SCHEDULE 14A
(RULE 14A-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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by Rule l4a-6(e)(2))
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[ ] Definitive Additional Materials
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Charter Communications, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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[CHARTER COMMUNICATIONS LOGO]
June 28, 2004
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Charter Communications, Inc. ("the Company"), which will be held at the W
Seattle Hotel, 1112 Fourth Avenue, Seattle, Washington on Tuesday, July 27, 2004
at 10:00 a.m. (Pacific Daylight Time).
All stockholders of record on June 1, 2004 are invited to attend the
meeting. For security reasons, however, to gain admission to the meeting you may
be required to present identification containing a photograph and to comply with
other security measures. Parking at the W Seattle Hotel for the Annual Meeting
will be complimentary. Please inform the attendant you are attending the Charter
Annual Meeting.
Details of the business to be conducted at the annual meeting are given in
the attached Notice of Annual Meeting and Proxy Statement.
Whether or not you attend the annual meeting, it is important that your
shares be represented and voted at the meeting. Therefore, I urge you to sign,
date, and promptly return the enclosed proxy in the postage-paid envelope that
is provided. If you decide to attend the annual meeting, you will have the
opportunity to vote in person.
On behalf of the Board of Directors, I would like to express our
appreciation for your continued interest in the affairs of the Company.
Sincerely,
/s/ CARL E. VOGEL
Carl E. Vogel
President and Chief Executive Officer
[CHARTER COMMUNICATIONS LOGO]
CHARTER PLAZA
12405 POWERSCOURT DRIVE
ST. LOUIS, MISSOURI 63131
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF
CHARTER COMMUNICATIONS, INC.
------------------------
DATE: Tuesday, July 27, 2004
TIME: 10:00 a.m. (Pacific Daylight Time)
PLACE: The W Seattle Hotel
1112 Fourth Avenue
Seattle, Washington
MATTERS TO BE VOTED ON:
1. Election of nine directors, as follows:
- One Class A/Class B director; and
- Eight Class B directors.
2. Ratification of the appointment of KPMG LLP as the company's independent
registered public accounting firm for the year ended December 31, 2004.
3. Any other matters properly brought before the stockholders at the meeting.
By order of the Board of Directors,
/s/ CURTIS S. SHAW
CURTIS S. SHAW
Secretary
June 28, 2004
CHARTER COMMUNICATIONS, INC.
PROXY STATEMENT
Your vote at the annual meeting is important to us. Please vote your shares
of common stock by completing the enclosed proxy card and returning it to us in
the envelope provided. This proxy statement was first mailed to stockholders on
or about June 28, 2004.
GENERAL INFORMATION ABOUT VOTING AND THE MEETING
WHAT AM I VOTING ON AT THE MEETING?
As a holder of Class A common stock, you are being asked to vote, together
with the holder of Class B common stock, "FOR" the following:
- election of Nancy B. Peretsman as the one director to serve as the Class
A/Class B director on the board of directors of the Company (the "Class
A/Class B director"); and
- ratification of the appointment of KPMG LLP as the Company's independent
registered public accountants for the year ended December 31, 2004.
WHY AM I VOTING ON ONLY ONE DIRECTOR?
There currently are a total of nine members of the board of directors. Our
Certificate of Incorporation provides that all but one of the directors will be
elected by vote of the holder of the Class B shares voting alone (the "Class B
directors"), and that the remaining director (the "Class A/Class B director")
will be elected by the holders of the Class A and Class B shares voting
together.
WHO HAS BEEN NOMINATED FOR ELECTION AS A DIRECTOR AT THE ANNUAL MEETING?
The board of directors has nominated the nine current directors for
re-election. As noted above, however, the holders of Class A shares will be
voting for only one director. The Class A/Class B director nominee who is up for
election by vote of the Class A and Class B shares voting together at the annual
meeting is Nancy B. Peretsman.
The other eight directors who have been nominated by the board of directors
are: Paul G. Allen, Charles M. Lillis, David C. Merritt, Marc B. Nathanson, Jo
Allen Patton, John H. Tory, Carl E. Vogel and Larry W. Wangberg.
WHO CAN VOTE?
For all matters except the election of the eight Class B directors, a total
of 304,613,306 shares of Class A common stock, representing approximately 8.24%
of the total voting power of all of our issued and outstanding stock, and 50,000
shares of Class B common stock, representing approximately 91.76% of the total
voting power, are entitled to vote. Each share of Class A common stock is
entitled to one vote. Each holder of Class B common stock is entitled to ten
votes per share plus ten votes per share of Class B common stock for which
membership units in Charter Communications Holding Company, LLC held by Mr.
Allen and his affiliates are exchangeable. Accordingly, each outstanding share
of Class B common stock was entitled to 67,836.4 votes at June 1, 2004.
You can vote your Class A shares if our records show that you owned the
shares at the close of business on June 1, 2004 (the "Record Date"). The
enclosed proxy card indicates the number of Class A shares that our records show
you are entitled to vote.
You will not have a vote in the election of the Class B directors. Paul G.
Allen, the sole holder of Class B shares, will be the only stockholder voting in
that election.
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WHAT IS THE QUORUM REQUIRED FOR THE MEETING?
We will hold the annual meeting if holders of shares having a majority of
the combined voting power of the Class A and Class B common stock as of the
Record Date either sign and return their proxy cards or attend the meeting. If
you sign and return your proxy card, your shares will be counted to determine
whether we have a quorum, even if you fail to indicate your vote.
Abstentions and broker "non-votes" will be counted as present for purposes
of determining whether a quorum exists at the annual meeting.
WHAT IS A BROKER "NON-VOTE"?
A broker "non-vote" occurs when a nominee holding shares for a beneficial
owner votes on one proposal but does not vote on another proposal because the
nominee does not have discretionary voting power for that particular proposal
and has not received voting instructions from the beneficial owner.
WHAT IS THE VOTE REQUIRED FOR THE PROPOSALS ON THE AGENDA?
A plurality of Class A and Class B votes cast, voting together as a single
class, is required for the election of the Class A/Class B director. The
affirmative vote of a majority of Class A and Class B votes cast at the meeting,
voting together as a single class, is required for ratification of the
appointment of KPMG LLP as our independent registered public accountants.
Under our Certificate of Incorporation and Bylaws, for purposes of
determining whether votes have been cast, abstentions and broker "non-votes"
will not be counted except with respect to the election of directors where
abstentions and broker non-votes will result in the respective nominee receiving
fewer votes, but will have no effect on the outcome of the vote.
A stockholder may vote to "abstain" on the ratification of the appointment
of KPMG LLP as our independent registered public accountants and the other
proposals which may properly come before the Annual Meeting. If you vote to
"abstain," your shares will be counted as present at the meeting for purposes of
determining a quorum on all matters, but will not be considered to be votes cast
with respect to such matters. If an executed proxy is returned by a broker
holding shares in street name that indicates that the broker does not have
discretionary authority as to certain shares to vote on one or more matters (a
broker non-vote), such shares will be considered present at the meeting for
purposes of determining a quorum on all matters, but will not be considered to
be votes cast with respect to such matters. Therefore, abstentions and broker
non-votes will have no effect on the outcome of the election of directors or the
ratification of the appointment of KPMG LLP as our independent public
accountants. In addition, in the election of directors, a stockholder may
withhold such stockholder's vote.
We have been advised by Paul G. Allen, the sole holder of Class B shares,
that he intends to vote "FOR" all of the nine nominees identified above,
including the Class A/Class B director nominee, which would result in the
election of the Class A/Class B nominee. We have also been advised by Paul G.
Allen, the sole holder of the Class B shares, that he intends to vote "FOR"
ratification of the appointment of KPMG LLP as our independent public
accountants, which would result in the approval of that proposal.
WHAT ARE MY CHOICES IN THE PROPOSALS ON THE AGENDA?
You can vote your shares "FOR," or you can withhold your vote, for the
Class A/Class B director nominee, Nancy B. Peretsman. On the proposal to ratify
the appointment of KPMG LLP as our independent registered public accountants,
you can (1) vote for the proposal, (2) vote against the proposal, or (3) abstain
from voting.
HOW DO I VOTE BY PROXY?
Follow the instructions on the enclosed proxy card. Sign and date the proxy
card and mail it back to us in the enclosed envelope. If you receive more than
one proxy card it may mean that you hold shares in more than
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one account. Sign and return all proxy cards to ensure that all of your shares
are voted. The proxy holder named on the proxy card will vote your shares as you
instruct. If you sign and return the proxy card but do not indicate your vote,
the proxy holder will vote on your behalf "FOR" the named Class A/Class B
director nominee or her substitute, and "FOR" ratification of KPMG LLP as our
independent registered public accountants.
CAN I VOTE BY TELEPHONE OR VIA THE INTERNET?
Stockholders with shares registered in their names with Mellon Investor
Services LLC, our transfer agent, may authorize a proxy by the internet at the
following address: http://www.eproxy.com.chtr, or by telephone at
1-800-435-6710.
A number of brokerage firms and banks participate in a program that permits
telephone and internet voting. If your shares are held in an account at a
brokerage firm or bank that participates in such a program, you may direct the
voting of those shares by following the instructions on the voting form enclosed
with the proxy from the brokerage firm or bank.
Proxies submitted via the telephone or internet must be received by 11:59
p.m. (EDT) on July 26, 2004. If you vote this year's proxy via the internet, you
may also elect to receive future proxy and other materials electronically by
following the instructions when you vote.
WHAT IF OTHER MATTERS COME UP AT THE ANNUAL MEETING?
The items listed on the Notice of Annual Meeting of Stockholders are the
only matters that we know will be voted on at the annual meeting. On such other
business as may properly come before the meeting, your shares will be voted in
the discretion of the proxy holder.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. At any time before the vote at the annual meeting, you can change your
vote either by giving our Secretary a written notice revoking your proxy card,
or by signing, dating and submitting a new proxy card. We will honor the latest
dated proxy card which has been received prior to the closing of the voting. You
may also attend the meeting and vote in person.
CAN I VOTE IN PERSON AT THE ANNUAL MEETING RATHER THAN BY COMPLETING THE PROXY
CARD?
Although we encourage you to complete and return the proxy card to ensure
that your vote is counted, you can attend the annual meeting and vote your
shares in person.
WHAT DO I DO IF MY SHARES ARE HELD IN "STREET NAME"?
If your shares are held in the name of your broker, a bank or other
nominee, you should return your proxy in the envelope provided by such broker,
bank or nominee or instruct the person responsible for holding your shares to
execute a proxy on your behalf. In either case, your shares will be voted
according to your instructions.
If you wish to attend the annual meeting and vote your shares in person,
you should obtain the documents required to vote your shares in person at the
annual meeting from your broker, bank or other nominee.
If your shares are held in the name of a broker, and you do not provide
instructions on how to vote your shares, the nominee may be able to vote them as
it sees fit, but only as to "routine" matters. New York Stock Exchange, Inc., or
NYSE, rules permit a member firm to vote for the directors and/or for the
proposal to ratify the selection of independent registered public accountants,
as well as other "routine" matters, if the member firm holds the shares of the
Class A common stock for a beneficial owner and receives no instructions to the
contrary by the tenth day before the annual meeting. Rules of the American Stock
Exchange LLC, or AMEX, are substantially similar to the NYSE Rules. The National
Association of Securities Dealers, Inc., or the NASD, permits a NASD member firm
to deliver a proxy, with respect to shares of the Class A common
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stock held by the NASD member firm for a beneficial owner pursuant to the rules
of a national securities exchange (such as the NYSE and the AMEX) to which the
NASD member firm is also responsible provided that the records of the member
firm clearly indicate which procedure it is following. As a result, if your
broker is an exchange member of either NYSE or AMEX and you do not indicate your
preference on your proxy, your nominee will be free to use its discretion to
vote for or withhold your vote for "routine" matters such as election of
directors and ratification of public accountants. Nevertheless, we urge each of
you to instruct the member firm which holds of record your shares of the Class A
common stock to vote in favor of the two proposals submitted to the stockholders
for a vote even though such instruction is not required.
WHO IS SOLICITING MY VOTE?
The board of directors is soliciting your vote.
WHO PAYS FOR THIS PROXY SOLICITATION?
The Company pays for the proxy solicitation. We will ask banks, brokers and
other nominees and fiduciaries to forward the proxy material to the beneficial
owners of the Class A common stock and to obtain the authority of executed
proxies. We will reimburse them for their reasonable expenses.
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PROPOSAL NO. 1: ELECTION OF CLASS A/CLASS B DIRECTOR
(ITEM 1 ON PROXY CARD)
We currently have nine directors, each of whom is elected on an annual
basis. In accordance with our Bylaws, the number of directors has been fixed at
nine. Our Certificate of Incorporation provides that the holders of the Class B
common stock elect all but one of the directors. The holders of the Class A
common stock and Class B common stock, voting together, elect one director (the
Class A/Class B director). This election of one Class A/Class B director by the
holders of Class A and Class B common stock voting together is scheduled to take
place at the annual meeting of stockholders. The board of directors is
soliciting your vote for the Class A/Class B director to be elected at the
annual meeting of stockholders. Once elected, the Class A/Class B director will
hold office until his or her successor is elected, which should occur at next
year's annual meeting of stockholders. You do not have a vote, and your vote is
not being solicited, with respect to the election of the eight Class B directors
who will be elected at the meeting.
NOMINATIONS. Nancy B. Peretsman has been nominated for election as the
Class A/Class B director. Although we don't know of any reason why Ms. Peretsman
might not be able to serve, the board of directors will propose a substitute
nominee to serve if Ms. Peretsman is not available for election for any reason.
By virtue of Mr. Allen's control of approximately 93% of the voting power
of the Company as of the record date, we are a "controlled company" under Nasdaq
rule 4350(c)(5). As such, the Company is not subject to requirements that a
majority of our directors be "independent" (as defined in Nasdaq's rules) or
that there be a nominating committee of the board, responsible for nominating
director candidates. The Company does not have a nominating committee.
Candidates for director are nominated by the full board of directors, based on
the recommendation of one or more of our directors. Given the significance of
Mr. Allen's investment in the Company and the high caliber of the individuals
who have been recruited to serve on our board of directors, we believe that the
Company's nomination process is appropriate. Criteria and qualifications for new
board members considered by the Company's directors include a high level of
integrity and ability, industry experience or knowledge, and operating company
experience as a member of senior management (operational or financial). In
addition, director candidates must be individuals with the time and commitment
necessary to perform the duties of a board member and other special skills that
complement or supplement the skill sets of current directors.
Generally, stockholders can nominate persons to be directors. If a
stockholder wants to nominate someone, he or she must follow the procedures set
forth in our Bylaws. In short, these procedures require the stockholder to
timely deliver a notice to the Secretary at our principal executive offices 45
to 70 days prior to the first anniversary of the mailing of proxy materials for
the prior year's annual meeting. That notice must contain the information
required by the Bylaws about the stockholder proposing the nominee and about the
nominee. No stockholder nominees have been proposed for this year's meeting.
Stockholders also are free to suggest persons for the board of directors to
consider as nominees. The board of directors will consider those individuals if
adequate information is submitted in a timely manner (but at least 120 days
before the date of the proxy statement for the prior year's annual meeting of
stockholders) in writing to the board of directors at the Company's principal
executive offices, in care of the General Counsel. The board of directors may,
however, give less serious consideration to individuals of whom none of the
current board members have personal knowledge.
GENERAL INFORMATION ABOUT THE CLASS A/CLASS B DIRECTOR NOMINEE
Nancy B. Peretsman is the director nominee proposed for election by the
holders of our Class A and Class B common stock. Ms. Peretsman has agreed to be
named in this proxy statement and to serve as a director if elected.
NANCY B. PERETSMAN, 50, has been a director of Charter Communications, Inc.
since November 1999. Ms. Peretsman has been a managing director and executive
vice president of Allen & Company, LLC (formerly known as Allen & Company
Incorporated), an investment bank unrelated to Paul G. Allen, since 1995. From
1983 to 1995, she was an investment banker at Salomon Brothers Inc., where she
was a managing
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director since 1990. She is a director of priceline.com Incorporated and several
privately held companies. She has a B.A. degree from Princeton University and an
M.B.A. degree from Yale University.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE CLASS A/CLASS B DIRECTOR
NOMINEE.
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PROPOSAL NO. 2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS
(ITEM 2 ON PROXY CARD)
The Audit Committee of the board of directors has appointed KPMG LLP
("KPMG") as the Company's independent public accountants for 2004. Stockholder
ratification of the selection of KPMG as the Company's independent public
accountants is not required by the Company's Bylaws or other applicable
requirement. However, as a matter of corporate responsibility, the Audit
Committee wished to solicit stockholder ratification of this appointment.
Ratification of the appointment of KPMG as the Company's independent public
accountants is not required for their retention. However, if the appointment is
not ratified, the Audit Committee may consider re-evaluating the appointment.
KPMG has been serving as the Company's independent public accountants since
2002. The Company has been advised that no member of KPMG had any direct
financial interest or material indirect financial interest in the Company or any
of its subsidiaries or, during the past three years, has had any connection with
the Company or any of its subsidiaries in the capacity of promoter, underwriter,
voting trustee, director, officer or employee. The Company has been advised that
no other relationship exists between KPMG and the Company that impairs KPMG's
status as independent accountants with respect to the Company within the meaning
of the Federal securities laws.
Representatives of KPMG will be in attendance at the Annual Meeting and
will have an opportunity to make a statement if they so desire. The
representatives will also be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
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ELECTION OF CLASS B DIRECTORS
INFORMATION ABOUT THE CLASS B DIRECTOR NOMINEES
The following information concerns the eight individuals who have been
nominated by the board of directors for election by the Class B holder, voting
as a separate class. These individuals currently serve as Class B directors.
PAUL G. ALLEN, 51, has been Chairman of our board of directors since July
1999, and Chairman of the board of directors of Charter Investment, Inc. (a
predecessor to, and currently an affiliate of, the Company) since December 1998.
Mr. Allen, co-founder of Microsoft Corporation, has been a private investor for
more than 15 years, with interests in over 50 technology, telecommunications,
content and biotech companies. Mr. Allen's investments include Vulcan Inc.,
Vulcan Productions, Inc., the Portland Trail Blazers NBA and Seattle Seahawks
NFL franchises, and investments in DreamWorks LLC and Oxygen Media. In addition,
Mr. Allen is a director of Vulcan Programming Inc., Vulcan Ventures, Vulcan
Inc., Vulcan Cable III, Inc., numerous other privately held companies and, until
its sale in May 2004 to an unrelated third party, TechTV L.L.C.
CHARLES M. LILLIS, 62, was elected to our board of directors in October
2003. Presently, he is the Managing Partner of Lone Tree Capital, a private
equity partnership he co-founded in 2002. Mr. Lillis served as Chairman and
Chief Executive Officer of MediaOne Group, Inc. from June 1998 to May 2000. He
served as Chief Executive Officer of MediaOne while it was a tracking stock
company from November 1995 to May 1997. Prior to that, he held various senior
management positions at US WEST, MediaOne's predecessor. Before joining US WEST,
he served as Dean of the University of Colorado's College of Business and as a
professor at Washington State University. In addition, he is a director and
serves on the audit committees of SuperValu, Inc. and Williams Companies. Mr.
