SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 8-K
Current
Report
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): October
31, 2005
Charter
Communications, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or Other Jurisdiction of Incorporation or Organization)
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000-27927
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43-1857213
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(Commission
File Number)
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(I.R.S.
Employer Identification
Number)
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12405
Powerscourt Drive
St.
Louis, Missouri 63131
(Address
of principal executive offices including zip code)
(314)
965-0555
(Registrant's
telephone number, including area code)
Not
Applicable
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR
240.13e-4(c))
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ITEM
1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
As
part
of the acquisition of the cable systems owned by Bresnan Communications Company
Limited Partnership in February 2000, CC VIII, LLC ("CC VIII"), Charter
Communications, Inc.'s ("Charter") indirect limited liability company
subsidiary, issued, after adjustments, 24,273,943 Class A preferred membership
units (collectively the "CC VIII interest") with a value and an initial capital
account of approximately $630 million to certain sellers affiliated with
AT&T Broadband, subsequently owned by Comcast Corporation (the "Comcast
sellers"). While held by the Comcast sellers, the CC VIII interest was entitled
to a 2% priority return on its initial capital account and such priority
return
was entitled to preferential distributions from available cash and upon
liquidation of CC VIII. While held by the Comcast sellers, the CC VIII interest
generally did not share in the profits and losses of CC VIII. Mr. Allen granted
the Comcast sellers the right to sell to him the CC VIII interest for
approximately $630 million plus 4.5% interest annually from February 2000
(the
"Comcast put right"). In April 2002, the Comcast sellers exercised the Comcast
put right in full, and this transaction was consummated on June 6, 2003.
Accordingly, Mr. Allen, indirectly through a company controlled by him, Charter
Investment, Inc. ("CII"), became the holder of the CC VIII interest.
Consequently, subject to the matters referenced in the next paragraph, Mr.
Allen
generally thereafter has been allocated his pro rata share (based on number
of
membership interests outstanding) of profits or losses of CC VIII. In the
event
of a liquidation of CC VIII, Mr. Allen would be entitled to a priority
distribution with respect to the 2% priority return (which will continue
to
accrete). Any remaining distributions in liquidation would be distributed
to CC
V Holdings, LLC, an indirect subsidiary of Charter ("CC V"), and Mr. Allen
in
proportion to CC V's capital account and Mr. Allen's capital account (which
will
equal the initial capital account of the Comcast sellers of approximately
$630
million, increased or decreased by Mr. Allen's pro rata share of CC VIII's
profits or losses (as computed for capital account purposes) after June 6,
2003). The limited liability company agreement of CC VIII does not
provide
for a mandatory redemption of the CC VIII interest.
An
issue
arose as to whether the documentation for the Bresnan transaction was correct
and complete with regard to the ultimate ownership of the CC VIII interest
following consummation of the Comcast put right. Specifically, under the
terms
of the Bresnan transaction documents that were entered into in June 1999,
the
Comcast sellers originally would have received, after adjustments, 24,273,943
Charter Communications Holding Company, LLC ("Charter Holdco") membership
units,
but due to an FCC regulatory issue raised by the Comcast sellers shortly
before
closing, the Bresnan transaction was modified to provide that the Comcast
sellers instead would receive the preferred equity interests in CC VIII
represented by the CC VIII interest. As part of the last-minute changes to
the
Bresnan transaction documents, a draft amended version of the Charter Holdco
limited liability company agreement was prepared, and contract provisions
were
drafted for that agreement that would have required an automatic exchange
of the
CC VIII interest for 24,273,943 Charter Holdco membership units if the Comcast
sellers exercised the Comcast put right and sold the CC VIII interest to
Mr.
Allen or his affiliates. However, the provisions that would have required
this
automatic exchange did not appear in the final version of the Charter Holdco
limited liability company agreement that was delivered and executed at the
closing of the Bresnan transaction. The law firm that prepared the documents
for
the Bresnan transaction brought this matter to the attention of Charter and
representatives of Mr. Allen in 2002.
Thereafter,
the board of directors of Charter formed a Special Committee (currently
comprised of Messrs. Merritt, Tory and Wangberg) to investigate the matter
and
take any other appropriate action on behalf of Charter with respect to this
matter. After conducting an investigation of the relevant facts and
circumstances, the Special Committee determined that a "scrivener's error"
had
occurred in February 2000 in connection with the preparation of the last-minute
revisions to the Bresnan transaction documents and that, as a result, Charter
should seek reformation of the Charter Holdco limited liability company
agreement, or alternative relief, in order to restore and ensure the obligation
that the CC VIII interest be automatically exchanged for Charter Holdco units.
