Securities Act of 1934
Dear Mr. Friedel:
In regard to your letter dated October 5, 2004, our response is attached to the enclosed copy of your correspondence. By doing this, we avoid having to recite or summarize the facts set forth in your letter. Each defined term in this letter has the same meaning as defined in your letter, unless otherwise noted.
Comcast Corporation plans to commence an option liquidity program to eligible holders of outstanding options. All of the eligible holders are former employees of Comcast or its subsidiaries. The U.S. Securities and Exchange Commission hereby grants an exemption from Rule 13e-4(f)(2)(ii) to permit Comcast to terminate withdrawal rights for tendered options at the end of the Election Period as described in your letter. In addition, the Commission grants an exemption from Rule 13e-4(f)(8)(i) to permit Comcast to exclude certain options and certain option holders from the program as described in your letter.
The staff of the Division of Corporation Finance will not object to the pricing structure, which contemplates that the final price will be neither known nor paid until after the Averaging Period ends. The staff of the Division of Corporation Finance will not recommend that the Commission take enforcement action under Rules 13e-4(f)(1)(ii) and 14e-1(b) if the total payment for transferred options is determined after the Election Period and during the Averaging Period as described in your letter. Finally, the staff of the Division of Corporation Finance will not recommend that the Commission take enforcement action under Rules 13e-4(f)(5) and 14e-1(c) if Comcast determines the total payment for options after the Election Period and pays holders for transferred options, as described in your letter.
Without necessarily concurring with your analyses and based solely on your representations and the facts presented in your letter, the foregoing exemptions from Rule 13e-4(f)(2)(ii) and Rule 13e-4(f)(8)(i) and the no-action positions expressed above are limited to the application of the rules to this option liquidity program. In granting this relief, we note specifically the compensatory objectives of the option liquidity program and the level of information that will be available to eligible holders regarding the program. The program should be discontinued, pending presentation of the facts for our consideration, in the event that any material change occurs with respect to any of those facts or representations.
In addition, we direct your attention to the anti-fraud and anti-manipulation provisions of the federal securities laws, including Sections 10(b) and 14(e) of the Exchange Act and Rule 10b-5 thereunder. The participants in the option liquidity program must comply with these and any other applicable provisions of the federal securities laws. The Division expresses no view with respect to any other questions that this program may raise, including, but not limited to, the adequacy of disclosure concerning, and the applicability of any other federal or state laws to, the program.
For the Commission,
By the Division of Corporation Finance,
Pursuant to delegated authority,
Mauri L. Osheroff
Division of Corporation Finance
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103-2799
October 5, 2004
VIA FEDERAL EXPRESS
Chief, Office of Mergers and Acquisitions
Division of Corporate Finance
Securities and Exchange Commission
Mail Stop 3-3
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Mr. Breheny:
This letter supersedes and replaces our prior correspondence to you concerning Comcast Corporation, a Section 12(g) reporting company ("Comcast"). As we have previously discussed, we are acting as counsel for Comcast in connection with the proposed stock option liquidity program (the "Program") to be implemented by Comcast for compensatory purposes to enable certain holders of its employee stock options to realize some value for their options. Upon consummation of the Program, (i) options to purchase Comcast common stock that constitute Eligible Options (as defined below) and that are tendered by option holders who elect to participate in the Program will be cancelled, (ii) JPMorgan Chase Bank or its affiliates ("JPMorgan") will purchase from Comcast options with exercise prices and expiration dates matching those of the stock options that are tendered in the Program and with other terms customary for the over-the-counter (non-employee) options, (iii) JPMorgan will pay Comcast for such options an amount negotiated on an arm's length basis between Comcast and JPMorgan, in part by reference to Black-Scholes and other option pricing models, and (iv) Comcast will pay such amount, less certain costs incurred in providing the Program, to the option holders who tendered their Eligible Options in consideration therefor.
