Charter 2005 Annual Report Download - page 138

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2005 FORM 10-K
Notes to Consolidated Financial Statements (continued)
and senior discount notes issued by Charter Holdings from principal amount of notes, which is equivalent to a conversion
institutional investors in a small number of privately negotiated price of approximately $2.42 per share, subject to certain
transactions. As consideration for these securities, CCH II issued adjustments. Specifically, the adjustments include anti-dilutive
approximately $1.6 billion principal amount of 10.25% notes due provisions, which cause adjustments to occur automatically
2010, and realized approximately $294 million of debt discount. based on the occurrence of specified events to provide protec-
CCH II also issued an additional $30 million principal amount tion rights to holders of the notes. The conversion rate may also
of 10.25% notes for an equivalent amount of cash and used the be increased (but not to exceed 462 shares per $1,000 principal
proceeds for transaction costs and for general corporate pur- amount of notes) upon a specified change of control transaction.
poses. This transaction resulted in a gain on extinguishment of Additionally, Charter may elect to increase the conversion rate
debt of $267 million for the year ended December 31, 2003. See under certain circumstances when deemed appropriate and
discussion of the CCH II notes below for more details. subject to applicable limitations of the NASDAQ stock market.
Holders who convert their notes prior to November 16, 2007
4.75% Charter Convertible Notes. In May 2001, Charter issued will receive an early conversion make whole amount in respect
4.75% convertible senior notes with a total principal amount at of their notes based on a proportional share of the portfolio of
maturity of $633 million. As of December 31, 2005, there was pledged securities described below, with specified adjustments.
$20 million in total principal amount of these notes outstanding. No holder of notes will be entitled to receive shares of our
The 4.75% Charter convertible notes rank equally with any of Class A common stock on conversion to the extent that receipt
Charter’s future unsubordinated and unsecured indebtedness, but of the shares would cause the converting holder to become,
are structurally subordinated to all existing and future indebted- directly or indirectly, a ‘‘beneficial holder’’ (within the meaning
ness and other liabilities of Charter’s subsidiaries. of Section 13(d) of the Exchange Act and the rules and
The 4.75% Charter convertible notes are convertible at the regulations promulgated thereunder) of more than 4.9% of the
option of the holder into shares of Class A common stock at a outstanding shares of our Class A common stock if such
conversion rate of 38.0952 shares per $1,000 principal amount of conversion would take place prior to November 16, 2008, or
notes, which is equivalent to a price of $26.25 per share, subject more than 9.9% thereafter.
to certain adjustments. Specifically, the adjustments include anti- If a holder tenders a note for conversion, we may direct
dilutive provisions, which automatically occur based on the that holder (unless we have called those notes for redemption)
occurrence of specified events to provide protection rights to to a financial institution designated by us to conduct a
holders of the notes. Additionally, Charter may adjust the transaction with that institution, on substantially the same terms
conversion ratio under certain circumstances when deemed that the holder would have received on conversion, but if any
appropriate. These notes are redeemable at Charter’s option at such financial institution does not accept such notes or does not
amounts decreasing from 101.9% to 100% of the principal deliver the required conversion consideration, we remain obli-
amount, plus accrued and unpaid interest beginning on June 4, gated to convert the notes.
2004, to the date of redemption. Interest is payable semiannually Charter Holdco used a portion of the proceeds from the
on December 1 and June 1, until maturity on June 1, 2006. sale of the notes to purchase a portfolio of U.S. government
Upon a change of control, subject to certain conditions and securities in an amount which we believe will be sufficient to
restrictions, Charter may be required to repurchase the notes, in make the first six interest payments on the notes. These
whole or in part, at 100% of their principal amount plus accrued government securities were pledged to us as security for a
interest at the repurchase date. mirror note issued by Charter Holdco to Charter and pledged
to the trustee under the indenture governing the notes as
5.875% Charter Convertible Notes. In November 2004, Charter security for our obligations thereunder. Such securities are being
issued 5.875% convertible senior notes due 2009 with a total used to fund the next four interest payments under the notes.
original principal amount of $862.5 million. The 5.875% convert- The fair value of the pledged securities was $97 million at
ible senior notes are unsecured (except with respect to the December 31, 2005.
collateral as described below) and rank equally with our existing Upon a change of control and certain other fundamental
and future unsubordinated and unsecured indebtedness (except changes, subject to certain conditions and restrictions, Charter
with respect to the collateral described below), but are structur- may be required to repurchase the notes, in whole or in part, at
ally subordinated to all existing and future indebtedness and 100% of their principal amount plus accrued interest at the
other liabilities of our subsidiaries. Interest is payable semi- repurchase date.
annually in arrears. As of December 31, 2005, there was We may redeem the notes in whole or in part for cash at
$862.5 million in total principal amount outstanding and any time at a redemption price equal to 100% of the aggregate
$843 million in accreted value outstanding. principal amount plus accrued and unpaid interest, deferred
The 5.875% convertible senior notes are convertible at any interest and liquidated damages, if any, but only if for any 20
time at the option of the holder into shares of Class A common trading days in any 30 consecutive trading day period the
stock at an initial conversion rate of 413.2231 shares per $1,000 closing price has exceeded 180% of the conversion price, if such
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