SCHEDULE 14A
(RULE 14a-101)14A-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)l4a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-1214a-l2
Charter Communications, Inc.
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(Name of Registrant as Specified in Its Charter)
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(1) Title of each class of securities to which transaction applies:
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[CHARTER COMMUNICATIONS LOGO]
June 25, 200328, 2004
Dear Shareholder:Stockholder:
You are cordially invited to attend the annual meeting of shareholdersstockholders of
Charter Communications, Inc. ("the Company"), which will be held at the W
Seattle Hotel, 1112 Fourth Avenue, Seattle, Washington on Wednesday,Tuesday, July 23,
200327, 2004
at 10:00 a.m. (Pacific Daylight Time).
All shareholdersstockholders of record on May 27, 2003June 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 SHAREHOLDERSSTOCKHOLDERS
OF
CHARTER COMMUNICATIONS, INC.
------------------------
DATE: Wednesday,Tuesday, July 23, 200327, 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, including:as follows:
- One Class A/Class B directordirector; and
- Eight Class B directorsdirectors.
2. An amendment to the Company's 2001 Stock Incentive Plan to increase by
30,000,000 shares the number of shares of Class A common stock authorized for
issuance under the plan.
3. Amendments to the 1999 Option Plan and the 2001 Stock Incentive Plan to
authorize the repricing of outstanding stock options, including any exchange
of options to reduce the exercise price.
4. Ratification of the appointment of KPMG LLP as the company's independent
registered public accountants.
5.accounting firm for the year ended December 31, 2004.
3. Any other matters properly brought before the shareholdersstockholders at the meeting.
By order of the Board of Directors,
/s/ CURTIS S. SHAW
CURTIS S. SHAW
Secretary
June 25, 200328, 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 shareholdersstockholders on
or about June 25, 2003.28, 2004.
GENERAL INFORMATION ABOUT VOTING AND THE MEETING
WHAT ARE YOUAM 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 Boardboard of Directorsdirectors of the Company (the "Class
A/Class B director"); - an amendment to the 2001 Stock Incentive Plan to increase by 30,000,000
shares the number of shares of Class A common stock authorized for
issuance under the plan;
- amendments to the 1999 Charter Communications Option Plan and the 2001
Stock Incentive Plan to authorize the repricing of outstanding stock
options, including any exchange of options to reduce the exercise price;
and
- ratification of the appointment of KPMG LLP as the Company's independent
registered public accountants.accountants for the year ended December 31, 2004.
WHY ARE WEAM I VOTING ON ONLY ONE DIRECTOR?
There currently are a total of eight directors onnine members of the Boardboard of Directors.
The Company'sdirectors. 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 sole remaining director the Class(the "Class A/Class B director,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 Company's Boardboard of Directorsdirectors has nominated seven of the eightnine current directors for
re-election and has also nominated David C. Merritt as the eighth
nominee. Ronald Nelson has declined to stand for reelection due to time
commitments required in connection with his new employment.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 seveneight directors who have been nominated by the Boardboard of Directorsdirectors
are: Paul G. Allen, Charles M. Lillis, David C. Merritt, Marc B. Nathanson, William D. Savoy,Jo
Allen Patton, John H. Tory, Carl E. Vogel and Larry W. Wangberg.
WHO CAN VOTE?
For all matters except the election of the seveneight Class B directors, a total
of 294,527,595304,613,306 shares of Class A common stock, representing approximately 8%8.24%
of the total voting power of all of theour issued and outstanding stock, of the
Company, and 50,000
shares of Class B common stock, representing approximately 92%91.76% of the total
voting power, canare entitled to vote. Each share of Class A common stock is
entitled to one vote. Paul Allen, as the soleEach holder of Charter Communications,
Inc. Class B common stock is entitled to ten
votes per share plus ten votes per share of Class B common stock held by Mr. Allen and his affiliates plus ten votes per of share of Class
B Common Stock for which
membership units in Charter Communications Holding Company, LLC held by Mr.
Allen 1
and itshis affiliates are exchangeable. Accordingly, each outstanding share
of Class B common stock was entitled to 67,836.4 votes at May 27, 2003.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 May 27, 2003.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 personstockholder voting in
that election.
1
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 all other proposals
set forth herein.ratification of the
appointment of KPMG LLP as our independent registered public accountants.
Under theour Certificate of Incorporation and Bylaws, of the Company, for purposes of
determining whether votes have been cast, abstentions and broker "non-votes"
will not be counted and therefore will have the same effect as
votes against the proposal, 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 proposals to amend the 1999 Stock
Option Plan and the 2001 Stock Incentive Plan, and on the ratification of the appointment
of KPMG LLP as the Company'sour independent auditorsregistered public accountants and the other
proposals which may properly come before the Annual Meeting. If a stockholder
votesyou vote to
"abstain," such stockholder'syour shares will be counted as present at the meeting for purposes of
determining a quorum on all matters, and for purposes of
calculating the vote, 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 the approvals of the amendments to the
1999 Stock Option Plan and the 2001 Stock Incentive Plan or the
ratification of the appointment of KPMG LLP as the Company'sour independent auditors.public
accountants. In addition, in the election of directors, a stockholder may
withhold such stockholder's vote. Withheld votes will be excluded from the vote and will have no effect on
the outcome of such election.
We have been advised by Paul G. Allen, the sole holder of Class B shares,
that he intends to vote "FOR" all of the eightnine 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 2
of the Class B shares, that he intends to vote "FOR"
eachratification of the other proposals
on the agenda,appointment of KPMG LLP as our independent public
accountants, which would result in the approval of each those proposals.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 proposals not
involvingproposal to ratify
the electionappointment of directors,KPMG LLP as our independent registered public accountants,
you can either (1) vote for the proposal, (2) withhold your vote foragainst 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
2
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" eachratification of the other proposals on the agenda.KPMG LLP as our
independent registered public accountants.
CAN I VOTE BY TELEPHONE OR VIA THE INTERNET?
If yourStockholders with shares are registered in their names with Mellon Investor
Services LLC, our transfer agent, may authorize a proxy by the name of a brokerage firminternet at the
following address: http://www.eproxy.com.chtr, or bank
(i.e., held in "street name"), you may be able to vote by telephone or via the
Internet.at
1-800-435-6710.
A number of brokerage firms and banks are participatingparticipate in a program that offerspermits
telephone and Internet voting options.internet voting. If your shares are held in an account at a
brokerage firm or bank participatingthat participates in such a program, you may votedirect the
voting of those shares telephonically by callingfollowing the telephone number referencedinstructions on yourthe voting form enclosed
with the proxy from the brokerage firm or you may vote via the internet at www.proxyvote.com. Votesbank.
Proxies submitted via the telephone or Internetinternet must be received by 11:59
p.m. (EDT) on July 22, 2003.26, 2004. If you vote this year's proxy via the Internet,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 ShareholdersStockholders 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 the Company'sour 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.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 from your broker, bank or other nominee prior to the annual
meeting, the documents required to vote your shares in person at the
annual meeting.
3
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. Rules 451 and 452 of the New York Stock Exchange, Inc. (the "NYSE"), 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 76 and 577 of the American Stock
Exchange LLC, (the "AMEX")or AMEX, are substantially similar to the foregoing NYSE Rules. Rule 2260(c)(2) of theThe National
Association of Securities Dealers, Inc. (the "NASD"), or the NASD, permits a NASD member firm
to deliver a proxy, with respect to shares of the Class A common
3
stock held by the NASD member firm for a beneficial owner pursuant to the rules
of ana 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, but such nominee will be precluded from
casting a vote on the two stock option proposals, which are deemed "non-routine"
under the NYSE and AMEX rules.accountants. Nevertheless, even for the routine proposals, the
Company urgeswe urge each beneficial ownerof
you to instruct the member firm which holds of record the shareholder'syour shares of the Class A
common stock to vote in favor of the two proposals submitted to the shareholdersstockholders
for a vote even though such instruction is not required.
WHO IS SOLICITING MY VOTE?
The Boardboard of Directorsdirectors 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. The CompanyWe will reimburse them for their reasonable expenses.
4
PROPOSAL NO. 1: ELECTION OF CLASS A/CLASS B DIRECTOR
(ITEM 1 ON PROXY CARD)
We currently have eightnine directors, each of whom is elected on an annual
basis. In accordance with the Company'sour Bylaws, the number of directors has been fixed at
eight. Thenine. Our Certificate of Incorporation of the Company 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 the Company's
shareholders.stockholders. The Boardboard of Directorsdirectors is
soliciting your vote for the Class A/Class B director to be elected at the
annual meeting of shareholders.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 shareholders.stockholders. You do not have a vote, and your vote is
not being solicited, with respect to the election of the seveneight Class B directors
who will be elected at the meeting.
NOMINATIONS. At the annual meeting, Nancy B. Peretsman will behas 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 Boardboard of Directorsdirectors 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, shareholdersstockholders can nominate persons to be directors. If a
shareholderstockholder wants to nominate someone, he or she must follow the procedures set
forth in the Company'sour Bylaws. In short, these procedures require the shareholderstockholder to
timely deliver a notice to the Company's Secretary at the
Company'sour principal executive offices.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 shareholderstockholder proposing the nominee and about the
nominee. No shareholderstockholder 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.
Further
information as of May 27, 2003 about the nominee is set forth below.
NANCY B. PERETSMAN, 49,50, 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
5
director since 1990. She is a director of Priceline.compriceline.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 OF THE COMPANY RECOMMENDS VOTING "FOR" THE CLASS A/CLASS B DIRECTOR
NOMINEE.
56
PROPOSAL: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.
7
ELECTION OF CLASS B DIRECTORS
INFORMATION ABOUT THE COMPANY'S CLASS B DIRECTOR NOMINEES
The following information as of May 27, 2003 concerns the seveneight individuals who have been
nominated by the Boardboard of Directorsdirectors for election by the Class B holder, voting
as a separate class. Six of theseThese individuals (Messrs. Allen,
Nathanson, Savoy, Tory, Vogel and Wangberg) currently serve as Class B directors.
PAUL G. ALLEN, 50,51, has been Chairman of the Boardour board of Directors of Charter
Communications, Inc.directors since July
1999, and Chairman of the Boardboard of Directorsdirectors of Charter Investment, Inc. (a
predecessor to, and currently an affiliate of, Charter
Communications, Inc.)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 TechTV
Inc., DreamWorks LLC and Oxygen Media Corporation.Media. In addition,
heMr. Allen is a director of TechTV Inc., Vulcan Programming Inc., Vulcan Ventures, Vulcan
Inc.
(f/k/a Vulcan Northwest), Vulcan Cable III, andInc., numerous other privately held companies.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, 48,50, 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 nominated to become a directorManaging Director of Charter
Communications, Inc. Mr. MerrittSalem 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. He has also served as a director of
Laser-Pacific Media Corporation since January 2001 and is currently a member of
its Audit Committee. 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. Before joining CKE Associates in 1999, Mr. Merritt was an audit and consulting
partner of KPMG LLP for 14 years. During that time, heHe also served as national
partner in chargea director of
the mediaLaser-Pacific Media Corporation from January 2001 until October 2003 and entertainment practice.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.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 businessBusiness and accountingAccounting from
California State University --- Northridge.
MARC B. NATHANSON, 58,59, has been a director of Charter Communications, Inc. since January 2000.
Mr. Nathanson is the chairmanChairman of Mapleton Investments LLC, an investment vehicle
formed in 1999. He also founded and served as chairmanChairman and chief executive officerChief Executive
Officer of Falcon Holding Group, Inc., a cable operator, and its predecessors,
from 1975 until 1999. He served as chairmanChairman and chief executive
officerChief 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.Chairman.
8
Mr. Nathanson served as Vice-Chairmanholds a Bachelors degree in Mass Communications from the
University of Denver and as a directorMasters degree in Political Science from University
of Charter
Communications, Inc. pursuant to a letter agreement that expired in November
2002. See "Executive Compensation -- Employment Arrangements."
WILLIAM D. SAVOY, 38,California/Santa Barbara.
JO ALLEN PATTON, 46, has been a director of Charter Communications,since April 2004. Ms.
Patton joined Vulcan Inc. as Vice President in 1993, and since July 1999 and a director of Charter Investment since December 1998. Since
1990, Mr. Savoythat time has
beenserved as an officer and a director of many affiliates of Mr. Allen, including president and a director of Vulcan Ventures Incorporated, and
president of Vulcan Inc., Vulcan Programming Inc. and Vulcan Cable III Inc, each
of which is an investment vehicle owned by Mr. Allen. He is currentlyin
her current position as President and CEO, Portfolio and Asset Management Division,Chief Executive Officer of Vulcan Inc.
since July 2001. Vulcan Inc. is the investment and project management company
founded by Mr. SavoyAllen to oversee a diverse multi-billion dollar portfolio of
investments, real estate, sports teams, entertainment and charitable projects.
Ms. Patton is also serves on the advisory boardPresident of DreamWorks LLCVulcan Productions, an independent feature film
and as a directordocumentary production company, Vice Chair of drugstore.com, RCN Corporation, TechTVFirst & Goal, Inc., Digeo, Inc.which
developed and Oxygen Media
Corporation.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. Savoy holds a B.S. degree in computer science, accounting and
finance from Atlantic Union College.Allen.
JOHN H. TORY, 48,50, has been a director of Charter Communications, Inc. since December 2001. Mr.
Tory isserved as the Chairman and Co-ChiefChief Executive Officer of Rogers Cable Inc., Canada's
largest broadband cable operator, and has been the Chief
Executive Officer of Rogers Cable since April 1999.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 partnerManaging 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
6
number of Canadian companies, including Rogers Cable Inc., Rogers Media Inc.,
Cara Operations Limited and the Toronto Blue Jays Baseball Club.Limited.
Mr. Tory was educated at University of Toronto Schools, Trinity College
(University of Toronto) and Osgoode Hall Law School.
CARL E. VOGEL, 45,46, has been a director of Charter and its President and
Chief Executive Officer of Charter Communications, Inc. since October 2001. Mr. Vogel has more than 20 years
experience in telecommunications and the subscription television business. Prior to joining Charter, heHe
was a senior vice presidentSenior Vice President of Liberty Media Corp. from November 1999 until
October 2001, and chief executive officerChief 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 presidentExecutive Vice
President and chief operating officerChief Operating Officer of field operationsField 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 officerChief Executive Officer of Primestar Inc., a national provider of subscription
television services, and from 1997 to 1998, he served as chief executive officerChief 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 Television& 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 financeFinance and accountingAccounting from
St. Norbert College. His employment agreement provides that he will serve on the Boardour
board of Directors
of Charter Communications, Inc.directors. See "Executive Compensation -- Employment and
Consulting Arrangements."
LARRY W. WANGBERG, 60,62, has been a director of Charter Communications, Inc.
since January 2002.
From August 1997 to May 2004, Mr. Wangberg has beenwas a director of TechTV Inc.L.L.C., a
cable television network since 1997, andcontrolled 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
Inc.L.L.C., Mr. Wangberg was chairmanChairman 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 chairmanChairman
and Chief Executive Officer of Times Mirror Cable Television and senior vice presidentSenior Vice
President of its corporate parent, Times Mirror Co., from 1983 to 1994. He
currently serves on the boards of TechTV Inc., Autodesk Inc., and ADC Telecommunications. Mr.
Wangberg holds a bachelor's degree in mechanical engineeringMechanical Engineering and a master's
degree in industrial engineering,Industrial Engineering, both from the University of Minnesota.
INFORMATION ABOUTBOARD OF DIRECTORS
NOT STANDING FOR RE-ELECTION.
RONALD L. NELSON, 50, has beenOur board of directors meets regularly throughout the year on a directorset
schedule. The board also holds special meetings and acts by written consent from
time to time if necessary. Meetings of Charter Communications, Inc.
since November 1999. Mr. Nelsonthe independent members of
9
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 currentlynot
present at these meetings. Each of the Chief Financial Officerdirectors then serving attended last
year's annual meeting of stockholders, and a
Director of Cendant Corp., a New York-based travel and real estate conglomerate,
which Mr. Nelson joined in 2003. Prior to joining Cendant, Mr. Nelson was a
founding member of DreamWorks LLC, an entertainment production company, where he
served in executive management from 1994 through January 1, 2003. Prior to that
time, during his 15 years at Paramount Communications Inc., he served in a
variety of operating and executive positions. He currently serves as a membermembers of the board of directors are
encouraged to attend the annual meeting each year. In 2003, the full board of
Advanced Tissue Sciences, Inc.directors held 16 meetings and Centre Pacific,
L.L.C., a registered investment advisor. Mr. Nelson has a B.S. degree fromacted five times by written consent. No director
attended fewer than 75% of the Universitytotal number of California at Berkeleymeetings of the board and an M.B.A. degree fromof
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 University of
California at Los Angeles.
COMMITTEES OF THE BOARD
During 2002,board. The
following are the standing committees of the Boardboard of Directors were: thedirectors: Audit Committee,
the CompensationFinancing Committee, the Option Plan Committee, Compensation Committee, Executive
Committee and a Special Committee for matters related to the Executive Committee.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 Audit Committee oversees the Company's internal accounting and auditing
procedures; reviews audit and examination scope, scope, results and procedures
with independent public accountants; oversees reportingboard of financial information
including review of quarterly and annual financial information prior to filing
with the Securities and Exchange Commission ("SEC"); determines the objectivity
and independencedirectors has determined that all of the independent public accountants; and selects the
independent public accountants. The members of the Audit
Committee during 2002
were (and are) Ronald L. Nelson, Nancy B. Peretsman and John H. Tory. However,
Mr. Nelson has decidedare independent directors, as required by the Nasdaq listing
standards. The remaining director independence Nasdaq requirements do not to stand for reelectionapply
to the Board dueCompany, 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 time
commitments required in connection with his new employment. We anticipate that,
if electedfollowing
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, Mr.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, will be
7
appointed toall of whom the Audit Committee atboard of directors has determined are
independent in accordance with the firstapplicable corporate governance listing
standards of The Nasdaq National Market. Our board meeting followingof directors has determined
that, in its judgment, David Merritt is an audit committee financial expert
within the Annual
Meeting as a replacement for Mr. Nelson.meaning of the applicable federal regulations. The Audit Committee
operates under a written charter, revised and adopted by the Board of Directors in January
2003 a copy of which is attached as Appendix A. Ms. Peretsman, Mr. Nelson and Mr.
Tory are "independent" as defined under Rule 4200(a)(14) ofamended by the Nasdaq National
Market's qualification requirements.board in June 2004. The Audit Committee held four regular and
seven special
meetings in 2002.2003.
The Compensation Committee reviews and approves the Company's compensation
and benefits programs and approves compensation forof the senior management of the Company and its subsidiaries. The members of the
Compensation Committee arein 2003 were Paul G. Allen, Marc B. Nathanson and William
D. Savoy. Mr. Savoy resigned in April 2004. The Compensation Committee met fourthree
times in 2002.2003. It is anticipated that Mr. Lillis will join the Compensation
Committee in July 2004.
The Option Plan Committee administers theour 1999 Option Plan, and the 2001
Stock Incentive Plan and authorizeauthorizes grants and awards under the 2001 Stock
Incentive Plan, including the Long-Term Incentive Program, 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. 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 consistsconsisted of
directors10
Ms. Peretsman and Mr. Nelson until July of 2003, when Mr. Nelson was replaced by
David Merritt, met four times in 20022003.
The Financing Committee reviews the Company's financing activities and
acted once by written consent.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 Boardboard of Directorsdirectors and
exercise such powers of the full Boardboard as the Boardboard may delegate to such
Committee from time to time. TheDuring 2003, the Executive Committee consistsconsisted of directors
Messrs. Allen, Savoy, Vogel and Nathanson. Mr. Savoy resigned in April 2004. The
Executive Committee meets on an informal basis.
The Boardbasis 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 Directors does not havemembership 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 standing Nomination Committee.
In 2002,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 full Board of Directors had six meetings and acted once 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.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 director of Charter Communications, Inc.our directors is entitled to
reimbursement for costs incurred in connection with attendance at board and
committee meetings.
Except as set forth below with respect to Mr. Nathanson, directorsDirectors who were not employees did not receive additional compensation in
2002 or the first half of 2003. Mr. Vogel, who acted aswas our President and Chief Executive
Officer in 2002,2003, was the only director who was also an employee during 2002.2003. He
did not receive any additional compensation for serving as a director or
attending any meeting of the board of directors during 2002. Under the Amended and Restated
By-laws of Charter Communications, Inc.,2003.
Our Bylaws provide that all directors are entitled to indemnification from Charter Communications, Inc. 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 Charter Communications, Inc. and/us or itsour subsidiaries.
Mr. Vogel is party to an employment agreement with Charter Communications,
Inc., which is summarized in "Executive Compensation -- Employment
Arrangements."
Marc B. Nathanson entered into a letter agreement with Charter
Communications, Inc. for a term that expired in November 2002. Under this
agreement, Mr. Nathanson served as Vice-Chairman and as a director of Charter
Communications, Inc. During the term of this agreement, Mr. Nathanson received a
benefit equal to approximately $200,000 per year, which Charter Communications,
Inc. paid to a company controlled by Mr. Nathanson.
Commencing in July 2003, it is expected that each member of the board will
receive an annual retainer of $40,000 in cash plus restricted stock (vesting
over one year) valued at $50,000. In addition, the audit committee chair would
receive $25,000 and each other committee chair (if applicable) would receive
$10,000. All committee members will also receive $1,000 for attendance at each
committee meeting.11
EXECUTIVE OFFICERS
Unless otherwise noted below, ourOur executive officers, were elected to their
positions, and became employees of the Company in November 1999. Prior to that
time, they were employees of our affiliate,
8
Charter Investment. The executive officerslisted below, are elected by the Boardboard of Directorsdirectors
annually following the Annual Meeting of Shareholders,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 Boardboard of Directorsdirectors
Carl E. Vogel............................. President and Chief Executive Officer
Margaret "Maggie" A. Bellville.....................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
and
Interim Chief Financial Officer
Curtis S. Shaw............................ SeniorExecutive Vice President, General Counsel and Secretary
Stephen E. Silva.......................... Executive Vice President and Chief Technology Officer
Information regarding our executive officers who do not also actserve as directors as of May 27, 2003
is set forth below.
MARGARET "MAGGIE" A. BELLVILLE, 49,50, Executive Vice President and-- Chief
Operating Officer. Before joining Charterus 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, she advancedthen 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, 42,43, Senior Vice President -- Corporate Controller and
Principal Accounting Officer. Prior to his promotion to his current position onin
April 22, 2002, Mr. Martin was our Vice President and Corporate Controller of Charter from
March 2000. Prior to joining Charterus 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 accountingAccounting from the University of Missouri -- St.
Louis.
STEVEN A. SCHUMM, 50,51, Executive Vice President -- Chief Administrative
Officer and Interim Chief Financial
Officer. Prior to joining Charter Investment, Inc. (a predecessor of, and currently an affiliate of, Charter
Communications, Inc.) in 1998, Mr. Schumm was a
partner of Ernst & Young LLP for 14 years.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. At the time he left to join Charter
Investment, Inc. he was managing partner of Ernst & Young's St. Louis office and
a member of the Ernst & Young National Tax Committee. 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, 54,55, 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. Prior to joining Charter InvestmentSecretary 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.
STEPHEN E. SILVA, 43, Executive Vice President and Chief Technology
Officer. Mr. Silva joined Charter Investment in 1995, as director, billing
services. Prior to his promotion to Executive Vice President and Chief
Technology Officer in October 2001, he was Senior Vice President -- Corporate
Development and Technology since September 1999. Mr. Silva previously served in
various management positions at U.S. Computer Services, Inc., a billing service
provider specializing in the cable industry. He is a member of the board of
directors of TV Gateway, LLC.
913
EXECUTIVEREPORT OF THE COMPENSATION COMMITTEE
The following report and the performance graph on page 21 dodoes not constitute soliciting materials and areis 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.
REPORT OF THE COMPENSATION COMMITTEE
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. Mr. Vogel serves as President and Chief Executive Officer, pursuant to an
Employment Agreement that provides for a base salary of $1,000,000, and a bonus
of up to $500,000. The Compensation
Committee approved a bonus forwas comprised of Paul G. Allen, William D. Savoy and Marc B. Nathanson
during all of 2003. Mr. Vogel for
2002Savoy resigned from the Compensation Committee in April
2004. It is anticipated that Charles M. Lillis will be appointed to the
amountCommittee at the next regularly scheduled meeting of $330,000 based on the following factors: (a) his formula
bonus entitlement provisions under his employment agreement; (b) the Committee's
evaluation of Mr. Vogel's overall performance, taking into account the Company's current operational and financial condition and other factors deemed relevant to
the Committee. The Committee took similar factors into account, along with the
recommendationBoard of
Mr. Vogel, in setting the bonus levels for other executive
officers.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 general approach to compensating executives is to pay cash salaries
which arecompensate executives commensurate with
the executives'their experience, and expertise and where
relevant, areperformance and to be competitive with the
salaries paid to executives in the cable, or
competitive telecommunications, and other related industries. In addition,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 the Company'sour 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 long-term,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 or authorize the payment of discretionary bonuses based upon an assessment of eachan
executive's contributions, to the
Company and the Company's performance duringand such other factors as
the period covered by the bonus
consideration. In general, executive officer compensation determinations are
made based upon the recommendations of the Company's President and Chief
Executive Officer. The Board's practices in determining executive compensation
reflect subjective criteria, and in large part are influenced by reported
operating results.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 best efforts and
diligence, and
helps align their interests with those of the shareholders.Company's stockholders. To
facilitate these objectives, in 2002, additional2003, 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 makesapproves the grants under the plans. TheCharter 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 2002.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
WILLIAM D. SAVOY
1016
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 2002,Until April 27, 2004, when Mr. Savoy resigned from the board, our
Compensation Committee of Charter Communications, Inc. was comprised of Messrs. Paul G. Allen, William D. Savoy and Marc B. Nathanson. In
2002, Nancy B.2003, Ms. Peretsman and Ronald L.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.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 Charter Communications, Inc.the Company or any of its subsidiaries during 2003,
except for Mr. Allen who served as a non-employee chairman.chairman of the Compensation
Committee. Also, Mr. Nathanson was an officer of certain subsidiaries of Charterour subsidiaries
prior to their acquisition by Charterthe Company in 1999.1999 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 Charter Communications, Inc.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."
NoneDuring 2003, (1) none of theour executive officers of Charter Communications, Inc. serveserved on the compensation
committee of any other company that has an executive officer currently serving
on theour board of directors, Compensation Committee or Option Plan Committee and
(2) except for Carl Vogel who serves as a director of Charter Communications,Digeo Inc. None, 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 of
Charter Communications, Inc. served as a director of another entity, one of whose
executive officers served on theour Compensation Committee or Option Plan
CommitteeCommittee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of Charter Communications, Inc. or any of its affiliates. Mr. Allen is
a director of DreamWorks LLC (which employed Mr. Nelson as an executive officer
through January 1, 2003, and thereafter engaged Mr. Nelson as a non-exclusive
consultant) and is the 100% owner and a director of Vulcan Inc.Exchange Act requires our directors and certain of its affiliates, which employ Mr. Savoy as an executive officer.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 isestablished a directorhotline
and website for reporting alleged violations of the code of conduct, established
procedures for processing complaints and indirectly owns 98%implemented educational programs to
inform our employees regarding the Code of TechTV, of which Mr. Wangberg, oneConduct. A copy of our directors,Code of
Conduct is a director.
11available on our website at www.charter.com.
17
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the compensation paidto
those executive officers listed below for services rendered to executive officers of Charter Communications, Inc. for the fiscal years
ended December 31, 2000, 2001, 2002 and 2002, including2003. These officers consist of the Chief
Executive Officer, during 2002, each of the other four most highly compensated executive
officers as of December 31, 2002,2003, and twoone other highly compensated executive
officersofficer who served during 20022003 but werewas not an executive officersofficer on December 31,
2002.2003.
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($)(1) ($)(2) AWARDS($)(3)(2) OPTIONS(#) ($)(4)(3)
- ------------------ ------- --------- ----------- ------------ ------------ ---------- ------------
Carl E. Vogel(5)Vogel(4)........... 2003 1,000,000 150,000 30,345(14) -- 750,000 12,639(16)
President and Chief 2002 980,769 330,000(7) 214,961(13)330,000(9) 214,961(14) -- 1,000,000 10,255(16)
President and ChiefExecutive Officer 2001 207,692 546,000(7)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(8)588,000(11) -- -- 300,000 5,255
Executive Vice President,and Chief Administrative 2001 435,000 402,000(8)402,000(11) -- -- 165,000 5,250
Chief Administrative 2000 410,000 444,000(8)Officer
Curtis S. Shaw(6).......... 2003 275,782 37,500 -- -- -- 2,040
Officer and Interim Chief
Financial Officer
David L. McCall(6)......... 2002 314,423 181,500(9) -- -- 300,000 4,255
Senior250,000 9,411(18)
Executive Vice President, 2001 300,000 413,150(9) -- 366,450 300,000 5,250
of Operations -- Eastern 2000 225,000 283,625(9) -- -- 25,000 4,237
Division
Curtis S. Shaw............. 2002 249,711 281,500(10)281,500(12) -- -- 100,000 3,096
Senior Vice President,General Counsel and 2001 245,000 236,000(10)236,000(12) -- -- 149,000 5,250
General Counsel and 2000 225,000 240,500(10)Secretary
Wayne H. Davis(7).......... 2003 212,885 47,500 -- -- 25,000 5,250
Secretary225,000 581(19)
Chief Technical Officer
Stephen E. Silva...........Silva(8)........ 2003 213,005 -- -- -- -- 134,345(20)
Former Executive Vice 2002 294,231 196,000(11)196,000(13) -- -- 150,000 5,255
Executive Vice President Corporate 2001 235,385 381,000(11)380,000(13) -- 347,760 290,000 5,250
Development and Chief
Technology 2000 185,000 177,000(11) -- -- 40,000 4,249
Officer
David G. Barford(6)........ 2002 343,269 181,500(12) -- -- 200,000 5,255
Executive Vice President 2001 330,769 495,875(12) 91,739(14) 449,625 1,135,000 5,250
and Chief Operating 2000 255,000 250,500(12) -- -- 40,000 4,249
Officer
Kent D. Kalkwarf(6)........ 2002 350,000 181,500(12) 86,233(15) -- 300,000 3,063
Executive Vice President 2001 330,769 495,875(12) -- 449,625 1,160,000 5,250
and Chief Financial 2000 225,000 250,500(12) -- -- 40,000 5,250 Officer
- ---------------
(1) ForIncludes senior management bonuses for 2003 under the officers specified2003 senior
management incentive plan. Mr. Vogel's and Ms. Bellville's bonuses are
determined in footnote 3 below,accordance with the terms of their respective employment
agreements. The bonus amountamounts for Messrs. Vogel and Silva for 2001 includesinclude
the value of the vested portion of grants of restricted stock during 2001
under the Charter Communicationsour 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 price.trading price on the grant
date. These restricted stock grants made in 2001 were 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 includesin the footnotes below, the bonuses
for 2002 and 2001 include "stay" bonusbonuses in the form of principal and
interest forgiven under employee's promissory note, as more fully described in "-- Employment and
Consulting Arrangements." Unless otherwise indicated, includes only bonus
for services rendered in the applicable fiscal year. For 2002, the bonus
amount shown includes a "stay" bonus representing the principal and
interest forgiven under 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 other non-cash compensation, unless the aggregate amount does not
exceed the lesser of $50,000 or 10% of such officer's total annual salary
and bonus shown in the table.
(3) Includes the unvested portion of grants of restricted stock made during 2001 under the Charter
Communications, Inc. 2001 Stock Incentive Plan, calculated
based on the closing market price of the vested shares on the grant date.as described above. The
total grant amounts including both vested and unvested portions, were
as follows:were: (i) Carl E. Vogel, 50,000 shares as of October 8,
2001 and (ii)
David C. McCall, 35,000 shares as of September 28, 2001, (iii) Stephen E. Silva, 36,000 shares as of October 18, 2001, (iv) David G. Barford, 50,000
shares as of September 28, 2001, (v) Kent D. Kalkwarf, 50,000 shares as of
September 28, 2001. The restricted shares were immediately vested as to
twenty-five percent (25%) of
12
the shares, with the remaining shares vesting in 36 equal monthly
installments commencing approximately 15 months from the grant date.
Pursuant toUnder
the terms of these employees'the restricted stock agreement, eachthe 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 that were vested immediately is disclosed in the "Bonus" column of the table.
At December 31, 20022003, based on a per share closing market price of $1.18$4.02
for Charter Communications, Inc. Class A common stock, the aggregatetotal number (and value) for each of the officers holdingMr. Vogel's
outstanding unvested restricted stock was:was 23,959 shares ($96,315). Mr.
Vogel: 36,459Silva's shares ($43,022); Mr. McCall: 25,521 shares ($30,115); Mr. Silva: 26,250 shares
($30,975); Mr. Barford: 35,417 shares ($41,792); and Mr. Kalkwarf: 35,417
shares ($41,792).
(4)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 in note 16,respectively, these amounts
consist
solely of matching contributions under Charter Communications, Inc.'sour 401(k) plan, except theplan. The
18
2002 amounts also include $255 for each person paid
as premiums for supplemental life insurance
available to executives, and the 2003 amounts include long-term disability
available to executives.
(5)(4) Mr. Vogel became the Chief Executive Officer of Charter Communications,
Inc. in October 2001.
(5) Ms. Bellville became the Chief Operating Officer of Charter in December
2002.
