00% (weighted average interest rate of 9.83% and 10.14% as of December 31, 1996 and 1995, respectively). No interest is due on the Notes Receivable until their maturity and accordingly, accrued interest on the Notes Receivable of $99.2 million and $46.3 million as of December 31, 1996 and 1995, respectively, has been added to principal. See Note 12--"Unaudited Pro Forma Consolidated Balance Sheet." 8. RELATED PARTY TRANSACTIONS The Company receives sales commissions from QVC, Inc. ("QVC"), an electronic retailer and a majority owned and controlled subsidiary of Comcast, based on a percentage of QVC sales to the Company's subscribers. In addition, the Company recognizes revenues relating to the carriage of certain QVC programming. For the years ended December 31, 1996, 1995 and 1994, the Company's service income includes $8.3 million, $7.9 million and $4.7 million, respectively, relating to QVC. Comcast, through management agreements, manages the operations of the Company's subsidiaries, including rebuilds and upgrades. The management agreements generally provide that Comcast will supervise the management and operations of the cable systems and arrange for and supervise (but not necessarily perform itself) certain administrative functions. As compensation for such services, the agreements provide for Comcast to charge management fees of up to 6% of gross revenues. Comcast charged the Company's subsidiaries management fees of $93.2 million, $83.5 million and $65.9 million in 1996, 1995 and 1994, respectively. These management fees are included in selling, general and administrative expenses in the Company's consolidated statement of operations. Comcast has agreed to permit certain subsidiaries of the Company to defer payment of a portion of these expenses with the deferred portion being treated as a subordinated long-term liability due to affiliate which will not be paid until the subsidiaries' existing long-term debt is retired. In addition, payment of certain of these expenses has been deferred until CalPERS no longer has an interest in the LLC. Management fees deferred in 1996, 1995 and 1994 were $4.3 million, $45.2 million and $35.7 million, respectively. In 1995, in connection with the Refinancing, a subsidiary of the Company repaid $14.9 million of previously deferred management fees. Deferred management fees were $132.2 million and $127.8 million as of December 31, 1996 and 1995, respectively. On behalf of the Company, Comcast seeks and secures long-term programming contracts that generally provide for payment based on either a monthly fee per subscriber per channel or a percentage of certain subscriber revenues. Comcast charges each of the Company's subsidiaries for programming on a basis which generally approximates the amount each such subsidiary would be charged if it F-26 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 purchased directly from the supplier, subject to limitations imposed by debt facilities for certain subsidiaries, and did not benefit from the purchasing power of the Company's consolidated operations. Amounts charged to the Company by Comcast for programming (the "Programming Charges") are included in operating expenses in the Company's consolidated statement of operations. The Company purchases certain other services, including insurance and employee benefits, from Comcast under cost-sharing arrangements on terms that reflect Comcast's actual cost. The Company reimburses Comcast for certain other costs (primarily salaries) under cost-reimbursement arrangements. Under all of these arrangements, the Company incurred total expenses of $505.0 million, $439.4 million and $327.7 million, including $417.0 million, $368.3 million and $264.1 million of Programming Charges, in 1996, 1995 and 1994, respectively. The Programming Charges include $26.2 million, $21.7 million and $16.7 million in 1996, 1995 and 1994, respectively, relating to programming purchased by the Company, through Comcast, from suppliers in which Comcast holds an equity interest. Comcast has agreed to permit certain of the Company's subsidiaries to defer payment of a portion of the Programming Charges with the deferred portion being treated as a subordinated long-term liability due to affiliate which will not be payable until the subsidiaries' existing long-term debt is retired. In addition, payment of certain of the Programming Charges has been deferred until CalPERS no longer has an interest in the LLC. Programming Charges deferred in 1996, 1995 and 1994 were $62.3 million, $58.1 million and $43.3 million, respectively. In 1995 and 1994, in connection with the Refinancing and a new financing, subsidiaries of the Company repaid $89.2 million and $13.7 million, respectively, of previously deferred Programming Charges. Deferred Programming Charges were $159.6 million and $97.4 million as of December 31, 1996 and 1995, respectively. Current due to affiliates in the Company's consolidated balance sheet primarily consists of amounts due to Comcast and its affiliates under the cost-sharing arrangements described above and amounts payable to Comcast and its affiliates as reimbursement for payments made, in the ordinary course of business, by such affiliates on behalf of the Company. In 1995, the Company entered into a custodial account arrangement with Comcast Financial Agency Corporation ("CFAC"), a wholly owned subsidiary of Comcast, under which CFAC provides cash management services to the Company. Under this arrangement, the Company's cash receipts are deposited with and held by CFAC, as custodian and agent, which invests and disburses such funds at the direction of the Company. As of December 31, 1996 and 1995, $53.5 million and $26.9 million, respectively, of the Company's cash was held by CFAC. These amounts have been classified as cash held by an affiliate in the Company's consolidated balance sheet. During the years ended December 31, 1996 and 1995, the Company recognized investment income of $4.1 million and $0.5 million, respectively, on cash held by CFAC. 9. INCOME TAXES The Company and its 80% or more owned subsidiaries join with Comcast in filing a consolidated federal income tax return. Comcast allocates income tax expense or benefit to the Company as if the Company was filing a separate federal income tax return. Subsequent to the Company's initial adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," effective January 1, 1993, tax benefits from both losses and tax credits are made available to the Company as it is able to realize such benefits on a separate return basis. The subsidiaries of the Company pay Comcast for income taxes an amount equal to the amount of tax each subsidiary would pay if they filed separate tax returns, subject to limitations for certain subsidiaries. F-27 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 The LLC is treated as a partnership for income tax purposes. As such, any taxable income or loss attributable to the LLC, excluding any income or loss from its subsidiaries, flows through to the Members based on their respective ownership percentages. The direct subsidiary of the LLC files a separate consolidated federal income tax return. As a result of the Company's recent acquisitions, the Company's deferred income tax liability and deferred charges were increased for temporary differences between the financial reporting basis and the income tax reporting basis of the assets acquired at the dates of their acquisition, as follows (dollars in millions):
YEAR ENDED DECEMBER 31, -------------------- 1996 1994 --------- --------- Scripps Cable.............................................. $ 499.2 $ Maclean Hunter............................................. 488.0 Grosse Pointe.............................................. 8.7
At the date of acquisition, Scripps Cable had a net deferred income tax liability of $101.7 million, which was assumed by the Company. Income tax benefit consists of the following components (dollars in millions):
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 --------- --------- --------- Current expense Federal..................................................... $ 32.8 $ 19.7 $ 5.0 State....................................................... 7.3 4.8 5.9 --------- --------- --------- 40.1 24.5 10.9 --------- --------- --------- Deferred expense (benefit) Federal..................................................... (48.3) (49.9) (11.2) State....................................................... 3.7 0.5 (1.5) --------- --------- --------- (44.6) (49.4) (12.7) --------- --------- --------- Income tax benefit.......................................... ($ 4.5) ($ 24.9) ($ 1.8) --------- --------- --------- --------- --------- ---------
The effective income tax benefit of the Company differs from the statutory amount because of the effect of the following items (dollars in millions):
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 --------- --------- --------- Federal tax at statutory rate............................... ($ 17.1) ($ 34.5) ($ 9.0) Non-deductible depreciation and amortization................ 12.5 11.1 3.3 State income taxes, net of federal benefit.................. 7.2 3.4 2.9 Interest income, taxable to Members......................... (5.9) (5.3) (0.1) Other....................................................... (1.2) 0.4 1.1 --------- --------- --------- Income tax benefit.......................................... ($ 4.5) ($ 24.9) ($ 1.8) --------- --------- --------- --------- --------- ---------
F-28 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Deferred income tax benefit resulted from the following differences between financial and income tax reporting (dollars in millions):
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 --------- --------- --------- Depreciation and amortization............................... ($ 54.9) ($ 50.4) ($ 25.4) Accrued expenses not currently deductible................... (1.0) (9.5) Deductible costs accrued in prior years..................... 6.5 2.2 Non-taxable temporary differences associated with sale or exchange of securities.................................... 6.9 Change in net operating loss carryforwards.................. (4.4) (2.7) 22.4 Change in valuation allowance and other..................... 2.3 1.5 (0.2) --------- --------- --------- Deferred income tax benefit................................. ($ 44.6) ($ 49.4) ($ 12.7) --------- --------- --------- --------- --------- ---------
Significant components of the Company's net deferred tax liability are as follows (dollars in millions):
DECEMBER 31, -------------------- 1996 1995 --------- --------- Deferred tax assets: Net operating loss carryforwards...................................... $ 176.9 $ 191.0 Less valuation allowance.............................................. (97.5) (132.1) --------- --------- 79.4 58.9 --------- --------- Deferred tax liabilities, principally differences between book and tax basis of property and equipment and deferred charges.................. 1,659.7 1,070.4 --------- --------- Net deferred tax liability............................................ $ 1,580.3 $ 1,011.5 --------- --------- --------- ---------
The Company's valuation allowance against deferred tax assets includes approximately $60.0 million for which any subsequent tax benefit recognized will be allocated to reduce goodwill and other noncurrent intangible assets. For income tax reporting purposes, certain subsidiaries of the Company have net operating loss carryforwards for which an aggregate deferred tax asset has been recorded of approximately $225 million, which would expire on a separate return basis through 2011. 10. STATEMENT OF CASH FLOWS--SUPPLEMENTAL INFORMATION The Company made cash payments for interest on its long-term debt of $214.4 million, $251.3 million and $146.3 million in 1996, 1995 and 1994, respectively. The Company made cash payments for interest on the Notes Payable of $25.9 million, $22.3 million and $12.8 million in 1996, 1995 and 1994, respectively. The Company made cash payments to Comcast for federal income taxes of $19.9 million, $5.1 million and $7.6 million in 1996, 1995 and 1994, respectively. The Company made cash payments to the respective state taxing authorities for state income taxes of $6.6 million, $7.1 million and $5.7 million in 1996, 1995 and 1994, respectively. F-29 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 11. COMMITMENTS AND CONTINGENCIES COMMITMENTS As a result of the Maclean Hunter Acquisition, 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 Comcast's common stock. Except in certain limited circumstances, Comcast, at its option, may satisfy this liquidity arrangement by purchasing CalPERS' interest for cash, by issuing its common stock (subject to certain limitations) or by selling the LLC. In addition, although the Company manages Maclean Hunter, certain limited transactions require the approval of CalPERS. In December 1996, an indirect majority owned subsidiary of the Company entered into an operating lease agreement granting certain rights of use of certain non-cable assets to the counterparty for a period of five years, subject to certain conditions. Pursuant to this agreement, the Company received an advance payment of $17.0 million, representing the total minimum lease payments to be received over the lease term. The Company has recorded this amount in other long-term liabilities in its consolidated balance sheet which will be amortized to service income over the remaining lease term on a straight-line basis. Minimum annual rental commitments for office space and equipment under noncancelable operating leases are as follows (dollars in millions): 1997................................................................. $ 7.6 1998................................................................. 5.8 1999................................................................. 5.0 2000................................................................. 4.6 2001................................................................. 4.4 Thereafter........................................................... 7.9
Pole rentals have been excluded from the above schedule as they are generally cancelable after an initial period by either party upon notice. Rental expense (including pole rentals) of $19.7 million, $17.8 million and $14.8 million has been charged to operations in 1996, 1995 and 1994, respectively. CONTINGENCIES The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position, results of operations or liquidity of the Company. The Company has settled the majority of outstanding proceedings challenging its rates charged for regulated cable services. In December 1995, the Federal Communications Commission ("FCC") adopted an order approving a negotiated settlement of rate complaints pending against the Company for cable programming service tiers ("CPSTs") which provided $6.6 million in refunds, plus interest, given in the form of bill credits during 1996, to 1.3 million of the Company's cable subscribers. As part of the negotiated settlement, the Company agreed to forego certain inflation and external cost adjustments for systems covered by its cost-of-service filings for CPSTs. The Company currently is seeking to justify rates for basic cable services and equipment in certain of its cable systems in the State of Connecticut on F-30 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 the basis of a cost-of-service showing. The State of Connecticut has ordered the Company to reduce such rates and to make refunds to subscribers. The Company has appealed the Connecticut decision to the FCC. Recent pronouncements from the FCC, which generally support the Company's position on appeal, have caused the State of Connecticut to reexamine its prior ruling. While the Company cannot predict the outcome of this action, the Company believes that the ultimate resolution of these pending regulatory matters will not have a material adverse impact on the Company's financial position, results of operations or liquidity. 12. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET The unaudited pro forma consolidated balance sheet as of December 31, 1996 (the "Pro Forma Balance Sheet") is presented as if certain transactions completed between April 1, 1997 and May 1, 1997 occurred on December 31,1996. These transactions consist of (i) repayment of $100.0 million of the Notes Payable from the proceeds from drawdowns under subsidiaries' existing credit facilities ($55.0 million) and cash held by an affiliate ($45.0 million), (ii) exchange of affiliate notes payable and notes receivable, and the accrued interest thereon, between the Company, Comcast and certain of their subsidiaries resulting in a reduction in the Company's Notes Payable of $307.1 million as of December 31, 1996, with a corresponding reduction in the Company's Notes Receivable, and (iii) elimination of the remaining Notes Receivable, and the accrued interest thereon (aggregating $522.8 million as of December 31, 1996), through a non-cash dividend to Comcast. F-31 UNAUDITED PRO FORMA FINANCIAL INFORMATION In November 1996, Comcast Corporation ("Comcast") acquired the cable television operations ("Scripps Cable") of The E.W. Scripps Company ("E.W. Scripps") in exchange for 93.048 million shares of Comcast's Class A Special Common Stock valued at $1.552 billion (the "Scripps Acquisition"). Following the Scripps Acquisition, Comcast contributed Scripps Cable to Comcast Cable Communications, Inc. (the "Company"), a wholly owned subsidiary of Comcast. For a further description of the Scripps Acquisition and certain related transactions, see the notes to unaudited pro forma condensed consolidated statements of operations (the "Pro Forma Statements"). The Pro Forma Statements reflect the consolidated operations of the Company and Scripps Cable for the year ended December 31, 1996 and for the three months ended March 31, 1996 and assume that the Scripps Acquisition occurred on January 1, 1996. See the notes to the Pro Forma Statements for a description of the assumptions used in the preparation of these statements. The Pro Forma Statements should be read in conjunction with the historical consolidated financial statements of the Company and the historical consolidated and combined financial statements of Comcast SCH Holdings, Inc. included in this Prospectus. The results presented in the Pro Forma Statements are not necessarily indicative of the results which actually would have occurred had the Scripps Acquisition occurred on January 1, 1996 or which may result in the future. F-32 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (DOLLARS IN MILLIONS)
(B) THE COMPANY SCRIPPS CABLE PRO FORMA THE COMPANY HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ----------- ------------- --------------- ----------- Service Income.................................................. $1,641.0 $252.8 $ $1,893.8 ----------- ------------- ------- ----------- Operating, Selling, General and Administrative Expenses......... 1,034.4 149.6 53.0(C.1.) 1,237.0 Depreciation and Amortization................................... 420.3 45.9 95.5(C.2.) 561.7 ----------- ------------- ------- ----------- 1,454.7 195.5 148.5 1,798.7 ----------- ------------- ------- ----------- Operating Income................................................ 186.3 57.3 (148.5) 95.1 Other (Income) Expense Interest expense.............................................. 228.4 228.4 Interest expense on notes payable to affiliates............... 32.1 28.5 (28.5)(C.3.) 32.1 Investment income............................................. (25.9) (25.9) Other......................................................... 0.5 13.7 (13.6)(C.4.) 0.6 ----------- ------------- ------- ----------- 235.1 42.2 (42.1) 235.2 ----------- ------------- ------- ----------- (Loss) Income Before Income Tax (Benefit) Expense and Minority Interest...................................................... (48.8) 15.1 (106.4) (140.1) Income Tax (Benefit) Expense.................................... (4.5) 7.7 (35.9)(C.5.) (32.7) Minority Interest............................................... (21.7) (21.7) ----------- ------------- ------- ----------- (Loss) Income from Continuing Operations........................ ($ 22.6) $ 7.4 ($70.5) ($ 85.7) ----------- ------------- ------- ----------- ----------- ------------- ------- -----------
See notes to unaudited pro forma condensed consolidated statements of operations. F-33 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 (DOLLARS IN MILLIONS)
(B) THE THE COMPANY SCRIPPS CABLE PRO FORMA COMPANY HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ----------- ------------- --------------- ---------- Service Income.................................................. $ 382.3 $ 75.0 $ $ 457.3 ----------- ------------- ------- ---------- Operating, Selling, General and Administrative Expenses......... 245.0 43.6 16.2(C.1.) 304.8 Depreciation and Amortization................................... 95.3 15.5 26.9(C.2.) 137.7 ----------- ------------- ------- ---------- 340.3 59.1 43.1 442.5 ----------- ------------- ------- ---------- Operating Income................................................ 42.0 15.9 (43.1) 14.8 Other (Income) Expense Interest expense.............................................. 56.7 56.7 Interest expense on notes payable to affiliates............... 8.6 8.7 (8.7)(C.3.) 8.6 Investment income............................................. (2.7) (2.7) ----------- ------------- ------- ---------- 62.6 8.7 (8.7) 62.6 ----------- ------------- ------- ---------- (Loss) Income Before Income Tax (Benefit) Expense and Minority Interest...................................................... (20.6) 7.2 (34.4) (47.8) Income Tax (Benefit) Expense.................................... (4.1) 2.9 (11.8)(C.5.) (13.0) Minority Interest............................................... (5.8) (5.8) ----------- ------------- ------- ---------- (Loss) Income from Continuing Operations........................ ($ 10.7) $ 4.3 ($22.6) ($ 29.0) ----------- ------------- ------- ---------- ----------- ------------- ------- ----------
See notes to unaudited pro forma condensed consolidated statements of operations. F-34 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS A. SUMMARY OF TRANSACTIONS In November 1996, Comcast Corporation ("Comcast") acquired the cable television operations ("Scripps Cable") of The E.W. Scripps Company ("E.W. Scripps") in exchange for 93.048 million shares of Comcast's Class A Special Common Stock valued at $1.552 billion (the "Scripps Acquisition"). As of the date of the acquisition, Scripps Cable passed more than 1.2 million homes and served more than 800,000 subscribers, with 60% of its subscribers located in Sacramento, California and Chattanooga and Knoxville, Tennessee. Comcast accounted for the Scripps Acquisition under the purchase method. Following the Scripps Acquisition, Comcast contributed Scripps Cable (the "Scripps Contribution") to Comcast Cable Communications, Inc. (the "Company"), a wholly owned subsidiary of Comcast. The Scripps Contribution was recorded as an increase in additional capital and Scripps Cable was consolidated with the Company effective November 1, 1996. The allocation of the purchase price to the assets and liabilities of Scripps Cable is preliminary pending a final appraisal and the final purchase price adjustment between the Company and E.W. Scripps. The terms of the Scripps Acquisition provide for, among other things, the indemnification of the Company by E.W. Scripps for certain liabilities, including tax liabilities, relating to Scripps Cable prior to the acquisition date. B. BASIS OF PRESENTATION E.W. Scripps has historically been the holding company for its cable television operations along with other operations. In connection with the Scripps Acquisition, in which E.W. Scripps was merged with and into Comcast (the "Merger"), E.W. Scripps contributed its non-cable television operations to Scripps Howard, Inc. ("SHI"), a wholly owned subsidiary of E.W. Scripps, and distributed the shares of SHI to its shareholders (the "Distribution"). The Distribution occurred immediately prior to the closing of the Merger. Accordingly, when Comcast acquired E.W. Scripps, it only purchased Scripps Cable. The historical statements of operations of Scripps Cable included in the unaudited pro forma condensed consolidated statements of operations (the "Pro Forma Statements") exclude the results of operations of the non-cable television operations of E.W. Scripps. The historical statements of operations of Scripps Cable included in the Pro Forma Statements reflect certain reclassifications made to conform with those classifications used by the Company. C. PRO FORMA ADJUSTMENTS The following adjustments and elimination entries have been made to the Pro Forma Statements to reflect the Scripps Acquisition: 1. Represents management fees, programming charges and certain other expenses (aggregating $60.3 million and $16.8 million for the year ended December 31, 1996 and for the three months ended March 31, 1996, respectively), that would have been charged to Scripps Cable by Comcast had the Scripps Acquisition occurred on January 1, 1996, offset, in part, by the elimination of operating, selling, general and administrative expenses related to entities not acquired in the Scripps Acquisition ($7.3 million and $0.6 million for the year ended December 31, 1996 and for the three months ended March 31, 1996, respectively). 2. Represents additional depreciation and amortization expense resulting from the increased fair value of the assets acquired in excess of their historical book values and amortization of goodwill F-35 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONCLUDED) arising from the acquisition, offset, in part, by the elimination of Scripps Cable's historical goodwill amortization. Depreciation expense is based on a weighted average property and equipment life of approximately 10 years. Property and equipment of Scripps Cable principally consists of operating facilities, which are typically depreciated over a period of 12 years by the Company. Amortization expense is based on an average life for deferred charges and goodwill of 12 and 20 years, respectively. Deferred charges of Scripps Cable principally consist of franchise acquisition costs and subscriber lists. 3. Represents the elimination of Scripps Cable's historical interest expense on balances due to affiliates. 4. Represents the elimination of certain expenses, directly related to the Scripps Acquisition, incurred by E.W. Scripps and charged to Scripps Cable prior to the Scripps Acquisition. 5. Represents adjustments to the provision for income taxes resulting from the above pro forma adjustments. F-36 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholder Comcast SCH Holdings, Inc. Philadelphia, Pennsylvania We have audited the accompanying consolidated balance sheet of Comcast SCH Holdings, Inc. (an indirect wholly owned subsidiary of Comcast Corporation) and subsidiaries as of December 31, 1996 and the related consolidated statements of operations, stockholder's equity and of cash flows for the period from November 1, 1996 to December 31, 1996, as well as the combined balance sheet of the Predecessor Corporation (see Note 2) as of December 31, 1995 and the related combined statements of operations, stockholders' deficiency and of cash flows for the period from January 1, 1996 to October 31, 1996 and for the years ended December 31, 1995 and 1994. 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, such consolidated and combined financial statements present fairly, in all material respects, the financial position of Comcast SCH Holdings, Inc. and subsidiaries as of December 31, 1996, the financial position of the Predecessor Corporation as of December 31, 1995, and the results of their operations and their cash flows for the periods stated above, in conformity with generally accepted accounting principles. As discussed in Notes 2 and 4 to the consolidated and combined financial statements, in November 1996, Comcast Corporation acquired the Predecessor Corporation which resulted in the establishment of a new cost basis for the assets and liabilities of the acquired entities. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Philadelphia, Pennsylvania February 28, 1997 (except for Note 6, as to which the date is May 1, 1997) F-37 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED AND COMBINED BALANCE SHEET (DOLLARS IN THOUSANDS)
(PREDECESSOR CORPORATION) -------------- DECEMBER 31, DECEMBER 31, 1996 1995 -------------- -------------- ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 3,047 $ 3,085 Short-term investments.................................... 106 Cash held by an affiliate................................. 9,475 Accounts receivable, less allowance for doubtful accounts of $1,439 and $1,288.................................... 9,870 12,107 Inventories............................................... 9,427 12,822 Other current assets...................................... 1,790 5,956 -------------- -------------- Total current assets.................................. 33,715 33,970 -------------- -------------- PROPERTY AND EQUIPMENT...................................... 422,922 600,822 Accumulated depreciation.................................. (7,417) (305,715) -------------- -------------- Property and equipment, net............................... 415,505 295,107 -------------- -------------- DEFERRED CHARGES............................................ 1,765,029 214,125 Accumulated amortization.................................. (21,458) (120,629) -------------- -------------- Deferred charges, net..................................... 1,743,571 93,496 -------------- -------------- $ 2,192,791 $ 422,573 -------------- -------------- -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES Accounts payable and accrued expenses..................... $ 47,483 $ 33,675 Accrued interest.......................................... 250 Due to affiliates......................................... 942 1,599 -------------- -------------- Total current liabilities............................. 48,675 35,274 -------------- -------------- LONG-TERM DEBT.............................................. 125,000 -------------- -------------- OTHER LIABILITIES........................................... 9,325 -------------- -------------- DUE TO AFFILIATES........................................... 4,413 312,737 -------------- -------------- DEFERRED INCOME TAXES, due to affiliate..................... 593,777 80,193 -------------- -------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIENCY) Common stock.............................................. 1,801 Additional capital........................................ 1,431,578 35,144 Accumulated deficit....................................... (10,652) (51,901) -------------- -------------- Total stockholders' equity (deficiency)............... 1,420,926 (14,956) -------------- -------------- $ 2,192,791 $ 422,573 -------------- -------------- -------------- --------------
See notes to consolidated and combined financial statements. F-38 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS)
NOVEMBER 1 TO DECEMBER 31, 1996 ------------------- SERVICE INCOME......................................................... $ 52,364 -------- COSTS AND EXPENSES Operating, selling, general and administrative....................... 39,633 Depreciation and amortization........................................ 28,989 -------- 68,622 -------- OPERATING LOSS......................................................... (16,258) OTHER (INCOME) EXPENSE Interest expense..................................................... 1,253 Investment income.................................................... (139) Other................................................................ (96) -------- 1,018 -------- LOSS BEFORE INCOME TAX BENEFIT......................................... (17,276) INCOME TAX BENEFIT..................................................... (6,624) -------- NET LOSS............................................................... ($ 10,652) -------- --------
See notes to consolidated and combined financial statements. F-39 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES COMBINED STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS)
PREDECESSOR CORPORATION --------------------------------------- YEAR ENDED JANUARY 1 DECEMBER 31, TO -------------------- OCTOBER 31, 1996 1995 1994 ----------------- --------- --------- SERVICE INCOME...................................... $ 257,393 $ 279,482 $ 255,356 ----------------- --------- --------- COSTS AND EXPENSES Operating, selling, general and administrative.... 154,166 162,810 164,721 Depreciation and amortization..................... 45,964 54,099 57,331 ----------------- --------- --------- 200,130 216,909 222,052 ----------------- --------- --------- OPERATING INCOME.................................... 57,263 62,573 33,304 OTHER (INCOME) EXPENSE Interest expense.................................. 27 343 342 Intercompany interest expense..................... 28,530 34,915 33,447 Corporate management fee.......................... 2,957 Merger expenses................................... 13,566 Gain on sale of cable television system........... (1,502) Other, net........................................ 108 (786) 69 ----------------- --------- --------- 42,231 32,970 36,815 ----------------- --------- --------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)................................. 15,032 29,603 (3,511) INCOME TAX EXPENSE (BENEFIT)........................ 7,644 11,913 (10,590) ----------------- --------- --------- NET INCOME.......................................... $ 7,388 $ 17,690 $ 7,079 ----------------- --------- --------- ----------------- --------- ---------
See notes to consolidated and combined financial statements. F-40 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
NOVEMBER 1 TO DECEMBER 31, 1996 ------------------- OPERATING ACTIVITIES Net loss............................................................. ($ 10,652) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization...................................... 28,989 Non-cash operating expenses charged by an affiliate................ 4,413 Deferred income tax benefit........................................ (7,106) ---------- 15,644 Decrease in accounts receivable, inventories and other current assets........................................................... 145 Increase in accounts payable and accrued expenses and accrued interest......................................................... 5,174 ---------- Net cash provided by operating activities........................ 20,963 ---------- FINANCING ACTIVITIES Proceeds from borrowing.............................................. 150,000 Repayment of long-term debt.......................................... (25,000) Net transactions with affiliates..................................... (2,174) Return of capital to parent.......................................... (120,000) ---------- Net cash provided by financing activities........................ 2,826 ---------- INVESTING ACTIVITIES Capital expenditures and other....................................... (11,267) Cash held by an affiliate............................................ (9,475) ---------- Net cash used in investing activities............................ (20,742) ---------- INCREASE IN CASH....................................................... 3,047 CASH, beginning of period.............................................. ---------- CASH, end of period.................................................... $ 3,047 ---------- ----------
See notes to consolidated and combined financial statements. F-41 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES COMBINED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
PREDECESSOR CORPORATION --------------------------------------- YEAR ENDED JANUARY 1 DECEMBER 31, TO -------------------- OCTOBER 31, 1996 1995 1994 ----------------- --------- --------- OPERATING ACTIVITIES Net income.......................................... $ 7,388 $ 17,690 $ 7,079 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 45,964 54,099 57,331 Merger expenses................................. 13,566 Gain on sale of cable television system......... (1,502) Adjustment of liability for prior year income taxes........................................... (11,800) Payment of prior year income taxes to parent.... (7,400) Prepaid franchise fees.......................... 2,576 2,574 Refundable property taxes....................... 10,400 (6,612) Commitments and contingencies and other, net.... (2,932) (5,368) 11,921 Deferred income tax benefit..................... (8,212) (449) (657) -------- --------- --------- 55,774 77,446 52,436 Other changes in working capital accounts: Accounts receivable........................... (268) (2,193) (2,064) Inventories................................... 2,407 (2,389) 3,946 Accounts payable.............................. (6,048) (2,671) 2,142 Other, net.................................... (4,024) 1,822 238 -------- --------- --------- Net cash provided by operating activities... 47,841 72,015 56,698 -------- --------- --------- FINANCING ACTIVITIES Advances from parent................................ 69,108 13,455 Repayments of advances from parent.................. (1,894) (23,595) (2,102) Other, net.......................................... (625) (2,500) (1,875) -------- --------- --------- Net cash provided by (used in) financing activities................................ 66,589 (26,095) 9,478 -------- --------- --------- INVESTING ACTIVITIES Acquisitions........................................ (62,099) (384) (26,501) Capital expenditures................................ (54,283) (47,484) (41,616) Proceeds from sale of cable television system....... 2,800 Other, net.......................................... 422 130 1,948 -------- --------- --------- Net cash used in investing activities....... (115,960) (44,938) (66,169) -------- --------- --------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...... (1,530) 982 7 CASH AND CASH EQUIVALENTS, beginning of period........ 3,085 2,103 2,096 -------- --------- --------- CASH AND CASH EQUIVALENTS, end of period.............. $ 1,555 $ 3,085 $ 2,103 -------- --------- --------- -------- --------- ---------
See notes to consolidated and combined financial statements. F-42 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) (DOLLARS IN THOUSANDS)
