1
Exhibit 10.13
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "AGREEMENT") is made and entered into as
of ___________ ___, 1999 by and between Charter Communications, Inc., a Delaware
corporation incorporated on July 22, 1999, Charter Investment, Inc., a Delaware
corporation formerly known as Charter Communications, Inc. ("CHARTER
INVESTMENT"), Vulcan Cable III, Inc., a Washington corporation ("VULCAN III"),
and Xxxx X. Xxxxx ("XXXXX").
PRELIMINARY STATEMENT
A. Charter Investment caused the Company to be formed as a means of
effecting a public offering of indirect equity interests in Charter
Communications Holding Company, LLC ("CHARTER LLC"), for the benefit of Charter
LLC.
B. The Company has undertaken a registered public offering on Form S-1
of shares of Class A Stock and upon the consummation thereof (the "IPO DATE")
will contribute the net proceeds of this public offering (or, where applicable,
shortly thereafter certain assets to be acquired utilizing a portion of such net
proceeds) to Charter LLC in exchange for Class B Common Units in Charter LLC.
C. Pursuant to (i) that certain Membership Interest Purchase Agreement,
dated as of July 22, 1999, by and between Charter LLC and Xxxxx, as amended (the
"PURCHASE AND CONTRIBUTION AGREEMENT") and in accordance with that certain
Amended and Restated Limited Liability Company Agreement for Charter LLC,
effective as of _______ __, 1999, by and between the members listed on Schedule
A thereto (the "LLC AGREEMENT") and (ii) that letter agreement from Xxxxx to the
Company dated September 1, 1999 (the "LETTER AGREEMENT"), Charter Investment and
Vulcan III will on the IPO Date hold Class A Common Units and Charter Investment
and Vulcan III and their affiliates may in the future acquire additional Common
Units from the holders thereof, from Charter LLC or through acquisition and
conversion of any preferred membership units of Charter LLC (collectively, the
"XXXX XXXXX UNITS").
D. As an inducement for Xxxxx to enter into the Purchase and
Contribution Agreement and the Letter Agreement, the Company has agreed to xxxxx
Xxxxx, Charter Investment, Vulcan III and any other Xxxxx Entities that acquire
Xxxx Xxxxx Units the rights provided for herein.
NOW, THEREFORE, in consideration of the respective covenants and
agreements of the parties and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by each party), the
parties hereby agree as follows:
-1-
2
Section 1 Definitions.
1.1. Terms Defined in this Section. For purposes of this
Agreement, the following terms shall have the following meanings:
"XXXXX ENTITY" means from time to time Xxxxx; the estate of
Xxxxx, any trust created as a result of the death of Xxxxx, or any organization
qualified under Section 501(c)(3) of the Code that is the beneficiary of Xxxxx
upon his death; any entity of which Xxxxx Entities own directly or indirectly at
least 50% of the voting power and economic interest, including without
limitation Charter Investment and Vulcan III; and any trust in which Xxxxx is a
trustee and owns more than 50% of the beneficial interest.
"AVERAGE TRADING PRICE" means, with respect to any publicly
traded securities, as of any Closing Date, the average for the twenty full
Trading Days preceding such date of:
(i) the last reported sale price, regular way, as
reported on the principal national securities exchange registered under Section
7 of the Exchange Act (or any successor provision of law) on which such
securities are listed or admitted for trading, or
(ii) if such securities are not listed or admitted for
trading on any national securities exchange, the last reported sale price,
regular way, as reported on the Nasdaq National Market (or any successor system)
or, if such securities are not listed on the Nasdaq National Market, the average
of the highest bid and lowest asked prices on each such Trading Day as reported
on the Nasdaq Stock Market, or
(iii) if such securities are not listed or admitted for
trading on any national securities exchange, the Nasdaq National Market or the
Nasdaq Stock Market, the average of the highest bid and lowest asked prices on
each such Trading Day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization.
For purposes of determining the "Average Trading Price" of any
securities,
(i) the applicable sale price or bid and asked prices of
such securities on any day prior to any "ex-dividend" date or any similar date
occurring prior to such Closing Date for any dividend or distribution (other
than a dividend or distribution contemplated by clause (B) of paragraph (ii)
below) paid or to be paid with respect to such securities shall be reduced by
the fair value of the per share amount of such dividend or distribution, and
(ii) the applicable sale price or bid and asked prices of
such securities on any day prior to (A) the effective date of any subdivision
(by stock split or otherwise) or combination (by reverse stock split or
otherwise) of such securities
-2-
3
occurring prior to such Closing Date or (B) any "ex-dividend" date or any
similar date occurring prior to such Closing Date for any dividend or
distribution with respect to such securities to be made in such securities or
securities that are convertible, exchangeable, or exercisable for such
securities shall be appropriately adjusted, as determined by the Board of
Directors of the Company, to reflect such subdivision, combination, dividend or
distribution.
"BACK-TO-BACK OBLIGATION" means any liability or obligation of
Charter LLC to the Company, the terms of which are substantially equivalent to a
liability or obligation of the Company to any third party, as contemplated by
Clause (b) of Article Third of the Certificate of Incorporation.
"BUSINESS DAY" means any day other than a Saturday, Sunday, or
other day on which commercial banking institutions in New York, New York are
required or authorized by law to remain closed.
"CERTIFICATE OF INCORPORATION" means the Restated Certificate
of Incorporation of the Company as in effect on the IPO Date.
"CLASS A STOCK" means the Class A common stock of the Company
as set forth in the Certificate of Incorporation.
"CLASS B STOCK" means the Class B common stock of the Company
as set forth in the Certificate of Incorporation.
"CLOSING" means the consummation of any exchange of all or a
portion of the Exchangeable Units directly, or indirectly as a result of a
Non-Recognition Transaction, for shares of Class B Stock in accordance with this
Agreement.
"CLOSING DATE" means, with respect to any Closing, the day on
which such Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON UNITS" means any Unit denominated "Common", including
without limitation Class A Common Units, Class B Common Units, Class C Common
Units, and Class D Common Units, as set forth in the LLC Agreement, and any
other securities into which such Common Units may thereafter be changed,
converted, or exchanged (other than pursuant to an exercise of the Exchange
Option).
"COMPANY" means Charter Communications, Inc., a Delaware
corporation incorporated on July 22, 1999.
"COMPANY'S SEC REPORTS" means all forms, reports, and similar
documents filed by the Company with the SEC.
-3-
4
"CONVERTIBLE SECURITIES" means (subject to Section 2.3(b)(7))
options, warrants, and other similar instruments issued by the Company that are
exercisable or convertible for shares of common stock of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, or
any successor federal statute, and the rules and regulations of the SEC
promulgated thereunder, in each case as amended from time to time.
"EXCHANGE OPTION" means the right and option of any Xxxxx
Entity to exchange directly or indirectly such Person's Common Units for Common
Stock pursuant to Section 2.1.
"EXCHANGING HOLDER" means any holder of any Common Units
exercising its Exchange Option with respect to such Common Units.
"GAAP" means generally accepted accounting principles in
effect from time to time in the United States of America, applied in a manner
consistent with that used in the preparation of the financial statements
included in the Company's SEC Reports.
"GOVERNMENTAL AUTHORITY" means any federal, state, or local
governmental authority, including any court or administrative or regulatory
agency.
"INTEREST" means any Common Units and any other securities
into which such Common Units may thereafter be changed, converted, or exchanged.