(6) Mr. McCallShaw 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, January 31,effective July 1, 2003. As of December 31,
2002, neither Mr. Barford nor Mr. Kalkwarf served as an executive officer,
and in January 2003, their employment was terminated. See
"-- Employment
and Consulting Arrangements" for additional information.
(7)(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.
(8)(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 $342,000 and $321,000,$342,000,
respectively, for 2002 2001 and 2000;2001; and $225,000 $60,000 and $123,000$60,000 awarded as a
bonus for services performed in 2002 and 2001, and 2000,
respectively.
(9) Includes: (i) $122,150 for 2001, representing the value based on the fair
market value on October 30, 2001, the original grant date, of 8,750 shares
of Class A common stock, the vested portion of Mr. McCall's restricted
stock grant; (ii) a "stay" bonus representing the principal and interest
forgiven under employee's promissory note, amounting to $181,500, $171,000
and $160,500, respectively for 2002, 2001 and 2000; and (iii) $120,000 and
$123,125 awarded as a bonus for services performed in 2001 and 2000,
respectively.
(10)(12) Includes a "stay" bonus representing the principal and interest forgiven
under employee's promissory note, amounting to $181,500 and $171,000,
and
$160,500respectively, for 2002 2001 and 2000, respectively;2001; and $100,000 $65,000 and $80,000$65,000 awarded as a
bonus for services performed in 2002 and 2001, and 2000,
respectively.
(11)(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 $114,000 and $107,000,$114,000,
respectively for 2002 2001 and 2000;2001; and (iii) $75,000 $150,000
and $70,000$150,000 awarded as a
bonus for services performed in 2002 and 2001, and
2000, respectively.
(12) Includes: (i) $149,875 for 2001, representing the value based on the fair
market value on September 28, 2001, the original grant date, of 12,500
shares of Class A common stock, the vested portion(14) Amount attributed to personal use of the employee's
restricted stock grant; (ii) a "stay" bonus representing the principalcorporate airplane in 2003 and
interest forgiven under employee's promissory note, amounting to $181,500,
$171,000 and $160,500, respectively for 2002, 2001 and 2000; and (iii)
$175,000 and $90,000 awarded as a bonus for services performed in 2001 and
2000, respectively.
(13) Includes
$100,000 attributed to personal use and commuting in the corporate airplane
in 2002 and $114,961 for purchase of a car.
13
(14)car in 2002.
(15) Includes $12,000$26,010 attributed to personal use of the corporate airplane and
$79,739$4,800 for purchase of a car.
(15) Includes $3,000 attributed to personal use of corporate airplane and
$83,233 for purchase of a car.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 (ii)(iii) for 2001, $7,500 as reimbursement for legal
expenses and $1,486 paid by us$1,496 for COBRA expenses.
2002(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, $576 paid as premium for long-term
disability insurance available to executives.
19
2003 OPTION GRANTS
The following table shows individual grants of options made to individuals
named in the Summary Compensation Table during 2002.2003. All such grants were made
under the 2001 Stock Incentive Plan and the exercise price was based upon the
fair market value of the Class A common stock.stock on the respective grant dates.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATE OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES EXERCISE EXPIRATION -------------------------
NAME GRANTED(#)(1) IN 20022003 PRICE($/SH) DATE 5%($) 10%($)
- ---- ------------- ---------- ----------- ---------- ----------- -----------
Carl E. Vogel........ 1,000,000 7.62% $2.85 07/23/12 $1,792,350 $4,542,166Vogel.......... 750,000 9.39% 4.30 10/28/13 2,025,827 5,133,843
Margaret A.
Bellville............ -- -- -- -- -- --
Steven A. Schumm..... 300,000 2.29% 2.85 07/23/12 537,705 1,362,650
David L. McCall...... 300,000(3) 2.29% 2.85 07/23/12 537,705 1,362,650Schumm....... 250,000 3.13% 4.13 12/19/13 648,548 1,643,547
Curtis S. Shaw....... 100,000 0.76% 2.85 07/23/12 179,235 454,217Shaw......... 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..... 150,000 1.14% 2.85 07/23/12 268,852 681,325
David G. Barford..... 200,000(3) 1.52% 2.85 07/23/12 288,835 797,551
Kent D. Kalkwarf..... 300,000(3) 2.29% 2.85 07/23/12 537,705 1,362,650Silva(3).... -- -- -- -- -- --
- ---------------
(1) Options are transferable under limited conditions, primarily to accommodate
estate planning purposes. These options generally vest annually in fivefour equal
installments commencing on the first anniversary following the grant date of
July 23, 2002. For additional terms of these options, see pages 41-48 for a
description of options and other awards granted or eligible for grant under
the 2001 Stock Incentive Plan.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) These employees haveMr. Silva's employment terminated employment,in 2003 and as a result we believe that
theirhe received no options have expired and these options have no potential realizable
value to these individuals. Mr. Barford and Mr. Kalkwarf have disputed that
their options have expired.
14
2002in
2003.
2003 AGGREGATED OPTION EXERCISES AND OPTION VALUE TABLE
The following table sets forth, for the individuals named in the Summary
Compensation Table, (i) information concerning options includingexercised during 2003,
(ii) the number of securities for whichshares of our Class A common stock underlying unexercised
options were exercised during 2002at year-end 2003, and for which options
were held at December 31, 2002,(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 Charter Communications, Inc.our Class A common stockstock) on December 31, 2002) and the value of unexercised options as of December 31, 2002:2003.
NUMBER OF SECURITIES APPROXIMATE
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
SHARES 2002(#)2003(#)(1) DECEMBER 31, 2002($2003($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Carl E. Vogel................Vogel.......... -- -- 920,833 3,479,1671,970,833 3,179,167 200,000 800,000
Margaret A.
Bellville............ -- -- 250,000 250,000 250,000 250,000
Steven A. Schumm.............Schumm....... -- -- 654,350 593,331912,136 585,545 60,000 240,000
Curtis S. Shaw......... -- -- Curtis S. Shaw...............310,332 413,668 20,000 80,000
Wayne H. Davis......... -- -- 208,082 265,91820,000 295,000 10,000 265,000
Stephen E. Silva....... -- -- Stephen E. Silva............. -- -- 224,416 420,584 -- --
David L. McCall.............. -- -- 245,832 579,168 -- --
David G. Barford............. -- -- 494,332 1,080,668 -- --
Kent D. Kalkwarf............. -- -- 500,582 1,199,418 -- --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 Charter Communications, Inc.our Class A
common stock.stock upon exercise of the option. Options granted under the 2001
Stock Incentive Plan and after 2000 are exercisable for shares of Charter Communications, Inc.our Class
A common stock.
20
(2) Based on a per share market value (closing price) of $1.18$4.02 as of December
31, 2002,2003 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
Inc.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 heldthat 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
named personsplans, as of December 31, 2003, 47,882,365 were "in-the-money."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
Employment Agreements. Messrs.Mr. Vogel and Silva each areis currently employed by Charter Communications, Inc. under separatean employment agreementsagreement that were
executedwas
signed in 2001 and terminateexpires 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, Messrs. McCall, Barford and Kalkwarf
areMr. Silva is no longer employeesan employee, but
served until July of Charter Communications, Inc., but each of them served
in 20022003 under the terms of an employment agreement executedsigned in
2001.
15
The following table lists the position,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
each employeeup 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 stock shares received by each employee
under his agreement (all of which options and shares were received in 2001):
STOCK RESTRICTED
ANNUAL BASE OPTIONS SHARES
NAME POSITION SALARY RECEIVED RECEIVED ANNUAL BONUS
- ---- ------------------ ----------- --------- ---------- ------------------
Carl E. Vogel........ President and $1,000,000 3,400,000 50,000 Up to $500,000
Chief Executive
Officer
Stephen E. Silva..... Executive Vice $ 300,000 -- 36,000 50% of base,
President and according to
Chief Technology Executive Bonus
Officer Policy;
Discretionary
Bonus
David L. McCall...... Former Senior Vice $ 300,000 -- 35,000 40% of base,
President, according to
Operations -- Executive Bonus
Eastern Division Policy;
Discretionary
Bonus
David G. Barford..... Former Executive $ 350,000 750,000 50,000 50% of base,
Vice President and according to
Chief Operating Executive Bonus
Officer Policy;
Discretionary
Bonus
Kent D. Kalkwarf..... Former Executive $ 350,000 750,000 50,000 50% of base,
Vice President and according to
Chief Financial Executive Bonus
Officer Policy
The options and restricted shares generally vested 25% on the grant date, with the remainder to vestvesting in 36
equal monthly installments beginning on or
about the 15th month after the grant date. Generally, the agreements provideDecember 2002. Mr. Vogel's agreement
provides that if the employeeMr. Vogel is terminated without cause then a specified portionor 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 remaining unvested optionsterm
and restricted stock will vest immediately.
The agreements provide thatfull prorated benefits and bonus for the employee is entitledyear 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,
pension22
pensions or other benefit planplans afforded to employees generally or to our
executives, of Charter Communications, Inc.including our LTIP. We agreed to reimburse Mr. Vogel's agreement
provides that he will be reimbursed by Charter Communications, Inc.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. TheMr. Silva's agreement provided
that he was eligible for any disability insurance, pension or other four agreements providebenefit plan
offered to employees generally or to our executives. Mr. Silva's agreement also
provided that, to the extent Charter Communications, Inc. doeswe did not provide life insurance in an amount at
least equal to the unpaid amount of the employee'shis base salary through the end of the term
of his agreement, Charter Communications, Inc. willwe would continue to pay his estate an amount equal to his
base salary in installments through the end of the term.
Each of the agreements contain non-solicitation and
confidentiality provisions applicable to each employee. Mr. Vogel is entitled to
reimbursement of the cost of a car in accordance with his agreement. Mr. Vogel's
agreement provides that he is entitled to the reimbursement of fees and dues for
his membership in a country club of his choice, which he declined in 2001 and
2002, and reimbursement for up to $10,000 per year for tax, legal and financial
planning services. The base salary of any employee may be increased at the
discretion of the board of directors of Charter Communications, Inc.
Each agreement provides that, if it is terminated by Charter
Communications, Inc. without cause or by the employee for good reason (including
due to a change in control of Charter Communications, Inc.), Charter
Communications, Inc. will pay to the applicable employee an amount equal to the
aggregate base salary due to the employee for the remaining term and a full
prorated bonus for the year in which the termination occurs. Also, inIn addition to the indemnification provisions which apply to all employees
under our Bylaws, each agreementof these agreements provides that Charter Communications, Inc.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. Mr. Vogel's agreement provides for automatic one-year renewals and that
Charter Communications, Inc. will cause him to be elected to the Charter
Communications, Inc. board of directors without any additional compensation.
16
STAY BONUSES
Certain of our executive officers have received "stay bonuses" in the form
of three-year or two-year promissory notes. For the three-year notes, one-thirdEach of the original outstanding principal amountabove 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 these notestheir unvested restricted shares would immediately vest, and interest
was forgiven at the endone half of each
of the first three anniversariestheir unvested options of the issue
date, as long asinitial 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 was still employed; forrelocate, (4) there is a change of
control of the two-year notes,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 principal and interest was forgiven atpro 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 first two anniversaries. Generally,
the promissory notes provided for interest at 7% per year. The amount forgiven
during any year has been included as "bonus" compensationliability of directors to the
employeemaximum 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 reflectedtherefore unenforceable.
We have reimbursed certain of our current and former directors, officers
and employees in the "bonus" columnconnection with their defense of the "Summary Compensation Table." In 2002,
all the remaining principalcertain legal actions. See
"Certain Relationships and accrued interest on these notes was forgiven in
accordance with the terms of the notes, so that at December 31, 2002, these
notes were no longer outstanding.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 Charter Communications, Inc.'sthe Company's Class A common stock as of May 27,
2003June 1, 2004 by:
- each person serving as a director of the directors of Charter Communications, Inc.Company;
- the current chief executive officer and the other individuals named in
the Summary Compensation Table;
- all persons serving as directors and current executive officers of Charter Communications,
Inc.the Company, as a group;
and
- each person known by us to own beneficially 5% or more of the outstanding
Charter Communications, Inc. Class A common stock.
24
With respect to the percentage of voting power set forth in the following
table:
- each holder of Charter Communications, Inc. Class A common stock is entitled to one vote per share;
and
- each holder of Charter Communications, Inc. 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 Communications Holding Company, LLCHoldco 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(1)OWNER POWER)(1) ONLY)(2) ONLY)(3) SECURITIES(4) SR.SECURITIES(3) NOTES OWNED UNITS(5)UNITS(4) (4)(5) (5)(6) (6)(7)
- ------------------- ----------- ---------- ------------- ---------------------------- --------- ------------- ------ ------
Paul G. Allen(8).......... 21,668,673Allen(7)......... 29,110,640 9,882 10,000 50,000 339,132,031 56.9%57.2% 92.6%
Charter Investment(9).....Investment,
Inc.(8)................ 222,818,858 43.1%42.2% *
Vulcan Cable III(10)......III,
Inc.(9)................ 116,313,173 28.3%27.6% *
Carl E. Vogel............. 70,833 29,167 1,616,666Vogel............ 83,333 696,667 400,000 34,786 * *
John H. Tory..............Tory............. 4,300 9,882 40,000 * *
Marc B. Nathanson(11)..... 7,802,085 50,000 231,911 2.7% *
Ronald L. Nelson(12)...... 55,000 50,000 * *
Nancy B. Peretsman........ 60,000Nathanson........ 380,000 9,882 50,000 46,382 * *
William D. Savoy(13)Charles M. Lillis(10).... 11,429 * *
David C. Merritt......... 9,882 * *
Jo Allen Patton(11)...... 10,977
Nancy B. Peretsman....... 60,000 9,882 50,000 115,955 1,232,416 * *
Larry W. Wangberg.........Wangberg........ 3,000 9,882 40,000 * *
David C. Merritt..........Margaret A. Bellville.... 322,916 * *
Curtis S. Shaw........... 5,000 352,833 * *
Steven A. Schumm(14)......Schumm(12)..... 12,440 811,912108,768 120,000 4,638 * *
Curtis S. Shaw............ 5,000 270,583Wayne H. Davis........... 250 8,000 76,250 * *
Stephen E. Silva.......... 57,000 21,000 300,833 * *
17
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 SHARES CONVERSION OF EQUITY POWER
BENEFICIAL OWNER(1) POWER)(2) ONLY)(3) SECURITIES(4) SR. NOTES OWNED UNITS(5) (5)(6) (6)(7)
- ------------------- ----------- ---------- ------------- ------------- --------- ------------- ------ ------
All current directors and
executive officers as a
group (13(17 persons)...... 29,744,331 50,167 3,574,493 435,991..... 29,682,463 1,012,347 1,625,749 88,125 50,000 339,132,031 58.5% 92.8%
David G. Barford(16)......57.5% 92.6%
Stephen E. Silva(13)..... 427,833 * *
Kent D. Kalkwarf(17)...... * *
David L. McCall(15)....... * *
Comcast Corporation(18)... 24,273,943 7.6% *
Mark Cuban(19)............Cuban(14)........... 19,000,000 6.5% *
FMR Corp.(20)............. 25,964,516 1,396,668 8.8%6.2% *
Wallace R. Weitz &
Company(21)............. 42,005,509 1,576,994 14.3% 1.2%Company(15)............ 34,100,000 11.2% *
UBS Americas Inc.(16).... 19,520,000 6.4% *
- ---------------
* Less than 1%.
(1) Except where noted below, the address for each person is Charter Plaza,
12405 Powerscourt Drive, St. Louis, Missouri 63131.
(2) Includes shares for which the named person has:
-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.
(3)(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.
(4)(3) Includes shares of Class A common stock issuable upon exercise of options
that have vested or will vest on or before July 26, 200331, 2004 under the 1999
Charter Communications Option Plan and the 2001 Stock Incentive Plan.
(5)(4) Beneficial ownership is determined in accordance with Rule 13d-3 under the
Exchange Act. The beneficial owners at May 27, 2003June 1, 2004 of Charter
Communications, Inc. Class B common
stock, Charter Communications Holding
Company, LLC membership units, CC VIII, LLCHoldco membership units and convertible senior notes of
Charter Communications, Inc. are deemed to be beneficial owners of an equal number of shares of
Charter Communications,
Inc. Class A common stock because such holdings are or were 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 or had 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 Communications, Inc. and Its Subsidiaries -- Equity Put Rights -- Bresnan.CC VIII."
(6)(5) The calculation of this percentage assumes for each person that:
- 294,527,595304,613,306 shares of Class A common stock are issued and outstanding as
of May 27, 2003;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 26, 2003;31, 2004; and
18
- 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 Communications Holding Company, LLCHoldco, which are immediately exchanged on a one-for-one
basis for shares of Charter Communications, Inc. 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.
(7)(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 Communications Holding Company, LLCHoldco owned by each of Vulcan Cable III, Inc. and Charter
Investment, Inc. have not been exchanged for shares of Class A common
stock).
(8)(7) The total listed includes:
- 222,818,858 membership units in Charter Communications Holding Company,
LLCHoldco held by Charter
Investment;Investment, Inc.; and
- 116,313,173 membership units in Charter Communications Holding Company,
LLCHoldco held by Vulcan Cable III.III,
Inc.
The listed total excludes 24,273,943 shares of Class A common stock
issuable upon exchange of units of Charter Communications Holding Company,
LLC,Holdco, which may be issuable to
Charter Investment, Inc. (which is owned by Mr. AllenAllen) as a consequence of
the closing of his purchase of the membership interests in CC VIII, LLC
that were "put"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 Communications, Inc. and Its Subsidiaries -- Equity Put Rights -- Bresnan.CC VIII."
The address of this person is: 505 Fifth Avenue South, Suite 900, Seattle,
WA 98104.
(9)(8) Includes 222,818,858 membership units in Charter Communications Holding
Company, LLCHoldco 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. (10)The address of this person is Charter Plaza, 12405 Powerscourt
Drive, St. Louis, MO 63131.
(9) Includes 116,313,173 membership units in Charter Communications Holding
Company, LLCHoldco 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.
(11) Includes 91,090(10) Mr. Lillis was granted 11,429 shares owned by the Nathanson Family Trust, as toof restricted Class A common stock on
October 3, 2003, which Mr.
Nathanson disclaims beneficial ownership.
(12) Includes 10,000 shares as to which Mr. Nelson disclaims beneficial
ownership.
(13) Includes 1,167,552 shares issuable upon exchange of membership units that
may be acquired by Mr. Savoy upon exercise of options from Vulcan Cable III
that have vested or will vest by Julyfully on the one year anniversary
of the grant date.
26
2003.
(14)
(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.
(15)(13) Mr. McCall's stock options expired in April, 2003.
(16) We believe that the vested stock options shown in the table expired in
March 2003. The table does not reflect stock options for 1,061,042 shares
that were not vested as of the date of termination and have been cancelled,
and 34,375Silva's 21,000 shares of unvested restricted stock that have been forfeited
following Mr. Barford's termination in January 2003, bothwere cancelled upon
his resignation, effective July 1, 2003. Under the terms of which are
disputed by Mr. Barford.
(17) We believe that thehis severance,
his options will continue to vest until October 15, 2004, and all vested
stock options shown in the table expired in
March 2003. The table does not reflect stock options for 1,179,792 shares
that were not vested as of the date of termination and have been cancelled,
and 34,375 shares of unvested restricted stock that have been forfeited
following Mr. Kalkwarf's termination in January 2003, both of which are
disputed by Mr. Kalkwarf.
19
(18) Pursuant to holder's Form 13G filed with the SEC on January 27, 2003, the
named holder and its affiliates beneficially owned, with shared voting and
investment power, Class A shares issuable upon exchange of 24,273,943
membership units in CC VIII, LLC. In April 2002, the holders exercised
their right to put their CC VIII membership interests to Mr. Allen, and
this transaction closed on June 6, 2003. See "Certain Relationships and
Related Transactions -- Transactions Arising Out of Our Organizational
Structure and Mr. Allen's Investment in Charter Communications, Inc. and
Its Subsidiaries -- Equity Put Rights -- Bresnan." The holders' address is:
1500 Market Street, Philadelphia, Pennsylvania 19102-2148.
(19)will be exercisable until sixty (60) days thereafter.
(14) The equity ownership reported in this table is based upon holder's FormSchedule
13G datedfiled with the SEC May 19, 2003. The address of this person is: 5424
Deloache, Dallas, Texas 75220.
(20) The equity ownership reported in this table, for both the named holder and
its controlling shareholders, the Edward C. Johnson 3d family, is based
upon holders' Form 13G filed with the SEC on February 13, 2003. Of the
shares reported, there is sole power to dispose all of the 27,361,184
shares beneficially owned; and there is sole power to vote 5,604,316 shares
and no power to vote 21,756,868 shares (including the shares issuable upon
conversion of notes). The address of this person is: 82 Devonshire Street,
Boston, Massachusetts 02109.
(21)(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'
Form 13GSchedule 13G/A filed with the SEC on January 16, 2003,23, 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, 20022003 with respect
to equity compensation plans:
NUMBER OF SECURITIES WEIGHTED-AVERAGEWEIGHTED 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........................ 53,632,148(1) $14.22 35,842,780(2)47,882,365(1) $12.48 41,410,523
Equity compensation plans not approved by
security holders(3)..................... 186,385holders........................ 186,385(2) $20.46 --
---------- ------ ----------
TOTAL..................................... 53,818,533 $14.23 35,842,78048,068,750 $12.51 41,410,523
========== ====== ==========
- ---------------
(1) This total does not include 159,064154,562 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 30,000,000 shares added to the 2001 Stock Incentive Plan pursuant
to a plan amendment approved by the board of directors on October 29, 2002.
This amendment is subject to shareholder approval, and no options with
respect to these additional shares will be exercisable until shareholder
approval is obtained.
(3) Includes shares of Class A common stock to be issued upon exercise of
options granted pursuant to an individual compensation agreement with a
consultant. SuchIn addition, in December 2003, subject to certain conditions,
the Company agreed (1) to exchange the 186,385 options generally contain the same termslisted above for
18,638 shares of Class A common stock, and conditions as
options granted under the 2001 Stock Incentive Plan, except that the shares
are not registered for issuance on Form S-8. For further description of the
material features of the individual compensation agreement with the
consultant, please see Note 20(2) to issue to the consolidated financial statements
included in our 2002 Annual Report provided herewith.
20holder
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 the Company'sour 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, 2002,2003, 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 the Companyus 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 codeBankruptcy Code
on June 25, 2002), Cablevision Systems Corporation, Comcast Corporation, and Cox
Communications, Inc. However, the Company has decided to
designatein 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 38 MONTH50-MONTH CUMULATIVE TOTAL RETURN*RETURN
AMONG CHARTER COMMUNICATIONS, INC., THE S & P&P 500 INDEX
AND TWOA PEER GROUPS
[PERFORMANCE GRAPH]GROUP
[COMPARISON CHART]
CHARTER
COMMUNICATIONS, PRIOR PEER
INC. S & P 500 GROUP NEW PEER GROUP
--------------- --------- ----------
--------------
11/9/99 100.00 100.00 100.00 100.00100 100 100
12/99 115.13 108.04 115.20 114.86
3/00 75.41 110.52 101.03 101.46
6/00 86.51 107.58 96.51 96.9197.07
9/00 85.61 106.54 88.74 91.0491.78
12/00 119.41 98.21 102.14 102.76102.52
3/01 119.08 86.56 96.63 98.4798.75
6/01 122.89 91.63 96.34 98.0898.18
9/01 65.16 78.18 79.82 83.0483.52
12/01 86.47 86.53 82.79 85.0785.55
3/02 59.42 86.77 70.09 73.4574.46
6/02 21.47 75.15 47.15 50.6852.26
9/02 9.79 62.16 41.71 44.8646.05
12/02 6.21 67.41 47.44 50.7452.71
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
* $100 invested on 11/9/99 in stock or on 10/31/99 in index -- including
reinvestment of dividends. Fiscal year ending December 31.
21
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 us.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
Charter Communications, Inc.the Company and its subsidiaries. These include transactions that we believe naturally result
from our organizational structure, history and organizational documents,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. Due to Mr. Allen's extensive
investment activityAllen has numerous
investments in the areas of technology and media, wemedia. We have a number of
commercial relationships with third parties in which Mr. Allen has an
interest.
- Other Miscellaneous Transactions. We also have a limited number of
transactions in which certain of our otherthe officers, directors and principal
shareholdersstockholders 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 following chart below summarizes certain information with respect to these
transactions; additionaltransactions. Additional information regarding these transactions is provided
following the chart:chart.
TRANSACTION INTERESTED RELATED PARTY DESCRIPTION OF TRANSACTION
- ----------------------------------------------------------------- ------------------------ -------------------------------------------------------------------------------------
Intercompany Management
Arrangements....................Arrangements................. Paul G. Allen The subsidiaries of Charter Communications HoldingHoldco paid the
Company LLCapproximately $84 million for
management services rendered in 2003.
Mutual Services Agreement...... Paul G. Allen The Company paid Charter Communications, Inc. $9Holdco $73 million
for services rendered in 2002, and $3
million in the first quarter of 2003.
Mutual Services Agreement......... Paul G. Allen Charter Communications, Inc. paid Charter
Communications Holding Company, LLC $70
million for services rendered in 2002,
and $20 million in the first quarter of
2003.
Management Agreement..............Agreement........... Paul G. Allen No fees were paid in 2002 or 2003, although total
management fees payable to Charter
Investment, Inc., exclusive of interest,
were approximately $14 million at the end of
MarchDecember
31, 2003.
Tax Provisions of Charter
Communications Holdings'Holdco's Operating
Agreement.............Agreement.................... Paul G. Allen TheIn 2003, the operating agreement of Charter
Communications Holding Company, LLC
allocatesHoldco allocated certain of our tax losses
to entities controlled by Paul Allen.
Channel Access Agreement..........Agreement....... Paul G. Allen At Vulcan VenturesVentures' request, we will provide
Vulcan Ventures with exclusive rights for
carriage on eight of our digital cable
channels as partial consideration offor a
prior capital contribution of $1.325$1.3 billion.
22
TRANSACTION INTERESTED RELATED PARTY DESCRIPTION OF TRANSACTION
- ---------------------------------- ------------------------ -----------------------------------------
Equity Put Rights.................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 Communications Holding Company, LLCHoldco (in the
case of Rifkin) and CC VIII, LLC (in the
case of Bresnan) that they were
issued to such sellers in
connection with such acquisitions.
29
TRANSACTION INTERESTED RELATED PARTY DESCRIPTION OF TRANSACTION
- ------------------------------- ------------------------ --------------------------------------------
Funding Commitment of Vulcan
Inc. ...........................Inc.......................... Paul G. Allen EffectivePursuant to a commitment letter dated April
14, 2003, we entered into
a commitment letter with Vulcan Inc., which is an affiliate
of Paul Allen, pursuant to which Vulcan Inc. agreed to lend, under certain
circumstances, or cause an affiliate to lend
initially to Charter Communications VII,Holdings, LLC
an aggregate("Charter Holdings") or any of its
subsidiaries a total amount of up to $300
million, which amount includesincluded a subfacility
of up to $100 million for the issuance of
letters of credit. High Speed Access Corp. Asset
Purchase Agreement..............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 In February 2002, our subsidiary
purchased certain assets of High Speed
Access for $78 million, plus the delivery
of 37,000 shares of High Speed Access
Series D preferred stock and certain
warrants. In connection with the
transaction, High Speed Access also
purchased 38,000 shares of its Series D
preferred stock from Vulcan Ventures for
$8 million, and all of Vulcan Ventures'
shares of High Speed Access common stock.
High Speed Access Corp. .......... Paul G. Allen In January 2002, we granted a royalty
free right to use intellectual property
purchased by Charter Communications
Holding Company, LLC, receivedWilliam D. We recorded approximately $4 million in management
fees and $17 million in revenues and paid
approximately $2 million under agreements
that have terminated.
TechTV Carriage Agreement......... Paul G. Allen We received $4$1 million from
TechTV under
William D. Savoy the Carriage Agreement in 2002 and $1 Larry W. Wangberg million forTechTV under the first quarteraffiliation agreement in
2003 related to launch incentives as a
reduction of 2002,programming expense and paid
TechTV $0.2 million during 2002
and $0.2 million in the first quarter of
2003.approximately $80,600.
Oxygen Media Corporation
Carriage Agreement.......................Agreement........... Paul G. Allen We paid Oxygen Media $6approximately $9
million under thea Carriage Agreement in
exchange for programming in 2002, and $2 million
during the first quarter of 2003. We
received $2recorded approximately $1 million in 2002, and $0.4
million in the first quarter of 2003
from Oxygen Media related to marketing
support provided to customers, along withlaunch
incentives as a reduction of programming
expense. We hold warrants to purchase 2.4
million shares of Oxygen Media common stock.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.
2330
TRANSACTION INTERESTED RELATED PARTY DESCRIPTION OF TRANSACTION
- ----------------------------------------------------------------- ------------------------ -------------------------------------------------------------------------------------
Portland Trail Blazers Carriage
Agreement....................... Paul G. Allen We paid $1 million in connection with the
cable broadcast of certain Trail Blazers
basketball games in 2002, and none in the
first quarter of 2003.
Action Sports Cable Network
Carriage Agreement.............. Paul G. Allen We paid $1 million for rights to carry
its programming in 2002, and none in the
first quarter of 2003.
Click2learn, Inc. Software License
Agreement....................... Paul G. Allen We paid approximately $250,000 under the
Software License Agreement in 2002, and
$0 in the first quarter of 2003.
Digeo, Inc. Broadband Carriage
Agreement....................... Paul G. Allen We paid Digeo $3 million in 2002 for
William D. Savoy customized development of the i-channels
Carl E. Vogel and the local content tool kit. We
received no revenues under the Broadband
Carriage Agreement in 2002, and none in
the first quarter of 2003.
ADC Telecommunications Inc. ...... Larry W. Wangberg We paid $759,600 to purchase certain
access/ network equipment in 2002, and
$11,700 in the first quarter of 2003.
HDNet and HDNet Movies
Network....Network...................... Mark Cuban We recently signedare party to an agreement to carry two
around-the-clock, high-definitionhigh definition networks,
HDNet and HDNet Movies. We paid HDNet and
HDNet Movies approximately $21,900 in 2003.
Office lease agreement............agreement......... David L. McCall We paid $117,600approximately $189,200 in 2002, and $29,400 in
the first quarter of 2003 under
an office lease agreement to a partnership
controlled by Mr. McCall.McCall, a former executive
officer who resigned in January 2003.
Construction Services.............services.......... David L. McCall WeIn 2003, we paid $644,800 in 2002, and $122,300 in
the first quarter of 2003,approximately $381,300 to a
construction company controlled by Mr.
McCall's brother and we paid $3 million
in 2002 and $337,700 in the first quarter
of 2003approximately $373,800
to a construction company controlled by Mr.
McCall's son.
Lease Arrangements................Purchase of advertising........ Marc B. Nathanson We paid approximately $76,000$79,700 in 2002,
and $17,200 in the first quarter of 2003 to
companies controlledpurchase advertising on certain radio
stations owned by Mr. Nathanson underand his son.
Carriage fees.................. David Merritt We paid approximately $1,100,000 in 2003 to
carry The Outdoor Channel. Mr. Merritt is a
warehouse lease agreement.
24
TRANSACTION INTERESTED RELATED PARTY DESCRIPTION OF TRANSACTION
- ---------------------------------- ------------------------ -----------------------------------------
director of an affiliate of this channel.
Enstar Limited Partnership
Systems Purchase and
Management Services........................Services.......... Charter officers who Certain of our subsidiaries purchasedWe earned approximately $469,300 in 2003 by
were appointed by a certain assets ofproviding management services to the Enstar Limited
Charter subsidiary (as Partnerships, for approximately $63limited partnerships.
general partner) to million.
serve as officers of
Enstar limited
partnerships
Indemnification Advances....... Current and former We also earned $1 million in 2002,reimbursed certain of our current and
partnerships $155,400 in the first quarter of 2003, by
providing management services to the
Enstar limited partnerships.
Indemnification Advances.......... Directorsdirectors and current Pursuant to indemnification arrangements,former directors and executive officers a
and former officers we advancedtotal of approximately $3.9$8 million for costs
named in certain legal for defense costs incurred in 2002 andconnection 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 Charter Communications, Inc.the Company and its subsidiaries, whether
directly as a result of an investment transaction or as a result of our
organizational structure, history and organization documents. In that regard,
somesubsidiaries. 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 Communications Holding Company, LLCHoldco
(approximately 46.5% owned by us and 53.5% owned by other affiliates of Mr.
Allen).
INTERCOMPANY MANAGEMENT ARRANGEMENTS
Charter Communications, Inc. has entered intoARRANGEMENTS.
The Company is a party to management arrangements with Charter Communications Holding Company, LLCHoldco and
certain of its subsidiaries. Under these agreements, Charter Communications, Inc.the Company provides
management services for the cable television systems owned or operated by its subsidiaries.
