Charter 2004 Annual Report Download - page 145

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2004 FORM 10-K
Notes to Consolidated Financial Statements (continued)
In October 2002, Charter filed a motion with the Judicial were sought by plaintiffs. On July 14, 2004, the Court
Panel on Multidistrict Litigation (the ‘‘Panel’’) to transfer the consolidated this case with the State Derivative Action.
Federal Class Actions to the Eastern District of Missouri. On Separately, on February 12, 2003, a shareholders derivative
March 12, 2003, the Panel transferred the six Federal suit (the ‘‘Federal Derivative Action’’) was filed against Charter
Class Actions not filed in the Eastern District of Missouri to that and its then current directors in the United States District Court
district for coordinated or consolidated pretrial proceedings with for the Eastern District of Missouri. The plaintiff in that suit
the eight Federal Class Actions already pending there. The alleged that the individual defendants breached their fiduciary
Panel’s transfer order assigned the Federal Class Actions to duties and grossly mismanaged Charter by failing to establish
Judge Charles A. Shaw. By virtue of a prior court order, and maintain adequate internal controls and procedures.
StoneRidge Investment Partners LLC became lead plaintiff upon As noted above, Charter entered into Memoranda of
entry of the Panel’s transfer order. StoneRidge subsequently filed Understanding on August 5, 2004 setting forth agreements in
a Consolidated Amended Complaint. The Court subsequently principle regarding settlement of the Consolidated Federal
consolidated the Federal Class Actions into a single action (the Class Action, the State Derivative Action(s) and the Federal
‘‘Consolidated Federal Class Action’’) for pretrial purposes. On Derivative Action (the ‘‘Actions’’). Charter and various other
June 19, 2003, following a status and scheduling conference with defendants in those actions subsequently entered into Stipula-
the parties, the Court issued a Case Management Order setting tions of Settlement dated as of January 24, 2005, setting forth a
forth a schedule for the pretrial phase of the Consolidated settlement of the Actions in a manner consistent with the terms
Class Action. Motions to dismiss the Consolidated Amended of the Memorandum of Understanding. The Stipulations of
Complaint were filed. On February 10, 2004, in response to a Settlement, along with the various supporting documentation,
joint motion made by StoneRidge and defendants, Charter, were filed with the Court on February 2, 2005. The Settlements
Vogel and Allen, the court entered an order providing, among provide that, in exchange for a release of all claims by plaintiffs
other things, that: (1) the parties who filed such motion engage against Charter and its former and present officers and directors
in a mediation within ninety (90) days; and (2) all proceedings named in the Actions, Charter will pay to the plaintiffs a
in the Consolidated Federal Class Actions were stayed until combination of cash and equity collectively valued at $144 mil-
May 10, 2004. On May 11, 2004, the Court extended the stay in lion, which will include the fees and expenses of plaintiffs’
the Consolidated Federal Class Action for an additional sixty counsel. Of this amount, $64 million will be paid in cash (by
(60) days. On July 12, 2004, the parties submitted a joint motion Charter’s insurance carriers) and the balance will be paid in
to again extend the stay, this time until September 10, 2004. shares of Charter Class A common stock having an aggregate
The Court granted that extension on July 20, 2004. On value of $40 million and ten-year warrants to purchase shares of
August 5, 2004, Stoneridge, Charter and the individual defend- Charter Class A common stock having an aggregate warrant
ants who were the subject of the suit entered into a Memoran- value of $40 million. The warrants would have an exercise price
dum of Understanding setting forth agreements in principle to equal to 150% of the fair market value (as defined) of Charter
settle the Consolidated Federal Class Action. These parties Class A common stock as of the date of the entry of the order
subsequently entered into Stipulations of Settlement dated as of of final judgment approving the settlement. In addition, Charter
January 24, 2005 (described more fully below) which incorporate expects to issue additional shares of its Class A common stock
the terms of the August 5, 2004 Memorandum of to its insurance carrier having an aggregate value of $5 million.
Understanding. As a result, in the second quarter of 2004, the Company
On September 12, 2002, a shareholders derivative suit (the recorded a $149 million litigation liability within other long-term
‘‘State Derivative Action’’) was filed in the Circuit Court of the liabilities and a $64 million insurance receivable as part of other
City of St. Louis, State of Missouri (the ‘‘Missouri State Court’’) non-current assets on its consolidated balance sheet and an
against Charter and its then current directors, as well as its $85 million special charge on its consolidated statement of
former auditors. A substantively identical derivative action was operations. Additionally, as part of the settlements, Charter will
later filed and consolidated into the State Derivative Action. The also commit to a variety of corporate governance changes,
plaintiffs allege that the individual defendants breached their internal practices and public disclosures, some of which have
fiduciary duties by failing to establish and maintain adequate already been undertaken and none of which are inconsistent
internal controls and procedures. Unspecified damages, allegedly with measures Charter is taking in connection with the recent
on Charter’s behalf, were sought by the plaintiffs. conclusion of the SEC investigation described below. Docu-
On March 12, 2004, an action substantively identical to the ments related to the settlement of the Actions have now been
State Derivative Action was filed in the Missouri State Court, executed and filed. On February 15, 2005, the United States
against Charter and certain of its current and former directors, District Court for the Eastern District of Missouri gave
as well as its former auditors. The plaintiffs in that case alleged preliminary approval to the settlement of the Actions. The
that the individual defendants breached their fiduciary duties by settlement of each of the lawsuits remains conditioned upon,
failing to establish and maintain adequate internal controls and among other things, final judicial approval of the settlements
procedures. Unspecified damages, allegedly on Charter’s behalf, following notice to the class, and dismissal, with prejudice, of
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