Charter 2004 Annual Report Download - page 140

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2004 FORM 10-K
Notes to Consolidated Financial Statements (continued)
examination to have a material adverse effect on the Company’s rate of 10% per year, compounded annually, from the date it
consolidated financial condition or results of operation. was due and payable until the date it is paid.
Mr. Allen, the controlling shareholder of Charter, and a
22. Related Party Transactions number of his affiliates have interests in various entities that
provide services or programming to Charter’s subsidiaries. Given
The following sets forth certain transactions in which the the diverse nature of Mr. Allen’s investment activities and
Company and the directors, executive officers and affiliates of interests, and to avoid the possibility of future disputes as to
the Company are involved. Unless otherwise disclosed, manage- potential business, Charter and Charter Holdco, under the terms
ment believes that each of the transactions described below was of their respective organizational documents, may not, and may
on terms no less favorable to the Company than could have not allow their subsidiaries to engage in any business transaction
been obtained from independent third parties. outside the cable transmission business except for certain
Charter is a holding company and its principal assets are its existing approved investments. Should Charter or Charter
equity interest in Charter Holdco and certain mirror notes Holdco or any of their subsidiaries wish to pursue, or allow
payable by Charter Holdco to Charter and mirror preferred their subsidiaries to pursue, a business transaction outside of this
units held by Charter, which have the same principal amount scope, it must first offer Mr. Allen the opportunity to pursue the
and terms as those of Charter’s convertible senior notes and particular business transaction. If he decides not to pursue the
Charter’s outstanding preferred stock. In 2004, Charter Holdco business transaction and consents to Charter or its subsidiaries
paid to Charter $49 million related to interest on the mirror engaging in the business transaction, they will be able to do so.
notes, and Charter Holdco paid an additional $4 million related The cable transmission business means the business of transmit-
to dividends on the mirror preferred membership units. Further, ting video, audio, including telephony, and data over cable
during 2004 Charter Holdco issued 7,252,818 common member- systems owned, operated or managed by Charter, Charter
ship units to Charter in cancellation of $30 million principal Holdco or any of their subsidiaries from time to time.
amount of mirror notes so as to mirror the issuance by Charter Mr. Allen or his affiliates own or have owned equity
of Class A common stock in exchange for a like principal interests or warrants to purchase equity interests in various
amount of its outstanding convertible notes. entities with which the Company does business or which
Charter is a party to management arrangements with provides it with products, services or programming. Among
Charter Holdco and certain of its subsidiaries. Under these these entities are TechTV L.L.C. (‘‘TechTV’’), Oxygen Media
agreements, Charter provides management services for the cable Corporation (‘‘Oxygen Media’’), Digeo, Inc., Click2learn, Inc.,
systems owned or operated by its subsidiaries. The management Trail Blazer Inc., Action Sports Cable Network (‘‘Action
services include such services as centralized customer billing Sports’’) and Microsoft Corporation. In addition, Mr. Allen and
services, data processing and related support, benefits adminis- William Savoy, a former Charter director, were directors of USA
tration and coordination of insurance coverage and self-insur- Networks, Inc. (‘‘USA Networks’’), who operates the USA
ance programs for medical, dental and workers’ compensation Network, The Sci-Fi Channel, Trio, World News International
claims. Costs associated with providing these services are billed and Home Shopping Network, owning approximately 5% and
and charged directly to the Company’s operating subsidiaries less than 1%, respectively, of the common stock of USA
and are included within operating costs in the accompanying Networks. In 2002, Mr. Allen and Mr. Savoy sold their common
consolidated statements of operations. Such costs totaled stock and are no longer directors of the USA Network. In May
$202 million, $210 million and $176 million for the years ended 2004, TechTV was sold to an unrelated third party. Mr. Allen
December 31, 2004, 2003 and 2002, respectively. All other costs owns 100% of the equity of Vulcan Ventures Incorporated
incurred on the behalf of Charter’s operating subsidiaries are (‘‘Vulcan Ventures’’) and Vulcan Inc. and is the president of
considered a part of the management fee and are recorded as a Vulcan Ventures. Ms. Jo Allen Patton is a director and the
component of selling, general and administrative expense, in the President and Chief Executive Officer of Vulcan Inc. and is a
accompanying consolidated financial statements. For the years director and Vice President of Vulcan Ventures. Mr. Lance
ended December 31, 2004, 2003 and 2002, the management fee Conn is Executive Vice President of Vulcan Inc. and Vulcan
charged to the Company’s operating subsidiaries approximated Ventures. Mr. Savoy was a vice president and a director of
the expenses incurred by Charter Holdco and Charter on behalf Vulcan Ventures until his resignation in September 2003 and he
of the Company’s operating subsidiaries. The credit facilities of resigned as a director of Charter in April 2004. The various
the Company’s operating subsidiaries prohibit payments of cable, media, Internet and telephony companies in which
management fees in excess of 3.5% of revenues until repayment Mr. Allen has invested may mutually benefit one another. The
of the outstanding indebtedness. In the event any portion of the Company can give no assurance, nor should you expect, that
management fee due and payable is not paid, it is deferred by any of these business relationships will be successful, that the
Charter and accrued as a liability of such subsidiaries. Any Company will realize any benefits from these relationships or
deferred amount of the management fee will bear interest at the that the Company will enter into any business relationships in
the future with Mr. Allen’s affiliated companies.
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