These management agreements provide for reimbursement to Charter Communications,
Inc.the Company for all
costs and expenses incurred by it attributable to the ownership and operation of
the managed cable systems ("Company Expenses"), plus an additional
management fee to cover additional costs incurred that are not in the nature of
Company Expenses (such as corporate overhead, administration and salary
expense). The management agreements covering the CC VI and CC VII companies
limit the management fee portion payable to Charter Communications, Inc. to 5%
of gross revenues. Under the arrangement covering all of our other operating
subsidiaries, there is no limit on the dollar amount or percentage of revenues
payable as management fees, except for CC VIII, where the operating agreement
limits management fees payable to amounts allowed under the CC VIII Credit
Agreement. However,systems. In general, the total amount paid by Charter Communications Holding
Company, LLCHoldco
and all of its subsidiaries is limited to the amount necessary to reimburse Charter Communications, Inc.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.agreements
31
and in connection with its corporate overhead, administration, salary expense
and similar items. The expenses subject to reimbursement include any fees Charter Communications, Inc.the
Company is obligated to pay under the mutual services agreement described below.with Charter
Investment, Inc. Payment of management fees by Charter Communications, Inc.'sthe Company's operating
subsidiaries is subject to certain restrictions under the credit facilities and
indentures of such subsidiaries. In the eventIf any portion of the management fee due and
payable is not paid, it is deferred by Charter Communications, Inc.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 annum,year, compounded annually, from the date it was due and
payable until the date it is paid. For the year ended December 31, 2002 and the three months ended March 31, 2003, Charter Communications, Inc.
receivedour
subsidiaries paid a total of $9$84 million and $3 million, respectively, asin management fees 25
from Charter Communications Holding Company, LLC and its subsidiaries. The
accounts and balances related to these fees eliminate in consolidation.the Company.
MUTUAL SERVICES AGREEMENT
The Company, Charter Communications, Inc., Charter Communications Holding Company, LLCHoldco 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 Charter
Communications, Inc.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, 2002 and2003, the three months ended March 31,
2003, Charter Communications, Inc.Company paid
$70approximately $73 million and $20 million,
respectively, to Charter Communications Holding Company, LLCHoldco for services rendered pursuant to
the mutual services agreement. All such amounts are reimbursable to Charter Communications, Inc.the Company
pursuant to a management arrangement with our subsidiaries. See "-- Intercompany Management
Arrangements." 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, 2002 and2003, the
three
months ended March 31, 2003, Charter Communications, Inc.'sCompany's subsidiaries did not pay any fees to Charter Investment, Inc. to
reduce management fees payable. As of both
December 31, 2002 and March 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 amended and restated limited liability company agreement of Charter Communications Holding Company, LLCHoldco 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 Communications Holding
Company, LLCHoldco had allocated profits and losses among its members
based generally on the number of common membership units.
VULCAN VENTURES CHANNEL ACCESS AGREEMENT
Vulcan Ventures, Incorporated, an entity controlled by Mr. Allen, Charter
Communications, Inc.,the Company, Charter
Investment, Inc. and Charter Communications Holding
Company, LLCHoldco are parties to an agreement dated September
21, 1999 regardinggranting to Vulcan Ventures the right of Vulcan Ventures to use up to eight of our digital
cable channels inas partial consideration offor 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 television systems
with local and to the extent available, national control of the digital product
owned, operated, controlled or managed by usthe 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 weit 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 26
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. As of both December 31, 2002 and March 31, 2003,To date, Vulcan Ventures didhas 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
Bresnan.CC VIII. As part of our acquisition of the cable systems owned by Bresnan
acquisitionCommunications 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 Interestspreferred membership units (collectively, the CC"CC VIII
Interest)interest") with a value and an initial capital account of approximately $630
million to certain sellers affiliated with AT&T Broadband, nowsubsequently owned by
Comcast Corporation (the Comcast
Sellers)"Comcast sellers"). While held by the Comcast Sellers,sellers,
the CC VIII Interestinterest was entitled to a 2% priority return on its initial capital
amountaccount and such priority return was entitled to preferential distributions from
available cash and upon liquidation of CC VIII.VIII, LLC. While held by the Comcast
Sellers,sellers, the CC VIII Interestinterest generally did not share in the profits and losses
of CC VIII.VIII, LLC. Mr. Allen granted the Comcast Sellerssellers the right to sell to him
the CC VIII Interestinterest for approximately $630 million plus 4.5% interest annually
from February 2000 (the Comcast Put Right)"Comcast put right"). In April 2002, the Comcast Sellerssellers
exercised the Comcast Put
Rightput right in full, and this transaction was consummated on
June 6, 2003. Accordingly, Mr. Allen has become the holder of the CC VIII
Interest.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.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 will notwould be entitled to anya priority
distributions (exceptdistribution with respect to the 2% priority return as(which will continue to
which such
priority will continue), and Mr. Allen's share of anyaccrete). 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 be equal to the initial capital
account of the Comcast Sellerssellers of approximately $630 million, increased or
decreased by Mr. Allen's pro rata share of CC VIII'sVIII, LLC's profits or losses (as
computed for capital account purposes) after June 6, 2003.2003). 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 Interestinterest following consummation of the Comcast Put Right. Our Boardput right.
Specifically, under the terms of Directors hasthe 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 NelsonMerritt) to
investigate the matter and take any other appropriate action on
our33
behalf of the Company with respect to this matter. Specifically,After conducting an
investigation of the relevant facts and circumstances, the Special Committee
is considering
whether itdetermined 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 our positionautomatically 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
Interestinterest to Charter Communications Holding Company, LLCHoldco in exchange for 24,273,943 Charter Communications HoldingHoldco membership
units. The Special Committee also recommended to the board of directors of the
Company LLC membership units,
immediately after his acquisitionthat, to the extent the contract reformation is achieved, the board of
directors should consider whether the CC VIII Interest upon consummation of
the Comcast Put Right. To the extent it isinterest should ultimately determined thatbe held
by Charter Holdco or Charter Holdings or another entity owned directly or
indirectly by them.
Mr. Allen must contribute the CC VIII Interest to Charter Communications Holding Company,
LLC following consummation of the Comcast Put Right, the Special Committee may
also consider what additional steps, if any, should be takendisagrees with respect to the
further disposition of the CC VIII Interest by Charter Communications Holding
Company, LLC. If necessary, following the completion of the Special Committee's investigationdeterminations 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 the facts and circumstances relatingnon-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 agreeddetermined 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
non-bindingresolution through that mediation process or to resolve anyagree on an alternative dispute
relatingresolution process, the Special Committee intends to seek resolution of this
matterdispute 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 soon as practicable, but
without any prejudice to anythe respective
rights of the parties if suchregarding this dispute is not
resolved as partand alternative forms of legal and
equitable relief. The ultimate resolution and financial impact of the mediation.dispute
are not determinable at this time.
Rifkin. On September 14, 1999, Mr. Allen and Charter Communications
Holding Company, LLCHoldco 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 Communications
Holding Company, LLC.Holdco. This put agreement permittedallowed these holders to
compel Charter Communications Holding Company, LLCHoldco 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 annumyear from September 14, 1999. Mr. Allen had guaranteed the redemption
obligation of Charter Communications Holding Company,
LLC.Holdco. These units
27
were put to Charter Communications Holding Company, LLCHoldco for
redemption, and were redeemed on April 18, 2003 for an aggregatea total price of
approximately $4$3.9 million.
Mr. Allen also iswas 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 Charter Communications, Inc.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. ThisApproximately 4.6 million shares
were put agreement
terminatesto Mr. Allen under these agreements prior to their expiration on
November 12, 2003, subject to early termination for certain
events. At May 27, 2003, this put agreement applied to an aggregate of
approximately 2,000 shares of Class A common stock.2003.
Falcon. Mr. Allen also iswas 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 Charter Communications, Inc.the Company. Under the Falcon put agreement, such holders havehad
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. The FalconApproximately 19.4
million shares were put agreement terminatesto Mr. Allen under these agreements prior to their
expiration on November 12, 2003, subject to early
termination for certain events. On May 27, 2003, the Falcon put agreement
applied to an aggregate of approximately 7.5 million shares of Class A common
stock. See "Security Ownership of Certain Beneficial Owners and Management."2003.
34
PREVIOUS FUNDING COMMITMENT OF VULCAN INC.
Effective April 14, 2003, weour subsidiary, Charter Communications VII, LLC,
entered into a commitment letter with Vulcan Inc., which is an affiliate of Paul
Allen, pursuant tounder which Vulcan Inc. agreed to lend, under certain circumstances, or
cause an affiliate (the "lender") wouldto lend initially to Charter Communications VII, LLC, an aggregate amountor
another subsidiary of Charter Holdings, up to $300 million, which amount
includesincluded a subfacility of up to $100 million for the issuance of letters of
credit. The borrower would
be able to drawNo amounts were ever drawn under the facility or have letters of credit issued,commitment letter. In November
2003, we terminated the commitment. We incurred expenses to Vulcan Inc. totaling
$5 million in each
case within five business days ofconnection with the end of each quarter ending on orcommitment (including an extension fee) prior
to March 31, 2004. The loans and letters of credit could only be used to repay
loans, or replace letters of credit, under our operating subsidiaries' credit
facilities to the extent required to comply with the leverage ratios under those
credit facilities or to create cushions in excess of the minimum amount
necessary to comply with such ratios. The facility would be guaranteed by us and
certain of our subsidiaries and would be secured by a lien on our corporate
headquarters in St. Louis and certain corporate aircraft. We would be required
to use our commercially reasonable efforts to form a new interim holding company
(CCH II, LLC) as a subsidiary of Charter Holdings and to cause Charter Holdings
to transfer to it the equity interests in Charter Operating, CC VI Holdings,
LLC, Charter Communications VII, LLC and CC V Holdings, LLC, which transfer we
refer to as the equity contribution. The equity interests to be transferred in
the equity contribution have been pledged as security for the loans under the
Charter Operating credit facility. We would also be required to use our
commercially reasonable efforts to obtain the consent of the lenders under the
Charter Operating credit facility to the grant to the lender of a second
priority lien on the equity interests transferred to CCH II, LLC. Upon the
equity contribution, CCH II, LLC would become the borrower under the facility.
In addition to the liens on our corporate headquarters, on the corporate
aircraft and on the equity interests transferred pursuant to the equity
contribution, the facility would also be secured on a pari passu basis by liens
or security interests granted on any assets or properties (other than assets or
properties of CCH II, LLC, which shall secure the facility on a first priority
basis, subject to the prior lien in favor of the lenders under Charter Operating
credit facility on the equity interests transferred pursuant to the equity
contribution) to secure any indebtedness of us or any of our subsidiaries (other
than the operating company credit facilities and other ordinary and customary
exceptions to be determined).
The interest rate on the loans would be initially 13% per annum, reducing
to 12% per annum at such time as CCH II, LLC became the borrower under the
facility. If the borrower were unable to receive funds from our operating
subsidiaries to pay such interest the borrower would be able to pay interest by
delivering additional notes to the lender in the amount of the accrued interest
calculated at the rate of 15% per annum,
28
reducing to 14% per annum for any issuance after CCH II, LLC became the borrower
under the facility. Such additional notes would bear interest at the same rate
as, and otherwise be on the same terms as, the notes issued to represent the
original loans under the facility. Upon the occurrence of an event of default,
the interest rate would be increased by 2% per annum over the interest rate
otherwise applicable.
If letters of credit are issued pursuant to the facility, the borrower
would pay a letter of credit fee of 8% per annum of the face amount of the
letter of credit.
The borrower would pay the lender a facility fee of 1.5% of the amount of
the facility, payable over three years (with 0.5% being earned upon execution of
the commitment letter and 1.0% being earned upon execution of the definitive
documentation). In addition to the facility fee, the borrower would pay a
commitment fee on the undrawn portion of the facility in the amount of 0.5% per
annum commencing upon execution of the definitive documentation.
The borrower would have the right to terminate the facility at any time
that no loans or letters of credit are outstanding, although any fees earned
prior to termination would remain payable. No amortization payments would be
required prior to maturity. The facility would mature on November 12, 2009,
provided that at such time as CCH II, LLC became the borrower under the facility
the maturity date would become March 1, 2007. The loan may not be prepaid prior
to March 31, 2004, but the borrower would have the right to make prepayments at
any time after March 31, 2004, without the payment of any premium or penalty.
The borrower would be required to offer to purchase outstanding notes evidencing
the loans under the facility with the proceeds of certain asset sales and debt
issuances.
The definitive documentation would contain customary representations,
covenants, events of default and indemnification provisions.
The facility is subject to the negotiation and execution of definitive
documentation by June 30, 2003. If the parties have not executed the definitive
documentation by that date, the facility will terminate. Once the documentation
has been executed, the borrower's ability to draw on the facility would be
subject to certain conditions, such as the use of other available funds for
covenant compliance purposes, evidence of compliance with financial covenants,
accuracy of representations and warranties, no material adverse change having
occurred, there being no default under other credit facilities and indentures,
and receipt of financial statements. Although we believe that we will be able to
satisfy those conditions, there can be no assurance that we will be able to do
so or that if we fail to do so we will be able to negotiate waivers of such
conditions.termination.
ALLOCATION OF BUSINESS OPPORTUNITIES WITH MR. ALLEN
As described under "Third"-- 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, Charter Communications, Inc.the Company and Charter Communications Holding
Company, LLC,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; thea joint venture to develop a digital
video recorder set-top terminal; thean existing investment in Cable Sports
Southeast, LLC, a provider of regional sports programming; as an owner of the
business of Interactive Broadcaster Services Corporation (Chat TV);or, Chat TV, an
investment in Security@Security Broadband Corp., a company developing broadband security
applications; and incidental businesses engaged in as of the closing of Charter Communications, Inc.'sthe
Company's initial public offering in November 1999. This restriction will remain
in effect until all of the shares of Charter Communications, Inc.'sthe 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 Charter Communications, Inc.the Company or Charter Communications Holding
Company, LLCHoldco 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 Charter Communications, Inc.the Company or its subsidiaries
29
engaging in the
business transaction, they will be able to do so. In any such case, the restated
certificate of incorporation of Charter Communications, Inc.the Company and the amended and restated limited liability company
agreement of Charter Communications Holding Company, LLCHoldco 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 television systems owned, operated or managed by the Company, Charter Communications, Inc., Charter Communications Holding Company, LLCHoldco or
any of their subsidiaries from time to time.
Under Delaware corporate law, each director of Charter Communications,
Inc.,the Company, including Mr.
Allen, is generally required to present to Charter
Communications, Inc.,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 Charter Communications, Inc.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 ourthe
Company's restated certificate of incorporation.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 ourthe 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'sAllen has extensive investmentinvestments in the areas of
media and technology has resulted in our havingtechnology. 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. Mr. Savoy
is also a vice president and a director of Vulcan Ventures. The various cable,
media, Internet and telephony companies in which Mr. Allen has invested may
mutually benefit one another. The agreements governing our relationship with
Digeo, Inc. are an example of a cooperative business relationship among his
affiliated companies. 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.
HIGH SPEED ACCESS
High Speed Access Corp. has been a provider of high-speed Internet access
services over cable modems. During the period from 1997 to 2000, certain Charter
Communications entities entered into Internet-access related service agreements,
and both Vulcan Ventures, an entity owned by Mr. Allen, and certain of our
subsidiaries made equity investments in High Speed Access.
On February 28, 2002, our subsidiary, CC Systems, purchased from High Speed
Access the contracts and associated assets, and assumed related liabilities,
that served our customers, including a customer contact center, network
operations center and provisioning software. At the closing, certain of our
subsidiaries paid
30
$78 million to High Speed Access and delivered 37,000 shares of High Speed
Access's Series D convertible preferred stock and all of the warrants to buy
High Speed Access common stock owned by Charter Communications Holding Company,
LLC (which had been acquired pursuant to two network services agreements which
were cancelled in connection with this transaction, as described below), and
High Speed Access purchased 38,000 shares of its Series D Preferred Stock from
Vulcan Ventures for $8 million. Additional purchase price adjustments were made
as provided in the asset purchase agreement. Charter Communications Holding
Company, LLC obtained a fairness opinion from a qualified investment-banking
firm regarding the valuation of the assets purchased. Concurrently with the
closing of the transaction, High Speed Access also purchased all of its common
stock held by Vulcan Ventures.
In conjunction with the High Speed Access asset purchase, on February 28,
2002, Charter Communications Holding Company, LLC granted High Speed Access the
right to use certain intellectual property sold by High Speed Access to Charter
Communications Holding Company, LLC. High Speed Access does not pay any fees
under the agreement. The domestic portion of the license terminated on June 30,
2002, and the international portion of the license will expire on February 2,
2005. Prior to closing the asset purchase, Charter Communications, Inc.
performed certain management services formerly performed by High Speed Access,
for which it received $4 million in January and February 2002.
Concurrently with the asset purchase, all of the other agreements between
our subsidiaries and High Speed Access Corp., (other than the license agreement
described above), namely the programming content agreement, the services
agreement, the systems access agreement, the 1998 network services agreement and
the May 2000 network services agreement, were terminated. The revenues we earned
from High Speed Access for the year ended December 31, 2002 were approximately
$17 million. In addition, for the year ended December 31, 2002, we paid High
Speed Access approximately $2 million under the 1998 network services agreement
and the 2000 network services agreement, representing a per customer fee to High
Speed Access according to agreed pricing terms and compensation for services
exceeding certain minimum thresholds.
Immediately prior to the asset purchase, Vulcan Ventures beneficially owned
approximately 37%, and we beneficially owned approximately 13%, of the common
stock of High Speed Access (including the shares of common stock which could be
acquired upon conversion of the Series D preferred stock, and upon exercise of
the warrants owned by Charter Communications Holding Company, LLC). Following
the consummation of the asset purchase, neither we nor Vulcan Ventures
beneficially owned any securities of, or were otherwise affiliated with, High
Speed Access.
TECHTV, L.L.C.
TechTV, Inc.L.L.C. ("TechTV") operates a cable television channel which broadcasts shows
aboutnetwork that offers
programming related to technology. Pursuant to a carriagean affiliation agreement terminatingthat
originated in 1998 and that terminates in 2008, TechTV has provided us with
programming for broadcastdistribution via our cable television systems. Carriage fee amounts per customerThe affiliation agreement
provides, among other things, that TechTV must offer the Company certain terms
and conditions that are determined based onno less favorable in the percentageaffiliation agreement than are
given to any other distributor that serves the same number of customers in a particular system receivingor fewer TechTV
viewing customers. Additionally, pursuant to the services. These fees will be
waived for systems with higher penetration levels until December 31, 2003, and
were waived for systems with lower penetration levels through April 30, 2001. In
certain circumstances,affiliation agreement, we are
entitled to a percentage of TechTV's net product
revenues from infomercials and home shopping and attributed to our carriage of
the service. Additionally, we receive incentive payments for channel launches through December 31, 2003.
TechTV may not offer its services to any other cable
operator which serves the same or fewer number of customers at a more favorable
rate or on more favorable carriage terms. For the year ended December 31, 2002,
we received $4 million from TechTV and paid $0.2 million to them under the
carriage agreement. For the three months ended March 31, 2003, we receivedrecorded approximately $1 million from
TechTV related to launch incentives as a reduction of programming expense and
paid $0.2 millionapproximately $80,600 to themTechTV in license fees under the carriageaffiliation
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
36
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
aan approximate 98% equity interest in TechTV as of DecemberMarch 31, 2002.2004. Until
September 2003, Mr. Savoy, serves asa former Charter director, was the president and
director of Vulcan Programming.Programming and was a director of TechTV. Mr. Wangberg, one
of ourCharter's directors, iswas the chairman, chief executive officer and a director
of TechTV. Both Messrs.Mr. Wangberg resigned as the chief executive officer of TechTV in
July 2002. He remained a director of TechTV along with Mr. Allen and Savoy are directors of TechTV.
31
until Vulcan
Programming sold TechTV to an unrelated third party in May 2004.
OXYGEN MEDIA CORPORATION
Oxygen Media LLC (Oxygen)("Oxygen") provides programming content aimed at the
female audience for distribution over cable television systems.systems and satellite. On July 22,
2002, Charter Communications Holding Company, LLCHoldco entered into a carriage agreement with Oxygen, whereby
Charter Communications Holding Company, LLCHoldco agreed to carry programming content from Oxygen, pursuant to
which we currently make itOxygen 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 Communications Holding Company, LLCHoldco and runs for
a period of five years from that date. As the number of customers receiving the
Oxygen programming increases, Charter Communications Holding Company, LLCHoldco receives volume discounts. For the
year ended December 31, 2002 and the three months
ended March 31, 2003, we paid Oxygen approximately $6$9 million and $2 million,
respectively, for
programming content.
In addition, Oxygen pays Charter Communications Holding Company, LLCHoldco 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 have recognized $2recorded approximately $1 million and $0.4 million of revenue related to
the marketing support providedlaunch incentives as a reduction of programming expense for the year ended
December 31, 2002 and for the three months ended March 31,
2003, respectively.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)("Oxygen Media"), granted a subsidiary of Charter
Communications Holding Company, LLCHoldco a warrant to purchase 2.4 million shares of common stock of Oxygen Media
for an exercise price of $22.00 per share. Charter Communications Holding Company, LLCHoldco 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. Mr. William Savoy,We currently recognize the
guaranteed value of the investment over the life of the programming agreement as
a directorreduction of Charter Communications, Inc. and Charter
Communications Holding Company, LLC, serves onprogramming expense. For the boardyear ended December 31, 2003, we
recorded approximately $9 million as a reduction of directorsprogramming expense. The
carrying value of Oxygen.our investment in Oxygen was approximately $19 million as of
December 31, 2003.
As of December 31, 2002,2003, through Vulcan Programming, Mr. Allen ownsowned an
approximate 31% interest in Oxygen (51% assuming exerciseno exercises of all warrants held
by Vulcan Programming but no exercise of warrants or options by other holders).outstanding
warrants.
Marc Nathanson has an indirect beneficial interest of less than 1% in
Oxygen.
PORTLAND TRAIL BLAZERS AND ACTION SPORTS CABLE NETWORK
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 ourthe
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. ForWe paid approximately $135,200 for the year ended December 31, 2002 and the three months ended
March 31, 2003 we paid approximately $1 million and $0, respectively,
in connection with the cable broadcast of Portland Trail Blazers basketball
games under the October 1996 cable television agreement.
On July 1, 2001,37
CLICK2LEARN, INC.
Charter Communications Holding Company, LLC and Action
Sports Cable Network (Action Sports), which is 100% owned by Mr. Allen, entered
into a new carriage agreement for a five year term, which became effective on
October 1, 2001 with the expiration of the previous agreement. Under the July
2001 carriage agreement, Charter Communications Holding Company, LLC pays Action
Sports a fixed fee for each customer receiving the Action Sports programming,
which covers sporting events in the Pacific Northwest, including the Portland
Trail Blazers, the Seattle Seahawks, a National Football League football team,
and the Portland Fire, a Women's National Basketball Association basketball
team. On November 5, 2002, Action Sports announced that it was discontinuing its
business following its failure to obtain an acceptable carriage agreement with
AT&T Cable, the cable television provider in Portland, Oregon. Action Sports
service was terminated on November 5, 2002 and Charter Communications Holding
Company, LLC
32
ceased carriage of the service. For the year ended December 31, 2002 and the
three months ended March 31, 2003, we paid Actions Sports $1 million and $0,
respectively, for rights to carry its programming. We believe that the failure
of this network will not materially affect our business or results of
operations.
CLICK2LEARN
Charter Communications Holding Company, LLCHoldco executed a Software License Agreement with Click2learn, Inc.
("Click2learn") effective as of June 30, 2002. Since October 1999 Charter Communications Holdings CompanyHoldco has
purchased professional services, software and maintenance from Click2learn, Inc. 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, 2002,2003, Mr. Allen owned an
approximate 27%21% interest in Click2learn Inc. includingthrough 616,120 shares held of record by
Vulcan Ventures Inc. and 387,096 shares issuable upon exercise of a warrant issued to
Vulcan Ventures, Incorporated.Ventures. Mr. Allen is the sole shareholderowns 100% of Vulcan Ventures, Inc. and may be deemed to have
shared voting and investment power with respect to such shares. Mr. Allen is the
founder of Click2learn, Inc.Ventures. For the year ended
December 31, 2002 and the three
months ended March 31, 2003, we paid approximately $250,000 and $0,
respectively,$57,100 to Click2learn.
DIGEO, INC.
VulcanOn 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 Mr. Allen, owns an approximate 49%
interest inPaul Allen. The carriage
agreement provided that Digeo Inc. (Digeo). The Digeo(TM)Interactive would provide to the Company a
"portal" product, is designed to blendwhich would function as the power of the Internet with the convenience of the television. Through the use of
an advanced digital set-top terminal, customers will be able to access Internet-
based streaming media on the television, including both local and national news,
sports and entertainment. The Digeo product is a "portal," which is an Internet
web site that serves as a user'stelevision-based internet portal
(the initial point of entry to the World Wide Web.
By offering selected content, servicesinternet) for the Company's customers who
received internet access from the Company. The agreement term was for 25 years
and linksthe Company agreed to other web sites and ause the Digeo portal guide, it directs users through the World Wide Web. In addition,exclusively for six years. Before
the portal generates revenues from advertising on its own web pagesproduct was delivered to the Company, Digeo terminated development of
the portal product.
On September 27, 2001, the Company and by sharingDigeo 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 linked or featured web sites. Digeo hasthe 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 license agreement with
Microsoft for software used in the Digeo set-top companion. Fees under this
license agreement are passed onsecond amendment to us through our agreement with Digeo.
On March 2, 2001, Charter Communications, Inc. finalized aits
broadband carriage agreement with Digeo Interactive. This amendment supersedes
the amendment of September 27, 2001. It provides for the development by Digeo
Interactive LLC (Digeo Interactive), whichof 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 function
as its television-based Internet portal.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 runs for 25 years,provides that Charter is entitled to
receive contract terms, considered on the whole, and subjectlicense fees, considered
apart from other contract terms, no less favorable than those accorded to specified conditions, provides forany
other Digeo customer.
38
In April 2004, we launched DVR service in our Rochester, Minnesota market
using a broadband media center that is an exclusive relationshipintegrated 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 first sixpurchase of those years.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,
on March 2, 2001, our wholly owned subsidiary, Charter Communications
Ventures,DBroadband Holdings, LLC receivedpurchased an equity interest in Digeo funded by
contributions from Vulcan Ventures Incorporated's contribution of approximately $21.2 million, whichIncorporated. The equity interest is subject
to a priority return of capital to Vulcan Ventures up to the amount so funded.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
Digeo BroadbandDBroadband Holdings, LLC to acquire Digeoadditional equity in orderDigeo as necessary to
maintain Charter Venture'sVentures' pro rata interest in Digeo in the event of certain
future Digeo equity financings by the founders of Digeo. These additional equity
interests willare also be subject to a priority return of capital to Vulcan Ventures up
to the amount so contributed. In May, 2002,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 an additional $60a total of $29 million to Digeo, Inc., $15$7 million of which was
contributed on Charter Ventures' behalf, subject to Vulcan'sVulcan Ventures
aforementioned priority return. On September 27, 2001,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 Communications,Ventures' behalf.
We believe that Vulcan Ventures, an entity controlled by Mr. Allen, owns an
approximate 60% equity interest in Digeo, Inc. and Digeo amended the
March 2001 carriage agreement. Pursuant to the amendment, Digeo Interactive, a
subsidiary of Digeo, will provide the content for enhanced Wink interactive
television services, known as Charter Interactive Channels (sometimes referred
to as "i-channels"), to Charter Communications, Inc. In order to provide the
i-channels, Digeo Interactive sublicensed certain Wink technologies to Charter
Communications, Inc. We will share in the revenues generated by the i-channels.
Currently, our digital customers who receive i-channels receive the service at
no additional charge.
33
On September 28, 2002, Charter Communications, Inc. entered into an
amendment to its Broadband Carriage Agreement with Digeo Interactive. This
amendment supersedes the amendment previously entered into on September 27,
2001, and covers the development of future features to be included on the Basic
iTV service provided by Digeo and Digeo's development of an interactive
"toolkit" to enable Charter Communications, Inc. to develop interactive local
content. Furthermore, Charter Communications, Inc. may request that Digeo manage
local content for a fee. The amendment provides for Charter Communications, Inc.
to pay for development of the Basic iTV service as well as license fees for
customers who receive the service, and for Charter Communications, Inc. and
Digeo to split certain revenues earned from the service.
In 2002, we paid Digeo $3 million for customized development of the
i-channels and the local content tool kit. We received no revenues under the
Broadband Carriage Agreement in 2002 or in 2003.
We are now utilizing Digeo to develop an advanced broadband media center
for our customers. The anticipated media center will include an integrated
set-top terminal that includes a cable converter, an industry standard high
speed cable modem, and a digital video recording (DVR/PVR) hard drive with
connectivity to other consumer electronics devices (such as stereos, MP3
players, and digital cameras) and capable of networking in the home with PC's
and other computing devices. The DVR capability will enable customers to store
video and audio files, and to pause, schedule, rewind and store television
programs. We anticipate that TV-based Internet access will be a future
enhancement to the media center rather than being launched as a separate
product. We began an initial trial of the first version of its advanced media
center in the third quarter of 2002 in St. Louis. The development and usage fees
for the advanced media center have not yet been negotiated.
Messrs. Allen Savoy and Vogel are
directors of Digeo.
Mr. Savoy serves on
the compensation committee of Digeo. Each of Mr. Savoy and Mr. Vogel owns
options to purchase 10,000 shares of Digeo common stock.
OTHER MISCELLANEOUS RELATIONSHIPS
ADC TELECOMMUNICATIONS INC.
We purchase certain equipment for use in our business from ADC
Telecommunications, which provides broadband access and network equipment. Mr.
Wangberg serves as a director for ADC Telecommunications. For the year ended
December 31, 2002 and the three months ended March 31, 2003, we paid $759,600
and $11,700, respectively, to ADC under this arrangement.
HDNET AND HDNET MOVIES NETWORK
On January 10, 2003, we signed an agreement to carry two around-the-clock,
high-definitionhigh definition networks, HDNet and HDNet Movies. HDNet Movies delivers a
commercial-free schedule of full-length feature films converted from 35mm to
high-definition,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, as a result of a recently
announced transaction with Paramount.series. We paid HDNet and HDNet
Movies approximately $21,900 in 2003. We believe that entities controlled by
Mr.Mark Cuban owned approximately 96.9%85% of HDNet as of December 31, 2002.2003. As of
both
December 31, 2002 and March 31, 2003, MarkMr. Cuban, co-founder and president of HDNet, owned
approximately 5.3%6.4% of the totaloutstanding Class A common equity in Charter
Communications Inc.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 $117,600$189,200 pursuant to such lease and related agreements for the
year ended December 31, 2002 and
$29,400 for the three months ended March 31, 2003. In addition, during 2002 and
during the first three months of 2003 we paid approximately
$644,800 and
$122,300, respectively,
34
$381,300 for construction services to a construction company controlled by Mr.
McCall's brother under a construction agreement, which expiresexpired December 31,
2003. We also paid $3 millionapproximately $373,800
39
during 2002 and $337,700 during the first three months of 2003 for construction services to a construction company controlled by
Mr. McCall's son under several agreements, the last of which expiresexpired January 31,
2004.
CompaniesAn 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 Charter
Communications,Outdoor Channel Holdings, Inc., leased certain warehouse space in Riverside, California,
to our subsidiaries. For the year ended December 31, 2002 and the three months
ended March 31, 2003, aggregate rent paid for the Riverside warehouse space was
approximately $76,000 and $17,200, respectively, under a lease agreement which
expired March 15, 2003.
PURCHASE an affiliate of The Outdoor
Channel, Inc.
MANAGEMENT FEES OF CERTAIN ENSTAR LIMITED PARTNERSHIP SYSTEMS; MANAGEMENT FEES
In April 2002, Interlink Communications Partners, LLC, Rifkin Acquisition
Partners, LLC and Charter Communications Entertainment I, LLC, each an indirect,
wholly-owned subsidiary of Charter Holdings, completed the cash purchase of
certain assets of Enstar Income Program II-2, L.P., Enstar Income/Growth Program
Six-A, L.P., Enstar Income Program IV-1, L.P., Enstar Income Program IV-2, L.P.,
and Enstar Income Program IV-3, L.P., serving in the aggregate approximately
21,600 customers, for a total cash sale price of approximately $48 million. In
September 2002, Charter Communications Entertainment I, LLC purchased all of
Enstar Income Program II-1, L.P.'s Illinois cable television systems, serving
approximately 6,400 customers, for a cash sale price of $15 million. Enstar
Communications Corporation, a direct subsidiary of Charter Communications
Holdings Company, is a general partner of the Enstar limited partnerships but
does not exercise control over them. The purchase prices were allocated to
assets acquired based on fair values, including $44 million assigned to
franchises.
In addition,PARTNERSHIPS
Enstar Cable Corporation, the manager of the Enstar limited partnerships
through a management agreement, engaged Charter Communications
Holding Company, LLCHoldco to manage the Enstar
limited partnerships. Pursuant to the management agreement, Charter Communications Holding Company, LLCHoldco
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 Communications Holding
Company, LLC.Holdco. For the year ended
December 31, 2002, and the three months ended
March 31, 2003, Charter Communications Holding Company, LLCHoldco earned $1 million
and $155,400, respectively,approximately $469,300 by providing
management services to the Enstar limited partnerships.
All of the executive officers of the Company, Charter Communications, Inc.Holdco and Charter
Holdings act as officers of Enstar Communications Corporation.
INDEMNIFICATION ADVANCES
Pursuant to Charter Communications, Inc.'s Amended and Restated By-lawsCharter's bylaws (and the employment agreements of certain of
our current and former officers), we arethe Company is obligated (subject to certain
limitations) to indemnify and hold harmless, to the fullest extent permitted by
law, any officer, director or directoremployee against all expense, liability and loss
(including, among other things, attorneys' fees) reasonably incurred or suffered
by such officer, director or directoremployee 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 an officeremployee of Charter
Communications, Inc.the Company. In addition, we arethe Company is
obligated to pay, as an advancement of ourits indemnification obligation, the
expenses (including attorneys' fees) incurred by any officer, director or
directoremployee 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, we havethe Company has reimbursed certain of our directors andits current and
former directors and executive officers a total of approximately $3.9$8 million and
$3 million in respect of invoices received in 2003 and 2002, and the first
quarter of 2003respectively, in
connection with their defense of certain legal actions described in our 2002 Annual Report on Form 10-K.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 our D&Othe Company's
director and officer insurance carrier for reimbursement. The carrier has raised
various objections to portions of these expenses,amounts, and we arethe Company is in
negotiations with the carrier regarding their reimbursement.
