Charter 2002 Annual Report Download - page 102

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
(dollars in millions, except where indicated)
As part of the Bresnan acquisition in February 2000, CC VIII, an indirect limited liability company
subsidiary of Charter, issued Class A Preferred Membership Interests (collectively, the CC VIII Interest)
with a value and an initial capital account of approximately $630 million to certain sellers aÇliated with
AT&T Broadband, now owned by Comcast Corporation (the Comcast Sellers). The CC VIII Interest is
entitled to a 2% priority return on its initial capital amount and such priority return is entitled to preferential
distributions from available cash and upon liquidation of CC VIII. The CC VIII Interest generally does not
share in the proÑts and losses of CC VIII at present. The Comcast Sellers have the right at their option to
exchange the CC VIII Interest for shares of Charter Class A common stock. Charter does not have the right
to force such an exchange. In connection with the Bresnan acquisition, Mr. Allen granted the Comcast Sellers
the right to sell to Mr. Allen the CC VIII Interest (or any Charter Class A common stock that the Comcast
Sellers would receive if they exercised their exchange right) for approximately $630 million plus 4.5% interest
annually from February 2000 (the Comcast Put Right). In April 2002, in accordance with such put
agreement, the Comcast Sellers notiÑed Mr. Allen of their exercise of the Comcast Put Right in full, and the
parties agreed to consummate the sale in April 2003, although the parties also agreed to negotiate in good faith
possible alternatives to the closing. On April 9, 2003, the parties agreed to extend the closing for up to thirty
days. If the sale to Mr. Allen is consummated, Mr. Allen would become the holder of the CC VIII Interest
(or, if previously exchanged by the current holders, any Charter Class A common stock issued to the current
holders upon such exchange). If the CC VIII Interest is transferred to Mr. Allen, then, subject to the matters
referenced in the next paragraph, Mr. Allen generally thereafter would be allocated his pro rata share (based
on number of membership interests outstanding) of proÑts or losses of CC VIII. In the event of a liquidation
of CC VIII, Mr. Allen would not be entitled to any priority distributions (except with respect to the 2%
priority return, as to which such priority would continue), and Mr. Allen's share of any remaining distributions
in liquidation would be equal to the initial capital account of the Comcast Sellers of approximately
$630 million, increased or decreased by Mr. Allen's pro rata share of CC VIII's proÑts or losses (as computed
for capital account purposes) after the date of the transfer of the CC VIII Interest to Mr. Allen.
An issue has arisen as to whether the documentation for the Bresnan transaction was correct and
complete with regard to the ultimate ownership of the CC VIII Interest following consummation of the
Comcast Put Right. Charter's Board of Directors has formed a Special Committee comprised of Messrs. Tory,
Wangberg and Nelson to investigate and take any other appropriate action on behalf of the Company with
respect to this matter. SpeciÑcally, the Special Committee is considering whether it should be the position of
Charter that Mr. Allen should be required to contribute the CC VIII Interest to Charter Holdco in exchange
for Charter Holdco membership units, immediately after his acquisition of the CC VIII Interest upon
consummation of the Comcast Put Right. To the extent it is ultimately determined that Mr. Allen must
contribute the CC VIII Interest to Charter Holdco following consummation of the Comcast Put Right, the
Special Committee may also consider what additional steps, if any, should be taken with respect to the further
disposition of the CC VIII Interest by Charter Holdco. If necessary, following the completion of the Special
Committee's investigation of the facts and circumstances relating to this matter, the Special Committee and
Mr. Allen have agreed to a non-binding mediation process to resolve any dispute relating to this matter as soon
as practicable, but without any prejudice to any rights of the parties if such dispute is not resolved as part of
the mediation.
12. Redeemable Securities
In connection with several acquisitions in 1999 and 2000, sellers who acquired Charter Holdco
membership units, additional equity interests in a subsidiary of Charter Holdings or shares of Class A common
stock in Charter's initial public oÅering received potential rescission rights against Charter and Charter
Holdco arising out of possible violations of Section 5 of the Securities Act of 1933, as amended, in connection
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