Lillis is also Chairman of the University of Washington Business Advisory Board,
a member of the University of Washington Foundation Board, and a former member
of the University of Colorado Foundation Board. Mr. Lillis is a graduate of the
University of Washington, Seattle, with an M.B.A., and he holds a doctorate of
Philosophy in Business from the University of Oregon, in Eugene.
DAVID C. MERRITT, 50, was elected to our board of directors in July 2003,
and was also appointed as Chairman of the Audit Committee at that time. Since
October 2003, Mr. Merritt has been a Managing Director of Salem Partners, LLC,
an investment banking firm. He was a Managing Director in the Entertainment
Media Advisory Group at Gerard Klauer Mattison & Co., Inc., a company that
provides financial advisory services to the entertainment and media industries
from January 2001 through April 2003. Prior to that, he served as Chief
Financial Officer of CKE Associates, Ltd., a privately held company with
interests in talent management, film production, television production, music
and new media from July 1999 to November 2001. He also served as a director of
Laser-Pacific Media Corporation from January 2001 until October 2003 and served
as Chairman of its audit committee. During December 2003, he became a director
of Outdoor Channel Holdings, Inc. Mr. Merritt joined KPMG LLP in 1975 and served
in a variety of capacities during his years with the firm, including national
partner in charge of the media and entertainment practice and before joining CKE
Associates, Mr. Merritt was an audit and consulting partner of KPMG LLP for 14
years. Mr. Merritt holds a B.S. degree in Business and Accounting from
California State University -- Northridge.
MARC B. NATHANSON, 59, has been a director of Charter since January 2000.
Mr. Nathanson is the Chairman of Mapleton Investments LLC, an investment vehicle
formed in 1999. He also founded and served as Chairman and Chief Executive
Officer of Falcon Holding Group, Inc., a cable operator, and its predecessors,
from 1975 until 1999. He served as Chairman and Chief Executive Officer of
Enstar Communications Corporation, a cable operator, from 1988 until November
1999. Prior to 1975, Mr. Nathanson held executive positions with Teleprompter
Corporation, Warner Cable and Cypress Communications Corporation. In 1995, he
was appointed by the President of the United States to the Broadcasting Board of
Governors, and from 1998 through September 2002, served as its Chairman.
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Mr. Nathanson holds a Bachelors degree in Mass Communications from the
University of Denver and a Masters degree in Political Science from University
of California/Santa Barbara.
JO ALLEN PATTON, 46, has been a director of Charter since April 2004. Ms.
Patton joined Vulcan Inc. as Vice President in 1993, and since that time has
served as an officer and director of many affiliates of Mr. Allen, including in
her current position as President and Chief Executive Officer of Vulcan Inc.
since July 2001. Vulcan Inc. is the investment and project management company
founded by Mr. Allen to oversee a diverse multi-billion dollar portfolio of
investments, real estate, sports teams, entertainment and charitable projects.
Ms. Patton is also President of Vulcan Productions, an independent feature film
and documentary production company, Vice Chair of First & Goal, Inc., which
developed and operates the Seattle Seahawks NFL stadium, and serves as Executive
Director of the six Paul G. Allen Foundations. Ms. Patton is a co-founder of the
Experience Music Project museum, as well as the Science Fiction Museum and Hall
of Fame. Ms. Patton is the sister of Mr. Allen.
JOHN H. TORY, 50, has been a director of Charter since December 2001. Mr.
Tory served as the Chief Executive Officer of Rogers Cable Inc., Canada's
largest broadband cable operator, from 1999 until 2003. From 1995 to 1999 Mr.
Tory was President and Chief Executive Officer of Rogers Media Inc., a
broadcasting and publishing company. Prior to joining Rogers, Mr. Tory was a
Managing Partner and member of the executive committee at Tory Tory DesLauriers
& Binnington, one of Canada's largest law firms. Mr. Tory serves on the board of
directors of a number of Canadian companies, including Cara Operations Limited.
Mr. Tory was educated at University of Toronto Schools, Trinity College
(University of Toronto) and Osgoode Hall Law School.
CARL E. VOGEL, 46, has been a director of Charter and its President and
Chief Executive Officer since October 2001. Mr. Vogel has more than 20 years
experience in telecommunications and the subscription television business. He
was a Senior Vice President of Liberty Media Corp. from November 1999 until
October 2001, and Chief Executive Officer of Liberty Satellite and Technology, a
distributor of Internet data and other content via satellite, from April 2000
until October 2001. Prior to joining Liberty, Mr. Vogel was an Executive Vice
President and Chief Operating Officer of Field Operations for AT&T Broadband and
Internet Services with responsibility for managing operations of all of AT&T's
cable broadband properties from June 1999 until November 1999. From June 1998 to
June 1999, when the business of Primestar Inc. was sold, Mr. Vogel served as
Chief Executive Officer of Primestar Inc., a national provider of subscription
television services, and from 1997 to 1998, he served as Chief Executive Officer
of Star Choice Communications. From 1994 through 1997, Mr. Vogel served as the
President and Chief Operating Officer of EchoStar Communications. He began his
career at Jones Intercable in 1983. Mr. Vogel serves as a director and member of
the Executive Committee of the National Cable & Telecommunications Association,
CableLabs and Digeo, Inc. and serves as a director of Women in Cable and
Telecommunications. Mr. Vogel holds a B.S. degree in Finance and Accounting from
St. Norbert College. His employment agreement provides that he will serve on our
board of directors. See "Executive Compensation -- Employment Arrangements."
LARRY W. WANGBERG, 62, has been a director of Charter since January 2002.
From August 1997 to May 2004, Mr. Wangberg was a director of TechTV L.L.C., a
cable television network controlled by Paul Allen. He also served as its
Chairman and Chief Executive Officer from August 1997 through July 2002. In May
2004, TechTV was sold to an unrelated third party. Prior to joining TechTV
L.L.C., Mr. Wangberg was Chairman and Chief Executive Officer of StarSight
Telecast Inc., an interactive navigation and program guide company which later
merged with Gemstar International, from 1994 to 1997. Mr. Wangberg was Chairman
and Chief Executive Officer of Times Mirror Cable Television and Senior Vice
President of its corporate parent, Times Mirror Co., from 1983 to 1994. He
currently serves on the boards of Autodesk Inc., and ADC Telecommunications. Mr.
Wangberg holds a bachelor's degree in Mechanical Engineering and a master's
degree in Industrial Engineering, both from the University of Minnesota.
BOARD OF DIRECTORS
Our board of directors meets regularly throughout the year on a set
schedule. The board also holds special meetings and acts by written consent from
time to time if necessary. Meetings of the independent members of
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the board occur on or about the same day as regularly scheduled meetings of the
full board (four times a year) and may meet more frequently. Management is not
present at these meetings. Each of the directors then serving attended last
year's annual meeting of stockholders, and members of the board of directors are
encouraged to attend the annual meeting each year. In 2003, the full board of
directors held 16 meetings and acted five times by written consent. No director
attended fewer than 75% of the total number of meetings of the board and of
committees on which he or she served.
The board of directors delegates authority to act with respect to certain
matters to board committees whose members are appointed by the board. The
following are the committees of the board of directors: Audit Committee,
Financing Committee, Option Plan Committee, Compensation Committee, Executive
Committee and a Special Committee for matters related to the CC VIII put dispute
discussed herein. In addition, during 2003, there was a Special Committee
related to a financing commitment letter issued by a company controlled by Paul
Allen. That committee ceased to exist when the commitment letter was terminated
in November 2003.
The board of directors has determined that all of the members of the Audit
Committee are independent directors, as required by the Nasdaq listing
standards. The remaining director independence Nasdaq requirements do not apply
to the Company, as it is a "Controlled Company" under the Nasdaq listing
standards by virtue of Mr. Allen's control of more than 50% of the voting power.
STOCKHOLDER CONTACT WITH DIRECTORS
Individuals may communicate directly with members of the board of directors
or members of the board's standing committees by writing to the following
address:
Charter Communications, Inc.
Charter Plaza
12405 Powerscourt Drive
St. Louis, Missouri 63131
The Secretary will summarize all correspondence received and periodically
forward summaries to the board. Members of the board may at any time request
copies of any such correspondence. Communications may be addressed to the
attention of the board, a standing committee of the board, or any individual
member of the board or a committee. Communication that is primarily commercial
in nature, relates to an improper or irrelevant topic, or requires investigation
to verify its content may not be forwarded.
COMMITTEES OF THE BOARD
The Audit Committee consists of three directors: Charles Lillis, John Tory
and David Merritt, all of whom the board of directors has determined are
independent in accordance with the applicable corporate governance listing
standards of The Nasdaq National Market. Our board of directors has determined
that, in its judgment, David Merritt is an audit committee financial expert
within the meaning of the applicable federal regulations. The Audit Committee
operates under a written charter, adopted by the Board of Directors in January
2003 and amended by the board in June 2004. The Audit Committee held seven
meetings in 2003.
The Compensation Committee reviews and approves the Company's compensation
of the senior management of the Company and its subsidiaries. The members of the
Compensation Committee in 2003 were Paul Allen, Marc Nathanson and William
Savoy. Mr. Savoy resigned in April 2004. The Compensation Committee met three
times in 2003. It is anticipated that Mr. Lillis will join the Compensation
Committee in July 2004.
The Option Plan Committee administers our 1999 Option Plan, and the 2001
Stock Incentive Plan and authorizes grants and awards under the 2001 Stock
Incentive Plan, including the Long-Term Incentive Program, to eligible
individuals. The Option Plan Committee determines the terms of each stock option
grant, restricted stock grant or other award at the time of grant. The Option
Plan Committee also has the power to accelerate the vesting of any grant or
extend the term thereof. The Option Plan Committee, which consisted of
10
Ms. Peretsman and Mr. Nelson until July of 2003, when Mr. Nelson was replaced by
David Merritt, met four times in 2003.
The Financing Committee reviews the Company's financing activities and
approves the terms and conditions of any financing transactions in consultation
with the Company's legal and financial advisors. The Financing Committee
consists of Messrs. Allen and Vogel and Ms. Peretsman and met eight times in
2003.
The Executive Committee may act in place of the full board of directors and
exercise such powers of the full board as the board may delegate to such
Committee from time to time. During 2003, the Executive Committee consisted of
Messrs. Allen, Savoy, Vogel and Nathanson. Mr. Savoy resigned in April 2004. The
Executive Committee meets on an informal basis and did not meet in 2003.
A Special Committee was formed in January 2003 to address a dispute with
Mr. Allen over the ownership of membership interests of our subsidiary CC VIII,
LLC. That Special Committee consists of Messrs. Merritt, Lillis and Tory and met
twenty times in 2003.
A Special Committee related to a financing commitment letter issued by a
company controlled by Paul Allen was formed in January 2003. That committee,
consisting of Messrs. Lillis, Tory and Merritt, met eight times in 2003 and
ceased to exist when the commitment letter was terminated in November 2003.
DIRECTOR COMPENSATION
Commencing in July 2003, each member of our board receives an annual
retainer of $40,000 in cash plus restricted stock, vesting one year after the
date of grant, with a value on the date of grant of $50,000. In addition, the
Audit Committee chair receives $25,000 per year, and the chair of each other
committee receives $10,000 per year. All committee members also receive $1,000
for attendance at each committee meeting. Each of our directors is entitled to
reimbursement for costs incurred in connection with attendance at board and
committee meetings.
Directors who were not employees did not receive additional compensation in
the first half of 2003. Mr. Vogel, who was our President and Chief Executive
Officer in 2003, was the only director who was also an employee during 2003. He
did not receive any additional compensation for serving as a director or
attending any meeting of the board of directors during 2003.
Our Bylaws provide that all directors are entitled to indemnification to
the maximum extent permitted by law from and against any claims, damages,
liabilities, losses, costs or expenses incurred in connection with or arising
out of the performance by them of their duties for us or our subsidiaries.
11
EXECUTIVE OFFICERS
Our executive officers, listed below, are elected by the board of directors
annually following the Annual Meeting of Stockholders, and each serves until his
or her successor is elected and qualified or until his or her earlier
resignation or removal.
EXECUTIVE OFFICERS POSITION
- ------------------ --------
Paul G. Allen............................. Chairman of the board of directors
Carl E. Vogel............................. President and Chief Executive Officer
Margaret "Maggie" A. Bellville............ Executive Vice President -- Chief Operating Officer
Derek Chang............................... Executive Vice President of Finance and Strategy
Thomas A. Cullen.......................... Senior Vice President of Advanced Services and Business
Development
Wayne H. Davis............................ Chief Technical Officer
Michael P. Huseby......................... Executive Vice President -- Chief Financial Officer
Michael J. Lovett......................... Senior Vice President, Midwest Division Operations
Paul E. Martin............................ Senior Vice President -- Corporate Controller and
Principal Accounting Officer
Steven A. Schumm.......................... Executive Vice President -- Chief Administrative
Officer
Curtis S. Shaw............................ Executive Vice President, General Counsel and Secretary
Information regarding our executive officers who do not serve as directors
is set forth below.
MARGARET "MAGGIE" A. BELLVILLE, 50, Executive Vice President -- Chief
Operating Officer. Before joining us in December, 2002, Ms. Bellville was
President and Chief Executive Officer of Incanta Inc., a technology-based
streaming content company from 2001 to 2002. Incanta Inc. filed for bankruptcy
in April 2002. Prior to that, she worked for six years at Cox Communications,
beginning in 1995 as Vice President of Operations, then advancing to Executive
Vice President of Operations. Ms. Bellville joined Cox from Century
Communications, where she served as Senior Vice President. Before that, Ms.
Bellville served seven years with GTE Wireless in a variety of management and
executive-level roles. A graduate of the State University of New York in
Binghamton, Ms. Bellville is also a graduate of Harvard Business School's
Advanced Management Program. She currently serves on the Cable and Television
Association for Marketing Education Foundation.
DEREK CHANG, 36, Executive Vice President of Finance and Strategy. Prior
to joining us, Mr. Chang was Executive Vice President of the Yankees
Entertainment and Sports (YES) Network, a regional sports programming network in
New York where he headed corporate development and financing activities from the
company's inception in 2001 until January 2003. Prior to joining YES, he was the
Chief Financial Officer and Co-Chief Operating Officer of GlobalCenter, the web
hosting subsidiary of Global Crossing. Mr. Chang worked for TCI
Communications/AT&T Broadband in Denver from 1997 to 2000, ultimately as
Executive Vice President of Corporate Development, where he directed mergers and
acquisitions activities and managed a multibillion dollar portfolio of cable
joint ventures. He was with InterMedia Partners in San Francisco from 1994 to
1997 where he held a number of positions and was ultimately Treasurer. Mr. Chang
received a B.A. degree from Yale University and an M.B.A. from the Stanford
University Graduate School of Business.
THOMAS A. CULLEN, 44, Senior Vice President of Advanced Services and
Business Development. From January 2001 to October 2002, Mr. Cullen was General
Partner of Lone Tree Capital, a private equity partnership focused on investment
opportunities in the technology and communications sector. From March 1997 to
June 2000, Mr. Cullen was President of MediaOne Ventures. Prior to that, Mr.
Cullen served in several capacities with MediaOne Internet Services including
Vice President from April 1998 to June 2000 and Vice President of Business
Development from September 1995 to March 1997. Mr. Cullen is a member of the
board of directors of SportsLine USA, and a member of the Colorado State
University Global Leadership Council. Mr. Cullen is a graduate of Northern
Arizona University with a B.S. degree in Business
12
Administration. He earned a Master of Business Administration from the
University of Colorado, and he participated in a University of Pennsylvania,
Wharton School Executive Program.
WAYNE H. DAVIS, 50, Chief Technical Officer. Prior to becoming Chief
Technical Officer, Mr. Davis was Senior Vice President, Engineering and
Technical Operations, a position he held since March 2003. Before that, he was
Assistant to the President/Vice President of Management Services since July
2002. Prior to that, Mr. Davis was Vice President of Engineering/Operations for
our National Region from December 2001. Before joining us, Mr. Davis held the
position of Vice President of Engineering for Comcast Corporation, Inc.
Previously, he held various engineering positions including Vice President of
Engineering for Jones Intercable Inc. He began his career in the cable industry
in 1980. He attended the State University of New York at Albany. Mr. Davis
serves as an advisory board member of Cedar Point Communications, and as a board
member of @Security Broadband Corp., a company in which Charter owns an equity
investment interest. Mr. Davis is also a member of the Society of Cable
Telecommunications Engineers.
MICHAEL P. HUSEBY, 49, Executive Vice President -- Chief Financial
Officer. Mr. Huseby was Executive Vice President of Finance and Administration
and Chief Financial Officer of AT&T Broadband from 1999 until its merger with
Comcast in 2002. Prior to joining us in January 2004, he served as a consultant
to Comcast and to Charter as President and founder of MPH Associates Inc., a
privately held management and information technology firm providing consulting
services to broadband industry clients. For ten years prior to joining AT&T, Mr.
Huseby was a partner in the professional services firm of Andersen Worldwide.
Mr. Huseby graduated from the University of Colorado at Boulder with a degree in
Business Administration.
MICHAEL J. LOVETT, 43, Senior Vice President, Midwest Division
Operations. Prior to joining us in August of 2003, Mr. Lovett was Chief
Operating Officer of Voyant Technologies Inc., a voice conferencing hardware/
software solutions provider, from December 2001 to August 2003. From November
2000 to December 2001, he was Executive Vice President of Operations for
OneSecure, Inc., a startup delivering management/ monitoring of firewalls and
virtual private networks. Prior to that, Mr. Lovett was Regional Vice President
at AT&T from June 1999 to November 2000 where he was responsible for operations.
Mr. Lovett was Senior Vice President at Jones Intercable from October 1989 to
June 1999 where he was responsible for operations in nine states. Mr. Lovett
began his career in cable television at Centel Communications where he held a
number of positions.
PAUL E. MARTIN, 43, Senior Vice President -- Corporate Controller and
Principal Accounting Officer. Prior to his promotion to his current position in
April 2002, Mr. Martin was our Vice President and Corporate Controller from
March 2000. Prior to joining us in March 2000, Mr. Martin was Vice President and
Controller for Operations and Logistics for Fort James Corporation, a
manufacturer of paper products. From 1995 to February 1999, Mr. Martin was Chief
Financial Officer of Rawlings Sporting Goods Company, Inc. Mr. Martin received a
B.S. degree with honors in Accounting from the University of Missouri -- St.
Louis.
