Charter 2005 Annual Report Download - page 103

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
management fees payable by our subsidiaries to CII were approximately $630 million to certain sellers affiliated with
approximately $14 million, exclusive of any interest that may be AT&T Broadband, subsequently owned by Comcast Corpora-
charged and are included in deferred management fees — related tion (the ‘‘Comcast sellers’’). Mr. Allen granted the Comcast
party on the consolidated balance sheets contained in ‘‘Item 8. sellers the right to sell to him the CC VIII interest for
Financial Statements and Supplementary Data.’’ approximately $630 million plus 4.5% interest annually from
February 2000 (the ‘‘Comcast put right’’). In April 2002, the
Charter Communications Holding Company, LLC Limited Liability Comcast sellers exercised the Comcast put right in full, and this
Agreement – Taxes transaction was consummated on June 6, 2003. Accordingly,
The limited liability company agreement of Charter Holdco Mr. Allen, indirectly through a company controlled by him, CII,
contains special provisions regarding the allocation of tax losses became the holder of the CC VIII interest. In the event of a
and profits among its members — Vulcan Cable III Inc., CII and liquidation of CC VIII, Mr. Allen would be entitled to a priority
us. In some situations, these provisions may cause us to pay distribution with respect to a 2% priority return (which will
more tax than would otherwise be due if Charter Holdco had continue to accrete). Any remaining distributions in liquidation
allocated profits and losses among its members based generally would be distributed to CC V Holdings, LLC and Mr. Allen in
on the number of common membership units. See ‘‘Item 7. proportion to CC V Holdings, LLC’s capital account and
Management’s Discussion and Analysis of Financial Condition Mr. Allen’s capital account (which will equal the initial capital
and Results of Operations — Critical Accounting Policies and account of the Comcast sellers of approximately $630 million,
Estimates — Income Taxes.’’ increased or decreased by Mr. Allen’s pro rata share of
Vulcan Ventures Channel Access Agreement CC VIII’s profits or losses (as computed for capital account
Vulcan Ventures, an entity controlled by Mr. Allen, Charter, CII purposes) after June 6, 2003).
and Charter Holdco are parties to an agreement dated Septem- An issue arose as to whether the documentation for the
ber 21, 1999 granting to Vulcan Ventures the right to use up to Bresnan transaction was correct and complete with regard to
eight of our digital cable channels as partial consideration for a the ultimate ownership of the CC VIII interest following
prior capital contribution of $1.325 billion. Specifically, at Vulcan consummation of the Comcast put right. Thereafter, the board
Ventures’ request, we will provide Vulcan Ventures with of directors of Charter formed a Special Committee (comprised
exclusive rights for carriage of up to eight digital cable television of Messrs. Merritt, Tory and Wangberg) to investigate the
programming services or channels on each of the digital cable matter and take any other appropriate action on behalf of
systems with local and to the extent available, national control Charter with respect to this matter. After conducting an
of the digital product owned, operated, controlled or managed investigation of the relevant facts and circumstances, the Special
by Charter or its subsidiaries now or in the future of 550 Committee determined that a ‘‘scrivener’s error’’ had occurred in
megahertz or more. If the system offers digital services but has February 2000 in connection with the preparation of the last-
less than 550 megahertz of capacity, then the programming minute revisions to the Bresnan transaction documents and that,
services will be equitably reduced. Upon request of Vulcan as a result, Charter should seek the reformation of the Charter
Ventures, we will attempt to reach a comprehensive program- Holdco limited liability company agreement, or alternative relief,
ming agreement pursuant to which it will pay the programmer, in order to restore and ensure the obligation that the CC VIII
if possible, a fee per digital video customer. If such fee interest be automatically exchanged for Charter Holdco units.
arrangement is not achieved, then we and the programmer shall The Special Committee further determined that, as part of such
enter into a standard programming agreement. The initial term contract reformation or alternative relief, Mr. Allen should be
of the channel access agreement was 10 years, and the term required to contribute the CC VIII interest to Charter Holdco in
extends by one additional year (such that the remaining term exchange for 24,273,943 Charter Holdco membership units. The
continues to be 10 years) on each anniversary date of the Special Committee also recommended to the board of directors
agreement unless either party provides the other with notice to of Charter that, to the extent the contract reformation is
the contrary at least 60 days prior to such anniversary date. To achieved, the board of directors should consider whether the
date, Vulcan Ventures has not requested to use any of these CC VIII interest should ultimately be held by Charter Holdco or
channels. However, in the future it is possible that Vulcan Charter Holdings or another entity owned directly or indirectly
Ventures could require us to carry programming that is less by them.
profitable to us than the programming that we would otherwise Mr. Allen disagreed with the Special Committee’s determi-
carry and our results would suffer accordingly. nations described above and so notified the Special Committee.
Mr. Allen contended that the transaction was accurately
Equity Put Rights reflected in the transaction documentation and contemporane-
CC VIII. As part of the acquisition of the cable systems owned ous and subsequent company public disclosures. The Special
by Bresnan Communications Company Limited Partnership in Committee and Mr. Allen determined to utilize the Delaware
February 2000, CC VIII, Charter’s indirect limited liability Court of Chancery’s program for mediation of complex business
company subsidiary, issued, after adjustments, 24,273,943 disputes in an effort to resolve the CC VIII interest dispute.
Class A preferred membership units (collectively, the ‘‘CC VIII As of October 31, 2005, Mr. Allen, the Special Committee,
interest’’) with a value and an initial capital account of Charter, Charter Holdco and certain of their affiliates, agreed to
93