The Special Committee further determined that, as part of such contract
reformation or alternative relief, Mr. Allen should be required to contribute
the CC VIII interest to Charter Holdco in exchange for 24,273,943 Charter
Holdco
membership units. The Special Committee also recommended to the board of
directors of Charter that, to the extent contract reformation were achieved,
the
board of directors should consider whether the CC VIII interest should
ultimately be held by Charter Holdco or Charter Communications Holdings,
LLC
("Charter Holdings") or another entity owned directly or indirectly by
them.
Mr.
Allen
disagreed with the Special Committee's determinations described above and
so
notified the Special Committee. Mr. Allen contended that the transaction
was
accurately reflected in the transaction documentation and contemporaneous
and
subsequent company public disclosures.
The
parties engaged in a process of non-binding mediation to seek to resolve
this
matter, without success. The Special Committee evaluated what further actions
or
processes to undertake to resolve this dispute. To accommodate further
deliberation, each party agreed to refrain from initiating legal proceedings
over this matter until it had given at least ten days' prior notice to the
other. In addition, the Special Committee and Mr. Allen determined to utilize
the Delaware Court of Chancery's program for mediation of complex business
disputes in an effort to resolve the CC VIII interest dispute.
As
of
October 31, 2005, Mr. Allen, the Special Committee, Charter, Charter Holdco
and
certain of their affiliates, having investigated the facts and circumstances
relating to the dispute involving the CC VIII interest, after consultation
with counsel and other advisors, and as a result of the Delaware Chancery
Court's non-binding mediation program, agreed to settle the dispute, and
execute
certain permanent and irrevocable releases pursuant to the Settlement Agreement
and Mutual Release agreement dated October 31, 2005 (the
"Settlement").
Pursuant
to the Settlement, CII has retained 30% of its CC VIII interest (the "Remaining
Interests"). The Remaining Interests are subject to certain drag
along,
tag along and transfer restrictions as detailed in the revised CC VIII Limited
Liability Company Agreement. CII transferred the other 70% of the
CC VIII
interest directly and indirectly, through Charter Holdco, to a newly formed
entity, CCHC, LLC (a direct subsidiary of Charter Holdco and the direct parent
of Charter Holdings, "CCHC"). Of that other 70% of the CC VIII preferred
interests, 7.4% has been transferred by CII for a subordinated exchangeable
note of CCHC with an initial accreted value of $48.2 million, accreting at
14%,
compounded quarterly, with a 15-year maturity (the "Note"). The remaining
62.6% has been transferred for no consideration.
As
part
of the Settlement, CC VIII issued approximately 49 million additional
Class
B units to CC V in consideration for prior capital contributions to CC VIII
by
CC V, with respect to transactions that were unrelated to the dispute in
connection with CII's membership units in CC VIII. As a result, Mr. Allen's
pro
rata share of the profits and losses of CC VIII attributable to the Remaining
Interests is approximately 5.6%.
The
Note
is exchangeable, at CII's option, at any time, for Charter Holdco Class A
Common
units at a rate equal to then accreted value, divided by $2.00 (the "Exchange
Rate"). Customary anti-dilution protections have been provided that could
cause
future changes to the Exchange Rate. Additionally, the Charter Holdco Class
A
Common units received will be exchangeable by the holder into Charter common
stock in accordance with existing agreements between CII, Charter and certain
other parties signatory thereto. Beginning three years and four months after
the
closing of the Settlement, if the closing price of Charter common stock is
at or
above the Exchange Rate for a certain period of time as specified in the
Exchange Agreement, Charter Holdco may require the exchange of the Note for
Charter Holdco Class A Common units at the Exchange Rate.
CCHC
has
the right to redeem the Note under certain circumstances, for cash in an
amount
equal to the then accreted value. CCHC must redeem the Note at its maturity
for
cash in an amount equal to the initial stated value plus the accreted return
through maturity.
The
Board
of Directors has determined that the transferred CC VIII interests remain
at
CCHC.
On
November 3, 2005, the parties revised the Note to clarify certain
provisions. The revised Note is filed herewith as Exhibit 10.3.