The Program has been fashioned in large part based on the structure of the stock option transfer program undertaken by Microsoft Corporation (the "Microsoft Program"), and the regulatory characteristics of the Program are analogous to those recently addressed by the Staff and by the Commission1 in connection with the Microsoft Program.
We respectfully request that, in relation to the Program, the Staff grant Comcast relief from compliance with specific provisions of Rule 13e-4 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act") pursuant to Rule 13e-4(h)(9) thereof and that the Staff confirm that it will not recommend that the Securities and Exchange Commission (the "Commission") take enforcement action pursuant to Rules 14e-1(b) and (c) thereof.
Comcast is a developer, manager and operator of broadband cable networks and provider of programming content and is the largest cable operator in the United States. As of June 30, 2004, Comcast had approximately 2,500,000 shareholders of record and approximately 68,000 employees. As of June 30, 2004, Comcast had 1,358,616,278 shares of Class A Common Stock outstanding and 866,778,108 shares of Class A Special Common Stock outstanding. Both the Class A Common Stock and the Class A Special Common Stock are principally traded on the Nasdaq National Market of The Nasdaq Stock Market, Inc.2
Comcast has outstanding employee options to purchase both Class A Common Stock and Class A Special Common Stock. In designing the Program, Comcast has determined that, in order to meet Comcast's compensation and personnel objectives, "Eligible Options" will be those employee options to purchase Class A Common Stock or Class A Special Common Stock that (i) expire in accordance with their terms after the closing of the Program (as defined below), and (ii) are held by option holders who are not, and since July 1, 2004 have not been, employees of Comcast or any of its subsidiaries (the "Eligible Optionees"). Neither officers nor directors of Comcast would be Eligible Optionees.
The Eligible Optionees hold outstanding options to purchase approximately 41,500,000 shares of Class A Common Stock (out of a total of approximately 96,990,000 such options held by all employee option holders as of June 30, 2004) and approximately 300,000 shares of Class A Special Common Stock (out of a total of approximately 58,712,000 such options held by all employee option holders as of June 30, 2004). All options to purchase Class A Common Stock or Class A Special Common Stock held by Eligible Optionees are fully vested and eligible for participation in the Program. Over 85% of the Eligible Options are "out-of-the-money" options, and a substantial majority of the Eligible Optionees hold only "out-of-the-money" options, in each case based on current trading prices of the Class A Common Stock and the Class A Special Common Stock.
The terms of the Eligible Options are governed by one of three employee benefit plans: (i) the Comcast Corporation 2002 Stock Option Plan (the "Comcast 2002 Plan"), (ii) the Comcast Corporation 2003 Stock Option Plan (the "Comcast 2003 Plan") and (iii) the AT&T Broadband Corp. Adjustment Plan (the "Broadband Adjustment Plan" and, together with the Comcast 2002 Plan and the Comcast 2003 Plan, the "Plans"). The Comcast 2002 Plan and the Comcast 2003 Plan provide for the grant of options to purchase Class A Common Stock or Class A Special Common Stock to Comcast employees, officers and directors. The Broadband Adjustment Plan was adopted in connection with Comcast's acquisition of AT&T Broadband Corp. ("Broadband") in 2002 (the "Broadband Acquisition") and provided for the grant of options to purchase Broadband common stock to holders of AT&T Corp. employee stock options who were current or former Broadband employees or former AT&T Corp. employees as of the date of the Broadband Acquisition, and further provided for the substitution of Comcast Class A Common Stock as the stock that would thereafter be issuable upon exercise of the relevant stock options.3 As a result of the change of control that occurred upon the completion of the Broadband Acquisition, the options granted under the Broadband Adjustment Plan remain outstanding for the balance of their remaining terms, with no early option termination upon termination of employment.
The Program represents an important restructuring of Comcast's employee stock option program. It will enable Eligible Optionees to receive cash for their Eligible Options, thus enabling them to realize some value for their Eligible Options, the substantial majority of which are "out of the money."