"INVESTMENT BANKER'S OPINION" means the reasonable opinion of
an investment banking firm of nationally recognized standing that is not
affiliated with the Company.
"LEGAL REQUIREMENTS" means applicable common law and any
applicable statute, ordinance, code, or other law, rule, regulation, order,
technical or other standard, requirement, or procedure enacted, adopted,
promulgated, or applied by any Governmental Authority, including the terms of
any license or permit and any applicable order, decree, or judgment that may
have been handed down, adopted, or imposed by any Governmental Authority, in
each case as in effect on the date of this Agreement.
"LLC ACT" means the Delaware Limited Liability Company Act, 6
Del. C. Section 18-101 et seq., as the same may be amended from time to time.
"MEMBER" means each Person who is listed on Schedule A to the
LLC Agreement as a Member, and any additional or substitute Member admitted to
Charter LLC in accordance with the terms of the LLC Agreement.
"MEMBERSHIP INTEREST" means a Member's entire limited
liability company interest in Charter LLC including the Member's right to share
in income, gains,
-4-
5
losses, deductions, credits, or similar items of, and to receive distributions
from, Charter LLC pursuant to the LLC Agreement and the LLC Act.
"MIRROR SECURITY" means any equity security issued by Charter
LLC and held by the Company, the terms of which are substantially equivalent to
a security of the Company issued to any third party, as contemplated by Clause
(b) of Article Third of the Certificate of Incorporation.
"PERSON" means any individual, corporation, partnership,
limited partnership, limited liability partnership, limited liability company,
trust, association, organization, or other entity.
"PREFERRED UNITS" mean any Units denominated "Preferred"
including the Class A Preferred Units, as set forth in the LLC Agreement.
"PUBLICLY TRADED STOCK" means the Class A Stock of the Company
or any other series of common stock of the Company that is publicly traded on
the Closing Date except that, if more than one class or series of shares of
common stock of the Company is publicly traded on the Closing Date, "Publicly
Traded Stock" means:
(i) if more than one class or series of shares of common stock
of the Company is publicly traded on the Closing Date but only one class or
series of shares of common stock of the Company is nationally traded on the
Closing Date, then "Publicly Traded Stock" means shares of that class or series
of common stock of the Company that is nationally traded on the Closing Date;
and
(ii) if more than one class or series of shares of common
stock of the Company is nationally traded on the Closing Date, then "Publicly
Traded Stock" means shares of that class or series of common stock of the
Company that is nationally traded on the Closing Date and has the highest
price-adjusted trading volume as of the Closing Date.
For purposes of this definition of "Publicly Traded Stock":
(i) a class or series of common stock is "nationally traded"
if it is (A) registered under Section 12 of the Exchange Act (or any successor
provision of law), and (B) listed for trading on any national securities
exchange registered under Section 7 of the Exchange Act (or any successor
provision of law) or on the Nasdaq National Market (or any successor system);
and
(ii) the "price-adjusted trading volume" of any class or
series of common stock of the Company means the product of the Average Trading
Price of a share of such class or series of common stock as of the Closing Date
times the average daily trading volume in the market from which the Average
Trading Price is determined of such class or series of common stock for the
twenty full Trading Days preceding the Closing Date.
-5-
6
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement entered into on the date of this Agreement among the Company, Charter
Investment, Vulcan III, Xxxxx, Xxxxxx X. Xxxx, Xxxxxx X. Xxxx and Xxxxx X.
Xxxxxxx.
"SEC" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act or the
Exchange Act.
"SEC REPORTS" means any form, report or similar document filed
by the Company with the SEC.
"SECURITIES ACT" means the Securities Act of 1933, or any
successor federal statute, and the rules and regulations of the SEC promulgated
thereunder, in each case as amended from time to time.
"TRADING DAY" means, with respect to any security, a day on
which the principal national securities exchange on which such security is
listed or admitted to trading, or the Nasdaq National Market or the Nasdaq Stock
Market, as applicable, if such security is not listed or admitted to trading on
any national securities exchange, is open for the transaction of business
(unless such trading shall have been suspended for the entire day) or, if such
security is not listed or admitted to trading on any national securities
exchange, the Nasdaq National Market or the Nasdaq Stock Market, any Business
Day.
"UNITS" means units of Membership Interest issued by Charter
LLC to its Members which entitle the Members to the rights set forth in the LLC
Agreement.
1.2. Terms Defined Elsewhere in this Agreement. For purposes
of this Agreement, the following terms have the meanings set forth in the
sections indicated:
Term Section
---- -------
B Reorganization Section 2.1(b)
C Reorganization Section 2.1(b)
Charter Investment Introductory Paragraph
Charter LLC Preliminary Statement
Exchange Option Section 2.1(a)
Exchange Value Section 2.2(b)
Financed Class B Stock Section 5
IPO Date Preliminary Statement
LLC Agreement Preliminary Statement
Loans Section 6
Merger Section 2.1(b)
Non-Recognition Transactions Section 2.1(b)
Xxxx Xxxxx Units Preliminary Statement
Permitted Transferee Section 7.9(a)
Purchase and Contribution
-6-
7
Agreement Preliminary Statement
Tax Agreement Section 2.1(a)
351 Exchange Section 2.1(a)
Vulcan III Introductory Paragraph
1.3. Terms Generally. The definitions in this Agreement shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context requires, any pronoun includes the corresponding masculine,
feminine, and neuter forms. The words "include," "includes," and "including" are
not limiting. Any reference in this Agreement to a "day" or number of "days"
(without the explicit qualification of "Business") shall be interpreted as a
reference to a calendar day or number of calendar days. If any action or notice
is to be taken or given on or by a particular calendar day, and such calendar
day is not a Business Day, then such action or notice shall be deferred until,
or may be taken or given on, the next Business Day.
Section 2 Exchange.
2.1. Right to Exchange.
(a) The Company hereby grants to each Xxxxx Entity the right
and option, exercisable from time to time, on one or more occasions, to exchange
all or any portion of the Common Units held by such Xxxxx Entity, for shares of
Class B Stock, provided that if the Exchanging Holder notifies the Company of
its intent and belief that Section 351 of the Code will apply to the exchange of
Common Units (the "351 EXCHANGE"), then the consummation of such exchange shall
be conditioned upon the receipt from the exchanging Xxxxx Entity of a Tax
Agreement substantially in the form of Exhibit A (the "TAX AGREEMENT").
(b) In the event that any Xxxxx Entity so elects, the Company
shall cooperate with such Xxxxx Entity in order to effect any exchange of Common
Units contemplated by Section 2.1(a) by either (at the election of the Xxxxx
Entity):
(i) permitting such Xxxxx Entity to merge with and into
the Company (or such Xxxxx Entity to merge with and into a directly wholly-owned
subsidiary of the Company or to cause a directly wholly-owned subsidiary of the
Company to merge with and into such Xxxxx Entity, provided that in the case of a
merger of such Xxxxx Entity with a wholly-owned subsidiary of the Company, the
surviving corporation is immediately thereafter liquidated by merger into the
Company) in a transaction qualifying as a reorganization under Section 368(a) of
the Code (the "MERGER"); provided, however, that any such Merger shall be
conditioned upon the Company obtaining the requisite approval (if any) of its
stockholders to such Merger;
(ii) permitting such Xxxxx Entity to exchange all of the
Common Units and, if any, common stock of the Company held by such Xxxxx Entity
for
-7-
8
shares of Class B Stock in a transaction which qualifies as a reorganization
under Section 368(a)(1)(C) of the Code (the "C REORGANIZATION"); or
(iii) permitting the shareholders of the Xxxxx Entity to
exchange equity in such Xxxxx Entity constituting "control," as defined in
Section 368(c) of the Code, of such Xxxxx Entity solely for shares of Class B
Stock in a transaction which qualifies as a reorganization under Section
368(a)(1)(B) of the Code (the "B REORGANIZATION").