COMMON ADDITIONAL ACCUMULATED STOCK CAPITAL DEFICIT TOTAL ----------- ---------- ------------- ---------- PREDECESSOR CORPORATION BALANCE, JANUARY 1, 1994................. $ 1,801 $ 35,144 ($ 76,670) ($ 39,725) Net income............................... 7,079 7,079 ----------- ---------- ------------- ---------- BALANCE, DECEMBER 31, 1994............... 1,801 35,144 (69,591) (32,646) Net income............................... 17,690 17,690 ----------- ---------- ------------- ---------- BALANCE, DECEMBER 31, 1995............... 1,801 35,144 (51,901) (14,956) Net income............................... 7,388 7,388 ----------- ---------- ------------- ---------- BALANCE, OCTOBER 31, 1996................ $ 1,801 $ 35,144 ($ 44,513) ($ 7,568) ----------- ---------- ------------- ---------- ----------- ---------- ------------- ---------- SUCCESSOR CORPORATION Capital contribution..................... $ $1,551,578 $ $1,551,578 Net loss................................. (10,652) (10,652) Return of capital to parent.............. (120,000) (120,000) ----------- ---------- ------------- ---------- BALANCE, DECEMBER 31, 1996............... $ $1,431,578 ($ 10,652) $1,420,926 ----------- ---------- ------------- ---------- ----------- ---------- ------------- ----------
See notes to consolidated and combined financial statements. F-43 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 1. ORGANIZATION Comcast SCH Holdings, Inc. and subsidiaries (the "Company"), a Colorado corporation formerly known as Scripps Howard Cable Company ("SHCC") (see Note 2), is a wholly owned subsidiary of Comcast Cable Communications, Inc. ("CCCI"), which is a wholly owned subsidiary of Comcast Corporation ("Comcast"). The Company is engaged in the development, management and operation of cable communications systems located in California, Tennessee, Georgia, West Virginia, Florida, Kentucky and Colorado. As of December 31, 1996, the Company's systems served more than 800,000 subscribers and passed more than 1.3 million homes, with 60% of its subscribers located in Sacramento, California and Chattanooga and Knoxville, Tennessee. 2. MERGER OF E.W. SCRIPPS COMPANY In November 1996, Comcast acquired the Company in a merger (the "Merger") with The E.W. Scripps Company ("EWS") in exchange for 93.048 million shares of Comcast's Class A Special Common Stock valued at $1.552 billion (the "Scripps Acquisition"). Comcast accounted for the Scripps Acquisition under the purchase method. Following the Scripps Acquisition, Comcast contributed the Company to CCCI at Comcast's historical cost (the "Scripps Contribution"). As the Scripps Contribution was a non-cash transaction, it had no significant impact on the Company's consolidated statement of cash flows. Cash and certain liabilities (primarily income taxes payable, accruals for commitments and contingencies and amounts due to affiliates) included in the combined financial statements of the Predecessor Corporation were not assumed by Comcast in the Scripps Acquisition. Accordingly, such cash and liabilities are not reflected in the Company's consolidated balance sheet as of December 31, 1996. EWS had historically been the holding company for its cable television operations along with other operations. EWS' subsidiaries which provided cable television operations included SHCC, EWS Cable Inc. ("EWS Cable"), a Colorado corporation, L-R Cable, Inc. ("L-R Cable"), a Colorado corporation, and Scripps Howard Cable Company of Sacramento ("Sacramento Cable"), a Delaware corporation (collectively, SHCC, EWS Cable, L-R Cable and Sacramento Cable represent the "Predecessor Corporation"). In connection with the Scripps Acquisition, EWS restructured its operations with each of EWS Cable, L-R Cable and Sacramento Cable becoming wholly owned subsidiaries of SHCC. In addition, SHCC was transferred by Scripps Howard, Inc. ("SHI"), an Ohio corporation and a wholly owned subsidiary of EWS, to EWS. Immediately prior to the closing of the Merger, EWS distributed all of the outstanding shares of SHI, which held all of EWS' non-cable television operations, to its shareholders (the "Distribution"). Accordingly, when Comcast merged with EWS, it only acquired the Predecessor Corporation. Subsequent to the Scripps Acquisition, SHI changed its name to E.W. Scripps Co. ("New Scripps"). The Company would have reported unaudited pro forma revenues of $309.8 million and $279.5 million and unaudited pro forma net loss of $73.8 million and $75.7 million for the years ended December 31, 1996 and 1995, respectively, had the Scripps Acquisition occurred on January 1, 1995. 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 January 1, 1995. F-44 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 3. BASIS OF PRESENTATION BASIS OF CONSOLIDATION The consolidated balance sheet as of December 31, 1996 and the consolidated statements of operations, cash flows and stockholder's equity for the period from November 1, 1996 to December 31, 1996 represent the consolidated financial position, results of operations, changes in stockholder's equity and cash flows of the Company and its wholly and majority owned subsidiaries subsequent to the Scripps Acquisition. All significant intercompany accounts and transactions among consolidated entities have been eliminated. BASIS OF COMBINATION The combined balance sheet as of December 31, 1995 and the combined statements of operations, cash flows and stockholders' deficiency for the period from January 1, 1996 to October 31, 1996 and for the years ended December 31, 1995 and 1994 represent the combined financial position, results of operations, changes in stockholders' deficiency and cash flows of the Predecessor Corporation. All significant intercompany accounts and transactions among combined entities have been eliminated. The Predecessor Corporation financial statements exclude the results of operations of the non-cable television operations of SHI. Prior to the Scripps Acquisition, EWS Cable and L-R Cable were wholly owned subsidiaries of SHI and SHCC and Sacramento Cable were wholly owned subsidiaries of Scripps Howard Broadcasting Company ("SHB"). Prior to 1994, SHI owned approximately 92% of SHB. EWS acquired the remaining minority interest in SHB in 1994 (see Note 5). The historical basis in assets and liabilities of the cable television systems of EWS were not altered by the combination. The historical combined financial statements do not necessarily reflect the results of operations or financial position that would have existed if the Predecessor Corporation were an independent company. SHI provided certain legal, treasury, accounting, tax, risk management and other corporate services to the Predecessor Corporation (see Note 10). 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PURCHASE PRICE ALLOCATION Under the purchase method, the purchase price was allocated to the fair value of the assets acquired and the liabilities assumed. This allocation is preliminary pending a final appraisal and the final purchase price adjustment between CCCI and New Scripps. The terms of the Scripps Acquisition provide for, among other things, the indemnification by New Scripps for certain liabilities, including tax liabilities, relating to the Predecessor Corporation prior to the acquisition date. MANAGEMENT'S USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements F-45 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUES The estimated fair value amounts discussed in these notes to consolidated and combined financial statements have been determined by the Company and the Predecessor Corporation 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 discussed 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, 1996 and 1995, and have not been comprehensively revalued for purposes of these consolidated and combined financial statements since such dates. A reasonable estimate of fair value of the amounts due to affiliates in the consolidated and combined balance sheet is not practicable to obtain because of the related party nature of these items and the lack of quoted market prices. CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND CASH HELD BY AN AFFILIATE Cash equivalents consist of investments with maturities of three months or less when purchased. Short-term investments consist of certificates of deposit with maturities of greater than three months when purchased. The carrying amounts of the Company's and the Predecessor Corporation's cash equivalents and short-term investments, classified as available for sale securities, approximate their fair values, which are based on quoted market prices. Cash held by an affiliate consists of cash held by a subsidiary of Comcast under a cash management program (see Note 10). INVENTORIES As of December 31, 1996, inventories, which include materials and supplies, are stated at average cost which is less than market. As of December 31, 1995, inventories are stated at the lower of cost, which was determined using the first in, first out method, or market. REFUNDABLE PROPERTY TAXES In 1991, the property tax valuation of the Sacramento cable television system was increased. The Predecessor Corporation disputed the amount and basis for the increased valuation. Refundable property taxes represent additional property taxes paid by the Predecessor Corporation while the valuation was under appeal. The appeal was settled in favor of the Predecessor Corporation in 1995. As a result, the Predecessor Corporation received property tax refunds totaling $10.4 million, excluding interest. F-46 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 PROPERTY AND EQUIPMENT Prior to the Scripps Acquisition, property and equipment were stated at cost. Depreciation was provided on a straight-line basis over estimated useful lives as follows: Buildings...................................................... 35 years Operating facilities........................................... 10-15 years Other equipment................................................ 3-10 years
Upon consummation of the Scripps Acquisition, property and equipment were adjusted based on an estimate of their fair values as of the date of acquisition. Subsequent to the Scripps Acquisition, the Company's property and equipment are estimated to have weighted average estimated useful lives of ten years, which is estimated based on the useful lives of similar assets of other subsidiaries of CCCI. Upon receipt of a final appraisal, the Company will adjust the basis and estimated useful lives of its property and equipment accordingly. Improvements that extend asset lives are capitalized; other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation applicable to assets sold or retired are removed from the accounts and the gain or loss on disposition is recognized as a component of depreciation expense. DEFERRED CHARGES Deferred charges as of December 31, 1996 consist principally of franchise acquisition costs, debt acquisition costs and the excess of cost over the fair value of net assets acquired (goodwill). Franchise acquisition costs and goodwill are being amortized on a straight-line basis over their estimated useful lives of 12 and 20 years, respectively. Debt acquisition costs are being amortized on a straight-line basis over the term of the related debt (see Note 6). Deferred charges of the Predecessor Corporation consisted principally of franchise acquisition costs, which were being amortized on a straight-line basis over the terms of the related franchise agreements, and goodwill, which was being amortized on a straight-line basis over periods of up to 40 years. VALUATION OF LONG-LIVED ASSETS The Company and the Predecessor Corporation periodically evaluate the recoverability of long-lived assets, including property and equipment and 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. REVENUE RECOGNITION Service income is recognized as service is provided. Credit risk is managed by disconnecting services to customers who are delinquent. F-47 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS The estimated costs of retiree benefits and benefits for former or inactive employees, after employment but before retirement, are accrued and recorded as a charge to operations during the years that employees provide services. Subsequent to the Scripps Acquisition, the Company's retiree benefit obligation is unfunded and all benefits are paid by Comcast. Accordingly, as of December 31, 1996, the Company's liability for these costs is included in current due to affiliates. INCOME TAXES The Company and the Predecessor Corporation recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities and expected benefits of utilizing net operating loss carryforwards. The impact on deferred taxes of changes in tax rates and laws, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated and combined financial statements in the period of enactment. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' combined financial statements to conform to those classifications used in 1996. 5. ACQUISITIONS AND DIVESTITURE In 1995, the Predecessor Corporation reached an agreement to acquire cable television systems adjacent to certain of its systems in Knoxville and Chattanooga, Tennessee for $62.5 million (the "Mid-Tenn Purchase"). The Mid-Tenn Purchase was completed in January 1996. During 1995 and 1994, the Predecessor Corporation acquired several cable television systems adjacent to its existing service areas. In addition, during 1994, EWS acquired the remaining minority interest in SHB that it had not previously owned and subsequently allocated a portion of the purchase price to the Predecessor Corporation. F-48 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 The following table presents additional information about these acquisitions (in thousands):
PREDECESSOR CORPORATION ------------------------------------- YEAR ENDED DECEMBER JANUARY 1 TO 31, OCTOBER 31, ---------------------- 1996 1995 1994 ------------- ----- --------- Goodwill and other intangible assets acquired................ $ 50,606 $ 247 $ 233 Other assets acquired........................................ 11,681 137 152 ------------- ----- --------- 62,287 384 385 Liabilities assumed.......................................... (188) ------------- ----- --------- Total cable television system acquisitions................... 62,099 384 385 Excess of cost over book value of SHB stock allocated to the Predecessor Corporation and paid to SHI.................... 26,116 ------------- ----- --------- $ 62,099 $ 384 $ 26,501 ------------- ----- --------- ------------- ----- ---------
The acquisitions have been accounted for under the purchase method. The acquired operations have been included in the combined statements of operations from the dates of acquisition. Pro forma results are not presented because the combined results of operations would not be significantly different from the reported amounts. During 1995, the Predecessor Corporation sold its cable television system in Barbourville, Kentucky. The sale resulted in a pre-tax gain of $1.5 million. 6. LONG-TERM DEBT In November 1996, the Company entered into a $600.0 million Revolving Credit Facility (the "Credit Facility"). Initial borrowings under the Credit Facility of $150.0 million were principally used to pay a return of capital to CCCI in the amount of $120.0 million. The Company repaid $25.0 million of borrowings under the Credit Facility in December 1996. On May 1, 1997, the Company repaid the amounts outstanding under the Credit Facility with the proceeds from a loan from a subsidiary of CCCI. Amounts outstanding under the Credit Facility are due in 2002. The stock of the Company has been pledged as collateral for borrowings under the Credit Facility. The interest rate on borrowings under the Credit Facility is based on either of the following at the option of the Company: Higher of the federal funds rate plus 1/2% or prime rate; London Interbank Offered Rate (LIBOR) plus 3/8% or 7/8%. As of December 31, 1996, the weighted average interest rate on borrowings under the Credit Facility was 5.94%. The difference between the carrying value and estimated fair value of the Company's long-term debt was not significant as of December 31, 1996. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value as quoted market prices are not available. F-49 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 The Credit Facility contains restrictive covenants which, among other things, limit the Company's ability to enter into arrangements for the acquisition or disposition of property and equipment, investments, mergers and the incurrence of additional indebtedness. The restrictive covenants also require that certain ratios and cash flow levels be maintained, as defined, and limit dividend payments, payment of management fees and advances of funds to affiliated entities. 7. CAPITAL STRUCTURE As of December 31, 1996, common stock in the Company's consolidated balance sheet consists of 100 shares of no-par common stock authorized, with 80 shares issued and outstanding. As of December 31, 1995, common stock in the Predecessor Corporation's combined balance sheet includes the following: EWS Cable--100 shares of no-par common stock authorized, 50 shares issued and outstanding; L-R Cable--100 shares of no-par common stock authorized, 50 shares issued and outstanding; SHCC--100 shares of no-par common stock authorized, 80 shares issued and outstanding; and Sacramento Cable--2,000 shares of no-par common stock authorized, 100 shares issued and outstanding. 8. INCOME TAXES Subsequent to the Scripps Acquisition, the Company joins with Comcast in filing a consolidated federal income tax return. Comcast allocates income tax expense or benefit to the Company as if the Company was filing a separate federal income tax return. Tax benefits from both losses and tax credits are made available to the Company as it is able to realize such benefits on a separate return basis. The Company is required to pay Comcast for income taxes an amount equal to that amount of tax the Company would pay if it filed a separate tax return. The current provision for income taxes for the period from November 1, 1996 to December 31, 1996 is due to Comcast and is included in due to affiliates. The Predecessor Corporation was included in the consolidated federal tax return of EWS. The provision for income taxes was generally prepared as if the Predecessor Corporation filed a separate return, however tax benefits for taxable losses and other deductions that would be limited if the Predecessor Corporation were an independent company were recognized currently if such losses and benefits were utilized in the consolidated EWS provision. If the tax provision were prepared on a separate return basis, the tax provision (benefit) in the accompanying combined statement of operations would have been $5.9 million and ($10.6) million for the years ended December 31, 1995 and 1994, respectively. Such amounts differ from the reported amounts due to the timing of the recognition of benefits for taxable losses and investment tax credits. There would not have been a significant change to the tax provision for the period from January 1, 1996 to October 31, 1996 had the tax provision been prepared on a separate return basis. The Company's and the Predecessor Corporation's deferred income tax liability as of December 31, 1996 and 1995 principally results from the tax effects of differences between the book and tax basis of property and equipment and deferred charges (excluding goodwill). As a result of the Scripps Acquisition, the Company recorded an increase in its deferred income tax liability and deferred charges of $499.2 million for temporary differences between the financial reporting F-50 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 basis and the tax basis of the assets of the Company as of the date of the acquisition. At the date of acquisition, the Predecessor Corporation had an existing deferred income tax liability of $101.7 million, which was assumed by the Company. In 1994, the Internal Revenue Service ("IRS") proposed adjustments related to certain intangible assets and a deduction related to the 1986 redemption of a partnership interest in certain of the Predecessor Corporation's cable systems. Based upon the proposed adjustments, management of the Predecessor Corporation changed its estimate of the tax liability for prior years. The resulting change in the liability for prior year income taxes and the deferred income tax liability increased 1994 net income by $11.8 million. In 1995, EWS reached agreement with the IRS to settle the audits of its 1985 through 1987 tax returns. The settlement payment was charged to the prior years' tax liability. The liability was not adjusted as a result of the settlement. Income tax (benefit) expense consists of the following components (dollars in thousands):
PREDECESSOR CORPORATION ----------------------------------- YEAR ENDED NOVEMBER 1 TO JANUARY 1 TO DECEMBER 31, DECEMBER 31, OCTOBER 31, -------------------- 1996 1996 1995 1994 --------------- ------------- --------- --------- Current expense (benefit) Federal................................ $ 482 $ 14,297 $ 11,777 ($ 10,290) State.................................. 1,559 585 357 ------- ------------- --------- --------- 482 15,856 12,362 (9,933) ------- ------------- --------- --------- Deferred (benefit) expense Federal................................ (6,085) (8,410) (2,579) (2,482) State.................................. (1,021) 198 2,130 1,825 ------- ------------- --------- --------- (7,106) (8,212) (449) (657) ------- ------------- --------- --------- Income tax (benefit) expense............. ($ 6,624) $ 7,644 $ 11,913 ($ 10,590) ------- ------------- --------- --------- ------- ------------- --------- ---------
F-51 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 The effective income tax (benefit) expense of the Company and the Predecessor Corporation differs from the statutory amount because of the effects of the following items (dollars in thousands):
PREDECESSOR CORPORATION ----------------------------------- YEAR ENDED NOVEMBER 1 TO JANUARY 1 TO DECEMBER 31, DECEMBER 31, OCTOBER 31, -------------------- 1996 1996 1995 1994 --------------- ------------- --------- --------- Federal tax at statutory rate............ ($ 6,047) $ 5,261 $ 10,361 ($ 1,229) State income taxes, net of federal benefit................................ (664) 1,142 1,765 1,418 Non-deductible depreciation and amortization........................... 1,456 272 326 1,064 Change in estimated tax liability for prior years............................ (11,807) Other.................................... (1,369) 969 (539) (36) ------- ------------- --------- --------- Income tax (benefit) expense............. ($ 6,624) $ 7,644 $ 11,913 ($ 10,590) ------- ------------- --------- --------- ------- ------------- --------- ---------
9. PENSION PLANS Prior to the Scripps Acquisition, substantially all employees of the Predecessor Corporation were covered by a defined benefit plan and a defined contribution plan sponsored by SHI. A portion of the expenses related to these plans were allocated to the Predecessor Corporation by SHI. Such expenses totaled $1.0 million, $1.3 million and $1.5 million during the period from January 1, 1996 to October 31, 1996 and the years ended December 31, 1995 and 1994, respectively. As of December 31, 1995, the Predecessor Corporation's share of the defined benefit plan sponsored by SHI had a projected benefit obligation of $6.4 million and plan assets of $2.9 million. 10. RELATED PARTY TRANSACTIONS THE COMPANY Subsequent to the Scripps Acquisition, management fees are charged by Comcast based on the Company's gross revenues. Such management fees, totaling $2.5 million, are included in operating, selling, general and administrative expenses. Subsequent to the Scripps Acquisition, the Company has entered into cost-sharing agreements with Comcast for certain services including programming, insurance and benefits. Under these arrangements, the Company incurred expenses of $19.2 million during 1996. Comcast charges the Company for certain of these expenses on the same basis that approximates what the Company would be charged if it purchased directly from the supplier. Comcast has agreed to permit the Company to defer payment of a portion of these expenses with the deferred portion being treated as a subordinated long-term liability due to affiliate which will not be payable until the Company's Credit Facility is retired. Such deferred costs totaled $4.4 million during 1996. Subsequent to the Scripps Acquisition, the Company entered into a custodial account arrangement with Comcast Financial Agency Corporation ("CFAC"), a wholly owned subsidiary of Comcast, under F-52 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 which CFAC provides cash management services to the Company. Under this arrangement, the Company's cash receipts are deposited with and held by CFAC, as custodian and agent, which invests and disburses such funds at the direction of the Company. As of December 31, 1996, $9.5 million of the Company's cash equivalents were represented by deposits with CFAC. Such amount has been classified as cash held by an affiliate in the Company's consolidated balance sheet. During the period from November 1, 1996 to December 31, 1996, the Company recognized investment income of $138,000 on these custodial investments. PREDECESSOR CORPORATION DUE TO AFFILIATES As of December 31, 1995, due to affiliates in the combined balance sheet includes a $125.4 million principal amount 9.5% note, payable to EWS, a $66.1 million principal amount 11% note, payable to EWS and variable rate borrowings from SHI of $121.2 million. Interest on the variable rate borrowings from SHI was charged at 1% over the prime rate, except for interest on portions related to cash deficiencies (see below). Amounts due to affiliates were not assumed by Comcast in the Scripps Acquisition. The Predecessor Corporation participated in a cash management program with SHI under which SHI managed its daily flow of cash. Cash excesses or deficiencies earned or incurred interest at appropriate short-term market rates. Cash deficiencies were included in variable rate borrowings from SHI. The Predecessor Corporation also participated in SHI's controlled disbursement system, where the bank sent daily notification of checks presented for payment and SHI transferred funds to cover such checks. Payments were charged against excesses or added to cash deficiencies as checks were issued. Interest charged on amounts due to affiliates, which included advances and cash deficiencies, was $28.5 million, $34.9 million and $33.4 million during the period from January 1, 1996 to October 31, 1996 and the years ended December 31, 1995 and 1994, respectively. Interest accrued on amounts due to affiliates was $1.6 million as of December 31, 1995. OTHER CHARGES SHI provided management services, including legal, treasury, accounting, tax, risk management and other services, to the Predecessor Corporation. The cost of such services, which included the costs of EWS' corporate office, was allocated on the basis of revenues. The Predecessor Corporation's share of the cost of such services was $3.0 million during the year ended December 31, 1994. The Predecessor Corporation was not charged for such services during the period from January 1, 1996 to October 31, 1996 and the year ended December 31, 1995. In 1996, EWS allocated certain costs associated with the Scripps Acquisition to the Predecessor Corporation. These charges of $13.6 million, primarily relating to professional fees, were classified as merger expenses in the Predecessor Corporation's combined statement of operations for the period from January 1, 1996 to October 31, 1996. F-53 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 11. STATEMENT OF CASH FLOWS--SUPPLEMENTAL INFORMATION The Company made cash payments for interest on its Credit Facility of $1.0 million during the period from November 1, 1996 to December 31, 1996. The Predecessor Corporation made cash payments for interest on balances due to affiliates of $28.5 million, $35.1 million and $33.5 million during the period from January 1, 1996 to October 31, 1996 and the years ended December 31, 1995 and 1994, respectively. The Predecessor Corporation made cash payments for income taxes to EWS of $15.9 million, $12.7 million and $10.9 million during the period from January 1, 1996 to October 31, 1996 and the years ended December 31, 1995 and 1994, respectively. 12. COMMITMENTS AND CONTINGENCIES COMMITMENTS Minimum annual rental commitments for office space and equipment under noncancellable operating leases are as follows (dollars in thousands): 1997................................................................. $ 871 1998................................................................. 788 1999................................................................. 778 2000................................................................. 800 2001................................................................. 792 Thereafter........................................................... 777
Pole rentals have been excluded from the above schedule as they are generally cancelable after an initial period by either party upon notice. Rental expense (including pole rentals) of $872,000, $4.3 million, $4.4 million and $3.8 million has been charged to operations during the period from November 1, 1996 to December 31, 1996, the period from January 1, 1996 to October 31, 1996 and the years ended December 31, 1995 and 1994, respectively. CONTINGENCIES THE COMPANY The Company is subject to claims and legal proceedings which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position, results of operations or liquidity of the Company. PREDECESSOR CORPORATION In 1994, the Predecessor Corporation accrued $6.5 million as an estimate of the ultimate costs, including attorneys' fees and settlements, of certain lawsuits against the Sacramento cable television system related primarily to employment issues and to the timing and amount of late-payment fees assessed to subscribers. In 1995, the Predecessor Corporation accrued an additional $1.4 million based F-54 COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONCLUDED) PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 upon a reassessment of the probable costs of these and additional employment-related lawsuits. As of December 31, 1995, amounts accrued are included in accounts payable and accrued expenses in the combined balance sheet. In May 1996, the Predecessor Corporation agreed to settle the late-payment fee lawsuits. The settlement did not result in an additional charge. In 1996, the Predecessor Corporation accrued an additional $4.0 million based upon further reassessment of the probable costs of these and additional lawsuits. Pursuant to the terms of the Merger, New Scripps has indemnified Comcast and the Company against losses related to these lawsuits. F-55 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. -------------------------- TABLE OF CONTENTS Available Information..................... 2 Prospectus Summary........................ 3 Risk Factors.............................. 13 Capitalization............................ 17 Selected Consolidated Financial and Other Data.................................... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 20 The Exchange Offer........................ 33 Business.................................. 39 Legislation and Regulation................ 46 Management................................ 53 Principal Stockholders.................... 54 Certain Relationships and Related Transactions............................ 57 Description of Certain Indebtedness....... 59 Description of the Notes.................. 61 Registration Rights; Additional Interest................................ 77 Certain Federal Income Tax Consequences... 78 Plan of Distribution...................... 78 Validity of the Notes..................... 79 Experts................................... 79 Index to Financial Statements and Unaudited Pro Forma Financial Information............................. F-1
-------------------------- UNTIL , 1997 (90 DAYS AFTER THE DATE HEREOF), ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. $1,700,000,000 COMCAST CABLE COMMUNICATIONS, INC. $300,000,000 8 1/8% EXCHANGE NOTES DUE 2004 $600,000,000 8 3/8% EXCHANGE NOTES DUE 2007 $550,000,000 8 7/8% EXCHANGE NOTES DUE 2017 $250,000,000 8 1/2% EXCHANGE NOTES DUE 2027 --------------------- [LOGO] --------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company is a corporation organized under the General Corporation Law of the State of Delaware. Subsection (a) of Section 145 of the General Corporation Law of Delaware empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no cause to believe his conduct was unlawful. Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification may be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that despite the adjudication of liability but in view of all the circumstances of the case such person is fairly and reasonably entitled to indemnify for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director, officer, employee or agent of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) or (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that indemnification or advancement of expenses provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and empowers the corporation to purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. Section 7-1 of the Company's By-Laws provides that the Company will indemnify any director or officer of the Company or any director or officer who is or was serving at the request of the Company as a director, officer, employee or agent of another Company, partnership, joint venture, trust or other enterprise (any such person is hereinafter referred to as a "director or officer") against expenses (including, but not limited to, attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by such director or officer, to the fullest extent now or hereafter permitted by law in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), brought or threatened to be brought against such director or officer by reason of the fact that he or she is or was serving in any such capacity or in any other capacity on behalf of the Company, its parent or any of its subsidiaries. II-1 Section 7-2 of the Company's By-Laws provides that expenses incurred by any director or officer in defending a Proceeding will be paid by the Company in advance of the final disposition of such Proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking, by or on behalf of such director or officer, to repay such amount without interest if it is ultimately determined that he or she is not entitled to be indemnified by the Company as authorized by law. Section 7-4 of the Company's By-Laws provides that the Company may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Company against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Company would have the power to indemnify him or her against such liability under law. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS:
EXHIBIT NUMBER DESCRIPTION - ------------ -------------------------------------------------------------------------------- 3.1(a) Certificate of Incorporation filed on April 2, 1981. 3.1(b) Certificate of Resignation of Registered Agent filed October 29, 1996. 3.2 By-Laws. 4.1(a) Indenture dated as of May 1, 1997 between the Company and Bank of Montreal Trust Company. 4.1(b) Form of Exchange Notes. 5 Opinion and Consent of Davis Polk & Wardwell regarding the validity of the Securities being registered. 8 Opinion and Consent of Davis Polk & Wardwell regarding certain tax matters. 10.1/*/ Credit Agreement, dated as of September 19, 1995, between Comcast Holdings, Inc., the banks listed therein, The Chase Manhattan Bank, N.A., as Arranging Agent, Bank of Montreal, CIBC Inc., The Long-term Credit Bank of Japan, Limited, Royal Bank of Canada and Societe Generale, as Managing Agents, and The Chase Manhattan Bank, N.A., as Administrative Agent. 10.2 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., Comcast Corporation and each of the Departing Subsidiaries that are signatories thereto (incorporated by reference to Exhibit 4 to Comcast Corporation's Current Report on Form 8-K filed on December 17, 1992, as amended by Form 8 filed January 8, 1993). 10.3 Tax Sharing Agreement, dated December 2, 1992, between Comcast Corporation and Comcast Storer, Inc. (incorporated by reference to Exhibit 9 to Comcast Corporation's Current Report on Form 8-K filed on December 17, 1992, as amended by Form 8 filed January 8, 1993).
II-2
EXHIBIT NUMBER DESCRIPTION - ------------ -------------------------------------------------------------------------------- 10.4(a) Share Purchase Agreement, dated June 18, 1994, between Comcast Corporation and Rogers Communications Inc. (incorporated by reference to Exhibit 10(3) to Comcast Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 10.4(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 Comcast Corporation's Current Report on Form 8-K filed on January 6, 1995). 10.5 Comcast MHCP Holdings, L.L.C. Amended and Restated Limited Liability Company Agreement, dated as of December 18, 1994, among the Company, The California Public Employees' Retirement System and, for certain limited purposes, Comcast Corporation (incorporated by reference to Exhibit 10.1 to Comcast Corporation's Current Report on Form 8-K filed on January 6, 1995). 10.6 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 Comcast Corporation's Current Report on Form 8-K filed on January 6, 1995). 10.7 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 Comcast Corporation's Current Report on Form 8-K filed on January 6, 1995). 10.8 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 Comcast Corporation's Current Report on Form 8-K filed on January 6, 1995).
II-3
EXHIBIT NUMBER DESCRIPTION - ------------ -------------------------------------------------------------------------------- 10.9 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 Comcast Corporation's Current Report on Form 8-K filed on January 6, 1995). 10.10 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 Comcast Corporation's Current Report on Form 8-K filed on January 6, 1995). 10.11 Agreement and Plan of Merger by and among The E.W. Scripps Company, Scripps Howard, Inc., and Comcast Corporation dated as of October 28, 1995 (incorporated by reference to Exhibit 2.1 to Comcast Corporation's Registration Statement on Form S-4 filed, as amended, on November 13, 1996). 10.12/*/ Credit Agreement, dated as of November 15, 1996, among Comcast SCH Holdings, Inc., the banks listed therein, Nationsbank of Texas, N.A., as Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, The Bank of New York, The Chase Manhattan Bank and Nationsbank of Texas, N.A., as Managing Agents, and The Bank of New York, as Administrative Agent. 10.13 Management Agreement, dated as of April 24, 1997, between Comcast Cable Communications, Inc. and Comcast Corporation. 12 Statement re: Computation of Ratio of Earnings to Fixed Charges. 21 List of Subsidiaries. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consents of Davis Polk & Wardwell (see exhibits 5 and 8). 25 Statement of eligibility of Bank of Montreal Trust Company on Form T-1. 27 Financial Data Schedules. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Instruction to Registered Holder and/or Book-entry Transfer of Participant.
II-4
EXHIBIT NUMBER DESCRIPTION - ------------ -------------------------------------------------------------------------------- 99.4 Form of Letter to Clients. 99.5 Form of Letter to Registered Holders and Depository Trust Company Participants.