STEVEN A. SCHUMM, 51, Executive Vice President -- Chief Administrative
Officer. Prior to joining Charter Investment, Inc. in 1998, Mr. Schumm was a
partner of Ernst & Young LLP for 14 years where he was Managing Partner of Ernst
& Young's St. Louis office and a member of the Ernst & Young National Tax
Committee. Mr. Schumm joined Ernst & Young in 1974 and served in a variety of
capacities during his years with the firm. Mr. Schumm earned a B.S. degree in
Business Administration from Saint Louis University. Mr. Schumm served as our
Interim Chief Financial Officer from December 2002 to January 2004.
CURTIS S. SHAW, 55, Executive Vice President, General Counsel and
Secretary. Mr. Shaw was promoted to Executive Vice President in October 2003.
Prior to joining Charter Investment as Senior Vice President, General Counsel
and Secretary in 1997, Mr. Shaw served as corporate counsel to NYNEX from 1988
through 1996. Since 1973, Mr. Shaw has practiced as a corporate lawyer,
specializing in mergers and acquisitions, joint ventures, public offerings,
financings, and federal securities and antitrust law. Mr. Shaw received a B.A.
degree with honors in Economics from Trinity College and a J.D. degree from
Columbia University School of Law.
13
REPORT OF THE COMPENSATION COMMITTEE
The following report does not constitute soliciting materials and is not
considered filed or incorporated by reference into any other Company filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, unless
we state otherwise.
The Compensation Committee of the Board of Directors is responsible for
reviewing and approving the annual salaries and other compensation of the
executive officers of the Company and its subsidiaries and providing assistance
and recommendations with respect to compensation plans. The Compensation
Committee was comprised of Paul G. Allen, William D. Savoy and Marc B. Nathanson
during all of 2003. Mr. Savoy resigned from the Compensation Committee in April
2004. It is anticipated that Charles M. Lillis will be appointed to the
Committee at the next regularly scheduled meeting of the Company's Board of
Directors.
COMPENSATION PHILOSOPHY
In order to attract and retain well qualified executives, which the
Compensation Committee believes is crucial to the Company's success, the
Compensation Committee's approach is to compensate executives commensurate with
their experience, expertise and performance and to be competitive with the
cable, telecommunications, and other related industries. This compensation
consists of a base salary, an annual cash bonus, and long-term stock-based
incentives. The annual cash bonus and long-term stock-based incentives are
intended to align executive compensation with our business strategies, values
and management initiatives, both short- and long-term. Through this incentive
compensation, we place a substantial portion of executive compensation at risk,
and dependent upon the financial performance of the Company over the relevant
periods. This rewards executives for performance that enhances the Company's
financial strength and shareholder value.
ANNUAL CASH BONUSES
The Company's annual cash bonus program is tied to performance targets
(primarily short-term financial performance goals) reflected in the Company's
business plans for the fiscal year. Executive officer bonus payments are
generally targeted for between 50-100% of base salary if performance goals are
achieved and could reach twice that amount if the goals are exceeded. Our final
determination takes into consideration the recommendations of our President and
Chief Executive Officer. The 2003 bonus plan established targets for growth in
revenue and operating cash flow and achieving efficiencies in capital
expenditures. Although the Company's free cash flow in 2003 significantly
exceeded plan targets, the cash bonus targets in the 2003 bonus plan were
heavily weighted to revenue and operating cash flow. As a result, bonus payments
for 2003 were less than the targeted amounts.
The Compensation Committee may also authorize or recommend to the Board of
Directors the payment of discretionary bonuses based upon an assessment of an
executive's contributions, the Company's performance and such other factors as
the Compensation Committee deems relevant.
STOCK-BASED INCENTIVES
The Compensation Committee believes that stock ownership by key executives
provides a valuable and important incentive for their continued diligence, and
helps align their interests with those of the Company's stockholders. To
facilitate these objectives, in 2003, stock options were granted to certain
executives (as well as other employees).
During 2003, the Compensation Committee conducted a comprehensive review of
the Company's equity compensation practices with the assistance of a nationally
known compensation consultant. As a result of such review, in October 2003, the
Compensation Committee approved a new Charter Long-Term Incentive Program. The
new program is directed to the Company's key managers, which currently total
approximately 500 individuals. Under the new Program, eligible individuals
receive annual grants with a targeted economic value. The approximate economic
values of the target awards are established with the assistance of our
consultant based on periodic market surveys of executive and management
compensation packages of
14
comparable companies. We currently expect that approximately half of the annual
awards will be in the form of stock options and the other half will be in the
form of performance units. The stock options vest one-fourth on each of the
first four anniversaries of the grant date. The performance units are converted
to shares of Charter Class A common stock if, after three calendar years,
certain revenue growth and unlevered free cash flow growth targets are achieved.
The final payout of the performance shares at the end of the three years can
range from zero to 200% of the performance unit award depending upon actual
Company performance relative to the targets established by the Compensation
Committee at the time of the award.
This stock-based compensation approach blends two components intended to
align executive incentives with value creation. The earning of the performance
units is directly tied to specific financial metrics that we believe are
critical, at this point in time, for driving the value of the Company. The value
of the options is tied to the trading price of the stock and thus tied to
stockholder value. In addition, by limiting the group of eligible participants
to key managers and executives, we target the group of employees who can best
influence results and for which the Company's stock-based compensation can most
cost effectively produce the intended incentive and retention effect.
The Company's stock benefit plans are administered by the Option Plan
Committee, which approves the grants under the Charter Long-Term Incentive
Program. During 2003, the Option Plan Committee was comprised of directors Nancy
B. Peretsman and Ronald L. Nelson until July 23, 2003, when Mr. Nelson resigned
and was replaced by David Merritt.
EXCHANGE OFFER
At the Company's 2003 annual stockholders' meeting, stockholders approved
an amendment to our stock incentive plan authorizing the Company to reprice
outstanding options with an exercise price above market value, including
exchanges of options to reduce the exercise price. Accordingly, in conjunction
with our comprehensive review of equity-based compensation, in January 2004, we
offered 10,500 employees holding outstanding options (vested and unvested) with
an exercise price in excess of $10 per share the right to exchange these options
for shares of restricted Charter Class A common stock, according to certain
exchange ratios, depending on the exercise price applicable to the options. The
shares of restricted stock vest in three equal installments on each of the three
anniversaries following the exchange. Further, for the senior and executive
vice-presidents and the CEO who participated in the exchange, one-half of the
restricted shares received will vest at the end of the three-year period only if
the revenue and unlevered free cash flow targets established by the Compensation
Committee are achieved. The exchange offer also provided that the Company would
pay $5.00 per share in cash instead of issuing restricted shares to those
employees who would receive less than 400 shares of restricted stock in the
exchange. Participation in the exchange was voluntary and non-employee members
of the board of directors were not eligible to participate in the exchange. We
believe this exchange offer served an important goal of helping to motivate
tenured employees for their contributions during a difficult period and to
recognize their ongoing commitment by allowing them to exchange "out of the
money" options for restricted shares of Class A Common Stock with a value closer
to the market value of the Company's stock at the time of the exchange.
CEO COMPENSATION
Mr. Vogel serves as President and Chief Executive Officer, pursuant to an
Employment Agreement that provides for an annual base salary of $1,000,000 and a
bonus of up to $500,000 per year. The Compensation Committee approved a bonus
for Mr. Vogel for 2003 in the amount of $150,000 based on the bonus entitlement
provisions under his employment agreement and bonuses paid to other executives
under the 2003 bonus plan. In May 2004, the Compensation Committee awarded Mr.
Vogel a special bonus in the amount of $500,000 in recognition of his overall
leadership of the Company and various other factors, including the Company's
overall operating performance, the progress made in dealing with numerous
investigative and litigation matters, the significant progress the Company has
made toward refinancing its debt, including the refinancing of its various
credit facilities, the sale of non-strategic assets in early 2004 resulting in
net proceeds of more than $730 million, and the reorganization of the Company's
operations and senior leadership team.
15
SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally provides that certain
kinds of compensation in excess of $1 million in any single year paid to the
chief executive officer and the four other most highly compensated executive
officers of a public company are not deductible for federal income tax purposes.
However, pursuant to regulations issued by the U.S. Treasury Department, certain
limited exemptions to Section 162(m) apply with respect to qualified
"performance-based compensation."
While the tax effect of any compensation arrangement is one factor to be
considered, such effect is evaluated in light of our overall compensation
philosophy. To maintain flexibility in compensating executive officers in a
manner designed to promote varying corporate goals, the Compensation Committee
has not adopted a policy that all compensation must be deductible. Stock options
and performance shares granted under our 2001 Stock Incentive Plan are subject
to the approval of the Option Plan Committee. The grants qualify as
"performance-based compensation" and, as such, are exempt from the limitation on
deductions.
Outright grants of restricted stock (such as in the exchange offer
described above) and certain cash payments (such as base salary and cash
bonuses) are not structured to qualify as "performance-based compensation" and
are, therefore, subject to the Section 162(m) limitation on deductions and will
count against the $1 million cap.
PAUL G. ALLEN
MARC B. NATHANSON
16
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until April 27, 2004, when Mr. Savoy resigned from the board, our
Compensation Committee was comprised of Messrs. Allen, Savoy and Nathanson. In
2003, Ms. Peretsman and Mr. Nelson served as the Option Plan Committee that
administered the 1999 Charter Communications Option Plan and the Charter
Communications, Inc. 2001 Stock Incentive Plan until July 2003 when Mr. Nelson
resigned and was replaced by Mr. Merritt.
No member of the Compensation Committee or the Option Plan Committee was an
officer or employee of the Company or any of its subsidiaries during 2003,
except for Mr. Allen who served as a non-employee chairman of the Compensation
Committee. Also, Mr. Nathanson was an officer of certain of our subsidiaries
prior to their acquisition by the Company in 1999 and held the title of
Vice-Chairman of the Compensation Committee, a non-executive, non-salaried
position, in 2003. Mr. Allen is the 100% owner and a director of Vulcan Inc. and
certain of its affiliates, which employed Mr. Savoy, one of our directors until
April 27, 2004, as an executive officer in the past. Mr. Allen also was a
director of and indirectly owned 98% of TechTV, of which Mr. Wangberg, one of
our directors, was a director until the sale of TechTV to an unrelated third
party in May 2004. Transactions between the Company and members of the
Compensation Committee are more fully described in "-- Director Compensation"
and in "Certain Relationships and Related Transactions -- Other Miscellaneous
Relationships."
During 2003, (1) none of our executive officers served on the compensation
committee of any other company that has an executive officer currently serving
on our board of directors, Compensation Committee or Option Plan Committee and
(2) except for Carl Vogel who serves as a director of Digeo Inc., an entity of
which Paul Allen is a director and by virtue of his position as Chairman of the
board of directors of Digeo, Inc. is also a non-employee executive officer, none
of our executive officers served as a director of another entity, one of whose
executive officers served on our Compensation Committee or Option Plan
Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Exchange Act requires our directors and certain of our
officers, and persons who own more than 10% of our common stock, to file initial
reports of ownership and reports of changes in ownership with the SEC. Such
persons are required by SEC regulation to furnish us with copies of all Section
16(a) forms they file. Based solely on our review of the copies of such forms
furnished to the Company, or written representations from certain reporting
persons, we believe that all filing requirements applicable to our officers and
directors were complied with during the 2003 fiscal year except that one Form 4
(Statement of Changes in Beneficial Ownership) filed by Mr. Allen to report the
exercise of stock put options to Mr. Allen was inadvertently filed late.
CODE OF ETHICS
In January 2003, we adopted a Code of Conduct that constitutes a Code of
Ethics within the meaning of federal securities regulations for our employees,
including all executive officers and directors. We also established a hotline
and website for reporting alleged violations of the code of conduct, established
procedures for processing complaints and implemented educational programs to
inform our employees regarding the Code of Conduct. A copy of our Code of
Conduct is available on our website at www.charter.com.
17
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the compensation to
those executive officers listed below for services rendered for the fiscal years
ended December 31, 2001, 2002 and 2003. These officers consist of the Chief
Executive Officer, each of the other four most highly compensated executive
officers as of December 31, 2003, and one other highly compensated executive
officer who served during 2003 but was not an executive officer on December 31,
2003.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARD
-------------------------------------- -------------------------
YEAR OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL ENDED COMPENSATION STOCK UNDERLYING COMPENSATION
POSITION DEC. 31 SALARY($) BONUS($)(1) ($) AWARDS($)(2) OPTIONS(#) ($)(3)
- ------------------ ------- --------- ----------- ------------ ------------ ---------- ------------
Carl E. Vogel(4)........... 2003 1,000,000 150,000 30,345(14) -- 750,000 12,639(16)
President and Chief 2002 980,769 330,000(9) 214,961(14) -- 1,000,000 10,255(16)
Executive Officer 2001 207,692 546,000(9) -- 513,000 3,400,000 8,996(16)
Margaret A. Bellville(5)... 2003 581,730 203,125 30,810(15) -- -- 109,139(17)
Executive Vice President, 2002 9,615 150,000(10) -- -- 500,000
Chief Operating Officer
Steven A. Schumm........... 2003 448,077 45,000 -- -- 250,000 9,889
Executive Vice President 2002 436,058 588,000(11) -- -- 300,000 5,255
and Chief Administrative 2001 435,000 402,000(11) -- -- 165,000 5,250
Officer
Curtis S. Shaw(6).......... 2003 275,782 37,500 -- -- 250,000 9,411(18)
Executive Vice President, 2002 249,711 281,500(12) -- -- 100,000 3,096
General Counsel and 2001 245,000 236,000(12) -- -- 149,000 5,250
Secretary
Wayne H. Davis(7).......... 2003 212,885 47,500 -- -- 225,000 581(19)
Chief Technical Officer
Stephen E. Silva(8)........ 2003 213,005 -- -- -- -- 134,345(20)
Former Executive Vice 2002 294,231 196,000(13) -- -- 150,000 5,255
President Corporate 2001 235,385 380,000(13) -- 347,760 290,000 5,250
Development and Chief
Technology Officer
- ---------------
(1) Includes senior management bonuses for 2003 under the 2003 senior
management incentive plan. Mr. Vogel's and Ms. Bellville's bonuses are
determined in accordance with the terms of their respective employment
agreements. The bonus amounts for Messrs. Vogel and Silva for 2001 include
the value of the vested portion of grants of restricted stock during 2001
under our 2001 Stock Incentive Plan, calculated based on the fair market
values of the vested shares on the grant date, which pursuant to the terms
of the plan is the average of the high and low trading price on the grant
date. These restricted stock grants made in 2001 immediately vested as to
twenty-five percent (25%) of the shares, with the remaining shares vesting
in 36 equal monthly installments commencing approximately 15 months from
the grant date. Also, where indicated in the footnotes below, the bonuses
for 2002 and 2001 include "stay" bonuses in the form of principal and
interest forgiven under the employee's promissory note. In 2002, all the
remaining principal and accrued interest on these notes was forgiven as
provided by the terms of the notes, so that at December 31, 2002, these
notes were no longer outstanding.
(2) Includes the grants of restricted stock made during 2001 under the Charter
Communications, Inc. 2001 Stock Incentive Plan, as described above. The
total grant amounts were: (i) Carl E. Vogel, 50,000 shares as of October 8,
2001 and (ii) Stephen E. Silva, 36,000 shares as of October 18, 2001. Under
the terms of the restricted stock agreement, the employee is entitled to
any cash and/or stock dividends on the unvested restricted shares. The
value as of the date of grant based on the closing market price of those
shares vested immediately is disclosed in the "Bonus" column of the table.
At December 31, 2003, based on a per share closing market price of $4.02
for Class A common stock, the total number (and value) of Mr. Vogel's
outstanding unvested restricted stock was 23,959 shares ($96,315). Mr.
Silva's shares of unvested restricted stock were cancelled upon his
resignation, effective July 1, 2003.
(3) Except as noted for Mr. Vogel, Ms. Bellville, Mr. Shaw, Mr. Davis and Mr.
Silva in notes 16, 17, 18, 19 and 20 below respectively, these amounts
consist of matching contributions under our 401(k) plan. The
18
2002 amounts also include premiums for supplemental life insurance
available to executives, and the 2003 amounts include long-term disability
available to executives.
(4) Mr. Vogel became the Chief Executive Officer of Charter in October 2001.
(5) Ms. Bellville became the Chief Operating Officer of Charter in December
2002.
(6) Mr. Shaw was promoted to Executive Vice President in October 2003.
(7) Mr. Davis was promoted to Senior Vice President, Engineering and Technical
Operations in March 2003 and was subsequently promoted to Chief Technical
Officer in June 2004.
(8) Mr. Silva terminated his employment, effective July 1, 2003. See
"-- Employment Arrangements" for additional information.
(9) Includes: (i) for 2001, $171,000, representing the value based on the fair
market value on October 8, 2001, the original grant date, of 12,500 shares
of Class A common stock, the vested portion of Mr. Vogel's restricted stock
grant; (ii) for 2001, a one-time signing bonus of $250,000; and (iii)
$330,000 and $125,000 awarded as a bonus for services performed in 2002 and
2001, respectively.
(10) Includes a one-time signing bonus of $150,000 pursuant to an employment
agreement.
(11) Includes a "stay" bonus representing the principal and interest forgiven
under employee's promissory note, amounting to $363,000 and $342,000,
respectively, for 2002 and 2001; and $225,000 and $60,000 awarded as a
bonus for services performed in 2002 and 2001, respectively.
(12) Includes a "stay" bonus representing the principal and interest forgiven
under employee's promissory note, amounting to $181,500 and $171,000,
respectively, for 2002 and 2001; and $100,000 and $65,000 awarded as a
bonus for services performed in 2002 and 2001, respectively.
(13) Includes: (i) $116,000 for 2001, representing the value based on the fair
market value on October 18, 2001, the original grant date, of 9,000 shares
of Class A common stock, the vested portion of Mr. Silva's restricted stock
grant; (ii) a "stay" bonus representing the principal and interest forgiven
under employee's promissory note, amounting to $121,000 and $114,000,
respectively for 2002 and 2001; and (iii) $75,000 and $150,000 awarded as a
bonus for services performed in 2002 and 2001, respectively.
(14) Amount attributed to personal use of the corporate airplane in 2003 and
$100,000 attributed to personal use and commuting in the corporate airplane
in 2002 and $114,961 for purchase of a car in 2002.
(15) Includes $26,010 attributed to personal use of the corporate airplane and
$4,800 for car allowance.
(16) Includes (i) for 2003, $2,639 paid as premium for long-term disability
available for executives and $10,000 as reimbursement for tax advisory
services; (ii) for 2002, $255 paid as premiums for supplemental life
insurance available for executives and $10,000 as reimbursement for tax
advisory services; and (iii) for 2001, $7,500 as reimbursement for legal
expenses and $1,496 for COBRA expenses.
(17) Includes for 2003, $2,955 paid as premium for long-term disability
insurance available to executives, $5,000 as reimbursement for tax advisory
services, $7,500 for legal services and $93,684 paid in relation to
relocation expenses.