ITEM
2.03. CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OR A REGISTRANT.
ITEM
9.01 FINANCIAL STATEMENTS AND EXHIBITS.
The
following exhibit is filed pursuant to Item 1.01:
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Exhibit
Number
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Description
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10.1†
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Settlement
Agreement and Mutual Releases, dated as of October 31, 2005,
by and among
Charter Communications, Inc., Special Committee of the Board
of Directors
of Charter Communications, Inc., Charter Communications Holding
Company,
LLC, CCHC, LLC, CC VIII, LLC, CC V, LLC, Charter Investment,
Inc., Vulcan
Cable III LLC and Paul G. Allen (incorporated by reference
to
Exhibit 10.17 to the quarterly report on Form 10-Q
of Charter
Communications, Inc. filed on November 2, 2005 (File
No. 000-27927)).
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10.2
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Exchange
Agreement, dated as of October 31, 2005, by and among Charter
Communications Holding Company, LLC, Charter Investment, Inc.
and Paul G.
Allen (incorporated by reference to Exhibit 10.18 to
the quarterly
report on Form 10-Q of Charter Communications, Inc.
filed on November
2, 2005 (File No. 000-27927)).
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10.3*
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CCHC,
LLC Subordinated and Accreting Note, dated as of October 31,
2005.
(revised)
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10.4
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Third
Amended and Restated Limited Liability Company Agreement for
CC VIII, LLC,
dated as of October 31, 2005 (incorporated by reference to
Exhibit 10.20 to the quarterly report on Form 10-Q
of Charter
Communications, Inc. filed on November 2, 2005 (File
No. 000-27927)).
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10.5
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Second
Amended and Restated Limited Liability Company Agreement for
Charter
Communications Holdings, LLC, dated as of October 31, 2005
(incorporated
by reference to Exhibit 10.21 to the quarterly report
on
Form 10-Q of Charter Communications, Inc. filed on November
2, 2005
(File No. 000-27927)).
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†
Portions of this document have been omitted pursuant to a request for
confidential treatment. The omitted portions of this document
have been
filed with the Securities and Exchange Commission.
*
Filed
herewith.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, Charter
Communications, Inc. has duly caused this Current Report to be signed on its
behalf by the undersigned hereunto duly authorized.
CHARTER
COMMUNICATIONS, INC.
Registrant
Dated:
November 4, 2005
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By:/s/
Kevin D. Howard
Name:
Kevin D. Howard
Title:
Vice
President of Financial Reporting and
Analysis
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EXHIBIT
INDEX
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Exhibit
Number
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Description
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10.1†
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Settlement
Agreement and Mutual Releases, dated as of October 31, 2005,
by and among
Charter Communications, Inc., Special Committee of the Board
of Directors
of Charter Communications, Inc., Charter Communications Holding
Company,
LLC, CCHC, LLC, CC VIII, LLC, CC V, LLC, Charter Investment,
Inc., Vulcan
Cable III LLC and Paul G. Allen (incorporated by reference
to
Exhibit 10.17 to the quarterly report on Form 10-Q
of Charter
Communications, Inc. filed on November 2, 2005 (File
No. 000-27927)).
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10.2
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Exchange
Agreement, dated as of October 31, 2005, by and among Charter
Communications Holding Company, LLC, Charter Investment, Inc.
and Paul G.
Allen (incorporated by reference to Exhibit 10.18 to
the quarterly
report on Form 10-Q of Charter Communications, Inc.
filed on November
2, 2005 (File No. 000-27927)).
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10.3*
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CCHC,
LLC Subordinated and Accreting Note, dated as of October 31,
2005.
(revised)
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10.4
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Third
Amended and Restated Limited Liability Company Agreement for
CC VIII, LLC,
dated as of October 31, 2005 (incorporated by reference to
Exhibit 10.20 to the quarterly report on Form 10-Q
of Charter
Communications, Inc. filed on November 2, 2005 (File
No. 000-27927)).
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10.5
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Second
Amended and Restated Limited Liability Company Agreement for
Charter
Communications Holdings, LLC, dated as of October 31, 2005
(incorporated
by reference to Exhibit 10.21 to the quarterly report
on
Form 10-Q of Charter Communications, Inc. filed on November
2, 2005
(File No. 000-27927)).
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†
Portions of this document have been omitted pursuant to a request for
confidential treatment. The omitted portions of this document
have been
filed with the Securities and Exchange Commission.
*
Filed
herewith.