- ------------------------ /*/ 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. (B) FINANCIAL STATEMENT SCHEDULES: Schedule I--Condensed Financial Information of Registrant Unconsolidated (Parent Only). Schedule II--Valuation and Qualifying Accounts. ITEM 22. UNDERTAKINGS The undersigned registrant hereby undertakes: (a)(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of their II-5 counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (d) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-6 SIGNATURES AND POWER OF ATTORNEY Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in Philadelphia, Pennsylvania, on July 3, 1997. COMCAST CABLE COMMUNICATIONS, INC. By: /s/ BRIAN L. ROBERTS ----------------------------------------- Name: Brian L. Roberts Title: Vice Chairman; Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Ralph J. Roberts, Brian L. Roberts, Julian A. Brodsky, Lawrence S. Smith, John R. Alchin, Stanley Wang and Arthur R. Block and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------------------ ----------------------------------------- -------------- /s/ RALPH J. ROBERTS ------------------------------------------- Chairman of the Board of Directors; July 3, 1997 Ralph J. Roberts Director /s/ JULIAN A. BRODSKY ------------------------------------------- Vice Chairman; Director July 3, 1997 Julian A. Brodsky /s/ BRIAN L. ROBERTS ------------------------------------------- Vice Chairman; Director (Principal July 3, 1997 Brian L. Roberts Executive Officer) /s/ LAWRENCE S. SMITH ------------------------------------------- Executive Vice President (Principal July 3, 1997 Lawrence S. Smith Accounting Officer) /s/ JOHN R. ALCHIN ------------------------------------------- Senior Vice President and Treasurer July 3, 1997 John R. Alchin (Principal Financial Officer) /s/ STANLEY L. WANG ------------------------------------------- Senior Vice President and Secretary; July 3, 1997 Stanley L. Wang Director
II-7 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNCONSOLIDATED (PARENT ONLY) CONDENSED BALANCE SHEET (DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
DECEMBER 31, ------------------------ 1996 1995 ----------- ----------- ASSETS Cash and cash equivalents............................................................. $ $ 4.5 Other current assets.................................................................. 2.7 4.7 ----------- ----------- Total current assets.............................................................. 2.7 9.2 Investments in and amounts due to/from subsidiaries eliminated upon consolidation, net................................................................................. 265.4 Deferred income taxes................................................................. 7.5 3.2 ----------- ----------- $ 275.6 $ 12.4 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY) Current liabilities................................................................... $ 1.4 $ 1.2 ----------- ----------- Investments in and amounts due to/from subsidiaries eliminated upon consolidation, net................................................................................. 897.3 ----------- ----------- Notes payable to affiliate............................................................ 178.9 178.9 ----------- ----------- Stockholder's equity (deficiency) Common stock, $1 par value--authorized and issued, 1,000 shares..................... Additional capital.................................................................. 3,050.6 1,463.7 Accumulated deficit................................................................. (2,124.0) (2,101.4) Unrealized (loss) gain on marketable securities held by a subsidiary................ (1.4) 9.7 Notes receivable from affiliate held by subsidiaries................................ (829.9) (437.0) ----------- ----------- Total stockholder's equity (deficiency)........................................... 95.3 (1,065.0) ----------- ----------- $ 275.6 $ 12.4 ----------- ----------- ----------- -----------
II-8 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNCONSOLIDATED (PARENT ONLY) CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT (IN MILLIONS)
YEAR ENDED DECEMBER 31, ------------------------------------- 1996 1995 1994 ----------- ----------- ----------- OTHER (INCOME) EXPENSE Interest expense on notes payable to affiliate.......................... $ 16.4 $ 14.1 $ 6.0 Investment income, net.................................................. (0.6) (1.1) (1.1) Equity in net losses of affiliates...................................... 5.1 36.3 19.7 ----------- ----------- ----------- 20.9 49.3 24.6 ----------- ----------- ----------- LOSS BEFORE INCOME TAX EXPENSE (BENEFIT).................................. (20.9) (49.3) (24.6) INCOME TAX EXPENSE (BENEFIT).............................................. 1.7 2.0 (1.6) ----------- ----------- ----------- NET LOSS.................................................................. (22.6) (51.3) (23.0) ACCUMULATED DEFICIT Beginning of year....................................................... (2,101.4) (2,050.1) (2,027.1) ----------- ----------- ----------- End of year............................................................. ($2,124.0) ($2,101.4) ($2,050.1) ----------- ----------- ----------- ----------- ----------- -----------
II-9 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT UNCONSOLIDATED (PARENT ONLY) CONDENSED STATEMENT OF CASH FLOWS (IN MILLIONS)
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 --------- --------- --------- OPERATING ACTIVITIES Net loss......................................................................... ($ 22.6) ($ 51.3) ($ 23.0) Adjustments to reconcile net loss to net cash used in operating activities: Equity in net losses of affiliates............................................. 5.1 36.3 19.7 Deferred income tax (benefit) expense.......................................... (4.3) 0.2 (1.5) --------- --------- --------- (21.8) (14.8) (4.8) Decrease (increase) in other current assets.................................... 2.0 (1.6) (1.9) Increase (decrease) in current liabilities..................................... 0.2 (0.4) --------- --------- --------- Net cash used in operating activities........................................ (19.6) (16.4) (7.1) FINANCING ACTIVITIES Proceeds from notes payable to affiliate......................................... 48.2 100.7 Capital contributions............................................................ 0.3 1.4 314.1 --------- --------- --------- Net cash provided by financing activities.................................... 0.3 49.6 414.8 --------- --------- --------- INVESTING ACTIVITIES Net transactions with affiliates................................................. 14.8 (41.3) (413.9) --------- --------- --------- Net cash provided by (used in) investing activities.......................... 14.8 (41.3) (413.9) --------- --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS.............................................. (4.5) (8.1) (6.2) CASH AND CASH EQUIVALENTS, beginning of year....................................... 4.5 12.6 18.8 --------- --------- --------- CASH AND CASH EQUIVALENTS, end of year............................................. $ $ 4.5 $ 12.6 --------- --------- --------- --------- --------- ---------
II-10 COMCAST CABLE COMMUNICATIONS, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN MILLIONS)
ADDITIONS BALANCE AT CHARGED TO DEDUCTIONS BALANCE BEGINNING EFFECT OF COSTS AND FROM AT END OF YEAR ACQUISITIONS EXPENSES RESERVES(A) OF YEAR ----------- ------------- ------------- --------------- ----------- Allowance for Doubtful Accounts 1996........................................ $ 10.7 $ 1.4 $ 15.7 $ 15.8 $ 12.0 1995........................................ 8.4 23.3 21.0 10.7 1994........................................ 9.2 1.8 14.2 16.8 8.4
- ------------------------ (A) Uncollectible accounts and obsolete inventory written off. II-11 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------------ -------------------------------------------------------------------------------- 3.1(a) Certificate of Incorporation filed on April 2, 1981. 3.1(b) Certificate of Resignation of Registered Agent filed October 29, 1996. 3.2 By-Laws. 4.1(a) Indenture dated as of May 1, 1997 between the Company and Bank of Montreal Trust Company. 4.1(b) Form of Exchange Notes. 5 Opinion and Consent of Davis Polk & Wardwell regarding the validity of the Securities being registered. 8 Opinion and Consent of Davis Polk & Wardwell regarding certain tax matters. 10.1/*/ Credit Agreement, dated as of September 19, 1995, between Comcast Holdings, Inc., the banks listed therein, The Chase Manhattan Bank, N.A., as Arranging Agent, Bank of Montreal, CIBC Inc., The Long-term Credit Bank of Japan, Limited, Royal Bank of Canada and Societe Generale, as Managing Agents, and The Chase Manhattan Bank, N.A., as Administrative Agent. 10.12/*/ Credit Agreement, dated as of November 15, 1996, among Comcast SCH Holdings, Inc., the banks listed therein, Nationsbank of Texas, N.A., as Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, The Bank of New York, The Chase Manhattan Bank and Nationsbank of Texas, N.A., as Managing Agents, and The Bank of New York, as Administrative Agent. 10.13 Management Agreement, dated as of April 24, 1997, between Comcast Cable Communications, Inc. and Comcast Corporation. 12 Statement re: Computation of Ratio of Earnings to Fixed Charges. 21 List of Subsidiaries. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consents of Davis Polk & Wardwell (see exhibits 5 and 8). 25 Statement of eligibility of Bank of Montreal Trust Company on Form T-1. 27 Financial Data Schedules. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Instruction to Registered Holder and/or Book-entry Transfer of Participant. 99.4 Form of Letter to Clients. 99.5 Form of Letter to Registered Holders and Depository Trust Company Participants.
- ------------------------ /*/ 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. EX-3.1(A) 2 EXHIBIT 3.1(A) Exhibit 3.1(a) CERTIFICATE OF INCORPORATION OF COMCAST CABLE COMMUNICATIONS, INC. FIRST: The name of the corporation is: COMCAST CABLE COMMUNICATIONS, INC. SECOND: The address of its registered office in the State of Delaware is: 100 West Tenth Street, Wilmington, County of New Castle, Delaware, 19801. The name of its registered agent at such address is: THE CORPORATION TRUST COMPANY. THIRD: The nature of the business or purposes to be conducted or promoted is: To have unlimited power to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of stock which the corporation shall have authority to issue is: One Thousand (1,000) shares of common stock, par value One Dollar ($1.00) per share, amounting in the aggregate to One Thousand Dollars ($1,000.00). FIFTH: The name and mailing address of the incorporator is as follows: Name Address ---- ------- Florence B. Owens 12th Floor Packard Building 15th and Chestnut Streets Philadelphia, Pennsylvania 19102 SIXTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the By-Laws of the corporation. SEVENTH: Elections of directors need not be by written ballot unless the By-Laws of the corporation shall so provide. IN WITNESS THEREOF, I have hereunto set my hand and seal this 31st day of March, 1981. /s/ Florence B. Owens (SEAL) ---------------------------------- Florence B. Owens 2 EX-3.1(B) 3 EXHIBIT 3.1(B) Exhibit 3.1(b) CERTIFICATE OF RESIGNATION OF REGISTERED AGENT WITH APPOINTMENT OF A SUCCESSOR REGISTERED AGENT PURSUANT TO SECTION 135 OF TITLE 8 OF THE DELAWARE CODE Pursuant to the provisions of Section 135 of Title 8 of the Delaware Code, the undersigned agent for service of process, in order to resign as agent and appoint a successor agent, hereby certifies that 1. The name of the resigning agent is: The Corporation Trust Company 2 The name of the successor agent is: Comcast Delaware Services, Inc. 3. The address of the successor agent is: 1105 N. Market Steet Wilmington, (New Castle County) Delaware 19801 4. Attached to this certificate is a statement from each such corporation ratifying and approving such change of Registered Agent. IN WITNESS WHEREOF, the undersigned agent has caused this certificate to be signed on its behalf by its officer this 24th of October, 1996. ------ --------- /s/ Ann J. William ------------------------------ Title: Ann J. William Assistant Vice President EX-3.2 4 EXHIBIT 3.2 Exhibit 3.2 BY-LAWS OF COMCAST CABLE COMMUNICATIONS, INC. (DELAWARE) ARTICLE I - OFFICES ------------------- Section 1-1. Registered Office and Registered Agent. The Corporation shall maintain a registered office and registered agent within the State of Delaware, which may be changed by the Board of Directors from time to time. Section 1-2. Other Offices. The Corporation may also have offices at such other places, within or without the State of Delaware, as the Board of Directors may from time to time determine. ARTICLE II - STOCKHOLDERS' MEETINGS ----------------------------------- Section 2-1. Place of Stockholders' Meetings. Meetings of stockholders may be held at such place, either within or without the State of Delaware, as may be designated by the Board of Directors from time to time. If no such place is designated by the Board of Directors, meetings of the stockholders shall be held at the registered office of the Corporation in the State of Delaware. Section 2-2. Annual Meeting. A meeting of the stockholders of the Corporation shall be held in each calendar year, commencing with the year 1994, on the 2nd Thursday of June at 10 o'clock a.m. if not a legal holiday, and if such day is a legal holiday, then such meeting shall be held on the next business day. At such annual meeting, there shall be held an election for a Board of Directors to serve for the ensuing year and until their respective successors are elected and qualified, or until their earlier resignation or removal. Unless the Board of Directors shall deem it advisable, financial reports of the Corporation's business need not be sent to the stockholders and need not be presented at the annual meeting. If any report is deemed advisable by the Board of Directors, such report may contain such information as the Board of Directors shall determine and need not be certified by a Certified Public Accountant unless the Board of Directors shall so direct. Section 2-3. Special Meetings. Except as otherwise specifically provided by law, special meetings of the stockholders may be called at any time: (a) By the Board of Directors; or (b) By the President of the Corporation; or (c) By the holders of record of not less than a majority of all the shares outstanding and entitled to vote. Upon the written request of any person entitled to call a special meeting, which request shall set forth the purpose for which the meeting is desired, it shall be the duty of the Secretary to give prompt written notice of such meeting to be held at such time as the Secretary may fix, subject to the provisions of Section 2-4 hereof. If the Secretary shall fail to fix such date and give notice within ten (10) days after receipt of such request, the person or persons making such request may do so. 2 Section 2-4. Notice of Meetings and Adjourned Meetings. Written notice stating the place, date and hour of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, notice is given when deposited in the United States Mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Such notice may be given by or at the direction of the person or persons authorized to call the meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2-5. Quorum. Unless otherwise provided in the Certificate of Incorporation or in a By-law adopted by the stockholders or by the Board of Directors (or the Incorporators if no first Directors were named in the Certificate of Incorporation) at its organization meeting following the filing of the Articles of Incorporation, the presence, in person or by proxy, of the holders of a majority of the outstanding shares entitled to vote shall constitute a quorum but in no event shall a quorum consist of less than one-third (1/3) of the shares entitled to vote at a meeting. The stockholders present at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough 3 stockholders to leave less than a quorum. If a meeting cannot be organized because of the absence of a quorum, those present may, except as otherwise provided by law, adjourn the meeting to such time and place as they may determine. In the case of any meeting for the election of Directors, those stockholders who attend the second of such adjourned meetings, although less than a quorum as fixed in this Section, shall nevertheless constitute a quorum for the purpose of electing Directors. Section 2-6. Voting List; Proxies. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. All proxies shall be 4 executed in writing and shall be filed with the Secretary of the Corporation not later than the day on which exercised. No proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. Except as otherwise specifically provided by law, all matters coming before the meeting shall be determined by a vote by shares. All elections of Directors shall be by written ballot unless otherwise provided in the Certificate of Incorporation. Except as otherwise specifically provided by law, all other votes may be taken by voice unless a stockholder demands that it be taken by ballot, in which latter event the vote shall be taken by written ballot. Section 2-7. Informal Action by Stockholders. Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders or members, who have not consented in writing. 5 ARTICLE III - BOARD OF DIRECTORS -------------------------------- Section 3-1. Number. The Board of Directors shall consist of such number of directors, not less than two (2) nor more than seven (7), as may be determined from time to time by resolution of the Board of Directors. Section 3-2. Place of Meeting. Meetings of the Board of Directors may be held at such place either within or without the State of Delaware, as a majority of the Directors may from time to time designate or as may be designated in the notice calling the meeting. Section 3-3. Regular Meetings. A regular meeting of the Board of Directors shall be held annually, immediately following the annual meeting of stockholders, at the place where such meeting of the stockholders is held or at such other place, date and hour as a majority of the newly elected Directors may designate. At such meeting the Board of Directors shall elect officers of the Corporation. In addition to such regular meeting, the Board of Directors shall have the power to fix, by resolution, the place, date and hour of other regular meetings of the Board. Section 3-4. Special Meetings. Special meetings of the Board of Directors shall be held whenever ordered by the President, by a majority of the members of the executive committee, if any, or by a majority of the Directors in office. Section 3-5. Notices of Meetings of Board of Directors. (a) Regular Meetings. No notice shall be required to be given of any regular meeting, unless the same be held at other than the time or place for holding 6 such meetings as fixed in accordance with Section 3-3 of these by-laws, in which event one (1) day's notice shall be given of the time and place of such meeting. (b) Special Meetings. At least one (1) day's notice shall be given of the time, place and purpose for which any special meeting of the Board of Directors is to be held. Section 3-6. Quorum. A majority of the total number of Directors shall constitute a quorum for the transaction of business, and the vote of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If there be less than a quorum present, a majority of those present may adjourn the meeting from time to time and place to place and shall cause notice of each such adjourned meeting to be given to all absent Directors. Section 3-7. Informal Action by the Board of Directors. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 3-8. Powers. (a) General Powers. The Board of Directors shall have all powers necessary or appropriate to the management of the business and affairs of the Corporation, and, in addition to the power and authority conferred by these by-laws, may exercise all powers of the Corporation and do all such lawful acts 7 and things as are not by statute, these by-laws or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. (b) Specific Powers. Without limiting the general powers conferred by the last preceding clause and the powers conferred by the Certificate of Incorporation and by-laws of the Corporation, it is hereby expressly declared that the Board of Directors shall have the following powers: (i) To confer upon any officer or officers of the Corporation the power to choose, remove or suspend assistant officers, agents or servants. (ii) To appoint any person, firm or corporation to accept and hold in trust for the Corporation any property belonging to the Corporation or in which it is interested, and to authorize any such person, firm or corporation to execute any documents and perform any duties that may be requisite in relation to any such trust. (iii) To appoint a person or persons to vote shares of another corporation held and owned by the Corporation. (iv) By resolution adopted by a majority of the full Board of Directors, to designate one (1) or more of its number to constitute an executive committee which, to the extent provided in such resolution, shall have and may exercise the power of the Board of Directors in the management of the business and affairs of the 8 Corporation and may authorize the seal of the Corporation to be affixed. (v) By resolution passed by a majority of the whole Board of Directors, to designate one (1) or more additional committees, each to consist of one (1) or more Directors, to have such duties, powers and authority as the Board of Directors shall determine. All committees of the Board of Directors, including the executive committee, shall have the authority to adopt their own rules of procedure. Absent the adoption of specific procedures, the procedures applicable to the Board of Directors shall also apply to committees thereof. (vi) To fix the place, time and purpose of meetings of stockholders. (vii) To purchase or otherwise acquire for the Corporation any property, rights or privileges which the Corporation is authorized to acquire, at such prices, on such terms and conditions and for such consideration as it shall from time to time see fit, and, at its discretion, to pay any property or rights acquired by the Corporation, either wholly or partly in money or in stocks, bonds, debentures or other securities of the Corporation. (viii) To create, make and issue mortgages, bonds, deeds of trust, trust agreements and negotiable or transferable instruments and 9 securities, secured by mortgage or otherwise, and to do every other act and thing necessary to effectuate the same. (ix) To appoint and remove or suspend such subordinate officers, agents or servants, permanently or temporarily, as it may from time to time think fit, and to determine their duties, and fix, and from time to time change, their salaries or emoluments, and to require security in such instances and in such amounts as it thinks fit. (x) To determine who shall be authorized on the Corporation's behalf to sign bills, notes, receipts, acceptances, endorsements, checks, releases, contracts and documents. Section 3-9. Compensation of Directors. Compensation of Directors and reimbursement of their expenses incurred in connection with the business of the Corporation, if any, shall be as determined from time to time by resolution of the Board of Directors. Section 3-10. Removal of Directors by Stockholders. The entire Board of Directors or any individual Director may be removed from office without assigning any cause by a majority vote of the holders of the outstanding shares entitled to vote. In case the Board of Directors or any one (1) or more Directors be so removed, new Directors may be elected at the same time. Section 3-11. Resignations. Any Director may resign at any time by submitting his written resignation to the Corporation. Such resignation shall take 10 effect at the time of its receipt by the Corporation unless another time be fixed in the resignation, in which case it shall become effective at the time so fixed. The acceptance of a resignation shall not be required to make it effective. Section 3-12. Vacancies. Vacancies and new created directorships resulting from any increase in the authorized number of Directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, and each person so elected shall be a Director until his successor is elected and qualified or until his earlier resignation or removal. Section 3-13. Participation by Conference Telephone. Directors may participate in regular or special meetings of the Board by telephone or similar communications equipment by means of which all other persons participating in the meeting can hear each other, and such participation shall constitute presence at the meeting. ARTICLE IV - OFFICERS --------------------- Section 4-1. Election and Office. The Corporation shall have a President, a Secretary and a Treasurer who shall be elected by the Board of Directors. The Board of Directors may elect such additional officers as it may deem proper, including a Chairman and a Vice Chairman of the Board of Directors, one (1) or more Vice Presidents, a Controller and one (1) or more assistant or honorary officers. Any number of offices may be held by the same person. 11 Section 4-2. Term. The President, the Secretary and the Treasurer shall each serve for a term of one (1) year and until their respective successors are chosen and qualified, unless removed from office by the Board of Directors during their respective tenures. The term of office of any other officer shall be as specified by the Board of Directors. Section 4-3. Powers and Duties of the President. Unless otherwise determined by the Board of Directors, the President shall have the usual duties of an executive officer with general supervision over and direction of the affairs of the Corporation. In the exercise of these duties and subject to the limitations of the laws of the State of Delaware, these by-laws, and the actions of the Board of Directors, he may appoint, suspend and discharge employees and agents, shall preside at all meetings of the stockholders at which he shall be present, and, unless there is a Chairman of the Board of Directors, shall preside at all meetings of the Board of Directors and, unless otherwise specified by the Board of Directors, shall be a member of all committees. He shall also do and perform such other duties as from time to time may be assigned to him by the Board of Directors. Unless otherwise determined by the Board of Directors, the President shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meeting of the stockholders of any corporation in which the Corporation may hold stock, and, at any such meeting, shall possess and may exercise any and all of the rights and powers incident to the ownership of such 12 stock and which, as the owner thereof, the Corporation might have possessed and exercised. Section 4-4. Powers and Duties of the Secretary. Unless otherwise determined by the Board of Directors, the Secretary shall record all proceedings of the meetings of the Corporation, the Board of Directors and all committees, in books to be kept for that purpose, and shall attend to the giving and serving of all notices for the Corporation. He shall have charge of the corporate seal, the certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct. He shall perform all other duties ordinarily incident to the office of Secretary and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors. Section 4-5. Powers and Duties of the Treasurer. Unless otherwise determined by the Board of Directors, the Treasurer shall have charge of all the funds and securities of the Corporation which may come into his hands. When necessary or proper, unless otherwise ordered by the Board of Directors, he shall endorse for collection on behalf of the Corporation checks, notes and other obligations, and shall deposit the same to the credit of the Corporation in such banks or depositories as the Board of Directors may designate and shall sign all receipts and vouchers for payments made to the Corporation. He shall sign all checks made by the Corporation, except when the Board of Directors shall otherwise direct. He shall enter regularly, in books of the Corporation to be kept by him for that purpose, a full and accurate account of all moneys received and 13 paid by him on account of the Corporation. Whenever required by the Board of Directors, he shall render a statement of the financial condition of the Corporation. He shall at all reasonable times exhibit his books and accounts to any Director of the Corporation, upon application at the office of the Corporation during business hours. He shall have such other powers and shall perform such other duties as may be assigned to him from time to time by the Board of Directors. He shall give such bond, if any, for the faithful performance of his duties as shall be required by the Board of Directors and any such bond shall remain in the custody of the President. Section 4-6. Powers and Duties of the Chairman of the Board of Directors. Unless otherwise determined by the Board of Directors, the Chairman of the Board of Directors, if any, shall preside at all meetings of Directors. He shall have such other powers and perform such further duties as may be assigned to him by the Board of Directors, including, without limitation, acting as Chief Executive Officer of the Corporation. To be eligible to serve, the Chairman of the Board must be a Director of the Corporation. Section 4-7. Powers and Duties of Vice Presidents and Assistant Officers. Unless otherwise determined by the Board of Directors, each Vice President and each assistant officer shall have the powers and perform the duties of his respective superior officer. Vice Presidents and assistant officers shall have such rank as shall be designated by the Board of Directors and each, in the order of rank, shall act for such superior officer in his absence, or upon his disability or when so directed by 14 such superior officer or by the Board of Directors. Vice Presidents may be designated as having responsibility for a specific aspect of the Corporation's affairs, in which event each such Vice President shall be superior to the other Vice Presidents in relation to matters within his aspect. The President shall be the superior officer of the Vice Presidents. The Treasurer and the Secretary shall be the superior officers of the Assistant Treasurers and Assistant Secretaries, respectively. Section 4-8. Delegation of Office. The Board of Directors may delegate the powers or duties of any officer of the Corporation to any other officer or to any Director from time to time. Section 4-9. Vacancies. The Board of Directors shall have the power to fill any vacancies in any office occurring from whatever reason. Section 4-10. Resignations. Any officer may resign at any time by submitting his written resignation to the Corporation. Such resignation shall take effect at the time of its receipt by the Corporation, unless another time be fixed in the resignation, in which case it shall become effective at the time so fixed. The acceptance of a resignation shall not be required to make it effective. Section 4-11. Designation of Chief Financial Officer. The Board of Directors shall have the power to designate from among the Chairman, any Vice Chairman, President, any Vice President or the Treasurer of this Corporation a Chief Financial Officer who shall be deemed the principal financial and accounting officer and who shall have the ultimate responsibility to oversee the financial 15 operation and performance of the Corporation. In the event that the Treasurer is not designated by the Board of Directors as the Chief Financial Officer, the Treasurer shall report to the Chief Financial Officer from time to time concerning all duties which the Treasurer is obligated to perform and the Chief Financial Officer shall, at his election, assume such of the duties of the Treasurer as are provided herein as he shall deem appropriate. The Chief Financial Officer shall have the power to modify and/or amend any and all actions taken by the Treasurer and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors. ARTICLE V - CAPITAL STOCK ------------------------- Section 5-l. Stock Certificates. Shares of the Corporation shall be represented by certificates signed by or in the name of the Corporation by (a) the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President, and (b) the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, representing the number of shares registered in certificate form. If such certificate is countersigned (i) by a transfer agent other than the Corporation or its employee, or (ii) by a registrar other than the Corporation or its employee, the signatures of the officers of the Corporation may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. 16 Section 5-2. Determination of Stockholders of Record. The Board of Directors may fix, in advance, a record date to determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action. Such date shall be not more than sixty (60) nor less than ten (10) days before the date of any such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 17 Section 5-3. Transfer of Shares. Transfer of shares shall be made on the books of the Corporation only upon surrender of the share certificate, duly endorsed and otherwise in proper form for transfer, which certificate shall be cancelled at the time of the transfer. No transfer of shares shall be made on the books of this Corporation if such transfer is in violation of a lawful restriction noted conspicuously on the certificate. Section 5-4. Lost, Stolen or Destroyed Share Certificates. The Corporation may issue a new certificate of stock, or uncertified shares in place of any certificate therefore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen, or destroyed certificate, or his legal representative to give the Corporation a bond sufficient to indemnify it against claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. ARTICLE VI - NOTICES -------------------- Section 6-l. Contents of Notice. Whenever any notice of a meeting is required to be given pursuant to these by-laws or the Certificate of Incorporation or otherwise, the notice shall specify the place, day and hour of the meeting and, in the case of a special meeting or where otherwise required by law, the general nature of the business to be transacted at such meeting. Section 6-2. Method of Notice. All notices shall be given to each person entitled thereto, either personally or by sending a copy thereof through the mail or 18 by telegraph, charges prepaid, to his address as it appears on the records of the Corporation, or supplied by him to the Corporation for the purpose of notice. If notice is sent by mail or telegraph, it shall be deemed to have been given to the person entitled thereto when deposited in the United States Mail or with the telegraph office for transmission. If no address for a stockholder appears on the books of the Corporation and such stockholder has not supplied the Corporation with an address for the purpose of notice, notice deposited in the United States Mail addressed to such stockholder care of General Delivery in the city in which the principal office of the Corporation is located shall be sufficient. Section 6-3. Wavier of Notice. Whenever notice is required to be given under any provision of law or of the Certificate of Incorporation or by-laws of the Corporation, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, Directors, or members of a committee of Directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation. 19 ARTICLE VII- INDEMNIFICATION OF DIRECTORS AND --------------------------------------------- OFFICERS AND OTHER PERSONS -------------------------- Section 7-l. Indemnification. The Corporation shall indemnify any person who is a Director or officer of the Corporation or any Director or officer who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (any such person is hereinafter referred to in this Article VII as a "Director or officer") against expenses (including, but not limited to, attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by such Director or officer ("liabilities"), to the fullest extent now or hereafter permitted by law in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (as used in this Article VII, "Proceeding" or, in the plural, "Proceedings"), brought or threatened to be brought against such Director or officer by reason of the fact that he or she is or was serving in any such capacity or in any other capacity on behalf of the Corporation, its parent or any of its subsidiaries. The Board of Directors by resolution adopted in each specific instance may similarly indemnify any person other than a Director or officer (any such person is hereinafter referred to in this Article VII as an "Other Person") for liabilities incurred by him or her in connection with services rendered by him or her for or at the request of the Corporation, its parent or any of its subsidiaries. 20 Section 7-2. Advances. Expenses (including, but not limited to, attorneys' fees) incurred by any Director or officer in defending a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking, by or on behalf of such Director or officer, to repay such amount without interest if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation as authorized by law. Advance expenses (including, but not limited to, attorneys' fees) incurred by Other Persons may be paid if the Board of Directors deems appropriate and upon such terms and conditions, including the giving of an undertaking, as the Board of Directors deems appropriate. Section 7-3. Applicability; Survival. The provisions of Sections 7-1 and 7-2 shall be applicable to all Proceedings commenced before or after the adoption of this Article VII, whether such arise out of acts or omissions which occurred prior or subsequent to such adoption and shall continue as to a person who has ceased to be a Director or officer (or, where and so long as the Board of Directors has authorized indemnification or advancement of expenses to an Other Person in accordance with this Article VII, to an Other Person who has ceased to render services for or at the request of the Corporation its parent or subsidiaries) and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7-4. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, or Other 21 Person of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under law. Section 7-5. Non-Exclusivity. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII, shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under these bylaws, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. ARTICLE VIII - SEAL ------------------- The form of the seal of the Corporation, called the corporate seal of the Corporation, [Form of Seal] shall be as impressed adjacent hereto. ARTICLE IX - FISCAL YEAR ------------------------ The Board of Directors shall have the power by resolution to fix the fiscal year of the Corporation. If the Board of Directors shall fail to do so, the President shall fix the fiscal year. 22 ARTICLE X - AMENDMENTS ---------------------- The original or other by-laws may be adopted, amended or repealed by the stockholders entitled to vote thereon at any regular or special meeting or, if the Certificate of Incorporation so provides, by the Board of Directors. The fact that such power has been so conferred upon the Board of Directors shall not divest the stockholders of the power nor limit their power to adopt, amend or repeal by-laws. ARTICLE XI - INTERPRETATION OF BY-LAWS -------------------------------------- All words, terms and provisions of these by-laws shall be interpreted and defined by and in accordance with the General Corporation Law of the State of Delaware, as amended, and as amended from time to time hereafter. 