The Merger, C Reorganization, B Reorganization and 351 Exchange are collectively
referred to as the "NON-RECOGNITION TRANSACTIONS." Such cooperation by the
Company shall include, without limitation, the taking of all action (and, if
applicable, causing its wholly-owned subsidiary to take all action) necessary or
advisable to effect the requested Non-Recognition Transaction (including without
limitation execution of reasonable and customary agreements of merger, the
voting of all shares in any subsidiary in favor of the Merger and (if required)
the submission of Merger for approval of the Company's shareholders). The
shareholders of the Xxxxx Entity that is a party to a Merger, C Reorganization
or B Reorganization shall be treated for purposes of this Agreement respecting
receipt of consideration as the Exchanging Holders. The consideration to be
issued by the Company to such Exchanging Holders in the Merger or B
Reorganization or to the Xxxxx Entity in the C Reorganization, as applicable,
shall be a number of shares of Class B Stock (allocated to such Exchanging
Holders in proportion to their respective holdings of the equity securities of
such Xxxxx Entity) equal to (x) the number of shares of Class B Stock determined
by Section 2.2 or 2.3 (as applicable) based on the number of Common Units held
by such Xxxxx Entity that is a party to the reorganization plus (y) the number
of shares of common stock of the Company of any class held by such Xxxxx Entity
that is a party to the Merger; provided that if the Xxxxx Entity that is a party
to the Non-Recognition Transaction owns any material assets other than Common
Units, common stock of the Company, goodwill and deferred tax assets, or has any
material liabilities required by GAAP to be reflected on a consolidated balance
sheet of such Xxxxx Entity as of the Closing Date (other than deferred taxes),
the Non-Recognition Transaction shall not be consummated until (I) such Xxxxx
Entity no longer owns such assets and (II) such liabilities of such Xxxxx Entity
have been defeased or the satisfaction of such liabilities has been adequately
provided for by another Xxxxx Entity; and provided further that the consummation
of the Non-Recognition Transaction shall be conditioned upon the receipt from
the shareholders of the Xxxxx Entity that is a party to the Non-Recognition
Transaction who are Xxxxx Entities of a Tax Agreement. The Company shall, and
Xxxxx shall cause such Xxxxx Entity to, take all necessary action to effectuate
the Non-Recognition Transaction.
(c) Any holder of Common Units shall exercise its
Exchange Option by delivering written notice of exercise to the Company,
specifying the portion of such holder's Common Units to be exchanged, or if a
Non-Recognition Transaction is to be other than a 351 Exchange, is to be
effected, written notice to that effect and the nature of the Non-Recognition
Transaction.
-8-
9
(d) Upon its receipt of notice pursuant to Section
2.1(c), the Company shall be obligated to acquire the Common Units specified in
such notice, or, if applicable, effectuate the Non-Recognition Transaction, and,
subject to Section 2.6, the Exchanging Holder shall be obligated to assign and
transfer to the Company the Common Units and/or common stock of the Company
being exchanged pursuant to Section 2.1(a) or 2.1(b), as applicable, on the
terms and conditions specified in this Agreement.
2.2. Exchange Ratio and Valuation under Certificate of Incorporation.
The Exchanging Holder shall receive one share of Class B Stock for each Common
Unit and one share of Class B Stock for each share of common stock of the
Company being exchanged pursuant to Section 2.1(a) or 2.1(b) directly, or
indirectly in the Non-Recognition Transaction, as applicable, so long as:
2.2.1. Clause (b) of Article Third and Clauses (a)(ii)
and (b)(iii) of Article Fourth of the Company's Certificate of Incorporation as
in effect on the IPO Date are not amended so as to substantively modify the
provisions thereof, and the Company is in substantial compliance with those
provisions; and
2.2.2. Sections 3.5.4, 3.6.1, 3.6.4(d), 3.6.4(e) and
5.1.7 of the LLC Agreement have not then been amended so as to substantively
modify those provisions in manner which would alter the amount per Unit which
any class of Common Units would be entitled to receive on liquidation of Charter
LLC.
2.3. Exchange Ratio if Certificate of Incorporation is Amended in
Certain Respects.
(a) If the conditions in Sections 2.2.1 and 2.2.2 are not
satisfied, the number of shares of Class B Stock to be issued in exchange for
any Common Units pursuant to this Agreement shall be that number of shares with
an aggregate Exchange Value as of the Closing Date, determined in accordance
with Section 2.3(b), equal to the fair market value of such Common Units as of
the Closing Date, determined in accordance with Section 2.3(b). The "EXCHANGE
VALUE" of each share of common stock of the Company issued at any Closing
pursuant to this Agreement shall be with respect to the Class B Stock, the
Average Trading Prices of the shares of Publicly Traded Stock into which such
Class B Stock is convertible. Additionally, one share of Class B Stock of the
Company shall be issued for each share of common stock of the Company directly
or indirectly exchanged in any Non-Recognition Transaction.
(b) The fair market value of any Common Unit shall be the
amount that would be distributed to the holder of such Unit upon the liquidation
of Charter LLC if the amount that would be distributed to the Company upon such
liquidation were equal to the fair market value of all Common Units held by the
Company as of the Closing Date. For purposes of this Section 2.3(b):
-9-
10
(1) Subject to adjustment as provided below in this
Section 2.3(b), the fair market value of the Company's Common Units as of the
Closing Date shall be deemed to equal the aggregate value of all outstanding
shares of Publicly Traded Stock, with each such share being valued at the
Average Trading Price of a share of Publicly Traded Stock as of the Closing
Date.
(2) If on the Closing Date there are outstanding any
Convertible Securities, other than a Convertible Security for which the Company
holds a Mirror Security, for which the exercise price per share of Publicly
Traded Stock is less than the Average Trading Price of a share of Publicly
Traded Stock as of such Closing Date, then the fair market value of the
Company's Common Units as of the Closing Date shall be increased by the amount
by which the aggregate exercise price of all such Convertible Securities is less
than the aggregate value of all shares of Publicly Traded Stock issuable upon
the exercise or conversion thereof, with each such issuable share being valued
at the Average Trading Price of a share of Publicly Traded Stock as of the
Closing Date.
(3) If on the Closing Date the Company has any
indebtedness, liabilities, or obligations that would be required by GAAP to be
reflected on a balance sheet of the Company as of the Closing Date (other than
deferred taxes, obligations for which there exists a Back-to-Back Obligation or
liabilities or obligations for which the Company is entitled to reimbursement
from Charter LLC), that would be required by GAAP to be reflected on an
unconsolidated balance sheet of the Company as of the Closing Date, the fair
market value of the Company's Common Units as of the Closing Date shall be
increased by the amount of such liability or obligation as of the Closing Date,
determined in accordance with GAAP.