(18) Includes for 2003, $2,287 attributed to personal use of the corporate
airplane.
(19) Includes for 2003, $581 attributed to personal use of the corporate
airplane.
(20) Includes for 2003, $128,769 paid in severance, $5,000 paid in matching
contributions under our 401(k) plan, $576 paid as premium for long-term
disability insurance available to executives.
19
2003 OPTION GRANTS
The following table shows individual grants of options made to individuals
named in the Summary Compensation Table during 2003. All such grants were made
under the 2001 Stock Incentive Plan and the exercise price was based upon the
fair market value of the Class A common stock on the respective grant dates.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATE OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES EXERCISE EXPIRATION -------------------------
NAME GRANTED(#)(1) IN 2003 PRICE($/SH) DATE 5%($) 10%($)
- ---- ------------- ---------- ----------- ---------- ----------- -----------
Carl E. Vogel.......... 750,000 9.39% 4.30 10/28/13 2,025,827 5,133,843
Margaret A.
Bellville............ -- -- -- -- -- --
Steven A. Schumm....... 250,000 3.13% 4.13 12/19/13 648,548 1,643,547
Curtis S. Shaw......... 250,000 3.13% 4.30 10/28/13 675,276 1,711,281
Wayne H. Davis......... 225,000 2.82% 1.60 04/29/13 225,695 571,954
Stephen E. Silva(3).... -- -- -- -- -- --
- ---------------
(1) Options are transferable under limited conditions, primarily to accommodate
estate planning purposes. These options generally vest in four equal
installments commencing on the first anniversary following the grant date.
(2) This column shows the hypothetical gains on the options granted based on
assumed annual compound price appreciation of 5% and 10% over the full
ten-year term of the options. The assumed rates of 5% and 10% appreciation
are mandated by the SEC and do not represent our estimate or projection of
future prices.
(3) Mr. Silva's employment terminated in 2003 and he received no options in
2003.
2003 AGGREGATED OPTION EXERCISES AND OPTION VALUE
The following table sets forth, for the individuals named in the Summary
Compensation Table, (i) information concerning options exercised during 2003,
(ii) the number of shares of our Class A common stock underlying unexercised
options at year-end 2003, and (iii) the value of unexercised "in-the-money"
options (i.e., the positive spread between the exercise price of outstanding
options and the market value of our Class A common stock) on December 31, 2003.
NUMBER OF SECURITIES APPROXIMATE
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
SHARES 2003(#)(1) DECEMBER 31, 2003($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Carl E. Vogel.......... -- -- 1,970,833 3,179,167 200,000 800,000
Margaret A.
Bellville............ -- -- 250,000 250,000 250,000 250,000
Steven A. Schumm....... -- -- 912,136 585,545 60,000 240,000
Curtis S. Shaw......... -- -- 310,332 413,668 20,000 80,000
Wayne H. Davis......... -- -- 20,000 295,000 10,000 265,000
Stephen E. Silva....... -- -- 367,916 277,084 30,000 120,000
- ---------------
(1) Options granted prior to 2001 and under the 1999 Charter Communications
Option Plan, when vested, are exercisable for membership units of Charter
Communications Holding Company, LLC ("Charter Holdco"), which are
immediately exchanged on a one-for-one basis for shares of our Class A
common stock upon exercise of the option. Options granted under the 2001
Stock Incentive Plan and after 2000 are exercisable for shares of our Class
A common stock.
20
(2) Based on a per share market value (closing price) of $4.02 as of December
31, 2003 for our Class A common stock.
OPTION/STOCK INCENTIVE PLANS
The Plans. We have granted stock options, restricted stock and other
incentive compensation pursuant to two plans -- the 1999 Charter Communications
Option Plan and the 2001 Stock Incentive Plan. The 1999 Charter Communications
Option Plan provided for the grant of options to purchase membership units in
Charter Holdco to current and prospective employees and consultants of Charter
Holdco and its affiliates and to our current and prospective non-employee
directors. Membership units received upon exercise of any options are
immediately exchanged for shares of our Class A common stock on a one-for-one
basis.
The 2001 Stock Incentive Plan provides for the grant of non-qualified stock
options, stock appreciation rights, dividend equivalent rights, performance
units and performance shares, share awards, phantom stock and/or shares of
restricted stock (not to exceed 3,000,000 shares) as each term is defined in the
2001 Stock Incentive Plan. Employees, officers, consultants and directors of the
Company and its subsidiaries and affiliates are eligible to receive grants under
the 2001 Stock Incentive Plan. Generally, options expire 10 years from the grant
date. Unless sooner terminated by our board of directors, the 2001 Stock
Incentive Plan will terminate on February 12, 2011, and no option or award can
be granted thereafter.
Together, the plans allow for the issuance of up to a total of 90,000,000
shares of our Class A common stock (or units exchangeable for our Class A common
stock). Any shares covered by options that are terminated under the 1999 Charter
Communications Option Plan will be transferred to the 2001 Stock Incentive Plan,
and no new options will be granted under the 1999 Charter Communications Option
Plan. At December 31, 2003, 460,572 shares had been issued under the plans upon
exercise of options, 91,978 had been issued upon vesting of restricted stock
granted under the plans, and 154,562 shares were subject to future vesting under
restricted stock agreements. Of the remaining 89,292,888 shares covered by the
plans, as of December 31, 2003, 47,882,365 were subject to outstanding options
(22,860,936 of which were vested) and 41,410,523 remained eligible for future
grant.
In July 2003, we amended the plans to authorize the repricing of options,
which could include reducing the exercise price per share of any outstanding
option, permitting the cancellation, forfeiture or tender of outstanding options
in exchange for other awards or for new options with a lower exercise price per
share, or repricing or replacing any outstanding options by any other method.
In January 2004, the Compensation Committee of our board of directors
approved our Long-Term Incentive Program, or LTIP, which is a program
administered under the 2001 Stock Incentive Plan. Employees of the Company and
its subsidiaries whose pay classifications exceeded a certain level were
eligible to receive stock options, and more senior level employees were eligible
to receive stock options and performance shares. Under the LTIP, the stock
options vest 25% on each of the first four anniversaries of the date of grant.
The performance units vest on the third anniversary of the grant date and shares
of Class A common stock are issued, conditional upon our performance against
financial performance measures targets established by our management and
approved by the board of directors as of the time of the award. No awards were
made under the LTIP in 2003.
The Option Plan Committee of our board of directors administers and
authorizes grants and awards under the 2001 Stock Incentive Plan to any eligible
individuals. The Option Plan Committee determines the terms of each stock option
grant, restricted stock grant or other award at the time of grant, including the
exercise price to be paid for the shares, the vesting schedule for each option,
the price, if any, to be paid by the grantee for the restricted stock, the
restrictions placed on the shares, and the time or times when the restrictions
will lapse. The Option Plan Committee also has the power to accelerate the
vesting of any grant or extend the term thereof.
Upon a change of control of the Company, the Option Plan Committee can
shorten the exercise period of any option, have the survivor or successor entity
assume the options with appropriate adjustments, or cancel options and pay out
in cash. If an optionee's or grantee's employment is terminated without "cause"
or for
21
"good reason" following a "change in control" (as those terms are defined in the
plans), unless otherwise provided in an agreement, with respect to such
optionee's or grantee's awards under the plans, all outstanding options will
become immediately and fully exercisable, all outstanding stock appreciation
rights will become immediately and fully exercisable, the restrictions on the
outstanding restricted stock will lapse, and all of the outstanding performance
shares will vest and the restrictions on all of the outstanding performance
shares will lapse as if all performance objectives had been satisfied at the
maximum level.
February 2004 Option Exchange. In January 2004, we began an option
exchange program in which we offered employees of the Company and its
subsidiaries the right to exchange all stock options (vested and unvested) under
the 1999 Charter Communications Option Plan and 2001 Stock Incentive Plan that
had an exercise price over $10 per share for shares of restricted Class A common
stock or, in some instances, cash. Based on a sliding exchange ratio, which
varied depending on the exercise price of an employee's outstanding options, if
an employee would have received more than 400 shares of restricted stock in
exchange for tendered options, we issued to that employee shares of restricted
stock in the exchange. If, based on the exchange ratios, an employee would have
received 400 or fewer shares of restricted stock in exchange for tendered
options, we instead paid to the employee cash in an amount equal to the number
of shares the employee would have received multiplied by $5.00. The offer
applied to options to purchase a total of 22,929,573 shares of Class A common
stock, or approximately 48% of our 47,882,365 total options (vested and
unvested) issued and outstanding as of December 31, 2003. Participation by
employees was voluntary. Those members of our board of directors who were not
also employees of the Company or any of its subsidiaries were not eligible to
participate in the exchange offer.
In the closing of the exchange offer on February 20, 2004, we accepted for
cancellation eligible options to purchase approximately 18,137,664 shares of our
Class A common stock. In exchange, we granted approximately 1,966,686 shares of
restricted stock, including 460,777 performance shares to eligible employees of
the rank of senior vice president and above, and paid a total cash amount of
approximately $4 million (which amount includes applicable withholding taxes) to
those employees who received cash rather than shares of restricted stock. The
restricted stock was granted on February 25, 2004. Employees tendered
approximately 79% of the options eligible to be exchanged under the program.
The cost of the stock option exchange program was approximately $12
million, with a 2004 cash compensation expense of approximately $4 million and a
non-cash compensation expense of approximately $8 million to be expensed ratably
over the three-year vesting period of the restricted stock issued in the
exchange.
EMPLOYMENT ARRANGEMENTS
Mr. Vogel is currently employed under an employment agreement that was
signed in 2001 and expires on December 31, 2005. Ms. Bellville is employed under
an employment agreement that expires in September 2007. Of the other individuals
named in the Summary Compensation Table, Mr. Silva is no longer an employee, but
served until July of 2003 under the terms of an employment agreement signed in
2001.
Mr. Vogel is employed as President and Chief Executive Officer, earning a
base annual salary of $1,000,000 and is eligible to receive an annual bonus of
up to $500,000, a portion based on personal performance goals and a portion
based on company performance measured against criteria established by the board
with Mr. Vogel. Pursuant to his employment agreement, Mr. Vogel was granted
3,400,000 options to purchase Class A common stock and 50,000 shares of
restricted stock under our 2001 Stock Incentive Plan. Both the options and
restricted shares vested 25% on the grant date, with the remainder vesting in 36
equal monthly installments beginning December 2002. Mr. Vogel's agreement
provides that if Mr. Vogel is terminated without cause or if Mr. Vogel
terminates the agreement for good reason (including, in the event Mr. Vogel is
required to report, directly or indirectly, to persons other than the board), he
is entitled to his aggregate base salary due during the remainder of the term
and full prorated benefits and bonus for the year in which termination occurs.
Mr. Vogel's agreement includes a covenant not to compete for the balance of the
initial term or any renewal term, but no more than one year in the event of
termination without cause or by Mr. Vogel with good reason. Mr. Vogel's
agreement entitles him to participate in any disability insurance,
22
pensions or other benefit plans afforded to employees generally or to our
executives, including our LTIP. We agreed to reimburse Mr. Vogel annually for
the cost of term life insurance in the amount of $5 million, although he
declined this reimbursement in 2001, 2002 and 2003. Mr. Vogel is entitled to
reimbursement of fees and dues for his membership in a country club of his
choice, which he declined in 2001, 2002 and 2003 and reimbursement for up to
$10,000 per year for tax, legal and financial planning services. His agreement
also provides for a car and associated expenses for Mr. Vogel's use. Mr. Vogel's
agreement provides for automatic one-year renewals and also provides that we
will cause him to be elected to our board of directors without any additional
compensation.
Ms. Bellville is currently employed under an employment agreement entered
into as of April 27, 2003, that expires on September 1, 2007. Her annual base
salary is $625,000 and she is eligible to receive an annual bonus in an amount
to be determined by our board of directors, with a contractual minimum for 2003
of $203,125. Commencing in 2004, Ms. Bellville is eligible to receive a target
annual bonus equal to 100% of her base salary for the applicable year at the
discretion of the board of directors, 50% to be based on personal performance
goals and 50% to be based on overall company performance. Under a prior offer
letter dated December 3, 2002, Ms. Bellville was granted 500,000 options to
purchase shares of our Class A common stock, which vested 25% on the date of the
grant (December 9, 2002), with the balance to vest in 36 equal installments
commencing January 2003. Ms. Bellville's employment agreement provides that if
she is terminated without cause or if she terminates the agreement for good
reason (including due to a change in control or if Ms. Bellville is required to
report, directly or indirectly, to persons other than the Chief Executive
Officer), we will pay Ms. Bellville an amount equal to the aggregate base salary
due to Ms. Bellville during the remainder of the term, or renewal term and a
full prorated bonus for the year in which the termination occurs, within thirty
days of termination. Ms. Bellville's agreement includes a covenant not to
compete for the balance of the initial term or any renewal term, but no more
than one year, in the event of termination without cause or by her with good
reason. Her agreement further provides that she is entitled to participate in
any disability insurance, pension or other benefit plan afforded to employees
generally or to our executives, including our LTIP. Ms. Bellville is entitled to
a monthly car allowance and reimbursement for all business expenses associated
with the use of such car. Ms. Bellville's agreement provides that she is
entitled to the reimbursement of dues for her membership in a country club of
her choice, and reimbursement for up to $5,000 per year for tax, legal and
financial planning services. Her base salary may be increased at the discretion
of our board of directors. Ms. Bellville's agreement provides for automatic
one-year renewals.
Mr. Silva was employed as Executive Vice President -- Corporate Development
and Chief Technology Officer. Until his resignation in July 2003, he received a
base salary of $300,000 and was eligible to receive an annual bonus of up to 50%
of base, according to our Executive Bonus Policy in accordance with past
practices, and additional bonuses at the discretion of the board. Pursuant to
his employment agreement, Mr. Silva received 36,000 shares of restricted stock
under our 2001 Stock Incentive Plan. Under his agreement, Mr. Silva's restricted
shares vested 25% on the grant date, with the remainder to vest in 36 equal
monthly installments beginning December 2002. Mr. Silva's agreement provided
that he was eligible for any disability insurance, pension or other benefit plan
offered to employees generally or to our executives. Mr. Silva's agreement also
provided that, to the extent we did not provide life insurance in an amount at
least equal to the unpaid amount of his base salary through the end of the term
of his agreement, we would continue to pay his estate an amount equal to his
base salary in installments through the end of the term.
In addition to the indemnification provisions which apply to all employees
under our Bylaws, each of these agreements provides that we will indemnify and
hold harmless each employee to the maximum extent permitted by law from and
against any claims, damages, liabilities, losses, costs or expenses in
connection with or arising out of the performance by the applicable employee of
his or her duties. Each of the above agreements also contains confidentiality
and non-solicitation provisions.
Mr. Chang and Mr. Huseby are employed under the terms contained in offer
letters effective December 2, 2003 and January 5, 2004, respectively, each
providing for an annual base salary of $400,000 and eligibility for an annual
incentive target of 100% of the base salary (based on a combination of personal
performance goals and overall company performance). Mr. Chang and Mr. Huseby are
also eligible to participate in our 2001 Stock Incentive Plan. Under this plan,
Mr. Chang and Mr. Huseby were each granted
23
350,000 options to purchase Class A common stock in December and January,
respectively, and 50,000 restricted shares on December 9, 2003 and January 5,
2004, respectively. Mr. Chang and Mr. Huseby are also entitled to participate in
our LTIP. Mr. Huseby's and Mr. Chang's agreements provide that one half of each
of their unvested restricted shares would immediately vest, and one half of each
of their unvested options of the initial option grant would vest if (1) there is
a change in our current Chief Executive Officer, (2) there is a change in
reporting relationship to anyone other than the Chief Executive Officer, (3)
there is a requirement that the employee relocate, (4) there is a change of
control of the Company or (5) if terminated without cause. In addition, Mr.
Chang and Mr. Huseby would be entitled to eighteen months of full severance
benefits at their current compensation rate, plus the pro rata portion of their
bonus amounts within thirty days after termination because of any of these
events.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION MATTERS
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. The Delaware General Corporation Law
provides that a corporation may eliminate or limit the personal liability of a
director for monetary damages for breach of fiduciary duty as a director, except
for liability for:
(1) any breach of the director's duty of loyalty to the corporation and its
stockholders;
(2) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(3) unlawful payments of dividends or unlawful stock purchases or
redemptions; or
(4) any transaction from which the director derived an improper personal
benefit.
Our Bylaws provide that we will indemnify all persons whom we may indemnify
pursuant thereto to the fullest extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us pursuant to
the foregoing provisions, we have been informed that in the opinion of the SEC,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
We have reimbursed certain of our current and former directors, officers
and employees in connection with their defense of certain legal actions. See
"Certain Relationships and Related Transactions -- Other Miscellaneous
Relationships -- Indemnification Advances."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Class A common stock as of June 1, 2004 by:
- each person serving as a director of the Company;
- the current chief executive officer and the other individuals named in
the Summary Compensation Table;
- all persons serving as directors and officers of the Company, as a group;
and
- each person known by us to own beneficially 5% or more of the outstanding
Class A common stock.
24
With respect to the percentage of voting power set forth in the following
table:
- each holder of Class A common stock is entitled to one vote per share;
and
- each holder of Class B common stock is entitled to (i) ten votes per
share of Class B common stock held by such holder and its affiliates and
(ii) ten votes per share of Class B Common Stock for which membership
units in Charter Holdco held by such holder and its affiliates are
exchangeable.
CLASS A
SHARES
UNVESTED RECEIVABLE
NUMBER OF RESTRICTED ON EXERCISE CLASS A CLASS B
CLASS A CLASS A OF VESTED SHARES SHARES
SHARES SHARES OPTIONS OR RECEIVABLE ON NUMBER OF ISSUABLE UPON % OF
(VOTING AND (VOTING OTHER EXERCISE OF CLASS B EXCHANGE OR % OF VOTING
NAME AND ADDRESS OF INVESTMENT POWER CONVERTIBLE CONVERTIBLE SR. SHARES CONVERSION OF EQUITY POWER
BENEFICIAL OWNER POWER)(1) ONLY)(2) SECURITIES(3) NOTES OWNED UNITS(4) (4)(5) (5)(6)
- ------------------- ----------- ---------- ------------- --------------- --------- ------------- ------ ------
Paul G. Allen(7)......... 29,110,640 9,882 10,000 50,000 339,132,031 57.2% 92.6%
Charter Investment,
Inc.(8)................ 222,818,858 42.2% *
Vulcan Cable III,
Inc.(9)................ 116,313,173 27.6% *
Carl E. Vogel............ 83,333 696,667 400,000 34,786 * *
John H. Tory............. 4,300 9,882 40,000 * *
Marc B. Nathanson........ 380,000 9,882 50,000 46,382 * *
Charles M. Lillis(10).... 11,429 * *
David C. Merritt......... 9,882 * *
Jo Allen Patton(11)...... 10,977
Nancy B. Peretsman....... 60,000 9,882 50,000 * *
Larry W. Wangberg........ 3,000 9,882 40,000 * *
Margaret A. Bellville.... 322,916 * *
Curtis S. Shaw........... 5,000 352,833 * *
Steven A. Schumm(12)..... 12,440 108,768 120,000 4,638 * *
Wayne H. Davis........... 250 8,000 76,250 * *
All current directors and
executive officers as a
group (17 persons)..... 29,682,463 1,012,347 1,625,749 88,125 50,000 339,132,031 57.5% 92.6%
Stephen E. Silva(13)..... 427,833 * *
Mark Cuban(14)........... 19,000,000 6.2% *
Wallace R. Weitz &
Company(15)............ 34,100,000 11.2% *
UBS Americas Inc.(16).... 19,520,000 6.4% *
- ---------------
* Less than 1%.