35
ACCOUNTING MATTERS
PRINCIPAL ACCOUNTING FIRM
KPMG LLP acted as the Company's principal accountant in 2002 and 2003 and,
subject to ratification by shareholdersstockholders at the Annual Meeting, KPMG LLP is
expected to serve as the company'sCompany's principal accounting firm for 2003.2004.
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 Boardboard of Directorsdirectors 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 the Company'sour independent public accountants for the year ended
December 31, 2001.
Arthur Andersen's report on the Company'sour financial statements for the
Company's 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 Company's 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 the
Company'sour consolidated financial statements for
such years, and there were no reportable events as defined in Item 304(a)(1)(v)
of Regulation S-K.
The CompanyWe 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 the Company'sour 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,
the Companywe 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 Company'sout 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.
AUDIT FEES; FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES; OTHER
FEES
FEES OF INDEPENDENT AUDITORSPUBLIC 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 year 2002:years:
AMOUNT
--------------
(IN THOUSANDS)
---------------
2003 2002
------ ------
Audit Fees(a)............................................... $6,100.0
--------
Financial Information Systems Design and Implementation
Fees(b)...................................................Fees.................................................. $3,217 $6,100
Audit-Related Fees.......................................... $ 423 $ 306
Tax Fees.................................................... $ 0 --------$ 0
All Other Fees(c)...........................................Fees.............................................. $ 563.5
--------0 $ 258
Total....................................................... $6,663.5
========$3,640 $6,664
- ---------------
(a) Audit Fees for the year ended December 31, 2002 were for professional
services rendered by KPMG LLP for the audits of the consolidated financial
statements and the audits of the restated 2001 and 2000 consolidated
financial statements of the Company and include quarterly reviews, and
subsidiary audits.
36
(b) There were no Financial Information Systems Design and Implementation
services rendered by KPMG LLP for the year ended December 31, 2002.
(c) All Other Fees for the year ended December 31, 2002 include services
rendered by KPMG LLP related to due diligence related to acquisitions, a
review of the accounts payable process and litigation support.
The Audit Committee has adopted policies and procedures requiring the
pre-approval of non-audit services that may be provided to the Company by itsour independent
auditor. The CompanyWe 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.
37AUDIT 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 presently consists ofwas established to oversee the following membersCompany's accounting and
financial reporting processes and the audits of the Company's Board of Directors: Ronald L. Nelson, Nancy B. Peretsman and John H.
Tory. Ms Peretsman, Mr. Nelson and Mr. Tory are "independent" as defined under
Rule 4200(a)(14) of the Nasdaq National Market's qualification requirements.annual financial
statements. The Audit Committee held four regularin 2003 consisted of David C. Merritt, John H.
Tory, and seven special meetingsNancy 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 2002.accordance with Nasdaq
and SEC rules.
The Audit Committee's functions are detailed in a written Audit Committee
Chartercharter adopted by the Boardboard of Directorsdirectors in January 2003 and amended in June
2004, a copy of which is attached hereto as Appendix A to this Proxy Statement.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. The Company'sboard. 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 Boardboard for testing the integrity
of the financial accounting and reporting control systems and such other matters
as the Audit Committee and Boardboard determine.
The Audit Committee held seven meetings in 2003.
The Audit Committee has reviewed and discussed with management the
Company's
management the audited financial statements of the Company for the year ended December 31, 2002, as well as the restated audited financial statements of the
Company for the years ended December 31, 2001 and 2000.2003. The
Audit Committee has discussed with KPMG LLP, the Company's independent
public accountants with respect to the audited financial statements of the
Company for the year ended December 31, 2002 (as well as the restated audited
financial statements of the Company for the years ended December 31, 2001 and
2000), 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 Boardboard of Directorsdirectors 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, 20022003 for filing with the SEC.
RONALD L. NELSON
NANCY B. PERETSMANDAVID C. MERRITT
CHARLES M. LILLIS
JOHN H. TORY
38
PROPOSAL NO. 2: RATIFICATION OF AMENDMENT TO THE 2001 STOCK INCENTIVE TO
INCREASE BY 30,000,000 THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE
(ITEM 2 ON PROXY CARD)
AND
PROPOSAL NO. 3: RATIFICATION OF AMENDMENTS TO THE 1999 CHARTER COMMUNICATIONS
OPTION PLAN AND THE 2001 STOCK INCENTIVE PLAN TO AUTHORIZE THE REPRICING OF
OPTIONS
(ITEM 3 ON PROXY CARD)
GENERAL INFORMATION
We grant stock options, restricted stock and other incentive compensation
pursuant to two plans -- the 1999 Charter Communications Option Plan (the "1999
Plan") and the 2001 Stock Incentive Plan (the "2001 Plan"). As approved by the
shareholders at the 2001 Annual Meeting, the two plans allowed for the issuance
of up to an aggregate of 60,000,000 shares of the Company's Class A common stock
to employees, consultants and directors. In October 2002, the Board of Directors
approved an amendment to the 2001 Plan to increase the shares available by
30,000,000, so that an aggregate of 90,000,000 shares will be authorized for
issuance under both plans. The closing price of the Class A common stock on the
Nasdaq National Market was $0.83 per share on March 31, 2003 and $2.41 per share
on May 27, 2003.
Neither of these plans, as originally approved by shareholders, expressly
permits or prohibits the repricing of outstanding options to lower the exercise
price, or the exchange of options or grant of new options at a lower exercise
price than those being exchanged. Although the plans were silent on the issue of
option exchanges (and an option exchange would therefore be permissible under
the plans in their current form), in January 2003, the Board approved amendments
to both the 1999 Plan and the 2001 Plan to expressly authorize the repricing of
options, which would include the issuance of new lower priced options in
exchange for the tender of existing options.
At this Annual Meeting, shareholders are being asked to approve two
proposals related to stock options, as follows: Proposal 2 seeks shareholder
approval to amend the 2001 Plan to increase by 30,000,000 shares the number of
shares of Class A common stock authorized for issuance under the plan; Proposal
3 seeks shareholder approval of amendments to both plans to authorize the
repricing of options. For this purpose, a "repricing" includes 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, by any other method repricing
or replacing any outstanding option, or taking any other action deemed to be a
"repricing" under the rules of the national securities exchange or other market
on which shares of Class A Common Stock are listed or admitted to trading.
The text of the proposed amendments is included as Appendices B, C and D
hereto.
As a Nasdaq-listed company, the Company is subject to Nasdaq's
qualification requirements. Under current Nasdaq rules, shareholder approval is
not required for either of the proposed plan amendments. However, in
anticipation of pending changes to Nasdaq's qualification requirements which
would require shareholder approval of the amendments, the Company's Board of
Directors determined that both plan amendments should be contingent on
shareholder approval.
Although no specific option repricing or option exchange plan has yet been
approved by the Board, the Board has determined that it may be in your and our
best interests to implement an option exchange program to effectuate a repricing
of outstanding stock options. Under this program, our employees would likely be
given a one-time opportunity to exchange their current stock options for
proportionately fewer options at a new exercise price.
Stock options are a critical component of our compensation arrangements for
employees. They encourage our employees to act as owners, which helps to align
their interests with yours. We grant stock options to motivate and reward our
employees for profitable growth and to encourage them to continue their
employment with us.
39
However, virtually all of our employees have stock options with exercise
prices significantly higher than the current trading price of our common stock.
Accordingly, the perception is that these stock options have no value. As a
result, our options are no longer effectively providing the employee motivation
and retention that they were intended to provide. By realigning the exercise
prices of previously granted stock options with the current market price of our
common stock, we believe such a program would increase our employees'
opportunity to realize value from their stock options. Further, following our
recently announced management restructuring and employee reductions, such a
repricing or stock option exchange program would provide us with a fresh start
to motivate and compensate our remaining employees.
We are not presently able to determine the benefits or amounts that will be
received by any person or persons in connection with the any of the proposed
plan amendments. However, the following table sets forth the outstanding options
held by certain individuals and groups of individuals under the 1999 Plan and
the 2001 Plan which could be eligible for repricing or exchange if determined by
the Board.
NUMBER OF SECURITIES UNDERLYING
OPTIONS (AND EXERCISE PRICE) AT MARCH 31, 2003
-----------------------------------------------------------------------
1999 PLAN 2001 PLAN
---------------------------------- ----------------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
OPTIONS OPTIONS EXERCISE OPTIONS OPTIONS EXERCISE
NAME OUTSTANDING VESTED PRICES OUTSTANDING VESTED PRICES
- ------------------------------------- ----------- --------- -------- ----------- --------- --------
Carl E. Vogel........................ 3,400,000 1,133,333 $13.68
President and Chief Executive
Officer 1,000,000 0 $ 2.85
Steven A. Schumm..................... 782,681 652,234 $20.00 25,000 12,500 $23.09
Executive Vice President, Chief 140,000 35,000 $11.99
Administration Officer and Interim
CFO 300,000 0 $ 2.85
David L. McCall(1)................... 160,000 160,000 $20.00 37,500 37,500 $23.09
Former Senior Vice President -- 14,583 14,583 $19.47 37,500 37,500 $11.99
Operations Eastern Division
Curtis S. Shaw....................... 200,000 166,666 $20.00 65,000 32,500 $23.09
Senior Vice President, General 25,000 15,416 $19.47 84,000 21,000 $11.99
Counsel and Secretary 100,000 0 $ 2.85
Steven E. Silva...................... 165,000 137,500 $20.00 90,000 45,000 $23.09
Executive Vice President and Chief 40,000 24,666 $19.47 200,000 50,000 $11.99
Technology Officer 150,000 0 $ 2.85
David G. Barford.....................
Former Executive Vice President and
Chief Operating Officer
Kent D. Kalkwarf.....................
Former Executive Vice President and
Chief Financial Officer
40
NUMBER OF NUMBER OF RANGE OF NUMBER OF NUMBER OF RANGE OF
OPTIONS OPTIONS EXERCISE OPTIONS OPTIONS EXERCISE
OUTSTANDING VESTED PRICES OUTSTANDING VESTED PRICES
----------- --------- -------- ----------- --------- --------
ALL CURRENT EXECUTIVE OFFICERS
AS A GROUP (7 IN NUMBER)................. $ 15.03 $ 1.58
1,252,681 1,019,148 -$20.00 6,314,000 1,525,583 -$23.09
ALL DIRECTORS WHO ARE
NOT EXECUTIVE OFFICERS AS
A GROUP (6 IN NUMBER).................... 160,000 160,000 $ 19.00 120,000 120,000 $ 12.27
-$23.09
ALL CURRENT EMPLOYEES AS
A GROUP (17,300 IN NUMBER)............... 11,964,001 8,369,419 $ 14.31 26,568,535 5,930,125 $ 1.105
-$20.73 -$23.09
- ---------------
(1) David McCall has terminated employment, and as a result, all of these
options were cancelled on April 1, 2003.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS VOTING "FOR" THE APPROVAL OF
THE AMENDMENT TO THE 2001 PLAN TO INCREASE THE AUTHORIZED SHARES AND "FOR" THE
APPROVAL OF THE AMENDMENTS TO THE 1999 PLAN AND THE 2001 PLAN TO PERMIT
REPRICING OF OPTIONS.
GENERAL DESCRIPTION OF THE PLANS
The 1999 Plan provides for the grant of options to purchase membership
units in Charter Communications Holding Company, LLC to current and prospective
employees and consultants of Charter Communications Holding Company, LLC and its
affiliates and current and prospective non-employee directors of the Company.
Membership units received upon exercise of any options are immediately exchanged
for shares of the Company's Class A common stock on a one-for-one basis.
The 2001 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 Plan.
Employees, officers, consultants and directors of the Company and its
subsidiaries and affiliates are eligible to receive grants under the 2001 Plan.
Generally, options expire 10 years from the grant date.
At the Company's 2001 annual meeting of shareholders, the 1999 Plan was
ratified by shareholders and the 2001 Plan was approved by shareholders, with an
aggregate limit of 60,000,000 Class A shares issuable upon exercise of options
under the plans. To ensure that the combined number or shares covered by both
plans would not exceed the aggregate limit, the 1999 Plan was amended to provide
that any unused shares, including those that become available as a result of
termination of a option, be cancelled from the 1999 Plan and added to the 2001
Plan. The 2001 Plan, in turn, provides that the number of shares available under
the plan increases automatically by the number of options terminated under the
1999 Plan. Thus, the number of shares covered by each plan changes on a daily
basis, but in no event will the total exceed the aggregate limit. Also, any new
stock options will be granted under the 2001 Plan.
In October 2002, the Board of Directors approved an amendment to the 2001
Plan to increase available shares by 30,000,000 shares, so that the aggregate
number of shares authorized for issuance under both the 1999 Plan and the 2001
Plan will be 90,000,000 shares. However, this amendment was made subject to
shareholder approval and any grants with respect to these additional shares will
not be exercisable unless and until our shareholders approve the amendment. At
March 31, 2003, 295,322 shares had been issued under both plans upon exercise of
options, and 136,937 had been issued as restricted stock grants (net of
cancellations). Of the remaining 89,567,741 shares covered by the plans, as of
March 31, 2003 (assuming approval of Proposal No. 2), 48,000,722 were subject to
outstanding options (approximately 40% of which were vested) and 41,567,019
remained eligible for future grant. Of the 48,000,722 shares then subject to
outstanding options, the range of exercise prices was $1.105 to $23.0938 per
share.
41
The Option Plan Committee of the Board of Directors administers and
authorizes grants and awards under the 2001 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. If shareholders approve the
proposed amendment to allow option exchanges and repricing, then the terms of
any exchange offer or repricing would be determined by the Option Plan
Committee, and any new options would be issued under the 2001 Plan.
ADDITIONAL TERMS OF THE 1999 PLAN
The 1999 Plan was adopted in February 1999 and was most recently amended in
February 2001. As originally adopted in 1999, the 1999 Plan provided for the
issuance of up to 25,009,798 membership interests in Charter Communications
Holding Company, LLC, subject to reductions and to adjustment for certain
events, to eligible participants as described below. However, effective February
12, 2001, upon the Company's adoption of the 2001 Plan, the Company's Board of
Directors determined that all future stock option grants would be made pursuant
to the 2001 Plan. Accordingly, the Board, acting on its own behalf and as
manager of Charter Communications Holding Company, LLC, reduced the number of
shares covered by the 1999 Plan as of February 12, 2001 by 3,905,709 membership
interests, and provided for further reductions if and to the extent there are
subsequent forfeitures, cancellations and terminations under the 1999 Plan.
Consequently, the number of membership interests covered by the 1999 Plan has
changed and is expected to continue to change, and no new options may be granted
under the 1999 Plan. At March 31, 2003, an aggregate of 15,738,126 membership
interests were covered by the 1999 Plan, of which 295,322 had been issued
pursuant to already exercised options and 15,442,804 were subject to then
outstanding options.
Under the terms of the 1999 Plan, membership units acquired as a result of
the exercise of options will be exchanged automatically for shares of the
Company's Class A common stock on a one-for-one basis. The plan provides for
grants of options to current and prospective employees and consultants of
Charter Communications Holding Company, LLC and its affiliates (including the
Company) and current and prospective non-employee directors of the Company. The
plan is intended to promote the long-term financial interests of Charter
Communications Holding Company, LLC and its affiliates, including the Company,
by encouraging eligible individuals to acquire an ownership position in the
Company and providing incentives for performance. The options expire after 10
years from the date of grant. Under the plan, the plan administrator has the
discretion to accelerate the vesting of any options. Options are granted at fair
market value, which is determined by averaging the high and low sales prices on
the grant date. Because the 1999 Plan has been amended to transfer to the 2001
Plan any shares not subject to outstanding options and any shares covered by
options that are terminated under the 1999 Plan, there are no options available
for future grant under the 1999 Plan and no persons are eligible to receive
additional grants. At March 31, 2003, there were approximately 8,925 holders of
options under the 1999 Plan.
Any unvested options issued under the 1999 Plan vest immediately upon a
change of control of Charter Communications Holding Company, LLC. Options will
not vest upon a change of control, however, to the extent that any such
acceleration of vesting would result in the disallowance of specified tax
deductions that would otherwise be available to Charter Communications Holding
Company, LLC or any of its affiliates or to the extent that any optionee would
be liable for any excise tax under a specified section of the tax code. Under
the 1999 Plan, a change of control includes (a) a sale of more than 49.9% of the
outstanding membership units in Communications Holding Company, LLC, except
where Mr. Allen and his affiliates retain effective voting control of Charter
Communications Holding Company, LLC; (b) a merger or consolidation of Charter
Communications Holding Company, LLC with or into any other corporation or
entity, except where Mr. Allen and his affiliates retain effective voting
control of Charter Communications Holding Company, LLC; or any other transaction
or event, including a sale of the assets of Charter Communications Holding
Company, LLC, that results in Mr. Allen holding less than 50.1% of the voting
power of the surviving entity,
42
except where Mr. Allen and his affiliates retain effective voting control of
Charter Communications Holding Company, LLC.
If an optionee's employment with or service to Charter Communications
Holding Company, LLC or its affiliates is terminated other than for cause, death
or disability, the optionee has the right to exercise any vested options within
60 days of the termination of employment (or, if applicable, 60 days following
the end of any ensuing severance period). After this 60-day period, all vested
and unvested options held by the optionee are automatically canceled. If an
optionee's employment or service is terminated for cause, any unexercised
options are automatically canceled. If an optionee's employment is terminated
because of death or disability, the option can be exercised until the first
anniversary of the optionee's death or disability, with any options not so
exercised being automatically canceled.
ADDITIONAL TERMS OF THE 2001 PLAN
The principal provisions of the 2001 Plan are summarized below. This
summary, however, does not purport to be complete and is qualified in its
entirety by reference to the provisions of the 2001 Plan. Terms not defined
herein shall have the meanings set forth in the 2001 Plan, which has been filed
electronically with the SEC as a separate appendix to this Proxy Statement.
Administration; Amendment and Termination of the Plan
The 2001 Plan is administered by at least one committee, which would
consist of one or more directors and could consist of the entire Board of
Directors. If the committee consists of less than the entire Board, then with
respect to any option or award to an individual who is subject to Section 16 of
the Securities Exchange Act of 1934, the committee would consist of at least two
directors, each of whom shall be a non-employee director, and to the extent
necessary for any option or award under the 2001 Plan to qualify as performance-
based compensation for the purposes of Section 162(m) of the Internal Revenue
Code, the committee would consist of at least two directors, each of whom would
be an outside director.
Unless sooner terminated by the Board, the 2001 Plan terminates on February
12, 2011, and no option or award can be granted thereafter. The Board of
Directors may sooner terminate the plan and the Board may at any time and from
time to time amend, modify or suspend the plan, but it could not impair or
adversely alter any options or awards theretofore granted under the plan, except
with the consent of the optionee or grantee. To the extent necessary under any
applicable law, regulation or exchange requirement, no amendment would be
effective unless approved by the shareholders of the Company.
Each option and award under the 2001 Plan is evidenced by an agreement that
sets forth the terms of the grant. Under the 2001 Plan, the committee has the
authority to, among other things: (i) select the individuals to whom options and
awards will be granted, (ii) determine the type, size and the terms and
conditions of options and awards, and (iii) establish the terms for treatment of
options and awards upon a termination of employment.
Shares Available for Issuance
As originally adopted in 2001, the 2001 Plan covered 38,895,911 authorized
and unissued shares to be available for the grant of options to eligible
individuals, subject to an increase of up to 21,068,102 shares as a result of
forfeitures, cancellations and terminations under the 1999 Plan. Through March
31, 2003, an additional 5,365,963 shares have been added to the 2001 Plan as a
result of forfeitures, cancellations and forfeitures under the 1999 Plan. Thus,
as of March 31, 2003, the 2001 Plan covers 44,261,874 shares, and shall be
automatically increased from time to time by an aggregate of up to 15,442,804
shares if and to the extent there are additional forfeitures, cancellations and
terminations under the existing 1999 Plan.
In October 2002, the Board approved the proposed amendment to the 2001 Plan
to increase available shares by 30,000,000 shares, subject to the shareholder
approval sought at the Annual Meeting. Accordingly, the proposed amendment would
increase the 44,261,874 available shares to 74,261,874 shares. Of the 44,261,874
shares covered by the 2001 Plan as of March 31, 2003, 136,937 have been issued
pursuant to grants
43
of restricted stock (net of cancellations), 32,557,918 were subject to then
outstanding options and 11,567,019 were available for future grants (without
giving effect to the proposed 30,000,000 share increase).
In the event of any change in capitalization, however, the committee may
adjust the maximum number and class of shares with respect to which options and
awards may be granted, the number and class of shares which are subject to
outstanding options and awards and the purchase price thereof.
Eligibility
Employees (including future employees who have received a written offer of
employment), officers, consultants and directors of the Company and its
subsidiaries and affiliates are eligible to receive awards of options, stock
appreciation rights, dividend equivalent rights, performance units and
performance shares, share awards, phantom stock and restricted stock. However,
the eligibility of employees represented by a collective bargaining
representative is to be determined through good faith negotiations between the
Company and such employees' representative and/or by the express terms of any
collective bargaining agreement governing those employees. The presently
eligible group comprises approximately 17,300 persons.
Stock Options
The per share exercise price of an option granted under the 2001 Plan will
be determined by the committee at the time of grant and set forth in the option
agreement, provided that the purchase price per share must not be less than 100%
of the fair market value of the Class A common stock of the Company subject to
the option at the date of grant. Options will be exercisable 25% on each of the
first four anniversaries following the grant date unless the committee
determines otherwise. The committee reserves the authority to accelerate the
exercisability of any option at any time. Each option terminates at the time
determined by the committee provided that the term of each option generally may
not exceed 10 years.
Options are not transferable except by will or the laws of descent and
distribution or pursuant to a domestic relations order. Options may be exercised
during the optionee's lifetime only by the optionee or his guardian or legal
representative. The committee may, however, provide in the option agreement, at
the time of grant or at any time thereafter, that the option may be transferred
to members of the optionee's immediate family, to trusts solely for the benefit
of such immediate family members and to partnerships in which such family
members and/or trusts are the only partners. In the discretion of the committee,
the purchase price for shares may be paid (i) in cash, (ii) by transferring
shares to the Company (provided such shares have been held by the optionee for
at least six months prior to the exercise of the option or such lesser period as
permitted by the committee in its discretion), or (iii) by a combination of the
foregoing or such other methods as determined by the committee in its
discretion. In addition, options may be exercised through a registered
broker-dealer pursuant to such cashless exercise procedures which are, from time
to time, deemed acceptable by the committee.
If an optionee's employment with or service to the Company or its
affiliates is terminated other than for cause, death or disability, the optionee
has the right to exercise any vested options within 60 days of the termination
of employment (or, if applicable, 60 days following the end of any ensuing
severance period). After this 60-day period, all vested and unvested options
held by the optionee are automatically canceled. If an optionee's employment or
service is terminated for cause, any unexercised options are automatically
canceled. If an optionee's employment is terminated because of death, the option
can be exercised until the first anniversary of the optionee's death, or if
terminated because of retirement or disability, until the second anniversary of
the event, with any options not so exercised being automatically canceled.
Stock Appreciation Rights ("SARs")
The 2001 Plan permits the granting of SARs either in connection with the
grant of an option or as a freestanding right. An SAR permits a grantee to
receive upon exercise of the SAR, cash and/or shares, at the discretion of the
Committee, in an amount equal in value to the excess, if any, of the then per
share fair market value over the per share fair market value on the date that
the SAR was granted (or option exercise price in the case of an SAR granted in
connection with an option). When an SAR is granted, however, the
44
committee may establish a limit on the maximum amount a grantee may receive upon
exercise. The committee will decide at the time the SAR is granted, the date or
dates at which it will become vested and exercisable. No SARs have been granted
under the 2001 Plan.
Dividend Equivalent Rights ("DERs")
DERs represent a right to receive all or some portion of the cash dividends
that are or would be payable with respect to shares. DERs may be granted in
tandem with any award under the 2001 Plan and may be payable currently or
deferred until the lapsing of the restrictions on the DERs or until the vesting,
exercise, payment, settlement or other lapse of restrictions on the related
award. DERs may be settled in cash or shares or a combination thereof, in a
single or multiple installments, as the committee determines. No DERs have been
granted under the 2001 Plan.
Restricted Stock
Of the total number of shares allotted under the 2001 Plan, no more than
3,000,000 of the allotted shares may be used for grants of restricted stock. The
committee will determine the terms of each restricted stock award at the time of
grant, including 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. In addition, at the time of grant, the committee, in
its discretion, may decide: (i) whether any deferred dividends will be held for
the account of the grantee or deferred until the restrictions thereon lapse,
(ii) whether any deferred dividends will be reinvested in additional shares or
held in cash, (iii) whether interest will be accrued on any dividends not
reinvested in additional shares of restricted stock and (iv) whether any stock
dividends paid will be subject to the restrictions applicable to the restricted
stock award. 256,000 shares of restricted stock have been granted under the plan
as of March 31, 2003, of which 79,603 are currently vested, 57,334 remain
subject to vesting and 119,063 have been cancelled prior to vesting.
Performance Units and Performance Shares
Performance units and performance shares will be awarded as the committee
may determine, and the vesting of performance units and performance shares will
be based upon specified performance objectives to be determined by the committee
among the following: revenue, net income, operating income, earnings, net
earnings, share price, cash flow, earnings before interest, taxes, depreciation
and amortization (EBITDA), total shareholder return, total shareholder return
relative to peers, financial returns (including, without limitation, return on
assets, return on equity and return on investment), cost reduction targets,
customer satisfaction, customer growth, employee satisfaction, pre-tax profits,
net earnings, or any combination of the foregoing. Performance objectives (and
underlying business criteria, as applicable) may be in respect of: (i) the
performance of the Company, (ii) the performance of any of its subsidiaries,
(iii) the performance of any of its divisions, (iv) a per share basis, (v) a per
subscriber basis, or (vi) any combination of the foregoing. Performance
objectives may be absolute or relative (to prior performance of the Company or
to the performance of one or more other entities or external indices) and may be
expressed in terms of a progression within a specified range. The formula for
determining performance objectives may include or exclude items to measure
specific objectives, such as losses from discontinued operations, extraordinary,
unusual or non-recurring gains and losses, the cumulative effect of accounting
changes, acquisitions or divestitures, core process redesigns, structural
changes/outsourcing, and foreign exchange impacts. The performance objectives
with respect to a performance cycle shall be established in writing by the
committee by the earlier of (x) the date on which a quarter of the performance
cycle has elapsed or (y) the date which is 90 days after the commencement of the
performance cycle, and in any event while the performance relating to the
performance objectives remains substantially uncertain.
Upon granting performance units or performance shares, the committee may
provide, to the extent permitted under Section 162(m) of the Internal Revenue
Code, the manner in which performance will be measured against the performance
objectives, or may adjust the performance objectives as set forth above.
Performance units may be denominated in dollars or in shares, and payments in
respect of performance units will be made in cash, shares, shares of restricted
stock or any combination of the foregoing, as determined by
45
the committee. The agreement evidencing the award of performance shares or
performance units will set forth the terms and conditions thereof, including
those applicable in the event of the grantee's termination of employment. The
maximum dollar amount that an individual may receive in any one calendar year in
respect of performance units denominated in dollars may not exceed $15 million.
No performance units or performance shares have been granted under the 2001
Plan.
Other Stock-Based Awards; Phantom Stock
The committee may, in its discretion, grant other share awards to any
eligible individual on such terms and conditions as the committee may determine
in its sole discretion. Share awards may include grants of phantom stock. Upon
the vesting of a phantom stock award, the grantee shall be entitled to receive a
cash payment in respect of each share of phantom stock which shall be equal to
the fair market value of a share as of the date the phantom stock award was
granted, or such other date as determined by the committee in its discretion at
the time the phantom stock award was granted. The committee may, in its
discretion, at the time a phantom stock award is granted, provide a limitation
on the amount payable in respect of each share of phantom stock. In lieu of a
cash payment, the committee may, in its discretion, settle phantom stock awards
with shares having a fair market value equal to the cash payment to which the
grantee has become entitled. No phantom stock or other share awards as described
above have been granted under the 2001 Plan.
Change in Control
If an optionee's or grantee's employment is terminated without "cause" or
for "good reason" during the 12-month period following a "change in control" (as
those terms are defined in the 2001 Plan), unless otherwise provided in an
agreement, with respect to such optionee's or grantee's awards under the 2001
Plan, all outstanding options will become immediately and fully exercisable, all
outstanding SARs will become immediately and fully exercisable, the restrictions
on the outstanding restricted stock will lapse, and all or a portion of the
outstanding performance units will vest and the restrictions on all or a portion
of the outstanding performance shares will lapse. Upon a change of control, the
committee can shorten the exercise period, have the survivor or successor entity
assume the options, or cancel options and pay out in cash. Benefits to an
optionee or grantee under the 2001 Plan will be reduced to the extent necessary
to prevent any portion of such benefits from being subject to excise taxes under
Section 280G of the Internal Revenue Code as described below, if to do so would
result in the optionee or grantee retaining a larger amount, on an after-tax
basis, taking into account the excise and income taxes imposed on parachute
payments.
Under the 2001 Plan, a change of control occurs: (a) in the event of an
acquisition by any person of beneficial ownership of more than 50% of the
outstanding voting securities of the Company; (b) if at least one-half of the
Board of Directors ceases to be made up of those individuals who are directors
as of February 12, 2001; or (c) upon the consummation of a merger, consolidation
or reorganization with or into the Company in which securities of the Company
are issued, except for certain transactions, including, among other things, a
merger where the Company's shareholders own more than 50% of the surviving
corporation or constitute a majority of the board of the surviving corporation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the principal federal
income tax consequences under current law relating to options and awards granted
to employees under the 1999 Plan and the 2001 Plan. The summary is not intended
to be exhaustive and, among other things, does not describe state, local or
foreign income and other tax consequences.
Stock Options
An optionee will not recognize any taxable income upon the grant of a
non-qualified stock option and the Company will not be entitled to a tax
deduction with respect to such grant. Generally, upon exercise of a non-
qualified option, the excess of the fair market value of a share on the date of
exercise over the exercise price will be taxable as ordinary income to the
optionee. If the Company complies with applicable income reporting
46
requirements, the Company will be entitled to a federal income tax deduction in
the same amount and at the same time as the optionee recognizes ordinary income,
subject to any deduction limitation under Section 162(m) of the Internal Revenue
Code (which is discussed below). The subsequent disposition of shares acquired
upon the exercise of a non-qualified option will ordinarily result in capital
gain or loss, provided that any gain will be subject to reduced tax rates if the
shares have been held for more than twelve months.
If an option is exercised through the use of shares previously owned by the
holder, such exercise generally will not be considered a taxable disposition of
the previously owned shares and thus no gain or loss will be recognized with
respect to such shares upon such exercise.
Generally, an exchange of non-qualified options or a reduction in their
exercise price should not result in taxable income to the optionee or a tax
deduction for the Company.
Special rules may apply in the case of an optionee who is subject to
Section 16 of the Exchange Act.
Stock Appreciation Rights
Generally, a grantee will not recognize any taxable income upon the grant
of a stock appreciation right and the Company will not be entitled to a tax
deduction with respect to such grant. The amount of any cash (or the fair market
value of any shares) received upon the exercise of a stock appreciation right
under the 2001 Plan will be includible in the grantee's ordinary income. If the
Company complies with applicable income reporting requirements, the Company will
be entitled to a federal income tax deduction in the same amount and at the same
time as the grantee recognizes ordinary income, subject to any deduction
limitation under Section 162(m) of the Internal Revenue Code (which is discussed
below).
Restricted Stock
A grantee will not recognize taxable income upon the grant of restricted
stock, and the recognition of any income will be postponed until the restricted
stock is no longer subject to the restriction or the risk of forfeiture. When
either the restrictions or the risk of forfeiture lapses, the grantee will
recognize ordinary income equal to the fair market value of the restricted stock
at the time that such restrictions lapse and the amount paid, if any, for such
shares. A grantee may elect to be taxed at the time of the grant of restricted
stock pursuant to Section 83(b) of the Internal Revenue Code and, if this
election is made, the grantee will recognize ordinary income equal to the excess
of the fair market value of the restricted stock at the time of grant
(determined without regard to any of the restrictions thereon) over the amount
paid, if any, by the grantee for such shares. If the Company complies with
applicable income reporting requirements, the Company will be entitled to a
federal income tax deduction in the same amount and at the same time as the
grantee recognizes ordinary income, subject to any deduction limitation under
Section 162(m) of the Internal Revenue Code (which is discussed below).
Performance Shares and Performance Units
Generally, a grantee will not recognize any taxable income and the Company
will not be entitled to a deduction upon the award of performance share or
performance units. At the time performance shares vest or the grantee receives a
distribution with respect to performance units, the fair market value of the
vested shares or the amount of any cash or shares received in payment for such
awards generally is taxable to the grantee as ordinary income. If the Company
complies with applicable income reporting requirements, the Company will be
entitled to a federal income tax deduction in the same amount and at the same
time as the grantee recognizes ordinary income, subject to any deduction
limitation under Section 162(m) of the Internal Revenue Code (which is discussed
below).
