Charter 2004 Annual Report Download - page 125

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2004 FORM 10-K
Notes to Consolidated Financial Statements (continued)
5.75% convertible senior notes for shares of Charter Class A on December 1 and June 1, beginning December 1, 2001, until
common stock. The exchanges resulted in the issuance of more maturity on June 1, 2006.
shares in the exchange transaction than would have been Upon a change of control, subject to certain conditions and
issuable under the original terms of the convertible senior notes. restrictions, Charter may be required to repurchase the notes, in
In September 2003, Charter, Charter Holdings and their whole or in part, at 100% of their principal amount plus accrued
indirect subsidiary, CCH II purchased, in a non-monetary interest at the repurchase date.
transaction, a total of approximately $609 million principal 5.875% Charter Convertible Notes. In November 2004, Charter
amount of Charter’s outstanding convertible senior notes and
issued 5.875% convertible senior notes due 2009 with a total
approximately $1.3 billion principal amount of the senior notes
original principal amount of $862.5 million. The 5.875% Charter
and senior discount notes issued by Charter Holdings from
convertible notes are convertible at any time at the option of
institutional investors in a small number of privately negotiated
the holder into shares of Class A common stock at an initial
transactions. As consideration for these securities, CCH II issued
conversion rate of 413.2231 shares per $1,000 principal amount
approximately $1.6 billion principal amount of 10.25% notes due
of notes, which is equivalent to a conversion price of approxi-
2010, and realized approximately $294 million of debt discount.
mately $2.42 per share, subject to certain adjustments. Specifi-
CCH II also issued an additional $30 million principal amount
cally, the adjustments include anti-dilutive provisions, which
of 10.25% notes for an equivalent amount of cash and used the
cause adjustments to occur automatically based on the occur-
proceeds for transaction costs and for general corporate pur-
rence of specified events to provide protection rights to holders
poses. This transaction resulted in a gain on extinguishment of
of the notes. The conversion rate may also be increased (but not
debt of $267 million for the year ended December 31, 2003. See
to exceed 462 shares per $1,000 principal amount of notes)
discussion of the CCH II notes below for more details.
upon a specified change of control transaction. Additionally,
5.75% Charter Convertible Notes. In October and November 2000, Charter may elect to increase the conversion rate under certain
Charter issued 5.75% convertible senior notes with a total circumstances when deemed appropriate and subject to applica-
principal amount at maturity of $750 million. The 5.75% Charter ble limitations of the NASDAQ stock market. Holders who
convertible notes were convertible at the option of the holder convert their notes prior to November 16, 2007 will receive an
into shares of Class A common stock at a conversion rate of early conversion make whole amount in respect of their notes
46.3822 shares per $1,000 principal amount of notes, which was based on a proportional share of the portfolio of pledged
equivalent to a price of $21.56 per share, subject to certain securities described below, with specified adjustments.
adjustments. The remaining $588 million of these notes was The 5.875% Charter convertible notes are unsecured
redeemed on December 23, 2004 at a price of 101.15% of the (except with respect to the collateral as described below) and
outstanding principal amount plus accrued and unpaid interest rank equally with existing and future unsubordinated and
through the redemption date. unsecured indebtedness (except with respect to the collateral
described below), but are structurally subordinated to all existing
4.75% Charter Convertible Notes. In May 2001, Charter issued and future indebtedness and other liabilities of Charter’s subsidi-
4.75% convertible senior notes with a total principal amount at aries. Upon a change of control and certain other fundamental
maturity of $633 million. As of December 31, 2004, there was changes, subject to certain conditions and restrictions, Charter
$156 million in total principal amount of these notes outstand- may be required to repurchase the notes, in whole or in part, at
ing. The 4.75% Charter convertible notes rank equally with any 100% of their principal amount plus accrued interest at the
of Charter’s future unsubordinated and unsecured indebtedness, repurchase date.
but are structurally subordinated to all existing and future Interest is payable semi-annually in arrears. Charter Holdco
indebtedness and other liabilities of Charter’s subsidiaries. used a portion of the proceeds from the sale of the notes to
The 4.75% Charter convertible notes are convertible at the purchase a portfolio of U.S. government securities in an amount
option of the holder into shares of Class A common stock at a which the Company believes will be sufficient to make the first
conversion rate of 38.0952 shares per $1,000 principal amount of six interest payments on the notes. These government securities
notes, which is equivalent to a price of $26.25 per share, subject were pledged to the Company as security for a mirror note
to certain adjustments. Specifically, the adjustments include anti- issued by Charter Holdco to Charter (as discussed below) and
dilutive provisions, which automatically occur based on the pledged to the trustee under the indenture governing the notes
occurrence of specified events to provide protection rights to as security for the Company’s obligations thereunder. The
holders of the notes. Additionally, Charter may adjust the Company expects to use such securities to fund the first six
conversion ratio under certain circumstances when deemed interest payments under the notes. The pledged securities
appropriate. These notes are redeemable at Charter’s option at totaled $144 million at December 31, 2004. Any holder that
amounts decreasing from 101.9% to 100% of the principal converts its notes prior to the third anniversary of the issue date
amount, plus accrued and unpaid interest beginning on June 4, will be entitled to receive, in addition to the requisite number of
2004, to the date of redemption. Interest is payable semiannually shares upon conversion, an interest make whole payment equal
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