(1) Includes shares for which the named person has sole voting and investment
power; or shared voting and investment power with a spouse. Does not
include shares that may be acquired through exercise of options.
(2) Includes unvested shares of restricted stock issued under the Charter
Communications, Inc. 2001 Stock Incentive Plan (including those issued in
the February 2004 option exchange for those eligible employees who elected
to participate), as to which the applicable director or employee has sole
voting power but not investment power.
(3) Includes shares of Class A common stock issuable upon exercise of options
that have vested or will vest on or before July 31, 2004 under the 1999
Charter Communications Option Plan and the 2001 Stock Incentive Plan.
(4) Beneficial ownership is determined in accordance with Rule 13d-3 under the
Exchange Act. The beneficial owners at June 1, 2004 of Class B common
stock, Charter Holdco membership units and convertible senior notes of
Charter are deemed to be beneficial owners of an equal number of shares of
Class A common stock because such holdings are either convertible into
Class A shares (in the case of Class B shares and convertible senior notes)
or exchangeable (directly or indirectly) for Class A shares (in the case of
the membership units) on a one-for-one basis. Unless otherwise noted, the
named
25
holders have sole investment and voting power with respect to the shares
listed as beneficially owned. An issue has arisen as to whether the
documentation for the Bresnan transaction was correct and complete with
regard to the ultimate ownership of the CC VIII, LLC membership interests
following the consummation of the Bresnan put transaction on June 6, 2003.
See "Certain Relationships and Related Party Transactions -- Transactions
Arising Out of Our Organizational Structure and Mr. Allen's Investment in
Charter and Its Subsidiaries -- Equity Put Rights -- CC VIII."
(5) The calculation of this percentage assumes for each person that:
- 304,613,306 shares of Class A common stock are issued and outstanding as
of June 1, 2004;
- 50,000 shares of Class B common stock held by Mr. Allen have been
converted into shares of Class A common stock;
- the acquisition by such person of all shares of Class A common stock that
such person or affiliates of such person has the right to acquire upon
exchange of membership units in subsidiaries or conversion of Series A
Convertible Redeemable Preferred Stock or 5.75% or 4.75% convertible
senior notes;
- the acquisition by such person of all shares that may be acquired upon
exercise of options to purchase shares or exchangeable membership units
that have vested or will vest by July 31, 2004; and
- that none of the other listed persons or entities has received any shares
of Class A common stock that are issuable to any of such persons pursuant
to the exercise of options or otherwise.
A person is deemed to have the right to acquire shares of Class A common
stock with respect to options vested under the 1999 Charter Communications
Option Plan. When vested, these options are exercisable for membership
units of Charter Holdco, which are immediately exchanged on a one-for-one
basis for shares of Class A common stock. A person is also deemed to have
the right to acquire shares of Class A common stock issuable upon the
exercise of vested options under the 2001 Stock Incentive Plan.
(6) The calculation of this percentage assumes that Mr. Allen's equity
interests are retained in the form that maximizes voting power (i.e., the
50,000 shares of Class B common stock held by Mr. Allen have not been
converted into shares of Class A common stock; that the membership units of
Charter Holdco owned by each of Vulcan Cable III, Inc. and Charter
Investment, Inc. have not been exchanged for shares of Class A common
stock).
(7) The total listed includes:
- 222,818,858 membership units in Charter Holdco held by Charter
Investment, Inc.; and
- 116,313,173 membership units in Charter Holdco held by Vulcan Cable III,
Inc.
The listed total excludes 24,273,943 shares of Class A common stock
issuable upon exchange of units of Charter Holdco, which may be issuable to
Charter Investment, Inc. (which is owned by Mr. Allen) as a consequence of
the closing of his purchase of the membership interests in CC VIII, LLC
that were put to Mr. Allen and were purchased by him on June 6, 2003. An
issue has arisen regarding the ultimate ownership of such CC VIII, LLC
membership interests following the consummation of such put transaction.
See "Certain Relationships and Related Party Transactions -- Transactions
Arising Out of Our Organizational Structure and Mr. Allen's Investment in
Charter and Its Subsidiaries -- Equity Put Rights -- CC VIII."
The address of this person is: 505 Fifth Avenue South, Suite 900, Seattle,
WA 98104.
(8) Includes 222,818,858 membership units in Charter Holdco which are
exchangeable for shares of Class B common stock on a one-for-one basis,
which are convertible to shares of Class A common stock on a one-for-one
basis. The address of this person is Charter Plaza, 12405 Powerscourt
Drive, St. Louis, MO 63131.
(9) Includes 116,313,173 membership units in Charter Holdco which are
exchangeable for shares of Class B common stock on a one-for-one basis,
which are convertible to shares of Class A common stock on a one-for-one
basis. The address of this person is: 505 Fifth Avenue South, Suite 900,
Seattle, WA 98104.
(10) Mr. Lillis was granted 11,429 shares of restricted Class A common stock on
October 3, 2003, which shares will vest fully on the one year anniversary
of the grant date.
26
(11) Ms. Patton was appointed to the board of directors of the Company on April
27, 2004 and was granted 10,997 shares on that date which will vest fully
on the one-year anniversary of the grant date.
(12) Includes 1,000 shares for which Mr. Schumm has shared investment and voting
power.
(13) Mr. Silva's 21,000 shares of unvested restricted stock were cancelled upon
his resignation, effective July 1, 2003. Under the terms of his severance,
his options will continue to vest until October 15, 2004, and all vested
options will be exercisable until sixty (60) days thereafter.
(14) The equity ownership reported in this table is based upon holder's Schedule
13G filed with the SEC May 19, 2003. The address of this person is: 5424
Deloache, Dallas, Texas 75220.
(15) The equity ownership reported in this table, for both the named holder and
its president and primary owner, Wallace R. Weitz, is based upon holders'
Schedule 13G/A filed with the SEC on January 23, 2004, and reflects the
holders' ownership in its capacity as an investment advisor and not
ownership for its own account. The address of this person is: 1125 South
103rd Street, Suite 600, Omaha, Nebraska 68124-6008.
(16) The equity ownership reported in this table is based upon holder's Schedule
13G filed with the SEC February 19, 2004. The address of this person is:
677 Washington Blvd., Stamford, Connecticut 06901. This person disclaims
beneficial ownership of all of these shares. In addition, these shares
include all of the shares described in footnote 14 above.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following information is provided as of December 31, 2003 with respect
to equity compensation plans:
NUMBER OF SECURITIES WEIGHTED AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE
EXERCISE OF OUTSTANDING FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, OPTIONS, WARRANTS UNDER EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS COMPENSATION PLANS
- ------------- -------------------- ----------------- --------------------
Equity compensation plans approved by
security holders........................ 47,882,365(1) $12.48 41,410,523
Equity compensation plans not approved by
security holders........................ 186,385(2) $20.46 --
---------- ------ ----------
TOTAL..................................... 48,068,750 $12.51 41,410,523
========== ====== ==========
- ---------------
(1) This total does not include 154,562 shares issued pursuant to restricted
stock grants made under our 2001 Stock Incentive Plan, which were subject to
vesting based on continued employment.
(2) Includes shares of Class A common stock to be issued upon exercise of
options granted pursuant to an individual compensation agreement with a
consultant. In addition, in December 2003, subject to certain conditions,
the Company agreed (1) to exchange the 186,385 options listed above for
18,638 shares of Class A common stock, and (2) to issue to the holder
options to purchase an additional 289,268 shares of Class A common stock for
an exercise price of $3.905 per share.
27
PERFORMANCE GRAPH
The graph below shows the cumulative total return on our Class A common
stock for the period from November 8, 1999, the date of the initial public
offering of the Company's Class A common stock, through December 31, 2003, in
comparison to the cumulative total return on Standard & Poor's 500 Index and a
peer group consisting of the four national cable operators that are most
comparable to us in terms of size and nature of operations. Previously, this
peer group (the "Prior Peer Group") consisted of Adelphia Communications
Corporation (which filed for protection under Chapter 11 of the Bankruptcy Code
on June 25, 2002), Cablevision Systems Corporation, Comcast Corporation, and Cox
Communications, Inc. However, in 2002, we designated a new peer group (the "New
Peer Group") that replaces Adelphia with Mediacom Communications Corp. in light
of Adelphia's bankruptcy filing. The results shown assume that $100 was invested
on November 9, 1999 and that all dividends were reinvested. These indices are
included for comparative purposes only and do not necessarily reflect
management's opinion that such indices are an appropriate measure of the
relative performance of the stock involved, and are not intended to forecast or
be indicative of future performance of the Class A common stock.
COMPARISON OF 50-MONTH CUMULATIVE TOTAL RETURN
AMONG CHARTER COMMUNICATIONS, INC., THE S&P 500 INDEX
AND A PEER GROUP
[COMPARISON CHART]
CHARTER
COMMUNICATIONS,
INC. S & P 500 PEER GROUP
--------------- --------- ----------
11/99 100 100 100
12/99 115.13 108.04 114.86
3/00 75.41 110.52 101.46
6/00 86.51 107.58 97.07
9/00 85.61 106.54 91.78
12/00 119.41 98.21 102.52
3/01 119.08 86.56 98.75
6/01 122.89 91.63 98.18
9/01 65.16 78.18 83.52
12/01 86.47 86.53 85.55
3/02 59.42 86.77 74.46
6/02 21.47 75.15 52.26
9/02 9.79 62.16 46.05
12/02 6.21 67.41 52.71
3/03 4.37 65.29 62.26
6/03 19.63 75.34 65.45
9/03 21.68 77.33 65.76
12/03 21.16 86.75 70.9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following sets forth certain transactions in which we are involved in
which our directors, executive officers and affiliates have or may have a
material interest. The transactions fall generally into three broad categories:
- Transactions in which Mr. Allen has an interest that arise directly out
of Mr. Allen's investment in Charter Communications, Inc. and its
subsidiaries. A large number of the transactions described below arise
out of Mr. Allen's direct and indirect (through Charter Investment, Inc.,
or the Vulcan entities, each of which Mr. Allen controls) investment in
the Company and its subsidiaries, as well as commitments made as
consideration for the investments themselves.
28
- Transactions with third party providers of products, services and content
in which Mr. Allen has a material interest. Mr. Allen has numerous
investments in the areas of technology and media. We have a number of
commercial relationships with third parties in which Mr. Allen has an
interest.
- Other Miscellaneous Transactions. We have a limited number of
transactions in which certain of the officers, directors and principal
stockholders of the Company and its subsidiaries, other than Mr. Allen,
have an interest.
A number of the debt instruments of our subsidiaries require delivery of
fairness opinions for transactions with Mr. Allen or his affiliates involving
more than $50 million. Such fairness opinions have been obtained whenever
required. All of our transactions with Mr. Allen or his affiliates have been
considered for approval either by the board of directors of the Company or a
committee of the board of directors and, in compliance with corporate governance
requirements, all related party transactions are considered by the Audit
Committee comprised entirely of independent directors. All of our transactions
with Mr. Allen or his affiliates have been deemed by the board of directors or a
committee of the board of directors to be in our best interest. Except where
noted below, we do not believe that these transactions present any unusual risks
for us that would not be present in any similar commercial transaction.
The chart below summarizes certain information with respect to these
transactions. Additional information regarding these transactions is provided
following the chart.
TRANSACTION INTERESTED RELATED PARTY DESCRIPTION OF TRANSACTION
- ------------------------------- ------------------------ --------------------------------------------
Intercompany Management
Arrangements................. Paul G. Allen The subsidiaries of Charter Holdco paid the
Company approximately $84 million for
management services rendered in 2003.
Mutual Services Agreement...... Paul G. Allen The Company paid Charter Holdco $73 million
for services rendered in 2003.
Management Agreement........... Paul G. Allen No fees were paid in 2003, although total
management fees payable to Charter
Investment, Inc., exclusive of interest,
were approximately $14 million at December
31, 2003.
Tax Provisions of Charter
Holdco's Operating
Agreement.................... Paul G. Allen In 2003, the operating agreement of Charter
Holdco allocated certain of our tax losses
to entities controlled by Paul Allen.
Channel Access Agreement....... Paul G. Allen At Vulcan Ventures' request, we will provide
Vulcan Ventures with exclusive rights for
carriage on eight of our digital cable
channels as partial consideration for a
prior capital contribution of $1.3 billion.
Equity Put Rights.............. Paul G. Allen Certain sellers of cable systems that we
acquired were granted, or previously had,
the right, as described below, to put to
Paul Allen equity in us (in the case of
Rifkin and Falcon), Charter Holdco (in the
case of Rifkin) and CC VIII, LLC (in the
case of Bresnan) issued to such sellers in
connection with such acquisitions.
29
TRANSACTION INTERESTED RELATED PARTY DESCRIPTION OF TRANSACTION
- ------------------------------- ------------------------ --------------------------------------------
Funding Commitment of Vulcan
Inc.......................... Paul G. Allen Pursuant to a commitment letter dated April
14, 2003, Vulcan Inc., which is an affiliate
of Paul Allen, agreed to lend, under certain
circumstances, or cause an affiliate to lend
to Charter Communications Holdings, LLC
("Charter Holdings") or any of its
subsidiaries a total amount of up to $300
million, which amount included a subfacility
of up to $100 million for the issuance of
letters of credit. In November 2003, we
terminated the commitment. We incurred
expenses to Vulcan Inc. totaling $5 million
in connection with the commitment prior to
termination.
TechTV Carriage
Agreement.................... Paul G. Allen William D. We recorded approximately $1 million from
Savoy Larry W. Wangberg TechTV under the affiliation agreement in
2003 related to launch incentives as a
reduction of programming expense and paid
TechTV approximately $80,600.
Oxygen Media Corporation
Carriage Agreement........... Paul G. Allen We paid Oxygen Media approximately $9
million under a Carriage Agreement in
exchange for programming in 2003. We
recorded approximately $1 million in 2003
from Oxygen Media related to launch
incentives as a reduction of programming
expense. We hold warrants to purchase 2.4
million shares of Oxygen Media common stock
and received the rights to receive
unregistered shares of Oxygen Media common
stock to be issued on or prior to February
2, 2005 at a guaranteed fair market value of
$34 million. We recognized approximately $9
million as a reduction of programming
expense in 2003, in recognition of the
guaranteed value of the investment.
Portland Trail Blazers Carriage
Agreement.................... Paul G. Allen We paid approximately $135,200 for rights to
carry the cable broadcast of certain Trail
Blazers basketball games in 2003.
Click2learn, Inc. Software
License Agreement............ Paul G. Allen We paid approximately $57,100 under a
Software License Agreement in 2003.
Digeo, Inc. Broadband Carriage
Agreement.................... Paul G. Allen William D. We paid Digeo approximately $4 million for
Savoy Carl E. Vogel customized development of the i-channels and
the local content tool kit in 2003. We
entered into a license agreement in 2004 for
the software that runs DVR units purchased
from a third party. We executed a binding
term sheet in 2004 for the purchase of up to
70,000 DVR units and a related software
license agreement, both subject to
satisfaction of certain conditions.
30
TRANSACTION INTERESTED RELATED PARTY DESCRIPTION OF TRANSACTION
- ------------------------------- ------------------------ --------------------------------------------
HDNet and HDNet Movies
Network...................... Mark Cuban We are party to an agreement to carry two
around-the-clock, high definition networks,
HDNet and HDNet Movies. We paid HDNet and
HDNet Movies approximately $21,900 in 2003.
Office lease agreement......... David L. McCall We paid approximately $189,200 in 2003 under
an office lease agreement to a partnership
controlled by Mr. McCall, a former executive
officer who resigned in January 2003.
Construction services.......... David L. McCall In 2003, we paid approximately $381,300 to a
construction company controlled by Mr.
McCall's brother and approximately $373,800
to a construction company controlled by Mr.
McCall's son.
Purchase of advertising........ Marc B. Nathanson We paid approximately $79,700 in 2003 to
purchase advertising on certain radio
stations owned by Mr. Nathanson and his son.
Carriage fees.................. David Merritt We paid approximately $1,100,000 in 2003 to
carry The Outdoor Channel. Mr. Merritt is a
director of an affiliate of this channel.
Enstar Limited Partnership
Systems Purchase and
Management Services.......... Charter officers who We earned approximately $469,300 in 2003 by
were appointed by a providing management services to the Enstar
Charter subsidiary (as limited partnerships.
general partner) to
serve as officers of
Enstar limited
partnerships
Indemnification Advances....... Current and former We reimbursed certain of our current and
directors and current former directors and executive officers a
and former officers total of approximately $8 million for costs
named in certain legal incurred in connection with certain
proceedings litigation matters in 2003.
The following sets forth more details regarding the transactions summarized
above.
TRANSACTIONS ARISING OUT OF OUR ORGANIZATIONAL STRUCTURE AND MR. ALLEN'S
INVESTMENT IN CHARTER COMMUNICATIONS, INC. AND ITS SUBSIDIARIES
As noted above, a number of our related party transactions arise out of Mr.
Allen's investment in the Company and its subsidiaries. Some of these
transactions are with Charter Investment, Inc. and Vulcan Ventures (both owned
100% by Mr. Allen), the Company (controlled by Mr. Allen) and Charter Holdco
(approximately 46.5% owned by us and 53.5% owned by other affiliates of Mr.
Allen).
INTERCOMPANY MANAGEMENT ARRANGEMENTS.
The Company is a party to management arrangements with Charter Holdco and
certain of its subsidiaries. Under these agreements, the Company provides
management services for the cable systems owned or operated by its subsidiaries.
These management agreements provide for reimbursement to the Company for all
costs and expenses incurred by it attributable to the ownership and operation of
the managed cable systems. In general, the total amount paid by Charter Holdco
and all of its subsidiaries is limited to the amount necessary to reimburse the
Company for all of its expenses, costs, losses, liabilities and damages paid or
incurred by it in connection with the performance of its services under the
various management agreements
31
and in connection with its corporate overhead, administration, salary expense
and similar items. The expenses subject to reimbursement include fees the
Company is obligated to pay under the mutual services agreement with Charter
Investment, Inc. Payment of management fees by the Company's operating
subsidiaries is subject to certain restrictions under the credit facilities and
indentures of such subsidiaries. If any portion of the management fee due and
payable is not paid, it is deferred by the Company and accrued as a liability of
such subsidiaries. Any deferred amount of the management fee will bear interest
at the rate of 10% per year, compounded annually, from the date it was due and
payable until the date it is paid. For the year ended December 31, 2003, our
subsidiaries paid a total of $84 million in management fees to the Company.