(4) If on the Closing Date the Company has outstanding
any publicly traded equity securities, other than Publicly Traded Stock,
Convertible Securities and publicly traded equity securities for which the
Company holds a Mirror Security, required to be taken into account under Section
2.3(b)(2), the fair market value of the Company's Common Units as of the Closing
Date shall be increased by the aggregate value of all such outstanding
securities as of the Closing Date, with such securities being valued at the
Average Trading Price of such securities as of the Closing Date.
(5) If on the Closing Date the Company has outstanding
any equity securities (such as the Class B Stock) other than Publicly Traded
Stock, other publicly traded equity securities, Convertible Securities required
to be taken into account under Section 2.3(b)(2) and equity securities for which
the Company holds a Mirror Security, the fair market value of the Company's
Common Units as of the Closing Date shall be increased by the aggregate market
value of all such outstanding securities as of the Closing Date. For purposes of
this Section 2.3(b)(5):
-10-
11
(A) to the extent practicable, the market value of
such securities shall be the amount that would be distributed with respect to
such securities (or, if greater, any securities of the Company for which such
securities may be converted or exchanged) upon the liquidation of the Company if
the amount that would be distributed to the holders of the Publicly Traded Stock
upon such liquidation were equal to the aggregate value of all outstanding
shares of Publicly Traded Stock, with each such share being valued at the
Average Trading Price of a share of Publicly Traded Stock as of the Closing Date
(for example, a share of any class of common stock of the Company (such as the
Class B Stock) that has the same rights to liquidating distributions as a share
of Publicly Traded Stock shall be deemed to have a market value equal to the
Average Trading Price of a share of such Publicly Traded Stock, and a share of
non-convertible, non-participating preferred stock of the Company that is
entitled to a preference over the common stock of the Company upon liquidation
of the Company shall be deemed to have a market value equal to its liquidation
preference);
(B) if the market value of such securities cannot
practicably be determined under Section 2.3(b)(5)(A), the market value of such
securities shall be determined in good faith by the Board of Directors of the
Company; provided, however, that if the aggregate value of all such securities
exceeds $100,000,000, then the Board's determination of the market value of such
securities shall be made in reliance on, and shall be supported by, an
Investment Banker's Opinion obtained by the Company not more than three months
prior to the Closing Date; and
(C) the value of any securities valued pursuant to
Section 2.3(b)(5)(B) shall be determined without regard to any discount or
premium for liquidity, control, minority interest, lack of marketability,
restrictions on transfer, or any other market factor.
(6) If on the Closing Date the Company has any assets
(other than the Company's Common Units, Back-to-Back Obligations, Mirror
Securities, goodwill or deferred tax assets), including cash, cash equivalents,
or assets used in the conduct of any business, then the fair market value of the
Company's Common Units as of the Closing Date shall be reduced by the fair
market value of such assets as determined in good faith by the Board of
Directors of the Company; provided, however, that if the aggregate value of all
such assets (other than cash and cash equivalents) exceeds $100,000,000, then
the Board's determination of the fair market value of such assets shall be made
in reliance on, and shall be supported by, an Investment Banker's Opinion
obtained by the Company not more than three months prior to the Closing Date.
(7) Any exchange rights granted by the Company that
entitle the holder to exchange Common Units for shares of common stock of the
Company on valuation terms substantially similar to those provided in 2.2 and
2.3, shall not be deemed to be Convertible Securities or other equity securities
of the Company for purposes of Section 2.3(b)(2) or Section 2.3(b)(5).
-11-
12
(8) Without limiting the foregoing, for purposes of
Section 2.3, (i) any outstanding securities of the Company with respect to which
the Company holds a Mirror Security shall be deemed to be of equal and
offsetting value to such Mirror Security and (ii) any obligation of the Company
with respect to which there exists a Back-to-Back Obligation or a contractual
reimbursement obligation from Charter LLC or any subsidiary thereof shall be
deemed to be of equal and offsetting value to such Back-to-Back Obligation or
reimbursement obligation.
2.4. Time and Place of Closing.
(a) The Closing shall be held at the offices of Paul,
Hastings, Xxxxxxxx & Xxxxxx LLP in New York, NY, on the date specified below:
(1) if the Exchanging Holder has requested registration
for sale to the public pursuant to the Registration Rights Agreement of the
shares of Publicly Traded Stock to be received by it at the Closing through (A)
the exercise of its Exchange Option or (B) the simultaneous exercise of its
Exchange Option and its right to convert shares of Class B Stock into shares of
Publicly Traded Stock, then, at the Exchanging Holder's election, the Closing
shall take place following the effectiveness of the Company's registration
statement with respect to such shares and immediately prior to the closing of
the Exchanging Holder's sale of such shares in accordance with the plan of
distribution described in the registration statement;
(2) in all other cases, other than a Merger, the Closing
shall take place on the tenth Business Day after the Exchanging Holder delivers
its notice pursuant to Section 2.1(c) or as soon as practicable thereafter if
the vote of the stockholders of the Company is required, or at such other time
and place as the Exchanging Holder and the Company may agree; and
(3) In the case of a Merger, the Closing shall take place
as soon as practicable and upon the filing of the certificate of merger with the
Secretary of State of Delaware.
(b) The Exchanging Holder and the Company will cooperate so as
to permit all documents required to be delivered at or in connection with the
Closing to be delivered by mail, delivery service, or courier without requiring
either party or its representatives to be physically present at the Closing.
(c) Notwithstanding Section 2.4(a), if on the date on which
the Closing would otherwise be required to take place pursuant to Section 2.4(a)
there shall be in effect any order of or by any Governmental Authority that
would prevent or make unlawful the Closing, then the Closing shall be postponed
until a date, to be set by the Company on at least five Business Days' written
notice to the Exchanging Holder, as soon as practicable after such order ceases
to be in effect.
-12-
13
2.5. Closing Deliveries.
(a) Company's Deliveries. At the Closing, the Company will
deliver to the Exchanging Holder the following:
(1) Stock Certificates. Certificates evidencing the
shares of Class B Stock or Publicly Traded Stock to be issued at the Closing.
(2) Certificate. A certificate, signed on behalf of the
Company by an authorized officer, to the effect that:
(A) Except as otherwise disclosed in the Company's
SEC Reports filed prior to the Exchanging Holder's exercise of its Exchange
Option, as otherwise disclosed to the Exchanging Holder pursuant to Section 4.2,
or as would not affect the number of shares of Common Stock to be issued to the
Exchanging Holder at the Closing, since the date of the balance sheet of the
Company included in the most recent Annual Report on Form 10-K filed with the
SEC prior to the Exchanging Holders exercise of its Exchange Option, there has
not been any (i) material adverse change in the financial condition, results of
operations, liabilities, assets or business of the Company, taken as a whole,
except for material adverse changes due to general economic or industry-wide
conditions, or (ii) other events or conditions that, in the aggregate, have or
would reasonably be expected to have a material adverse effect on the financial
condition, results of operations, liabilities, assets, or business of the
Company, taken as a whole, except for events or conditions of a general economic
nature or of industry-wide applicability, and
(B) The Company does not have any indebtedness,
liability, or obligation of a type required by GAAP to be reflected on a balance
sheet that is not reflected or reserved against in the balance sheet included in
the most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K that
the Company filed with the SEC prior to the Exchanging Holder's exercise of its
Exchange Option or otherwise disclosed in such Form 10-Q or Form 10-K or in any
Form 8-K filed subsequent to such Form 10-Q or Form 10-K but prior to the
Holder's exercise of its Exchange Option, or otherwise disclosed to the
Exchanging Holder pursuant to Section 4.2, other than indebtedness, liabilities,
and obligations that either (i) were incurred after the date of such balance
sheet in the ordinary course of business or (ii) would not, in the aggregate,
have a material adverse effect on the financial condition, results of
operations, liabilities, assets, or business of the Company, taken as a whole,
taking into account, in the case of contingent liabilities, the probability that
the contingency would be realized and the probable liability that would result
therefrom or (iii) would not affect the number of shares of common stock of the
Company to be issued to the Holder at the Closing.
