Charter 2004 Annual Report Download - page 30

CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
plaintiffs’ counsel. Of this amount, $64 million will be paid in Peretsman, Ronald L. Nelson, William Savoy, and Charter
cash (by Charter’s insurance carriers) and the balance will be Communications, Inc., filed on August 12, 2002;
paid in shares of Charter Class A common stock having an (Helene Giarraputo, on behalf of herself and all others
aggregate value of $40 million and ten-year warrants to similarly situated, v. Paul G. Allen, Carl E. Vogel, Marc B.
purchase shares of Charter Class A common stock having an Nathanson, Ronald L. Nelson, Nancy B. Peretsman, Wil-
aggregate warrant value of $40 million, with such values in each liam Savoy, John H. Tory, Larry W. Wangberg, and
case being determined pursuant to formulas set forth in the Charter Communications, Inc., filed on August 13, 2002;
Stipulations of Settlement. The warrants would have an exercise
(Ronald D. Wells, Whitney Counsil and Manny Varghese,
price equal to 150% of the fair market value (as defined) of
on behalf of themselves and all others similarly situated, v.
Charter Class A common stock as of the date of the entry of
Charter Communications, Inc., Ronald L. Nelson, Paul G.
the order of final judgment approving the settlement. In
Allen, Marc B. Nathanson, Nancy B. Peretsman, William
addition, Charter expects to issue additional shares of its Class A
Savoy, John H. Tory, Carl E. Vogel, Larry W. Wangberg,
common stock to its insurance carrier having an aggregate value
filed on August 13, 2002;
of $5 million. As part of the settlements, Charter will also
commit to a variety of corporate governance changes, internal (Gilbert Herman, on behalf of himself and all others
practices and public disclosures, some of which have already similarly situated, v. Paul G. Allen, Larry W. Wangberg,
been undertaken and none of which are inconsistent with John H. Tory, Carl E. Vogel, Marc B. Nathanson, Nancy B.
measures Charter is taking in connection with the recent Peretsman, Ronald L. Nelson, William Savoy, and Charter
conclusion of the SEC investigation described below. Docu- Communications, Inc., filed on August 14, 2002;
ments related to the settlement of the Actions have now been
(Stephen Noteboom, on behalf of himself and all others
executed and filed. On February 15, 2005, the United States similarly situated, v. Paul G. Allen, Larry W. Wangberg,
District Court for the Eastern District of Missouri gave John H. Tory, Carl E. Vogel, Marc B. Nathanson, Nancy B.
preliminary approval to the settlement of the Actions. The Peretsman, Ronald L. Nelson, William Savoy, and Charter
settlement of each of the lawsuits remains conditioned upon, Communications, Inc., filed on August 16, 2002; and
among other things, final judicial approval of the settlements
following notice to the class, and dismissal with prejudice of the (John Fillmore on behalf of himself and all others similarly
consolidated derivative actions now pending in Missouri State situated, v. Paul G. Allen, Larry W. Wangberg, John H.
Court, which are related to the Federal Derivative Action. In the Tory, Carl E. Vogel, Marc B. Nathanson, Nancy B.
event that the valuation formula in the Stipulations provides for Peretsman, Ronald L. Nelson, William Savoy, and Charter
a per share value of less than $2.25, Charter may elect to Communications, Inc., filed on October 18, 2002.
terminate the settlement.
Government Investigations
In addition to the Federal Class Actions, the State
In August 2002, Charter became aware of a grand jury
Derivative Action(s), the new Missouri State Court derivative
investigation being conducted by the U.S. Attorney’s Office for
action and the Federal Derivative Action, six putative class
the Eastern District of Missouri into certain of its accounting
action lawsuits were filed against Charter and certain of its then
and reporting practices, focusing on how Charter reported
current directors and officers in the Court of Chancery of the
customer numbers, and its reporting of amounts received from
State of Delaware (the ‘‘Delaware Class Actions’’). The lawsuits
digital set-top terminal suppliers for advertising. The
were filed after the filing of a Schedule 13D amendment by
U.S. Attorney’s Office has publicly stated that Charter is not a
Mr. Allen indicating that he was exploring a number of possible
target of the investigation. Charter was also advised by the
alternatives with respect to restructuring or expanding his
U.S. Attorney’s Office that no current officer or member of its
ownership interest in Charter. We believe the plaintiffs specu-
board of directors is a target of the investigation. On July 24,
lated that Mr. Allen might have been contemplating an unfair
2003, a federal grand jury charged four former officers of
bid for shares of Charter or some other sort of going private
Charter with conspiracy and mail and wire fraud, alleging
transaction on unfair terms and generally alleged that the
improper accounting and reporting practices focusing on reve-
defendants breached their fiduciary duties by participating in or
nue from digital set-top terminal suppliers and inflated customer
acquiescing to such a transaction. The lawsuits, which are
account numbers. Trial was set for February 7, 2005. Subse-
substantively identical, were brought on behalf of Charter’s
quently, each of the indicted former officers pled guilty to single
securities holders as of July 29, 2002, and sought unspecified
conspiracy counts related to the original mail and wire fraud
damages and possible injunctive relief. However, no such
charges and are awaiting sentencing. We are fully cooperating
transaction by Mr. Allen has been presented. On April 30, 2004,
with the investigation.
orders of dismissal without prejudice were entered in each of
On November 4, 2002, Charter received an informal, non-
the Delaware Class Actions.
public inquiry from the staff of the SEC. The SEC issued a
The Delaware Class Actions consist of:
formal order of investigation dated January 23, 2003, and
(Eleanor Leonard, v. Paul G. Allen, Larry W. Wangberg, subsequently served document and testimony subpoenas on
John H. Tory, Carl E. Vogel, Marc B. Nathanson, Nancy B. Charter and a number of its former employees. The investiga-
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