From Comcast's perspective, the Program serves a number of important compensatory and personnel goals, including rationalizing the ownership of all employee options and reducing the option holdings of optionees who no longer contribute to Comcast's performance by encouraging a reduction in the relative holdings of employee options by former employees, and thereby increasing the relative holdings of employee options by current Comcast employees and freeing compensation resources to enable the future issuance to current and future Comcast employees of additional employee options or other equity-based incentives, subject to the board and its compensation committee's policies, applicable shareholder approvals and other requirements.
Comcast has determined that accomplishing these compensatory and personnel goals will contribute to a key objective of Comcast's overall compensation and personnel plans - focusing employee stock option and other equity-based incentives on the population most critical to Comcast's success - its current and future employees. The Program will facilitate achieving this objective, while enabling Eligible Optionees to receive cash for their Eligible Options.
The Program will also provide ongoing benefits through the elimination of up to $600,000 in annually-recurring expenses associated with the tracking and administration of the over 63,000 option accounts (in addition to any unallocated expenses of Comcast personnel involved in stock option administration), such amount to be applied to other aspects of Comcast's compensatory programs. The expenses described above vary with the number of accounts and not with the number of Eligible Options in each account, and therefore Comcast is offering to purchase all, but not less than all, of the Eligible Options of each Eligible Optionee who elects to participate in order to achieve one of the goals of the Program. Comcast expects that the Program will result in a significant reduction of such expenses.
Participation in the Program will be entirely voluntary. Eligible Optionees will be able to elect to participate (or withdraw any election to participate) in the Program at any time during the Election Period (defined below). None of Comcast, Comcast's board of directors or JPMorgan will make any recommendation to option holders as to whether to participate in the Program. Each Eligible Optionee who elects to participate in the Program will have all of his or her Eligible Options cancelled in accordance with the Program. Eligible Optionees who do not elect to participate in the Program will continue to hold all of their options, which will remain outstanding on their current terms and conditions.
Comcast currently expects to distribute information regarding the Program to Eligible Optionees by mail at the commencement of the period (the "Election Period") during which Eligible Optionees may elect to participate in the Program. The Election Period will run for at least 20 business days, unless extended. During the Election Period, Eligible Optionees will have access to a password-protected web-based system established to provide additional information about the Program. Eligible Optionees will have the option to participate in the Program either by completing and submitting the paper election form that will be mailed to them at the commencement of the Program, by completing a personalized electronic election form that will be available on the web-based system, or by confirming the election to a call center representative by telephone.4
The total cash payment to be received by a participating option holder for each Eligible Option tendered and accepted under the Program will be determined by reference to the average closing price for the applicable class of Comcast common stock underlying the Eligible Option during the Averaging Period. The "Averaging Period" will begin shortly after the Election Period ends and is currently expected to end approximately 10 trading days later. This period between the end of the Election Period and the beginning of the Averaging Period is needed to allow receipt and accurate, final tabulation of the elections (which, due to the number of Eligible Optionees, might exceed 63,000) and/or withdrawals of prior elections to participate. It is expected that many of such elections and/or withdrawals will be in paper form. This period is not expected to exceed one week (the amount of time deemed necessary to complete such tabulation).
By reference to the information to be provided by Comcast at the commencement of the Election Period, Eligible Optionees will be able to estimate the total payment they will receive for their options by referring to a table listing a number of possible total payment amounts based on a variety of indicated hypothetical average closing stock prices that may result during the Averaging Period, after factoring in the costs of administering the Program applicable to the particular Eligible Optionee. Additionally, with the initial package of information, each Eligible Optionee will receive instructions on how to log into the web-based system with a unique personal identification number (PIN). The web-based system will allow an Eligible Optionee to select a hypothetical average closing stock price from a list and to estimate the total net payment due under the Program based on that hypothetical average closing price. Eligible Optionees will also be able to obtain the same information by telephone by providing a hypothetical average closing stock price to a call center representative. At the end of the Averaging Period, information will be made available to each Eligible Optionee who elects to participate in the Program indicating the amount of his or her total payment.