MUTUAL SERVICES AGREEMENT
The Company, Charter Holdco and Charter Investment, Inc. are parties to a
mutual services agreement whereby each party shall provide rights and services
to the other parties as may be reasonably requested for the management of the
entities involved and their subsidiaries, including the cable systems owned by
their subsidiaries all on a cost-reimbursement basis. The officers and employees
of each party are available to the other parties to provide these rights and
services, and all expenses and costs incurred in providing these rights and
services are paid by the Company. Each of the parties will indemnify and hold
harmless the other parties and their directors, officers and employees from and
against any and all claims that may be made against any of them in connection
with the mutual services agreement except due to its or their gross negligence
or willful misconduct. The mutual services agreement expires on November 12,
2009, and may be terminated at any time by any party upon thirty days' written
notice to the other. For the year ended December 31, 2003, the Company paid
approximately $73 million to Charter Holdco for services rendered pursuant to
the mutual services agreement. All such amounts are reimbursable to the Company
pursuant to a management arrangement with our subsidiaries. The accounts and
balances related to these services eliminate in consolidation. Charter
Investment, Inc. no longer provides services pursuant to this agreement.
PREVIOUS MANAGEMENT AGREEMENT WITH CHARTER INVESTMENT, INC.
Prior to November 12, 1999, Charter Investment, Inc. provided management
and consulting services to our operating subsidiaries for a fee equal to 3.5% of
the gross revenues of the systems then owned, plus reimbursement of expenses.
The balance of management fees payable under the previous management agreement
was accrued with payment at the discretion of Charter Investment, Inc., with
interest payable on unpaid amounts. For the year ended December 31, 2003, the
Company's subsidiaries did not pay any fees to Charter Investment, Inc. to
reduce management fees payable. As of December 31, 2003, total management fees
payable to Charter Investment, Inc. were approximately $14 million, exclusive of
any interest that may be charged.
CHARTER COMMUNICATIONS HOLDING COMPANY, LLC LIMITED LIABILITY AGREEMENT -- TAXES
The limited liability company agreement of Charter Holdco contains special
provisions regarding the allocation of tax losses and profits among its
members -- Vulcan Cable III, Inc., Charter Investment, Inc. and us. In some
situations, these provisions may cause us to pay more tax than would otherwise
be due if Charter Holdco had allocated profits and losses among its members
based generally on the number of common membership units.
VULCAN VENTURES CHANNEL ACCESS AGREEMENT
Vulcan Ventures, an entity controlled by Mr. Allen, the Company, Charter
Investment, Inc. and Charter Holdco are parties to an agreement dated September
21, 1999 granting to Vulcan Ventures the right to use up to eight of our digital
cable channels as partial consideration for a prior capital contribution of
$1.325 billion. Specifically, at Vulcan Ventures' request, we will provide
Vulcan Ventures with exclusive rights for carriage of up to eight digital cable
television programming services or channels on each of the digital cable systems
with local and to the extent available, national control of the digital product
owned, operated, controlled or managed by the Company or its subsidiaries now or
in the future of 550 megahertz or more. If the system offers digital services
but has less than 550 megahertz of capacity, then the programming services will
be
32
equitably reduced. Upon request of Vulcan Ventures, we will attempt to reach a
comprehensive programming agreement pursuant to which it will pay the
programmer, if possible, a fee per digital video customer. If such fee
arrangement is not achieved, then we and the programmer shall enter into a
standard programming agreement. The initial term of the channel access agreement
was 10 years, and the term extends by one additional year (such that the
remaining term continues to be 10 years) on each anniversary date of the
agreement unless either party provides the other with notice to the contrary at
least 60 days prior to such anniversary date. To date, Vulcan Ventures has not
requested to use any of these channels. However, in the future it is possible
that Vulcan Ventures could require us to carry programming that is less
profitable to us than the programming that we would otherwise carry and our
results would suffer accordingly.
EQUITY PUT RIGHTS
CC VIII. As part of our acquisition of the cable systems owned by Bresnan
Communications Company Limited Partnership in February 2000, CC VIII, LLC, our
indirect limited liability company subsidiary, issued, after adjustments,
24,279,943 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, LLC. While held by the Comcast
sellers, the CC VIII interest generally did not share in the profits and losses
of CC VIII, LLC. 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 has become the holder of the CC VIII
interest, indirectly through an affiliate. Consequently, subject to the matters
referenced in the next paragraph, Mr. Allen generally thereafter will be
allocated his pro rata share (based on number of membership interests
outstanding) of profits or losses of CC VIII, LLC, which is recorded in the
Company's financial statements as minority interest. In the event of a
liquidation of CC VIII, LLC, 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 and Mr. Allen in proportion to CC V Holdings, LLC'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, LLC's profits or losses (as
computed for capital account purposes) after June 6, 2003). The limited
liability company agreement of CC VIII, LLC does not provide for a mandatory
redemption of the CC VIII interest.
An issue has arisen 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 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, LLC 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 the Company formed a Special
Committee (currently comprised of Messrs. Tory, Wangberg and Merritt) to
investigate the matter and take any other appropriate action on
33
behalf of the Company 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, the Company should seek the
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 the
Company that, to the extent the contract reformation is achieved, the board of
directors should consider whether the CC VIII interest should ultimately be held
by Charter Holdco or Charter Holdings or another entity owned directly or
indirectly by them.
Mr. Allen disagrees with the Special Committee's determinations described
above and has so notified the Special Committee. Mr. Allen contends that the
transaction is 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 is evaluating what
further actions or processes it may undertake to resolve this dispute. To
accommodate further deliberation, each party has agreed to refrain from
initiating legal proceedings over this matter until it has given at least ten
days' prior notice to the other. In addition, the Special Committee and Mr.
Allen have 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. If the Special Committee and Mr. Allen are unable to reach a
resolution through that mediation process or to agree on an alternative dispute
resolution process, the Special Committee intends to seek resolution of this
dispute through judicial proceedings in an action that would be commenced, after
appropriate notice, in the Delaware Court of Chancery against Mr. Allen and his
affiliates seeking contract reformation, declaratory relief as to the respective
rights of the parties regarding this dispute and alternative forms of legal and
equitable relief. The ultimate resolution and financial impact of the dispute
are not determinable at this time.
Rifkin. On September 14, 1999, Mr. Allen and Charter Holdco entered into a
put agreement with certain sellers of the Rifkin cable systems that received a
portion of their purchase price in the form of 3,006,202 Class A preferred
membership units of Charter Holdco. This put agreement allowed these holders to
compel Charter Holdco to redeem their Class A preferred membership units at any
time before September 14, 2004 at $1.00 per unit, plus accretion thereon at 8%
per year from September 14, 1999. Mr. Allen had guaranteed the redemption
obligation of Charter Holdco. These units were put to Charter Holdco for
redemption, and were redeemed on April 18, 2003 for a total price of
approximately $3.9 million.
Mr. Allen also was a party to a put agreement with certain sellers of the
Rifkin cable systems that received a portion of their purchase price in the form
of shares of Class A common stock of the Company. Under this put agreement, such
holders have the right to sell to Mr. Allen any or all of such shares of Class A
common stock at $19 per share (subject to adjustments for stock splits,
reorganizations and similar events), plus interest at a rate of 4.5% per year,
compounded annually from November 12, 1999. Approximately 4.6 million shares
were put to Mr. Allen under these agreements prior to their expiration on
November 12, 2003.
Falcon. Mr. Allen also was a party to a put agreement with certain sellers
of the Falcon cable systems (including Mr. Nathanson, one of our directors) that
received a portion of their purchase price in the form of shares of Class A
common stock of the Company. Under the Falcon put agreement, such holders had
the right to sell to Mr. Allen any or all shares of Class A common stock
received in the Falcon acquisition at $25.8548 per share (subject to adjustments
for stock splits, reorganizations and similar events), plus interest at a rate
of 4.5% per year, compounded annually from November 12, 1999. Approximately 19.4
million shares were put to Mr. Allen under these agreements prior to their
expiration on November 12, 2003.
34
PREVIOUS FUNDING COMMITMENT OF VULCAN INC.
Effective April 14, 2003, our subsidiary, Charter Communications VII, LLC,
entered into a commitment letter with Vulcan Inc., which is an affiliate of Paul
Allen, under which Vulcan Inc. agreed to lend, under certain circumstances, or
cause an affiliate to lend initially to Charter Communications VII, LLC, or
another subsidiary of Charter Holdings, up to $300 million, which amount
included a subfacility of up to $100 million for the issuance of letters of
credit. No amounts were ever drawn under the commitment letter. In November
2003, we terminated the commitment. We incurred expenses to Vulcan Inc. totaling
$5 million in connection with the commitment (including an extension fee) prior
to termination.
ALLOCATION OF BUSINESS OPPORTUNITIES WITH MR. ALLEN
As described under "-- Third Party Business Relationships in which Mr.
Allen has an Interest" in this section, Mr. Allen and a number of his affiliates
have interests in various entities that provide services or programming to our
subsidiaries. Given the diverse nature of Mr. Allen's investment activities and
interests, and to avoid the possibility of future disputes as to potential
business, the Company and Charter Holdco, under the terms of their respective
organizational documents, may not, and may not allow their subsidiaries, to
engage in any business transaction outside the cable transmission business
except for the Digeo, Inc. joint venture; a joint venture to develop a digital
video recorder set-top terminal; an existing investment in Cable Sports
Southeast, LLC, a provider of regional sports programming; as an owner of the
business of Interactive Broadcaster Services Corporation or, Chat TV, an
investment in @Security Broadband Corp., a company developing broadband security
applications; and incidental businesses engaged in as of the closing of the
Company's initial public offering in November 1999. This restriction will remain
in effect until all of the shares of the Company's high-vote Class B common
stock have been converted into shares of Class A common stock due to Mr. Allen's
equity ownership falling below specified thresholds.
Should the Company or Charter Holdco or any of their subsidiaries wish to
pursue, or allow their subsidiaries to pursue, a business transaction outside of
this scope, it must first offer Mr. Allen the opportunity to pursue the
particular business transaction. If he decides not to pursue the business
transaction and consents to the Company or its subsidiaries engaging in the
business transaction, they will be able to do so. In any such case, the restated
certificate of incorporation of the Company and the limited liability company
agreement of Charter Holdco would need to be amended accordingly to modify the
current restrictions on the ability of such entities to engage in any business
other than the cable transmission business. The cable transmission business
means the business of transmitting video, audio, including telephony, and data
over cable systems owned, operated or managed by the Company, Charter Holdco or
any of their subsidiaries from time to time.
Under Delaware corporate law, each director of the Company, including Mr.
Allen, is generally required to present to the Company, any opportunity he or
she may have to acquire any cable transmission business or any company whose
principal business is the ownership, operation or management of cable
transmission businesses, so that we may determine whether we wish to pursue such
opportunities. However, Mr. Allen and the other directors generally will not
have an obligation to present other types of business opportunities to the
Company and they may exploit such opportunities for their own account.
Also, conflicts could arise with respect to the allocation of corporate
opportunities between us and Mr. Allen and his affiliates in connection with his
investments in businesses in which we are permitted to engage under the
Company's restated certificate of incorporation and our subsidiaries' limited
liability company agreement. Certain of the indentures of our subsidiaries
require the applicable issuer of notes to obtain, under certain circumstances,
approval of the board of directors of the Company and, where a transaction is
valued at or in excess of $50 million, a fairness opinion with respect to
transactions in which Mr. Allen has an interest. We have not instituted any
other formal plan or arrangement to address potential conflicts of interest.
The restrictive provisions of the organizational documents described above
may limit our ability to take advantage of attractive business opportunities.
Consequently, our ability to offer new products and services outside of the
cable transmission business and enter into new businesses could be adversely
affected, resulting in an adverse effect on our growth, financial condition and
results of operations.
35
MIRROR NOTES
The Company is a holding company and its principal assets are its equity
interest in Charter Holdco and certain mirror notes payable by Charter Holdco to
the Company, which have the same principal amount and terms as those of the
Company's convertible senior notes. In 2003, Charter Holdco paid to the Company
$68 million related to interest on the mirror notes. In connection with our
repurchase of approximately $477 million of our outstanding 4.75% senior
convertible notes due 2006 and approximately $132 million of our outstanding
5.75% senior convertible notes due 2005, $520 million of CCH II 10.25% senior
notes were transferred (through a series of distributions) by CCH II to Charter
Holdco, which in turn assigned those CCH II senior notes to us in exchange for
the cancellation of mirror notes of each series having a principal amount equal
to the amount of convertible notes of that series repurchased by us. As part of
the closing of that transaction, Charter Holdco also paid to the Company cash in
the amount of $10 million, which represented the sum of (a) all accrued and
unpaid interest on the portions of the mirror notes transferred by the Company
to Charter Holdco, to, but not including, the date of the closing, on the basis
set forth in the mirror notes, (b) an amount equal to the total amount of cash
payable by the Company in lieu of fractional interests in the 10.25% CCH II
senior notes which would have otherwise been due to the holders as a consequence
of the exchange and (c) the costs and expenses relating to such transactions.
THIRD PARTY BUSINESS RELATIONSHIPS IN WHICH MR. ALLEN HAS AN INTEREST
As previously noted, Mr. Allen has extensive investments in the areas of
media and technology. We have a number of commercial relationships with third
parties in which Mr. Allen has an interest. Mr. Allen or his affiliates own
equity interests or warrants to purchase equity interests in various entities
with which we do business or which provide us with products, services or
programming. Mr. Allen owns 100% of the equity of Vulcan Ventures Incorporated
and Vulcan Inc. and is the president of Vulcan Ventures. The various cable,
media, Internet and telephony companies in which Mr. Allen has invested may
mutually benefit one another. We can give no assurance, nor should you expect,
that any of these business relationships will be successful, that we will
realize any benefits from these relationships or that we will enter into any
business relationships in the future with Mr. Allen's affiliated companies.
Mr. Allen and his affiliates have made, and in the future likely will make,
numerous investments outside of us and our business. We cannot assure you that,
in the event that we or any of our subsidiaries enter into transactions in the
future with any affiliate of Mr. Allen, such transactions will be on terms as
favorable to us as terms we might have obtained from an unrelated third party.
TECHTV, L.L.C.
TechTV, L.L.C. ("TechTV") operates a cable television network that offers
programming related to technology. Pursuant to an affiliation agreement that
originated in 1998 and that terminates in 2008, TechTV has provided us with
programming for distribution via our cable systems. The affiliation agreement
provides, among other things, that TechTV must offer the Company certain terms
and conditions that are no less favorable in the affiliation agreement than are
given to any other distributor that serves the same number of or fewer TechTV
viewing customers. Additionally, pursuant to the affiliation agreement, we are
entitled to incentive payments for channel launches through December 31, 2003.
For the year ended December 31, 2003, we recorded approximately $1 million from
TechTV related to launch incentives as a reduction of programming expense and
paid approximately $80,600 to TechTV in license fees under the affiliation
agreement.
In March 2004, our subsidiary, Charter Holdco, entered into agreements with
Vulcan Programming and TechTV, which provide for (i) Charter Holdco and TechTV
to amend the affiliation agreement which, among other things, revises the
description of the TechTV network content, provides for Charter Holdco to waive
certain claims against TechTV relating to alleged breaches of the affiliation
agreement and provides for TechTV to make payment of outstanding launch
receivables due to Charter Holdco under the affiliation agreement, (ii) Vulcan
Programming to pay approximately $10 million and purchase over a 24-month
period, at fair market rates, $2 million of advertising time across various
cable networks on Charter cable systems in
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consideration of the agreements, obligations, releases and waivers under the
agreements and in settlement of the aforementioned claims and (iii) TechTV to be
a provider of content relating to technology and video gaming for Charter's
interactive television platforms through December 31, 2006 (exclusive for the
first year).
We believe that Vulcan Programming, which is 100% owned by Mr. Allen, owned
an approximate 98% equity interest in TechTV as of March 31, 2004. Until
September 2003, Mr. Savoy, a former Charter director, was the president and
director of Vulcan Programming and was a director of TechTV. Mr. Wangberg, one
of Charter's directors, was the chairman, chief executive officer and a director
of TechTV. Mr. Wangberg resigned as the chief executive officer of TechTV in
July 2002. He remained a director of TechTV along with Mr. Allen until Vulcan
Programming sold TechTV to an unrelated third party in May 2004.
OXYGEN MEDIA CORPORATION
Oxygen Media LLC ("Oxygen") provides programming content aimed at the
female audience for distribution over cable systems and satellite. On July 22,
2002, Charter Holdco entered into a carriage agreement with Oxygen, whereby
Charter Holdco agreed to carry programming content from Oxygen, pursuant to
which we currently make Oxygen programming available to approximately 5 million
of our customers. The term of the carriage agreement is retroactive to February
1, 2000, the date of launch of Oxygen programming by Charter Holdco and runs for
a period of five years from that date. As the number of customers receiving the
Oxygen programming increases, Charter Holdco receives volume discounts. For the
year ended December 31, 2003, we paid Oxygen approximately $9 million for
programming content.
In addition, Oxygen pays Charter Holdco marketing support fees for
customers launched after the first year of the term of the carriage agreement up
to an amount of $4 million. We recorded approximately $1 million related to
launch incentives as a reduction of programming expense for the year ended
December 31, 2003.
Concurrently with the execution of the programming agreement, we entered
into an equity issuance agreement pursuant to which Oxygen's parent company,
Oxygen Media Corporation ("Oxygen Media"), granted a subsidiary of Charter
Holdco a warrant to purchase 2.4 million shares of common stock of Oxygen Media
for an exercise price of $22.00 per share. Charter Holdco will also receive
unregistered shares of Oxygen Media common stock with a guaranteed fair market
value on the date of issuance of $34 million, on or prior to February 2, 2005,
with the exact date to be determined by Oxygen Media. We currently recognize the
guaranteed value of the investment over the life of the programming agreement as
a reduction of programming expense. For the year ended December 31, 2003, we
recorded approximately $9 million as a reduction of programming expense. The
carrying value of our investment in Oxygen was approximately $19 million as of
December 31, 2003.
As of December 31, 2003, through Vulcan Programming, Mr. Allen owned an
approximate 31% interest in Oxygen assuming no exercises of outstanding
warrants.
Marc Nathanson has an indirect beneficial interest of less than 1% in
Oxygen.