Share Awards and Phantom Stock Awards
Unless subject to restriction or risk of forfeiture (with respect to which
an election under Section 83(b) of the Internal Revenue Code (discussed above)
is not made), a grantee will generally recognize ordinary income upon the grant
of a share award equal to the difference between the fair market value of the
shares
47
awarded under the share award and the amount paid, if any, for the shares. A
grantee generally will not recognize taxable income with respect to a phantom
stock award until the phantom stock award is no longer subject to restriction or
risk of forfeiture, at which time the grantee will recognize ordinary income
equal to the amount of cash, or the fair market value (as designated by the
committee) of shares, received. If the Company complies with applicable income
reporting requirements, the Company will generally be entitled to a federal
income tax deduction with respect to a share award or a phantom stock award in
the same amount and at the same time as the grantee recognizes ordinary income,
subject to any deduction limitation under Section 162(m) of the Internal Revenue
Code (which is discussed below).
Dividend Equivalent Rights
Generally, a grantee will not recognize any taxable income upon the grant
of a dividend equivalent right and the Company will not be entitled to a tax
deduction with respect to such grant. A grantee recognizes ordinary income with
respect to dividend equivalent rights in an amount equal to any cash received or
the fair market value of any shares received in settlement of the dividend
equivalent rights. If the Company complies with applicable income reporting
requirements, the Company will be entitled to a federal income tax deduction in
the same amount and at the same time as the grantee recognizes ordinary income,
subject to any deduction limitation under Section 162(m) of the Internal Revenue
Code (which is discussed below).
Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code generally disallows a federal
income tax deduction to any publicly held corporation for compensation paid in
excess of $1 million in any taxable year to the chief executive officer or any
of the four other most highly compensated executive officers who are employed by
the corporation on the last day of the taxable year, but does allow a deduction
for "performance-based compensation." The Company has structured and intends to
implement and administer the 2001 Plan so that compensation resulting from
options, SARs and performance awards can qualify as "performance-based
compensation." The committee, however, has the discretion to grant such options
and awards with terms that will result in the options and awards not
constituting performance-based compensation. To allow the Company to qualify
such compensation, the Company is seeking shareholder approval of the 2001 Plan
and the material terms of the performance goals applicable to performance awards
under the 2001 Plan.
Section 280G of the Internal Revenue Code
Under certain circumstances, the accelerated vesting or exercise of options
or stock appreciation rights, or the accelerated lapse of restrictions with
respect to other awards, in connection with a change of control of the Company
might be deemed an "excess parachute payment" for purposes of the golden
parachute tax provisions of Section 280G of the Internal Revenue Code. To the
extent it is so considered, the optionee or grantee may be subject to a 20%
excise tax and the Company may be denied a federal income tax deduction.
Benefits to an optionee or grantee under the 2001 Plan will be reduced to the
extent necessary to prevent any portion of such benefits from being subject to
excise taxes, if to do so would result in the optionee or grantee retaining a
larger amount, on an after-tax basis, taking into account the excise and income
taxes imposed on parachute payments.
48
PROPOSAL NO. 4: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS
(ITEM 4 ON PROXY CARD)
The Audit Committee of the Board of Directors has appointed KPMG LLP
("KPMG") as the Company's independent public accountants for 2003. Shareholder
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 shareholder 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 Charter that impairs KPMG's status
as independent accountants with respect to Charter within the meaning of the
Federal securities laws and the requirements of the Independence Standards
Board.
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.
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 regulationregulations 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
metcomplied with during the 2003 fiscal year, ended December 31,
2002, with the exception of aexcept that one Form 4 due July 11, 2002,(Statement of
Changes in Beneficial Ownership) to report the exercise of stock put options to
Mr. Allen was inadvertently filed on behalf of our
director, Ronald Nelson, that was filed late in connection with a single
transaction.
SHAREHOLDERlate.
STOCKHOLDER PROPOSALS FOR 20042005 ANNUAL MEETING
If you want to include a shareholderstockholder proposal in the proxy statement for
the 20042005 annual meeting, it must be delivered to the Company's Secretary at the Company's
executive offices no later than February 26, 2004.28, 2005. The federal proxy rules
specify what constitutes timely submission and whether a shareholderstockholder proposal is
eligible to be included in the proxy statement. ShareholderStockholder nominations of
directors are not shareholderstockholder proposals within the meaning of Rule 14a-8 and are
not eligible for inclusion in the Company's proxy statement.
If a shareholderstockholder desires to bring business before the meeting whichthat is not
the subject of a proposal timely and properly submitted for inclusion in the
proxy statement, the shareholderstockholder must follow procedures outlined in the
Company's By-Laws.Bylaws. One of the procedural requirements in the By-LawsBylaws is timely
notice in writing of the business the shareholderstockholder proposes to bring before the
meeting. To be timely with respect to the 20042005 annual meeting, such a notice
must be delivered to the Company's Secretary at the Company's executive offices
no earlier than April 16, 200414, 2005 and no later than May 11, 2004.14, 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 shareholderstockholder
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.
49
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 shareholderstockholder may have in that business; and (3) certain information
regarding the shareholderstockholder making the proposal. These requirements are separate
from the requirements a shareholderstockholder 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 shareholderstockholder 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
isamendments 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).
44
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
THE COMPANY'SOUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 20022003 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 2002CHARTER 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 COMPANY FINANCIAL AND OTHER RELATED INFORMATION, WHICH
IS REQUIRED TO BE FURNISHED TO COMPANY SHAREHOLDERS,OUR STOCKHOLDERS, IS PROVIDED TO SHAREHOLDERSSTOCKHOLDERS
CONCURRENTLY WITH THIS PROXY STATEMENT IN OUR 20022003 ANNUAL REPORT. THE COMPANYWE WILL
DELIVER ONLY ONE COPY OF ITSOUR PROXY STATEMENT AND 20022003 ANNUAL REPORT TO MULTIPLE
SECURITY HOLDERS SHARING AN ADDRESS UNLESS THE COMPANY HASWE 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 ORPLEASE 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 THE COMPANYUS
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 SHAREHOLDER.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.
5045
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.
A-1
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 officeroffer 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;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,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.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 AuditNon-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.
A-3
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,
2003.2003, as amended June 18, 2004.
A-4
APPENDIX B
AMENDMENT FOUR
TO THE
CHARTER COMMUNICATIONS, INC.
2001 STOCK INCENTIVE PLAN
This Amendment (the "Amendment") to the Charter Communications Inc. 2001
Stock Incentive Plan, as amended through the date hereof (the "Plan"), is dated
as of October 29, 2002.
SECTION 4.1 OF THE PLAN IS HEREBY AMENDED TO REPLACE THE FIRST SENTENCE THEREOF
WITH THE FOLLOWING SENTENCE:
The maximum number of Shares that may be made the subject of Options
and Awards granted under the Plan is 68,895,911 plus up to 21,068,102
Shares based on forfeitures, cancellations and terminations under Charter
Communications Option Plan; provided, however, that in the aggregate, not
more than 3,000,000 of the number of allotted Shares may be made the
subject of Restricted Stock Awards under Section 10 of the Plan (other than
shares of Restricted Stock made in settlement of Performance Units pursuant
to Section 11.1(b).
The terms of the Plan (including the remainder of Section 4.1) shall remain
in full force and effect without modification or amendment except as expressly
set forth herein.
B-1
APPENDIX C
AMENDMENT FIVE
TO THE
CHARTER COMMUNICATIONS, INC.
2001 STOCK INCENTIVE PLAN
This Amendment to the Charter Communications, Inc. 2001 Stock Incentive
Plan, as amended through the date hereof (the "Plan"), is effective as of
January 27, 2003.
1. ARTICLE 5 OF THE PLAN IS HEREBY AMENDED BY ADDING THE FOLLOWING SECTION
AFTER SECTION 5.5:
SECTION 5.6 Option Repricing. Notwithstanding anything contained in
this Plan to the contrary, the Committee may, in its sole discretion,
approve an Option repricing. For the purposes of the preceding sentence, an
"Option repricing" shall 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, by any other method repricing or
replacing any outstanding Option, or taking any other action deemed to be a
"repricing" under the rules of the national securities exchange or other
market on which the Shares are listed or admitted to trading.
The terms of the Plan shall remain in full force and effect without
modification or amendment except as expressly set forth herein.
C-1
APPENDIX D
AMENDMENT FOUR
TO THE
CHARTER COMMUNICATIONS
1999 OPTION PLAN
This Amendment to the Charter Communications 1999 Option Plan as amended through
the date hereof (the "Plan"), is effective as of January 27, 2003.
1. Article 6 of the Plan is hereby amended by adding the following section
after Section 6.11:
Section 6.12 Option Repricing. Notwithstanding anything contained in the
Plan to the contrary, the Administrator may, in its sole discretion, approve
an Option repricing. For the purposes of the preceding sentence, an "Option
repricing" shall include reducing the Exercise Price of any outstanding
Option, permitting the cancellation, forfeiture or tender of outstanding
Options in exchange for other equity awards or for new Options with a lower
Exercise Price, by any other method repricing or replacing any outstanding
Option, or taking any other action deemed to be a "repricing" under the
rules of the national securities exchange or other market on which the
shares of common stock of the Public Company are listed or admitted to
trading.
The terms of the Plan shall remain in full force and effect without modification
or amendment except as expressly set forth herein.
D-1
Appendix E
[Note: Pursuant to Instruction 3 to Item 10 of Schedule 14A, the registrant is
filing this Appendix electronically with the Proxy Statement. However, this
Appendix is not a part of the Proxy Statement and is therefore not being
delivered to shareholders.]
CHARTER COMMUNICATIONS HOLDINGS, LLC
1999 OPTION PLAN
CHARTER COMMUNICATIONS HOLDINGS, LLC
1999 OPTION PLAN
TABLE OF CONTENTS
PAGE
----
SECTION 1 DEFINITIONS................................................. 1
SECTION 2 THE PLAN.................................................... 3
2.1 Name........................................................ 3
2.2 Purpose..................................................... 3
2.3 Intention................................................... 3
SECTION 3 ADMINISTRATION.............................................. 3
3.1 Administration.............................................. 3
3.2 Duties...................................................... 3
SECTION 4 PARTICIPATION............................................... 3
4.1 Eligibility................................................. 3
SECTION 5 MEMBERSHIP INTERESTS SUBJECT TO PLAN........................ 4
5.1 Membership Interests Available for Options.................. 4
5.2 Adjustments................................................. 4
SECTION 6 OPTIONS..................................................... 5
6.1 Option Grant
_____
This Proxy will be voted as specified. If no direction is made, this Proxy Please | |
will be voted FOR the director nominee, and Agreement.................................. 5
6.2 Transferability............................................. 5
6.3 Exercise Price.............................................. 6
6.4 Option Term................................................. 6
6.5 Vesting, Payment Upon Relocation of Headquarters, and
Repurchase of Options and Membership Interests............ 6
6.6 Method of Exercising Options; Withholding Tax............... 6
6.7 Rights in the Event of Termination Other Than for Cause..... 7
6.8 Rights in the Event of Termination For Cause................ 7
6.9 Rights in the Event of Death or Disability.................. 7
6.10 Rights in the Event of Termination For Any Other Reason..... 8
SECTION 7 MEMBERSHIP INTERESTS ISSUED PURSUANT UPON THE EXERCISE OF AN
OPTION.................................................... 8
7.1 Issuance of Certificates.................................... 8
7.2 Compliance with Securities and Other Laws................... 8
SECTION 8 TERMINATION, AMENDMENT AND MODIFICATION OF PLAN............. 9
8.1 Termination, Amendment and Modification of Plan............. 9
8.2 Plan Termination............................................ 9
8.3 Effect of Termination, Amendment or Modification of Plan.... 9
SECTION 9 OCCURRENCE OF INITIAL PUBLIC OFFERING....................... 9
SECTION 10 MISCELLANEOUS............................................... 9
10.1 No Employment Rights........................................ 9
10.2 Binding Effect.............................................. 9
10.3 Singular, Plural, Gender.................................... 9
10.4 Headings.................................................... 9
10.5 Effective Date.............................................. 9
10.6 Rights as Member............................................ 10
10.7 Applicable Law.............................................. 10
i
PLAN INTRODUCTION
The Plan is designed to advance the Company's interests by encouraging
Employees and Consultants of the Company and its Affiliates to acquire a
proprietary interest in the Company. It provides that Membership Interests
representing an aggregate of 10% of the aggregate equity value of the Company on
the date of the adoption of the Plan may be optioned to Employees and
Consultants of the Company and its Affiliates. All Employees and Consultants of
the Company are eligible to receive Options, but the Administrator is entitled
to select the individuals to whom such options actually will be granted.
Options granted under the Plan are nontransferable (other than by will or
the laws of descent and distribution, or except as authorized by the
Administrator) and may not be exercised more than ten years after the date they
are granted.
The Company will receive no cash consideration for granting Options under
the Plan. However, when an Option is exercised, the holder is required to pay
the Exercise Price for the Membership Interests of the Company to be issued
under the exercised Option.
The Plan will be administered by the Administrator and will terminate ten
years after the date it is adopted by the Board, unless earlier terminated by
the Administrator.
ii
CHARTER COMMUNICATIONS HOLDINGS, LLC
1999 OPTION PLAN
SECTION 1
DEFINITIONS
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Administrator" means the Board or the Committee, whichever shall be
administering the Plan from time to time in the discretion of the Board, as
described in Section 3 of the Plan.
(c) "Affiliate" means with respect to any person or entity, any other
person or entity who controls, is controlled by or is under common control with
such person or entity.
(d) "Allen" means Paul G. Allen, an individual, who is Chairman of the
board of directors of CCI.
(e) "Board" means the board of directors of the Company.
(f) "Cause" means the Optionee (i) has committed any crime, (ii) has
committed any act of fraud, embezzlement or gross dishonesty, (iii) has
committed any act of sex discrimination or sexual harassment under the
provisions of any Federal, state or local law, resulting in any of the above
cases in a material financial loss to the Company or damage to the reputation of
the Company, (iv) has refused to comply with the lawful directives of the Board
or of the Optionee's supervisors, within ten (10) days after written notice
thereof from the Board or the Company, or (v) has engaged in conduct which
constitutes gross negligence or willful misconduct, which conduct is not cured
within ten (10) days after written notice thereof from the Board or the Company.
(g) "CCI" shall mean Charter Communications, Inc., a Delaware corporation.
(h) "Change of Control" means a direct or indirect sale of more than 49.9%
of the outstanding Membership Interests of the Company, except where Allen and
his Affiliates retain effective voting control of the Company, the merger or
consolidation of the Company, with or into any other corporation or entity,
other than a wholly-owned subsidiary of the Company except where Allen and his
Affiliates have effective voting control of the surviving entity, or any other
transaction, or event, a result of which is that Allen holds less than 50.1% of
the voting power of the surviving entity, except where Allen and his Affiliates
retain effective voting control of the Company, or a sale of all or
substantially all of the assets of the Company (other than to an entity
majority-owned or controlled by Allen and his Affiliates).
(i) "Code" means the Internal Revenue Code of 1986, as amended.
(j) "Committee" means the Board or a committee appointed by the Board in
accordance with Section 3 of the Plan.
(k) "Company" means Charter Communications Holdings, LLC, a Delaware
limited liability company.
(l) "Consultant" means a person who is retained by the Company or any of
its Affiliates as a consultant, but not as an Employee.
(m) "Date of Grant" means the date as of which Options are granted to
Consultants and Employees as specified in the applicable Option Agreement.
(n) "Employee" means any person, including a manager of the Company, who is
employed by the Company or any Affiliate.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(p) "Exercise Price" means the price per membership interest of the
Membership Interests subject to each Option as provided in Section 6.3.
(q) "Fair Market Value" shall mean the fair market value of the Company (i)
as determined by the Administrator prior to the consummation of an Initial
Public Offering and (ii) according to the following formula from and after the
consummation of an Initial Public Offering: (A) the sum of (I) the total number
of outstanding shares of common stock of the Public Company, assuming the
exercise of all options, warrants or other similar rights held by any person to
purchase common stock of the Public Company, multiplied by the Share Value, plus
(II) the debt of the Public Company as reflected on its financial statements,
minus (III) the fair market value, as determined by the Administrator, of all
assets of the Public Company, including the exercise price of all options,
warrants, or similar rights deemed exercised under clause (I) of this sentence,
other than Membership Interests, divided by (B) the Percentage Interest of the
Membership Interests which the Public Company holds in the Company.
(r) "Initial Public Offering" means the consummation of a firm commitment
underwritten initial public offering pursuant to an effective registration
statement filed under the Act, covering the offer and sale of shares of common
stock of the Company's Parent or a successor corporation through which the
business of the Company will be carried out.
(s) "Kent" means Jerald L. Kent, an individual, who is President, Chief
Executive Officer and a director of the Company and CCI.
(t) "Member" means a member of the Company.
(u) "Membership Interest" means a membership interest in the Company.
(v) "Option" means an option to purchase a Membership Interest pursuant to
the provisions of this Plan.
(w) "Option Agreement" means the agreement described in Section 6.1 between
the Company and the Optionee under which the Optionee may purchase Membership
Interests hereunder.
(x) "Optionee" means an Employee or Consultant who receives an Option
pursuant to this Plan.
(y) "Option Spread" means with respect to each Option, an amount equal to
the product of (i) the excess of (a) the Exercise Price of such Option over (b)
the Fair Market Value (plus the Exercise Price of all options taken into account
in computing Percentage Interest) multiplied by the Percentage Interest per
Membership Interest with respect to such Option, and (ii) the number of
Membership Interests covered by such Option at the time of determination.
(z) "Option Term" means, with respect to an Option, the period of time
commencing on the date of the grant of such Option and ending on the date
immediately preceding the tenth anniversary thereof, subject to earlier
termination as provided herein, during which an Option may be exercised.
(aa) "Parent" means an Affiliate which is manager of, and/or the direct or
indirect owner of an excess of fifty percent (50%) of the equity interests in,
the Company.
(bb) "Percentage Interest" of an Option or Membership Interest means the
percentage interest that an exercise of such Option or possession of such
Membership Interest would give the Optionee in the Company assuming the exercise
of all Options held by all Optionees and the exercise of all options and
warrants held by any person to purchase Membership Interests.
(cc) "Plan" means the Charter Communications Holdings, LLC 1999 Option
Plan, the terms of which are set forth herein.
(dd) "Public Company" means the Parent or successor corporation to the
Company whose shares will be sold pursuant to the Initial Public Offering.
(ee) "Purchase Agreement" means that certain Purchase Agreement dated July
29, 1998 among Paul G. Allen, Charter Communications, Inc. and certain other
parties.
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(ff) "Share Value" means (i) upon the consummation of an Initial Public
Offering, the price per share of the common stock of the Public Company upon the
consummation of the Initial Public Offering, and (ii) after the consummation of
an Initial Public Offering, the average of the highest and lowest quoted selling
prices on the principal national securities exchange on which the common stock
of the Public Company is listed or admitted to trading, or, if not listed or
admitted to trading on any national securities exchange, as reported by the
NASDAQ Stock Market's National Market, on the day in question.
SECTION 2
THE PLAN
2.1 Name. This Plan shall be known as "Charter Communications Holdings,
LLC 1999 Option Plan."
2.2 Purpose. The purpose of this Plan is to advance the interests of the
Company and its Affiliates by affording Employees and Consultants of the Company
and its Affiliates an opportunity to acquire or increase their proprietary
interest in the Company by the grant to such individuals of Options under the
terms set forth herein. By thus encouraging such individuals to acquire or
increase their proprietary interest in the Company, the Company seeks to
attract, motivate and retain those highly competent individuals upon whose
judgment, initiative, leadership, and continued efforts the success of the
Company in large measure depends.
2.3 Intention. It is intended that all Options issued under this Plan will
be nonstatutory Options and the terms of this Plan shall be interpreted in
accordance with such intention.
SECTION 3
ADMINISTRATION
3.1 Administration. This Plan shall be administered initially by the
Board, although the Board, in its discretion and from time to time, may
designate a Committee as the Administrator in substitution for the Board, and
may redesignate itself as Administrator following the designation of a Committee
as Administrator. The Administrator will interpret this Plan, prescribe and
rescind rules and regulations relating to the administration of this Plan, and
make all other determinations necessary or advisable for the proper
administration of this Plan subject to the provisions of Sections 4.1, 5.2, 8.1
and 10.5. The Administrator may act at any time at a meeting duly held, or by
unanimous written consent, in accordance with the provisions of the Company's
operating agreement applicable to the proceedings of the Board or a Committee,
as the case may be. Notwithstanding the foregoing, from and after such time as
the Company or its Parent is subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, the Plan shall be administered by a Committee,
which will then consist solely of two or more persons who are "non-employee
directors" within the meaning of Rule 16b-3 promulgated under the Exchange Act
and "outside directors" within the meaning of Section 162(m) of the Code.
3.2 Duties. The interpretation and construction by the Administrator of
any provisions of this Plan, of any Option Agreement hereunder, or of any Option
granted thereunder, shall be final and binding on any Employee, Consultant or
Optionee, or any person claiming by or through an Employee, Consultant or
Optionee. No member of the Administrator shall be liable for any action, failure
to act, determination or interpretation made in good faith with respect to this
Plan, any Option Agreement issued hereunder or any Option granted thereunder.
SECTION 4
PARTICIPATION
4.1 Eligibility. The Optionees shall be those existing and prospective
Employees and Consultants to the Company or any Affiliate (collectively,
"Participants" and individually a "Participant") to whom Options may be granted
from time to time by the Administrator based upon the recommendation of Kent.
The
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Administrator shall designate, from time to time and based upon the
recommendation of Kent, the number of Options to be granted to each Participant.
SECTION 5
MEMBERSHIP INTERESTS SUBJECT TO PLAN
5.1 Membership Interests Available for Options. Subject to adjustment
pursuant to the provisions of Section 5.2 hereof, the total number of Membership
Interests which may be issued upon the exercise of all Options shall not exceed
25,009,798 Membership Interests, which shall be equal to the number of
Membership Interests representing an aggregate of 10% of the aggregate equity
value of the Company on the date of the adoption of this Plan. If any Option
shall expire or terminate for any reason without having been exercised in full,
new Options may be granted covering Membership Interests originally set aside
for the exercise of such expired or terminated Option. From and after such time
as the Company or its Parent is subject to the reporting requirements of
Sections 13 or 15(d) of the Exchange Act, no Optionee may receive grants during
any fiscal year of the Company or portion thereof, of Options which, in the
aggregate cover more than 15,000,000 Membership Interests, subject to adjustment
as provided in Section 5.2. If an Option expires or terminates for any reason
without having been exercised in full, the unrepurchased Membership Interests
subject to that expired or terminated Option will continue to count against the
maximum numbers of Membership Interests for which Options may be granted to an
Optionee during any fiscal year of the Company or its Parent or portion thereof.
5.2 Adjustments.
(a) Subject to any required action by the Board, Kent, and/or the Members,
the number of Membership Interests covered by the Plan as provided in Section
5.1 hereof, the number of Membership Interests covered by each outstanding
Option and the Exercise Price thereof shall be proportionately adjusted for any
increase or decrease in the number of issued Membership Interests resulting from
a subdivision or consolidation of Membership Interests or the distribution of
Membership Interests on Membership Interests without consideration.
Notwithstanding the foregoing, nothing in this Plan shall be interpreted to
provide dilution protection with respect to the Options or the number of
Membership Interests covered by the Plan in the event, and to the extent of any
additional equity contribution to the Company.
(b) Subject to the provisions of Section 5.2(d), and subject to any
required action by the Board, Kent, and/or the Members, if the Company shall
merge with another entity and the Company is the surviving entity in such merger
and under the terms of such merger the Membership Interests outstanding
immediately prior to the merger remain outstanding and unchanged, each
outstanding Option shall continue to apply to the Membership Interests subject
thereto and shall also pertain and apply to any additional securities and other
property, if any, to which a holder of the number of Membership Interests
subject to the Option would have been entitled as a result of the merger.
(c) If the Company shall merge with another entity and the Company is not
the surviving entity in such merger, and such merger does not constitute a
Change of Control, the Administrator may, in its discretion, do one or more of
the following: (i) shorten the period during which Options are exercisable
(provided they remain exercisable for at least 30 days after the date that
notice such shortening is given to the Optionees); (ii) accelerate any vesting
schedule to which an Option is subject; (iii) arrange to have the surviving or
successor entity assume the Options or grant replacement options with
appropriate adjustments in the option prices and adjustments in the number and
kind of securities issuable upon exercise or adjustments so that the Options or
their replacements represent the right to purchase the shares of stock,
securities or other property (including cash) as may be issuable or payable as a
result of such merger with respect to or in exchange for the number of
Membership Interests purchasable and receivable upon the exercise of the Options
had such exercise occurred in full prior to such merger; or (iv) with the prior
written consent of the Optionee (unless otherwise stated in such Optionee's
Option Agreement), cancel Options upon the payment to such Optionee in cash,
with respect to each Option to the extent then exercisable (including any
Options as to which the exercise has been accelerated as contemplated in clause
(ii) above), of any amount that is the equivalent of
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the Option Spread at the effective time of the merger. The Administrator may
also provide for one or more of the foregoing alternatives in any particular
Option Agreement.
(d) Notwithstanding any other provision contained in this Plan, in the
event of a Change of Control, any unvested Options issued under this Plan to any
Optionee shall immediately vest; provided, however, that to the extent that the
acceleration of the exercisability of Options would result in the disallowance
under Section 280G of the Code of tax deductions which would otherwise be
available to the Company or its Affiliates, or in liability of such Optionee or
any person obtaining rights in the Option under Section 6.2 for any excise tax
under Section 4999 of the Code, such unvested Options will not immediately vest
unless the Company receives prior written consent from the Optionee at least
thirty (30) days prior to the Change of Control. In the event of a Change of
Control, the Administrator may, in its discretion, do one or more of the
following: (i) shorten the period during which Options are exercisable (provided
they remain exercisable for at least 30 days after the date on which notice of
such shortening is given to the Optionees); (ii) arrange to have the surviving
or successor entity assume the Options or grant replacement options with
appropriate adjustments in the option prices and adjustments in the number and
kind of securities issuable upon exercise so that the Options or their
replacements represent the right to purchase the shares of stock, securities or
other property (including cash) as may be issuable or payable as a result of a
Change of Control with respect to or in exchange for the number of Membership
Interests purchasable and receivable upon the exercise of the Options had such
exercise occurred in full prior to such Change of Control, or (iii) cancel
Options upon the payment to the Optionee in cash, with respect to each Option to
the extent then exercisable (including any Options as to which the exercise has
been accelerated in accordance with this Section 5.2(d)), of an amount that is
the equivalent of the Option Spread at the effective time of the Change of
Control. The Administrator may also provide for one or more of the foregoing
alternatives in any particular Option Agreement.
(e) To the extent that the foregoing adjustments relate to securities of
the Company, such adjustments shall be made by the Administrator, whose
determination shall be conclusive and binding on all persons.
SECTION 6
OPTIONS
6.1 Option Grant and Agreement. Each Option grant shall be evidenced by a
written Option Agreement, dated as of the date of grant and executed by the
Company and the Optionee, which Option Agreement shall set forth the number of
Options granted, the Exercise Price, the Option Term, the vesting schedule of
such Options, and such other terms and conditions as may be determined
appropriate by the Administrator, provided that such terms and conditions are
consistent with the Plan. The Option Agreement shall incorporate this Plan by
reference and provide that any inconsistencies or disputes shall be resolved in
favor of the Plan language.
6.2 Transferability. An Option granted under the Plan shall, by its terms,
be non-transferable by the Optionee, either voluntarily or by operation of law,
other than by will or the laws of descent and distribution pursuant to a
qualified domestic relations order as defined in the Code, and shall be
exercisable during the Optionee's lifetime only by the Optionee, the Optionee's
executor, or, to the extent permitted by the Administrator or by the terms of
the Option Agreement, the spouse of the Optionee who obtained the Option
pursuant to such qualified domestic relations order described herein.
Notwithstanding the foregoing, to the extent that the Administrator so
authorizes at the time an Option is granted or amended, such Option may be
assigned, in connection with the Optionee's estate plan, in whole or in part,
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more of such
immediate family members. Rights under the assigned portion may be exercised by
the person or persons who acquire a proprietary interest in such Option pursuant
to the assignment. The terms applicable to the assigned portion shall be the
same as those in effect for the Option immediately before such assignment and
shall be set forth in such documents issued to the assignee as the Administrator
deems appropriate. For purposes of this Section 6.2, the term "immediate family"
means an individual's spouse, children, stepchildren, grandchildren and parents.
5
6.3 Exercise Price.
(a) The Exercise Price shall be equal to the Percentage Interest of such
Options multiplied by the Fair Market Value.
(b) Upon an Initial Public Offering and at all times thereafter, Membership
Interests shall be automatically exchanged for shares of the Public Company in
accordance with Section 9 of this Plan.
6.4 Option Term. The Option Term shall be determined by the Administrator,
subject to any limitations imposed by this Plan, but in any event shall not be
more than ten years from the date such Option is granted. Options may be subject
to earlier termination as provided in this Plan.
6.5 Vesting, Payment Upon Relocation of Headquarters, and Repurchase of
Options and Membership Interests. The vesting of each Option shall be as set
forth in the Option Agreement according to the following general guideline: (i)
with respect to Options granted by the Board on February 9, 1999, vesting shall
be as set forth in the February 9, 1999 Board resolution, and (ii) with regard
to all other Options, one fourth ( 1/4) shall become exercisable on the 15 month
anniversary (the "15 Month Anniversary") of the Date of Grant, and 1/45th of the
remaining Options shall become exercisable on each of the 45 months following
the 15 Month Anniversary, until all such Options are exercisable, provided,
however, that if an Initial Public Offering has not occurred, Options will only
be exercisable upon termination of employment for any reason other than for
Cause, or upon death or disability or immediately prior to the expiration of
such Option. If the Company shall relocate its existing Headquarters outside the
greater St. Louis, Missouri area on or before December 23, 2001 without the
prior written consent of Kent, or of Barry L. Babcock or Howard L. Wood if Kent
is not surviving at the time such consent is sought (a "Headquarters Breach"):
(a) unless otherwise provided in the Optionee's Option Agreement, with
respect to any Optionee who is a member of the corporate staff and is employed
and located at the St. Louis corporate headquarters and to whom Options have
been granted and who does not relocate, if less than 40% of the Options held by
such Optionee have vested, then for purposes of this paragraph (a) of Section
6.5, 40% of all Options held by such Optionee will be deemed to have vested.
With respect to such Optionee's Options which have vested or are deemed to have
vested pursuant to this paragraph (a) of Section 6.5, and which have not already
been exercised, the Company shall pay, to each such Optionee in full
satisfaction of such Option an amount equal to the greater of (I) the Option
Spread or (II) (A) if the Headquarters Breach occurs on or before December 23,
1999, an amount equal to three (3) times the annual base salary of such
Optionee, or (B) if the Headquarters Breach occurs thereafter but on or before
December 23, 2000, an amount equal to two (2) times the annual base salary of
such Optionee, or (C) if the breach occurs thereafter but on or before December
23, 2001, an amount equal to the annual base salary of such Optionee; and
(b) if any payment is made to any Optionee pursuant to paragraph (a) of
Section 6.5 above, then all Options granted to such Optionee shall be
automatically canceled.
6.6 Method of Exercising Options; Withholding Tax. Options shall be
exercised by a written notice, delivered to the Company at its principal office
in St. Louis, Missouri or such other address that may be designated by the
Company, specifying the number of Membership Interests to be purchased and
tendering payment in full for such Membership Interests. Payment may be tendered
in cash or by certified, bank cashier's or teller's check or by Membership
Interests (valued at Fair Market Value as of the date of tender), or some
combination of the foregoing or such other form of consideration which has been
approved by the Administrator, including any approved cashless exercise
mechanism. The right to deliver in full or partial payment of such Exercise
Price any consideration other than cash shall be limited to such frequency as
the Administrator shall determine in its absolute discretion. In the event all
or part of the Exercise Price is paid in Membership Interests, any excess of the
value of such Membership Interests over the Exercise Price will be returned to
the Optionee as follows: (i) any whole Membership Interest remaining in excess
of the Exercise Price will be returned in kind, and may be represented by one or
more Membership Interest certificates; and (ii) any partial Membership Interests
remaining in excess of the Exercise Price will be returned in cash.
In the event the Company determines that it is required to withhold state
or Federal income tax as a result of the exercise of an Option, as a condition
to the exercise thereof, the Optionee may be required to
6
make arrangements satisfactory to the Company to enable it to satisfy such
withholding requirements. Payment of such withholding requirements may be made,
in the discretion of the Administrator, (i) in cash, (ii) by delivery of
Membership Interests registered in the name of the Optionee, (iii) by the
Company not issuing such number of Membership Interests subject to the Option as
have a Fair Market Value at the time of exercising equal to the amount to be
withheld, (iv) withholding from other compensation due to the Optionee, or (v)
any combination of (i), (ii), (iii) and (iv) above.
