Charter 2003 Annual Report Download - page 143

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 and 2001
(dollars in millions, except where indicated)
Comcast sellers, the CC VIII interest was entitled to a 2% priority return on its initial capital account and
such priority return was entitled to preferential distributions from available cash and upon liquidation of CC
VIII, LLC. While held by the Comcast sellers, the CC VIII interest generally did not share in the proÑts and
losses of CC VIII, LLC. Mr. Allen granted the Comcast sellers the right to sell to him the CC VIII interest
for approximately $630 million plus 4.5% interest annually from February 2000 (the ""Comcast put right''). In
April 2002, the Comcast sellers exercised the Comcast put right in full, and this transaction was consummated
on June 6, 2003. Accordingly, Mr. Allen has become the holder of the CC VIII interest, indirectly through an
aÇliate. Consequently, subject to the matters referenced in the next paragraph, Mr. Allen generally thereafter
will be allocated his pro rata share (based on number of membership interests outstanding) of proÑts or losses
of CC VIII, LLC. In the event of a liquidation of CC VIII, LLC, Mr. Allen would be entitled to a priority
distribution with respect to the 2% priority return (which will continue to accrete). Any remaining
distributions in liquidation would be distributed to CC V Holdings, LLC and Mr. Allen in proportion to CC V
Holdings, LLC's capital account and Mr. Allen's capital account (which will equal 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, LLC's proÑts or losses (as computed for capital account purposes) after June 6, 2003). The limited
liability company agreement of CC VIII, LLC does not provide for a mandatory redemption of the CC VIII
interest.
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. SpeciÑcally, under the terms of the Bresnan transaction documents that were entered into
in June 1999, the Comcast sellers originally would have received, after adjustments, 24,273,943 Charter
Holdco membership units, but due to an FCC regulatory issue raised by the Comcast sellers shortly before
closing, the Bresnan transaction was modiÑed to provide that the Comcast sellers instead would receive the
preferred equity interests in CC VIII, LLC represented by the CC VIII interest. As part of the last-minute
changes to the Bresnan transaction documents, a draft amended version of the Charter Holdco limited liability
company agreement was prepared, and contract provisions were drafted for that agreement that would have
required an automatic exchange of the CC VIII interest for 24,273,943 Charter Holdco membership units if
the Comcast sellers exercised the Comcast put right and sold the CC VIII interest to Mr. Allen or his
aÇliates. However, the provisions that would have required this automatic exchange did not appear in the Ñnal
version of the Charter Holdco limited liability company agreement that was delivered and executed at the
closing of the Bresnan transaction. The law Ñrm that prepared the documents for the Bresnan transaction
brought this matter to the attention of Charter and representatives of Mr. Allen in 2002.
Thereafter, the board of directors of Charter formed a Special Committee (currently comprised of
Messrs. Tory, Wangberg and Merritt) to investigate the matter and take any other appropriate action on
behalf of Charter with respect to this matter. After conducting an investigation of the relevant facts and
circumstances, the Special Committee determined that a ""scrivener's error'' had occurred in February 2000 in
connection with the preparation of the last-minute revisions to the Bresnan transaction documents and that, as
a result, Charter should seek the reformation of the Charter Holdco limited liability company agreement, or
alternative relief, in order to restore and ensure the obligation that the CC VIII interest be automatically
exchanged for Charter Holdco units. The Special Committee further determined that, as part of such contract
reformation or alternative relief, Mr. Allen should be required to contribute the CC VIII interest to Charter
Holdco in exchange for 24,273,943 Charter Holdco membership units. The Special Committee also
recommended to the board of directors of Charter that, to the extent the contract reformation is achieved, the
board of directors should consider whether the CC VIII interest should ultimately be held by Charter Holdco
or Charter Holdings or another entity owned directly or indirectly by them.
F-45