Charter 2006 Annual Report Download - page 62

CHARTER COMMUNICATIONS, INC. 2006 FORM 10-K
The 5.875% convertible senior notes are convertible at any closing price has exceeded 180% of the conversion price, or
time at the option of the holder into shares of Class A common $4.356 per share, if such 30 trading day period begins prior to
stock at an initial conversion rate of 413.2231 shares per $1,000 November 16, 2007, or 150% of the conversion price, or
principal amount of notes, which is equivalent to a conversion $3.63 per share, if such 30 trading period begins thereafter.
price of approximately $2.42 per share, subject to certain Holders who convert notes that we have called for redemption
adjustments. Specifically, the adjustments include anti-dilutive shall receive, in addition to the early conversion make whole
provisions, which cause adjustments to occur automatically amount, if applicable, the present value of the interest on the
based on the occurrence of specified events to provide protec- notes converted that would have been payable for the period
tion rights to holders of the notes. The conversion rate may also from the later of November 17, 2007, and the redemption date,
be increased (but not to exceed 462 shares per $1,000 principal through the scheduled maturity date for the notes, plus any
amount of notes) upon a specified change of control transaction. accrued deferred interest.
Additionally, Charter may elect to increase the conversion rate CCHC, LLC Note
under certain circumstances when deemed appropriate, subject In October 2005, Charter, acting through a Special Committee
to applicable limitations of the NASDAQ stock market. Holders of Charter’s Board of Directors, and Mr. Allen, settled a dispute
who convert their notes prior to November 16, 2007 will receive that had arisen between the parties with regard to the
an early conversion make whole amount in respect of their ownership of CC VIII. As part of that settlement, CCHC issued
notes, based on a proportional share of the portfolio of pledged the CCHC note to CII. The CCHC note has a 15-year maturity.
securities described below, with specified adjustments. The CCHC note has an initial accreted value of $48 million
No holder of notes will be entitled to receive shares of our accreting at the rate of 14% per annum compounded quarterly,
Class A common stock on conversion to the extent that receipt except that from and after February 28, 2009, CCHC may pay
of the shares would cause the converting holder to become, any increase in the accreted value of the CCHC note in cash
directly or indirectly, a ‘‘beneficial holder’’ (within the meaning and the accreted value of the CCHC note will not increase to
of Section 13(d) of the Exchange Act and the rules and the extent such amount is paid in cash. The CCHC note is
regulations promulgated thereunder) of more than 4.9% of the exchangeable at CII’s option, at any time, for Charter Holdco
outstanding shares of our Class A common stock if such Class A Common units at a rate equal to the then accreted
conversion would take place prior to November 16, 2008, or value, divided by $2.00 (the ‘‘Exchange Rate’’). Customary anti-
more than 9.9% thereafter. dilution protections have been provided that could cause future
If a holder tenders a note for conversion, we may direct changes to the Exchange Rate. Additionally, the Charter Holdco
that holder (unless we have called those notes for redemption) Class A Common units received will be exchangeable by the
to a financial institution designated by us to conduct a holder into Charter Class B common stock in accordance with
transaction with that institution, on substantially the same terms existing agreements between CII, Charter and certain other
that the holder would have received on conversion. But if any parties signatory thereto. Beginning February 28, 2009, if the
such financial institution does not accept such notes or does not closing price of Charter common stock is at or above the
deliver the required conversion consideration, we remain obli- Exchange Rate for a certain period of time as specified in the
gated to convert the notes. Exchange Agreement, Charter Holdco may require the
Charter Holdco used a portion of the proceeds from the exchange of the CCHC note for Charter Holdco Class A
sale of the notes to purchase a portfolio of U.S. government Common units at the Exchange Rate. Additionally, CCHC has
securities in an amount which we believe will be sufficient to the right to redeem the CCHC note under certain circumstances
make the first six interest payments on the notes. These for cash in an amount equal to the then accreted value, such
government securities were pledged to us as security for a amount, if redeemed prior to February 28, 2009, would also
mirror note issued by Charter Holdco to Charter and pledged include a make whole up to the accreted value through
to the trustee under the indenture governing the notes as February 28, 2009. CCHC must redeem the CCHC note at its
security for our obligations thereunder. We expect to use such maturity for cash in an amount equal to the initial stated value
securities to fund the first six interest payments under the notes, plus the accreted return through maturity. The accreted value of
four of which were funded in 2005 and 2006. The fair value of the CCHC note is $57 million as of December 31, 2006 and is
the pledged securities was $49 million at December 31, 2006. recorded in Notes Payable — Related Party in the accompanying
Upon a change of control and certain other fundamental consolidated financial statements contained in ‘‘Item 8. Financial
changes, subject to certain conditions and restrictions, Charter Statements and Supplementary Data.’’
may be required to repurchase the notes, in whole or in part, at
100% of their principal amount plus accrued interest at the Charter Communications Holdings, LLC Notes
repurchase date. From March 1999 through January 2002, Charter Holdings and
We may redeem the notes in whole or in part for cash at Charter Communications Holdings Capital Corporation (‘‘Char-
any time at a redemption price equal to 100% of the aggregate ter Capital’’) jointly issued $10.2 billion total principal amount of
principal amount, plus accrued and unpaid interest, deferred notes, of which $967 million total principal amount was
interest, and liquidated damages, if any, but only if for any 20 outstanding as of December 31, 2006. The notes were issued
trading days in any 30 consecutive trading day period the over 15 series of notes with maturities from 2007 through 2012
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