If, as a result of market disruptions or the fact that the Comcast registration statement to be used by JPMorgan to sell shares of Class A Common Stock or Class A Special Common Stock in connection with the Program is not effective and available, there are fewer than a negotiated number of available trading days between the end of the Election Period and a date anticipated to be one month thereafter, the Program will be terminated and Eligible Optionees will retain all of their Eligible Options, which will remain outstanding on their current terms and conditions. The absence of withdrawal rights after the Election Period, and the fact that consummation of the Program is subject to satisfaction of certain conditions after the end of the Election Period, will be prominently highlighted in the information regarding the Program distributed to Eligible Optionees.
Eligible Optionees who elect to participate in the Program will be paid for their Eligible Options tendered into the Program on the earliest administratively feasible date following the end of the Averaging Period. Eligible Optionees who elect to participate in the Program will be paid an amount equal to the amount received by Comcast for issuing the corresponding options to JPMorgan (the "JPMorgan Options"), less the estimated expenses incurred by Comcast in administering the Program, as discussed below. The amount to be paid by JPMorgan for the JPMorgan Options will be negotiated on an arm's length basis between Comcast and JPMorgan, in part by reference to Black-Scholes and other option pricing models.
The gross payment due to each Eligible Optionee will be reduced by $20 plus 1.5% of the gross payment, representing an approximation of the expenses incurred by Comcast in administering the Program attributable to each such Eligible Optionee. This expense reimbursement will be sufficient to cover the estimated out-of-pocket expenses that Comcast will incur in implementing the Program.
In contrast to the Microsoft Program, all Eligible Optionees will receive the amount due to them in one lump sum payment promptly after the completion of the Averaging Period, and the price to be paid by JPMorgan to Comcast (and thus the corresponding payment by Comcast to Eligible Optionees) will not be reduced by virtue of any shortening of the remaining terms of the JPMorgan Options in relation to the remaining terms of the corresponding Eligible Options tendered in the Program, i.e. the time to maturity of the JPMorgan Options will be identical to those of the corresponding Eligible Options tendered.
Eligible Options accepted and cancelled by Comcast under the Program will be removed from, and will no longer be subject to, the Plans. The shares underlying the cancelled options will not be available for future grant under the Plans and will be deregistered from Comcast's relevant registration statements on Form S-8.
Following the end of the Election Period and once the number of Eligible Options tendered under the Program has been determined, Comcast will sell to JPMorgan the JPMorgan Options. The JPMorgan Options will not be eligible for registration on Form S-8. Instead, Comcast will file with the Commission a registration statement on Form S-3 relating to the primary offering of the common stock underlying the JPMorgan Options.
Although we do not request that the Staff express any position with respect to the role of JPMorgan in the Program, we would bring to your attention the fact that Comcast will exercise complete autonomy, control and independence in making all decisions whether or not to implement the Program in this or any other form, the timing of the Program, the eligibility of Comcast's option holders to participate in the Program, and which options are eligible for the Program. JPMorgan will not solicit, encourage or recommend participation by option holders in the Program. Comcast, alone, will make all determinations relating to the eligibility and validity of elections to participate in the Program and the validity of options that option holders elect to tender under the Program. JPMorgan will not pay option holders for options tendered under the Program and option holders will look solely and exclusively to Comcast for payments. Comcast will engage an independent information agent which will be responsible for providing guidance to Eligible Optionees who have questions about their eligibility to participate in, and steps necessary to participate in, the Program; and JPMorgan will not communicate directly with option holders concerning the Program. Although not an anticipated circumstance, if upon sale of JPMorgan Options under the Program, JPMorgan were to be the beneficial owner of more than five percent of a class of Comcast voting equity securities, JPMorgan would timely comply with all applicable provisions of Regulation 13D-G, including, as applicable, the filing of a statement on Schedule 13D or 13G. Based on the current estimated number of Eligible Options and the number of shares of each relevant class of Comcast common stock outstanding, it is unlikely that JPMorgan would become the beneficial owner of more than five percent of any such class merely through the purchase of the JPMorgan Options.