6.7 Rights in the Event of Termination Other Than for Cause.
(a) In the event that an Optionee's employment or service as a Consultant
with the Company or its Affiliates is terminated prior to an Initial Public
Offering other than for Cause, the Optionee shall have (subject to Section 6.2
of the Plan) the right (but not the obligation, except as herein provided), for
a period (taking into account any earlier termination date provided by the Plan)
of thirty (30) days from such termination of employment or service to (i) put
vested Options to the Company, or Allen at Allen's option, at a purchase price
equal to the Option Spread and (ii) put all Membership Interests to the Company
(whether or not acquired on the exercise of an Option hereunder), or Allen at
Allen's option, held by the Optionee on the date of termination at a purchase
price equal to the Fair Market Value multiplied by the Percentage Interest of
the Membership Interests. In the event that the Optionee does not exercise its
rights to put all vested Options and Membership Interests as specified in this
Section 6.7, Allen or, at his option, the Company, shall have the right (but not
the obligation, except as herein provided), for a period (taking into account
any earlier termination date provided by the Plan) of sixty (60) days after
having received written notice that the Optionee will not put such Options and
Membership Interests to the Company, to pay to the Optionee with respect to all
vested Options (or underlying Membership Interests if such Options have been
exercised) held by such individual, the Option Spread as of the date of
termination (or the Fair Market Value multiplied by the Percentage Interest of
the Membership Interest if the Options have already been exercised). Any amounts
to be paid to an Optionee pursuant to this Section 6.7 shall be paid, at the
option of Allen or the Company, in cash or in the form of a ten (10) year note
bearing annual interest at a rate of at least six percent (6%) (any such greater
amount to be at the sole discretion of Allen or the Company as the case may be)
with the principal to be paid at the end of the tenth year, such payment to be
made within thirty (30) days after the end of the fiscal quarter in which the
call or put is exercised. Concurrent with any such payment, the Options shall be
canceled and the Membership Interests shall be transferred to Allen or the
Company, as the case may be.
(b) In the event that an Optionee's employment or service as a Consultant
with the Company and all of its Affiliates is terminated other than for Cause
subsequent to an Initial Public Offering, such Optionee shall have the right to
exercise any vested Options within sixty (60) days of the termination of
employment. After such sixty-day period, all unexercised vested or unvested
Options held by such individual shall automatically be canceled.
6.8 Rights in the Event of Termination For Cause. Notwithstanding the
foregoing, if an Optionee's employment or service is terminated for Cause, (a)
the Options not exercised prior to the termination are automatically canceled,
and (b) Allen, or, at his option, the Company, shall have the right (but not the
obligation), for a period of ninety (90) days following such termination for
Cause, to purchase all Membership Interests held by such Optionee (whether or
not acquired on the exercise of an Option granted hereunder) for a purchase
price equal to the Exercise Price at which the Optionee acquired the Membership
Interests, or the Optionee's purchase price for the Membership Interests if the
Membership Interests were not acquired on the exercise of an Option.
6.9 Rights in the Event of Death or Disability. In the event of an
Optionee's death or disability, (i) all vested Options may be exercised (by the
Optionee or in the case of death by the Optionee's estate or person who acquired
the right to exercise such Options by bequest or inheritance) until the earlier
of their expiration, or one (1) year after the date of the Optionee's death or
disability and any Options not so exercised shall automatically be canceled,
(ii) if an Initial Public Offering has not taken place as of the Optionee's date
of death or disability, the Optionee, (or in the case of death the Optionee's
estate or person who acquired the right to exercise such Options by bequest or
inheritance) may (A) put such Options to the Company, or Allen
7
at Allen's option, at a purchase price equal to the Option Spread and (B) put
all Membership Interests (whether or not acquired on the exercise of an Option
hereunder) held by the Optionee on the date of death or disability to the
Company, or Allen at Allen's option, at a purchase price equal to the Fair
Market Value multiplied by the Percentage Interest of the Membership Interests
for a period of thirty (30) days, and (iii) if an Initial Public Offering has
not taken place as of the Optionee's date of death or disability, and the
Optionee has not exercised its rights to put all vested Options and all
Membership Interests to the Company, or Allen at Allen's option, as specified in
Section 6.9(ii), Allen, or at his option, the Company, shall have the right, for
a period of sixty (60) days after having received written notice that the
Optionee will not exercise its rights as specified in Section 6.9(ii), to
purchase all vested Options held by such Optionee at a purchase price equal to
the Option Spread and all Membership Interests (whether or not acquired on the
exercise of an Option hereunder) held by the Optionee on the date of death or
disability at a purchase price equal to the Fair Market Value multiplied by the
Percentage Interests of such Membership Interests. All payments due to the
Optionee pursuant to this Section 6.9 shall be paid promptly in cash. All
unvested Options shall be canceled in the event of an Optionee's death or
disability.
6.10 Rights in the Event of Termination For Any Other Reason. Upon
termination for any reason, all unvested Options shall immediately be canceled
and the Optionee shall not be entitled to any payment therefor except as
expressly provided for herein. Except as expressly provided for in Sections
6.7(b) and 6.9 hereof, all vested Options shall be automatically canceled if not
exercised within ninety (90) days after such termination.
SECTION 7
MEMBERSHIP INTERESTS ISSUED
PURSUANT UPON THE EXERCISE OF AN OPTION
7.1 Issuance of Certificates. The Company shall not be required to issue
or deliver any certificate for Membership Interests purchased upon the exercise
of any Option, or any portion thereof, prior to fulfillment of all of the
following applicable conditions:
(a) The admission of such Membership Interests to listing on all stock
exchanges or markets on which the Membership Interests are then listed to the
extent such admission is necessary;
(b) The completion of any registration or other qualification of such
Membership Interests under any federal or state securities laws or under the
rulings or regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Board shall in its sole discretion deem
necessary or advisable, or the determination by the Board in its sole discretion
that no such registration or qualification is required;
(c) The obtaining of any approval or other clearance from any federal or
state governmental agency which the Board shall, in its sole discretion,
determine to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise of
the Option as the Board from time to time may establish for reasons of
administrative convenience.
Notwithstanding the foregoing, the Company shall not be obligated to issue or
deliver any certificates for Membership Interests purchased upon the exercise of
an Option or any portion thereof, unless required by Federal, or state law.
7.2 Compliance with Securities and Other Laws. In no event shall the
Company be required to sell, issue or deliver Membership Interests pursuant to
Options if in the opinion of the Board the issuance thereof would constitute a
violation by either the Optionee or the Company of any provision of any law or
regulation of any governmental authority or any securities exchange. As a
condition of any sale or issuance of Membership Interests pursuant to Options,
the Company may place legends on the Membership Interests, issue stop-transfer
orders and require such agreements or undertakings from the Optionee as the
Company may deem necessary or advisable to assure compliance with any such law
or regulation, including if the Company or its counsel deems it appropriate,
representations from the Optionee that the Optionee is acquiring the
8
Membership Interests solely for investment and not with a view to distribution
and that no distribution of the Membership Interests acquired by the Optionee
will be made unless registered pursuant to applicable federal and state
securities laws or unless, in the opinion of counsel to the Company, such
registration is unnecessary.
SECTION 8
TERMINATION, AMENDMENT AND MODIFICATION OF PLAN
8.1 Termination, Amendment and Modification of Plan. Subject to the
approval of Kent, the Administrator may from time to time, with respect to any
Options at the time outstanding or granted to Optionees, suspend or discontinue
the Plan or revise or amend it in any respect whatsoever; provided, that, any
such action shall not adversely affect in any manner Options then outstanding,
whether vested or not.
8.2 Plan Termination. Unless terminated earlier as provided in Section
8.1, the Plan shall terminate ten years from the date it is adopted by the Board
and no Option shall be granted under this Plan after such date.
8.3 Effect of Termination, Amendment or Modification of
Plan. Notwithstanding Sections 8.1 and 8.2, no termination, amendment or
modification of the Plan shall in any manner affect any Option theretofore
granted under the Plan without the consent of the Optionee or a person who shall
have acquired the right to exercise the Option by will or the laws of descent
and distribution.
SECTION 9
OCCURRENCE OF INITIAL PUBLIC OFFERING
From and after the occurrence of an Initial Public Offering, each
Membership Interest held as a result of an exercise of an Option will
automatically be exchanged into that number of shares of the common stock of the
Public Company determined by multiplying the Percentage Interest of such
Membership Interests by the Fair Market Value, and dividing by the Share Value.
Any shares of the common stock of the Public Company received by an Optionee in
exchange for Membership Interests shall be subject to purchase by Allen or the
Company in the same manner as Membership Interests upon the termination of the
employment or consulting relationship of the Optionee for cause as described in
Section 6.8. It is the intent of this Section 9 that an Optionee will receive
that number of shares of common stock of the Public Company necessary to provide
such Optionee with an aggregate economic benefit equal to the value of such
Optionee's Options and Membership Interests
SECTION 10
MISCELLANEOUS
10.1 No Employment Rights. Nothing in the Plan or in any Option granted
hereunder or in any Option Agreement relating thereto shall confer upon any
individual the right to continue in the employ or service of the Company or its
Affiliates.
10.2 Binding Effect. The Plan shall be binding upon the successors and
assigns of the Company.
10.3 Singular, Plural, Gender. Whenever used herein, except where the
context clearly indicates to the contrary, nouns in the singular shall include
the plural, and the masculine pronoun shall include the feminine gender.
10.4 Headings. Headings of the Sections hereof are inserted for
convenience and reference and constitute no part of the Plan.
10.5 Effective Date. This Plan shall be effective as of February 9, 1999,
subject to the approval of this Plan by the Board and Kent.
9
10.6 Rights as Member. An Optionee or transferee of an Option shall have
no rights as a Member with respect to any Membership Interests subject to such
Option prior to the purchase of such Membership Interests by exercise of such
Option as provided herein.
10.7 Applicable Law. This Plan and the Options granted hereunder shall be
interpreted, administered and otherwise subject to the laws of the State of
Delaware, without giving effect to the conflicts of laws provisions thereof.
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AMENDMENT NO. 1 TO THE
CHARTER COMMUNICATIONS HOLDINGS, LLC
1999 OPTION PLAN
This Amendment No. 1 (the "Amendment") to the Charter Communications
Holdings, LLC 1999 Option Plan (the "Plan"), made pursuant to action of the
Board of Directors of Charter Communications Holding Company, LLC, as assignee
of Charter Communications Holdings, LLC, and Kent (as defined in the Plan),
pursuant to Section 8.1 of the Plan, is dated as of November ___, 1999. The Plan
is hereby amended as follows:
1. Section 1 is amended by adding the definitions of "Exchange
Agreement" and "Public Company Value" and amending and restating the definition
of "Fair Market Value" in its entirety, as follows:
"(p) "Exchange Agreement" means that certain Exchange
Agreement to be entered into by and among the Public Company, CCI (now Charter
Investment, Inc.), Vulcan Cable III Inc. and Allen."
"(r) "Fair Market Value" means the fair market value of the
Company:
(1) as determined by the Administrator prior to the
consummation of an Initial Public Offering; and
(2) according to the following formula from and after
the consummation of an Initial Public Offering: (a) the Public Company Value,
divided by (b) the Percentage Interest of the Company represented by the Public
Company's Membership Interest."
"(ff) "Public Company Value" means either (a) if the
conditions set forth in Sections 2.2.1 and 2.2.2 of the Exchange Agreement are
satisfied, (x) the Share Value, multiplied by (y) the total number of
outstanding shares of common stock of the Public Company, assuming the exercise
of all options, warrants or other similar rights held by any person to purchase
common stock of the Public Company; or (b) if the conditions set forth in
Sections 2.2.1 and 2.2.2 of the Exchange Agreement are not satisfied, the amount
that would be distributed to the Public Company upon the liquidation of the
Company, as calculated in accordance with Section 2.3(b) of the Exchange
Agreement."
2. The remaining paragraph references included in Section 1 are hereby
amended as appropriate to provide for the addition of the definitions of
"Exchange Agreement" and "Public Company Value."
3. Section 8.3 is amended and restated in it entirety as follows:
"8.3 Effect of Termination, Amendment or Modification of Plan.
Notwithstanding Sections 8.1 and 8.2, no termination, amendment or modification
of the Plan shall in any manner affect adversely any Option theretofore granted
under the Plan without the consent of the Optionee or a person who shall have
acquired the right to exercise the Option by will or the laws of descent or
distribution."
The terms of the Plan shall remain in full force and effect without modification
or amendment except as expressly set forth herein.
AMENDMENT NO. 2 TO THE
CHARTER COMMUNICATIONS HOLDINGS, LLC
1999 OPTION PLAN
This Amendment No. 2 (the "Amendment") to the Charter Communications
Holdings, LLC 1999 Option Plan, as amended by Amendment No. 1 (the "Plan"), made
pursuant to action of the Board of Directors of Charter Communications Holding
Company, LLC as assignee of Charter Communications Holdings, LLC, pursuant to
Section 8.1 of the Plan, is dated as of March 28, 2000.
The Plan is hereby amended as follows:
1. The title of the Plan is hereby changed to "The Charter
Communications Option Plan."
2. Section 1(e) is amended as follows:
"Board" means the board of directors of the Company, provided
that from and after the date the Company or its parent completes an initial
public offering, it shall mean the board of directors of the Public Company."
3. A new section 6.11 is hereby added as follows:
"6.11 Fractional Shares. No fractional Membership Interests
shall be issued under the Plan. In the event that the exercise of options
results in the right of an Optionee to receive a fraction of a Membership
Interest, then the Company shall pay to the Optionee cash in lieu of such
fractional membership interest.
The terms of the Plan shall remain in full force and effect without modification
or amendment except as expressly set forth herein.
AMENDMENT NO. 3 TO THE
CHARTER COMMUNICATIONS
OPTION PLAN
(1999 Plan)
This Amendment to the Charter Communications Option Plan, as amended
through the date hereof (the "Plan"), is effective as of January 1, 2002.
1. Section 6.5 of the Plan is hereby amended by adding the following words
after the end of the penultimate sentence:
Unless the Committee provides otherwise in the Option Agreement, the
Option will vest only while the Optionee is an Employee or Consultant.
Notwithstanding the foregoing, the vesting of any Option shall continue
during the period the Optionee is receiving severance payments provided
Optionee enters into a release in the form acceptable to the Company.
2. Section 6.7(b) of the Plan is amended by adding the following words
after the end of the penultimate sentence:
or service as a Consultant, if later; provided however, that
exercisability shall continue with respect to an Optionee who is
receiving severance payment until sixty (60) days after severance
payments cease, provided Optionee enters into a release in the form
acceptable to the Company.
The terms of the Plan shall remain in full force and effect without modification
or amendment except as expressly set forth herein.
AMENDMENT No. 4 TO THE
CHARTER COMMUNICATIONS
OPTION PLAN
This Amendment to the Charter Communications Option Plan as amended
through the date hereof (the "Plan"), is effective as of January 27, 2003.
1. Article 6 of the Plan is hereby amended by adding the following section
after Section 6.11:
Section 6.12 Option Repricing. Notwithstanding anything
contained in the Plan to the contrary, the Administrator may, in its
sole discretion, approve an Option repricing. For the purposes of the
preceding sentence, an "Option repricing" shall include reducing the
Exercise Price of any outstanding Option, permitting the cancellation,
forfeiture or tender of outstanding Options in exchange for other
equity awards or for new Options with a lower Exercise Price, by any
other method repricing or replacing any outstanding Option, or taking
any other action deemed to be a "repricing" under the rules of the
national securities exchange or other market on which the shares of
common stock of the Public Company are listed or admitted to trading.
The terms of the Plan shall remain in full force and effect without modification
or amendment except as expressly set forth herein.
Appendix F
[Note: Pursuant to Instruction 3 to Item 10 of Schedule 14A, the registrant is
filing this Appendix electronically with the Proxy Statement. However, this
Appendix is not a part of the Proxy Statement and is therefore not being
delivered to shareholders.]
CHARTER COMMUNICATIONS, INC.
2001 STOCK INCENTIVE PLAN
(As Adopted February 12, 2001)
CHARTER COMMUNICATIONS, INC.
2001 STOCK INCENTIVE PLAN
1. Purpose.
The purpose of this Plan is to strengthen Charter
Communications, Inc., a Delaware corporation (the "Company"), by providing an
incentive to the employees, officers, consultants and directors of the Company,
its Subsidiaries and Affiliates and thereby encouraging them to devote their
abilities and industry to the success of the Company's business enterprise. It
is intended that this purpose be achieved by extending to employees (including
future employees who have received a written offer of employment), officers,
consultants and directors of the Company, its Subsidiaries and Affiliates an
added long-term incentive for high levels of performance and unusual efforts
through the grant of Nonqualified Stock Options, Stock Appreciation Rights,
Dividend Equivalent Rights, Performance Units and Performance Shares, Share
Awards, Phantom Stock and Restricted Stock (as each term is herein defined).
2. Definitions.
For purposes of the Plan:
2.1 "Affiliate" means, with respect to any person or
entity, any entity, directly or indirectly, controlled by, controlling or under
common control with such person or entity.
2.2 "Agreement" means the written agreement between the
Company and an Optionee or Grantee evidencing the grant of an Option or Award
and setting forth the terms and conditions thereof.
2.3 "Award" means a grant of Restricted Stock, Phantom
Stock, a Stock Appreciation Right, a Performance Award, a Dividend Equivalent
Right, a Share Award or any or all of them.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Cause" means:
(a) in the case of an Optionee or Grantee whose
employment with the Company or a Subsidiary is subject to the terms of an
employment agreement between
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such Optionee or Grantee and the Company or Subsidiary, which employment
agreement includes a definition of "Cause", the term "Cause" as used in this
Plan or any Agreement shall have the meaning set forth in such employment
agreement during the period that such employment agreement remains in effect;
and
(b) in all other cases, the Optionee or Grantee
(i) has committed any crime, (ii) has committed any act of fraud, embezzlement
or gross dishonesty, (iii) has committed any act of sex discrimination or sexual
harassment under the provisions of any Federal, state or local law, resulting in
any of the above cases in a material financial loss to the Company or damage to
the reputation of the Company, (iv) has refused to comply with the lawful
directives of the Board or of the Optionee's or Grantee's supervisors, within
ten (10) days after written notice thereof from the Board or the Company, or (v)
has engaged in conduct which constitutes gross negligence or willful misconduct,
which conduct is not cured within ten (10) days after written notice thereof
from the Board or the Company.
2.6 "Change in Capitalization" means any increase or
reduction in the number of Shares, or any change (including, but not limited
to, in the case of a spin-off, dividend or other distribution in respect of
Shares, a change in value) in the Shares or exchange of Shares for a different
number or kind of shares or other securities of the Company or another
corporation, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, issuance of warrants or
rights or debentures, stock dividend, stock split or reverse stock split,
property dividend, combination or exchange of shares, repurchase of shares,
change in corporate structure or otherwise.
2.7 A "Change in Control" shall mean the occurrence of
any of the following:
(a) An acquisition of any voting securities of
the Company by any "Person" or "Group" (as those terms are used for purposes of
Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person
has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of fifty percent (50%) or more of the combined voting power of
the Company's then outstanding voting securities; provided, however, in
determining whether a Change in Control has occurred pursuant to this Section
2.7(a), Shares or voting securities which are acquired in a "Non-Control
Acquisition" (as hereinafter defined) shall not constitute an acquisition which
would cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a trust forming a part thereof)
maintained by (A) the Company or (B) any Subsidiary or Affiliate of the Company,
(ii) the Company or any Subsidiary or Affiliate of the Company, or (iii) any
Person in connection with a "Non-Control Transaction" (as hereinafter defined);
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(b) The individuals who, as of February 12,2001
are members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least one half of the members of the Board or, following a Merger
which results in a Parent Corporation, the board of directors of the Parent
Corporation (as defined in paragraph (c)(i)(A) below); provided, however, that
if the election, or nomination for election by the Company's common
stockholders, of any new director was approved by a vote of at least one half of
the Incumbent Board, such new director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board; provided further, however, that
no individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or
reorganization with or into the Company or in which securities of the Company
are issued (a "Merger"), unless such Merger is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a Merger where:
(A) (1) the stockholders of the
Company, immediately before such Merger own directly or indirectly immediately
following such Merger more than fifty percent (50%) of the combined voting power
of the outstanding voting securities of (x) the corporation resulting from such
Merger (the "Surviving Corporation"), or (y) if any Person or Group, directly or
indirectly, owns fifty percent (50%) or more of the combined voting power of the
then outstanding voting securities of the Surviving Corporation (such Person or
Group a "Parent Corporation"), the Parent Corporation; and,
(2) the individuals who were
members of the Incumbent Board immediately prior to the execution of the
agreement providing for such Merger constitute at least a majority of the
members of the board of directors of (x) the Surviving Corporation, or (y) the
Parent Corporation, if the Parent Corporation, directly or indirectly, owns
fifty percent (50%) or more of the combined voting power of the then outstanding
voting securities of the Surviving Corporation; and
(3) no Person other than (a) the
Company, (b) any Subsidiary or Affiliate of the Company, (c) any employee
benefit plan (or any trust forming a part thereof) that, immediately prior to
such Merger was maintained by the Company or any Subsidiary or Affiliate of the
Company, or (d) any Person who, immediately prior to such Merger had Beneficial
Ownership of fifty percent (50%) or more of the then outstanding voting
securities or Shares, has Beneficial Ownership of fifty percent (50%) or more of
the combined voting power of the outstanding voting
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securities or common stock of (x) the Surviving Corporation, or (y) the Parent
Corporation, if the Parent Corporation, directly or indirectly, owns 50% or more
of the combined voting power of the then outstanding voting securities of the
Surviving Corporation; or
(B) immediately following such
Merger, the "Allen Entities" (as defined in the Restated Certificate of
Incorporation of the Company) retain "Effective Voting Control." "Effective
Voting Control" shall be deemed to be held by the Allen Entities if (x) they own
in the aggregate, directly or indirectly, at least forty percent (40%) of the
voting power of (1) the Surviving Corporation, or (2) the Parent Corporation, if
the Parent Corporation, directly or indirectly, owns fifty percent (50%) or more
of the combined voting power of the then outstanding voting securities of the
Surviving Corporation, and (y) no other Person or Group owns, directly or
indirectly, an amount equal to or greater than one half of the voting power held
in the aggregate, directly or indirectly, by the Allen Entities;
(ii) A complete liquidation or
dissolution of the Company (other than where assets of the Company are
transferred to or remain with Subsidiaries of the Company); or
(iii) The sale or other disposition of
all or substantially all of the assets of the Company, directly or indirectly,
to any Person (other than a transfer to a Subsidiary or Affiliate of the
Company, including, without limitation, the Allen Entities, if and only if the
Allen Entities are Affiliates (individually or collectively) of the Company
immediately prior to such sale or other disposition, or under conditions that
would constitute a Non-Control Transaction with the disposition of assets being
regarded as a Merger for this purpose or the distribution to the Company's
stockholders of the stock of a Subsidiary or Affiliate of the Company or any
other assets).
Notwithstanding the foregoing a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then outstanding
Shares or voting securities as a result of the acquisition of Shares or voting
securities by the Company which, by reducing the number of Shares or voting
securities then outstanding, increases the proportional number of shares
Beneficially Owned by the Subject Persons, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of Shares or voting securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner of
any additional Shares or voting securities which increases the percentage of the
then outstanding Shares or voting securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
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If an Eligible Individual's employment is terminated (A) by
the Company without Cause within the thirty (30) day period immediately
preceding a Change in Control or (B) at the written request of a third party (or
such third party's agent) who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control, such termination shall be
deemed to have occurred after a Change in Control for purposes of this Plan
provided a Change in Control shall actually have occurred.
2.8 "Code" means the Internal Revenue Code of 1986, as
amended.
2.9 "Committee" means at least one committee, as
described in Section 3.1, appointed by the Board from time to time to administer
the Plan and to perform the functions set forth herein.
2.10 "Company" means Charter Communications, Inc.
2.11 "Director" means a director of the Company.
2.12 "Disability" means:
(a) in the case of an Optionee or Grantee whose
employment with the Company or a Subsidiary is subject to the terms of an
employment agreement between such Optionee or Grantee and the Company or
Subsidiary, which employment agreement includes a definition of "Disability",
the term "Disability" as used in this Plan or any Agreement shall have the
meaning set forth in such employment agreement during the period that such
employment agreement remains in effect; or
(b) in all other cases, the term "Disability" as
used in this Plan or any Agreement shall mean a physical or mental infirmity
which impairs the Optionee's or Grantee's ability to perform substantially his
or her duties, and for which the Optionee or Grantee is also receiving benefits
under the Company's long-term disability plan, if any, then in effect.
2.13 "Division" means any of the operating units or
divisions of the Company or Subsidiary designated as a Division by the Committee
in its discretion.
2.14 "Dividend Equivalent Right" means a right to receive
all or some portion of the cash dividends that are or would be payable with
respect to Shares.
2.15 "Eligible Director" means a director of the Company
who is not an employee of the Company, or any Subsidiary or Affiliate of the
Company.
2.16 "Eligible Individual" means any of the following
individuals who is designated by the Committee in its discretion as eligible to
receive Options or Awards subject to the conditions set forth herein: (a) any
director, officer or employee of the
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Company or a Subsidiary or Affiliate of the Company, (b) any individual to whom
the Company, or a Subsidiary or an Affiliate of the Company, has extended a
formal offer of employment, or (c) any consultant or advisor of the Company or a
Subsidiary. Notwithstanding the foregoing, an Eligible Individual shall not
include a member of a collective bargaining unit, when, as a result of good
faith bargaining between such member's designated collective bargaining
representative and such member's employer (or predecessor employer) either (a)
such member has been excluded from participation, or (b) such member's
participation has not been expressly provided pursuant to the provisions of the
collective bargaining agreement applicable to such member.
2.17 "Exchange Act" means the Securities Exchange Act of
1934, as amended.
2.18 "Fair Market Value" on any date means the average of
the high and low sales prices of the Shares on such date on the principal
national securities exchange on which such Shares are listed or admitted to
trading, or, if such Shares are not so listed or admitted to trading, the
average of the per Share closing bid price and per Share closing asked price on
such date as quoted on the National Association of Securities Dealers Automated
Quotation System or such other market in which such prices are regularly quoted,
or, if there have been no published bid or asked quotations with respect to
Shares on such date, the Fair Market Value shall be the value established by the
Board in good faith.
2.19 Good Reason. (a) "Good Reason" means the occurrence
after a Change in Control of any of the events or conditions described in
subsections (1) through (8) hereof:
(1) a change in the Optionee's or Grantee's status,
title, position or responsibilities (including reporting responsibilities) which
represents an adverse change from his status, title, position or
responsibilities as in effect at any time within ninety days preceding the date
of a Change in Control or at any time thereafter; the assignment to the Optionee
or Grantee of any duties or responsibilities which are inconsistent with his
status, title, position or responsibilities as in effect at any time within
ninety days preceding the date of a Change in Control or at any time thereafter;
or any removal of the Optionee or Grantee from or failure to reappoint or
reelect him to any of such offices or positions, except in connection with the
termination of his employment for Disability, Cause, as a result of his death or
by the Optionee or Grantee other than for Good Reason;
(2) a reduction in the Optionee's or Grantee's base
salary or any failure to pay the Optionee or Grantee any compensation or
benefits to which he is entitled within five days of notice thereof;
(3) a termination or reduction, without consent, of the
facilities
- 6 -
(including office space and general location) and staff reporting available to
the Optionee or Grantee;
(4) the Company's or the Subsidiary's requiring the
Optionee or Grantee to be based at any place more than fifty (50) miles from the
Optionee's or Grantee's principal place of employment, except for reasonably
required travel on the Company's business which is not materially greater than
such travel requirements prior to the Change in Control or relocation pursuant
to a voluntary change in position;
(5) the failure by the Company or Subsidiary to provide
the Optionee or Grantee with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward opportunities) to those
provided for under each other employee benefit plan, program and practice in
which the Optionee or Grantee was participating at any time within ninety days
preceding the date of a Change in Control or at any time thereafter;
(6) the insolvency or the filing (by any party, including
the Company) of a petition for bankruptcy of the Company or Subsidiary, which
petition is not dismissed within sixty days;
(7) any purported termination of the Optionee or
Grantee's employment for Cause by the Company which does not comply with the
terms of Section 2.5; or
(8) the failure of the Company or Successor to obtain an
agreement, satisfactory to the Optionee or Grantee, from any Successors and
Assigns to assume and agree to perform this Agreement, as contemplated in
Section 17 hereof.
(b) Any event or condition described in this Section
2.19(a)(1) through (8) which occurs prior to a Change in Control but which the
Optionee or Grantee reasonably demonstrates (1) was at the request of a third
party, or (2) otherwise arose in connection with, or in anticipation of, a
Change in Control which actually occurs, shall constitute Good Reason for
purposes of the Plan notwithstanding that it occurred prior to the Change in
Control.
2.20 "Grantee" means a person to whom an Award has been
granted under the Plan.
2.21 "Nonemployee Director" means a director of the
Company who is a "nonemployee director" within the meaning of Rule 16b-3
promulgated under the Exchange Act.
2.22 "Nonqualified Stock Option" means an Option which is
not an incentive stock option as defined under Section 422 of the Code.
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2.23 "Option" means a Nonqualified Stock Option.
2.24 "Optionee" means a person to whom an Option has been
granted under the Plan.
2.25 "Outside Director" means a director of the Company
who is an "outside director" within the meaning of Section 162(m) of the Code
and the regulations promulgated thereunder.
2.26 "Performance Awards" means Performance Units,
Performance Shares or either or both of them.
2.27 "Performance-Based Compensation" means any Option or
Award that is intended to constitute "performance based compensation" within the
meaning of Section 162(m)(4)(C) of the Code and the regulations promulgated
thereunder.
2.28 "Performance Cycle" means the time period specified
by the Committee in its discretion at the time Performance Awards are granted
during which the performance of the Company, a Subsidiary or a Division will be
measured.
2.29 "Performance Objectives" has the meaning set forth in
Section 11.
2.30 "Performance Shares" means Shares issued or
transferred to an Eligible Individual under Section 10.
2.31 "Performance Units" means Performance Units granted
to an Eligible Individual under Section 10.
2.32 "Phantom Stock" means a right granted to an Eligible
Individual under Section 11 representing a number of hypothetical Shares.
2.33 "Plan" means this Charter Communications, Inc. 2001
Stock Incentive Plan, as amended and restated from time to time.
2.34 "Plan Administrator" means the individual so
designated by the Committee in its discretion, or, in the absence of such
designation, the head of the compensation department of the Company.
2.35 "Pooling Transaction" means an acquisition of the
Company in a transaction which is intended to be treated as a "pooling of
interests" under generally accepted accounting principles.
2.36 "Restricted Stock" means Shares issued or transferred
to an Eligible Individual pursuant to Section 9.
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2.37 "Retirement" means a termination of employment with
the Company or a Subsidiary (i) after age 55, (ii) with the sum of the
employee's age and years of service equaling 70 or more, and (iii) following one
or more years of service from the date of grant. For the purposes of this
section, "years of service" shall include years of service with the Company, as
well as any years of service with an Affiliate or Subsidiary but only during
such time as those entities are Affiliates or Subsidiaries.
2.38 "Share Award" means an Award of Shares granted
pursuant to Section 11.
2.39 "Shares" means the Class A Common Stock, par value
$.01 per share, of the Company and any other securities into which such shares
are changed or for which such shares are exchanged.
2.40 "Stock Appreciation Right" means a right to receive
all or some portion of the increase in the value of the Shares as provided in
Section 7 hereof.
2.41 "Subsidiary" means any entity, whether or not
incorporated, in which the Company, directly or indirectly, (i) owns 35% or more
of the outstanding equity or other ownership interests, (ii) owns 35% or more of
the outstanding voting power, or (iii) has sole management responsibility.
2.42 "Successors and Assigns" for purposes of the Plan,
shall mean a corporation or other entity acquiring all or substantially all the
assets and business of the Company or a Subsidiary whether by operation of law
or otherwise, and any affiliate of such Successors and Assigns.
3. Administration.
3.1 The Plan shall be administered by the Committee,
which shall hold meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall keep minutes of its meetings. If
the Committee consists of more than one (1) member, a quorum shall consist of
not fewer than two (2) members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to writing and
signed by a majority of all of the members of the Committee shall be as fully
effective as if made by a majority vote at a meeting duly called and held. The
Committee shall consist of one (1) or more Directors and may consist of the
entire Board; provided, however, (A) if the Committee consists of less than the
entire Board, then with respect to any Option or Award to an Eligible Individual
who is subject to Section 16 of the Exchange Act, the Committee shall consist of
at least two (2) Directors each of whom shall be a Nonemployee Director and (B)
to the extent necessary for any Option or Award intended to qualify as
Performance-Based Compensation to so qualify, the Committee shall consist of at
least two (2) Directors each
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of whom shall be an Outside Director. For purposes of the preceding sentence, if
one or more members of the Committee is not a Nonemployee Director and an
Outside Director but recuses himself or herself or abstains from voting with
respect to a particular action taken by the Committee, then the Committee, with
respect to that action, shall be deemed to consist only of the members of the
Committee who have not recused themselves or abstained from voting. Subject to
applicable law, the Committee may delegate its authority under the Plan to any
other person or persons.
3.2 No member of the Committee shall be liable for any
action, failure to act, determination or interpretation made in good faith with
respect to this Plan or any transaction hereunder. The Company hereby agrees to
indemnify each member of the Committee for all costs and expenses and, to the
extent permitted by applicable law, any liability incurred in connection with
defending against, responding to, negotiating for the settlement of or otherwise
dealing with any claim, cause of action or dispute of any kind arising in
connection with any actions in administering this Plan or in authorizing or
denying authorization to any transaction hereunder.