PORTLAND TRAIL BLAZERS
On October 7, 1996, the former owner of our Falcon cable systems entered
into a letter agreement and a cable television agreement with Trail Blazers Inc.
for the cable broadcast in the metropolitan area surrounding Portland, Oregon of
pre-season, regular season and playoff basketball games of the Portland Trail
Blazers, a National Basketball Association basketball team. Mr. Allen is the
100% owner of the Portland Trail Blazers and Trail Blazers Inc. After the
acquisition of the Falcon cable systems in November 1999, we continued to
operate under the terms of these agreements until their termination on September
30, 2001. Under the letter agreement, Trail Blazers Inc. was paid a fixed fee
for each customer in areas directly served by the Falcon cable systems. Under
the cable television agreement, we shared subscription revenues with Trail
Blazers Inc. We paid approximately $135,200 for the year ended December 31, 2003
in connection with the cable broadcast of Portland Trail Blazers basketball
games under the October 1996 cable television agreement.
37
CLICK2LEARN, INC.
Charter Holdco executed a Software License Agreement with Click2learn, Inc.
("Click2learn") effective June 30, 2002. Since October 1999 Charter Holdco has
purchased professional services, software and maintenance from Click2learn, a
company which provides enterprise software for organizations seeking to capture,
manage and disseminate knowledge throughout their extended enterprise. Mr. Allen
is the founder of Click2learn. As of December 31, 2003, Mr. Allen owned an
approximate 21% interest in Click2learn through 616,120 shares held of record by
Vulcan Ventures and 387,096 shares issuable upon exercise of a warrant issued to
Vulcan Ventures. Mr. Allen owns 100% of Vulcan Ventures. For the year ended
December 31, 2003, we paid approximately $57,100 to Click2learn.
DIGEO, INC.
On March 2, 2001, a subsidiary of the Company, Charter Communications
Ventures, LLC ("Charter Ventures") entered into a broadband carriage agreement
with Digeo Interactive, LLC ("Digeo Interactive"), a wholly owned subsidiary of
Digeo, Inc. ("Digeo"), an entity controlled by Paul Allen. The carriage
agreement provided that Digeo Interactive would provide to the Company a
"portal" product, which would function as the television-based internet portal
(the initial point of entry to the internet) for the Company's customers who
received internet access from the Company. The agreement term was for 25 years
and the Company agreed to use the Digeo portal exclusively for six years. Before
the portal product was delivered to the Company, Digeo terminated development of
the portal product.
On September 27, 2001, the Company and Digeo Interactive amended the
broadband carriage agreement. According to the amendment, Digeo Interactive
would provide to the Company the content for enhanced "Wink" interactive
television services, known as Charter Interactive Channels ("i-channels"). In
order to provide the i-channels, Digeo Interactive sublicensed certain Wink
technologies to the Company. The Company is entitled to share in the revenues
generated by the i-channels. Currently, our digital video customers who receive
i-channels receive the service at no additional charge.
On September 28, 2002, the Company entered into a second amendment to its
broadband carriage agreement with Digeo Interactive. This amendment supersedes
the amendment of September 27, 2001. It provides for the development by Digeo
Interactive of future features to be included in the Basic i-TV service provided
by Digeo and for Digeo's development of an interactive "toolkit" to enable the
Company to develop interactive local content. Furthermore, the Company may
request that Digeo Interactive manage local content for a fee. The amendment
provides for the Company to pay for development of the Basic i-TV service as
well as license fees for customers who receive the service, and for the Company
and Digeo to split certain revenues earned from the service. In 2003, we paid
Digeo Interactive approximately $4 million for customized development of the
i-channels and the local content tool kit. We received no revenues under the
broadband carriage agreement in 2003. This amendment expired pursuant to its
terms on December 31, 2003. Digeo Interactive is continuing to provide the Basic
i-TV Service on a month-to-month basis.
On June 30, 2003, Charter Holdco entered into an agreement with Motorola
for the purchase of 100,000 digital video recorder ("DVR") units. The software
for these DVR units is being supplied by Digeo Interactive, under a license
agreement entered into in April 2004. Under the license agreement Digeo
Interactive granted to Charter Holdco the right to use Digeo's proprietary
software for the number of DVR units that Charter deploys from a maximum of 10
headends through year-end 2004. In June 2004, the parties agreed to increase the
number of headends to 15. The license granted for each unit deployed under the
agreement is valid for five years. In addition, Charter will pay certain other
fees including a per-headend license fee and maintenance fees. Total license and
maintenance fees during the term of the agreement are expected to be
approximately $3 million. The agreement provides that Charter is entitled to
receive contract terms, considered on the whole, and license fees, considered
apart from other contract terms, no less favorable than those accorded to any
other Digeo customer.
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In April 2004, we launched DVR service in our Rochester, Minnesota market
using a broadband media center that is an integrated set-top terminal with a
cable converter, DVR hard drive and connectivity to other consumer electronics
devices (such as stereos, MP3 players, and digital cameras).
In May 2004, Charter Holdco entered into a binding term sheet with Digeo
Interactive for the purchase of 70,000 Digeo PowerKey DVR units. The term sheet
provides that the parties will proceed in good faith to negotiate, prior to
year-end 2004, definitive agreements for the purchase of the DVR units and that
the parties will enter into a license agreement for Digeo's proprietary software
on terms substantially similar to the terms of the license agreement described
above. Total purchase price and license and maintenance fees during the term of
the definitive agreements are expected to be approximately $40 million. The term
sheet and any definitive agreements will be terminable at no penalty to Charter
in certain circumstances.
In March 2001, Charter Ventures and Vulcan Ventures Incorporated formed
DBroadband Holdings, LLC for the sole purpose of purchasing equity interests in
Digeo. In connection with the execution of the broadband carriage agreement,
DBroadband Holdings, LLC purchased an equity interest in Digeo funded by
contributions from Vulcan Ventures Incorporated. The equity interest is subject
to a priority return of capital to Vulcan Ventures up to the amount contributed
by Vulcan Ventures on Charter Ventures' behalf. Charter Ventures has a 100%
profit interest in DBroadband Holdings, LLC. Vulcan Ventures also agreed to
make, through January 24, 2004, certain additional contributions through
DBroadband Holdings, LLC to acquire additional equity in Digeo as necessary to
maintain Charter Ventures' pro rata interest in Digeo in the event of certain
future Digeo equity financings by the founders of Digeo. These additional equity
interests are also subject to a priority return of capital to Vulcan Ventures up
to amounts contributed by Vulcan Ventures on Charter Ventures' behalf.
DBroadband Holdings, LLC is therefore not included in our consolidated financial
statements. Pursuant to an amended version of this arrangement, in 2003, Vulcan
Ventures contributed a total of $29 million to Digeo, $7 million of which was
contributed on Charter Ventures' behalf, subject to Vulcan Ventures
aforementioned priority return. Since the formation of DBroadband Holdings, LLC,
Vulcan Ventures has contributed approximately $224 million to Digeo, of which
approximately $56 million was contributed on Charter Ventures' behalf.
We believe that Vulcan Ventures, an entity controlled by Mr. Allen, owns an
approximate 60% equity interest in Digeo, Inc. Messrs. Allen and Vogel are
directors of Digeo.
OTHER MISCELLANEOUS RELATIONSHIPS
HDNET AND HDNET MOVIES NETWORK
On January 10, 2003, we signed an agreement to carry two around-the-clock,
high definition networks, HDNet and HDNet Movies. HDNet Movies delivers a
commercial-free schedule of full-length feature films converted from 35mm to
high definition, including titles from an extensive library of Warner Bros.
Films. HDNet Movies will feature a mix of theatrical releases, made-for-TV
movies, independent films and shorts. The HDNet channel features a variety of
HDTV programming, including live sports, sitcoms, dramas, action series,
documentaries, travel programs, music concerts and shows, special events, and
news features including the popular HDNet World Report. HDNet also offers a
selection of classic and recent television series. We paid HDNet and HDNet
Movies approximately $21,900 in 2003. We believe that entities controlled by
Mark Cuban owned approximately 85% of HDNet as of December 31, 2003. As of
December 31, 2003, Mr. Cuban, co-founder and president of HDNet, owned
approximately 6.4% of the outstanding Class A common stock of the Company.
AFFILIATE LEASES AND OTHER AGREEMENTS
David L. McCall, who served as Senior Vice
President -- Operations -- Eastern Division during 2002 and through January
2003, is a partner in a partnership that leases office space to us under a lease
agreement, which expires December 31, 2010. The partnership received
approximately $189,200 pursuant to such lease and related agreements for the
year ended December 31, 2003. In addition, during 2003 we paid approximately
$381,300 for construction services to a construction company controlled by Mr.
McCall's brother under a construction agreement, which expired December 31,
2003. We also paid approximately $373,800
39
during 2003 for construction services to a construction company controlled by
Mr. McCall's son under several agreements, the last of which expired January 31,
2004.
An entity indirectly controlled by Mr. Nathanson owns certain radio
stations from which Charter has purchased advertising. Mr. Nathanson's son is
the President and an investor of such entity. Charter paid approximately $79,700
to this entity for advertising for 2003.
We have carried The Outdoor Channel on a month-to-month basis since the
expiration of an affiliation agreement in July 2002. In 2003, we paid
approximately $1,100,000 to The Outdoor Channel. In December 2003, Mr. Merritt
became a director of Outdoor Channel Holdings, Inc. an affiliate of The Outdoor
Channel, Inc.
MANAGEMENT FEES OF ENSTAR LIMITED PARTNERSHIPS
Enstar Cable Corporation, the manager of the Enstar limited partnerships
through a management agreement, engaged Charter Holdco to manage the Enstar
limited partnerships. Pursuant to the management agreement, Charter Holdco
provides management services to the Enstar limited partnerships in exchange for
management fees. The Enstar limited partnerships also purchase basic and premium
programming for their systems at cost from Charter Holdco. For the year ended
December 31, 2003, Charter Holdco earned approximately $469,300 by providing
management services to the Enstar limited partnerships.
All of the executive officers of the Company, Charter Holdco and Charter
Holdings act as officers of Enstar Communications Corporation.
INDEMNIFICATION ADVANCES
Pursuant to Charter's bylaws (and the employment agreements of certain of
our current and former officers), the Company is obligated (subject to certain
limitations) to indemnify and hold harmless, to the fullest extent permitted by
law, any officer, director or employee against all expense, liability and loss
(including, among other things, attorneys' fees) reasonably incurred or suffered
by such officer, director or employee as a result of the fact that he or she is
a party or is threatened to be made a party or is otherwise involved in any
action, suit or proceeding by reason of the fact that he or she is or was a
director, officer or employee of the Company. In addition, the Company is
obligated to pay, as an advancement of its indemnification obligation, the
expenses (including attorneys' fees) incurred by any officer, director or
employee in defending any such action, suit or proceeding in advance of its
final disposition, subject to an obligation to repay those amounts under certain
circumstances. Pursuant to these indemnification arrangements and as an
advancement of costs, the Company has reimbursed certain of its current and
former directors and executive officers a total of approximately $8 million and
$3 million in respect of invoices received in 2003 and 2002, respectively, in
connection with their defense of certain legal actions described herein. Those
current and former directors and officers include: Paul G. Allen, David C.
Andersen, David G. Barford, Mary Pat Blake, J. Christian Fenger, Kent D.
Kalkwarf, Ralph G. Kelly, Jerald L. Kent, Paul E. Martin, David L. McCall,
Ronald L. Nelson, Nancy B. Peretsman, John C. Pietri, William D. Savoy, Steven
A. Schumm, Curtis S. Shaw, William J. Shreffler, Stephen E. Silva, James Trey
Smith and Carl E. Vogel. These amounts have been submitted to the Company's
director and officer insurance carrier for reimbursement. The carrier has raised
various objections to portions of these amounts, and the Company is in
negotiations with the carrier regarding their reimbursement.
ACCOUNTING MATTERS
PRINCIPAL ACCOUNTING FIRM
KPMG LLP acted as the Company's principal accountant in 2002 and 2003 and,
subject to ratification by stockholders at the Annual Meeting, KPMG LLP is
expected to serve as the Company's principal accounting firm for 2004.
Representatives of KPMG LLP will be in attendance at the Annual Meeting and
40
will have an opportunity to make a statement if they so desire. The
representatives will also be available to respond to appropriate questions.
In April 2002, the board of directors dismissed Arthur Andersen LLP and
appointed KPMG LLP as the Company's independent public accountants for the year
ended 2002 in accordance with the recommendation of the Audit Committee. Arthur
Andersen LLP served as our independent public accountants for the year ended
December 31, 2001.
Arthur Andersen's report on our financial statements for the two fiscal
years ended December 31, 2001 and 2000 did not contain an adverse opinion or a
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope or accounting principles. During the two fiscal years ended December 31,
2001 and 2000 and the subsequent interim period through April 22, 2002, there
were no disagreements with Arthur Andersen LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Arthur Andersen LLP's satisfaction would
have caused them to make reference to the subject matter of the disagreement in
connection with the audit reports on our consolidated financial statements for
such years, and there were no reportable events as defined in Item 304(a)(1)(v)
of Regulation S-K.
We provided Arthur Andersen LLP with a copy of the foregoing disclosures
and Arthur Andersen LLP agreed with such statements in a letter dated April 26,
2002 that was filed with the SEC. In 2003, KPMG LLP re-audited our 2000 and 2001
financial statements, which, among other things, resulted in a restatement of
these financial statements.
In the years ended December 31, 2001 and 2000 and through April 22, 2002,
we did not consult KPMG LLP with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the out consolidated financial
statements, or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K.
FEES OF INDEPENDENT PUBLIC ACCOUNTANTS
The following table shows the fees paid or accrued by the Company for audit
and other services provided by KPMG LLP for the last two fiscal years:
AMOUNT
(IN THOUSANDS)
---------------
2003 2002
------ ------
Audit Fees.................................................. $3,217 $6,100
Audit-Related Fees.......................................... $ 423 $ 306
Tax Fees.................................................... $ 0 $ 0
All Other Fees.............................................. $ 0 $ 258
Total....................................................... $3,640 $6,664
The Audit Committee has adopted policies and procedures requiring the
pre-approval of non-audit services that may be provided by our independent
auditor. We will also comply with the provisions of the Sarbanes-Oxley Act of
2002 and the related SEC rules pertaining to auditor independence and audit
committee pre-approval of audit and non-audit services. The Audit Committee has
determined that the provision of the services described under "All Other Fees"
is compatible with maintaining the independence of KPMG LLP.
AUDIT FEES
During the years ended December 31, 2003 and 2002, we incurred fees and
related expenses to KPMG LLP for the audits of our and our subsidiaries'
financial statements, for the review of our and our subsidiaries interim
financial statements and registration statement filings for the applicable year
totaling approximately $3.2 million and $6.1 million, respectively.
41
AUDIT-RELATED FEES
We incurred fees to KPMG of approximately $0.4 million and $0.3 million
during the years ended December 31, 2003 and 2002, respectively. In 2003, these
services primarily related to the audit of cable systems sold to Atlantic
Broadband Finance, LLC and advisory services associated with our Sarbanes-Oxley
Section 404 implementation. In 2002, these services primarily related to due
diligence related to acquisitions.
ALL OTHER FEES
We incurred fees for other professional services rendered by KPMG of
approximately $0 and $0.3 million during the years ended December 31, 2003 and
2002, respectively. In 2002, these services primarily related to a review of the
accounts payable process and litigation support.
The Audit Committee appoints, retains, compensates and oversees the
registered public accountants (subject, if applicable, to board of director
and/or stockholder ratification), and approves in advance all fees and terms for
the audit engagement and non-audit engagements where non-audit services are not
prohibited by Section 10A of the Securities Exchange Act of 1934, as amended
with respect to registered public accountants. Pre-approvals of non-audit
services are sometimes delegated to a single member of the Audit Committee.
However, any pre-approvals made by the Audit Committee's designee are presented
at the Audit Committee's next regularly scheduled meeting. The Audit Committee
has an obligation to consult with management on these matters. The Audit
Committee approved 100% of the KPMG fees for the years ended December 31, 2003
and 2002. Each year, including 2003, with respect to the proposed audit
engagement, the Audit Committee reviews the proposed risk assessment process in
establishing the scope of examination and the reports to be rendered.
In its capacity as a committee of the board, the Audit Committee oversees
the work of the registered public accounting firm (including resolution of
disagreements between management and the public accounting firm regarding
financial reporting) for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services. The registered public
accounting firm reports directly to the Audit Committee. In performing its
functions, the Audit Committee undertakes those tasks and responsibilities that,
in its judgment, most effectively contribute to and implement the purposes of
the Audit Committee charter. For more detail of the Audit Committee's authority
and responsibilities, see the Company's Audit Committee charter attached as
Appendix A.
42
REPORT OF THE AUDIT COMMITTEE
The following report does not constitute soliciting materials and is not
considered filed or incorporated by reference into any other Company filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, unless
we state otherwise.
The Audit Committee was established to oversee the Company's accounting and
financial reporting processes and the audits of the Company's annual financial
statements. The Audit Committee in 2003 consisted of David C. Merritt, John H.
Tory, and Nancy B. Peretsman. In December 2003, Ms. Peretsman was replaced on
the Audit Committee by Charles M. Lillis. Our board has determined each of the
Audit Committee's present members to be "independent" in accordance with Nasdaq
and SEC rules.
The Audit Committee's functions are detailed in a written Audit Committee
charter adopted by the board of directors in January 2003 and amended in June
2004, a copy of which is attached hereto as Appendix A and is available on the
Company's website at www.charter.com. As more fully described in its charter,
the Audit Committee reviews the Company's financial reporting process on behalf
of the board. Company management has the primary responsibility for the
Company's financial statements and the reporting process. The Company's
independent auditors are responsible for performing an audit of the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and expressing an opinion on the conformity of the financial
statements to generally accepted accounting principles. The internal auditors
are responsible to the Audit Committee and the board for testing the integrity
of the financial accounting and reporting control systems and such other matters
as the Audit Committee and board determine.
The Audit Committee held seven meetings in 2003.
The Audit Committee has reviewed and discussed with management the
Company's audited financial statements for the year ended December 31, 2003. The
Audit Committee has discussed the matters required to be discussed by Statement
on Auditing Standards No. 61 (Communication with Audit Committees) with KPMG
LLP, the independent public accountants for the Company's audited financial
statements for the year ended December 31, 2003.
The Audit Committee has also received the written disclosures and the
letter from KPMG LLP required by Independence Standards Board Standard No. 1
(Independence Discussion with Audit Committees), and the Audit Committee has
discussed the independence of KPMG LLP with that firm and has considered the
compatibility of non-audit services with KPMG LLP's independence.
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to the board of directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2003 for filing with the SEC.
DAVID C. MERRITT
CHARLES M. LILLIS
JOHN H. TORY
43
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENT
Section 16 of the Exchange Act requires our directors and certain of our
officers, and persons who own more than 10% of our common stock, to file initial
reports of ownership and reports of changes in ownership with the Securities and
Exchange Commission. Such persons are required by Securities and Exchange
Commission regulations to furnish us with copies of all Section 16(a) forms they
file. Based solely on our review of the copies of such forms furnished to us and
written representations from these officers and directors, we believe that all
Section 16(a) filing requirements applicable to our officers and directors were
complied with during the 2003 fiscal year, except that one Form 4 (Statement of
Changes in Beneficial Ownership) to report the exercise of stock put options to
Mr. Allen was inadvertently filed late.
STOCKHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
If you want to include a stockholder proposal in the proxy statement for
the 2005 annual meeting, it must be delivered to the Secretary at the Company's
executive offices no later than February 28, 2005. The federal proxy rules
specify what constitutes timely submission and whether a stockholder proposal is
eligible to be included in the proxy statement. Stockholder nominations of
directors are not stockholder proposals within the meaning of Rule 14a-8 and are
not eligible for inclusion in the Company's proxy statement.
If a stockholder desires to bring business before the meeting that is not
the subject of a proposal timely and properly submitted for inclusion in the
proxy statement, the stockholder must follow procedures outlined in the
Company's Bylaws. One of the procedural requirements in the Bylaws is timely
notice in writing of the business the stockholder proposes to bring before the
meeting. To be timely with respect to the 2005 annual meeting, such a notice
must be delivered to the Company's Secretary at the Company's executive offices
no earlier than April 14, 2005 and no later than May 14, 2005. However, in the
event that the Company elects to hold its next annual meeting more than 30 days
before or after the anniversary of this Annual Meeting, such stockholder
proposals would have to be received by the Company not earlier than 120 days
prior to the next annual meeting date and not later than 90 days prior to the
next annual meeting date.
Such notice must include (1) for a nomination for director, all information
relating to such person that is required to be disclosed in a proxy for election
of directors; (2) as to any other business, a description of the proposed
business, the text of the proposal, the reasons therefor, and any material
interest the stockholder may have in that business; and (3) certain information
regarding the stockholder making the proposal. These requirements are separate
from the requirements a stockholder must meet to have a proposal included in the
Company's proxy statement. The foregoing time limits also apply in determining
whether notice is timely for purposes of rules adopted by the Securities and
Exchange Commission relating to the exercise of discretionary voting authority.
Any stockholder desiring a copy of the Company's Bylaws will be furnished
one without charge upon written request to the Secretary. A copy of the Bylaws
is filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001 (filed with the SEC on November 14, 2001) and
amendments to the Bylaws are filed as exhibits to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2003 (filed with the SEC on
November 3, 2003) and are available at the Securities and Exchange Commission
Internet site (http://www.sec.gov).
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OTHER MATTERS
At the date of mailing of this proxy statement, we are not aware of any
business to be presented at the annual meeting other than the matters discussed
above. If other proposals are properly brought before the meeting, any proxies
returned to us will be voted as the proxyholder sees fit.
By order of the Board of Directors,
/s/ CURTIS S. SHAW
CURTIS S. SHAW
Secretary
OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003 IS AVAILABLE
WITHOUT CHARGE BY ACCESSING THE "INVESTOR" SECTION OF OUR WEBSITE AT
WWW.CHARTER.COM. YOU ALSO MAY OBTAIN A PAPER COPY OF THE CHARTER COMMUNICATIONS,
INC. 2003 10-K, WITHOUT EXHIBITS, AT NO CHARGE BY WRITING TO THE COMPANY AT
CHARTER PLAZA, 12405 POWERSCOURT DRIVE, ST. LOUIS, MO 63131, ATTENTION: INVESTOR
RELATIONS. IN ADDITION, CERTAIN FINANCIAL AND OTHER RELATED INFORMATION, WHICH
IS REQUIRED TO BE FURNISHED TO OUR STOCKHOLDERS, IS PROVIDED TO STOCKHOLDERS
CONCURRENTLY WITH THIS PROXY STATEMENT IN OUR 2003 ANNUAL REPORT. WE WILL
DELIVER ONLY ONE COPY OF OUR PROXY STATEMENT AND 2003 ANNUAL REPORT TO MULTIPLE
SECURITY HOLDERS SHARING AN ADDRESS UNLESS WE HAVE RECEIVED CONTRARY
INSTRUCTIONS FROM SUCH SECURITY HOLDER(S). IF YOU SHARE AN ADDRESS WITH ANOTHER
SECURITY HOLDER AND WOULD LIKE TO RECEIVE A SEPARATE PROXY STATEMENT OR ANNUAL
REPORT NOW OR IN THE FUTURE PLEASE CONTACT US AND WE WILL PROVIDE YOU WITH AN
ADDITIONAL COPY. IN ADDITION, IF YOUR HOUSEHOLD CURRENTLY RECEIVES MULTIPLE
COPIES OF THE PROXY STATEMENT AND ANNUAL REPORT AND YOU WOULD PREFER TO RECEIVE
ONLY ONE COPY OF EACH FOR YOUR HOUSEHOLD, PLEASE LET US KNOW. YOU MAY CONTACT US
AT CHARTER PLAZA, 12405 POWERSCOURT DRIVE, ST. LOUIS, MO 63131, ATTENTION:
INVESTOR RELATIONS OR BY CALLING (314) 543-2459. EVEN IF YOUR HOUSEHOLD HAS
RECEIVED ONLY ONE ANNUAL REPORT AND ONE PROXY STATEMENT, A SEPARATE PROXY CARD
SHOULD HAVE BEEN PROVIDED FOR EACH STOCKHOLDER. IF YOU VOTE USING THE PROXY
CARD, PLEASE SIGN AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU
VOTE BY TELEPHONE OR INTERNET, THERE IS NO NEED TO MAIL THE PROXY CARD.
45
APPENDIX A
AUDIT COMMITTEE CHARTER
AS ADOPTED BY THE BOARD OF DIRECTORS ON JANUARY 28, 2003,
AS AMENDED JUNE 18, 2004
A. PURPOSE
The Audit Committee shall oversee the accounting, internal control and
financial reporting processes of the Company and audits of the Company's
financial statements. The Audit Committee shall provide an avenue of
communication among the registered public accountants, management, internal
audit and the Board of Directors.
B. COMMITTEE MEMBERSHIP
The Audit Committee shall consist of no fewer than three members of the
Board of Directors. In accordance with Section 10A of the Securities Exchange
Act of 1934, as amended, and applicable SEC and NASDAQ rules, requirements for
membership on the Audit Committee shall be as follows: (a) each member shall
satisfy applicable independence, non-affiliation, maximum stock ownership and
financial literacy requirements and shall not have a relationship with the
Company which would impair his or her independence; and (b) if required by
NASDAQ rules, at least one member shall satisfy the financial expert
requirements. When appointing the members of the Audit Committee, the Board
shall make an affirmative determination as to satisfaction of these
requirements.
The Board shall appoint the members of the Audit Committee annually and
shall designate the Chairman of the Audit Committee. The members of the Audit
Committee shall serve until their successors are appointed and qualified. The
Board shall have the power at any time to change the membership of the Audit
Committee and to fill vacancies in it, subject to such new member(s) satisfying
the requirements for Audit Committee membership.
C. ADMINISTRATIVE MATTERS
Audit Committee members may not receive, directly or indirectly, any
consulting, advisory or other compensatory fees (as proscribed by applicable SEC
or NASDAQ rules) from the Company or any subsidiary thereof, other than for
Board or Board committee service.
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Audit Committee shall meet in executive
session separately with management at least annually, with the Company's
internal audit staff at least two times per year, and with the registered public
accountants at least quarterly. The Audit Committee may request that any officer
or employee of the Company or the Company's outside counsel or registered public
accountants attend a meeting of the Audit Committee or meet with any members of,
or consultants to, the Audit Committee. The Audit Committee shall make regular
reports to the Board.
The Audit Committee shall review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval. The Audit
Committee shall periodically review the Audit Committee's own performance, but
in no event less frequently than required by any applicable NASDAQ rules.
The Audit Committee shall have the authority, at the Company's expense, and
to the extent it deems necessary or appropriate, to retain and determine funding
for special legal, accounting or other consultants to advise the Audit Committee
with respect to its duties and obligations and to conduct or authorize
investigations into any matters within its scope of responsibilities.
The Audit Committee shall prepare the audit committee report required by
the rules of the SEC to be included in the Company's annual proxy statement.
This Charter will be filed as an exhibit to the proxy statement in accordance
with SEC rules.
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D. COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to appoint, retain,
compensate and oversee the registered public accountants (subject, if
applicable, to Board and/or shareholder ratification), and shall approve in
advance all fees and terms for both the audit engagement and all non-audit
engagements with registered public accountants, provided that any such non-audit
services shall not be prohibited by Section 10A of the Securities Exchange Act
of 1934, as amended. Pre-approvals of non-audit services may be delegated to a
single member of the Audit Committee provided that any pre-approvals made by the
Audit Committee's designee shall be presented at the Audit Committee's next
regularly scheduled meeting. The Audit Committee shall consult with management
but shall not delegate these responsibilities to management. Each year, with
respect to the proposed audit engagement, the Audit Committee shall review the
proposed risk assessment process in establishing the scope of examination and
the reports to be rendered.
In its capacity as a committee of the Board, the Audit Committee shall be
directly responsible for the oversight of the work of the registered public
accounting firm (including resolution of disagreements between management and
the public accounting firm regarding financial reporting) for the purpose of
preparing or issuing an audit report or performing other audit, review or attest
services, and the registered public accounting firm shall report directly to the
Audit Committee.
In performing its functions, the Audit Committee shall undertake those
tasks and responsibilities that, in its judgment, would most effectively
contribute and implement the purposes of the Audit Committee. The following
functions are some of the common recurring activities of the Audit Committee:
- Periodic Reports and the Disclosure Process. On a quarterly basis,
review and discuss with management, internal audit and the registered
public accountants: the Company's annual audited financial statements;
the registered public accountants' reviews of the quarterly financial
statements; disclosures made in "Management's Discussion and Analysis of
Financial Condition and Results of Operations;" the matters required to
be discussed pursuant to Statement on Auditing Standards No. 61;
significant deficiencies and material weaknesses in the design or
operation of internal controls and procedures for financial reporting,
any changes made or proposed to such controls and procedures, and any
fraud by any person involved therewith; and any reports of the registered
independent accountants and disclosures concerning internal controls and
procedures for financial reporting and disclosure controls and procedures
and offer certifications required by SEC rules and the underlying matters
related to such disclosures. Recommend to the Board whether the audited
financial statements should be included in the Company's Form 10-K.
- Review of Accounting Matters. Review and discuss with management and the
registered public accountants, as applicable: (a) major issues regarding
accounting principles, alternative accounting treatments, accounting
estimates and financial statement presentations and disclosures; (b)
major issues as to the adequacy of the Company's internal controls and
any special audit steps adopted in light of material control
deficiencies; (c) any material written communications between the
registered public accounting firm and management; (d) any problems,
difficulties or differences (including adjustments) encountered in the
course of the audit work and management's response; (e) accounting
treatment for unusual transactions; (f) the effect of regulatory and
accounting initiatives on the financial statements of the Company; and
(g) press releases regarding earnings or earnings guidance.
- Financial Risk Exposure. Discuss with management the Company's major
financial risk exposures and the steps management has taken to monitor
and control such exposures, including the Company's risk assessment and
risk management policies.
- Internal Audit Review. With respect to the Company's internal auditing
and controls, on an annual basis, the Audit Committee shall review: (a)
the quality and composition of the Company's internal audit staff and the
reporting relationship amongst the internal auditor, financial management
and the Audit Committee; (b) the risk assessment process, scopes and
procedures to determine whether they are adequate to attain the internal
audit objectives, as determined by management; (c) the internal audit
plan developed by the Company and explanations of deviations therefrom
and proposed changes
A-2
thereto; (d) significant fraud or regulatory non-compliance; and (e) any
difficulties encountered by internal audit in the course of their audits.
- Tax Matters. Review tax compliance and issues with internal tax staff
and external advisors, as needed.
- Relationship With Registered Independent Accountants. Evaluate the
qualifications, performance and independence of the registered public
accountants, including (a) review and evaluation of the lead partner of
the registered public accountants and taking into account the opinions of
management and the Company's internal auditors; (b) evaluation of the
composition of audit team to confirm that members would comply with
rotation requirements imposed by SEC regulations and professional
accounting standards; (c) confirmation that compensation of the members
of the audit team is not based upon non-audit services performed by the
registered accounting firm; and (d) ensuring that the independent
auditors submit on a periodic basis to the Audit Committee a formal
written statement delineating all relationships between such independent
auditors and the Company or any other relationships that may adversely
affect their independence, and, based on such review, shall assess their
independence consistent with Independence Standards Board Standard No. 1.
The Audit Committee shall actively engage in a dialogue with the
independent auditors with respect to any disclosed relationships or
services that may impact their objectivity and independence and take, or
recommend that the Board take, appropriate action to oversee the
independence of the independent auditors. Review any reports of the
registered public accountants mandated by Section 10A of the Securities
Exchange Act of 1934, as amended, and obtain from the registered public
accountants any information with respect to illegal accounts in
accordance with Section 10A. Confirm with the registered public
accounting firm that no director or officer has attempted to influence,
coerce, manipulate or mislead the registered public accounting firm for
the purpose of rendering materially misleading financial statements.
- Non-Audit Services. The Audit Committee shall establish procedures for
the engagement of the registered public accountants to provide non-audit
services. In evaluating whether to retain the registered public
accountants for non-audit services, the following factors shall be among
those considered: whether the services are compatible with the accounting
firm's independence, the accounting firm's familiarity with the Company,
its controls, process, tax position, and overall business strategy, and
the extent to which the services may provide insight to the accounting
firm in performing the audit of the Company.
- Confidential Complaint Procedure. Establish and annually review
procedures for (a) the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting
controls or auditing matters; (b) the confidential, anonymous submission
by employees of the Company of concerns regarding questionable accounting
or auditing matters; and (c) prevention of retaliation against Company
employees who have filed complaints or submitted concerns regarding these
matters.
- Legal and Regulatory Matters. Meet annually with the General Counsel,
and outside counsel when appropriate, to review outstanding legal matters
and changes in the regulatory environment, if any, that might have a
material impact on the Company's business or its financial statements.
- Related Party Transactions. Review and approve all related party
transactions, unless otherwise approved by the Board of Directors or a
committee thereof in accordance with applicable law and NASDAQ rules.
- Code of Conduct. Unless sufficiently covered by other policies of the
Company, establish a code of conduct for the Company's chief executive
officer and senior financial officers, to include provisions required by
SEC and NASDAQ rules. Such code of conduct shall be designed to deter
wrongdoing and promote honest and ethical conduct; avoidance of conflicts
of interest (with any waivers to be approved by the Audit Committee),
including disclosure of potential conflicts of interest; full, fair,
accurate, and timely disclosure in SEC filings, compliance with
applicable laws, rules and regulations,
A-3
reporting of code violations, and accountability for adherence to the
code, covering compliance with law, conflicts of interest, a mechanism
for monitoring compliance, and such other provisions as may be
appropriate.
- Other. Perform any other activities consistent with this Charter, the
Company's by-laws and governing law, as the Audit Committee or the Board
of Directors deems necessary or appropriate.
E. LIMITATIONS OF AUDIT COMMITTEE'S ROLES
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to prepare financial
statements; establish, plan or conduct internal or independent audits; establish
or maintain internal controls or disclosure controls for financial reporting; or
to determine that the Company's financial statements and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the registered public accountants.
Audit Committee Charter adopted by the Board of Directors: January 28,
2003, as amended June 18, 2004.
A-4
_____
This Proxy will be voted as specified. If no direction is made, this Proxy Please | |
will be voted FOR the director nominee, and FOR Proposal 2. Mark Here |____|
for Address
Change or
Comments
SEE REVERSE SIDE
MANAGEMENT RECOMMENDS A VOTE "FOR" EACH PROPOSAL:
NOMINEE 01 NANCY B. PERETSMAN FOR AGAINST ABSTAIN
ELECTION OF CLASS A / CLASS B DIRECTOR 2. RATIFICATION OF KPMG LLP AS ____ ____ ____
INDEPENDENT PUBLIC ACCOUNTANTS | | | | | |
FOR WITHHELD AUTHORITY |___| |___| |___|
NOMINEE TO VOTE FOR NOMINEE
____ ____ Check here if you ____
| | | | plan to attend the | |
|___| |___| ANNUAL MEETING. |___|
The undersigned hereby acknowledges receipt of PLEASE NOTE: Cameras and recording devices are not permitted at the Annual
the Notice of Annual Meeting and accompanying Meeting.
2004 Proxy Statement and the 2003 Annual Report.
You may be asked to present valid picture identification, such as a driver's
license in order to be admitted to the meeting and may be subject to other
security measurers.
_______
|
|
|
Signature(s) _________________________________________________________________________ Date ________________________________
NOTE: Please sign exactly as your name appears hereon. When shares are held jointly, each holder must sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title as such. When signing on behalf of a corporation or
partnership, the person signing must be an authorized signer and must state the capacity in which he or she is signing on behalf of
the corporation or partnership.
-- FOLD AND DETACH HERE --
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 11:59 PM EASTERN TIME
THE DAY PRIOR TO ANNUAL MEETING DAY.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
_______________________________________ _____________________________________ __________________________________
| INTERNET | | TELEPHONE | | MAIL |
| http://www.eproxy.com/chtr | | 1-800-435-6710 | | Mark, sign and date |
| Use the Internet to vote your proxy. | | Use any touch-tone telephone to | | your proxy card |
| Have your proxy card in hand when | OR | vote your proxy. Have your proxy | OR | and |
| you access the web site. | | card in hand when you call. | | return it in the |
| | | | | enclosed postage-paid |
| | | | | envelope. |
|______________________________________| |___________________________________| |________________________________|
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
CHARTER COMMUNICATIONS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned does hereby appoint Carl E. Vogel, with full power of
substitution, as the true and lawful attorney-in-fact, agent and proxy of the
undersigned at the Annual Meeting of Shareholders of Charter Communications,
Inc. to be held on July 27, 2004, commencing at 10:00 A.M., Pacific Daylight
Time, at The W Seattle Hotel, 1112 Fourth Avenue, Seattle, Washington and at
any and all adjournments or postponements of said meeting, to vote all the
shares of the Class A Common Stock of the company held of record by the
undersigned at the close of business on June 1, 2004. The undersigned does
hereby authorize such attorney-in-fact, agent and proxy to vote in his
discretion upon such other matters as may properly come before such Annual
Meeting and at any adjournment or postponement thereof.
This proxy, if properly executed, will be voted in the manner directed by
the undersigned, or if no direction is given will be voted FOR the named
director nominee, and FOR ratification of the appointment of KPMG LLP as
independent public accountants, and in any case will be voted pursuant to the
discretion of the proxyholder on such other business as may properly come
before the meeting.
PLEASE SIGN AND DATE THE REVERSE SIDE OF THIS FORM AND RETURN IT IN THE ENCLOSED
ENVELOPE.
(Continued, and to be marked, dated and signed, on the other side)
ADDRESS CHANGE/COMMENTS
(MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
