Charter 2004 Annual Report Download - page 71

CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
Acceleration of Indebtedness of Charter’s Subsidiar- payment by such subsidiary of its liabilities, such subsidiary may
ies. In the event of a default under our credit facilities or not have sufficient assets remaining to make any payments to
notes, our creditors could elect to declare all amounts borrowed, Charter as an equity holder or otherwise and may be restricted
together with accrued and unpaid interest and other fees, to be by bankruptcy and insolvency laws from making any such
due and payable. In such event, our credit facilities and payments. The foregoing contractual and legal restrictions could
indentures would not permit Charter’s subsidiaries to distribute limit Charter’s ability to make payments of principal and/or
funds to Charter Holdco or Charter to pay interest or principal interest to the holders of its convertible senior notes.
on our notes. If the amounts outstanding under such credit Securities Litigation and Government Investigations.
facilities or notes are accelerated, all of the debt and liabilities of A number of putative federal class action lawsuits have been
Charter’s subsidiaries would be payable from the subsidiaries’ filed against us and certain of our former and present officers
assets, prior to any distribution of the subsidiaries’ assets to pay and directors alleging violations of securities laws, which have
the interest and principal amounts on Charter’s notes. In been consolidated for pretrial purposes. In addition, a number of
addition, the lenders under our credit facilities could foreclose other lawsuits have been filed against us in other jurisdictions. A
on their collateral, which includes equity interests in Charter’s shareholders derivative suit was filed in the U.S. District Court
subsidiaries, and they could exercise other rights of secured for the Eastern District of Missouri, and several class action
creditors. In any such case, we might not be able to repay or lawsuits were filed in Delaware state court against us and certain
make any payments on our notes. Additionally, an acceleration of our directors and officers. Finally, three shareholders deriva-
or payment default under our credit facilities would cause a tive suits were filed in Missouri state court against us, our then
cross-default in the indentures governing the Charter Holdings current directors and our former independent auditor. These
notes, CCH II notes, CCO Holdings notes, Charter Operating actions have been consolidated. The federal shareholders deriva-
notes and Charter’s convertible senior notes and would trigger tive suit, the Delaware class actions and the consolidated
the cross-default provision of the Charter Operating credit derivative suit each alleged that the defendants breached their
agreement. Any default under any of our credit facilities or notes fiduciary duties. In addition, Charter recently entered into
might adversely affect the holders of our notes and our growth, Stipulations of Settlement setting forth proposed terms of
financial condition and results of operations and could force us settlement for the above described class actions and derivative
to examine all options, including seeking the protection of the suits. Settlement of those actions under the terms of the
bankruptcy laws. memoranda is subject to a number of conditions, and there can
Charter Communications, Inc.’s Convertible Senior therefore be no assurance that the actions will be settled on
Notes are Structurally Subordinated to all Liabilities of its those terms or at all. Additionally, a portion of the settlement is
Subsidiaries. The borrowers and guarantors under the Char- to be paid in shares of Charter’s Class A common stock with a
ter Operating credit facilities and senior second-lien notes are value of $45 million (includes shares issuable to insurance
Charter’s indirect subsidiaries. A number of Charter’s subsidiaries carriers) and warrants to purchase Charter’s Class A common
are also obligors under other debt instruments, including Charter stock valued at $40 million, with such values in each case
Holdings, CCH II, CCO Holdings and Charter Operating, which determined by formulas set forth in the Stipulations of Settle-
are each a co-issuer of senior notes and/or senior discount ment. If the price of Charter’s common stock declines, addi-
notes. As of December 31, 2004, our total debt was approxi- tional shares will be required in order to fulfill this commitment.
mately $19.5 billion, of which $18.5 billion was structurally Charter has the right but not the obligation to terminate the
senior to the Charter convertible senior notes. In a liquidation, settlements if the value of its common stock (under the above-
the lenders under our credit facilities and the holders of the described formula) is less than $2.25. See ‘‘Part II, Item 1. Legal
other debt instruments and all other creditors of Charter’s Proceedings.’’
subsidiaries would have the right to be paid before holders of In August 2002, we became aware of a grand jury
Charter’s convertible senior notes from any of Charter’s subsidi- investigation being conducted by the U.S. Attorney’s Office for
aries’ assets. the Eastern District of Missouri into certain of our accounting
The Charter Operating credit facilities and the indentures and reporting practices focusing on how we reported customer
governing the senior notes, senior discount notes and senior numbers, and our reporting of amounts received from digital
second-lien notes issued by subsidiaries of Charter contain set-top terminal suppliers for advertising. The U.S. Attorney’s
restrictive covenants that limit the ability of such subsidiaries to Office has publicly stated that we are not a target of the
make distributions or other payments to Charter Holdco or investigation. We have also been advised by the U.S. Attorney’s
Charter to enable Charter to make payments on its convertible Office that no member of our board of directors is a target of
senior notes. In addition, if Charter caused a subsidiary to make a the investigation. On July 24, 2003, a federal grand jury charged
distribution to enable it to make payments on its convertible four former officers of Charter with conspiracy and mail and
senior notes, and such transfer were deemed a fraudulent transfer wire fraud, alleging improper accounting and reporting practices
or an unlawful distribution, the holders of Charter’s convertible focusing on revenue from digital set-top terminal suppliers and
senior notes could be required to return the payment to (or for inflated customer account numbers. Trial was set for February 7,
the benefit of) the creditors of its subsidiaries. In the event of the 2005. Subsequently, each of the indicted former officers pled
bankruptcy, liquidation or dissolution of a subsidiary, following guilty to single conspiracy counts related to the original mail
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