(b) Exchanging Holder's Deliveries. At the Closing, the
Exchanging Holder will deliver to the Company the following:
-13-
14
(1) Certificate Evidencing Common Units. One or more
certificates evidencing the portion of the Exchanging Holder's Common Units,
(or, in the case of a Non-Recognition Transaction, equity securities of the
relevant Xxxxx Entity) , to be transferred and assigned at the Closing (if
Common Units are certificated securities), together with duly executed
assignments separate from such certificates in form and substance sufficient to
effectuate the transfer of the portion of the Exchanging Holder's Common Units
(or, in the case of a Non-Recognition Transaction, equity interests of the
relevant Xxxxx Entity) to be transferred to the Company.
(2) Title Representations. A certificate to the effect
that the Exchanging Holder (and in the case of a Non-Recognition Transaction,
the Xxxxx Entity) owns all Common Units, and in the case of a Non-Recognition
Transaction, common stock of the Company, to be exchanged at the Closing, both
of record and beneficially, free and clear of all liens, encumbrances or adverse
interests of any kind or nature whatsoever (including any restriction on the
right to vote, sell, or otherwise dispose of the Common Units, and in the case
of a Non-Recognition Transaction, common stock of the Company), other than those
arising under applicable law and those arising under the organizational
documents of Charter LLC or the Company, and, upon the transfer of such Common
Units pursuant to this Agreement (and in the case of a Non-Recognition
Transaction, common stock of the Company), the Company will receive good title
to the Common Units, and in the case of a Non-Recognition Transaction, common
stock of the Company, free and clear of all liens, encumbrances, and adverse
interests created by the Exchanging Holder (and, in the case of a Merger or C
Reorganization, the Xxxxx Entity), other than those arising under applicable law
or those arising under the organizational documents of Charter LLC or the
Company.
(3) Investment Representations. A certificate to the
effect that:
(A) Except as may be described in any registration
statement filed pursuant to the Registration Rights Agreement with respect to
any of the shares of common stock of the Company to be acquired at the Closing,
it is acquiring such shares with the intent of holding such shares for
investment for its own account and without the intent or a view to participating
directly or indirectly in, or for resale in connection with, any distribution of
such shares within the meaning of the Securities Act of any applicable state
securities laws.
(B) It acknowledges and agrees that shares of common
stock of the Company are being issued to it in reliance on the exemption from
registration contained in Section 4(2) of the Securities Act and exemptions
contained in applicable state securities laws, and that they cannot be sold or
transferred except in a transaction that is exempt under the Securities Act and
those state acts or pursuant to an effective registration statement under those
acts or in a transaction that is otherwise in compliance with the Securities Act
and those state acts.
-14-
15
(C) It is an "accredited investor" within the
meaning assigned to such term under Regulation D promulgated pursuant to the
Securities Act (including an indication of the basis for such representation).
(4) Tax Agreement. If the exchange is a Non-Recognition
Transaction, a duly executed Tax Agreement.
2.6. Exchanging Holder's Right to Rescind Exercise of Exchange
Option.
(a) Any Exchanging Holder may elect to rescind its exercise of
its Exchange Option, in whole or in part, if:
(1) the Closing is postponed pursuant to Section 2.4(c)
for more than thirty days after the date on which the Closing would otherwise
have been required to take place, or
(2) The Company delivers a notice to the Exchanging
Holder pursuant to Section 4.2 in response to the Exchanging Holder's notice
pursuant to Section 2.1(c), or
(3) The Exchanging Holder requested registration pursuant
to the Registration Rights Agreement of the shares of Publicly Traded Stock to
be received by it at the Closing through (A) the exercise of its Exchange Option
or (B) the simultaneous exercise of its Exchange Option and its right to convert
shares of Class B Stock into shares of Publicly Traded Stock, and the
registration statement covering such shares was withdrawn, such shares were
withdrawn from inclusion in such registration statement or such shares were
excluded from such registration statement in accordance with the terms of the
Registration Rights Agreement.
(b) Any Exchanging Holder shall elect to rescind the exercise
of its Exchange Option pursuant to Section 2.6(a) by delivering written notice
of its election to the Company.
(c) An election by any Exchanging Holder to rescind the
exercise of its Exchange Option pursuant to Section 2.6(a), on one or more
occasions, shall not impair the Exchanging Holder's rights under this Agreement
to exercise its Exchange Option on any future occasion.
-15-
16
Section 3 Exchange at Election of Company. The Company shall have the
right, by notice to any Xxxxx Entity at any time at which there are no longer
any Class A Common Units outstanding, to require such Xxxxx Entity to exchange
its Common Units for Class B stock as provided in this Agreement.
Section 4 Other Covenants.
4.1. Prior Notice by the Company.
(a) The Company will deliver written notice to each other
party hereto at least thirty days prior to:
(1) the fixing of the record date to determine the
holders of shares of common stock of the Company entitled to receive any
dividend or other distribution (other than cash dividends payable out of
earnings or earned surplus and dividends payable solely in shares of common
stock) or any right, including the right to acquire any additional shares of
stock of any class;
(2) the fixing of the record date to determine the
holders of shares of common stock of the Company entitled to participate in any
capital reorganization or any reclassification of or change in the outstanding
capital stock of the Company (other than a change resulting solely from a
subdivision or combination of outstanding shares), or any consolidation or
merger, sale, transfer, or disposition of substantially all of the Company's
assets as an entirety, or the liquidation, dissolution, or winding up of the
Company; or
(3) the consummation of any disposition by the Company of
all or substantially all its Common Units.
(b) Any notice by the Company pursuant to Section 4.1(a) shall
specify the applicable record date and set forth the general nature of the
action to be taken.
4.2. Notice of Other Material Facts. Promptly following its receipt
of an Exchanging Holder's notice pursuant to Section 2.1(c) with respect to any
exercise of its Exchange Option, the Company will deliver written notice to the
Exchanging Holder describing in reasonable detail any facts that the Company
must disclose to the Exchanging Holder to enable the Company to deliver the
certificate described in Section 2.5(a)(2).
4.3. Investment Banker's Opinions. The Company will promptly notify
each Party hereto in writing of its decision at any time to retain an investment
banking firm to prepare an Investment Banker's Opinion. Such notice will
identify the assets or securities that are intended to be the subject of such
Investment Banker's Opinion. Within five Business Days after the Company
receives an Investment Banker's Opinion, the Company will deliver to each Party
hereto a copy of such Investment
-16-
17
Banker's Opinion together with any supplementary material that was prepared or
relied upon by the investment banking firm issuing such Investment Banker's
Opinion relating to the subject of such Investment Banker's Opinion.