The Program is being offered to Eligible Optionees by Comcast. Comcast alone will pay participants for the Eligible Options tendered under the Program; thus, the rules promulgated under the Exchange Act related to issuer tender offers are principally relevant to the Program. Specifically, Rule 13e-4 promulgated under the Exchange Act governs any "issuer tender offer," which is defined in paragraph (a)(2) thereof as "a tender offer for, or a request or invitation for tenders of, any class of equity security, made by the issuer of such class of equity security or by an affiliate of such issuer."
Generally, the regulatory and functional characteristics of the Program are most closely similar to those addressed by the Staff and by the Commission in the context of the Microsoft Program and are similar to those addressed by the Staff and by the Commission in the context of stock option exchange offers ("Option Repricing Offers")5 and issuer share repurchase programs ("Issuer Stock Purchaser Facilities").6 The Microsoft Program, the Option Repricing Offers and the Issuer Stock Purchaser Facilities are referred to collectively in this letter as "Analogous Facilities."
We hereby request that in relation to the Program, the Staff grant Comcast relief from compliance with specific provisions of Rule 13e-4 pursuant to Rule 13e-4(h)(9) thereof and confirm that the Staff will not recommend that the Commission take enforcement action pursuant to Rules 14e-1(b) and (c).
The Program may present "withdrawal rights" issues, arising from the fact that elections by option holders to tender Eligible Options under the Program may not be withdrawn after the end of the Election Period and the Eligible Options tendered by option holders under the Program would be accepted at the end of the Election Period subject to consummation of the closing of the transactions contemplated by the Program, which is expected to occur after the end of the Averaging Period, which may be more than 40 business days from the commencement of the issuer tender offer. Under the Program, an option holder will have full withdrawal rights during the Election Period, which will be at least 20 business days, but will not be able to withdraw an election after that period has expired. We note that the Microsoft Program did not provide withdrawal rights between that program's election period and the date payment was made to those electing to participate in the program (a period of approximately the same length of time as in the Program at issue here). We further note that none of the Option Repricing Offers provided any withdrawal rights during the six month pricing period for such offers, which is considerably longer than the period of time between the end of the Election Period and the date that the amount of cash that Eligible Optionees may receive for the Eligible Options will be determined and Comcast's payment obligations to its option holders will be fixed.
We recognize that the Staff and Commission do not generally permit the existence of conditions to an offer after withdrawal rights have expired. However, the structure of the Program, and in particular the pricing features of the Program, require an Averaging Period to occur after the Election Period ends, and thereby necessitate the existence of such conditions. Consummation of the Program requires the satisfaction or waiver of certain conditions in order for it to successfully close as contemplated in order to achieve the purposes Comcast aims to fulfill. The limitations on withdrawal rights and the fact that the Program is subject to the satisfaction of certain conditions following the Election Period will be prominently disclosed in the information regarding the Program distributed to Eligible Optionees.
The Program may present "all holders" issues because the Program excludes current employees, officers and directors of Comcast.
Comcast does not view employee stock options solely as additional compensation to its employees, but as an important means by which the company can align the interests of its employees with its own, providing significant productivity benefits and incentives to employees. However, these benefits and objectives are absent in the case of option holders who are not current employees. In the hands of non-employees such options provide none of the critical benefit of incentivizing employees, which was the fundamental compensatory objective at the time of initial issuance of the Eligible Options or the predecessor options. By providing fixed cash value to the Eligible Optionees, the Program serves Comcast's compensation objectives by providing the non-employee holders of Eligible Options with value for their Comcast options while freeing up resources that Comcast will be free to apply to future equity-based compensation programs for its current employees, as and when determined by the Comcast board of directors or appropriate board committee. In this regard, we note that the Staff has not objected to the treatment of options issued under a stock option plan and held by employees and non-employees as separate classes of securities for the purposes of the "all holders" rule. See Microsoft Corporation and Digimarc Corporation. We also note that the Staff has in the past exempted issuer self-tender offers from the "all holders" rule where the offer was extended only to securityholders who were not employees, officers or directors. See, e.g., Science Applications International Corporation, SEC No-Action Letter (July 2, 1992) and Peter Kiewit Sons', Inc., Kiewit Materials Company, SEC No-Action Letter (August 4, 2000).