3.3 Subject to the express terms and conditions set forth
herein, the Committee shall have the power and the discretion from time to time
to:
(a) determine those Eligible Individuals to whom
Options shall be granted under the Plan and the number of such Options to be
granted and to prescribe the terms and conditions (which need not be identical)
of each such Option, including the exercise price per Share, the vesting
schedule and the duration of each Option, and make any amendment or modification
to any Option Agreement consistent with the terms of the Plan;
(b) select those Eligible Individuals to whom
Awards shall be granted under the Plan and to determine the number of Shares in
respect of which each Award is granted, the terms and conditions (which need not
be identical) of each such Award, and make any amendment or modification to any
Award Agreement consistent with the terms of the Plan;
(c) to construe and interpret the Plan and the
Options and Awards granted hereunder and to establish, amend and revoke rules
and regulations for the administration of the Plan, including, but not limited
to, correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the extent
it shall deem necessary or advisable, including so that the Plan and the
operation of the Plan complies with Rule 16b-3 under the Exchange Act, the Code
to the extent applicable and other applicable law, and otherwise to make the
Plan fully effective. All decisions and determinations by the Committee in the
exercise of this power shall be final, binding and conclusive upon the Company,
its Subsidiaries, the Optionees and Grantees, and all other persons having any
interest therein;
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(d) to determine the duration and purposes for
leaves of absence which may be granted to an Optionee or Grantee on an
individual basis without constituting a termination of employment or service for
purposes of the Plan;
(e) to exercise its discretion with respect to
the powers and rights granted to it as set forth in the Plan; and
(f) generally, to exercise such powers and to
perform such acts as are deemed necessary or advisable to promote the best
interests of the Company with respect to the Plan.
Notwithstanding the foregoing, the participation of an
Eligible Individual represented by a collective-bargaining representative shall
also be governed by the results of good-faith collective bargaining and/or any
collective bargaining agreement resulting therefrom.
4. Stock Subject to the Plan; Grant Limitations.
4.1 The maximum number of Shares that may be made the
subject of Options and Awards granted under the Plan is 38,895,911 plus up to
21,068,102 Shares based on forfeitures, cancellations and terminations under
Charter Communications Option Plan; provided, however, that in the aggregate,
not more than 3,000,000 of the number of allotted Shares may be made the subject
of Restricted Stock Awards under Section 10 of the Plan (other than shares of
Restricted Stock made in settlement of Performance Units pursuant to Section
11.1(b). The maximum number of Shares that may be the subject of Options and
Stock Appreciation Rights granted to an Eligible Individual in any one calendar
year period may not exceed 3,889,591 Shares. The maximum dollar amount of cash
or the Fair Market Value of Shares that any Eligible Individual may receive in
any calendar year in respect of Performance Units denominated in dollars may not
exceed $15,000,000. The Company shall reserve for the purposes of the Plan, out
of its authorized but unissued Shares or out of Shares held in the Company's
treasury, or partly out of each, such number of Shares as shall be determined by
the Board in its discretion. If an Option or Stock Appreciation Right expires or
terminates for any reason without having been exercised in full, the unpurchased
Shares will continue to count against the maximum number of Shares for which
Options and Stock Appreciation Rights may be granted to an Eligible Individual
in any one calendar year.
4.2 Upon the granting of an Option or an Award, the
number of Shares available under Section 4.1 for the granting of further Options
and Awards shall be reduced as follows:
(a) In connection with the granting of an Option
or an Award (other than the granting of a Performance Unit denominated in
dollars), the number of
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Shares shall be reduced by the number of Shares in respect of which the Option
or Award is granted or denominated; provided, however, that if any Option is
exercised by tendering Shares, either actually or by attestation, to the Company
as full or partial payment of the exercise price, the maximum number of Shares
available under Section 4.1 shall be increased by the number of Shares so
tendered.
(b) In connection with the granting of a
Performance Unit denominated in dollars, the number of Shares shall be reduced
by an amount equal to the quotient of (i) the dollar amount in which the
Performance Unit is denominated, divided by (ii) the Fair Market Value of a
Share on the date the Performance Unit is granted.
4.3 Whenever any outstanding Option or Award or portion
thereof expires, is canceled, is settled in cash (including the settlement of
tax withholding obligations using Shares) or is otherwise terminated for any
reason without having been exercised or payment having been made in respect of
the entire Option or Award, the Shares allocable to the expired, canceled,
settled or otherwise terminated portion of the Option or Award may again be the
subject of Options or Awards granted hereunder.
5. Option Grants for Eligible Individuals.
5.1 Authority of Committee. Subject to the provisions of
the Plan, the Committee shall have full and final authority to select those
Eligible Individuals who will receive Options, and the terms and conditions of
the grant to such Eligible Individuals shall be set forth in an Agreement.
5.2 Exercise Price. The purchase price or the manner in
which the exercise price is to be determined for Shares under each Option shall
be determined by the Committee in its discretion and set forth in the Agreement;
provided, however, that the exercise price per Share under each Option shall not
be less than 100% of the Fair Market Value of a Share on the date the Option is
granted unless the Options are substituted for options issued by another company
where the Company or a Subsidiary acquires (whether by purchase, merger, or
otherwise) all or substantially all of outstanding capital stock or assets of
another company or in the event of any reorganization or other transaction
qualifying under Code Section 424.
5.3 Maximum Duration. Options granted hereunder shall be
for such term as the Committee shall determine in its discretion, provided that
a Nonqualified Stock Option shall not be exercisable after the expiration of ten
(10) years from the date it is granted. Unless the Committee provides otherwise
in the Agreement, an Option (i) may, upon the death, Disability or Retirement of
the Optionee prior to the expiration of the Option, be exercised for up to two
(2) years following the date of the Optionee's death, Disability or Retirement,
as applicable, (ii) may, following the voluntary termination of service by the
Optionee or a termination other than for Cause, be exercised
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for up to sixty (60) days following the date of termination, and (iii) shall, in
the event of a termination of service for Cause, be terminated effective
immediately prior to such termination, whether or not such Option was then
exercisable. The Committee may, in its discretion, subsequent to the granting of
any Option, extend the term thereof, but in no event shall the term as so
extended exceed the maximum term provided for in the first sentence hereof.
5.4 Vesting. Subject to Section 6.4, each Option shall
entitle the Employee to purchase, in whole at any time or in part from time to
time, 25% of the total number of Shares covered by the Option as of the first
anniversary of the date of grant and an additional 25% of the total number of
Shares covered by the Option after the expiration of each of the second, third
and fourth anniversaries of the date of grant; provided however, that Options
may become exercisable in such other installments (which need not be equal) and
at such times as may be designated by the Committee in its discretion and set
forth in the Agreement. To the extent not exercised, installments shall
accumulate and be exercisable, in whole or in part, at any time after becoming
exercisable, but not later than the date the Option expires. The Committee may,
in its discretion, accelerate the exercisability of any Option or portion
thereof at any time.
5.5 Deferred Delivery of Option Shares. The Committee
may, in its discretion, permit Optionees to elect to defer the issuance of
Shares upon the exercise of one or more Nonqualified Stock Options granted
pursuant to the Plan. The terms and conditions of such deferral shall be
determined at the time of the grant of the Option or thereafter and shall be set
forth in the Agreement evidencing the Option.
6. Terms and Conditions Applicable to All Options.
6.1 Non-Transferability. (a) No Option shall be
transferable by the Optionee otherwise than by will or by the laws of descent
and distribution or pursuant to a domestic relations order (within the meaning
of Rule 16a-12 promulgated under the Exchange Act), and an Option shall be
exercisable during the lifetime of such Optionee only by the Optionee or his or
her guardian or legal representative. Notwithstanding the foregoing, the
Committee may, in its discretion, set forth in the Agreement evidencing an
Option at the time of grant or thereafter, that the Option may be transferred to
members of the Optionee's immediate family, to trusts solely for the benefit of
such immediate family members and to partnerships in which such family members
and/or trusts are the only partners, and for purposes of this Plan, a transferee
of an Option shall be deemed to be the Optionee. For this purpose, immediate
family means the Optionee's spouse, parents, children, stepchildren and
grandchildren and the spouses of such parents, children, stepchildren and
grandchildren. The terms of an Option shall be final, binding and conclusive
upon the beneficiaries, executors, administrators, heirs and successors of the
Optionee.
- 13 -
(b) Notwithstanding any thing to the contrary
herein, including, without limitation, the provisions of Section 5.3, if an
Option has been transferred in accordance with this Section 6.1, the Option
shall be exercisable solely by the transferee. The Option shall remain subject
to the provisions of the Plan, including that it shall be exercisable only to
the extent that the Optionee or Optionee's estate would have been entitled to
exercise it if the Optionee had not transferred the Option. In the event of the
death of the Optionee prior to the expiration of the right to exercise the
transferred Option, the period during which the Option shall be exercisable
shall terminate on the date one (1) year following the date of the Optionee's
death. In the event of the death of the transferee prior to the expiration of
the right to exercise the Option, the period during which the Option shall be
exercisable by the executors, administrators, legatees and distributees of the
transferree's estate, as the case may be, shall terminate on the date one (1)
year following the date of the transferee's death. In no event, however, shall
the Option be exercisable after the expiration of the Option period set forth in
the terms and conditions of the Agreement. The Option shall be subject to such
other rules as the Committee shall determine in its discretion.
6.2 Method of Exercise. The exercise of an Option shall
be made only by a written notice delivered in person, electronically or by mail
to the Plan Administrator (or his or her designee) specifying the number of
Shares to be exercised and, to the extent applicable, accompanied by payment
therefor and otherwise in accordance with the Agreement pursuant to which the
Option was granted; provided, however, that Options may not be exercised by an
Optionee for twelve months following a hardship distribution to the Optionee, to
the extent such exercise is prohibited under Treasury Regulation Section
1.401(k)-1(d)(2)(iv)(B)(4). The exercise price for any Shares purchased pursuant
to the exercise of an Option shall be paid, in any of the following forms (or
any combination thereof): (a) cash, (b) the transfer, either actually or by
attestation, to the Company of Shares that have been held by the Optionee for at
least six (6) months (or such lesser period as may be permitted by the Committee
in its discretion) prior to the exercise of the Option, such transfer to be upon
such terms and conditions as determined by the Committee in its discretion or
(c) a combination of cash and the transfer of Shares or such other methods as
determined by the Committee in its discretion; provided, however, that the
Committee may determine at any time in its discretion that the exercise price
shall be paid only in cash. In addition, Options may be exercised through a
registered broker-dealer pursuant to such cashless exercise procedures which
are, from time to time, deemed acceptable by the Committee in its discretion.
Any Shares transferred to the Company as payment of the exercise price under an
Option shall be valued at their Fair Market Value on the day preceding the date
of exercise of such Option. If requested by the Committee in its discretion, the
Optionee shall deliver the Agreement evidencing the Option to the Plan
Administrator (or his or her designee) who shall endorse thereon a notation of
such exercise and return such Agreement to the Optionee. Unless otherwise
determined by the Committee in its discretion, no fractional Shares (or cash in
lieu
- 14 -
thereof) shall be issued upon exercise of an Option and the number of Shares
that may be purchased upon exercise shall be rounded to the nearest number of
whole Shares.
6.3 Rights of Optionees. No Optionee shall be deemed for
any purpose to be the owner of any Shares subject to any Option unless and until
(a) the Option shall have been exercised pursuant to the terms thereof, (b) the
Company shall have issued and delivered Shares to the Optionee, and (c) the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company. Thereupon, the Optionee shall have full voting, dividend and
other ownership rights with respect to such Shares, subject to such terms and
conditions as may be set forth in the applicable Agreement.
6.4 Effect of Change in Control. Notwithstanding any
other provision contained in this Plan, in the event of a Change in Control, any
unvested Options issued under this Plan to any Optionee shall vest and become
fully exercisable, subject to the provisions of Section 12.2, upon (i) the
termination by the Company, Subsidiary, or Affiliate of the Optionee's
employment other than for Cause or (ii) the termination of the Optionee's
employment for Good Reason, during the 12-month period following the Change in
Control. In the event of a Change in Control, the Committee may, in its
discretion, do one or more of the following: (i) shorten the period during which
Options are exercisable (provided they remain exercisable for at least 30 days
after the date on which notice of such shortening is given to the Optionees);
(ii) arrange to have the surviving or successor entity assume the Options or
grant replacement options with appropriate adjustments in the option prices and
adjustments in the number and kind of securities issuable upon exercise so that
the Options or their replacements represent the right to purchase the shares of
stock, securities or other property (including cash) as may be issuable or
payable as a result of a Change in Control with respect to or in exchange for
the number of Shares purchasable and receivable upon the exercise of the Options
had such exercise occurred in full prior to such Change in Control, or (iii)
cancel Options upon the payment to the Optionee in cash, with respect to each
Option to the extent then exercisable (including any Options as to which the
exercise has been accelerated in accordance with this Section), of an amount
that is equal to the Fair Market Value of the Shares subject to the option or
portion thereof over the aggregate exercise price for such Shares under Option
or portion thereof surrendered at the effective time of the Change in Control.
The Committee may, in its discretion, also provide for one or more of the
foregoing alternatives in any particular Option Agreement.
6.5 Relocation. If the Company shall relocate its
existing headquarters outside the greater St. Louis, Missouri area on or before
December 23, 2001 without the prior written consent of Jerald L. Kent, or of
Barry L. Babcock or Howard L. Wood if Mr. Kent is not surviving at the time such
consent is sought (a "Headquarters Breach"):
(a) unless otherwise provided in the Optionee's
Agreement, with respect to any Optionee who is a member of the corporate staff
and is employed and
- 15 -
located at the St. Louis corporate headquarters and to whom Options have been
granted and who does not relocate, if less than forty percent (40%) of the
Options held by such Optionee have vested, then for purposes of this paragraph
(a) of Section 6.5, forty percent (40%) of all Options held by such Optionee,
less: (i) the Options the Optionee has exercised, and (ii) the Options actually
vested, will be deemed to have vested. With respect to such Optionee's Options
which have vested and have not been exercised, and the Options which are deemed
to have been vested pursuant to this paragraph (a) of Section 6.5, the Company
shall pay, to each such Optionee in full satisfaction of such Options an amount
equal to (A) the Fair Market Value of the Shares subject to the Options or
portion thereof surrendered, over (B) the aggregate exercise price for such
Shares under the Options or portion thereof surrendered;
(b) if the sum of the payments to the Optionee
under Sections 6.5(a), 7.8(a), 9.7(a) and 10.6(a) equals an amount less than the
Optionee's annual base salary at the time of the Headquarters Breach, then the
Optionee shall receive a single additional payment in an amount equal to the
difference between the Optionee's annual base salary and the sum of the payments
under such Sections; and
(c) if any payment is made to any Optionee
pursuant to paragraph (a) of Section 6.5 above, then all Options granted to such
Optionee shall be automatically canceled.
7. Stock Appreciation Rights.
The Committee may, in its discretion, either alone or in
connection with the grant of an Option, grant Stock Appreciation Rights in
accordance with the Plan, the terms and conditions of which shall be set forth
in an Agreement. If granted in connection with an Option, a Stock Appreciation
Right shall cover the same Shares covered by the Option (or such lesser number
of Shares as the Committee may determine in its discretion) and shall, except as
provided in this Section 7, be subject to the same terms and conditions as the
related Option.
7.1 Time of Grant. A Stock Appreciation Right may be
granted (a) at any time if unrelated to an Option, or (b) if related to an
Option, either at the time of grant or at any time thereafter during the term of
the Option.
7.2 Stock Appreciation Right Related to an Option.
(a) Exercise. A Stock Appreciation Right granted
in connection with an Option shall be exercisable at such time or times and only
to the extent that the related Options are exercisable, and will not be
transferable except to the extent the related Option may be transferable.
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(b) Amount Payable. Upon the exercise of a Stock
Appreciation Right related to an Option, the Grantee shall be entitled to
receive an amount determined by multiplying (i) the excess of the Fair Market
Value of a Share on the date preceding the date of exercise of such Stock
Appreciation Right over the per Share exercise price under the related Option,
by (ii) the number of Shares as to which such Stock Appreciation Right is being
exercised. Notwithstanding the foregoing, the Committee may, in its discretion,
limit in any manner the amount payable with respect to any Stock Appreciation
Right by including such a limit in the Agreement evidencing the Stock
Appreciation Right at the time it is granted.
(c) Treatment of Related Options and Stock
Appreciation Rights Upon Exercise. Upon the exercise of a Stock Appreciation
Right granted in connection with an Option, the Option shall be canceled to the
extent of the number of Shares as to which the Stock Appreciation Right is
exercised, and upon the exercise of an Option granted in connection with a Stock
Appreciation Right, the Stock Appreciation Right shall be canceled to the extent
of the number of Shares as to which the Option is exercised or surrendered.
7.3 Stock Appreciation Right Unrelated to an Option. The
Committee may, in its discretion, grant to Eligible Individuals Stock
Appreciation Rights unrelated to Options. Stock Appreciation Rights unrelated to
Options shall contain such terms and conditions as to exercisability (subject to
Section 7.7), vesting and duration as the Committee shall determine in its
discretion, but in no event shall they have a term of greater than ten (10)
years. Unless the Committee provides otherwise in the Agreement, a Stock
Appreciation Right (i) may, upon the death, Disability or Retirement of the
Grantee prior to the expiration of the Stock Appreciation Right, be exercised
for up to two (2) years following the date of the Grantee's death, Disability or
Retirement, as applicable, (ii) may, following the voluntary termination of
service by the Grantee or a termination other than for Cause, be exercised for
up to sixty (60) days following the date of termination, and (iii) shall, in the
event of a termination of service for Cause, be terminated effective immediately
prior to such termination, whether or not such Stock Appreciation Right was then
exercisable. Upon exercise of a Stock Appreciation Right unrelated to an Option,
the Grantee shall be entitled to receive an amount determined by multiplying (a)
the excess of the Fair Market Value of a Share on the date preceding the date of
exercise of such Stock Appreciation Right over the Fair Market Value of a Share
on the date the Stock Appreciation Right was granted, by (b) the number of
Shares as to which the Stock Appreciation Right is being exercised.
Notwithstanding the foregoing, the Committee may, in its discretion, limit in
any manner the amount payable with respect to any Stock Appreciation Right by
including such a limit in the Agreement evidencing the Stock Appreciation Right
at the time it is granted.
- 17 -
7.4 Non-Transferability. No Stock Appreciation Right
shall be transferable by the Grantee otherwise than by will or by the laws of
descent and distribution or pursuant to a domestic relations order (within the
meaning of Rule 16a-12 promulgated under the Exchange Act), and such Stock
Appreciation Right shall be exercisable during the lifetime of such Grantee only
by the Grantee or his or her guardian or legal representative. The terms of such
Stock Appreciation Right shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the Grantee.
7.5 Method of Exercise. Stock Appreciation Rights shall
be exercised by a Grantee only by a written notice delivered in person,
electronically or by mail to the Plan Administrator (or his or her designee)
specifying the number of Shares with respect to which the Stock Appreciation
Right is being exercised. If requested by the Committee in its discretion, the
Grantee shall deliver the Agreement evidencing the Stock Appreciation Right
being exercised and the Agreement evidencing any related Option to the Plan
Administrator (or his or her designee) who shall endorse thereon a notation of
such exercise and return such Agreement to the Grantee.
7.6 Form of Payment. Payment of the amount determined
under Sections 7.2(b) or 7.3 may be made in the discretion of the Committee
solely in whole Shares in a number determined at their Fair Market Value on the
date preceding the date of exercise of the Stock Appreciation Right, or solely
in cash, or in a combination of cash and Shares. If the Committee in its
discretion decides to make full payment in Shares and the amount payable results
in a fractional Share, payment for the fractional Share will be made in cash.
7.7 Effect of Change in Control. Notwithstanding any
other provision contained in this Plan, in the event of a Change in Control, any
unvested Stock Appreciation Rights issued under this Plan to any Grantee shall
vest and become fully exercisable, subject to the provisions of Section 12.2,
upon (i) the termination by the Company, Subsidiary, or Affiliate of the
Grantee's employment other than for Cause or (ii) the termination of the
Grantee's employment for Good Reason, during the 12 month period following the
Change in Control. In the event of a Change the Committee may, in its
discretion, do one or more of the following: (i) shorten the period during which
Stock Appreciate Rights are exercisable (provided they remain exercisable for at
least thirty (30) days after the date on which notice of such shortening is
given to the Grantees); (ii) arrange to have the surviving or successor entity
assume the Stock Appreciation Rights or grant replacement Stock Appreciation
Rights with appropriate adjustments so that the Stock Appreciation Rights or
their replacements represent the right to receive cash as may be payable as a
result of a Change in Control with respect to the amount of cash receivable upon
the exercise of the Stock Appreciation Rights had such exercise occurred in full
prior to such Change in Control, or (iii) cancel Stock Appreciation Rights
- 18 -
upon the payment to the Grantees in cash, with respect to each Stock
Appreciation Rights to the extent then exercisable (including any Stock
Appreciation Rights as to which the exercise has been accelerated in accordance
with this Section), of an amount that is equal to the Fair Market Value of the
Shares subject to the Stock Appreciation Right or portion thereof over the
aggregate exercise price for such Shares under the Stock Appreciation Right or
portion thereof surrendered at the effective time of the Change in Control. The
Committee may, in its discretion, also provide for one or more of the foregoing
alternatives in any particular Agreement.
7.8 Relocation. If the Company shall relocate its
existing headquarters outside the greater St. Louis, Missouri area on or before
December 23, 2001 without the prior written consent of Jerald L. Kent, or of
Barry L. Babcock or Howard L. Wood if Kent is not surviving at the time such
consent is sought (a "Headquarters Breach"):
(a) unless otherwise provided in the Agreement,
with respect to any Grantee who is a member of the corporate staff and is
employed and located at the St. Louis corporate headquarters and to whom Stock
Appreciation Rights have been granted and who does not relocate, if less than
forty percent (40%) of the Stock Appreciation Rights held by such Grantee have
vested, then for purposes of this paragraph (a) of Section 7.8, forty percent
(40%) of all Stock Appreciation Rights held by such Grantee, less: (i) the Stock
Appreciation Rights the Grantee has exercised, and (ii) the Stock Appreciation
Rights actually vested, will be deemed to have vested. With respect to such
Grantee's Stock Appreciation Rights which have vested and have not been
exercised, and the Stock Appreciation Rights which are deemed to have been
vested pursuant to this paragraph (a) of Section 7.8, the Company shall pay, to
each such Grantee in full satisfaction of such Stock Appreciation Rights an
amount equal to (I)(A) the Fair Market Value of the Shares subject to the Stock
Appreciation Rights or portion thereof surrendered, over (B) the aggregate
exercise price for such Shares under the Stock Appreciation Rights or portion
thereof surrendered, and (II) the amount, if any, specified in Section 6.5(b);
and
(b) if any payment is made to any Grantee
pursuant to paragraph (a) of Section 7.8 above, then all Stock Appreciation
Rights granted to such Grantee shall be automatically canceled.
8. Dividend Equivalent Rights.
Dividend Equivalent Rights may be granted to Eligible
Individuals in tandem with an Option or Award or as a separate Award. The terms
and conditions applicable to each Dividend Equivalent Right shall be specified
in the Agreement under which the Dividend Equivalent Right is granted. Amounts
payable in respect of Dividend Equivalent Rights may be payable currently or
deferred until the lapsing of restrictions on such Dividend Equivalent Rights or
until the vesting, exercise, payment,
- 19 -
settlement or other lapse of restrictions on the Option or Award to which the
Dividend Equivalent Rights relate. In the event that the amount payable in
respect of Dividend Equivalent Rights is to be deferred, the Committee shall, in
its discretion, determine whether such amount is to be held in cash or
reinvested in Shares or deemed (notionally) to be reinvested in Shares. If
amounts payable in respect of Dividend Equivalent Rights are to be held in cash,
there may be credited at the end of each year (or portion thereof) interest on
the amount of the account at the beginning of the year at a rate per annum as
the Committee may, in its discretion, determine. Dividend Equivalent Rights may
be settled in cash or Shares or a combination thereof, in a single installment
or multiple installments as the Committee, in its discretion, determines.
9. Restricted Stock.
9.1 Grant. The Committee may, in its discretion, grant
Awards to Eligible Individuals of Restricted Stock, which shall be evidenced by
an Agreement between the Company and the Grantee. Each Agreement shall contain
such restrictions, terms and conditions as the Committee may, in its discretion,
determine and (without limiting the generality of the foregoing) such Agreements
may require that an appropriate legend be placed on Share certificates. Awards
of Restricted Stock shall be subject to the terms and provisions set forth below
in this Section 9.
9.2 Rights of Grantee. Shares of Restricted Stock granted
pursuant to an Award hereunder shall be issued in the name of the Grantee as
soon as reasonably practicable after the Award is granted provided that the
Grantee has executed an Agreement evidencing the Award, the appropriate blank
stock powers and, in the discretion of the Committee, an escrow agreement and
any other documents which the Committee may, in its discretion, require as a
condition to the issuance of such Shares. If a Grantee shall fail to execute the
Agreement evidencing a Restricted Stock Award, or any documents which the
Committee may, in its discretion, require within the time period prescribed by
the Committee at the time the Award is granted, the Award shall be null and
void. At the discretion of the Committee, Shares issued in connection with a
Restricted Stock Award shall be deposited together with the stock powers with an
escrow agent (which may be the Company) designated by the Committee. Unless the
Committee in its discretion determines otherwise and as set forth in the
Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall
have all of the rights of a stockholder with respect to such Shares, including
the right to vote the Shares and to receive all dividends or other distributions
paid or made with respect to the Shares.
9.3 Non-Transferability. Until all restrictions upon the
Shares of Restricted Stock awarded to a Grantee shall have lapsed in the manner
set forth in Section 9.4, such Shares shall not be sold, transferred or
otherwise disposed of and shall not be pledged or otherwise hypothecated.
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9.4 Lapse of Restrictions.
(a) Generally. Restrictions upon Shares of
Restricted Stock awarded hereunder shall lapse at such time or times and on such
terms and conditions as the Committee may determine in its discretion. The
Agreement evidencing the Award shall set forth any such restrictions.
(b) Effect of Change in Control. Notwithstanding
any other provision contained in this Plan, in the event of a Change in Control,
any restrictions with respect to Restricted Stock issued under this Plan to any
Grantee shall lapse, subject to the provisions of Section 12.2, upon (i) the
termination by the Company, Subsidiary, or Affiliate of the Optionee's
employment other than for Cause or (ii) the termination of the Optionee's
employment for Good Reason, during the 12 month period following the Change in
Control. In the event of a Change the Committee may, in its discretion, do one
or more of the following: (i) arrange to have the surviving or successor entity
assume the Restricted Stock or grant replacement Restricted Stock with
appropriate adjustments in the number and kind of securities so that the
Restricted Stock Award or its replacement represents the right to the shares of
stock, securities or other property (including cash) as may be issuable or
payable as a result of a Change in Control with respect to or in exchange for
the number of Shares receivable upon the lapse of restrictions had such lapse of
restrictions occurred in full prior to such Change in Control, or (ii) cancel
the Restricted Stock Award upon the payment to the Grantees in cash, with
respect to each Restricted Stock Award to the extent then lapsed (including any
Restricted Stock as to which the lapse of restrictions has been accelerated in
accordance with this Section), of an amount that is equal to the Fair Market
Value of the Shares subject to the Restricted Stock Award surrendered at the
effective time of the Change in Control. The Committee may, in its discretion,
also provide for one or more of the foregoing alternatives in any particular
Agreement.
9.5 Treatment of Dividends. At the time an Award of
Shares of Restricted Stock is granted, the Committee may, in its discretion,
determine that the payment to the Grantee of dividends, or a specified portion
thereof, declared or paid on such Shares by the Company shall be (a) deferred
until the lapsing of the restrictions imposed upon such Shares and (b) held by
the Company for the account of the Grantee until such time. In the event that
dividends are to be deferred, the Committee shall, in its discretion, determine
whether such dividends are to be reinvested in Shares (which shall be held as
additional Shares of Restricted Stock) or held in cash. If deferred dividends
are to be held in cash, there may be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the
year at a rate per annum as the Committee may, in its discretion, determine.
Payment of deferred dividends in respect of Shares of Restricted Stock (whether
held in cash or as additional Shares of Restricted Stock), together with
interest accrued thereon, if any, shall be made upon the
- 21 -
lapsing of restrictions imposed on the Shares in respect of which the deferred
dividends were paid, and any dividends deferred (together with any interest
accrued thereon) in respect of any Shares of Restricted Stock shall be forfeited
upon the forfeiture of such Shares.
9.6 Delivery of Shares. Upon the lapse of the
restrictions on Shares of Restricted Stock, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such Shares, free of
all restrictions hereunder.
9.7 Relocation. If the Company shall relocate its
existing headquarters outside the greater St. Louis, Missouri area on or before
December 23, 2001 without the prior written consent of Jerald L. Kent, or of
Barry L Babcock or Howard L. Wood if Kent is not surviving at the time such
consent is sought (a "Headquarters Breach"):
(a) unless otherwise provided in the Agreement,
with respect to any Grantee who is a member of the corporate staff and is
employed and located at the St. Louis corporate headquarters and to whom
Restricted Stock Awards have been granted and who does not relocate, if less
than forty percent (40%) of the restrictions have lapsed with respect to
Restricted Stock held by such Grantee, then for purposes of this paragraph (a)
of Section 9.7, the restrictions with respect to forty percent (40%) of all
Restricted Stock held by such Grantee will be deemed to have lapsed. With
respect to such Grantee's Restricted Stock with lapsed restrictions and
restrictions which are deemed to have been lapsed pursuant to this paragraph (a)
of Section 9.7, the Company shall pay, to each such Grantee in full satisfaction
of such Restricted Stock Award an amount equal to (I) the Fair Market Value of
Shares subject to such Award and (II) the amount, if any, specified in Section
6.5(b); and
(b) if any payment is made to any Grantee
pursuant to paragraph (a) of Section 9.7 above, then all Restricted Stock
granted to such Grantee shall be automatically canceled.
10. Performance Awards.
10.1 Performance Units. The Committee may, in its
discretion, grant Awards of Performance Units to Eligible Individuals, the terms
and conditions of which shall be set forth in an Agreement between the Company
and the Grantee. Performance Units may be denominated in Shares or a specified
dollar amount and, contingent upon the attainment of specified Performance
Objectives within the Performance Cycle, represent the right to receive payment
as provided in Section 10.3(c) of (i) in the case of Share-denominated
Performance Units, the Fair Market Value of a Share on the date the Performance
Unit was granted, the date the Performance Unit became vested or any other date
specified by the Committee in its discretion, (ii) in the case of
dollar-denominated Performance Units, the specified dollar amount or (iii) a
percentage (which may be more
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than 100%) of the amount described in clause (i) or (ii) depending on the level
of Performance Objective attainment; provided, however, that, the Committee may,
in its discretion, at the time a Performance Unit is granted specify a maximum
amount payable in respect of a vested Performance Unit. Each Agreement shall
specify the number of Performance Units to which it relates, the Performance
Objectives which must be satisfied in order for the Performance Units to vest
and the Performance Cycle within which such Performance Objectives must be
satisfied.
(a) Vesting and Forfeiture. Subject to Sections
10.3(c) and 10.4, a Grantee shall become vested with respect to the Performance
Units to the extent that the Performance Objectives set forth in the Agreement
are satisfied for the Performance Cycle.
(b) Payment of Awards. Subject to Section
10.3(c), payment to Grantees in respect of vested Performance Units shall be
made as soon as practicable after the last day of the Performance Cycle to which
such Award relates unless the Agreement evidencing the Award provides for the
deferral of payment, in which event the terms and conditions of the deferral
shall be set forth in the Agreement. Subject to Section 10.4, such payments may
be made entirely in Shares valued at their Fair Market Value, entirely in cash,
or in such combination of Shares and cash as the Committee shall, in its
discretion, determine at any time prior to such payment; provided, however, that
if the Committee in its discretion determines to make such payment entirely or
partially in Shares of Restricted Stock, the Committee must determine the extent
to which such payment will be in Shares of Restricted Stock and the terms of
such Restricted Stock at the time the Award is granted.
10.2 Performance Shares. The Committee may, in its
discretion, grant Awards of Performance Shares to Eligible Individuals, the
terms and conditions of which shall be set forth in an Agreement between the
Company and the Grantee. Each Agreement may require that an appropriate legend
be placed on Share certificates. Awards of Performance Shares shall be subject
to the following terms and provisions:
(a) Rights of Grantee. The Committee shall
provide at the time an Award of Performance Shares is made the time or times at
which the actual Shares represented by such Award shall be issued in the name of
the Grantee; provided, however, that no Performance Shares shall be issued until
the Grantee has executed an Agreement evidencing the Award, the appropriate
blank stock powers and, in the discretion of the Committee, an escrow agreement
and any other documents which the Committee may require as a condition to the
issuance of such Performance Shares. If a Grantee shall fail to execute the
Agreement evidencing an Award of Performance Shares, the appropriate blank stock
powers and, in the discretion of the Committee, an escrow agreement and any
other documents which the Committee may require within the time period
prescribed by the Committee at the time the Award is granted, the Award shall be
null and void. At the
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discretion of the Committee, Shares issued in connection with an Award of
Performance Shares shall be deposited together with the stock powers with an
escrow agent (which may be the Company) designated by the Committee. Except as
restricted by the terms of the Agreement, upon delivery of the Shares to the
escrow agent, the Grantee shall have, in the discretion of the Committee, all of
the rights of a stockholder with respect to such Shares, including the right to
vote the Shares and to receive all dividends or other distributions paid or made
with respect to the Shares.
(b) Non-Transferability. Until any restrictions
upon the Performance Shares awarded to a Grantee shall have lapsed in the manner
set forth in Sections 10.2(c) or 10.4, such Performance Shares shall not be
sold, transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated, nor shall they be delivered to the Grantee. The Committee may, in
its discretion, also impose such other restrictions and conditions on the
Performance Shares, if any, as it deems appropriate.
