Charter 2015 Annual Report Download - page 130

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2015, 2014 AND 2013
(dollars in millions, except share or per share data or where indicated)
F- 33
17. Related Party Transactions
The following sets forth certain transactions in which the Company and the directors, executive officers, and affiliates of the
Company are involved or, in the case of the management arrangements, subsidiaries that are debt issuers that pay certain of their
parent companies for services.
Charter is a party to management arrangements with Charter Holdco and certain of its subsidiaries. Under these agreements,
Charter and Charter Holdco provide management services for the cable systems owned or operated by their subsidiaries. Costs
associated with providing these services are charged directly to the Company’s operating subsidiaries. All other costs incurred
on behalf of Charter’s operating subsidiaries are considered a part of the management fee. These costs are recorded as a component
of operating costs and expenses, in the accompanying consolidated financial statements. The management fee charged to the
Company’s operating subsidiaries approximated the expenses incurred by Charter Holdco and Charter on behalf of the Company’s
operating subsidiaries in 2015, 2014, and 2013.
Equity Investments
On May 1, 2015, the Company acquired a 35% equity interest in ActiveVideo Networks ("AVN") for $55 million in cash representing
the initial investment, a capital call and associated transaction fees. AVN is the developer of CloudTV, a cloud-based software
platform enabling service providers, content aggregators, and consumer electronic manufacturers to deploy new services by
virtualizing consumer premise equipment functions in the cloud. AVN’s software platform is one of the key technologies enabling
the development and deployment of the Company’s cloud-based user interface, Spectrum Guide®. The Company applies the
equity method of accounting to this investment which is recorded in other noncurrent assets in the consolidated balance sheet as
of December 31, 2015. For the year ended December 31, 2015, the Company recorded equity losses for AVN and other investments
of $7 million in other expense, net. The Company has agreements with AVN and other equity investments pursuant to which the
Company made related party transaction payments to investees totaling approximately $28 million during the year ended
December 31, 2015.
Liberty Broadband
On May 23, 2015, in connection with the execution of the Merger Agreement and the amendment of the Contribution Agreement,
Charter entered into the Amended and Restated Stockholders Agreement with Liberty Broadband, A/N and New Charter (the
“Stockholders Agreement”). The Stockholders Agreement replaced Charter’s existing stockholders agreement with Liberty
Broadband, dated September 29, 2014, and superseded the amended and restated stockholders agreement among Charter, New
Charter, Liberty Broadband and A/N, dated March 31, 2015. Charter’s existing stockholders agreement with Liberty Broadband
(as amended by an investment agreement between Liberty Broadband, Charter and New Charter, dated as of May 23, 2015) will
remain in effect until the closing of the TWC Transaction or the Bright House Transaction, whichever occurs earlier, and, in the
event the Stockholders Agreement is terminated, will revive and continue in full force and effect. Certain provisions of the
Stockholders Agreement became effective upon its execution. See Note 3 for additional information.
Under the terms of the Stockholders Agreement, the number of New Charter directors will be fixed at 13, and will include New
Charter’s chief executive officer. Upon the closing of the Bright House Transaction, two designees selected by A/N and three
designees selected by Liberty Broadband will become members of the board of directors of New Charter. The remaining eight
directors (other than the chief executive officer, who is expected to become chairman of the board) will be independent directors
selected by the nominating committee of the New Charter board by the approval of both a majority of the nominating committee
and a majority of the directors that were not appointed by either A/N or Liberty Broadband. Thereafter, Liberty Broadband will
be entitled to designate three nominees to be elected as directors and A/N will be entitled to designate two nominees to be elected
as directors, in each case provided that each maintains certain specified voting or equity ownership thresholds, provided that each
nominee must meet any applicable requirements or qualifications. Each of A/N and Liberty Broadband will be entitled to nominate
at least one director to each of the committees of the Charter board of directors, subject to applicable stock exchange listing rules
and certain specified voting or equity ownership thresholds for each of A/N and Liberty Broadband, and provided that the nominating
and compensation committees will have at least a majority of directors independent from A/N, Liberty Broadband and New Charter
(referred to as the “unaffiliated directors”). The nominating committee will be comprised of three unaffiliated directors, and one
designee of each of A/N and Liberty Broadband. A/N and Liberty Broadband also will have certain other committee designation
and other governance rights. Mr. Thomas Rutledge, the Company's Chief Executive Officer ("CEO"), will be offered the positions
of CEO and chairman of New Charter.