23 EX-4.1(A) 5 EXHIBIT 4.1(A) Exhibit 4.1(a) - ------------------------------------------------------------------------- Comcast Cable Communications, Inc. and Bank of Montreal Trust Company ___________________________________ Indenture Dated as of May 1, 1997 ___________________________________ - ------------------------------------------------------------------------- TABLE OF CONTENTS (1) ------------- Page ---- ARTICLE 1 Definitions and Incorporation by Reference Section 1.01. Definitions.....................................................1 Section 1.02. Other Definitions...............................................6 Section 1.03. Incorporation by Reference of Trust Indenture Act...............7 Section 1.04. Rules of Construction...........................................8 ARTICLE 2 The Securities Section 2.01. Form............................................................8 Section 2.02. Execution and Authentication....................................8 Section 2.03. Amount Unlimited; Issuable in Series...........................10 Section 2.04. Denomination and Date of Securities; Payments of Interest......12 Section 2.05. Registrar and Paying Agent; Agents Generally...................13 Section 2.06. Paying Agent to Hold Money in Trust............................13 Section 2.07. Transfer and Exchange..........................................14 Section 2.08. Replacement Securities.........................................17 Section 2.09. Outstanding Securities.........................................18 Section 2.10. Temporary Securities...........................................19 Section 2.11. Cancellation...................................................19 Section 2.12. CUSIP Numbers..................................................20 Section 2.13. Defaulted Interest.............................................20 Section 2.14. Series May Include Tranches....................................20 Section 2.15. Computation of Interest........................................20 ARTICLE 3 Redemption Section 3.01. Applicability of Article.......................................21 Section 3.02. Notice of Redemption; Partial Redemptions......................21 Section 3.03. Payment of Securities Called for Redemption....................23 Section 3.04. Exclusion of Certain Securities from Eligibility for Selection for Redemption.................................................24 - ---------------- (1) Note: The Table of Contents shall not for any purposes be deemed to be a part of the Indenture. Page ---- Section 3.05. Mandatory and Optional Sinking Funds...........................24 ARTICLE 4 Covenants Section 4.01. Payment of Securities..........................................27 Section 4.02. Maintenance of Office or Agency................................28 Section 4.03. Certificate to Trustee.........................................29 Section 4.04. Reports by the Company.........................................29 ARTICLE 5 Successor Corporation Section 5.01. When Company May Merge, Etc....................................29 Section 5.02. Successor Substituted..........................................30 ARTICLE 6 Default and Remedies Section 6.01. Events of Default..............................................31 Section 6.02. Acceleration...................................................32 Section 6.03. Other Remedies.................................................33 Section 6.04. Waiver of past Defaults........................................33 Section 6.05. Control by Majority............................................34 Section 6.06. Limitation on Suits............................................34 Section 6.07. Rights of Holders to Receive Payment...........................35 Section 6.08. Collection Suit by Trustee.....................................35 Section 6.09. Trustee May File Proofs of Claim...............................35 Section 6.10. Application of Proceeds........................................36 Section 6.11. Restoration of Rights and Remedies.............................37 Section 6.12. Undertaking for Costs..........................................37 Section 6.13. Rights and Remedies Cumulative.................................37 Section 6.14. Delay or Omission Not Waiver...................................38 ARTICLE 7 Trustee Section 7.01. General........................................................38 Section 7.02. Certain Rights of Trustee......................................38 Section 7.03. Individual Rights of Trustee...................................40 Section 7.04. Trustee's Disclaimer...........................................40 ii Page ---- Section 7.05. Notice of Default..............................................41 Section 7.06. Reports by Trustee to Holders..................................41 Section 7.07. Compensation and Indemnity.....................................41 Section 7.08. Replacement of Trustee.........................................42 Section 7.09. Successor Trustee by Merger, Etc...............................43 Section 7.10. Eligibility....................................................44 Section 7.11. Money Held in Trust............................................44 ARTICLE 8 Discharge of Indenture Section 8.01. Defeasance Within One Year of Payment..........................44 Section 8.02. Defeasance.....................................................45 Section 8.03. Covenant Defeasance............................................46 Section 8.04. Application of Trust Money.....................................47 Section 8.05. Repayment to Company...........................................48 ARTICLE 9 Amendments, Supplements and Waivers Section 9.01. Without Consent of Holders.....................................48 Section 9.02. With Consent of Holders........................................49 Section 9.03. Effect of Consent..............................................51 Section 9.04. Notation on or Exchange of Securities..........................52 Section 9.05. Trustee to Sign Amendments, Etc................................52 Section 9.06. Conformity with Trust Indenture Act............................52 ARTICLE 10 Miscellaneous Section 10.01. Trust Indenture Act of 1939...................................52 Section 10.02. Notices.......................................................52 Section 10.03. Certificate and Opinion as to Conditions Precedent............54 Section 10.04. Statements Required in Certificate or Opinion.................54 Section 10.05. Evidence of Ownership.........................................54 Section 10.06. Rules by Trustee, Paying Agent or Registrar...................55 Section 10.07. Payment Date Other Than a Business Day........................55 Section 10.08. Governing Law.................................................56 Section 10.09. No Adverse Interpretation of Other Agreements.................56 Section 10.10. Successors....................................................56 iii Page ---- Section 10.11. Duplicate Originals...........................................56 Section 10.12. Separability..................................................56 Section 10.13. Table of Contents, Headings, Etc..............................56 Section 10.14. Incorporators, Stockholders, Officers and Directors of Company Exempt from Individual Liability..............................56 Section 10.15. Judgment Currency.............................................57 SIGNATURES iv INDENTURE, dated as of May 1, 1997, between Comcast Cable Communications, Inc., a Delaware corporation (the "Company"), and Bank of Montreal Trust Company, a New York banking corporation (the "Trustee"). RECITALS OF THE COMPANY WHEREAS, the Company has duly authorized the issue from time to time of its debentures, notes or other evidences of indebtedness to be issued in one or more series (the "Securities") up to such principal amount or amounts as may from time to time be authorized in accordance with the terms of this Indenture and to provide, among other things, for the authentication, delivery and administration of the Securities, the Company has duly authorized the execution and delivery of this Indenture; and WHEREAS, all things necessary to make this Indenture a valid indenture and agreement according to its terms have been done; NOW, THEREFORE: In consideration of the premises and the purchases of the Securities by the holders thereof, the Company and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective holders from time to time of the Securities or of any and all series thereof and of the coupons, if any, appertaining thereto as follows: ARTICLE 1 Definitions and Incorporation by Reference Section 1.01. Definitions. Unless otherwise provided by or pursuant to a Board Resolution or supplemental indenture establishing the terms of one or more series of Securities the following terms, as used herein, shall have the following meanings: "Agent" means any Registrar, Paying Agent, transfer agent or Authenticating Agent. "Authorized Newspaper" means (i) The Wall Street Journal (Eastern Edition), or, if The Wall Street Journal is no longer customarily printed at least once a day for at least five days in each calendar week or no longer is of general circulation in the City of New York, then another newspaper published in English customarily published at least once a day for at least five days in each calendar week and of general circulation in The City of New York, or (ii) the Luxembourg Wort, but only with respect to notices to be given to Holders of Securities other than Registered Securities. If it shall be impractical in the opinion of the Trustee to make any publication of any notice required hereby in an Authorized Newspaper, any publication or other notice in lieu thereof which is made or given with the approval of the Trustee shall constitute a sufficient publication of such notice. "Board Resolution" means one or more resolutions of the board of directors of the Company or any authorized committee thereof, certified by the secretary or an assistant secretary of the Company to have been duly adopted and to be in full force and effect on the date of certification, and delivered to the Trustee. "Business Day" means, with respect to any Security, a day that is not a day on which banking institutions are authorized or required by law or regulation to close, in the city (or in any of the cities, if more than one) unless otherwise specified, in which amounts are payable, as specified in the form of such Security. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's capital stock or equity, including, without limitation, all Common Stock and Preferred Stock. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's common stock, whether now outstanding or issued after the date of this Indenture, including, without limitation, all series and classes of such common stock. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to Article 5 of this Indenture and thereafter means the successor. "Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at 77 Water 2 Street, 4th Floor, New York, New York, 10005, Attention: Corporate Trust Department. "Default" means any Event of Default as defined in Section 6.01 and any event that is, or after notice or passage of time or both would be, an Event of Default. "Depositary" means, with respect to the Securities of any series issuable or issued in the form of one or more Registered Global Securities, the Person designated as Depositary by the Company pursuant to Section 2.03 until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean or include each Person who is then a Depositary hereunder, and if at any time there is more than one such Person, "Depositary" as used with respect to the Securities of any such series shall mean the Depositary with respect to the Registered Global Securities of that series. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America at the date of any computation required or permitted hereunder. "Holder" or "Securityholder" means the registered holder of any Security with respect to Registered Securities and the bearer of any Unregistered Security or any coupon appertaining thereto, as the case may be. "Indenture" means this Indenture as originally executed or as it may be amended or supplemented from time to time by one or more indentures supplemental to this Indenture entered into pursuant to the applicable provisions of this Indenture and shall include the forms and terms of the Securities of each series established as contemplated pursuant to Sections 2.01 and 2.03. "Officer" means, with respect to the Company, the chairman of the board of directors, the chairman, any vice chairman, the president, the executive vice president, any senior vice president, the treasurer or any assistant treasurer, or the secretary or any assistant secretary. "Officers' Certificate" means a certificate signed in the name of the Company (i) by the chairman of the board of directors, the chairman, any vice chairman, the president, the executive vice president or any senior vice president and (ii) by the treasurer or any assistant treasurer, or the secretary or any assistant secretary, complying with Section 10.04 and delivered to the Trustee. Each such certificate shall comply with Section 314 of the Trust Indenture Act and include 3 (except as otherwise expressly provided in this Indenture) the statements provided in Section 10.04. "Opinion of Counsel" means a written opinion signed by legal counsel, who may be an employee of or counsel to the Company, satisfactory to the Trustee and complying with Section 10.04. Each such opinion shall comply with Section 314 of the Trust Indenture Act and include the statements provided in Section 10.04, if and to the extent required thereby. "original issue date" of any Security (or portion thereof) means the earlier of (a) the date of authentication of such Security or (b) the date of any Security (or portion thereof) for which such Security was issued (directly or indirectly) on registration of transfer, exchange or substitution. "Periodic Offering" means an offering of Securities of a series from time to time, the specific terms of which Securities, including, without limitation, the rate or rates of interest, if any, thereon, the stated maturity or maturities thereof and the redemption provisions, if any, with respect thereto, are to be determined by the Company or its agents upon the issuance of such Securities. "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's preferred or preference stock, whether now outstanding or issued after the date of the Indenture, including, without limitation, all series and classes of such preferred or preference stock. "Principal" of a Security means the principal amount of, and, unless the context indicates otherwise, includes any premium payable on, the Security. "Registered Global Security" means a Security evidencing all or a part of a series of Registered Securities, issued to the Depositary for such series in accordance with Section 2.02, and bearing the legend prescribed in Section 2.02. "Registered Security" means any Security registered on the Security Register (as defined in Section 2.05). "Responsible Officer" means, when used with respect to the Trustee, any vice president, assistant vice president, treasurer, assistant treasurer, secretary, 4 assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Subsidiary" means any Subsidiary of the Company organized and existing under the laws of the United States of America and the principal business of which is the cable communications industry carried on within the United States of America other than: (i) each Subsidiary the major part of whose business consists of finance, banking, credit, leasing, insurance, financial services or other similar operations, or any combination thereof; and (ii) each Subsidiary formed or acquired after the date hereof for the purpose of acquiring the business or assets of another person and which does not acquire all or any substantial part of the business or assets of the Company or any Restricted Subsidiary; provided, however, that any Subsidiary may be declared a Restricted Subsidiary by Board Resolution, effective as of the date such Board Resolution is adopted; provided, further, that any such declaration may be rescinded by further Board Resolution, effective as of the date such further Board Resolution is adopted. "Securities" means any of the securities, as defined in the first paragraph of the recitals hereof, that are authenticated and delivered under this Indenture and, unless the context indicates otherwise, shall include any coupon appertaining thereto. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of all votes represented by all classes of outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person. "Trustee" means the party named as such in the first paragraph of this Indenture until replaced by a successor or successors in accordance with the provisions of Article 7 and thereafter means such successor or successors. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as it may be amended from time to time. 5 "UCC" means the Uniform Commercial Code, as in effect in each applicable jurisdiction. "United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended and as codified in Title 11 of the United States Code, as amended from time to time hereafter, or any successor federal bankruptcy law. "Unregistered Security" means any Security other than a Registered Security. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Voting Stock" means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Wholly-Owned" is defined to mean, with respect to any Subsidiary of any person, such Subsidiary if all of the outstanding common stock or other similar equity ownership interests (but not including preferred stock) in such Subsidiary (other than any director's qualifying shares or investments by foreign nationals mandated by applicable law) is owned directly or indirectly by such person. Section 1.02. Other Definitions. Each of the following terms is defined in the section set forth opposite such term: Term Section ---- ------- Authenticating Agent 2.2 cash transaction 7.3 Dollars 4.2 6 Event of Default 6.1 Judgment Currency 10.15 mandatory sinking fund payment 3.5 optional sinking fund payment 3.5 Paying Agent 2.5 record date 2.4 Registrar 2.5 Required Currency 10.15 Security Register 2.5 self-liquidating paper 7.3 sinking fund payment date 3.5 tranche 2.14 Section 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made a part of this Indenture. The following terms used in this Indenture that are defined by the Trust Indenture Act have the following meanings: "indenture securities" means the Securities; "indenture security holder" means a Holder or a Securityholder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company or any other obligor on the Securities. All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by reference in the Trust Indenture Act to another statute or defined by a rule of the Commission and not otherwise defined herein have the meanings assigned to them therein. If any provision of this Indenture limits, qualifies or conflicts with another provision hereof that is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, or would be so required were this Indenture duly qualified under the Trust Indenture Act, such required provision shall control. 7 Section 1.04. Rules of ConstructionUnless the context otherwise requires: (i) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (ii) words in the singular include the plural, and words in the plural include the singular; (iii) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (iv) all references to Sections or Articles refer to Sections or Articles of this Indenture unless otherwise indicated; and (v) use of masculine, feminine or neuter pronouns should not be deemed a limitation, and the use of any such pronouns should be construed to include, where appropriate, the other pronouns. ARTICLE 2 The Securities Section 2.01. Form. The Securities of each series shall be substantially in such form or forms (not inconsistent with this Indenture) as shall be established by or pursuant to one or more Board Resolutions or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have imprinted or otherwise reproduced thereon such legend or legends or endorsements, not inconsistent with the provisions of this Indenture, as may be required to comply with any law, or with any rules of any securities exchange or usage, all as may be determined by the officers executing such Securities as evidenced by their execution of the Securities. Unless otherwise so established, Unregistered Securities shall have coupons attached. Section 2.02. Execution and Authentication. The chairman of the board of directors, the chairman, any vice chairman, the president, the executive vice president, any senior vice president, the treasurer or any assistant treasurer shall execute the Securities (other than coupons) for the Company by facsimile or manual signature in the name and on behalf of the Company. The seal of the Company, if any, shall be reproduced on the Securities. If an Officer whose 8 signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. Delivery by facsimile transmission shall not affect the validity of the Securities. The Trustee, at the expense of the Company, may appoint an authenticating agent (the "Authenticating Agent") to authenticate Securities (other than coupons). The Authenticating Agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent. A Security (other than coupons) shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series having attached thereto appropriate coupons, if any, executed by the Company to the Trustee for authentication together with the applicable documents referred to below in this Section, and the Trustee shall thereupon authenticate and make available for delivery such Securities to or upon the written order of the Company. In authenticating any Securities of a series, the Trustee shall be entitled to receive prior to the first authentication of any Securities of such series, and (subject to Article 7) shall be fully protected in relying upon, unless and until such documents have been superseded or revoked: (1) any Board Resolution and/or executed supplemental indenture referred to in Sections 2.01 and 2.03 by or pursuant to which the forms and terms of the Securities of that series were established; (2) an Officers' Certificate setting forth the form or forms and terms of the Securities, stating that the form or forms and terms of the Securities of such series have been, or will be when established in accordance with such procedures as shall be referred to therein, established in compliance with this Indenture; and (3) an Opinion of Counsel substantially to the effect that the form or forms and terms of the Securities of such series have been, or will be when established in accordance with such procedures as shall be referred to therein, established in compliance with this Indenture and that the supplemental indenture, to the extent applicable, and Securities have been duly authorized and, if executed and authenticated in accordance with the provisions of the Indenture and delivered to and duly paid for by the 9 purchasers thereof on the date of such opinion, would be entitled to the benefits of the Indenture and would be valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, receivership, moratorium and other similar laws affecting creditors' rights generally, general principles of equity, and such other matters as shall be specified therein. If the Company shall establish pursuant to Section 2.03 that the Securities of a series or a portion thereof are to be issued in the form of one or more Registered Global Securities, then the Company shall execute and the Trustee shall authenticate and make available for delivery one or more Registered Global Securities that (i) shall represent and shall be denominated in an amount equal to the aggregate principal amount of all of the Securities of such series issued in such form and not yet canceled, (ii) shall be registered in the name of the Depositary for such Registered Global Security or Securities or the nominee of such Depositary, (iii) shall be delivered by the Trustee to such Depositary or its custodian or pursuant to such Depositary's instructions and (iv) shall bear a legend substantially to the following effect: "Unless and until it is exchanged in whole or in part for Securities in definitive registered form, this Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary." Section 2.03. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series and each such series shall rank equally and pari passu with all other unsecured and unsubordinated debt of the Company. There shall be established in or pursuant to a Board Resolution or one or more indentures supplemental hereto, prior to the initial issuance of Securities of any series (subject to the last sentence of this Section 2.03), (1) the designation of the Securities of the series, which shall distinguish the Securities of the series from the Securities of all other series; (2) any limit upon the aggregate principal amount of the Securities of the series that may be authenticated and delivered under this Indenture and any limitation on the ability of the Company to increase such aggregate principal amount after the initial issuance of the Securities of that 10 series (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, or upon redemption of, other Securities of the series pursuant hereto); (3) the date or dates on which the Principal of the Securities of the series is payable (which date or dates may be fixed or extendible); (4) the rate or rates (which may be fixed or variable) per annum at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, on which such interest shall be payable and (in the case of Registered Securities) on which a record shall be taken for the determination of Holders to whom interest is payable and/or the method by which such rate or rates or date or dates shall be determined; (5) if other than as provided in Section 4.02, the place or places where the Principal of and any interest on Securities of the series shall be payable, any Registered Securities of the series may be surrendered for exchange, notices, demands to or upon the Company in respect of the Securities of the series and this Indenture may be served and notice to Holders may be published; (6) the right, if any, of the Company to redeem Securities of the series, in whole or in part, at its option and the period or periods within which, the price or prices at which and any terms and conditions upon which Securities of the series may be so redeemed, pursuant to any sinking fund or otherwise; (7) the obligation, if any, of the Company to redeem, purchase or repay Securities of the series pursuant to any mandatory redemption, sinking fund or analogous provisions or at the option of a Holder thereof and the price or prices at which and the period or periods within which and any of the terms and conditions upon which Securities of the series shall be redeemed, purchased or repaid, in whole or in part, pursuant to such obligation; (8) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable; (9) if the Securities of the series are issuable in whole or in part as one or more Registered Global Securities, the identity of the Depositary for such Registered Global Security or Securities; 11 (10) any exceptions or additional conditions applicable to the provisions of Section 5.01; (11) any other events of default or covenants with respect to the Securities of the series; and (12) any other terms of the Securities of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series and coupons, if any, appertaining thereto shall be substantially identical, except in the case of Registered Securities as to date and denomination, except in the case of any Periodic Offering and except as may otherwise be provided by or pursuant to the Board Resolution referred to above or as set forth in any such indenture supplemental hereto. All Securities of any one series need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided by or pursuant to such Board Resolution or in any such indenture supplemental hereto and any forms and terms of Securities to be issued from time to time may be completed and established from time to time prior to the issuance thereof by procedures described in such Board Resolution or supplemental indenture. Section 2.04. Denomination and Date of Securities; Payments of Interest. The Securities of each series shall be issuable as Registered Securities or Unregistered Securities in denominations established as contemplated by Section 2.03 or, if not so established with respect to Securities of any series, in denominations of $1,000 and any integral multiple thereof. The Securities of each series shall be numbered, lettered or otherwise distinguished in such manner or in accordance with such plan as the Officers of the Company executing the same may determine, as evidenced by their execution thereof. Each Security shall be dated the date of its authentication. The Securities of each series shall bear interest, if any, from the date, and such interest and shall be payable on the dates, established as contemplated by Section 2.03. The person in whose name any Registered Security of any series is registered at the close of business on any record date applicable to a particular series with respect to any interest payment date for such series shall be entitled to receive the interest, if any, payable on such interest payment date notwithstanding any transfer or exchange of such Registered Security subsequent to the record date and prior to such interest payment date, except if and to the extent the Company shall default in the payment of the interest due on such interest payment date for such series, in which case the provisions of Section 2.13 shall apply. The term 12 "record date" as used with respect to any interest payment date (except a date for payment of defaulted interest) for the Securities of any series shall mean the date specified as such in the terms of the Registered Securities of such series established as contemplated by Section 2.03, or, if no such date is so established, the fifteenth day next preceding such interest payment date, whether or not such record date is a Business Day. Section 2.05. Registrar and Paying Agent; Agents Generally. The Company shall maintain an office or agency where Securities may be presented for registration, registration of transfer or exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"), which shall be in the Borough of Manhattan, The City of New York. The Company shall cause the Registrar to keep a register of the Registered Securities and of their registration, transfer and exchange (the "Security Register"). The Company may have one or more additional Paying Agents or transfer agents with respect to any series. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture and the Trust Indenture Act that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any Agent and any change in the name or address of an Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. The Company may remove any Agent upon written notice to such Agent and the Trustee; provided that no such removal shall become effective until (i) the acceptance of an appointment by a successor Agent to such Agent as evidenced by an appropriate agency agreement entered into by the Company and such successor Agent and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as such Agent until the appointment of a successor Agent in accordance with clause (i) of this proviso. The Company or any affiliate of the Company may act as Paying Agent or Registrar; provided that neither the Company nor an affiliate of the Company shall act as Paying Agent in connection with the defeasance of the Securities or the discharge of this Indenture under Article 8. The Company initially appoints the Trustee as Registrar and Paying Agent. If, at any time, the Trustee is not the Registrar, the Registrar shall make available to the Trustee ten days prior to each interest payment date and at such other times as the Trustee may reasonably request the names and addresses of the Holders as they appear in the Security Register. Section 2.06. Paying Agent to Hold Money in Trust. Not later than 10:00 a.m., New York City time, on each due date of any Principal or interest on 13 any Securities, the Company shall deposit with the Paying Agent money in immediately available funds sufficient to pay such Principal or interest. The Company shall require each Paying Agent other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders of such Securities or the Trustee all money held by the Paying Agent for the payment of Principal of and interest on such Securities and shall promptly notify the Trustee of any default by the Company in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company or any affiliate of the Company acts as Paying Agent, it will, on or before each due date of any Principal of or interest on any Securities, segregate and hold in a separate trust fund for the benefit of the Holders thereof a sum of money sufficient to pay such Principal or interest so becoming due until such sum of money shall be paid to such Holders or otherwise disposed of as provided in this Indenture, and will promptly notify the Trustee in writing of its action or failure to act as required by this Section. Section 2.07. Transfer and Exchange. Unregistered Securities (except for any temporary global Unregistered Securities) and coupons (except for coupons attached to any temporary global Unregistered Securities) shall be transferable by delivery. At the option of the Holder thereof, Registered Securities of any series (other than a Registered Global Security, except as set forth below) may be exchanged for a Registered Security or Registered Securities of such series and tenor having authorized denominations and an equal aggregate principal amount, upon surrender of such Registered Securities to be exchanged at the agency of the Company that shall be maintained for such purpose in accordance with Section 2.05 and upon payment, if the Company shall so require, of the charges hereinafter provided. If the Securities of any series are issued in both registered and unregistered form, except as otherwise established pursuant to Section 2.03, at the option of the Holder thereof, Unregistered Securities of any series may be exchanged for Registered Securities of such series and tenor having authorized denominations and an equal aggregate principal amount, upon surrender of such Unregistered Securities to be exchanged at the agency of the Company that shall be maintained for such purpose in accordance with Section 4.02, with, in the case of Unregistered Securities that have coupons attached, all unmatured coupons and all matured coupons in default thereto appertaining, and upon payment, if the Company shall so require, of the charges hereinafter provided. At the option of the 14 Holder thereof, if Unregistered Securities of any series, maturity date, interest rate and original issue date are issued in more than one authorized denomination, except as otherwise established pursuant to Section 2.03, such Unregistered Securities may be exchanged for Unregistered Securities of such series and tenor having authorized denominations and an equal aggregate principal amount, upon surrender of such Unregistered Securities to be exchanged at the agency of the Company that shall be maintained for such purpose in accordance with Section 4.02, with, in the case of Unregistered Securities that have coupons attached, all unmatured coupons and all matured coupons in default thereto appertaining, and upon payment, if the Company shall so require, of the charges hereinafter provided. Registered Securities of any series may not be exchanged for Unregistered Securities of such series. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive. All Registered Securities presented for registration of transfer, exchange, redemption or payment shall be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee duly executed by, the holder or his attorney duly authorized in writing. The Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any exchange or registration of transfer of Securities. No service charge shall be made for any such transaction. Notwithstanding any other provision of this Section 2.07, unless and until it is exchanged in whole or in part for Securities in definitive registered form, a Registered Global Security representing all or a portion of the Securities of a series may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary. If at any time the Depositary for any Registered Global Securities of any series notifies the Company that it is unwilling or unable to continue as Depositary for such Registered Global Securities or if at any time the Depositary for such Registered Global Securities shall no longer be eligible under applicable law, the Company shall appoint a successor Depositary eligible under applicable law with respect to such Registered Global Securities. If a successor Depositary eligible under applicable law for such Registered Global Securities is not appointed by the Company within 90 days after the Company receives such notice or becomes 15 aware of such ineligibility, the Company will execute, and the Trustee, upon receipt of the Company's order for the authentication and delivery of definitive Registered Securities of such series and tenor, will authenticate and make available for delivery Registered Securities of such series and tenor, in any authorized denominations, in an aggregate principal amount equal to the principal amount of such Registered Global Securities, in exchange for such Registered Global Securities. The Company may at any time and in its sole discretion determine that any Registered Global Securities of any series shall no longer be maintained in global form. In such event, or in the event that there shall have occurred and be continuing an Event of Default with respect to a series of Securities, the Company will, upon the request of any Holder, execute, and the Trustee, upon receipt of the Company's order for the authentication and delivery of definitive Registered Securities of such series and tenor, will authenticate and make available for delivery, Registered Securities of such series and tenor in any authorized denominations, in an aggregate principal amount equal to the principal amount of such Registered Global Securities, in exchange for such Registered Global Securities. Any time the Registered Securities of any series are not in the form of Registered Global Securities pursuant to the preceding two paragraphs, the Company agrees to supply the Trustee with a reasonable supply of certificated Registered Securities without the legend required by Section 2.02 and the Trustee agrees to hold such Registered Securities in safekeeping until authenticated and delivered pursuant to the terms of this Indenture. If established by the Company pursuant to Section 2.03 with respect to any Registered Global Security, the Depositary for such Registered Global Security may surrender such Registered Global Security in exchange in whole or in part for Registered Securities of the same series and tenor in definitive registered form on such terms as are acceptable to the Company and such Depositary. Thereupon, the Company shall execute, and the Trustee shall authenticate and make available for delivery, without service charge, (i) to the Person specified by such Depositary new Registered Securities of the same series and tenor, of any authorized denominations as requested by such Person, in an aggregate principal amount equal to and in exchange for such Person's beneficial interest in the Registered Global Security; and (ii) to such Depositary a new Registered Global Security in a denomination equal to the difference, if any, between the principal amount 16 of the surrendered Registered Global Security and the aggregate principal amount of Registered Securities authenticated and delivered pursuant to clause (i) above. Registered Securities issued in exchange for a Registered Global Security pursuant to this Section 2.07 shall be registered in such names and in such authorized denominations as the Depositary for such Registered Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee or an agent of the Company or the Trustee. The Trustee or such agent shall deliver such Securities to or as directed by the Persons in whose names such Securities are so registered. All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. Notwithstanding anything herein or in the forms or terms of any Securities to the contrary, none of the Company, the Trustee or any agent of the Company or the Trustee shall be required to exchange any Unregistered Security for a Registered Security if such exchange would result in adverse Federal income tax consequences to the Company (such as, for example, the inability of the Company to deduct from its income, as computed for Federal income tax purposes, the interest payable on the Unregistered Securities) under then applicable United States Federal income tax laws. The Trustee and any such agent shall be entitled to rely on an Officers' Certificate or an Opinion of Counsel in determining such result. Neither the Registrar nor the Company shall be required (i) to issue, authenticate, register the transfer of or exchange Securities of any series for a period of 15 days before a selection of such Securities to be redeemed or (ii) to register the transfer of or exchange any Security selected for redemption in whole or in part. Section 2.08. Replacement Securities. If a defaced or mutilated Security of any series is surrendered to the Trustee or if a Holder claims that its Security of any series has been lost, destroyed or wrongfully taken, the Company shall, subject to the further provisions of this Section 2.08, issue and the Trustee shall authenticate a replacement Security of such series and tenor and principal amount bearing a number not contemporaneously outstanding. The Company may charge such Holder for any tax or other governmental charge that may be imposed as a result of or in connection with replacing a Security and for its expenses and the expenses of the Trustee (including without limitation attorneys' fees and expenses) 17 in replacing a Security. In case any such mutilated, defaced, lost, destroyed or wrongfully taken Security has become or is about to become due and payable, the Company in its discretion may pay such Security instead of issuing a new Security in replacement thereof. If required by the Trustee or the Company, (i) an indemnity bond must be furnished that is sufficient in the judgment of both the Trustee and the Company to protect the Company, the Trustee and any Agent from any loss that any of them may suffer if a Security is replaced or paid as provided in this Section 2.08 and (ii) in the case of lost, destroyed or wrongfully taken Security, evidence must be furnished to the satisfaction of both the Trustee and the Company of the loss, destruction or wrongful taking of such Security. Notwithstanding the foregoing, the Company and the Trustee shall have no obligation to replace or pay a Security pursuant to this Section 2.08 if either the Company or the Trustee has notice that such Security has been acquired by a bona fide purchaser. Every replacement Security is an additional obligation of the Company and shall be entitled to the benefits of this Indenture equally and proportionately with any and all other Securities of such series duly authenticated and delivered hereunder. To the extent permitted by law, the foregoing provisions of this Section are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Securities. Section 2.09. Outstanding Securities. Securities outstanding at any time are all Securities that have been authenticated by the Trustee except for those Securities canceled by it, those Securities delivered to it for cancellation, those paid pursuant to Section 2.08 and those Securities described in this Section as not outstanding. If a Security is replaced pursuant to Section 2.08, it ceases to be outstanding unless and until the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a holder in due course. If the Paying Agent (other than the Company or an affiliate of the Company) holds on the maturity date or any redemption date or date for repurchase of the Securities money sufficient to pay Securities payable or to be redeemed or repurchased on such date, then on and after such date such Securities shall cease to be outstanding and interest on them shall cease to accrue. A Security does not cease to be outstanding because the Company or one of its affiliates holds such Security, provided, however, that, in determining whether the Holders of the requisite principal amount of the outstanding Securities 18 shall have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any affiliate of the Company shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities as to which a Responsible Officer of the Trustee has received written notice to be so owned shall be so disregarded. Any Securities so owned which are pledged by the Company, or by any affiliate of the Company, as security for loans or other obligations, otherwise than to another such affiliate of the Company, shall be deemed to be outstanding, if the pledgee is entitled pursuant to the terms of its pledge agreement and is free to exercise in its discretion the right to vote such securities, uncontrolled by the Company or by any such affiliate. Section 2.10. Temporary Securities. Until definitive Securities of any series are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities of such series. Temporary Securities of any series shall be substantially in the form of definitive Securities of such series but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Officers executing the temporary Securities, as evidenced by their execution of such temporary Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Securities of any series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series and tenor upon surrender of such temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 4.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of such series and tenor and authorized denominations. Until so exchanged, the temporary Securities of any series shall be entitled to the same benefits under this Indenture as definitive Securities of such series. Section 2.11. Cancellation. The Company at any time may deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold. The Registrar, any transfer agent and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for transfer, exchange, payment or cancellation and shall deliver such canceled Securities to the Company. The Company may not issue new Securities to replace Securities it has paid in full or delivered to the Trustee for cancellation. 19 Section 2.12. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" and "CINS" numbers (if then generally in use), and the Trustee shall use CUSIP numbers or CINS numbers, as the case may be, in notices of redemption or exchange as a convenience to Holders and no representation shall be made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of redemption or exchange. Section 2.13. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall pay, or shall deposit with the Paying Agent money in immediately available funds sufficient to pay, the defaulted interest plus (to the extent lawful) any interest payable on the defaulted interest (as may be specified in the terms thereof, established pursuant to Section 2.03) to the Persons who are Holders on a subsequent special record date, which shall mean the 15th day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not such day is a Business Day. At least 15 days before such special record date, the Company shall mail to each Holder and to the Trustee a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. Section 2.14. Series May Include Tranches. A series of Securities may include one or more tranches (each a "tranche") of Securities, including Securities issued in a Periodic Offering. The Securities of different tranches may have one or more different terms, including authentication dates and public offering prices, but all the Securities within each such tranche shall have identical terms, including authentication date and public offering price. Notwithstanding any other provision of this Indenture, with respect to Sections 2.02 (other than the fourth paragraph thereof) through 2.04, 2.07, 2.08, 2.10, 3.01 through 3.05, 4.02, 6.01 through 6.14, 8.01 through 8.05 and 9.02, if any series of Securities includes more than one tranche, all provisions of such sections applicable to any series of Securities shall be deemed equally applicable to each tranche of any series of Securities in the same manner as though originally designated a series unless otherwise provided with respect to such series or tranche pursuant to Section 2.03. In particular, and without limiting the scope of the next preceding sentence, any of the provisions of such sections which provide for or permit action to be taken with respect to a series of Securities shall also be deemed to provide for and permit such action to be taken instead only with respect to Securities of one or more tranches within that series (and such provisions shall be deemed satisfied thereby), even if no comparable action is taken with respect to Securities in the remaining tranches of that series. Section 2.15. Computation of Interest. Except as otherwise specified pursuant to Section 2.03 for Securities of any series, interest on the Securities of 20 each series shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE 3 Redemption Section 3.01. Applicability of Article. The provisions of this Article shall be applicable to the Securities of any series which are redeemable before their maturity or to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 2.03 for Securities of such series. Section 3.02. Notice of Redemption; Partial Redemptions. Notice of redemption to the Holders of Registered Securities of any series to be redeemed as a whole or in part at the option of the Company shall be given by mailing notice of such redemption by first class mail, postage prepaid, at least 30 days and not more than 60 days prior to the date fixed for redemption to such Holders of Registered Securities of such series at their last addresses as they shall appear upon the Security Register of the Company. Notice of redemption to the Holders of Unregistered Securities of any series to be redeemed as a whole or in part, who have filed their names and addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture Act, shall be given by mailing notice of such redemption, by first class mail, postage prepaid, at least 30 days and not more than 60 days prior to the date fixed for redemption, to such Holders at such addresses as were so furnished to the Trustee (and, in the case of any such notice given by the Company, the Trustee shall make such information available to the Company for such purpose). Notice of redemption to all other Holders of Unregistered Securities of any series to be redeemed as a whole or in part shall be published in an Authorized Newspaper, once in each of three successive calendar weeks, the first publication to be not less than 30 days nor more than 60 days prior to the date fixed for redemption. Any notice which is mailed or published in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. Failure to give notice by mail, or any defect in the notice to the Holder of any Security of a series designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Security of such series. The notice of redemption to each such Holder shall specify the principal amount of each Security of such series held by such Holder to be redeemed, the CUSIP and CINS numbers of the Securities to be redeemed, the date fixed for redemption, the redemption price, the place or places of payment, that payment will be made upon presentation and surrender of such Securities and, in the case of 21 Securities with coupons attached thereto, of all coupons appertaining thereto maturing after the date fixed for redemption, that such redemption is pursuant to the mandatory or optional sinking fund, or both, if such be the case, that interest accrued to the date fixed for redemption will be paid as specified in such notice and that on and after said date interest thereon or on the portions thereof to be redeemed will cease to accrue. In case any Security of a series is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Security, a new Security or Securities of such series and tenor in principal amount equal to the unredeemed portion thereof will be issued. The notice of redemption of Securities of any series to be redeemed at the option of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. On or before 10:00 a.m. New York City time on the redemption date specified in the notice of redemption given as provided in this Section, the Company will deposit with the Trustee or with one or more Paying Agents (or, if the Company is acting as its own Paying Agent, set aside, segregate and hold in trust as provided in Section 2.06) an amount of money sufficient to redeem on the redemption date all the Securities of such series so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption. If all of the outstanding Securities of a series are to be redeemed, the Company will deliver to the Trustee at least 10 days prior to the last date on which notice of redemption may be given to Holders pursuant to the first paragraph of this Section 3.02 (or such shorter period as shall be acceptable to the Trustee) an Officers' Certificate stating that all such Securities are to be redeemed. If less than all the outstanding Securities of a series are to be redeemed, the Company will deliver to the Trustee at least 15 days prior to the last date on which notice of redemption may be given to Holders pursuant to the first paragraph of this Section 3.02 (or such shorter period as shall be acceptable to the Trustee) an Officers' Certificate stating the aggregate principal amount of such Securities to be redeemed. In case of a redemption at the election of the Company prior to the expiration of any restriction on such redemption, the Company shall deliver to the Trustee, prior to the giving of any notice of redemption to Holders pursuant to this Section, an Officers' Certificate stating that such redemption is not prohibited by such restriction. If less than all the Securities of a series are to be redeemed, the Trustee shall select, pro rata, by lot or in such manner as it shall deem appropriate and fair, Securities of such series to be redeemed in whole or in part. Securities may be redeemed in part in multiples equal to the minimum authorized denomination for 22 Securities of such series or any multiple thereof. The Trustee shall promptly notify the Company in writing of the Securities of such series selected for redemption and, in the case of any Securities of such series selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. Section 3.03. Payment of Securities Called for Redemption. If notice of redemption has been given as above provided, the Securities or portions of Securities specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and on and after such date (unless the Company shall default in the payment of such Securities at the redemption price, together with interest accrued to such date) interest on the Securities or portions of Securities so called for redemption shall cease to accrue, and the unmatured coupons, if any, appertaining thereto shall be void and, except as provided in Sections 7.11 and 8.04, such Securities shall cease from and after the date fixed for redemption to be entitled to any benefit under this Indenture, and the Holders thereof shall have no right in respect of such Securities except the right to receive the redemption price thereof and unpaid interest to the date fixed for redemption. On presentation and surrender of such Securities at a place of payment specified in said notice, together with all coupons, if any, appertaining thereto maturing after the date fixed for redemption, said Securities or the specified portions thereof shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued thereon to the date fixed for redemption; provided that payment of interest becoming due on or prior to the date fixed for redemption shall be payable in the case of Securities with coupons attached thereto, to the Holders of the coupons for such interest upon surrender thereof, and in the case of Registered Securities, to the Holders of such Registered Securities registered as such on the relevant record date subject to the terms and provisions of Sections 2.04 and 2.13 hereof. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the Principal shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate of interest borne by such Security. If any Security with coupons attached thereto is surrendered for redemption and is not accompanied by all appurtenant coupons maturing after the date fixed for redemption, the surrender of such missing coupon or coupons may 23 be waived by the Company and the Trustee, if there be furnished to each of them such security or indemnity as they may require to save each of them harmless. Upon presentation of any Security of any series redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to or on the order of the Holder thereof, at the expense of the Company, a new Security or Securities of such series and tenor (with any unmatured coupons attached), of authorized denominations, in principal amount equal to the unredeemed portion of the Security so presented. Section 3.04. Exclusion of Certain Securities from Eligibility for Selection for Redemption. Securities shall be excluded from eligibility for selection for redemption if they are identified by registration and certificate number in a written statement signed by an Officer of the Company and delivered to the Trustee at least 40 days prior to the last date on which notice of redemption may be given as being owned of record and beneficially by, and not pledged or hypothecated by either (a) the Company or (b) an entity specifically identified in such written statement as directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. Section 3.05. Mandatory and Optional Sinking Funds. The minimum amount of any sinking fund payment provided for by the terms of the Securities of any series is herein referred to as a "mandatory sinking fund payment," and any payment in excess of such minimum amount provided for by the terms of the Securities of any series is herein referred to as an "optional sinking fund payment." The date on which a sinking fund payment is to be made is herein referred to as the "sinking fund payment date." In lieu of making all or any part of any mandatory sinking fund payment with respect to any series of Securities in cash, the Company may at its option (a) deliver to the Trustee Securities of such series theretofore purchased or otherwise acquired (except through a mandatory sinking fund payment) by the Company or receive credit for Securities of such series (not previously so credited) theretofore purchased or otherwise acquired (except as aforesaid) by the Company and delivered to the Trustee for cancellation pursuant to Section 2.11, (b) receive credit for optional sinking fund payments (not previously so credited) made pursuant to this Section, or (c) receive credit for Securities of such series (not previously so credited) redeemed by the Company through any optional sinking fund payment. Securities so delivered or credited shall be received or credited by the Trustee at the sinking fund redemption price specified in such Securities. On or before the sixtieth day next preceding each sinking fund payment date for any series, or such shorter period as shall be acceptable to the Trustee, the 24 Company will deliver to the Trustee an Officers' Certificate (a) specifying the portion of the mandatory sinking fund payment to be satisfied by payment of cash and the portion to be satisfied by credit of specified Securities of such series and the basis for such credit, (b) stating that none of the specified Securities of such series has theretofore been so credited, (c) stating that no defaults in the payment of interest or Events of Default with respect to such series have occurred (which have not been waived or cured) and are continuing and (d) stating whether or not the Company intends to exercise its right to make an optional sinking fund payment with respect to such series and, if so, specifying the amount of such optional sinking fund payment which the Company intends to pay on or before the next succeeding sinking fund payment date. Any Securities of such series to be credited and required to be delivered to the Trustee in order for the Company to be entitled to credit therefor as aforesaid which have not theretofore been delivered to the Trustee shall be delivered for cancellation pursuant to Section 2.11 to the Trustee with such Officers' Certificate (or reasonably promptly thereafter if acceptable to the Trustee). Such Officers' Certificate shall be irrevocable and upon its receipt by the Trustee the Company shall become unconditionally obligated to make all the cash payments or delivery of Securities therein referred to, if any, on or before the next succeeding sinking fund payment date. Failure of the Company, on or before any such sixtieth day, to deliver such Officer's Certificate and Securities specified in this paragraph, if any, shall not constitute a default but shall constitute, on and as of such date, the irrevocable election of the Company (i) that the mandatory sinking fund payment for such series due on the next succeeding sinking fund payment date shall be paid entirely in cash without the option to deliver or credit Securities of such series in respect thereof and (ii) that the Company will make no optional sinking fund payment with respect to such series as provided in this Section. If the sinking fund payment or payments (mandatory or optional or both) to be made in cash on the next succeeding sinking fund payment date plus any unused balance of any preceding sinking fund payments made in cash shall exceed $50,000 (or a lesser sum if the Company shall so request with respect to the Securities of any series), such cash shall be applied on the next succeeding sinking fund payment date to the redemption of Securities of such series at the sinking fund redemption price thereof together with accrued interest thereon to the date fixed for redemption. If such amount shall be $50,000 (or such lesser sum) and the Company makes no such request then it shall be carried over until a sum in excess of $50,000 (or such lesser sum) is available. The Trustee shall select, in the manner provided in Section 3.02, for redemption on such sinking fund payment date a sufficient principal amount of Securities of such series to absorb said cash, as nearly as may be, and shall (if requested in writing by the Company) inform the Company of the serial numbers of the Securities of such series (or portions thereof) so selected. Securities shall be excluded from eligibility for redemption 25 under this Section if they are identified by registration and certificate number in an Officers' Certificate delivered to the Trustee at least 60 days prior to the sinking fund payment date as being owned of record and beneficially by, and not pledged or hypothecated by either (a) the Company or (b) an entity specifically identified in such Officers' Certificate as directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. The Trustee, in the name and at the expense of the Company (or the Company, if it shall so request the Trustee in writing) shall cause notice of redemption of the Securities of such series to be given in substantially the manner provided in Section 3.02 (and with the effect provided in Section 3.03) for the redemption of Securities of such series in part at the option of the Company. The amount of any sinking fund payments not so applied or allocated to the redemption of Securities of such series shall be added to the next cash sinking fund payment for such series and, together with such payment, shall be applied in accordance with the provisions of this Section. Any and all sinking fund moneys held on the stated maturity date of the Securities of any particular series (or earlier, if such maturity is accelerated), which are not held for the payment or redemption of particular Securities of such series shall be applied, together with other moneys, if necessary, sufficient for the purpose, to the payment of the Principal of, and interest on, the Securities of such series at maturity. On or before 10:00 a.m. New York City time on each sinking fund payment date, the Company shall pay to the Trustee in cash or shall otherwise provide for the payment of all interest accrued to the date fixed for redemption on Securities to be redeemed on the next following sinking fund payment date. The Trustee shall not redeem or cause to be redeemed any Securities of a series with sinking fund moneys or mail any notice of redemption of Securities of such series by operation of the sinking fund during the continuance of a Default in payment of interest on such Securities or of any Event of Default except that, where the mailing of notice of redemption of any Securities shall theretofore have been made, the Trustee shall redeem or cause to be redeemed such Securities, provided that it shall have received from the Company a sum sufficient for such redemption. Except as aforesaid, any moneys in the sinking fund for such series at the time when any such Default or Event of Default shall occur, and any moneys thereafter paid into the sinking fund, shall, during the continuance of such Default or Event of Default, be deemed to have been collected under Article 6 and held for the payment of all such Securities. In case such Event of Default shall have been waived as provided in Section 6.04 or the Default cured on or before the sixtieth day preceding the sinking fund payment date in any year, such moneys shall thereafter be applied on the next succeeding sinking fund payment date in accordance with this Section to the redemption of such Securities. 26 ARTICLE 4 Covenants Section 4.01. Payment of Securities. The Company shall pay the Principal of and interest on the Securities on the dates and in the manner provided in the Securities and this Indenture. The interest on Securities with coupons attached (together with any additional amounts payable pursuant to the terms of such Securities) shall be payable only upon presentation and surrender of the several coupons for such interest installments as are evidenced thereby as they severally mature. The interest on any temporary Unregistered Securities (together with any additional amounts payable pursuant to the terms of such Securities) shall be paid, as to the installments of interest evidenced by coupons attached thereto, if any, only upon presentation and surrender thereof, and, as to the other installments of interest, if any, only upon presentation of such Unregistered Securities for notation thereon of the payment of such interest. The interest on Registered Securities (together with any additional amounts payable pursuant to the terms of such Securities) shall be payable only to the Holders thereof and at the option of the Company may be paid by mailing checks for such interest payable to or upon the written order of such Holders at their last addresses as they appear on the Security Register of the Company. Notwithstanding any provisions of this Indenture and the Securities of any series to the contrary, if the Company and a Holder of any Registered Security so agree or if expressly provided pursuant to Section 2.03, payments of interest on, and any portion of the Principal of, such Holder's Registered Security (other than interest payable at maturity or on any redemption or repayment date or the final payment of Principal on such Security) shall be made by the Paying Agent, upon receipt from the Company of immediately available funds by 11:00 a.m., New York City time (or such other time as may be agreed to between the Company and the Paying Agent), directly to the Holder of such Security (by Federal funds wire transfer or otherwise) if the Holder has delivered written instructions to the Trustee 15 days prior to such payment date requesting that such payment will be so made and designating the bank account to which such payments shall be so made and in the case of payments of Principal surrenders the same to the Trustee in exchange for a Security or Securities aggregating the same principal amount as the unredeemed principal amount of the Securities surrendered. The Trustee shall be entitled to rely on the last instruction delivered by the Holder pursuant to this Section 4.01 unless a new instruction is delivered 15 days prior to a payment date. The Company will indemnify and hold each of the Trustee and any Paying Agent harmless against any loss, liability or expense (including attorneys' fees) resulting from any act or omission to act on the part of the Company or any such Holder in connection with any such agreement or from making any payment in accordance with any such agreement. 27 The Company shall pay interest on overdue Principal, and interest on overdue installments of interest, to the extent lawful, at the rate per annum specified in the Securities. Section 4.02. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company hereby initially designates the Corporate Trust Office of the Trustee, located in the Borough of Manhattan, The City of New York, as such office or agency of the Company. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 10.02. The Company will maintain one or more agencies in a city or cities located outside the United States (including any city in which such an agency is required to be maintained under the rules of any stock exchange on which the Securities of any series are listed) where the Unregistered Securities, if any, of each series and coupons, if any, appertaining thereto may be presented for payment. No payment on any Unregistered Security or coupon will be made upon presentation of such Unregistered Security or coupon at an agency of the Company within the United States nor will any payment be made by transfer to an account in, or by mail to an address in, the United States unless, pursuant to applicable United States laws and regulations then in effect, such payment can be made without adverse tax consequences to the Company. Notwithstanding the foregoing, if full payment in United States Dollars ("Dollars") at each agency maintained by the Company outside the United States for payment on such Unregistered Securities or coupons appertaining thereto is illegal or effectively precluded by exchange controls or other similar restrictions, payments in Dollars of Unregistered Securities of any series and coupons appertaining thereto which are payable in Dollars may be made at an agency of the Company maintained in the Borough of Manhattan, The City of New York. The Company may also from time to time designate one or more other offices or agencies where the Securities of any series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. 28 Section 4.03. Certificate to Trustee. The Company will furnish to the Trustee annually, on or before a date not more than ninety days after the end of its fiscal year (which, on the date hereof, is a calendar year), a brief certificate (which need not contain the statements required by Section 10.04) from its principal executive, financial or accounting officer as to his or her knowledge of the compliance of the Company with all conditions and covenants under this Indenture (such compliance to be determined without regard to any period of grace or requirement of notice provided under this Indenture) which certificate shall comply with the requirements of the Trust Indenture Act. Section 4.04. Reports by the Company. The Company covenants to file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of the covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE 5 Successor Corporation Section 5.01. When Company May Merge, Etc. The Company shall not consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person (other than a consolidation with or merger with or into or a sale, conveyance, transfer, lease or other disposition to a Wholly-Owned Restricted Subsidiary with a positive net worth; provided that, in connection with any such merger of the Company with a Wholly-Owned Restricted Subsidiary, no consideration (other than common stock) in the surviving person or the Company) shall be issued or distributed to the stockholders of the Company) or permit any Person to merge with or into the Company (subject to such exceptions as may be established pursuant to Section 2.03 with respect to the Securities of all series then Outstanding) unless: (i) either (x) the Company shall be the continuing Person or (y) the Person (if other than the Company) formed by such consolidation or 29 into which the Company is merged or that acquired or leased such property and assets of the Company shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of the obligations of the Company on all of the Securities and under this Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) the Company delivers to the Trustee an Officers' Certificate and Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this Section 5.01 and that all conditions precedent provided for herein relating to such transaction have been complied with; and (iv) such other conditions as may be established pursuant to Section 2.03 with respect to the Securities of any series then Outstanding. provided, however, that the foregoing limitations shall not apply if, in the good faith determination of the board of directors of the Company, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company; and provided further that any such transaction shall not have as one of its purposes the evasion of the foregoing limitations. Section 5.02. Successor Substituted. Upon any consolidation or merger, or any sale, conveyance, transfer, lease or other disposition of all or substantially all of the property and assets of the Company in accordance with Section 5.01 of this Indenture, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, conveyance, transfer, lease or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein. 30 ARTICLE 6 Default and Remedies Section 6.01. Events of Default. An "Event of Default" shall occur with respect to the Securities of any series if: (a) the Company defaults in the payment of all or any part of the Principal of (or premium if any, on) any Security of such series when the same becomes due and payable at maturity, upon acceleration, redemption or mandatory repurchase, including as a sinking fund installment, or otherwise; (b) the Company defaults in the payment of any interest on any Security of such series when the same becomes due and payable, and such default continues for a period of 30 days; (c) the Company defaults in the performance of or breaches any other covenant or agreement of the Company in this Indenture with respect to any Security of such series or in the Securities of such series and such default or breach continues for a period of 30 consecutive days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the Holders of 25% or more in aggregate principal amount of the Securities of such series; (d) there occurs with respect to any issue or issues of indebtedness of the Company or any of its Subsidiaries (other than any Security of such series) having an outstanding principal amount of $50,000,000 or more in the aggregate for all such issues of all such persons, whether such indebtedness exists at the date of this Indenture or shall hereafter be created (A) an event of default, as defined in any such indebtedness, that has caused the holder thereof to declare such indebtedness to be due and payable prior to its stated maturity and/or (B) the failure to make a principal payment at final (but not any interim) fixed maturity; (e) any court, administrative panel, commission or similar entity shall render any final judgment or order (not covered by insurance) for the payment of money in excess of $50,000,000 in the aggregate for all such final judgments or orders (treating any deductibles, self-insurance, or retention as not so covered) against the Company or any of its Subsidiaries and such judgment or order shall not be paid or discharged, and there shall be any period of 60 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgements or 31 orders outstanding and not paid or discharged against all such Persons to exceed $50,000,000 during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (f) a court having jurisdiction enters a decree or order for (A) relief in respect of the Company or any of its Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency, or other similar law in effect as of the date of this Indenture or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar official of the Company or any of its Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Subsidiaries or (C) the winding up or liquidation of the affairs of the Company or any of its Subsidiaries and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (g) the Company or any of its Subsidiaries (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Subsidiaries or (C) effects any general assignment for the benefit of creditors; or (h) any other Event of Default established pursuant to Section 2.03 with respect to the Securities of such series occurs. Section 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in clause (f) or (g) of Section 6.01 with respect to the Company) occurs with respect to the Securities of any series then outstanding and is continuing, then, and in each and every such case, except for any series of Securities the Principal of which shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Securities of any such affected series then outstanding hereunder (each such series treated as a separate class) by notice in writing to the Company (and to the Trustee if given by Securityholders), may, and the Trustee at the request of such Holders shall, declare the entire principal amount of all Securities of such affected series, and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. 32 (b) If an Event of Default described in clauses (f) or (g) of Section 6.01 with respect to the Company occurs and is continuing, then the principal amount of all the Securities then outstanding and interest accrued thereon, if any, shall be and become immediately due and payable, without any notice or other action by any Holder or the Trustee, to the full extent permitted by applicable law. The foregoing provisions, however, are subject to the condition that if, at any time after the principal amount of the Securities of any series (or of all the Securities, as the case may be) shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Securities of each such series (or of all the Securities, as the case may be) and the Principal of any and all Securities of each such series (or of all the Securities, as the case may be) which shall have become due otherwise than by acceleration (with interest upon such Principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the same rate as the rate of interest specified in the Securities of each such series to the date of such payment or deposit) and such amount as shall be sufficient to cover all amounts owing the Trustee under Section 7.07, and if any and all Events of Default under the Indenture, other than the non-payment of the Principal of Securities which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein, then and in every such case the Holders of a majority in aggregate principal amount of all the then outstanding Securities of all such series that have been accelerated (each such series voting as a separate class), by written notice to the Company and to the Trustee, may waive all defaults with respect to such series (or with respect to all the Securities, as the case may be) and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. Section 6.03. Other Remedies. If a payment default or an Event of Default with respect to the Securities of any series occurs and is continuing, the Trustee may pursue, in its own name or as trustee of an express trust, any available remedy by proceeding at law or in equity to collect the payment of Principal of and interest on the Securities of such series or to enforce the performance of any provision of the Securities of such series or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. Section 6.04. Waiver of past Defaults. Subject to Sections 6.02, 6.07 and 9.02, the Holders of at least a majority in principal amount of the outstanding 33 Securities of any series affected (each series voting as a separate class), by notice to the Trustee, may waive an existing Default or Event of Default with respect to the Securities of such series and its consequences, except a Default in the payment of Principal of or interest on any Security as specified in clauses (a) or (b) of Section 6.01 or in respect of a covenant or provision of this Indenture which cannot be modified or amended without the consent of the Holder of each outstanding Security affected. This Section 6.04 shall be in lieu of Trust Indenture Act Section 316(a)(1)(B), and such Section 316(a)(1)(B) is hereby expressly excluded from this Indenture and the Securities, as permitted by the Trust Indenture Act. Upon any such waiver, such Default shall cease to exist, and any Event of Default with respect to the Securities of such series arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. Section 6.05. Control by Majority. Subject to Sections 7.01 and 7.02(v), the Holders of at least a majority in aggregate principal amount of the outstanding Securities of each series affected (each series voting as a separate class) may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series by this Indenture; provided, that the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that may involve the Trustee in personal liability or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of Securities of such series not joining in the giving of such direction or to the Holders of the Securities of any other series; and provided further, that the Trustee may take any other action it deems proper that is not inconsistent with any directions received from Holders of Securities pursuant to this Section 6.05. This Section 6.05 shall be in lieu of Trust Indenture Act Section 316(a)(1)(A) and such Section 316(a)(1)(A) is hereby expressly excluded from this Indenture and the Securities, as permitted by the Trust Indenture Act. Section 6.06. Limitation on Suits. No Holder of any Security of any series may institute any proceeding, judicial or otherwise, with respect to this Indenture or the Securities of such series, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (i) such Holder has previously given to the Trustee written notice of a continuing Event of Default with respect to the Securities of such series; (ii) the Holders of at least 25% in aggregate principal amount of outstanding Securities of such series shall have made written request to the 34 Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (iii) such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to the Trustee against any costs, liabilities or expenses to be incurred in compliance with such request; (iv) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (v) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Securities of such series have not given the Trustee a direction that is inconsistent with such written request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. Section 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of Principal of or interest, if any, on such Holder's Security on or after the respective due dates expressed on such Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default with respect to the Securities of any series in payment of Principal or interest specified in clause (a) or (b) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of Principal of, and accrued interest remaining unpaid on, together with interest on overdue Principal of, and, to the extent that payment of such interest is lawful, interest on overdue installments of interest on, the Securities of such series, in each case at the rate specified in such Securities, and such further amount as shall be sufficient to cover all amounts owing the Trustee under Section 7.07. Section 6.09. Trustee May File Proofs of Claim The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for amounts due the Trustee under Section 7.07) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor on the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any moneys, securities or other property payable or deliverable 35 upon conversion or exchange of the Securities or upon any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it under Section 7.07. Nothing herein contained shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official. Section 6.10. Application of Proceeds. Any moneys collected by the Trustee pursuant to this Article in respect of the Securities of any series shall be applied in the following order at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of Principal or interest, upon presentation of the several Securities and coupons appertaining to such Securities in respect of which moneys have been collected and noting thereon the payment, or issuing Securities of such series and tenor in reduced principal amounts in exchange for the presented Securities of such series and tenor if only partially paid, or upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 7.07; SECOND: In case the Principal of the Securities of such series in respect of which moneys have been collected shall not have become and be then due and payable, to the payment of interest on the Securities of such series in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the same rate as the rate of interest specified in such Securities, such payments to be made ratably to the persons entitled thereto, without discrimination or preference; THIRD: In case the Principal of the Securities of such series in respect of which moneys have been collected shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon all the Securities of such series for Principal and interest, with interest upon the overdue Principal, and (to the extent that such interest has been collected by the 36 Trustee) upon overdue installments of interest at the same rate as the rate of interest specified in the Securities of such series; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities of such series, then to the payment of such Principal and interest, without preference or priority of Principal over interest, or of interest over Principal, or of any installment of interest over any other installment of interest, or of any Security of such series over any other Security of such series, ratably to the aggregate of such Principal and accrued and unpaid interest; and FOURTH: To the payment of the remainder, if any, to the Company or any other person lawfully entitled thereto. Section 6.11. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then, and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored to their former positions hereunder and thereafter all rights and remedies of the Company, Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 6.12. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, in either case in respect to the Securities of any series, a court may require any party litigant in such suit (other than the Trustee) to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant (other than the Trustee) in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.12 does not apply to a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the outstanding Securities of such series. Section 6.13. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Securities in Section 2.08, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not 37 prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 6.14. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article 6 or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. ARTICLE 7 Trustee Section 7.01. General. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act and as set forth herein. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, unless it receives indemnity satisfactory to it against any loss, liability or expense. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article 7. Section 7.02. Certain Rights of Trustee. Subject to Trust Indenture Act Sections 315(a) through (d): (i) the Trustee may rely and shall be protected in acting or refraining from acting upon any Officers' Certificate, Opinion of Counsel (or both), resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper person or persons. The Trustee need not investigate any fact or matter stated in the document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (ii) before the Trustee acts or refrains from acting, it may require an Officers' Certificate and/or an Opinion of Counsel, which shall conform to Section 10.04. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. 38 Whenever in the administration of the trusts of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Indenture upon the faith thereof; (iii) the Trustee may act through its attorneys and agents not regularly in its employ and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care; (iv) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any Board Resolution may be evidenced to the Trustee by a copy thereof certified by the secretary or an assistant secretary of the Company; (v) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request, order or direction; (vi) the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the direction of the Holders in accordance with Section 6.05 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; (vii) the Trustee may consult with counsel of its selection and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in reliance thereon; and 39 (viii) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, Officers' Certificate, Opinion of Counsel, Board Resolution, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture, note, coupon, security, or other paper or document unless requested in writing so to do by the Holders of not less than a majority in aggregate principal amount of the Securities of all series affected then outstanding; provided that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding. Section 7.03. Individual Rights of Trustee. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company or its affiliates with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Trust Indenture Act Sections 310(b) and 311. For purposes of Trust Indenture Act Section 311(b)(4) and (6), the following terms shall mean: (a) "cash transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand; and (b) "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation. Section 7.04. Trustee's Disclaimer. The recitals contained herein and in the Securities (except the Trustee's certificate of authentication) shall be taken as statements of the Company and not of the Trustee and the Trustee assumes no 40 responsibility for the correctness of the same. Neither the Trustee nor any of its agents (i) makes any representation as to the validity or adequacy of this Indenture or the Securities and (ii) shall be accountable for the Company's use or application of the proceeds from the Securities. Section 7.05. Notice of Default. If any Default with respect to the Securities of any series occurs and is continuing and if such Default is known to the actual knowledge of a Responsible Officer with the corporate trust department of the Trustee, the Trustee shall give to each Holder of Securities of such series notice of such Default within 90 days after it occurs (i) if any Unregistered Securities of such series are then outstanding, to the Holders thereof, by publication at least once in an Authorized Newspaper and (ii) to all Holders of Securities of such series in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, unless such Default shall have been cured or waived before the mailing or publication of such notice; provided, however, that, except in the case of a Default in the payment of the Principal of or interest on any Security, the Trustee shall be protected in withholding such notice if the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. Section 7.06. Reports by Trustee to Holders. Within 120 days after the close of the fiscal year ending December 31, 1997, and within 120 days after the close of each fiscal year thereafter, the Trustee shall mail to each Holder as and to the extent provided in Trust Indenture Act Section 313(c) a brief report dated as of the close of such fiscal year, if required by Trust Indenture Act Section 313(a). Section 7.07. Compensation and Indemnity. The Company shall pay to the Trustee such compensation as shall be agreed upon in writing from time to time for its services. The compensation of the Trustee shall not be limited by any law on compensation of a Trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by it (including the reasonable compensation and expenses of its agents, counsel and other persons not regularly in its employ) except to the extent any such expense, disbursement or advance may arise from its negligence or bad faith. The Company shall indemnify the Trustee for, and hold it harmless against, any and all loss, damage, claim or liability or expense including taxes (other than taxes based on the income of the Trustee) incurred by it without negligence or bad faith on its part arising out of or in connection with the acceptance or administration of this Indenture and the Securities or the issuance of the Securities or a series thereof or the trusts hereunder and the performance of its duties under this Indenture and the Securities, including the costs and expenses of defending 41 itself against or investigating any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties under this Indenture and the Securities. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay Principal of, and interest on particular Securities. The obligations of the Company under this Section to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or the rejection or termination of this Indenture under bankruptcy law. Such additional indebtedness shall be a senior claim to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities or coupons, and the Securities are hereby subordinated to such senior claim. If the Trustee renders services and incurs expenses following an Event of Default under Section 6.01(f) or Section 6.01(g) hereof, the parties hereto and the Holders by their acceptance of the Securities hereby agree that such expenses are intended to constitute expenses of administration under any bankruptcy law. Section 7.08. Replacement of Trustee. A resignation or removal of the Trustee as Trustee with respect to the Securities of any series and appointment of a successor Trustee as Trustee with respect to the Securities of any series shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign as Trustee with respect to the Securities of any series at any time by so notifying the Company in writing. The Holders of a majority in principal amount of the outstanding Securities of any series may remove the Trustee as Trustee with respect to the Securities of such series by so notifying the Trustee and the Company in writing and may appoint a successor Trustee with respect thereto with the consent of the Company. The Company may remove the Trustee as Trustee with respect to the Securities of any series if: (i) the Trustee is no longer eligible under Section 7.11 of this Indenture; (ii) the Trustee is adjudged a bankrupt or insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee becomes incapable of acting. If the Trustee resigns or is removed as Trustee with respect to the Securities of any series, or if a vacancy exists in the office of Trustee with respect 42 to the Securities of any series for any reason, the Company shall promptly appoint a successor Trustee with respect thereto. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the outstanding Securities of such series may appoint a successor Trustee in respect of such Securities to replace the successor Trustee appointed by the Company. If the successor Trustee with respect to the Securities of any series does not deliver its written acceptance required by the next succeeding paragraph of this Section 7.08 within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in principal amount of the outstanding Securities of such series may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect thereto. A successor Trustee with respect to the Securities of any series shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after the delivery of such written acceptance, subject to the lien provided for in Section 7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee in respect of the Securities of such series to the successor Trustee, (ii) the resignation or removal of the retiring Trustee in respect of the Securities of such series shall become effective and (iii) the successor Trustee shall have all the rights, powers and duties of the Trustee in respect of the Securities of such series under this Indenture. A successor Trustee shall mail notice of its succession to each Holder of Securities of such series. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in the preceding paragraph. The Company shall give notice of any resignation and any removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee in respect of the Securities of such series to all Holders of Securities of such series. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Notwithstanding replacement of the Trustee with respect to the Securities of any series pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee with the same effect as if the 43 successor Trustee had been named as the Trustee herein; provided that such successor Trustee shall be otherwise qualified and eligible under this Article 7. Section 7.10. Eligibility. This Indenture shall always have a Trustee who satisfies the requirements of Trust Indenture Act Section 310(a). The Trustee shall have a combined capital and surplus of at least $10,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with Trust Indenture Act Section 310(b). If at any time the Trustee with respect to the Securities of any series shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately as Trustee with respect to the Securities of such series in the manner and with the effect specified in this Article. Section 7.11. Money Held in Trust. The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article 8 of this Indenture. ARTICLE 8 Discharge of Indenture Section 8.01. Defeasance Within One Year of Payment. Except as otherwise provided in this Section 8.01, the Company may terminate its obligations under the Securities of any series and this Indenture with respect to Securities of such series if: (i) all Securities of such series previously authenticated and delivered (other than destroyed, lost or wrongfully taken Securities of such series that have been replaced or Securities of such series that are paid pursuant to Section 4.01 or Securities of such series for whose payment money or securities have theretofore been held in trust and thereafter repaid to the Company, as provided in Section 8.05) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder; or (ii) (A) the Securities of such series mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption, (B) the Company irrevocably deposits in trust with the Trustee, as trust funds solely for the benefit of the Holders of such Securities for that purpose, money or U.S. Government Obligations or a combination thereof sufficient 44 (unless such funds consist solely of money, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee), without consideration of any reinvestment, to pay Principal of and interest on the Securities of such series to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder, and (C) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture with respect to the Securities of such series have been complied with. With respect to the foregoing clause (i), only the Company's obligations under Sections 7.07 and 8.05 in respect of the Securities of such series shall survive. With respect to the foregoing clause (ii), only the Company's obligations in Sections 2.02 through 2.12, 4.02, 7.07, 7.08 and 8.05 in respect of the Securities of such series shall survive until such Securities of such series are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07 and 8.05 in respect of the Securities of such series shall survive. After any such irrevocable deposit, the Trustee shall acknowledge in writing the discharge of the Company's obligations under the Securities of such series and this Indenture with respect to the Securities of such series except for those surviving obligations specified above. Section 8.02. Defeasance. Except as provided below, the Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Securities of any series and the provisions of this Indenture will no longer be in effect with respect to the Securities of such series (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same); provided that the following conditions shall have been satisfied: (i) the Company has irrevocably deposited in trust with the Trustee as trust funds solely for the benefit of the Holders of the Securities of such series, for payment of the Principal of and interest on the Securities of such series, money or U.S. Government Obligations or a combination thereof sufficient (unless such funds consist solely of money, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee) without consideration of any reinvestment and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, to pay and discharge the Principal of and accrued interest on the outstanding Securities of such series to maturity or earlier redemption (irrevocably provided for under arrangements satisfactory to the Trustee), as the case may be; 45 (ii) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound; (iii) no Default or Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit; (iv) the Company shall have delivered to the Trustee (1) either (x) a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of the Securities of such series will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 8.02 and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred or (y) an Opinion of Counsel to the same effect as the ruling described in clause (x) above and based upon a change in law and (2) an Opinion of Counsel to the effect that the Holders of the Securities of such series have a valid security interest in the trust funds subject to no prior liens under the UCC; and (v) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.02 of the Securities of such series have been complied with. The Company's obligations in Sections 2.02 through 2.12, 4.02, 7.07, 7.08 and 8.05 with respect to the Securities of such series shall survive until such Securities are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07 and 8.05 shall survive. Section 8.03. Covenant Defeasance. The Company may omit to comply with any term, provision or condition set forth in Section 4.03 (or any other specific covenant relating to the Securities of any series provided for in a Board Resolution or supplemental indenture pursuant to Section 2.03 which may by its terms be defeased pursuant to this Section 8.03), and such omission shall be deemed not to be an Event of Default under clause (c) of Section 6.01, with respect to the outstanding Securities of such series if: (i) the Company has irrevocably deposited in trust with the Trustee as trust funds solely for the benefit of the Holders of the Securities 46 of such series, for payment of the Principal of and interest, if any, on the Securities of such series, money or U.S. Government Obligations or a combination thereof in an amount sufficient (unless such funds consist solely of money, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee) without consideration of any reinvestment and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, to pay and discharge the Principal of and interest on the outstanding Securities of such series to maturity or earlier redemption (irrevocably provided for under arrangements satisfactory to the Trustee), as the case may be; (ii) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound; (iii) no Default or Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit; (iv) the Company has delivered to the Trustee an Opinion of Counsel to the effect that (A) the Holders of the Securities of such series have a valid security interest in the trust funds subject to no prior liens under the UCC and (B) such Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and covenant defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; and (v) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the covenant defeasance contemplated by this Section 8.03 of the Securities of such series have been complied with. Section 8.04. Application of Trust Money. Subject to Section 8.05, the Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be, in respect of the Securities of any series and shall apply the deposited money and the proceeds from deposited U.S. Government Obligations in accordance with the Securities of such series and this Indenture to the payment of Principal of and interest on the Securities of such series; but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and 47 indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 8.01, 8.02 or 8.03, as the case may be, or the principal and interest received in respect thereof, other than any such tax, fee or other charge that by law is for the account of the Holders. Section 8.05. Repayment to Company. Subject to Sections 7.07, 8.01, 8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the Company upon request set forth in an Officers' Certificate any money held by them at any time and not required to make payments hereunder and thereupon shall be relieved from all liability with respect to such money. Subject to applicable escheat or abandoned property laws, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them and required to make payments hereunder under this Indenture that remains unclaimed for two years; provided that the Trustee or such Paying Agent before being required to make any payment may cause to be published at the expense of the Company once in an Authorized Newspaper or mail to each Holder entitled to such money at such Holder's address (as set forth in the Security Register) notice that such money remains unclaimed and that after a date specified therein (which shall be at least 30 days from the date of such publication or mailing) any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. ARTICLE 9 Amendments, Supplements and Waivers Section 9.01. Without Consent of Holders. The Company and the Trustee may amend or supplement this Indenture or the Securities of any series without notice to or the consent of any Holder: (1) to cure any ambiguity, defect or inconsistency in this Indenture; provided that such amendments or supplements shall not materially and adversely affect the interests of the Holders; (2) to comply with Article 5; 48 (3) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the Trust Indenture Act; (4) to evidence and provide for the acceptance of appointment hereunder with respect to the Securities of any or all series by a successor Trustee; (5) to establish the form or forms or terms of Securities of any series or of the coupons appertaining to such Securities as permitted by Section 2.03; (6) to provide for uncertificated or Unregistered Securities and to make all appropriate changes for such purpose; (7) to make any change that does not materially and adversely affect the rights of any Holder; or (8) as provided by or pursuant to a Board Resolution or indenture supplemental hereto establishing the terms of one or more series of Securities. Section 9.02. With Consent of Holders. Subject to Sections 6.04 and 6.07, without prior notice to any Holders, the Company and the Trustee may amend this Indenture and the Securities of any series with the written consent of the Holders of a majority in principal amount of the outstanding Securities of all series affected by such amendment (each such series voting as a separate class), and the Holders of a majority in principal amount of the outstanding Securities of all series affected thereby (each such series voting as a separate class) by written notice to the Trustee may waive future compliance by the Company with any provision of this Indenture or the Securities of such series. Notwithstanding the provisions of this Section 9.02, without the consent of each Holder affected thereby, an amendment or waiver, including a waiver pursuant to Section 6.04, may not: (i) change the stated maturity of the Principal of, or any sinking fund obligation or any installment of interest on, such Holder's Security, (ii) reduce the Principal thereof or the rate of interest thereon, or any premium payable with respect thereto, 49 (iii) change any place of payment where, or the currency in which, any Security or any premium or the interest thereon is payable, (iv) change the provisions for calculating the optional redemption price, including the definitions relating thereto; (v) make any change to Section 6.04 or 6.07 (except to include other provisions subject to Section 6.04); (vi) reduce the percentage in principal amount of outstanding Securities of the relevant series the consent of whose Holders is required for any such supplemental indenture, for any waiver of compliance with any provisions of this Indenture or any Defaults and their consequences provided for in this Indenture; (vii) waive a Default in the payment of Principal of or interest on any Security of such Holder (except pursuant to a rescission of acceleration pursuant to the second paragraph of Section 6.02(b)); (viii) adversely affect the rights of such Holder under any mandatory redemption or repurchase provision or any right of redemption or repurchase at the option of such Holder; (ix) modify any of the provisions of this Section 9.02, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each outstanding Security affected thereby; or (x) change or waive any provision that, pursuant to a Board Resolution or indenture supplemental hereto establishing the terms of one or more series of Securities, is prohibited to be so changed or waived. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of Holders of Securities of such series with respect to such covenant or provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series or of the coupons appertaining to such Securities. It shall not be necessary for the consent of any Holder under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. 50 After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company or, at the Company's request, the Trustee shall give to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. The Company or, at the Company's request, the Trustee will mail supplemental indentures to Holders upon request. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. Section 9.03. Effect of Consent. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the Security of the consenting Holder, even if notation of the consent is not made on any Security. An amendment, supplement or waiver shall become effective with respect to any Securities affected thereby on receipt by the Trustee of written consents from the requisite Holders of outstanding Securities affected thereby. The Company may, but shall not be obligated to, fix a record date (which may be not less than 10 nor more than 60 days prior to the solicitation of consents) for the purpose of determining the Holders of the Securities of any series affected entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then, notwithstanding the immediately preceding paragraph, those Persons who were such Holders at such record date (or their duly designated proxies) and only those Persons shall be entitled to consent to such amendment, supplement or waiver, whether or not such Persons continue to be such Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective with respect to the Securities of any series affected thereby, it shall bind every Holder of such Securities unless it is of the type described in any of clauses (i) through (x) of Section 9.02. In case of an amendment or waiver of the type described in clauses (i) through (x) of Section 9.02, the amendment or waiver shall bind each such Holder who has consented to it and every subsequent Holder of a Security that evidences the same indebtedness as the Security of the consenting Holder. Neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Securities for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid or agreed to be paid to all Holders of the Securities that consent, waive or agree to amend in the time frame 51 set forth in the solicitation documents relating to such consent, waiver or agreement. Section 9.04. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of any Security, the Trustee may require the Holder thereof to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder and the Trustee may place an appropriate notation on any Security of such series thereafter authenticated. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security of the same series and tenor that reflects the changed terms. Section 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article 9 is authorized or permitted by this Indenture, stating that all requisite consents have been obtained or that no consents are required and stating that such supplemental indenture constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to customary exceptions. Subject to the preceding sentence, the Trustee shall sign such amendment, supplement or waiver if the same does not adversely affect the rights of the Trustee. The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 9.06. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article 9 shall conform to the requirements of the Trust Indenture Act as then in effect. ARTICLE 10 Miscellaneous Section 10.01. Trust Indenture Act of 1939. This Indenture shall incorporate and be governed by the provisions of the Trust Indenture Act that are required to be part of and to govern indentures qualified under the Trust Indenture Act. Section 10.02. Notices. Any notice or communication shall be sufficiently given if written and (a) if delivered in person, when received or (b) if 52 mailed by first class mail, 5 days after mailing, or (c) as between the Company and the Trustee if sent by facsimile transmission, when transmission is confirmed, in each case addressed as follows: if to the Company: 1500 Market Street Philadelphia, Pennsylvania 19102-2148 Telecopy: (215) 981-7744 Attention: Treasurer if to the Trustee: 77 Water Street 4th Floor New York, New York 10005 Telecopy: (201) 701-7684 Attention: Corporate Trust Department The Company or the Trustee by written notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication shall be sufficiently given to Holders of any Unregistered Securities by publication at least once in an Authorized Newspaper, and by mailing to the Holders thereof who have filed their names and addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture Act at such addresses as were so furnished to the Trustee (and in the case of any notice given by the Company, the Trustee shall make such information available to the Company for such purpose) and to Holders of Registered Securities by mailing to such Holders at their addresses as they shall appear on the Security Register. Notice mailed shall be sufficiently given if so mailed within the time prescribed. Copies of any such communication or notice to a Holder shall also be mailed to the Trustee and each Agent at the same time. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. Except as otherwise provided in this Indenture, if a notice or communication is mailed in the manner provided in this Section 10.02, it is duly given, whether or not the addressee receives it. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of 53 notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case it shall be impracticable to give notice as herein contemplated, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Section 10.03. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (i) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 10.04. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that each person signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; (iii) a statement that, in the opinion of each such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that, with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 10.05. Evidence of Ownership. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the Holder of any 54 Unregistered Security and the Holder of any coupon as the absolute owner of such Unregistered Security or coupon (whether or not such Unregistered Security or coupon shall be overdue) for the purpose of receiving payment thereof or on account thereof and for all other purposes, and neither the Company, the Trustee, nor any agent of the Company or the Trustee shall be affected by any notice to the contrary. The fact of the holding by any Holder of an Unregistered Security, and the identifying number of such Security and the date of his holding the same, may be proved by the production of such Security or by a certificate executed by any trust company, bank, banker or recognized securities dealer wherever situated satisfactory to the Trustee, if such certificate shall be deemed by the Trustee to be satisfactory. Each such certificate shall be dated and shall state that on the date thereof a Security bearing a specified identifying number was deposited with or exhibited to such trust company, bank, banker or recognized securities dealer by the person named in such certificate. Any such certificate may be issued in respect of one or more Unregistered Securities specified therein. The holding by the person named in any such certificate of any Unregistered Securities specified therein shall be presumed to continue for a period of one year from the date of such certificate unless at the time of any determination of such holding (1) another certificate bearing a later date issued in respect of the same Securities shall be produced or (2) the Security specified in such certificate shall be produced by some other Person, or (3) the Security specified in such certificate shall have ceased to be outstanding. Subject to Article 7, the fact and date of the execution of any such instrument and the amount and numbers of Securities held by the Person so executing such instrument may also be proven in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in any other manner which the Trustee may deem sufficient. The Company, the Trustee and any agent of the Company or the Trustee may deem and treat the person in whose name any Registered Security shall be registered upon the Security Register for such series as the absolute owner of such Registered Security (whether or not such Registered Security shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the Principal of and, subject to the provisions of this Indenture, interest on such Registered Security and for all other purposes; and neither the Company nor the Trustee nor any agent of the Company or the Trustee shall be affected by any notice to the contrary. Section 10.06. Rules by Trustee, Paying Agent or Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. Section 10.07. Payment Date Other Than a Business Day. If any date for payment of Principal or interest on any Security shall not be a Business Day at 55 any place of payment, then payment of Principal of or interest on such Security, as the case may be, need not be made on such date, but may be made on the next succeeding Business Day at any place of payment with the same force and effect as if made on such date and no interest shall accrue in respect of such payment for the period from and after such date. Section 10.08. Governing Law. The laws of the State of New York (without regard to conflicts of laws principles thereof) shall govern this Indenture and the Securities. Section 10.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture or loan or debt agreement of the Company or any Subsidiary of the Company. Any such indenture or agreement may not be used to interpret this Indenture. No Board Resolution or supplemental indenture with respect of the Securities of any series may be used to interpret any Board Resolution or supplemental indenture with respect to the Securities of any other series. Section 10.10. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. Section 10.11. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 10.12. Separability. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 10.13. Table of Contents, Headings, Etc. The Table of Contents and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof. Section 10.14. Incorporators, Stockholders, Officers and Directors of Company Exempt from Individual Liability. No recourse under or upon any obligation, covenant or agreement contained in this Indenture or any indenture supplemental hereto, or in any Security or any coupons appertaining thereto, or because of any indebtedness evidenced thereby, shall be had against any incorporator, as such, or against any past, present or future stockholder, officer, director or employee, as such, of the Company or of any successor, either directly 56 or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of the Securities and the coupons appertaining thereto by the holders thereof and as part of the consideration for the issue of the Securities and the coupons appertaining thereto. Section 10.15. Judgment Currency. The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the Principal of or interest on the Securities of any series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the day on which final unappealable judgment is entered, unless such day is not a Business Day in The City of New York, then, to the extent permitted by applicable law, the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the Business Day in The City of New York preceding the day on which final unappealable judgment is entered and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. 57 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. COMCAST CABLE COMMUNICATIONS, INC. /s/ Stanley Wang ---------------------------------- By: Name: Stanley Wang Title: Senior Vice President BANK OF MONTREAL TRUST COMPANY /s/ Therese Gaballah ------------------------------ By: Name: Therese Gaballah Title: Vice Pesident 58 EX-4.1(B) 6 EXHIBIT 4.1(B) Exhibit 4.1(b) UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. COMCAST CABLE COMMUNICATIONS, INC. 8 1/8% Exchange Note due 2004 CUSIP No.: No. $ COMCAST CABLE COMMUNICATIONS, INC., a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to or registered assigns, the principal sum of DOLLARS, on May 1, 2004. Interest Payment Dates: May 1 and November 1 (each, an "Interest Payment Date"), commencing on November 1, 1997. Interest Record Dates: April 15 and October 15 (each, an "Interest Record Date") Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officer. COMCAST CABLE COMMUNICATIONS, INC. By:___________________________ Name: Title: Attest:___________________ Name: Title: This is one of the 8 1/8% Exchange Notes due 2004 described in the within-mentioned Indenture. Dated: BANK OF MONTREAL TRUST COMPANY, as Trustee By:____________________________ Authorized Signatory (REVERSE OF SECURITY) COMCAST CABLE COMMUNICATIONS, INC. 8 1/8% Exchange Note due 2004 1. Interest. COMCAST CABLE COMMUNICATIONS, INC., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Cash interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from May 1, 1997. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing November 1, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal from time to time on demand at the rate borne by the Securities and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Interest Record Date immediately preceding the Interest Payment Date even if the Securities are canceled on registration of transfer or registration of exchange after such Interest Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds (provided that the Paying Agent shall have received wire instructions on or prior to the relevant Interest Record Date), or interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Bank of Montreal Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar. 4. Indenture. The Company issued the Securities under an Indenture, dated as of May 1, 1997 (the "Indenture"), between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are general obligations of the Company limited in aggregate principal amount to $300,000,000. -2- 5. Optional Redemption. The Securities will be redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities, plus accrued interest thereon to the date of redemption, or (ii) as determined by a Quotation Agent (as defined below), the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined below), plus accrued interest on the Securities to the date of redemption. If a redemption date does not fall on an Interest Payment Date, then, with respect to the interest payment immediately succeeding the redemption date, only the unaccrued portion of such interest payment as of the redemption date shall be included in any calculation pursuant to clause (ii). "Adjusted Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of the principal amount) equal to the Comparable Treasury Price for such redemption date, plus 0.25%. "Comparable Treasury Issue" means the United States Treasury security selected by a Quotation Agent as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Securities. "Comparable Treasury Price" means, with respect to any redemption date, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains three or fewer such Reference Treasury Dealer Quotations, the average of all such Quotations. "Quotation Agent" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Reference Treasury Dealer" means (i) each of Goldman, Sachs & Co.; Bear, Stearns & Co. Inc.; Donaldson, Lufkin & Jenrette Securities Corporation and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer; and (iii) any other Primary Treasury Dealer selected by the Trustee after consultation with the Company. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case a percentage of its principal amount) quoted in writing to the Trustee by such Reference Dealer at 5:00 p.m. on the third Business Day preceding such redemption date. 6. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption, except the unredeemed portion of any security being redeemed in part. -3- 7. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 8. Unclaimed Funds. If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Company at its written request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 9. Legal Defeasance and Covenant Defeasance. The Company may be discharged from its obligations under the Securities and under the Indenture with respect to the Securities except for certain provisions thereof, and may be discharged from obligations to comply with certain covenants contained in the Securities and in the Indenture with respect to the Securities, in each case upon satisfaction of certain conditions specified in the Indenture. 10. Amendment; Supplement; Waiver. Subject to certain exceptions, the Securities and the provision of the Indenture relating to the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities or comply with any requirements of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act, or make any other change that does not materially and adversely affect the rights of any Holder of a Security. 11. Restrictive Covenants. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Restricted Subsidiaries to make restricted payments, to incur liens securing indebtedness, or to enter sale and leaseback transactions and of the Company to merge or sell all or substantially all of its assets. The limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 12. Defaults and Remedies. If an Event of Default (other than certain bankruptcy Events of Default with respect to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. If a bankruptcy Event of Default with respect to the Company occurs and is continuing, all the Securities shall be immediately due and payable immediately in the manner and with the effect provided in the Indenture without any notice or other action on the part of the Trustee or any Holder. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. -4- 13. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 14. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company or any of its Affiliates shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 15. Authentication. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 16. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 18. Governing Law. The laws of the State of New York shall govern the Indenture and this Security thereof without regard to principles of conflicts of laws. -5- ASSIGNMENT FORM I or we assign and transfer this Security to - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (Print or type name, address and zip code of assignee or transferee) - ------------------------------------------------------------------------------ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint ______________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated:___________________ Signed: _________________________________ Signed exactly as name appears on the other side of this Security) Signature Guarantee: _________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. COMCAST CABLE COMMUNICATIONS, INC. 8 3/8% Exchange Note due 2007 CUSIP No.: No. $ COMCAST CABLE COMMUNICATIONS, INC., a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to or registered assigns, the principal sum of DOLLARS, on May 1, 2007. Interest Payment Dates: May 1 and November 1 (each, an "Interest Payment Date"), commencing on November 1, 1997. Interest Record Dates: April 15 and October 15 (each, an "Interest Record Date") Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officer. COMCAST CABLE COMMUNICATIONS, INC. By: __________________________ Name: Title: Attest: ________________________ Name: Title: This is one of the 8 3/8% Exchange Notes due 2007 described in the within-mentioned Indenture. Dated: BANK OF MONTREAL TRUST COMPANY, as Trustee By: ____________________________ Authorized Signatory (REVERSE OF SECURITY) COMCAST CABLE COMMUNICATIONS, INC. 8 3/8% Exchange Note due 2007 1. Interest. COMCAST CABLE COMMUNICATIONS, INC., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Cash interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from May 1, 1997. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing November 1, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal from time to time on demand at the rate borne by the Securities and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Interest Record Date immediately preceding the Interest Payment Date even if the Securities are canceled on registration of transfer or registration of exchange after such Interest Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds (provided that the Paying Agent shall have received wire instructions on or prior to the relevant Interest Record Date), or interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Bank of Montreal Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar. 4. Indenture. The Company issued the Securities under an Indenture, dated as of May 1, 1997 (the "Indenture"), between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are general obligations of the Company limited in aggregate principal amount to $600,000,000. -2- 5. Optional Redemption. The Securities will be redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities, plus accrued interest thereon to the date of redemption, or (ii) as determined by a Quotation Agent (as defined below), the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined below), plus accrued interest on the Securities to the date of redemption. If a redemption date does not fall on an Interest Payment Date, then, with respect to the interest payment immediately succeeding the redemption date, only the unaccrued portion of such interest payment as of the redemption date shall be included in any calculation pursuant to clause (ii). "Adjusted Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of the principal amount) equal to the Comparable Treasury Price for such redemption date, plus 0.25%. "Comparable Treasury Issue" means the United States Treasury security selected by a Quotation Agent as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Securities. "Comparable Treasury Price" means, with respect to any redemption date, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains three or fewer such Reference Treasury Dealer Quotations, the average of all such Quotations. "Quotation Agent" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Reference Treasury Dealer" means (i) each of Goldman, Sachs & Co.; Bear, Stearns & Co. Inc.; Donaldson, Lufkin & Jenrette Securities Corporation and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer; and (iii) any other Primary Treasury Dealer selected by the Trustee after consultation with the Company. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case a percentage of its principal amount) quoted in writing to the Trustee by such Reference Dealer at 5:00 p.m. on the third Business Day preceding such redemption date. 6. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption, except the unredeemed portion of any security being redeemed in part. -3- 7. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 8. Unclaimed Funds. If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Company at its written request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 9. Legal Defeasance and Covenant Defeasance. The Company may be discharged from its obligations under the Securities and under the Indenture with respect to the Securities except for certain provisions thereof, and may be discharged from obligations to comply with certain covenants contained in the Securities and in the Indenture with respect to the Securities, in each case upon satisfaction of certain conditions specified in the Indenture. 10. Amendment; Supplement; Waiver. Subject to certain exceptions, the Securities and the provision of the Indenture relating to the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities or comply with any requirements of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act, or make any other change that does not materially and adversely affect the rights of any Holder of a Security. 11. Restrictive Covenants. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Restricted Subsidiaries to make restricted payments, to incur liens securing indebtedness, or to enter sale and leaseback transactions and of the Company to merge or sell all or substantially all of its assets. The limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 12. Defaults and Remedies. If an Event of Default (other than certain bankruptcy Events of Default with respect to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. If a bankruptcy Event of Default with respect to the Company occurs and is continuing, all the Securities shall be immediately due and payable immediately in the manner and with the effect provided in the Indenture without any notice or other action on the part of the Trustee or any Holder. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. -4- 13. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 14. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company or any of its Affiliates shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 15. Authentication. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 16. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 18. Governing Law. The laws of the State of New York shall govern the Indenture and this Security thereof without regard to principles of conflicts of laws. -5- ASSIGNMENT FORM I or we assign and transfer this Security to - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (Print or type name, address and zip code of assignee or transferee) - ------------------------------------------------------------------------------ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint ______________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated:___________________ Signed: ___________________________________ (Signed exactly as name appears on the other side of this Security) Signature Guarantee: _____________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. COMCAST CABLE COMMUNICATIONS, INC. 8 7/8% Exchange Note due 2017 CUSIP No.: No. $ COMCAST CABLE COMMUNICATIONS, INC., a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to or registered assigns, the principal sum of DOLLARS, on May 1, 2017. Interest Payment Dates: May 1 and November 1 (each, an "Interest Payment Date"), commencing on November 1, 1997. Interest Record Dates: April 15 and October 15 (each, an "Interest Record Date") Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officer. COMCAST CABLE COMMUNICATIONS, INC. By: _____________________________ Name: Title: Attest: ___________________ Name: Title: This is one of the 8 7/8% Exchange Notes due 2017 described in the within-mentioned Indenture. Dated: BANK OF MONTREAL TRUST COMPANY, as Trustee By: ______________________________ Authorized Signatory (REVERSE OF SECURITY) COMCAST CABLE COMMUNICATIONS, INC. 8 7/8% Exchange Note due 2017 1. Interest. COMCAST CABLE COMMUNICATIONS, INC., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Cash interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from May 1, 1997. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing November 1, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal from time to time on demand at the rate borne by the Securities and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Interest Record Date immediately preceding the Interest Payment Date even if the Securities are canceled on registration of transfer or registration of exchange after such Interest Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds (provided that the Paying Agent shall have received wire instructions on or prior to the relevant Interest Record Date), or interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Bank of Montreal Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar. 4. Indenture. The Company issued the Securities under an Indenture, dated as of May 1, 1997 (the "Indenture"), between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are general obligations of the Company limited in aggregate principal amount to $550,000,000. -2- 5. Optional Redemption. The Securities will be redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities, plus accrued interest thereon to the date of redemption, or (ii) as determined by a Quotation Agent (as defined below), the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined below), plus accrued interest on the Securities to the date of redemption. If a redemption date does not fall on an Interest Payment Date, then, with respect to the interest payment immediately succeeding the redemption date, only the unaccrued portion of such interest payment as of the redemption date shall be included in any calculation pursuant to clause (ii). "Adjusted Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of the principal amount) equal to the Comparable Treasury Price for such redemption date, plus 0.25%. "Comparable Treasury Issue" means the United States Treasury security selected by a Quotation Agent as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Securities. "Comparable Treasury Price" means, with respect to any redemption date, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains three or fewer such Reference Treasury Dealer Quotations, the average of all such Quotations. "Quotation Agent" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Reference Treasury Dealer" means (i) each of Goldman, Sachs & Co.; Bear, Stearns & Co. Inc.; Donaldson, Lufkin & Jenrette Securities Corporation and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer; and (iii) any other Primary Treasury Dealer selected by the Trustee after consultation with the Company. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case a percentage of its principal amount) quoted in writing to the Trustee by such Reference Dealer at 5:00 p.m. on the third Business Day preceding such redemption date. 6. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption, except the unredeemed portion of any security being redeemed in part. -3- 7. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 8. Unclaimed Funds. If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Company at its written request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 9. Legal Defeasance and Covenant Defeasance. The Company may be discharged from its obligations under the Securities and under the Indenture with respect to the Securities except for certain provisions thereof, and may be discharged from obligations to comply with certain covenants contained in the Securities and in the Indenture with respect to the Securities, in each case upon satisfaction of certain conditions specified in the Indenture. 10. Amendment; Supplement; Waiver. Subject to certain exceptions, the Securities and the provision of the Indenture relating to the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities or comply with any requirements of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act, or make any other change that does not materially and adversely affect the rights of any Holder of a Security. 11. Restrictive Covenants. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Restricted Subsidiaries to make restricted payments, to incur liens securing indebtedness, or to enter sale and leaseback transactions and of the Company to merge or sell all or substantially all of its assets. The limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 12. Defaults and Remedies. If an Event of Default (other than certain bankruptcy Events of Default with respect to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. If a bankruptcy Event of Default with respect to the Company occurs and is continuing, all the Securities shall be immediately due and payable immediately in the manner and with the effect provided in the Indenture without any notice or other action on the part of the Trustee or any Holder. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. -4- 13. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 14. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company or any of its Affiliates shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 15. Authentication. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 16. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 18. Governing Law. The laws of the State of New York shall govern the Indenture and this Security thereof without regard to principles of conflicts of laws. -5- ASSIGNMENT FORM I or we assign and transfer this Security to - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (Print or type name, address and zip code of assignee or transferee) - ------------------------------------------------------------------------------ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint ______________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated:___________________ Signed: ___________________________________ (Signed exactly as name appears on the other side of this Security) Signature Guarantee: _________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. COMCAST CABLE COMMUNICATIONS, INC. 8 1/2% Exchange Note due 2027 CUSIP No.: No. $ COMCAST CABLE COMMUNICATIONS, INC., a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to or registered assigns, the principal sum of DOLLARS, on May 1, 2027. Interest Payment Dates: May 1 and November 1 (each, an "Interest Payment Date"), commencing on November 1, 1997. Interest Record Dates: April 15 and October 15 (each, an "Interest Record Date") Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officer. COMCAST CABLE COMMUNICATIONS, INC. By: ___________________________ Name: Title: Attest: ________________ Name: Title: This is one of the 8 1/2% Exchange Notes due 2027 described in the within-mentioned Indenture. Dated: BANK OF MONTREAL TRUST COMPANY, as Trustee By: _____________________________ Authorized Signatory (REVERSE OF SECURITY) COMCAST CABLE COMMUNICATIONS, INC. 8 1/2% Exchange Note due 2027 1. Interest. COMCAST CABLE COMMUNICATIONS, INC., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Cash interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from May 1, 1997. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing November 1, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal from time to time on demand at the rate borne by the Securities and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Interest Record Date immediately preceding the Interest Payment Date even if the Securities are canceled on registration of transfer or registration of exchange after such Interest Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by wire transfer of Federal funds (provided that the Paying Agent shall have received wire instructions on or prior to the relevant Interest Record Date), or interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, Bank of Montreal Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar. 4. Indenture. The Company issued the Securities under an Indenture, dated as of May 1, 1997 (the "Indenture"), between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are general obligations of the Company limited in aggregate principal amount to $250,000,000. -2- 5. Optional Redemption. The Securities will be redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities, plus accrued interest thereon to the date of redemption, or (ii) as determined by a Quotation Agent (as defined below), the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined below), plus accrued interest on the Securities to the date of redemption. If a redemption date does not fall on an Interest Payment Date, then, with respect to the interest payment immediately succeeding the redemption date, only the unaccrued portion of such interest payment as of the redemption date shall be included in any calculation pursuant to clause (ii). "Adjusted Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of the principal amount) equal to the Comparable Treasury Price for such redemption date, plus 0.25%. "Comparable Treasury Issue" means the United States Treasury security selected by a Quotation Agent as having a maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Securities. "Comparable Treasury Price" means, with respect to any redemption date, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains three or fewer such Reference Treasury Dealer Quotations, the average of all such Quotations. "Quotation Agent" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Reference Treasury Dealer" means (i) each of Goldman, Sachs & Co.; Bear, Stearns & Co. Inc.; Donaldson, Lufkin & Jenrette Securities Corporation and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Company shall substitute therefor another Primary Treasury Dealer; and (iii) any other Primary Treasury Dealer selected by the Trustee after consultation with the Company. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case a percentage of its principal amount) quoted in writing to the Trustee by such Reference Dealer at 5:00 p.m. on the third Business Day preceding such redemption date. 6. Purchase at Option of Holders of Securities Each holder of the Notes will have the right to require the Company to repurchase all or a portion of the Securities owned by such holder (the "Put Option") on May 1, 2009 (the "Put Option Exercise Date") at a purchase price equal to 100% of the principal amount of the Securities tendered by such holder plus accrued interest thereon. On or before the Put Option Exercise Date, the Company shall deposit with a paying agent (or the Trustee) money sufficient to pay the principal of and any accrued interest on any Securities tendered for repayment. On and after the Put Option Exercise Date, interest will cease to accrue on the Securities or any portion thereof tendered for purchase, unless the Company fails to pay the purchase price. -3- If a holder elects to exercise the Put Option, such holder must provide the Company with notice of its intention to exercise the Put Option during the period from and including March 1, 2009 through and including April 1, 2009. Such notice, once given, will be irrevocable unless waived by the Company. The Company will comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act if required and will file Schedule 13E-4 or any other schedule if required thereunder in connection with any offer by the Company to purchase the Securities. 7. Denominations; Transfer; Exchange. The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption, except the unredeemed portion of any security being redeemed in part. 8. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. 9. Unclaimed Funds. If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Company at its written request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. 10. Legal Defeasance and Covenant Defeasance. The Company may be discharged from its obligations under the Securities and under the Indenture with respect to the Securities except for certain provisions thereof, and may be discharged from obligations to comply with certain covenants contained in the Securities and in the Indenture with respect to the Securities, in each case upon satisfaction of certain conditions specified in the Indenture. 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Securities and the provision of the Indenture relating to the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities or comply with any requirements of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act, or make any other change that does not materially and adversely affect the rights of any Holder of a Security. 12. Restrictive Covenants. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Restricted Subsidiaries to make restricted payments, to incur liens securing indebtedness, or to -4- enter sale and leaseback transactions and of the Company to merge or sell all or substantially all of its assets. The limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 13. Defaults and Remedies. If an Event of Default (other than certain bankruptcy Events of Default with respect to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. If a bankruptcy Event of Default with respect to the Company occurs and is continuing, all the Securities shall be immediately due and payable immediately in the manner and with the effect provided in the Indenture without any notice or other action on the part of the Trustee or any Holder. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. 14. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 15. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company or any of its Affiliates shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 16. Authentication. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 17. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. -5- 19. Governing Law. The laws of the State of New York shall govern the Indenture and this Security thereof without regard to principles of conflicts of laws. -6- ASSIGNMENT FORM I or we assign and transfer this Security to - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (Print or type name, address and zip code of assignee or transferee) - ------------------------------------------------------------------------------ (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint ______________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated:___________________ Signed: ______________________________ (Signed exactly as name appears on the other side of this Security) Signature Guarantee: _________________________________________________________ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) OPTION OF HOLDER TO ELECT REPURCHASE ON MAY 1, 2009 If you elect to have this Security purchased by the Company on May 1, 2009, check the box: / / If you elect to have only part of this Security purchased by the Company on May 1, 2009, state the amount (multiples of $1,000 only) to be purchased: $________________ Dated: ___________________ Signed: __________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee: _________________________________________________________ Participant is a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) EX-5 7 EXHIBIT 5 Exhibit 5 Davis Polk & Wardwell 450 Lexington Avenue New York, N.Y. 10017 212-450-4000 July 3, 1997 Comcast Cable Communications, Inc. 1500 Market Street Philadelphia, PA 19102-2148 Ladies and Gentlemen: We have acted as special counsel to Comcast Cable Communications, Inc. (the "Company") in connection with the Company's offer (the "Exchange Offer") to exchange its 8 1/8% Exchange Notes due 2004, 8 3/8% Exchange Notes due 2007, 8 7/8% Exchange Notes due 2017 and 8 1/2% Exchange Notes due 2027 (collectively, the "New Notes"), for a like principal amount of any or all of its outstanding 8 1/8% Notes due 2004, 8 3/8% Notes due 2007, 8 7/8% Notes due 2017 and 8 1/2% Notes due 2027 (collectively, the "Old Notes"). We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion. Upon the basis of the foregoing and assuming the due execution and delivery of the New Notes, we are of the opinion that when the New Notes are executed, authenticated and delivered in accordance with the Indenture dated May 1, 1997 among the Company and Bank of Montreal Trust Company, as trustee, and delivered in exchange for the Old Notes in accordance with the Exchange Offer, the New Notes will be valid and binding obligations of the Company enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws affecting creditors' rights generally and equitable principles. 2 We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement relating to the Exchange Offer. We also consent to the reference to us under the caption "Validity of the Notes" in the Prospectus contained in such Registration Statement. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by or furnished to any other person without our prior written consent. Very truly yours, /s/ Davis Polk & Wardwell EX-8 8 EXHIBIT 8 Exhibit 8 Davis Polk & Wardwell 450 Lexington Avenue New York, N.Y. 10017 212-450-4380 July 3, 1997 Comcast Cable Communications, Inc. 1500 Market Street Philadelphia, PA 19102-2148 Ladies and Gentlemen: Reference is made to the prospectus (the "Prospectus") contained in the registration statement on Form S-4 being furnished by Comcast Cable Communications, Inc. to the Securities and Exchange Commission on the date hereof in connection with the exchange of Old Notes for New Notes (the "Exchange"), all as described in the Prospectus. The discussion contained under the caption "Certain Federal Income Tax Consequences" in the Prospectus constitutes the opinion of Davis Polk & Wardwell, subject to the qualifications stated therein. We hereby consent to the use of our name under the caption "Certain Federal Income Tax Consequences" in the Prospectus. The issuance of such consent does not concede that we are an "Expert" for the purposes of the Securities Act of 1933. Very truly yours, /s/ Davis Polk & Wardwell EX-10.13 9 EXHIBIT 10.13 Exhibit 10.13 MANAGEMENT AGREEMENT This MANAGEMENT AGREEMENT is between COMCAST CABLE COMMUNICATIONS, INC., a Delaware corporation ("Cable") and COMCAST CORPORATION, a Pennsylvania corporation ("Comcast"). BACKGROUND WHEREAS, subsidiaries of Cable own at least a majority interest in the cable communications systems listed on Schedule A attached hereto and may in the future own at least a majority interest in certain other cable communications systems (collectively, the "Systems"); and WHEREAS, Comcast is experienced in the management and operation of cable communications systems, and Cable, on behalf and for the benefit of the Systems, has requested Comcast to render management services in connection with the management and operation of the Systems' multichannel video business and any other businesses the Systems are or may be engaged in, and Comcast is willing to do so on the terms and conditions hereinafter set forth. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Comcast will use its best efforts to supervise the management and operation of the day-to-day activities of the Systems, including the expansion or rebuilding of the Systems. Schedule A will be amended by the parties from time to time to reflect the addition or deletion of Systems as to which this Agreement will apply. The parties agree that Cable's subsidiaries listed on Schedule A as owning the Systems are intended to be third party beneficiaries and third party obligors of this Agreement with respect to the System or Systems owned; Comcast agrees that (at the request of Cable) it will enter into agreements with such subsidiaries to effect such relationships. Cable agrees that Comcast may cause one or more of its subsidiaries (other than Cable and its subsidiaries) to provide services under this Agreement, and that (at the request of Comcast), Cable will enter into agreements with such subsidiaries to effect such relationships. 2. Specifically, and without limiting the generality of the foregoing, Comcast will provide or arrange for and supervise the performance of the following functions or services: (a) establishing procedures for the maintenance, construction, expansion and rebuilding of the Systems; (b) purchasing equipment and materials and providing labor and other services for the maintenance, construction, expansion or rebuilding of the Systems; (c) interviewing, hiring, discharging and training personnel; (d) establishing office management procedures and the administration thereof; (e) preparing projections including (i) a breakdown of capital requirements, (ii) annual operating budgets and (iii) cash flow analyses; (f) preparing sales and marketing programs, including newspaper, radio and other advertising, direct selling and special events activities; (g) preparing monthly reports regarding operations and general developments in the cable communications industry; (h) providing accounting, computer, tax, internal audit, risk management, finance, treasury, investor relations, legal and regulatory services; (i) providing programming; and (j) hiring and conducting the relationships with consultants, accountants, lenders, technical advisors, attorneys, investment bankers and appraisers. 3. As compensation for such services, Comcast will be paid the following fees: (a) An annual management fee in an amount equal to six percent (6%) of gross revenues from all sources of the Systems. (b) An annual accounting services fee in the amounts indicated in Cable's books and records for fiscal years 1992 to 1996, and in an amount of up to one percent (1%) of the gross revenues from all sources of the Systems for each fiscal year after 1996. Of such fee, six percent (6%) has been and will be paid on account of related computer and information services. (c) Each such fee will be paid in monthly installments in arrears based on good faith estimates, and appropriate adjustments based on actual gross revenues will be made following completion of the Systems' financial statements for a fiscal year. 4. Comcast will be entitled to reimbursement from Cable for Comcast's actual costs in rendering services hereunder, including without limitation salaries and benefits (including without limitation health and welfare, retirement investment plan 2 (401K) and restricted stock) of Cable Division divisional, regional and area employees; rent, leasehold, office and related expenses of Cable Division divisional, regional and area offices; and insurance (including any retainages or deductibles paid). Such reimbursement will be made monthly in arrears. 5. (a) Notwithstanding the provisions of paragraph 4, and in addition to the payments required to be made pursuant to paragraph 4, Cable will pay Comcast for programming (other than pay-per-view) provided by Comcast to a System an amount which will not exceed that which the System would pay in an arm's-length transaction to the provider of the programming services if such System were a stand-alone operator of a cable television system with a subscriber base equal to that of such System. Such payment will be made monthly in arrears. (b) Comcast will remit to Cable or its subsidiaries promptly following its receipt by Comcast, any amount received by Comcast on or for the account of the Systems (including without limitation any commissions on sales of merchandise by a home shopping service to the Systems' subscribers) to which Comcast is not entitled to be paid hereunder. 6. Notwithstanding the provisions of paragraph 4, and in addition to the payments required to be made pursuant to paragraph 4, Cable will pay Comcast in respect of income taxes of Comcast or any of its other subsidiaries as Comcast directs, provided that the cumulative sum of such payments will not exceed the cumulative sum of income taxes which Cable and its subsidiaries would have paid: (a) in respect of federal and state income taxes if Cable and its subsidiaries had at all times (including at all times prior to the date hereof) filed a separate consolidated federal income tax return, with Cable as the "common parent" (within the meaning of Section 1504 of the Internal Revenue Code); and (b) taking into account all net operating loss carryforwards pursuant to Section 172 of the Internal Revenue Code that would have been available to Cable and its subsidiaries had they filed a separate return. 7. (a) The parties acknowledge that Comcast or a subsidiary has entered into the agreements listed on Schedule B attached hereto (the "Other Agreements") pursuant to which Comcast or the subsidiary provides management, programming, tax sharing and other services to the subsidiary of Cable indicated on Schedule B. The parties agree that the terms and conditions of this Agreement supercede and supplement the terms and conditions of the Other Agreements to the extent that they are not inconsistent or in conflict with, or limited, restricted or prohibited by, the terms and conditions of the Other Agreements, or to the extent that their application requires a consent of a third party under the Other Agreements or any other agreement (in which case the terms and conditions of the Other Agreements will prevail). (b) The parties acknowledge that certain subsidiaries of Cable have entered into, or may in the future enter into, agreements with lenders to the Systems which limit, restrict or prohibit such subsidiaries from providing funds to Cable for 3 Cable's use in its making payments to Comcast hereunder. The parties acknowledge that for so long as they remain in effect, the terms and conditions of such agreements will be complied with by such subsidiaries but such compliance will not relieve Cable of any of its obligations under this Agreement. (c) Any amounts which are not paid when they otherwise would have been paid as a result of the operation of this paragraph 7 will be paid (without interest thereon) as soon as the provision which prohibited payment lapses, expires or terminates. 8. Comcast may, in connection with the management and operation of the Systems, be requested to render services or furnish facilities or equipment beyond the services to be performed under this Agreement. In such case, if Comcast agrees to perform as requested, it will be entitled to be paid for such services, facilities or equipment in addition to the compensation or reimbursement to be paid pursuant to this Agreement, at rates to be agreed by Comcast and Cable. 9. Comcast will not, under any circumstances, be held liable for the results of operations or liabilities of the Systems, so long as Comcast performs its duties hereunder in good faith. Comcast will not be held to have incurred any liability to Cable, any of Cable's subsidiaries or any third party by virtue of any action taken or omitted to be taken in good faith by Comcast in discharge of its duties hereunder, and Cable agrees to indemnify Comcast and hold Comcast harmless with respect to any and all claims that may be made against Comcast in respect thereof. 10. Cable acknowledges that Comcast is engaged directly or through subsidiaries and affiliates in various other businesses. Nothing herein will be construed to prevent the continued involvement of Comcast or any of its subsidiaries or affiliates in other businesses, whether such involvement now exists or occurs in the future. 11. This Agreement will be deemed effective as of January 1, 1992 and will terminate on such date as Comcast no longer directly or indirectly owns at least a majority interest in Cable. IN WITNESS WHEREOF, the parties hereto have executed and 4 delivered this Management Agreement on April 24, 1997. COMCAST CABLE COMMUNICATIONS, INC. By: /s/ Arthur R. Block ------------------------------ Title: VICE PRESIDENT --------------------------- COMCAST CORPORATION By: /s/ Arthur R. Block ------------------------------- Title: VICE PRESIDENT ---------------------------- 5 EX-12 10 EXHIBIT 12 Exhibit 12 COMCAST CABLE COMMUNICATIONS, INC. RATIO OF EARNINGS TO FIXED CHARGES (dollars in millions)
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31, --------------------------------- ---------------------------------------------------- 1996 1996 -------------------- --------------------- PRO PRO 1997 FORMA (1) ACTUAL FORMA (1) ACTUAL 1995 1994 1993 --------- ------------- -------- ------------ ------- ------- ------ ------ Earnings (loss) before fixed charges (2): Loss before extraordinary items and cumulative effect of accounting changes........................... ($29.2) ($29.0) ($10.7) ($85.7) ($22.6) ($48.9) ($23.0) ($6.4) Income tax (benefit) expense........ (9.3) (13.0) (4.1) (32.7) (4.5) (24.9) (1.8) 23.5 Equity in net loss of affiliate..... Fixed charges....................... 65.8 65.3 65.3 260.5 260.5 273.8 176.5 181.3 -------- --------- --------- --------- ------- ------- ------- ------- $27.3 $23.3 $50.5 $142.1 $233.4 $200.0 $151.7 $198.4 -------- --------- --------- --------- ------- ------- ------- ------- -------- --------- --------- --------- ------- ------- ------- ------- Fixed charges (2): Interest expense and preferred stock dividend requirements............. $56.7 $56.7 $56.7 $228.4 $228.4 $245.6 $155.6 $162.2 Interest expense on notes payable to affiliates........................ 9.1 8.6 8.6 32.1 32.1 28.2 20.9 19.1 -------- --------- --------- --------- ------- ------- ------- ------- $65.8 $65.3 $65.3 $260.5 $260.5 $273.8 $176.5 $181.3 -------- --------- --------- --------- ------- ------- ------- ------- -------- --------- --------- --------- ------- ------- ------- ------- Ratio of earnings to fixed charges (3)............................... -- -- -- -- -- -- -- 1.1
1992 -------- Earnings (loss) before fixed charges (2): Loss before extraordinary items and cumulative effect of accounting changes........................... ($174.0) Income tax (benefit) expense........ 12.3 Equity in net loss of affiliate..... 78.0 Fixed charges....................... 172.6 --------- $88.9 --------- --------- Fixed charges (2): Interest expense and preferred stock dividend requirements............. $154.1 Interest expense on notes payable to affiliates........................ 18.5 --------- $172.6 --------- --------- Ratio of earnings to fixed charges (3)............................... --
- ------------------------ (1) Pro forma ratio of earnings to fixed charges information is presented as if the Scripps Acquisition (as defined herein) occurred on January 1, 1996. (2) For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) before extraordinary items, cumulative effect of accounting changes, income tax expense (benefit), equity in net loss of affiliate (1992 only) and fixed charges. Fixed charges consist of interest expense, interest expense on notes payable to affiliates and preferred stock dividend requirements of a subsidiary to an affiliate (1992 only). (3) For the three months ended March 31, 1997 and 1996, earnings, as defined above, were inadequate to cover fixed charges by $38.5 million and $14.8 million, respectively. On a pro forma basis, for the three months ended March 31, 1996 and for the year ended December 31, 1996, earnings, as defined above, were inadequate to cover fixed charges by $42.0 million and $118.4 million, respectively. For the years ended December 31, 1996, 1995, 1994 and 1992, earnings, as defined above, were inadequate to cover fixed charges by $27.1 million, $73.8 million, $24.8 million and $83.7 million, respectively. 2 EX-21 11 EX-21 Exhibit 21 Cablevision Investment of Detroit, Inc. (MI) California Ad Sales, Inc. (DE) Clinton Cable TV Investors, Inc. (MI) Coastal Cable TV, Inc. (CT) COM Indiana, Inc. (DE) COM Indianapolis, Inc. (DE) COM Inkster, Inc. (MI) COM Maryland, Inc. (DE) COM MH, Inc. (DE) COM Philadelphia, Inc. (DE) COM South, Inc. (CO) Comcast Business Online Communications, Inc. (DE) Comcast Cable Communications, Inc. (PA) Comcast Cable Funding, Inc. (DE) Comcast Cable Investors, Inc. (DE) Comcast Cable of Indiana, Inc. (DE) Comcast Cable of Maryland, Inc. (DE) Comcast Cable Tri-Holdings, Inc. (DE) Comcast Cablevision Corporation of Alabama (AL) Comcast Cablevision Corporation of California (CA) Comcast Cablevision Corporation of Connecticut (CT) Comcast Cablevision Corporation of Florida (FL) Comcast Cablevision Corporation of the Southeast (FL) Comcast Cablevision of Arkansas, Inc. (DE) Comcast Cablevision of Boca Raton, Inc. (DE) Comcast Cablevision of Broward County, Inc. (DE) Comcast Cablevision of Bryant, Inc. (AR) Comcast Cablevision of Burlington County, Inc. (DE) Comcast Cablevision of Carolina, Inc. (SC) Comcast Cablevision of Central New Jersey, Inc. (DE) Comcast Cablevision of Chesterfield County, Inc. (VA) Comcast Cablevision of Clinton (MI) Comcast Cablevision of Clinton, Inc. (CT) Comcast Cablevision of Clinton, Inc. (MI) Comcast Cablevision of Danbury, Inc. (DE) Comcast Cablevision of Delmarva, Inc. (DE) Comcast Cablevision of Detroit (MI) Comcast Cablevision of Detroit, Inc. (MI) Comcast Cablevision of Dothan, Inc. (AL) Comcast Cablevision of Flint, Inc. (MI) Comcast Cablevision of Fontana, Inc. (DE) Comcast Cablevision of Fort Wayne Limited Partnership (IN) Comcast Cablevision of Gadsden, Inc. (AL) Comcast Cablevision of Gloucester County, Inc. (DE) Comcast Cablevision of Grosse Pointe, Inc. (MI) Comcast Cablevision of Groton, Inc. (CT) Page 1 Comcast Cablevision of Hallandale, Inc. (FL) Comcast Cablevision of Harford County, Inc. (MD) Comcast Cablevision of Hopewell Valley, Inc. (NJ) Comcast Cablevision of Howard County, Inc. (MD) Comcast Cablevision of Huntsville, Inc. (AL) Comcast Cablevision of Indianapolis, Inc. (DE) Comcast Cablevision of Indianapolis, L.P. (DE) Comcast Cablevision of Inkster Limited Partnership (MI) Comcast Cablevision of Inland Valley, Inc. (DE) Comcast Cablevision of Jersey City, Inc. (NJ) Comcast Cablevision of Laurel, Inc. (MS) Comcast Cablevision of Lawrence, Inc. (NJ) Comcast Cablevision of Little Rock, Inc. (AR) Comcast Cablevision of Lompoc, Inc. (DE) Comcast Cablevision of Lower Merion, Inc. (PA) Comcast Cablevision of Macomb County, Inc. (MI) Comcast Cablevision of Macomb, Inc. (MI) Comcast Cablevision of Marianna, Inc. (DE) Comcast Cablevision of Maryland Limited Partnership (MD) Comcast Cablevision of Mercer County, Inc. (NJ) Comcast Cablevision of Meridian, Inc. (MS) Comcast Cablevision of Middletown, Inc. (DE) Comcast Cablevision of Mobile, Inc. (AL) Comcast Cablevision of Monmouth County, Inc. (DE) Comcast Cablevision of Mt. Clemens (MI) Comcast Cablevision of Mt. Clemens, Inc. (MI) Comcast Cablevision of New Haven, Inc. (CT) Comcast Cablevision of New Jersey, Inc. (NJ) Comcast Cablevision of Newport Beach, Inc. (DE) Comcast Cablevision of North Orange, Inc. (DE) Comcast Cablevision of Northwest New Jersey, Inc. (DE) Comcast Cablevision of Ocean County, Inc. (DE) Comcast Cablevision of Paducah, Inc. (KY) Comcast Cablevision of Panama City, Inc. (DE) Comcast Cablevision of Perry, Inc. (DE) Comcast Cablevision of Philadelphia, Inc. (PA) Comcast Cablevision of Philadelphia, L.P. (PA) Comcast Cablevision of Plainfield, Inc. (DE) Comcast Cablevision of Quincy, Inc. (DE) Comcast Cablevision of Sacramento (CA) Comcast Cablevision of Sacramento, Inc. (DE) Comcast Cablevision of San Bernardino, Inc. (DE) Comcast Cablevision of Santa Ana, Inc. (DE) Comcast Cablevision of Santa Maria, Inc. (DE) Comcast Cablevision of Seal Beach, Inc. (DE) Comcast Cablevision of Shelby, Inc. (MI) Comcast Cablevision of Simi Valley, Inc. (DE) Page 2 Comcast Cablevision of Southeast Michigan, Inc. (DE) Comcast Cablevision of Sterling Heights, Inc. (MI) Comcast Cablevision of Tallahassee, Inc. (DE) Comcast Cablevision of Taylor, Inc. (MI) Comcast Cablevision of the Meadowlands, Inc. (NJ) Comcast Cablevision of the Shoals, Inc. (AL) Comcast Cablevision of the South (CO) Comcast Cablevision of the South, Inc. (CO) Comcast Cablevision of Tupelo, Inc. (MS) Comcast Cablevision of Tuscaloosa, Inc. (AL) Comcast Cablevision of Utica, Inc. (MI) Comcast Cablevision of Warren (MI) Comcast Cablevision of Warren, Inc. (MI) Comcast Cablevision of West Florida, Inc. (DE) Comcast Cablevision of West Palm Beach, Inc. (DE) Comcast Cablevision of Westmoreland, Inc. (PA) Comcast Cablevision of Willow Grove, Inc. (PA) Comcast Communications Properties, Inc. (DE) Comcast Holdings, Inc. (DE) Comcast Internet Access Services, Inc. (DE) Comcast Internet Services, Inc. (DE) Comcast MH Business Online Communications, Inc. (DE) Comcast MH Holdings, Inc. (DE) Comcast MH Online Communications, Inc. (DE) Comcast MH Telephony Communications of Florida, Inc. (FL) Comcast MH Telephony Communications of Michigan, Inc. (MI) Comcast MH Telephony Communications of New Jersey, Inc. (NJ) Comcast MHCP Holdings, L.L.C. (DE) Comcast Michigan Holdings, Inc. (MI) Comcast Philadelphia Interconnect Partner, Inc. (DE) Comcast Real Estate Holdings of Alabama, Inc. (AL) Comcast Real Estate Holdings, Inc. (DE) Comcast SCH Delaware Holdings, Inc. (DE) Comcast SCH Holdings, Inc. (CO) Comcast Storer Finance Sub, Inc. (DE) Comcast Storer, Inc. (DE) Comcast Telephony Communications Holdings, Inc. (DE) First Television Corporation (DE) M H Lightnet Inc. (DE) Mt. Clemens Cable TV Investors, Inc. (MI) New England Microwave, Inc. (CT) Philadelphia Cable Investment Corporation (DE) SCI 11, Inc. (DE) SCI 34, Inc. (DE) SCI 36, Inc. (DE) SCI 37, Inc. (DE) Page 3 SCI 38, Inc. (DE) SCI 48, Inc. (DE) SCI 55, Inc. (DE) Selkirk Communications (Delaware) Corporation (DE) Storer Communications, Inc. (DE) Westmoreland Financial Corporation (DE) Page 4 EX-23.1 12 EX-23.1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Comcast Cable Communications, Inc. and subsidiaries on Form S-4 of our report dated April 24, 1997 (except for Note 5, as to which the date is May 1, 1997) relating to the consolidated financial statements of Comcast Cable Communications, Inc., and of our report dated February 28, 1997 (except for Note 6, as to which the date is May 1, 1997) relating to the consolidated financial statements of Comcast SCH Holdings, Inc., appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. Our audits of the consolidated financial statements of Comcast Cable Communications, Inc. referred to in our aforementioned report also included the financial statement schedules of Comcast Cable Communications, Inc. listed in Item 21(b). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania July 3, 1997 EX-25 13 EXHIBIT 25 Exhibit 25 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)___ BANK OF MONTREAL TRUST COMPANY (Exact name of trustee as specified in its charter) New York 13-4941093 (State of incorporation or organization (I.R.S. employer if not a U.S. national bank) identification no.) 77 Water Street New York, New York 10005 (Address of trustee's principal executive offices) (Zip code) Mark F. McLaughlin Bank of Montreal Trust Company 77 Water Street, New York, NY 10005 (212) 701-7602 (Name, address and telephone number of agent for service) ____________________________________ COMCAST CABLE COMMUNICATIONS, INC. (Exact name of obligor as specified in its charter) Delaware 23-2175755 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 150 Market Street Philadelphia, PA 19102-2148 (Address of principal executive offices) ______________________________________ 8-1/8% Notes due 2004 8-3/8% Notes due 2007 8-7/8% Notes due 2017 8-1/2% Notes due 2027 (Title of Indenture Securities) - 2 - Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York 33 Liberty Street, New York NY 10045 State of New York Banking Department 2 Rector Street, New York, NY 10006 (b) Whether it is authorized to exercise corporate trust powers. The Trustee is authorized to exercise corporate trust powers. Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. The obligor is not an affiliate of the trustee. Item 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. 1. Copy of Organization Certificate of Bank of Montreal Trust Company to transact business and exercise corporate trust powers; incorporated herein by reference as Exhibit "A" filed with Form T-1 Statement, Registration No. 33-46118. 2. Copy of the existing By-Laws of Bank of Montreal Trust Company; incorporated herein by reference as Exhibit "B" filed with Form T-1 Statement, Registration No. 33-80928. 3. The consent of the Trustee required by Section 321(b) of the Act; incorporated herein by reference as Exhibit "C" with Form T-1 Statement, Registration No. 33-46118. 4. A copy of the latest report of condition of Bank of Montreal Trust Company published pursuant to law or the requirements of its supervising or examining authority, attached hereto as Exhibit "D". SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, Bank of Montreal Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 12th of June, 97. BANK OF MONTREAL TRUST COMPANY By /s/ Amy Roberts ------------------------------- Amy Roberts Assistant Vice President EXHIBIT "D" STATEMENT OF CONDITION BANK OF MONTREAL TRUST COMPANY NEW YORK ASSETS Due From Banks................................................. $ 740,801 ----------- Investment Securities: State & Municipal............................................ 16,888,571 Other........................................................ 100 ----------- Total Securities........................................... 16,888,671 ----------- Loans and Advances Federal Funds Sold........................................... 4,300,000 Overdrafts................................................... 3,591 ----------- Total Loans and Advances................................... 4,303,591 ----------- Investment in Harris Trust, NY................................. 7,516,776 Premises and Equipment......................................... 173,475 Other Assets................................................... 2,304,743 ----------- 9,994,994 ----------- TOTAL ASSETS............................................... $31,928,057 ----------- ----------- LIABILITIES Trust Deposits................................................. $ 8,602,958 Other Liabilities.............................................. 784,769 ----------- TOTAL LIABILITIES.......................................... 9,387,727 ----------- CAPITAL ACCOUNTS Capital Stock, Authorized, Issued and Fully Paid-10,000 Shares of $100 Each................................................. 1,000,000 Surplus........................................................ 4,222,188 Retained Earnings.............................................. 17,289,810 Equity-Municipal Gain/Loss..................................... 28,332 ----------- TOTAL CAPITAL ACCOUNTS..................................... 22,540,330 ----------- TOTAL LIABILITIES AND CAPITAL ACCOUNTS.................... $31,928,057 ----------- ----------- I, Mark F. McLaughlin, Vice President, of the above-named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief. Mark F. McLaughlin December 31, 1996 We, the undersigned directors, attest to the correctness of this statement of resources and liabilities. We declared that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct. Sanjiv Tandon Kevin O. Healey Steven R. Rothbloom EX-27 14 EXHIBIT 27
5 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. 1,000,000 YEAR 3-MOS DEC-31-1996 DEC-31-1997 JAN-01-1996 JAN-01-1997 DEC-31-1996 MAR-31-1997 38 47 75 67 82 67 (12) (13) 28 29 232 215 2,402 2,488 (856) (896) 6,213 6,167 527 467 3,068 3,106 0 0 0 0 0 0 95 61 6,213 6,167 1,641 501 1,641 501 0 0 (1,455) (479) (1) 0 0 0 (261) (66) (49) (44) 5 9 (23) (29) 0 0 0 0 0 0 (23) (29) 0 0 0 0 LOSS BEFORE INCOME TAX EXPENSE AND OTHER ITEMS EXCLUDES THE EFFECT OF MINORITY INTERESTS, NET OF TAX, OF $21.7. LOSS BEFORE INCOME TAX EXPENSE AND OTHER ITEMS EXCLUDES THE EFFECT OF MINORITY INTERESTS, NET OF TAX, OF $5.0.