(c) Lapse of Restrictions. Subject to Sections
10.3(c) and 10.4, restrictions upon Performance Shares awarded hereunder shall
lapse and such Performance Shares shall become vested at such time or times and
on such terms, conditions and satisfaction of Performance Objectives as the
Committee may, in its discretion, determine at the time an Award is granted.
(d) Treatment of Dividends. At the time the
Award of Performance Shares is granted, the Committee may, in its discretion,
determine that the payment to the Grantee of dividends, or a specified portion
thereof, declared or paid on Shares represented by such Award which have been
issued by the Company to the Grantee shall be (i) deferred until the lapsing of
the restrictions imposed upon such Performance Shares and (ii) held by the
Company for the account of the Grantee until such time. In the event that
dividends are to be deferred, the Committee shall determine whether such
dividends are to be reinvested in shares of Stock (which shall be held as
additional Performance Shares) or held in cash. If deferred dividends are to be
held in cash, there may be credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of the year at a rate per
annum as the Committee may, in its discretion, determine. Payment of deferred
dividends in respect of Performance Shares (whether held in cash or in
additional Performance Shares), together with interest accrued thereon, if any,
shall be made upon the lapsing of restrictions imposed on the Performance Shares
in respect of which the deferred dividends were paid, and any dividends deferred
(together with any interest accrued thereon) in respect of any Performance
Shares shall be forfeited upon the forfeiture of such Performance Shares.
(e) Delivery of Shares. Upon the lapse of the
restrictions on Performance Shares awarded hereunder, the Committee shall cause
a stock certificate to be delivered to the Grantee with respect to such Shares,
free of all restrictions hereunder.
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10.3 Performance Objectives
(a) Establishment. Performance Objectives for
Performance Awards may based on and expressed in terms of one or more of the
following business criteria: (i) revenue, (ii) net income, (iii) operating
income, (iv) earnings, (v) net earnings, (vi) Share price, (vii) cash flow,
(viii) EBITDA, (ix) total shareholder return, (x) total shareholder return
relative to peers, (xi) financial returns (including, without limitation, return
on assets, return on equity and return on investment), (xii) cost reduction
targets, (xiii) customer satisfaction, (xiv) customer growth, (xv) employee
satisfaction, (xvi) pre-tax profits, (xvii) net earnings, or (xiii) any
combination of the foregoing. Performance Objectives (and underlying business
criteria, as applicable) may be in respect of: (i) the performance of the
Company, (ii) the performance of any of its Subsidiaries, (iii) the performance
of any of its Divisions, (iv) a per Share basis, (v) a per subscriber basis, or
(vi) any combination of the foregoing. Performance Objectives may be absolute or
relative (to prior performance of the Company or to the performance of one or
more other entities or external indices) and may be expressed in terms of a
progression within a specified range. The formula for determining Performance
Objectives may include or exclude items to measure specific objectives, such as
losses from discontinued operations, extraordinary, unusual or nonrecurring
gains and losses, the cumulative effect of accounting changes, acquisitions or
divestitures, core process redesigns, structural changes/outsourcing, and
foreign exchange impacts. The Performance Objectives with respect to a
Performance Cycle shall be established in writing by the Committee by the
earlier of (x) the date on which a quarter of the Performance Cycle has elapsed
or (y) the date which is ninety (90) days after the commencement of the
Performance Cycle, and in any event while the performance relating to the
Performance Objectives remain substantially uncertain.
(b) Effect of Certain Events. At the time of the
granting of a Performance Award, or at any time thereafter, in either case to
the extent permitted under Section 162(m) of the Code and the regulations
thereunder without adversely affecting the treatment of the Performance Award as
Performance-Based Compensation, the Committee may, in its discretion, provide
for the manner in which performance will be measured against the Performance
Objectives (or may adjust the Performance Objectives) to reflect the impact of
specified corporate transactions, accounting or tax law changes and other
extraordinary or nonrecurring events.
(c) Determination of Performance. Prior to the
vesting, payment, settlement or lapsing of any restrictions with respect to any
Performance Award that is intended to constitute Performance-Based Compensation
made to a Grantee who is subject to Section 162(m) of the Code, the Committee
shall certify in writing that the applicable Performance Objectives have been
satisfied to the extent necessary for such Award to qualify as Performance Based
Compensation.
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10.4 Effect of Change in Control. In the event of a Change
in Control, unless otherwise determined by the Committee in its discretion and
set forth in the Agreement evidencing the Award, and subject to the provisions
of Section 12.2, upon (i) the termination by the Company, Subsidiary, or
Affiliate of the Optionee's employment other than for Cause or (ii) the
termination of the Optionee's employment for Good Reason, during the 12 month
period following the Change in Control;
(a) With respect to Performance Units, the
Grantee shall (i) become vested in all outstanding Performance Units as if all
Performance Objectives had been satisfied at the maximum level and (ii) be
entitled to receive in respect of all Performance Units which become vested as a
result of a Change in Control a cash payment within ten (10) days after
termination of employment.
(b) With respect to Performance Shares, all
restrictions shall lapse immediately on all outstanding Performance Shares as if
all Performance Objectives had been satisfied at the maximum level.
(c) The Agreements evidencing Performance Shares
and Performance Units shall provide for the treatment of such Awards (or
portions thereof), if any, which do not become vested as the result of a Change
in Control, including, but not limited to, provisions for the adjustment of
applicable Performance Objectives.
(d) Notwithstanding the above, the Committee
may, in its discretion, do one or more of the following: (i) arrange to have the
surviving or successor entity assume the Performance Units or Performance Shares
or grant replacement Performance Units or Performance Shares, as applicable,
with appropriate adjustments so that such Awards or their replacements represent
the right to receive cash or Shares as may be payable as a result of a Change in
Control with respect to the amount of cash or Shares receivable pursuant to such
Awards had payment under such Awards occurred in full prior to such Change in
Control, or (ii) cancel the Performance Units or Performance Shares upon the
payment to the Grantees in cash with respect to each such Award to the extent
then otherwise payable in cash or in Shares (including any Awards as to which
vesting or lapse of restrictions has taken place in accordance with (a) and (b)
of this Section), of an amount, with respect to Performance Units, that is equal
to the amount of cash payable as if all Performance Objectives had been
satisfied at the maximum level, and, with respect to Performance Shares, that is
equal to the Fair Market Value of the Shares payable as if all Performance
Objectives had been satisfied at the maximum level.
10.5 Non-Transferability. Until the vesting of Performance
Units or the lapsing of any restrictions on Performance Shares, as the case may
be, such Performance Units or Performance Shares shall not be sold, transferred
or otherwise disposed of and shall not be pledged or otherwise hypothecated.
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10.6 Relocation. If the Company shall relocate its
existing headquarters outside the greater St. Louis, Missouri area on or before
December 23, 2001 without the prior written consent of Jerald L. Kent, or of
Barry L Babcock or Howard L. Wood if Kent is not surviving at the time such
consent is sought (a "Headquarters Breach"):
(a) unless otherwise provided in the Agreement,
with respect to any Grantee who is a member of the corporate staff and is
employed and located at the St. Louis corporate headquarters and to whom
Performance Units or Performance Shares have been granted and who does not
relocate, if less than forty percent (40%)of the performance levels with respect
to such Awards have been met, then for purposes of this paragraph (a) of Section
10.6, (i) with respect to Performance Units, the Grantee shall (A) become vested
in all outstanding Performance Units as if all Performance Objectives had been
satisfied at forty percent (40%) of the maximum level and (B) be entitled to
receive in respect of all such Performance Units which become vested a cash
payment within ten (10) days after such Headquarters Breach, and (ii) with
respect to Performance Shares, restrictions shall lapse immediately on
outstanding Performance Shares as if Performance Objectives had been satisfied
at forty percent (40%) of the maximum level. With respect to such Grantee's
Awards with vesting or lapsed restrictions pursuant to this paragraph (a) of
Section 10.6, the Company shall pay, to each such Grantee in full satisfaction
of such Awards an amount equal to (I) the Fair Market Value of Shares subject to
such Award and (II) the amount, if any, specified in Section 6.5(b); and
(b) if any payment is made to any Grantee
pursuant to paragraph (a) of Section 10.6 above, then all Restricted Stock
granted to such Grantee shall be automatically canceled.
11. Other Share Based Awards.
11.1 Share Awards. The Committee may, in its discretion,
grant a Share Award to any Eligible Individual on such terms and conditions as
the Committee may determine in its sole discretion. Share Awards may be made as
additional compensation for services rendered by the Eligible Individual or may
be in lieu of cash or other compensation to which the Eligible Individual is
entitled from the Company.
11.2 Phantom Stock Awards.
(a) Grant. The Committee may, in its discretion,
grant shares of Phantom Stock to any Eligible Individuals. Such Phantom Stock
shall be subject to the terms and conditions established by the Committee in its
discretion and set forth in the applicable Agreement.
(b) Payment of Awards. Upon the vesting of a
Phantom Stock Award, the Grantee shall be entitled to receive a cash payment in
respect of each share of
- 27 -
Phantom Stock which shall be equal to the Fair Market Value of a Share as of the
date the Phantom Stock Award was granted, or such other date as determined by
the Committee in its discretion at the time the Phantom Stock Award was granted.
The Committee may, in its discretion, at the time a Phantom Stock Award is
granted, provide a limitation on the amount payable in respect of each share of
Phantom Stock. In lieu of a cash payment, the Committee may, in its discretion,
settle Phantom Stock Awards with Shares having a Fair Market Value equal to the
cash payment to which the Grantee has become entitled.
12. Effect of a Termination of Employment.
12.1 The Agreement evidencing the grant of each Option and
each Award shall set forth the terms and conditions applicable to such Option or
Award upon a termination or change in the status of the employment of the
Optionee or Grantee by the Company, a Subsidiary or a Division (including a
termination or change by reason of the sale of a Subsidiary or a Division),
which shall be as the Committee may, in its discretion, determine at the time
the Option or Award is granted or thereafter.
12.2 Excise Tax Limitation.
(a) Notwithstanding anything contained in this
Plan to the contrary, to the extent that any payment, distribution or
acceleration of vesting to or for the benefit of the Optionee or Grantee by the
Company (within the meaning of Section 280G of the Code and the regulations
thereunder), whether paid or payable or distributed or distributable pursuant to
the terms of this Plan or otherwise (the "Total Payments") is or will be subject
to the excise tax imposed under Section 4999 of the Code (the "Excise Tax"),
then the Total Payments shall be reduced (but not below zero) if and to the
extent that a reduction in the Total Payments would result in the Optionee or
Grantee retaining a larger amount, on an after-tax basis (taking into account
federal, state and local income taxes and the Excise Tax), than if the Optionee
or Grantee received the entire amount of such Total Payments. Unless the
Optionee or Grantee shall have given prior written notice specifying a different
order to the Company to effectuate the foregoing, the Company shall reduce or
eliminate the Total Payments, by first reducing or eliminating the portion of
the Total Payments which are payable in cash and then by reducing or eliminating
non-cash payments, in each case in reverse order beginning with payments or
benefits which are to be paid the farthest in time from the Determination (as
hereinafter defined). Any notice given by the Optionee or Grantee pursuant to
the preceding sentence shall take precedence over the provisions of any other
plan, arrangement or agreement governing the Executive's rights and entitlements
to any benefits or compensation.
(b) The determination of whether the Total
Payments shall be reduced as provided in Section 12.2 (a) and the amount of such
reduction shall be made at the Company's expense by an accounting firm selected
by the Optionee or Grantee
- 28 -
from among the six largest accounting firms in the United States or at the
Optionee's or Grantee's expense by an attorney selected by the Optionee or
Grantee. Such accounting firm or attorney (the "Determining Party") shall
provide its determination (the "Determination"), together with detailed
supporting calculations and documentation to the Company and the Optionee or
Grantee within ten (10) days of the termination of Optionee's or Grantee's
employment. If the Determining Party determines that no Excise Tax is payable by
the Optionee or Grantee with respect to the Total Payments, it shall furnish the
Optionee or Grantee with an opinion reasonably acceptable to the Optionee or
Grantee that no Excise Tax will be imposed with respect to any such payments
and, absent manifest error, such Determination shall be binding, final and
conclusive upon the Company and the Optionee or Grantee. If the Determining
Party determines that an Excise Tax would be payable, the Company shall have the
right to accept the Determination of the Determining Party as to the extent of
the reduction, if any, pursuant to Section 12.2 (a), or to have such
Determination reviewed by an accounting firm selected by the Company, at the
Company's expense. If the Company's accounting firm and the Determining Party do
not agree, a third accounting firm shall be jointly chosen by the Determining
Party and the Company, in which case the determination of such third accounting
firm shall be binding, final and conclusive upon the Company and the Optionee or
Grantee.
13. Adjustment Upon Changes in Capitalization.
(a) In the event of a Change in Capitalization,
the Committee shall conclusively determine the appropriate proportional
adjustments, if any, to (i) the maximum number and class of Shares or other
stock or securities with respect to which Options or Awards may be granted under
the Plan, (ii) the maximum number and class of Shares or other stock or
securities with respect to which Options or Awards may be granted to any
Eligible Individual in any one calendar year period, (iii) the number and class
of Shares or other stock or securities which are subject to outstanding Options
or Awards granted under the Plan and the exercise price therefor, if applicable,
(iv) for Stock Appreciation Rights unrelated to an Option, the Fair Market Value
of a Share on the date the Stock Appreciation Right was granted, and (v) the
Performance Objectives.
(b) Any such adjustment in the Shares or other
stock or securities subject to outstanding Options or Awards that are intended
to qualify as Performance-Based Compensation shall be made in such a manner as
not to adversely affect the treatment of the Options or Awards as
Performance-Based Compensation.
(c) If, by reason of a Change in Capitalization,
a Grantee of an Award shall be entitled to, or an Optionee shall be entitled to
exercise an Option with respect to, new, additional or different shares of stock
or securities of the Company or any other corporation, such new, additional or
different shares shall thereupon be subject to all of the conditions,
restrictions and performance criteria which were applicable to the
- 29 -
Shares subject to the Award or Option, as the case may be, prior to such Change
in Capitalization.
14. Effect of Certain Transactions.
Subject to Sections 6.4, 7.7, 9.4(b) and 10.4 or as otherwise
provided in an Agreement, in the event of (a) the liquidation or dissolution of
the Company or (b) a merger or consolidation of the Company (a "Transaction")
that does not constitute a Change in Control, the Plan and the Options and
Awards issued hereunder shall continue in effect in accordance with their
respective terms, except that the Committee may, in its discretion, do one or
more of the following: (i) shorten the period during which Options and Awards
are exercisable (provided they remain exercisable for at least thirty (30) days
after the date on which notice of such shortening is given to the Optionees or
Grantees); (ii) accelerate the vesting schedule or the lapse of any restrictions
with respect to Options and Awards, (iii) arrange to have the surviving or
successor entity assume the Options and Awards or grant replacement Options and
Awards with appropriate adjustments in the exercise prices, and adjustments in
the number and kind of securities issuable upon exercise or lapse of
restrictions or adjustments so that the Options and Awards or their replacements
represent the right to purchase or receive the stock, securities or other
property (including cash) as may be issuable or payable as a result of such
Transaction with respect to or in exchange for the number of Shares purchasable
and receivable upon the exercise of the Options and Awards had such exercise
occurred in full prior to the Transaction, or (iv) with the prior written
consent of the Optionee or Grantee (unless otherwise stated in the Agreement),
cancel the Options and Awards upon the payment to the Grantees in cash (A) with
respect to each Options and Award to the extent exercisable for or payable in
Shares, of an amount that is equal to the Fair Market Value of the Shares
subject to the Award or portion thereof over the aggregate exercise price for
such Shares under the Award or portion thereof surrendered at the effective time
of the Transaction, or (B) with respect to each Award to the extent not
exercisable for or payable in Shares, of an amount that is equal to the cash
value of the Award or portion thereof surrendered at the effective time of the
Transaction. The Committee may, in its discretion, also provide for one or more
of the following alternatives in any particular Agreement. The treatment of any
Option or Award as provided in this Section 14 shall be conclusively presumed to
be appropriate for purposes of Section 10.
15. Interpretation.
Following the required registration of any equity security of
the Company pursuant to Section 12 of the Exchange Act:
(a) The Plan is intended to comply with Rule
16b-3 promulgated under the Exchange Act and the Committee shall interpret and
administer the provisions of the Plan or any Agreement in a manner consistent
therewith. Any provisions
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inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan.
(b) Unless otherwise expressly stated in the
relevant Agreement, each Option, Stock Appreciation Right and Performance Award
granted under the Plan is intended to be Performance-Based Compensation. The
Committee shall not be entitled to exercise any discretion otherwise authorized
hereunder with respect to such Options or Awards if the ability to exercise such
discretion or the exercise of such discretion itself would cause the
compensation attributable to such Options or Awards to fail to qualify as
Performance-Based Compensation.
16. Pooling Transactions.
Notwithstanding anything contained in the Plan or any
Agreement to the contrary, in the event of a Change in Control which is also
intended to constitute a Pooling Transaction, the Committee shall take such
actions, if any, as are specifically recommended by an independent accounting
firm retained by the Company to the extent reasonably necessary in order to
assure that the Pooling Transaction will qualify as such, including but not
limited to (a) deferring the vesting, exercise, payment, settlement or lapsing
of restrictions with respect to any Option or Award, (b) providing that the
payment or settlement in respect of any Option or Award be made in the form of
cash, Shares or securities of a successor or acquirer of the Company, or a
combination of the foregoing, and (c) providing for the extension of the term of
any Option or Award to the extent necessary to accommodate the foregoing, but
not beyond the maximum term permitted for any Option or Award.
17. Successors; Binding Agreement.
17.1 This Plan shall be binding upon and shall inure to
the benefit of the Company, its Successors and Assigns, and the Company shall
require any Successors and Assigns to expressly assume and agree to comply with
the terms of the Plan in the same manner and to the same extent that the Company
would be required to perform it if no such succession or assignment had taken
place.
18. Termination and Amendment of the Plan or Modification of
Options and Awards.
18.1 Plan Amendment or Termination. The Plan shall
terminate as of the tenth anniversary of the date of its adoption by the Board
and no Option or Award may be granted thereafter. The Board may sooner terminate
the Plan and the Board may at any time and from time to time amend, modify or
suspend the Plan; provided, however, that:
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(a) no such amendment, modification, suspension
or termination shall impair or adversely alter any Options or Awards theretofore
granted under the Plan, except with the consent of the Optionee or Grantee, nor
shall any amendment, modification, suspension or termination deprive any
Optionee or Grantee of any Shares which he or she may have acquired through or
as a result of the Plan; and
(b) to the extent necessary under any applicable
law, regulation or exchange requirement, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable law,
regulation or exchange requirement.
18.2 Modification of Options and Awards. Subject to the
provisions of the Plan, no modification of an Option or Award shall adversely
alter or impair any rights or obligations under the Option or Award without the
consent of the Optionee or Grantee, as the case may be.
19. Non-Exclusivity of the Plan.
The adoption of the Plan by the Board shall not be construed
as amending, modifying or rescinding any previously approved incentive
arrangement or as creating any limitations on the power of the Board to adopt
such other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
20. Limitation of Liability.
As illustrative of the limitations of liability of the
Company, but not intended to be exhaustive thereof, nothing in the Plan shall be
construed to:
(a) give any person any right to be granted an
Option or Award other than at the sole discretion of the Committee;
(b) give any person any rights whatsoever with
respect to Shares except as specifically provided in the Plan;
(c) limit in any way the right of the Company or
any Subsidiary to terminate the employment of any person at any time; or
(d) be evidence of any agreement or
understanding, expressed or implied, that the Company will employ any person at
any particular rate of compensation or for any particular period of time.
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21. Regulations and Other Approvals; Governing Law.
21.1 Except as to matters of federal law, the Plan and the
rights of all persons claiming hereunder shall be construed and determined in
accordance with the laws of the State of Delaware without giving effect to
conflicts of laws principles thereof.
21.2 The obligation of the Company to sell or deliver
Shares with respect to Options and Awards granted under the Plan shall be
subject to all applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the Committee
in its discretion.
21.3 The Board may make such changes as may be necessary
or appropriate to comply with the rules and regulations of any government
authority.
21.4 Each Option and Award is subject to the requirement
that, if at any time the Committee determines, in its discretion, that the
listing, registration or qualification of Shares issuable pursuant to the Plan
is required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
Award or the issuance of Shares, no Options or Awards shall be granted or
payment made or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or obtained
free of any conditions as acceptable to the Committee in its discretion.
21.5 Notwithstanding anything contained in the Plan or any
Agreement to the contrary, in the event that the disposition of Shares acquired
pursuant to the Plan is not covered by a then current registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), and is not
otherwise exempt from such registration, such Shares shall be restricted against
transfer to the extent required by the Securities Act and Rule 144 or other
regulations thereunder. The Committee may, in its discretion, require any
individual receiving Shares pursuant to an Option or Award granted under the
Plan, as a condition precedent to receipt of such Shares, to represent and
warrant to the Company in writing that the Shares acquired by such individual
are acquired without a view to any distribution thereof and will not be sold or
transferred other than pursuant to an effective registration thereof under said
Act or pursuant to an exemption applicable under the Securities Act or the rules
and regulations promulgated thereunder. The certificates evidencing any of such
Shares shall be appropriately amended or have an appropriate legend placed
thereon to reflect their status as restricted securities as aforesaid.
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22. Miscellaneous.
22.1 Multiple Agreements. The terms of each Option or
Award may differ from other Options or Awards granted under the Plan at the same
time, or at some other time. The Committee may, in its discretion, also grant
more than one Option or Award to a given Eligible Individual during the term of
the Plan, either in addition to, or in substitution for, one or more Options or
Awards previously granted to that Eligible Individual.
22.2 Withholding of Taxes.
(a) At such times as an Optionee or Grantee
recognizes taxable income in connection with the receipt of Shares or cash
hereunder (a "Taxable Event"), the Optionee or Grantee shall pay to the Company
an amount equal to the federal, state and local income taxes and other amounts
as may be required by law to be withheld by the Company in connection with the
Taxable Event (the "Withholding Taxes") prior to the issuance, or release from
escrow, of such Shares or the payment of such cash. The Company shall have the
right to deduct from any payment of cash to an Optionee or Grantee an amount
equal to the Withholding Taxes in satisfaction of the obligation to pay
Withholding Taxes. In satisfaction of the obligation to pay Withholding Taxes to
the Company, the Optionee or Grantee may make a written election (the "Tax
Election"), which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the Shares then issuable to him or her
having an aggregate Fair Market Value equal to the Withholding Taxes.
Notwithstanding the foregoing, the Committee may, in its discretion, provide
that an Optionee or Grantee shall not be entitled to exercise or receive an
Award, as applicable, for which cash has not been provided by the Optionee or
Grantee with respect to the Withholding Taxes applicable to such Award.
(b) Notwithstanding the foregoing, if Options
have been transferred pursuant to the provisions of Section 6.1 the Optionee
shall provide the Company with funds sufficient to pay such tax withholding when
such withholding is due. Furthermore, if such Optionee does not satisfy the
applicable tax withholding obligation, the transferee may provide the funds
sufficient to enable the Company to pay the tax withholding. However, if Options
have been transferred, the Company shall have no right to retain or sell without
notice, or to demand surrender from the transferee of, shares of Stock in order
to pay such tax withholding.
22.3 Effective Date. The effective date of this Plan shall
be as determined by the Board in its discretion, subject only to the approval by
the affirmative vote of the holders of a majority of the securities of the
Company present, or represented, and entitled to vote at a meeting of
stockholders duly held in accordance with the applicable laws of the State of
Delaware within twelve (12) months of the adoption of the Plan by the Board.
- 34 -
AMENDMENT ONE
TO THE
CHARTER COMMUNICATIONS, INC.
2001 STOCK INCENTIVE PLAN
This Amendment (the "Amendment") to the Charter Communications Inc.
2001 Stock Incentive Plan is dated as of June 6, 2001.
Section 2.16 of the Plan is hereby amended in its entirety to
read as follows:
"Eligible Individual" means any of the following individuals
who is designated by the Committee in its discretion as
eligible to receive Options or Awards subject to the
conditions set forth herein: (a) any director, officer or
employee of the Company or a Subsidiary or Affiliate of the
Company, (b) any individual to whom the Company, or a
Subsidiary or an Affiliate of the Company, has extended a
formal offer of employment, or (c) any consultant or advisor
of the Company or a Subsidiary. Notwithstanding the foregoing,
the eligibility and/or participation of those employees
represented by a collective bargaining representative shall be
governed solely by the results of good faith negotiations
between the Company and such employees' representative and/or
by the express terms of any collective bargaining agreement
resulting therefrom.
AMENDMENT TWO
TO THE
CHARTER COMMUNICATIONS, INC.
2001 STOCK INCENTIVE PLAN
This Amendment (the "Amendment") to the Charter Communications Inc.
2001 Stock Incentive Plan, as amended through the date hereof (the "Plan"), is
dated as of October 30, 2001.
Section 2.18 of the Plan is hereby amended in its entirety to read as follows:
2.18 "Fair Market Value" on any date means the average of the high
and low sales prices of the Shares on such date on the principal national
securities exchange on which such Shares are listed or admitted to trading or,
if such Shares are not so listed or admitted to trading, the average of the high
and low sales prices of the Shares on such date on the Nasdaq or other market on
which such prices are regularly quoted or reported, or, if there have been no
regularly quoted or reported high and low sales prices with respect to the
Shares on such date, the Fair Market Value shall be the value established by the
Committee in good faith.
The terms of the Plan shall remain in full force and effect without
modification or amendment except as expressly set forth herein.
AMENDMENT THREE
TO THE
CHARTER COMMUNICATIONS, INC. 2001 STOCK INCENTIVE PLAN
This Amendment to the Charter Communications, Inc. 2001 Stock Incentive
Plan, as amended through the date hereof (the "Plan"), is effective as of
January 1, 2002.
1. Section 5.3 of the Plan is hereby amended by adding the following words to
the end of the penultimate sentence:
and, provided further, that termination for this purpose is the later of
(x) with respect to an Optionee who upon termination of employment as an
employee remains an Eligible Individual shall occur only when the Optionee
is no longer an Eligible Individual and (y) or with respect to Optionee
who is receiving severance payment shall occur when such payments cease,
provided Optionee enters into a release in the form acceptable to the
Company.
2. Section 5.4 of the Plan is amended in its entirety to read as follows:
5.4 Vesting. Subject to Section 6.4, each Option shall entitle the
Eligible Individual to purchase, in whole at any time or in part from time
to time, 25% of the total number of Shares covered by the Option as of the
first anniversary of the date of grant and an additional 25% of the total
number of Shares covered by the Option after the expiration of each of the
second, third and fourth anniversaries of the date of grant while the
Optionee is an Eligible Individual; provided however, that Options (i) may
vest in such other installments (which need not be equal) and at such
times as may be designated by the Committee in its discretion and set
forth in the Agreement, and (ii) unless the Committee provides otherwise
in the Agreement, shall continue to vest only while the Optionee is an
Eligible Individual. Notwithstanding the foregoing, the vesting of any
Option shall continue during the period the Optionee is receiving
severance payments provided Optionee enters into a release in the form
acceptable to the Company. The Committee may, in its discretion, permit
the continued vesting or accelerate the vesting of any Option or portion
thereof at any time.
3. Section 6.1 is amended by replacing the first sentence thereof with the
following:
Notwithstanding any other provision contained in this Plan, in the event
of a Change in Control, any unvested Options issued under this Plan to an
Optionee who is an employee of the Company or a Subsidiary or Affiliate of
the Company shall vest and become fully exercisable, subject to the
provisions of Section 12.2, upon (i) the termination by the Company,
Subsidiary, or Affiliate of the Optionee's employment other than for Cause
or (ii) the termination of the Optionee's employment for Good Reason,
during the 12-month period following the Change in Control.
The terms of the Plan shall remain in full force and effect without modification
or amendment except as expressly set forth herein.
AMENDMENT FOUR
TO THE
CHARTER COMMUNICATIONS, INC.
2001 STOCK INCENTIVE PLAN
This Amendment (the "Amendment") to the Charter Communications Inc. 2001
Stock Incentive Plan, as amended through the date hereof (the "Plan"), is dated
as of October 29, 2002.
Section 4.1 of the Plan is hereby amended to replace the first sentence thereof
with the following sentence:
The maximum number of Shares that may be made the subject of Options and
Awards granted under the Plan is 68,895,911 plus up to 21,068,102 Shares
based on forfeitures, cancellations and terminations under Charter
Communications Option Plan; provided, however, that in the aggregate, not
more than 3,000,000 of the number of allotted Shares may be made the
subject of Restricted Stock Awards under Section 10 of the Plan (other
than shares of Restricted Stock made in settlement of Performance Units
pursuant to Section 11.1(b).
The terms of the Plan (including the remainder of Section 4.1) shall
remain in full force and effect without modification or amendment except as
expressly set forth herein.
AMENDMENT FIVE
TO THE
CHARTER COMMUNICATIONS, INC.
2001 STOCK INCENTIVE PLAN
This Amendment to the Charter Communications, Inc. 2001 Stock Incentive
Plan, as amended through the date hereof (the "Plan"), is effective as of
January 27, 2003.
1. Article 5 of the Plan is hereby amended by adding the following section
after Section 5.5:
Section 5.6 Option Repricing. Notwithstanding anything
contained in this Plan to the contrary, the Committee may, in its sole
discretion, approve an Option repricing. For the purposes of the
preceding sentence, an "Option repricing" shall 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, by any other method repricing or replacing any outstanding
Option, or taking any other action deemed to be a "repricing" under the
rules of the national securities exchange or other market on which the
Shares are listed or admitted to trading.
The terms of the Plan shall remain in full force and effect without modification
or amendment except as expressly set forth herein.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO DIRECTION Please [ ]
IS MADE, THIS PROXY WILL BE VOTED FOR THE DIRECTOR Mark Here
NOMINEE, AND FOR PROPOSALS 2, 3 AND 4.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 2. AMENDMENT TO THE COMPANY'S 2001 STOCK INCENTIVE PLAN FOR AGAINST ABSTAIN
TO INCREASE BY 30,000,000 SHARES THE NUMBER OF SHARES [ ] [ ] [ ]
1.
ELECTION OF CLASS A / CLASS B DIRECTOR 2. RATIFICATION OF CLASS A COMMON STOCK AUTHORIZED FOR ISSUANCE
UNDER THE PLANKPMG LLP AS ____ ____ ____
INDEPENDENT PUBLIC ACCOUNTANTS | | | | | |
FOR WITHHELD AUTHORITY |___| |___| |___|
NOMINEE TO
NOMINEE VOTE FOR NOMINEE
3. AMENDMENTS TO THE 1999 OPTION PLAN AND THE 2001 FOR AGAINST ABSTAIN
[ ] [ ] STOCK INCENTIVE PLAN TO AUTHORIZE THE REPRICING [ ] [ ] [ ]
OF OUTSTANDING STOCK OPTIONS____ ____ 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 4. RATIFICATION OF KPMG LLP AS INDEPENDENT PUBLIC FOR AGAINST ABSTAIN
2003Meeting.
2004 Proxy Statement and the 20022003 Annual ACCOUNTANTS [ ] [ ] [ ]
Report.
Check here if you [ ]
plan to attend the
ANNUAL MEETING.
PLEASE NOTE: Cameras and recording devices are not
permitted at the Annual Meeting.
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 measures.
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.
- --------------------------------------------------------------------------------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 23, 2003,27, 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 May 27, 2003.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, FOR the amendment to the Company's 2001 stock incentive plan
to increase shares, FOR the amendments to the 1999 Option Plan and 2001 Plan to
authorize repricing, 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 YOU CAN NOW ACCESS YOUR CHARTER COMMUNICATIONS, INC. ACCOUNT ONLINE.
Access your Charter Communications, Inc. shareholder account online via Investor
ServiceDirect(R)(ISD).
Mellon Investor Services LLC, agent for Charter Communications, Inc., now makes
it easy and convenient to get current information on your shareholder account.
After a simple, and secure process of establishing a Personal Identification
Number (PIN), you are ready to log in and access your account to:
- View account status - View payment history for dividends
- View certificate history - Make address changes
- View book-entry information - Obtain a duplicate 1099 tax form
- Establish/change your PIN
VISIT US ON THE WEB AT HTTP://WWW.MELLONINVESTOR.COM
AND FOLLOW THE INSTRUCTIONS SHOWN ON THIS PAGE.
STEP 1: FIRST TIME USERS - ESTABLISH A PIN
You must first establish a Personal Identification Number (PIN) online by
following the directions provided in the upper right portion of the web screen.
You will also need your Social Security Number (SSN) or Investor ID available to
establish a PIN.
THE CONFIDENTIALITY OF YOUR PERSONAL INFORMATION IS PROTECTED USING SECURE
SOCKET LAYER (SSL) TECHNOLOGY.
- - SSN or Investor ID
- - PIN
- - Then click on the Establish PIN button
Please be sure to remember your PIN, or maintain it in a secure place for future
reference.
STEP 2: LOG IN FOR ACCOUNT ACCESS
You are now ready to log in. To access your account please enter your:
- - SSN or Investor ID
- - PIN
- - Then click on the Submit button
If you have more than one account, you will now be asked to select the
appropriate account.
STEP 3: ACCOUNT STATUS SCREEN
You are now ready to access your account information. Click on the appropriate
button to view or initiate transactions.
- - Certificate History
- - Book-Entry Information
- - Issue Certificate
- - Payment History
- - Address Change
- - Duplicate 1099--