Charter 2002 Annual Report Download - page 114

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
(dollars in millions, except where indicated)
serves as a director for ADC Telecommunications. Such fees for the years ended December 31, 2002 and 2001
were each less than 1% of total operating expenses under this arrangement.
On January 10, 2003 Charter signed an agreement to carry two around-the-clock, high-deÑnition
networks, HDNet and HDNet Movies. The Company believes that entities controlled by Mr. Mark Cuban,
co-founder and president of HDNet, owns 96.9% of HDNet and HDNet Movies as of December 31, 2002. As
of December 31, 2002 Mr. Cuban, owns approximately 5.3% equity interest in Charter.
As part of the Bresnan acquisition in February 2000, CC VIII, an indirect limited liability company
subsidiary of Charter, issued the CC VIII Interest to 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. 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. Our 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.
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