Charter 2004 Annual Report Download - page 95

CHARTER COMMUNICATIONS, INC. 2004 FORM 10-K
Committee also recommended to the board of directors of to lend common units to us, the terms of which will, to the
Charter that, to the extent the contract reformation is achieved, extent practicable, mirror the terms of the shares. Charter
the board of directors should consider whether the CC VIII Holdco also redeemed the remaining $588 million principal
interest should ultimately be held by Charter Holdco or Charter amount of the mirror notes in respect of our 5.75% convertible
Holdings or another entity owned directly or indirectly by them. senior notes due 2005 concurrently with our December 23, 2004
Mr. Allen disagrees with the Special Committee’s determi- redemption of our 5.75% convertible senior notes. In addition, in
nations described above and has so notified the Special December 2004, Charter Holdco entered into a unit lending
Committee. Mr. Allen contends that the transaction is accurately agreement with Charter in which it agreed to lend common
reflected in the transaction documentation and contemporane- units to Charter that would mirror the anticipated loan of
ous and subsequent company public disclosures. Class A common shares by Charter to Citigroup Global Markets
The parties engaged in a process of non-binding mediation pursuant to a share lending agreement. The members of Charter
to seek to resolve this matter, without success. The Special Holdco (including the entities controlled by Mr. Allen) also at
Committee is evaluating what further actions or processes it that time entered into a letter agreement providing, among
may undertake to resolve this dispute. To accommodate further other things, that for purposes of the allocation provisions of the
deliberation, each party has agreed to refrain from initiating Limited Liability Company Agreement of Charter Holdco, the
legal proceedings over this matter until it has given at least ten mirror units be treated as disregarded and not outstanding until
days’ prior notice to the other. In addition, the Special such time (and except to the extent) that, under Charter’s share
Committee and Mr. Allen have determined to utilize the lending agreement, Charter treats the loaned shares in a manner
Delaware Court of Chancery’s program for mediation of that assumes they will neither be returned by Charter by the
complex business disputes in an effort to resolve the CC VIII borrower nor otherwise be acquired by Charter in lieu of such a
interest dispute. If the Special Committee and Mr. Allen are return.
unable to reach a resolution through that mediation process or Allocation of Business Opportunities with Mr. Allen
to agree on an alternative dispute resolution process, the Special As described under ‘‘— Third Party Business Relationships in
Committee intends to seek resolution of this dispute through which Mr. Allen has or had an Interest’’ in this section,
judicial proceedings in an action that would be commenced, Mr. Allen and a number of his affiliates have interests in various
after appropriate notice, in the Delaware Court of Chancery entities that provide services or programming to our subsidiaries.
against Mr. Allen and his affiliates seeking contract reformation, Given the diverse nature of Mr. Allen’s investment activities and
declaratory relief as to the respective rights of the parties interests, and to avoid the possibility of future disputes as to
regarding this dispute and alternative forms of legal and potential business, Charter and Charter Holdco, under the terms
equitable relief. The ultimate resolution and financial impact of of their respective organizational documents, may not, and may
the dispute are not determinable at this time. not allow their subsidiaries, to engage in any business transac-
Mirror Securities tion outside the cable transmission business except for the
Charter is a holding company and its principal assets are its Digeo, Inc. joint venture; a joint venture to develop a digital
equity interest in Charter Holdco and certain mirror notes video recorder set-top terminal; an existing investment in Cable
payable by Charter Holdco to Charter and mirror preferred Sports Southeast, LLC, a provider of regional sports program-
units held by Charter, which have the same principal amount ming; as an owner of the business of Interactive Broadcaster
and terms as those of Charter’s convertible senior notes and Services Corporation or, Chat TV, an investment in @Security
Charter’s outstanding preferred stock. In 2004, Charter Holdco Broadband Corp., a company developing broadband security
paid to Charter $49 million related to interest on the mirror applications; and incidental businesses engaged in as of the
notes, and Charter Holdco paid an additional $4 million related closing of Charter’s initial public offering in November 1999.
to dividends on the mirror preferred membership units. Further, This restriction will remain in effect until all of the shares of
during 2004 Charter Holdco issued 7,252,818 common member- Charter’s high-vote Class B common stock have been converted
ship units to Charter in cancellation of $30 million principal into shares of Charter Class A common stock due to Mr. Allen’s
amount of mirror notes so as to mirror the issuance by Charter equity ownership falling below specified thresholds.
of Class A common stock in exchange for a like principal Should Charter or Charter Holdco or any of their
amount of its outstanding convertible notes. In addition, in subsidiaries wish to pursue, or allow their subsidiaries to pursue,
connection with our November 2004 sale of the $862.5 million a business transaction outside of this scope, it must first offer
principal amount of 5.875% convertible senior notes due 2009, Mr. Allen the opportunity to pursue the particular business
Charter Holdco issued to us mirror notes in identical principal transaction. If he decides not to pursue the business transaction
amount in exchange for the proceeds from our offering. Charter and consents to Charter or its subsidiaries engaging in the
Holdco then purchased and pledged certain U.S. government business transaction, they will be able to do so. In any such
securities to us as security for the mirror notes (which were in case, the restated certificate of incorporation of Charter and the
turn repledged by us to the trustee for the benefit of holders of limited liability company agreement of Charter Holdco would
our 5.875% convertible senior notes and which we expect to use need to be amended accordingly to modify the current
to fund the first six interest payments on the notes), and agreed restrictions on the ability of such entities to engage in any
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