4.4. Certain Transactions.
4.4.1. Conversion or Exchange of Class B Shares. If at any
time the outstanding shares of Class B Stock are changed into, or exchanged for,
a different kind of shares or securities of the Company, through reorganization,
recapitalization, reclassification, or other means, then, upon any subsequent
election of the Exchange Option, Exchanging Holders shall thereafter be entitled
to receive in lieu of Class B Stock either (at the election of the Exchanging
Holder) (i) Publicly Traded Stock or (ii) such shares or other securities of the
Company into which the Class B Stock has been converted or for which it has been
exchanged. Without limiting the foregoing, in the event that all shares of Class
B Stock are automatically converted into Class A Stock in accordance with the
terms of the Certificate of Incorporation, then, upon any subsequent election of
the Exchange Option, Exchanging Holders shall thereafter be entitled to receive
Class A Stock in lieu of Class B Stock.
(a) Assumption of Company Obligations by Successor. The
Company will not consolidate with any Person, merge into any Person, or
otherwise sell, convey, transfer, or otherwise dispose of all or substantially
all of its Common Units (in one transaction or a series of related transactions)
to any Person, or liquidate or dissolve unless the Person that consolidates or
merges with the Company or acquires all or substantially all of the Company's
Common Units (or, in the case of a triangular merger or consolidation or other
transaction in which a direct or indirect parent of such consolidating Person
has a publicly traded class of equity securities, such direct or indirect
parent) expressly assumes, by an agreement executed and delivered to the Holder,
in form satisfactory to the Holder, all of the obligations of the Company under
this Agreement.
Section 5 Representations of the Company. The Company represents and
warrants to each other party hereto as follows:
5.1. Organization, Standing, and Authority. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of Delaware. The Company has all requisite power and authority to execute
and deliver this Agreement and the documents contemplated hereby, and to perform
and comply with all of the terms, covenants, and conditions to be performed and
complied with by the Company hereunder and thereunder. The Company is duly
qualified to transact business in each jurisdiction in which the nature of its
business makes such qualification necessary, except where the failure to be so
qualified would not impair or hinder the ability of the Company to perform its
obligations under this Agreement.
-17-
18
5.2. Authorization and Binding Obligation. The execution, delivery, and
performance of this Agreement by the Company have been duly authorized by all
necessary actions on the part of the Company. This Agreement has been duly
executed and delivered by the Company and constitutes the legal, valid, and
binding obligation of the Company, enforceable against it in accordance with its
terms except as the enforceability of this Agreement may be affected by
bankruptcy, insolvency, or similar laws affecting creditors' rights generally,
and by judicial discretion in the enforcement of equitable remedies.
5.3. Absence of Conflicting Agreements; Consents. The execution and
delivery by the Company of this Agreement and the documents contemplated hereby
and the performance by the Company of its obligations under this Agreement and
the documents contemplated hereby, including its issuance of shares of common
stock of the Company (with or without the giving of notice, the lapse of time,
or both): (a) do not require the consent of any third party (including any
Governmental Authority, other than the holders of common stock of the Company in
the event of a Merger into the Company); (b) will not conflict with any
provision of the Certificate of Incorporation, By-Laws, or any other
organizational documents of the Company; (c) will not violate, result in a
breach of, or contravene any Legal Requirement applicable to the Company; and
(d) will not violate, conflict with, result in a material breach of any terms
of, constitute grounds for termination of, constitute a default under, or result
in the acceleration of any performance required by the terms of, any mortgage,
indenture, lease, contract, agreement, or similar instrument to which the
Company is a party or by which the Company or its properties may be bound
legally.
5.4. Shares Validly Issued. The shares of common stock of the Company
to be issued under this Agreement, when issued, sold, and delivered in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid, and nonassessable and will be free of restrictions on transfer other
than restrictions on transfer under applicable state and federal securities
laws.
5.5. Certificate of Incorporation. The Company will not amend the
Certificate of Incorporation between the date hereof and the IPO Date.
Section 6 Regulation U Compliance. So long as any Loans remain
outstanding to any Xxxxx Entity, an Xxxxx Entity shall not be entitled to
convert any shares of Financed Class B Stock held by such Xxxxx Entity into
Class A Stock pursuant to Clause (b)(viii)(A) of Article Fourth of the
Certificate of Incorporation. If an Xxxxx Entity desires to convert any Class B
Stock pursuant to Clause (b)(viii)(A) of Article Fourth of the Certificate of
Incorporation into Class A Stock, such holder shall deliver, together with the
stock certificate surrendered pursuant to Clause (b)(viii)(D) of Article Fourth
of the Certificate of Incorporation, a certificate, signed on behalf of an
authorized officer or person, to the effect that either (1) the Class B Stock to
be converted is not Financed Class B Stock or (2) the Loans, the proceeds of
which financed the Financed Class B Stock, are no longer outstanding. "LOANS"
means loans made after September 15, 1999
-18-
19
to any Xxxxx Entity from banks or other financial institutions subject to
Regulation U of the Board of Governors of the Federal Reserve System. "FINANCED
CLASS B STOCK" means any share of Class B Common Stock owned by an Xxxxx Entity,
including without limitation as a result of the exchange of Units for shares of
Class B Stock pursuant to any agreement between the Corporation and the holder
of such Membership Units, including this Agreement, or as a transferee of an
Xxxxx Entity, that was originally funded with proceeds of Loans.
Section 7 Miscellaneous.
7.1. Complete Agreement; Modifications. This Agreement
constitutes the parties' entire agreement with respect to the subject matter
hereof and supersedes all other agreements, representations, warranties,
statements, promises and understandings, whether oral or written, with respect
to the subject matter hereof, other than the Registration Rights Agreement. This
Agreement may not be amended, altered or modified except by a writing signed by
both parties.
7.2. Additional Documents. Each party hereto agrees to execute
any and all further documents and writings and to perform such other actions
which may be or become necessary or expedient to effectuate and carry out this
Agreement, including any Non-Recognition Transaction.
7.3. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be sufficiently
given if delivered in person or transmitted by telecopy or similar means or
recorded electronic communication to the relevant party, addressed as follows
(or at such other address as either party shall have designated by notice as
herein provided to the other party):
If to Xxxxx, Vulcan III or any other Xxxxx Vulcan Ventures
Entity (excluding Charter Investment): 000 000xx Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: President
Telecopy: (000) 000-0000
with a copy to: Irell & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxx
Telecopy: (000) 000-0000
-19-
20
If to Charter Investment: Charter Investment, Inc.
c/o Charter Communications, Inc.
00000 Xxxxxxxxxxx Xxxxx, Xxxxx 000
Attention: Xxxxxx Xxxx and Xxxxxx Xxxx
Telecopy: (000) 000-0000
with a copy to: Irell & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxx
Telecopy: (000) 000-0000
If to the Company: Charter Communications, Inc.
00000 Xxxxxxxxxxx Xxxxx, Xxxxx 000
Xx. Xxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxx and Xxxxxx Xxxx
Telecopy: (000) 000-0000
with copies to: Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx
Xxxxxx-Xxxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx
Telecopy: (000) 000-0000
Any such notice or other communication shall be deemed to have been given and
received on the day on which it is delivered or telecopied (or, if such day is
not a Business Day or if the notice or other communication is not telecopied
during business hours, at the place of receipt, on the next following Business
Day); provided, however, that any such notice or other communication shall be
deemed to have been given and received on the day on which it is sent if
delivery thereof is refused or if delivery thereof in the manner described above
is not possible because of the intended recipient's failure to advise the
sending party of a change in the intended recipient's address or telecopy
number.