We further note that the purpose behind Rule 13e-4 is to prevent fraudulent, deceptive or manipulative acts or practices in connection with issuer tender offers. In paragraph (h)(9) of Rule 13e-4, the Commission was given the express authority to grant an exemption from all or part of the rule where offers for securities that are the subject of an issuer tender offer will not result in abuses of the type that the rule was designed to prevent. As Comcast will provide all Eligible Optionees with all material information necessary for them to make an informed decision regarding the Eligible Options they hold, we believe that the proposed limited tender offer to non-employee holders of options originally granted as part of a compensatory benefit plan would not give rise to the potential for the fraud, deception and manipulation which Rule 13e-4 was designed to prevent. Granting an exemption from the "all holders" rule for the Program will be consistent with actions taken by the Commission in situations where the "all holders" rule was implicated, but where, as in Comcast's case, the potential for fraud, deception and manipulation did not exist. See Peter Kiewit Sons', Inc., Kiewit Materials Company and Science Applications International Corporation.
We believe that the pricing methodology of the Program is consistent with the positions taken by the Staff with respect to the Microsoft Program, the Option Repricing Offers and the Issuer Stock Purchase Facilities, which we believe established that absolute price certainty is not an essential requirement so long as a rational and objective pricing methodology is employed. See Microsoft Corporation, Accenture Ltd. and Westamerica Bancorporation. Moreover, the proposed average closing price methodology presents to Eligible Optionees a better opportunity to know final pricing terms at an earlier time than in the case of the Option Repricing Offers, in which pricing terms were not known until six months and a day after irrevocable commitment from the participant. In addition, the use of an averaging period will expose participants in the Program to less price volatility risk than in the case of the Option Repricing Offers, which established the terms of the repriced options on the basis of a single day's stock price. The Program also provides Eligible Optionees with the opportunity to estimate their total payments at the beginning of and throughout the Election Period, by reference to a table that will be provided to them, as described above.
The Program may present "prompt payment" issues, arising from the facts that the payment for Eligible Options tendered under the Program will not be determined until the end of the Averaging Period. These "prompt payment" issues are addressed under the headings "Withdrawal Rights" and "Fixed/Variable Price" above. As noted above, the fact that the Program is subject to the satisfaction of certain conditions following the end of the Election Period will be prominently disclosed in the information regarding the Program distributed to Eligible Optionees.
Based on the similarity of the functional objectives of Comcast's contemplated Program, the Option Repricing Offers and the Microsoft Program, and the similarity of the mechanical features of the Program and the Analogous Facilities, we believe it is appropriate to afford to the Program the same established framework of functional relief that has been granted in the context of these precedents.
In light of the foregoing discussion, we respectfully ask that, in relation to the Program and consistent with the foregoing discussion, the Staff grant Comcast relief from compliance with specific provisions of Rule 13e-4 of the General Rules and Regulations under the Exchange Act pursuant to Rule 13e-4(h)(9) thereof and that the Staff confirm that it will not recommend that the Commission take enforcement action pursuant to Rules 14e-1(b) and (c) thereof. If for any reason you do not agree with our conclusions as set forth herein, we would gratefully appreciate the opportunity to discuss by telephone any questions or comments members of the Division may have regarding our requests contained herein, prior to any written response to this letter. Please contact me at 215-981-4773 with your questions, comments or requests for additional information.
In accordance with SEC Release No. 33-6269, we have submitted seven copies of this letter in addition to this original.
Very truly yours,
/s/ Robert A. Friedel
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