Charter 2007 Annual Report Download - page 100

The following table summarizes our share activity for the
three years ended December 31, 2007:
Class A
Common
Stock
Class B
Common
Stock
BALANCE, January 1, 2005 305,203,770 50,000
Option exercises 19,717 —
Restricted stock issuances, net of cancellations 2,669,884 —
Issuances pursuant to share lending agreement 94,911,300 —
Issuance of shares in Securities Class Action
settlement 13,400,000 —
BALANCE, December 31, 2005 416,204,671 50,000
Option exercises 1,046,540 —
Restricted stock issuances, net of cancellations 809,474 —
Issuances pursuant to share lending agreement 22,038,000 —
Returns pursuant to share lending agreement (77,104,100) —
Issuances in exchange for convertible notes 45,000,000 —
BALANCE, December 31, 2006 407,994,585 50,000
Option exercises 2,724,271 —
Restricted stock issuances, net of cancellations 2,507,612 —
Returns pursuant to share lending agreement (15,000,000) —
BALANCE, December 31, 2007 398,226,468 50,000
Charter issued 45 million shares of Class A Common Stock
in September 2006 in connection with the Charter, CCHC and
CCH II exchange. See Note 9.
Charter issued 22.0 million and 94.9 million shares of Class A
common stock during 2006 and 2005, respectively, in public
offerings. The shares were issued pursuant to the share lending
agreement, pursuant to which Charter had previously agreed to
loan up to 150 million shares to Citigroup Global Markets
Limited (“CGML”). As of December 31, 2007, 92.1 million shares
had been returned under the share lending agreement.
These offerings of Charter’s Class A common stock were
conducted to facilitate transactions by which investors in Char-
ter’s 5.875% convertible senior notes due 2009, issued on Novem-
ber 22, 2004, hedged their investments in the convertible senior
notes. Charter did not receive any of the proceeds from the sale
of this Class A common stock. However, under the share lending
agreement, Charter received a loan fee of $.001 for each share
that it lends to CGML. In connection with the October 2007
tender offer, Charter amended the share lending agreement to
allow for the borrowed shares to remain outstanding through the
maturity of the new convertible notes.
The issuance of 116.9 million shares pursuant to this share
lending agreement is essentially analogous to a sale of shares
coupled with a forward contract for the reacquisition of the
shares at a future date. An instrument that requires physical
settlement by repurchase of a fixed number of shares in exchange
for cash is considered a forward purchase instrument. While the
share lending agreement does not require a cash payment upon
return of the shares, physical settlement is required (i.e., the
shares borrowed must be returned at the end of the arrange-
ment). The fair value of the 24.8 million loaned shares outstand-
ing is approximately $29.1 million as of December 31, 2007.
However, the net effect on shareholders’ deficit of the shares lent
pursuant to the share lending agreement, which includes Char-
ter’s requirement to lend the shares and the counterparties’
requirement to return the shares, is de minimis and represents
the cash received upon lending of the shares and is equal to the
par value of the common stock to be issued.
14. RIGHTS AGREEMENT
In August 2007, Charter’s board of directors adopted a rights
plan and declared a dividend of one preferred share purchase
right for each issued and outstanding share of Charter’s Class A
common stock and Class B common stock (a “Right”). The
dividend was payable to stockholders of record as of August 31,
2007 and 403,219,728 Rights were issued. In connection with the
adoption of the rights plan, the Company increased the autho-
rized Class A common stock and Class B common stock to
10.5 billion and 4.5 billion shares, respectively. The terms of the
Rights and rights plan were set forth in a Rights Agreement, by
and between Charter and Mellon Investor Services LLC, dated
as of August 14, 2007 (the “Rights Plan” or “Rights Agreement”).
The Rights Plan was adopted in an attempt to protect
against a possible limitation on Charter’s ability to use its net
operating loss carryforwards, which could significantly impair the
value of that asset. See Note 22. The Rights Plan is intended to
act as a deterrent to any person or group from acquiring 5.0% or
more of Charter’s Class A common stock or any person or group
holding 5.0% or more of Charter’s Class A common stock
(“Acquiring Person”) from acquiring more shares without the
approval of Charter’s board of directors. The Rights will not be
exercisable until 10 days after a public announcement by Charter
that a person or group has become an Acquiring Person. Upon
such a triggering event, except as may be determined by
Charter’s board of directors, with the consent of the holders of
the majority of the Class B common stock, all outstanding, valid,
and exercisable Rights, except for those Rights held by any
Acquiring Person, will be exchanged for 2.5 shares of Class A
common stock and/or Class B common stock, as applicable, or
an equivalent security. If Charter’s board of directors and holders
of the Class B common stock determine that such an exchange
does not occur upon such a triggering event, all holders of
Rights, except any Acquiring Person, may exercise their Rights
upon payment of the purchase price to purchase five shares of
Charter’s Class A common stock and/or Class B common stock,
as applicable (or other securities or assets as determined by
Charter’s board of directors) at a 50% discount to the then
current market price. The Rights and Rights Agreement will
expire on December 31, 2008, if not terminated earlier.
F-22
CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES 2007 FORM 10-K
Notes to Consolidated Financial Statements (continued)