-20-
21
7.4. No Third-Party Benefits. None of the provisions of this Agreement
shall be for the benefit of, or enforceable by, any Person that is not a party
to this Agreement, other than any Permitted Transferees of Xxxxx, Charter
Investment, Vulcan III and any other Xxxxx Entity.
7.5. Waivers Strictly Construed. With regard to any power, remedy or
right provided herein or otherwise available to any party hereunder (a) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay, or omission in exercise or other indulgence.
7.6. Severability. The validity, legality, or enforceability of the
remainder of this Agreement shall not be affected even if one or more of the
provisions of this Agreement shall be held to be invalid, illegal, or
unenforceable in any respect.
7.7. Successors and Assigns. Except as provided herein to the contrary,
this Agreement shall be binding upon and shall inure to the benefit of the
parties, their respective successors (including any successor by merger,
consolidation, or otherwise to all or substantially all of a party's business or
assets) and permitted assigns.
7.8. Assignments.
(a) Each of Xxxxx, Charter Investment, Vulcan III and any other
Xxxxx Entity may transfer some or all of any portion of its Common Units to any
Person that is an affiliate of such entity at the time of the transfer (each
such Person, a "PERMITTED TRANSFEREE"), and each of Xxxxx, Charter Investment,
Vulcan III and any other Xxxxx Entity may assign its rights under this Agreement
with respect to the transferred portion of its Common Units, without the consent
of the Company, to such Permitted Transferee.
(b) Upon the transfer of any Common Units to any Permitted
Transferee and the assignment to such Permitted Transferee of the transferor's
rights under this Agreement with respect to the transferred portion of its
Common Units, the Company and the Permitted Transferee will enter into an
Exchange Agreement in the form of Attachment A to this Agreement, and the
Company and the Permitted Transferee will thereupon have the rights and be
subject to the obligations set forth in such Exchange Agreement.
7.9. Governing Law. This Agreement shall be governed by the laws of the
State of New York, without regard to any choice of law provisions of that state
or the laws of any other jurisdiction.
-21-
22
7.10. Headings. The Section headings in this Agreement are inserted
only as a matter of convenience and in no way define, limit, extend, or
interpret the scope of this Agreement or of any particular Section.
7.11. Counterparts. This Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.12. Costs. All filing fees, transfer taxes, sales taxes, document
stamps, or other similar charges levied by any Governmental Authority in
connection with the exchange of shares of Common Stock for Common Units pursuant
to this Agreement shall be paid by the Company. Except as otherwise provided in
this Agreement, each party will bear its own costs in connection with the
performance of its obligations under this Agreement.
7.13. Default. In the event of any legal action between the parties
arising out of or in relation to this Agreement, the prevailing party in such
legal action shall be entitled to recover, in addition to any other legal
remedies, all of its costs and expenses, including reasonable attorney's fees,
from the non-prevailing party, regardless of whether such legal action is
prosecuted to completion.
[Remainder of Page Intentionally Left Blank]
-22-
23
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day first heretofore mentioned.
Charter Communications, Inc.
By:__________________________
Name:
Title:
Vulcan Cable III Inc.
By:__________________________
Name:
Title:
Charter Investment, Inc.
By:__________________________
Name:
Title:
Xxxx X. Xxxxx
__________________________
-23-
24
EXHIBIT A
TAX AGREEMENT
This TAX AGREEMENT is entered into as of ______________ between
________ [Xxxxx Entity] ("Exchanging Holder") and Charter Communications, Inc.
(the "Company").
1. Background. This Tax Agreement is executed and delivered pursuant to the
terms and conditions of that certain Exchange Agreement made and entered
into as of ___________ ___, 1999 by and among the Company, Charter
Investment, Vulcan III and Xxxxx (the "Exchange Agreement").
2. Terms Generally. Terms not defined in this Tax Agreement shall have the
same meaning as in the Exchange Agreement. The definitions in this Tax
Agreement shall apply equally to both the singular and plural forms of the
terms defined. Whenever the context requires, any pronoun includes the
corresponding masculine, feminine, and neuter forms. The words "include,"
"includes," and "including" are not limiting. Any reference in this Tax
Agreement to a "day" or number of "days" (without the explicit
qualification of "Business") shall be interpreted as a reference to a
calendar day or number of calendar days. If any action or notice is to be
taken or given on or by a particular calendar day, and such calendar day is
not a Business Day, then such action or notice shall be deferred until, or
may be taken or given on, the next Business Day.
3. Election. At the election of the Exchanging Holder, which election is made
on the signature page hereto, Charter LLC shall make the special
allocations to the Xxxxx Entity that is making the 351 Exchange pursuant to
Section 2.1(a) of the Exchange Agreement or is a party to a Non-Recognition
Transaction pursuant to Section 2.1(b) of the Exchange Agreement, with
respect to Class A Common Units owned by such Xxxxx Entity, or to the
Company, or to both, immediately prior to the consummation of the
Non-Recognition Transaction in the manner provided in Section 6.4.3 of the
LLC Agreement.
4. Purchase Price Adjustment. In the event that no election is made on the
signature page to this Tax Agreement, or if such an election is made, but
at the consummation of such Non-Recognition Transaction the Special Loss
Allocations (as defined in the LLC Agreement) with respect to the Class A
Common Units of the Exchanging Holder or the Xxxxx Entity that is a party
to the Non-Recognition Transaction, as applicable, exchanged directly or
indirectly for Class B Stock have not been offset with Special Profit
Allocations (as defined in the LLC Agreement) and other special allocations
provided in Section 6.4 of the LLC Agreement, then the following shall
apply:
(A) At such time as the Company incurs an obligation to make
an out-of-pocket payment for federal or state income or franchise tax
("Tax") as a result of current or prior period Special Profit Allocations
or other special allocations provided in Section 6.4 of the LLC Agreement
with respect to the Class A Common Units received by the Company in the
Non-Recognition Transaction, which, subject to paragraph (C) below, the
Company would not have been obligated to make if previously there had been
no
25
Special Loss Allocations with respect to such Class A Common Units (a "Tax
Payment"), the Company shall provide written notice to the Exchanging
Holder, not less than thirty (30) days prior to the date such Tax Payment
is due, of (I) the amount of such Tax Payment, (II) the date such Tax
Payment is due and (III) the Company's determination of the With and
Without Calculations (as hereinafter defined) of the amount of such Tax
Payment in respect of such Class A Common Units. At such time as the
Company incurs a reduced obligation to make an out-of-pocket payment for
Tax, receives a refund of Tax or the benefit of a credit against Tax as a
result of current or prior period Special Profit Allocations or other
special allocations provided in Section 6.4 of the LLC Agreement with
respect to the Class A Common Units received by the Company in the
Non-Recognition Transaction, which, subject to paragraph (C) below, the
Company would not have received or benefited from if previously there had
been no Special Loss Allocations with respect to such Class A Common Units
(a "Tax Rebate"), the Company shall provide written notice to the
Exchanging Holder, not more than thirty (30) days after the date such Tax
Rebate is received or the benefit is taken, of (x) the amount of such Tax
Rebate, (y) the date of such Tax Rebate and (z) the Company's determination
of the With and Without Calculations (as hereinafter defined) of the amount
of such Tax Rebate in respect of such Class A Common Units. The Tax Payment
and the Tax Rebate are referred to herein as the "Payment." In the event
that the Exchanging Holder shall disagree with (x) the arithmetic
calculations of the With and Without Calculations or (y) the factual basis
of any part of the With and Without Calculations, the Exchanging Holder
shall so notify Company in writing within fifteen (15) days following the
receipt of the With and Without Calculations (the "Exchanging Holder
Notification Period"). Such notification shall state the amount of the With
and Without Calculations or calculations thereof with which the Exchanging
Holder disagrees and the basis for such disagreement. If such disagreement
is not resolved by the parties within ten (10) days, such disagreement
shall be resolved in accordance with the procedures set forth in Section 5.