EX-99.1 15 EXHIBIT 99.1 Exhibit 99.1 LETTER OF TRANSMITTAL Offer to Exchange 8 1/8% Exchange Notes due 2004 for Any and All Outstanding 8 1/8% Notes due 2004 8 3/8% Exchange Notes due 2007 for Any and All Outstanding 8 3/8% Notes due 2007 8 7/8% Exchange Notes due 2017 for Any and All Outstanding 8 7/8% Notes due 2017 8 1/2% Exchange Notes due 2027 for Any and All Outstanding 8 1/2% Notes due 2027 of Comcast Cable Communications, Inc. THE EXCHANGE OFFER WILL EXPIRE AT 5:00P.M., NEW YORK CITY TIME ON [EXPIRATION DATE], 1997 (THE "EXPIRATION DATE") UNLESS EXTENDED BY COMCAST CABLE COMMUNICATIONS, INC. EXCHANGE AGENT: BANK OF MONTREAL TRUST COMPANY By Mail, by Overnight Courier or by Hand By Hand: By Mail or Overnight Courier: Bank of Montreal Trust Company Bank of Montreal Trust Company 77 Water Street, 77 Water Street, 4th Floor 5th Floor Window Attn: Amy Roberts New York, NY 10005 Corporate Trust Department New York, NY 10005 By Facsimile: (212) 701-7684 Confirm by Telephone: (212) 701-7650 Delivery of this Letter of Transmittal to an address other than as set forth above or transmission of Instructions via a facsimile transmission to a number other than as set forth above will not constitute a valid delivery. The undersigned acknowledges receipt of the Prospectus dated [DATE], 1997 (the "Prospectus") of Comcast Cable Communications, Inc. (the "Company") which, together with this Letter of Transmittal (the "Letter of Transmittal"), describes the Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of a new series of 8 1/8% Exchange Notes due 2004 (the "New Seven-Year Notes") for each $1,000 in principal amount of outstanding 8 1/8% Notes due 2004 (the "Old Seven-Year Notes"); $1,000 in principal amount of a new series of 8 3/8% Exchange Notes due 2007 (the "New Ten-Year Notes") for each $1,000 in principal amount of outstanding 8 3/8% Notes due 2007 (the "Old Ten-Year Notes"); $1,000 in principal amount of a new series of 8 7/8% Exchange Notes due 2017 (the "New Twenty-Year Notes") for each $1,000 in principal amount of outstanding 8 7/8% Notes due 2017 (the "Old Twenty-Year Notes") and $1,000 in principal amount of a new series of 8 1/2% Exchange Notes due 2027 (the "New Thirty-Year Notes" and, together with the New Seven-Year Notes, the New Ten-Year Notes and the New Twenty-Year Notes, the "New Notes") for each $1,000 in principal amount of outstanding 8 1/2% Notes due 2027 (the "Old Thirty-Year Notes" and, together with the Old Seven-Year Notes, the Old Ten-Year Notes and the Old Twenty-Year Notes, the "Old Notes"). The terms of the New Notes are identical in all material respects (including principal amount, interest rate and maturity) to the terms of the Old Notes for which they may be exchanged pursuant to the Exchange Offer, except that the offering of the New Notes will have been registered under the Securities Act of 1933, as amended, and, therefore, the New Notes will not bear legends restricting the transfer thereof. The undersigned has checked the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OR TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT. List below the Old Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the Certificate Numbers and Principal Amounts should be listed on a separate signed schedule affixed hereto. 2 - ------------------------------------------------------------------------------ DESCRIPTION OF OLD NOTES TENDERED HEREWITH - ------------------------------------------------------------------------------ Name(s) and Address(es) Series of Certificate Aggregate Principal of Registered Holder(s) Note(s) Number(s)* Principal Amount (Please fill in) Amount Tendered** Represented by Notes* --------------------------------------------------- - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Total - ------------------------------------------------------------------------------ *Need not be completed by book-entry holders. **Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by Old Notes. See Instruction 2. - ------------------------------------------------------------------------------ 3 This Letter of Transmittal is to be used either if certificates for Old Notes are to be forwarded herewith or if delivery of Old Notes is to be made by book-entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the procedures set forth in "The Exchange Offer -- Book-Entry Transfer" in the Prospectus. Delivery of documents to a book-entry transfer facility does not constitute delivery to the Exchange Agent. Unless the context requires otherwise, the term "Holder" for purposes of this Letter of Transmittal means any person in whose name Old Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder or any person whose Old Notes are held of record by DTC who desires to deliver such Old Notes by book-entry transfer at DTC. Holders whose Old Notes are not immediately available or who cannot deliver their Old Notes and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date may tender their Old Notes according to the guaranteed delivery procedure set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." / / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DEPOSITORY TRUST COMPANY AND COMPLETE THE FOLLOWING: Name of Tendering Institution________________________________________ _____________________________________________________________________ The Depository Trust Company Account Number_______________________________________________________ Transaction Code Number______________________________________________ / / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s)_________________________________________ _____________________________________________________________________ Name of Eligible Institution that Guaranteed Delivery _____________________________________________________________________ 4 If Deivered by Book-Entry Transfer: Account Number_______________________________________________________ / / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Nme:_________________________________________________________________ Address:_____________________________________________________________ _____________________________________________________________________ 5 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the above-described principal amount of Old Notes. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered herewith, the undersigned hereby exchanges, assigns and transfers to, or upon the order or, the Company all right, title and interest in and to such Old Notes. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that said Exchange Agent acts as the agent of the undersigned in connection with the Exchange Offer) to cause the Old Notes to be assigned, transferred and exchanged. The undersigned represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Old Notes and to acquire New Notes issuable upon the exchange of such tendered Old Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of tendered Old Notes or transfer ownership of such Old Notes on the account books maintained by the Depository Trust Company. The Exchange Offer is subject to certain conditions as set forth in the Prospectus under the caption "The Exchange Offer." The undersigned recognizes that as a result of these conditions (which may be waived, in whole or in part, by the Company), as more particularly set forth in the Prospectus, the Company may not be required to exchange any of the Old Notes tendered hereby and, in such event, the Old Notes not exchanged will be returned to the undersigned at the address shown below the signature of the undersigned. By tendering, each holder of Old Notes represents to the Company that (i) the New Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, (ii) neither the holder of Old Notes nor any such other person has an arrangement or understanding with any person to participate in the distribution of such New Notes, (iii) if the holder is not a broker-dealer, or is a broker-dealer but will not receive new Notes for its own account in exchange for Old Notes, neither the holder nor any such other person is engaged in or intends to participate in a distribution of the New Notes and (iv) neither the holder nor any such other person is an "affiliate", as defined in Rule 405 under the Securities Act of 1933, as amended (the "Act"), of the Company. If the tendering holder is a broker-dealer (whether or not it is also an "affiliate") that will receive New Notes for its own account in exchange for Old Notes, it represents that the Old Notes to be exchanged for the New Notes were acquired by it as a result of market-making activities or other trading activities, and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale 6 of such New Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes, the undersigned is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. All authority herein conferred or agreed to be conferred shall survive the death, bankruptcy or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tendered Old Notes may be withdrawn at any time prior to the Expiration Date. Certificates for all New Notes delivered in exchange for tendered Old Notes and any Old Notes delivered herewith but not exchanged, in each case registered in the name of the undersigned, shall be delivered to the undersigned at the address shown below the signature of the undersigned. 7 TENDERING HOLDER(S) SIGN HERE ______________________________________________________________________________ ______________________________________________________________________________ Signature(s) of Holder(s) Dated: _________________________________, 199_ (Must be signed by registered holder(s) exactly as name(s) appear(s) on certificate(s) for Old Notes or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith or, if the Old Notes are held of record by DTC, the person in whose name such Old Notes are registered on the books of DTC. If signature by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth the full title of such person.) See Instruction 3. Name(s):______________________________________________________________________ ______________________________________________________________________________ (Please Print) Capacity (full title):________________________________________________________ Address:______________________________________________________________________ ______________________________________________________________________________ (Including Zip Code) Area Code and Telephone No.___________________________________________________ ______________________________________________________________________________ Tax Identification No. GUARANTEE OF SIGNATURE(S) (If Required--See Instruction 3) Authorized Signature:_________________________________________________________ Name:_________________________________________________________________________ Title:________________________________________________________________________ Address:______________________________________________________________________ Name of Firm:_________________________________________________________________ Area Code and Telephone No.___________________________________________________ Dated:_________________, 199_ 8 INSTRUCTIONS Forming Part of the Terms and Conditions of the Exchange Offer 1 Delivery of this Letter of Transmittal and Certificates. Certificates for all physically delivered Old Notes or confirmation of any book-entry transfer to the Exchange Agent's account at The Depository Trust Company of Old Notes tendered by book-entry transfer, as well as a properly completed and duly executed copy of this Letter of Transmittal or facsimile thereof, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at any of its addresses set forth herein on or prior to the Expiration Date. The method of delivery of this Letter of Transmittal, the Old Notes and any other required documents is at the election and risk of the holder and, except as otherwise provided below, the delivery will be deemed made only when actually received by the Exchange Agent. If such delivery is by mail, it is suggested that registered mail with return receipt requested, properly insured, be used. Holders whose Old Notes are not immediately available or who cannot deliver their Old Notes and all other required documents to the Exchange Agent on or prior to the Expiration Date or comply with book-entry transfer procedures on a timely basis may tender their Old Notes pursuant to the guaranteed delivery procedure set forth in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures." Pursuant to such procedure:(i) such tender must be made by or through an Eligible Institution (as defined therein);(ii) on or prior to the Expiration Date the Exchange Agent must have received from such Eligible Institution, a letter, telegram or facsimile transmission setting forth the name and address of the tendering holder, the names in which such Old Notes are registered, and, if possible, the certificate numbers of the Old Notes to be tendered; and (iii) all tendered Old Notes (or a confirmation of any book-entry transfer of such Old Notes into the Exchange Agent's account at The Depository Trust Company) as well as this Letter of Transmittal and all other documents required by this Letter of Transmittal must be received by the Exchange Agent within five New York Stock Exchange trading days after the date of execution of such letter, telegram or facsimile transmission, all as provided in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Old Notes for exchange. 2 Partial Tenders; Withdrawals. Tenders of Old Notes will be accepted in all denominations of $1,000 and integral multiples in excess thereof. If less than the entire principal amount of Old Notes evidenced by a submitted certificate is tendered, the tendering holder must fill in the principal amount tendered in the box entitled "Principal Amount Tendered." A newly issued certificate for the principal amount of Old Notes submitted but not tendered will be sent to such holder as soon as practicable after the 9 Expiration Date. All Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Tenders of Old Notes pursuant to the Exchange Offer are irrevocable, except that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. To be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Exchange Agent. Any such notice of withdrawal must specify the person named in the Letter of Transmittal as having tendered Old Notes to be withdrawn, the certificate numbers of the Old Notes to be withdrawn, the principal amount of Old Notes delivered for exchange, a statement that such a holder is withdrawing its election to have such Old Notes exchanged, and the name of the registered holder of such Old Notes, and must be signed by the holder in the same manner as the original signature on the Letter of Transmittal (including any required signature guarantees) or be accompanied by evidence satisfactory to the Company that the person withdrawing the tender has succeeded to the beneficial ownership of the Old Notes being withdrawn. The Exchange Agent will return the properly withdrawn Old Notes promptly following receipt of notice of withdrawal. If Old Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at The Depository Trust Company to be credited with the withdrawn Old Notes or otherwise comply with The Depository Trust Company's procedures. 3 Signature on this Letter of Transmittal; Written Instruments and Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed by the registered holder(s) of the Old Notes tendered hereby, the signature must correspond with the name(s) as written on the face of certificates without alteration, enlargement or any change whatsoever. If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If a number of Old Notes registered in different names are tendered, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of Old Notes. When this Letter of Transmittal is signed by the registered holder or holders of Old Notes listed and tendered hereby, no endorsements of certificates or separate written instruments of transfer or exchange are required. If this Letter of Transmittal is signed by a person other than the registered holder or holders of the Old Notes listed, such Notes must be endorsed or accompanied by separate written instruments of transfer or exchange in form satisfactory to the Company and duly executed by the registered holder, in either case signed exactly as the name or names of the registered holder or holders appear(s) on the Old Notes. If this Letter of Transmittal, any certificates or separate written instruments of transfer or exchange are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative 10 capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority so to act must be submitted. Endorsements on certificates or signatures on separate written instruments of transfer or exchange required by this Instruction 3 must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal need not be guaranteed by an Eligible Institution, provided the Old Notes are tendered: (i) by a registered holder of such Old Notes and the certificates for New Notes to be issued in exchange therefor are to be issued (or any untendered amount of Old Notes are to be reissued) to the registered holder; or (ii) for the account of any Eligible Institution. 4 Transfer Taxes. The Company shall pay all transfer taxes, if any, applicable to the transfer and exchange of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New Notes are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered hereby, or if a transfer tax is imposed for any reason other than the transfer of Old Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exception therefrom is not submitted herewith the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 4, it will not be necessary for transfer tax stamps to be affixed to the Old Notes listed in this Letter of Transmittal. 5 Waiver of Conditions. The Company reserves the absolute right to waive, in whole or in part, any of the conditions to the Exchange Offer set forth in the Prospectus. 6 Mutilated, Lost, Stolen or Destroyed Notes. Any holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated below for further instructions. 7 Requests for Assistance or Additional Copies. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number set forth below. In addition, all questions relating to the Exchange Offer, as well as requests for assistance or additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Company at 1500 Market Street, Philadelphia, Pennsylvania 19102-2148, Attention: Secretary, (215) 665-1700. 8 Irregularities. All questions as to the validity, form, eligibility (including time of receipt), and acceptance of Letters of Transmittal or Old Notes will be resolved by the Company, whose determination will be final and binding. The Company reserves the absolute right to reject any or all Letters of Transmittal or tenders that are not in 11 proper form or the acceptance of which would, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to the particular Old Notes covered by any Letter of Transmittal or tendered pursuant to such letter. None of the Company, the Exchange Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Company's interpretation of the terms and conditions of the Exchange Offer shall be final and binding. 9 Definitions. Capitalized terms used in this Letter of Transmittal and not otherwise defined have the meanings given in the Prospectus. IMPORTANT: This Letter of Transmittal or a facsimile thereof (together with certificates for Old Notes or confirmation of book-entry transfer and all other required documents) or a Notice of Guaranteed Delivery must be received by the Exchange Agent on or prior to the Expiration Date. 12 EX-99.2 16 EXHIBIT 99.2 Exhibit 99.2 NOTICE OF GUARANTEED DELIVERY for Offer to Exchange 8 1/8% Exchange Notes due 2004 for Any and All Outstanding 8 1/8% Notes due 2004 8 3/8% Exchange Notes due 2007 for Any and All Outstanding 8 3/8% Notes due 2007 8 7/8% Exchange Notes due 2017 for Any and All outstanding 8 7/8% Notes due 2017 8 1/2% Exchange Notes due 2027 for Any and All Outstanding 8 1/2% Notes due 2027 of Comcast Cable Communications, Inc. Registered holders of outstanding 8 1/8% Notes due 2004, 8 3/8% Notes due 2007, 8 7/8% Notes due 2017 and 8 1/2% Notes due 2027 (collectively, the "Old Notes") who wish to tender their Old Notes in exchange for a like principal amount of 8 1/8% Exchange Notes due 2004, 8 3/8% Exchange Notes due 2007, 8 7/8% Exchange Notes due 2017 and 8 1/2% Exchange Notes due 2027 (collectively, the "New Notes") and, in each case, whose Old Notes are not immediately available or who cannot deliver their Old Notes and Letter of Transmittal (and any other documents required by the Letter of Transmittal) to Bank of Montreal Trust Company (the "Exchange Agent") prior to the Expiration Date, may use this Notice of Guaranteed Delivery or one substantially equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight delivery) or by mail to the Exchange Agent. See "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. The Exchange Agent for the Exchange Offer is: BANK OF MONTREAL TRUST COMPANY By Hand: By Mail or Overnight Courier: Bank of Montreal Trust Company Bank of Montreal Trust Company 77 Water Street, 77 Water Street, 4th Floor 5th Floor Window Attn: Amy Roberts, New York, NY 10005 Corporate Trust Department New York, NY 10005 Facsimile Transmissions: (Eligible Institutions Only) (212) 701-7684 To Confirm by Telephone or for Information Call: (212) 701-7650 Delivery of this Notice of Guaranteed Delivery to an address other than as set forth above or transmission of instructions via a facsimile transmission to a number other than as set forth above will not constitute a valid delivery. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on Letter of Transmittal is required to be guaranteed by an Eligible Institution, such signature guarantee must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signatures. 2 THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE OF DELIVERY (Note to be used for signature guarantee) The undersigned, a firm that is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office, branch, agency or correspondent in the United States, hereby guarantees to deliver to the Exchange Agent at one of its addresses set forth above, the certificates representing the Old Notes, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal within five New York Stock Exchange, Inc. trading days after the date of execution of this Notice of Guaranteed Delivery. Name of Firm:_____________________ ___________________________________ (Authorized Signature) Address:__________________________ Title:_____________________________ __________________________________ Name:______________________________ (Zip Code) (Please type or print) Area Code and Telephone Number: Date:_____________________________ __________________________________ NOTE: DO NOT SEND NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 3 EX-99.3 17 EXHIBIT 99.3 Exhibit 99.3 INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER OF PARTICIPANT FROM OWNER OF COMCAST CABLE COMMUNICATIONS, INC. 8 1/8% Notes due 2004 8 3/8% Notes due 2007 8 7/8% Notes due 2017 8 1/2% Notes due 2027 To Registered Holder and/or Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus dated , 1997 (the "Prospectus") of Comcast Cable Communications, Inc., a Delaware corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer"). Capitalized terms used but not defined herein have the meaning as ascribed to them in the Prospectus. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to the action to be taken by you relating to the Exchange Offer with respect to the Old Notes held by you for the account of the undersigned. The aggregate face amount of the Old Notes held by you for the account of the undersigned is (fill in amount): $__________________ of the 8 1/8% Notes due 2004 $__________________ of the 8 3/8% Notes due 2007 $__________________ of the 8 7/8% Notes due 2017 $__________________ of the 8 1/2% Notes due 2027 With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): / / To TENDER the following Old Notes held by you for the account of the undersigned (insert principal amount of Old Notes to be tendered, if any): $__________________ of the 8 1/8% Notes due 2004 $__________________ of the 8 3/8% Notes due 2007 $__________________ of the 8 7/8% Notes due 2017 $__________________ of the 8 1/2% Notes due 2027 / / NOT to TENDER any Old Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representation and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations, that (i) the New Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the undersigned, (ii) the undersigned does not have an arrangement or understanding with any person to participate in the distribution of such New Notes, (iii) if the undersigned is not a broker-dealer, or is a broker-dealer but will not receive New Notes for its own account in exchange for Old Notes, the undersigned is not engaged in and does not intend to participate in the distribution of such New Notes and (iv) the undersigned is not an "affiliate", as defined in Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"), of the Company. If the undersigned is a broker-dealer (whether or not it is also an "affiliate") that will receive New Notes for its own account in exchange for Old Notes, it represents that such Old Notes were acquired as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes, the undersigned is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 2 SIGN HERE Name of beneficial owner(s): _________________________________________________ Signature(s): ________________________________________________________________ Name(s) (please print): ______________________________________________________ Address: _____________________________________________________________________ ______________________________________________________________________________ Telephone Number: ____________________________________________________________ Taxpayer Identification or Social Security Number: ___________________________ ______________________________________________________________________________ Date: ________________________________________________________________________ 3 EX-99.4 18 EXHIBIT 99.4 Exhibit 99.4 Offer to Exchange 8 1/8% Exchange Notes due 2004 for Any and All Outstanding 8 1/8% Notes due 2004 8 3/8% Exchange Notes due 2007 for Any and All Outstanding 8 3/8% Notes due 2007 8 7/8% Exchange Notes due 2017 for Any and All outstanding 8 7/8% Notes due 2017 8 1/2% Exchange Notes due 2027 for Any and All Outstanding 8 1/2% Notes due 2027 of Comcast Cable Communications, Inc. To Our Clients: We are enclosing herewith a Prospectus, dated [ ], 1997, of Comcast Cable Communications, Inc., a Delaware corporation (the "Company"), and a related Letter of Transmittal (which together constitute the "Exchange Offer") relating to the offer by the Company to exchange its 8 1/8% Exchange Notes due 2004, 8 3/8% Exchange Notes due 2007, 8 7/8% Exchange Notes due 2017 and 8 1/2% Exchange Notes due 2027 (collectively, the "New Notes"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding 8 1/8% Notes due 2004, 8 3/8% Notes due 2007, 8 7/8% Notes due 2017 and 8 1/2% Notes due 2027 (collectively, the "Old Notes") upon the terms and subject to the conditions set forth in the Exchange Offer. Please note that the Offer will expire at 5:00 p.m., New York City time, on [ ], 1997, unless extended. The Offer is not conditioned upon any minimum number of Old Notes being tendered. We are the holder of record and/or participant in the book-entry transfer facility of Old Notes held by us for your account. A tender of such Old Notes can be made only by us as the record holder and/or participant in the book-entry transfer facility and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Old Notes held by us for your account. We request instructions as to whether you wish to tender any or all of the Old Notes held by us for your account pursuant to the terms and conditions of the Exchange Offer. We also request that you confirm that we may on your behalf make the representations contained in the Letter of Transmittal. Pursuant to the Letter of Transmittal, each holder of Old Notes will represent to the Company that (i) the New Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, (ii) neither the holder of the Old Notes nor any such other person has an arrangement or understanding with any person to participate in the distribution of such New Notes, (iii) if the holder is not a broker-dealer or is a broker-dealer but will not receive New Notes for its own account in exchange for Old Notes, neither the holder nor any such other person is engaged in or intends to participate in a distribution of the New Notes and (iv) neither the holder nor any such other person is an "affiliate", as defined in Rule 405 under the Securities Act, of the Company. If the tendering holder is a broker-dealer (whether or not it is also an "affiliate") that will receive New Notes for its own account in exchange for Old Notes, it represents that the Old Notes to be exchanged for the New Notes were acquired by it as a result of market-making activities or other trading activities, and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes, the holder is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Very truly yours, COMCAST CABLE COMMUNICATIONS, INC. 2 EX-99.5 19 EXHIBIT 99.5 Exhibit 99.5 Offer to Exchange 8 1/8% Exchange Notes due 2004 for Any and All Outstanding 8 1/8% Notes due 2004 8 3/8% Exchange Notes due 2007 for Any and All Outstanding 8 3/8% Notes due 2007 8 7/8% Exchange Notes due 2017 for Any and All outstanding 8 7/8% Notes due 2017 8 1/2% Exchange Notes due 2027 for Any and All Outstanding 8 1/2% Notes due 2027 of Comcast Cable Communications, Inc. To Registered Holders and Depository Trust Company Participants: We are enclosing herewith the material listed below relating to the offer by Comcast Cable Communications, Inc. (the "Company"), a Delaware corporation, to exchange its 8 1/8% Exchange Notes due 2004, 8 3/8% Exchange Notes due 2007, 8 7/8% Exchange Notes due 2017 and 8 1/2% Exchange Notes due 2027 (collectively, the "New Notes"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding 8 1/8% Notes due 2004, 8 3/8% Notes due 2007, 8 7/8% Notes due 2017 and 8 1/2% Notes due 2027 (collectively, the "Old Notes") upon the terms and subject to the conditions set forth in the Company's Prospectus, dated [ ], 1997, and the related Letter of Transmittal (which together constitute the "Exchange Offer"). Enclosed herewith are copies of the following documents: 1. Prospectus dated , 1997; 2. Letter of Transmittal; 3. Notice of Guaranteed Delivery; 4. Instruction to Registered Holder and/or Book-Entry Transfer Participant from Owner; and 5. Letter which may be sent to your clients for whose account you hold Old Notes in your name or in the name of your nominee, to accompany the instruction form referred to above, for obtaining such client's instruction with regard to the Exchange Offer. We urge you to contact your clients promptly. Please note that the Offer will expire at 5:00 p.m., New York City time, on [ ], 1997, unless extended. The Offer is not conditioned upon any minimum number of Old Notes being tendered. Pursuant to the Letter of Transmittal, each holder of Old Notes will represent to the Company that (i) the New Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, (ii) neither the holder of the Old Notes nor any such other person has an arrangement or understanding with any person to participate in the distribution of such New Notes, (iii) if the holder is not a broker-dealer, or is a broker-dealer but will not receive New Notes for its own account in exchange for Old Notes, neither the holder nor any such other person is engaged in or intends to participate in a distribution of the New Notes and (iv) neither the holder nor any such other person is an "affiliate", as defined in Rule 405 under the Securities Act, of the Company. If the tendering holder is a broker-dealer (whether or not it is also an "affiliate") that will receive New Notes for its own account in exchange for Old Notes, you will represent on behalf of such broker-dealer that the Old Notes to be exchanged for the New Notes were acquired by it as a result of market-making activities or other trading activities, and acknowledge on behalf of such broker-dealer that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes, the undersigned is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The enclosed Instruction to Registered Holder and/or Book-Entry Transfer Participant from Owner contains an authorization by the beneficial owners of the Old Notes for you to make the foregoing representations. The Company will not pay any fee or commission to any broker or dealer or to any other persons (other than the Exchange Agent) in connection with the solicitation of tenders of Old Notes pursuant to the Offer. The Company will pay or cause to be paid any transfer taxes payable on the transfer of Old Notes to it, except as otherwise provided in Instruction 4 of the enclosed Letter of Transmittal. 2 Additional copies of the enclosed material may be obtained from the Exchange Agent, Bank of Montreal Trust Company, telephone (212) 701-7650. Very truly yours, COMAST CABLE COMMUNICATIONS, INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU THE AGENT OF COMCAST CABLE COMMUNICATIONS, INC. OR THE BANK OF MONTREAL TRUST COMPANY OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 3 -----END PRIVACY-ENHANCED MESSAGE-----