Charter 2005 Annual Report Download - page 34

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
of advanced services. Our future success will depend in part on an investment company it could become impractical for us to
our ability to standardize and streamline our operations. The continue our business as currently conducted and our growth,
failure to implement a consistent corporate culture and manage- our financial condition and our results of operations could suffer
ment, operating or financial systems or procedures necessary to materially.
standardize and streamline our operations and effectively operate If a court determines that the Class B common stock is no longer
our enterprise could have a material adverse effect on our entitled to special voting rights, we would lose our rights to manage
business, results of operations and financial condition. Charter Holdco. In addition to the investment company risks discussed
Malicious and abusive Internet practices could impair our high-speed above, this could materially impact the value of the Class A common
Internet services stock.
Our high-speed Internet customers utilize our network to access If a court determines that the Class B common stock is no
the Internet and, as a consequence, we or they may become longer entitled to special voting rights, Charter would no longer
victim to common malicious and abusive Internet activities, such have a controlling voting interest in, and would lose its right to
as unsolicited mass advertising (i.e., ‘‘spam’’) and dissemination manage, Charter Holdco. If this were to occur:
of viruses, worms and other destructive or disruptive software. (we would retain our proportional equity interest in Charter
These activities could have adverse consequences on our Holdco but would lose all of our powers to direct the
network and our customers, including degradation of service, management and affairs of Charter Holdco and its
excessive call volume to call centers and damage to our or our subsidiaries; and
customers’ equipment and data. Significant incidents could lead
(we would become strictly a passive investment vehicle and
to customer dissatisfaction and, ultimately, loss of customers or
would be treated under the Investment Company Act as an
revenue, in addition to increased costs to us to service our
investment company.
customers and protect our network. Any significant loss of high-
speed Internet customers or revenue or significant increase in This result, as well as the impact of being treated under the
costs of serving those customers could adversely affect our Investment Company Act as an investment company, could
growth, financial condition and results of operations. materially adversely impact:
We could be deemed an ‘‘investment company’’ under the Investment (the liquidity of the Class A common stock;
Company Act of 1940. This would impose significant restrictions on
(how the Class A common stock trades in the marketplace;
us and would be likely to have a material adverse impact on our
growth, financial condition and results of operation. (the price that purchasers would be willing to pay for the
Class A common stock in a change of control transaction
Our principal assets are our equity interests in Charter Holdco or otherwise; and
and certain indebtedness of Charter Holdco. If our membership
interest in Charter Holdco were to constitute less than 50% of (the market price of the Class A common stock.
the voting securities issued by Charter Holdco, then our interest Uncertainties that may arise with respect to the nature of
in Charter Holdco could be deemed an ‘‘investment security’’ for our management role and voting power and organizational
purposes of the Investment Company Act. This may occur, for documents as a result of any challenge to the special voting
example, if a court determines that the Class B common stock is rights of the Class B common stock, including legal actions or
no longer entitled to special voting rights and, in accordance proceedings relating thereto, may also materially adversely
with the terms of the Charter Holdco limited liability company impact the value of the Class A common stock.
agreement, our membership units in Charter Holdco were to
lose their special voting privileges. A determination that such Risks Related to Mr. Allen’s Controlling Position
interest was an investment security could cause us to be deemed The failure by Mr. Allen to maintain a minimum voting and
to be an investment company under the Investment Company economic interest in us could trigger a change of control default under
Act, unless an exemption from registration were available or we our subsidiary’s credit facilities.
were to obtain an order of the Securities and Exchange
Commission excluding or exempting us from registration under The Charter Operating credit facilities provide that the failure
the Investment Company Act. by Mr. Allen to maintain a 35% direct or indirect voting interest
If anything were to happen which would cause us to be in the applicable borrower would result in a change of control
deemed an investment company, the Investment Company Act default. Such a default could result in the acceleration of
would impose significant restrictions on us, including severe repayment of our and our subsidiaries’ indebtedness, including
limitations on our ability to borrow money, to issue additional borrowings under the Charter Operating credit facilities.
capital stock and to transact business with affiliates. In addition, Mr. Allen controls our stockholder voting and may have interests that
because our operations are very different from those of the conflict with your interests.
typical registered investment company, regulation under the
Investment Company Act could affect us in other ways that are Mr. Allen has the ability to control us. Through his control as
extremely difficult to predict. In sum, if we were deemed to be of December 31, 2005 of approximately 90% of the voting
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