Charter 2006 Annual Report Download - page 114

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2006 FORM 10-K
Notes to Consolidated Financial Statements (continued)
Digeo. In connection with such recapitalization, DBroadband interest (the ‘‘Remaining Interests’’). The Remaining Interests are
Holdings, LLC consented to the conversion of its preferred subject to certain transfer restrictions, including requirements
stock holdings in Digeo to common stock, and Vulcan Ventures that the Remaining Interests participate in a sale with other
surrendered its Priority Return to Charter Ventures. As a result, holders or that allow other holders to participate in a sale of the
DBroadband Holdings, LLC is now included in the Company’s Remaining Interests, as detailed in the revised CC VIII Limited
consolidated financial statements. Such amounts are immaterial. Liability Company Agreement. CII transferred the other 70% of
After the recapitalization, DBroadband Holdings, LLC owns the CC VIII interest directly and indirectly, through Charter
1.8% of Digeo, Inc’s common stock. Digeo, Inc. is therefore not Holdco, to a newly formed entity, CCHC (a direct subsidiary of
included in the Company’s consolidated financial statements. Charter Holdco and the direct parent of Charter Holdings). Of
The Company paid Digeo Interactive approximately $2 mil- the 70% of the CC VIII interest, 7.4% has been transferred by
lion, $3 million, and $3 million for the years ended Decem- CII to CCHC for the CCHC note (see Note 10). The remaining
ber 31, 2006, 2005, and 2004, respectively, for customized 62.6% has been transferred by CII to Charter Holdco, in
development of the i-channels and the local content tool kit. accordance with the terms of the settlement for no additional
On June 30, 2003, Charter Holdco entered into an monetary consideration. Charter Holdco contributed the 62.6%
agreement with Motorola, Inc. for the purchase of 100,000 interest to CCHC.
digital video recorder (‘‘DVR’’) units. The software for these As part of the Settlement, CC VIII issued approximately
DVR units is being supplied by Digeo Interactive, LLC under a 49 million additional Class B units to CC V in consideration for
license agreement entered into in April 2004. Pursuant to a prior capital contributions to CC VIII by CC V, with respect to
software license agreement with Digeo Interactive for the right transactions that were unrelated to the dispute in connection
to use Digeo’s proprietary software for DVR units, Charter paid with CII’s membership units in CC VIII. As a result, Mr. Allen’s
approximately $3 million and $1 million in license and pro rata share of the profits and losses of CC VIII attributable to
maintenance fees in 2006 and 2005, respectively. the Remaining Interests is approximately 5.6%.
Charter paid approximately $11 million, $10 million, and As part of the debt exchange in September 2006 described
$1 million for the years ended December 31, 2006, 2005 and in Note 2, CCHC contributed the CC VIII interest in the
2004, respectively, in capital purchases under an agreement with Class A preferred equity interests of CC VIII to CCH I. The
Digeo Interactive for the development, testing and purchase of CC VIII interest was pledged as security for all CCH I notes.
70,000 Digeo PowerKey DVR units. Total purchase price and The CC VIII preferred interests are entitled to a 2% accreting
license and maintenance fees during the term of the definitive priority return on the priority capital.
agreements are expected to be approximately $41 million. The
Helicon. In 1999, the Company purchased the Helicon cable
definitive agreements are terminable at no penalty to Charter in
systems. As part of that purchase, Mr. Allen entered into a put
certain circumstances.
agreement with a certain seller of the Helicon cable systems that
CC VIII. As part of the acquisition of the cable systems owned by received a portion of the purchase price in the form of a
Bresnan Communications Company Limited Partnership in preferred membership interest in Charter Helicon, LLC with a
February 2000, CC VIII, Charter’s indirect limited liability redemption price of $25 million plus accrued interest. Under the
company subsidiary, issued, after adjustments, the CC VIII Helicon put agreement, such holder had the right to sell any or
interest with an initial value and an initial capital account of all of the interest to Mr. Allen prior to its mandatory
approximately $630 million to certain sellers affiliated with redemption in cash on July 30, 2009. On August 31, 2005, 40%
AT&T Broadband, subsequently owned by Comcast Corpora- of the preferred membership interest was put to Mr. Allen. The
tion (the ‘‘Comcast sellers’’). Mr. Allen granted the Comcast remaining 60% of the preferred interest in Charter Helicon, LLC
sellers the right to sell to him the CC VIII interest for remained subject to the put to Mr. Allen. Such preferred interest
approximately $630 million plus 4.5% interest annually from was recorded in other long-term liabilities. On October 6, 2005,
February 2000 (the ‘‘Comcast put right’’). In April 2002, the Charter Helicon, LLC redeemed all of the preferred member-
Comcast sellers exercised the Comcast put right in full, and this ship interest for the redemption price of $25 million plus
transaction was consummated on June 6, 2003. Accordingly, accrued interest.
Mr. Allen became the holder of the CC VIII interest, indirectly Certain related parties, including members of the board of
through an affiliate. directors and officers, hold interests in the Company’s senior
At such time through 2005, such interest was held at convertible debt and senior notes and discount notes of the
CC VIII and was subject to a dispute between Mr. Allen and the Company’s subsidiary of approximately $203 million of face
Company as to the ultimate ownership of the CC VIII interest. value at December 31, 2006.
In 2005, Mr. Allen, a Special Committee of independent
directors, Charter, Charter Holdco and certain of their affiliates,
agreed to settle a dispute related to the CC VIII interest.
Pursuant to the Settlement, CII has retained 30% of its CC VIII
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