The Payment shall be adjusted (if at all) pursuant to the agreement of the
parties or the procedures set forth in Section 5, as the case may be, and,
after adjustment, subject to the last sentence of this paragraph, shall be
the Payment for all purposes of this Tax Agreement and used in any
subsequent calculation of the With and Without Calculations. If the
Exchanging Holder does not so notify the Company within the Exchanging
Holder Notification Period of any disagreement with the amount of the With
and Without Calculations or calculations thereof, subject to the last
sentence of this paragraph, the amount of the Payment so determined by the
Company in the With and Without Calculations provided to the Exchanging
Holder shall be the amount thereof and used in any subsequent calculation
of the With and Without Calculations. If subsequent to the determination or
making of any Payment, the taxable income, or Tax, or both, of the Company
is finally adjusted by any tax authority, whether by settlement or in any
administrative or judicial proceeding, the parties shall make an equitable
adjustment to any prior determinations of the Payment, and the applicable
With and Without Calculations, and the Company promptly shall pay to the
Exchanging Holder or the Exchanging Holder promptly shall pay to the
Company, as the case may be, an amount required to reconcile the Payment
actually made to the Payment that should have been made in light of the
final adjustment by the tax authority.
(B) The Exchanging Holder shall pay to the Company, or the
Company shall pay to the Exchanging Holder, as applicable, the amount of
the Payment determined in
-2-
26
accordance with the preceding paragraph not later than two (2) Business
Days prior to the specified due date of the Payment; provided, however,
that if the parties are disputing the amount thereof the Exchanging Holder
or the Company, as applicable shall pay the undisputed amount thereof, and
shall pay the balance thereof, if any, within two (2) Business Days after
any disagreement as to the proper amount of the Payment shall be resolved
in accordance with the procedures set forth in Section 5. The parties shall
for tax and financial reporting treat any Tax Payment by the Exchanging
Holder as a contribution to capital of the Company in respect of the Class
B Stock acquired by the Exchanging Holder on account of the direct or
indirect interest in the Class A Common Units acquired by the Company in
the Non-Recognition Transaction and any Tax Rebate shall be treated as an
adjustment of prior Tax Payments by the Exchanging Holder.
(C) The "With and Without Calculations" is a calculation
showing each of the following steps in the derivation of the amount
remaining (which is the Payment and can be either a positive number (a Tax
Payment) or negative number (a Tax Rebate)) when (I) the difference between
(x) the Company's cumulative Tax liability, from the IPO Date through the
end of the taxable period with respect to which the Tax obligation arises,
taking into account that the Special Loss Allocations were made, on the one
hand, and (y) the Company's cumulative Tax liability, from the IPO Date
through the end of the taxable period with respect to which the Tax
obligation arises, assuming the Special Loss Allocations were not made, on
the other hand, is reduced by (II) the sum of (x) the Tax Payments
previously made by the Exchanging Holder to the Company and (y) the Tax
Rebates previously made by the Company to the Exchanging Holder,
respectively, under this Section 4; provided, however, that in making the
determination required by this Section 4, the parties shall not take into
account any permanent limitation on the utilization of tax attributes by
the Company, such as on account of an ownership change under Section 382 of
the Code; and provided, further, in the event that substantially all of the
capital stock of the Company is acquired, or substantially all the direct
or indirect assets of the Company or Charter LLC are acquired, by an
unaffiliated entity or entities acting as a group, neither the Exchanging
Holder nor the Company shall be obligated to make any further payment to
the other, including any Payment, under this Section 4.
(D) In the event that any Non-Recognition Transaction is
partially taxable to the Exchanging Holders, the parties shall treat as not
being subject to this Tax Agreement the same percentage of Class A Common
Units as the percentage of gain recognized to total gain realized by the
Exchanging Holders in the Transaction. Consequently, in the event of an
election under Section 3, no special allocation shall be made in the manner
provided in Section 6.4.3 of the LLC Agreement to that number of Class A
Common Units equal to the percentage of gain recognized and no Tax Payments
shall be made on account of, and the With and Without Calculations shall
not reflect Taxes in respect of, such number of Class A Common Units.
(E) The Company and the Exchanging Holder shall cooperate (and
shall cause each of their affiliates to cooperate) fully at such time and
to the extent reasonably requested by the other party in connection with
the preparation or determination of the With and Without Calculations, the
preparation and filing of any tax return or the conduct of any audit,
dispute, proceeding, suit or action concerning any issues or any other
matter contemplated hereunder. Such cooperation shall include, without
-3-
27
limitation, (I) the retention and provision on demand of books, records,
documentation, tax returns or other information relating to any tax return,
(II) the provision of additional information and explanation of material
provided under clause (I), and (III) the use of the parties' reasonable
best efforts to obtain any documentation from a governmental authority or a
third party that may be necessary or helpful in connection with the
foregoing. The Company and the Exchanging Holder shall use reasonable
efforts to keep each other advised as to the status of tax audits and
litigation that may impact the With and Without Calculations. The Company
shall consult with the Exchanging Holder regarding any responses to
requests from any taxing authority and shall provide the Exchanging Holder
with copies of any such written responses before (to the extent deadlines
reasonably permit) such responses are given to any taxing authority.
Without limiting the foregoing, the Company shall promptly furnish to the
Exchanging Holder upon receipt a copy of any revenue agent's report or
similar report, notice of proposed adjustment, or notice of deficiency or
TEFRA report received by any member of the Company's consolidated group or
by any entity treated as a tax partnership. The Company shall advise and
consult with the Exchanging Holder with respect to any proposed tax
adjustments relating to the Company or any of its subsidiaries, including
entities treated as tax partnerships, that are the subject of an Internal
Revenue Service or state or local audit or investigation, or are the
subject of litigation, that may affect the With and Without Calculation.
5. Arbitration. Disagreements between the Company, on the one hand, and the
Exchanging Holder, on the other, with respect to the amount of any Payment
that the Company claims is owed by the Exchanging Holder, or that the
Exchanging Holder claims is owed by the Company, including the
determination of the With and Without Calculations, that are not resolved
by mutual agreement shall be resolved by arbitration pursuant to this
Section 5. Upon the expiration of the ten (10) day dispute resolution
period specified in Section 4(A) until the time of a final resolution by
the arbitrator, the time period for any payment shall be tolled.
(A) Any arbitrator selected pursuant to this Section 5
shall have at least five years of experience in the field of corporate
taxation, shall be an attorney licensed to practice law in any state of the
United States and shall not be or have been employed by or affiliated with
either party. The parties shall first attempt to agree on a mutually
satisfactory arbitrator. If the parties are unable to agree on a mutually
satisfactory arbitrator within fifteen (15) days after expiration of the
ten (10) day dispute resolution period specified in Section 4(A), each
party shall select an arbitrator. The two arbitrators thus selected shall
agree on and select a third arbitrator. If the two arbitrators cannot agree
on such third arbitrator within fifteen (15) days, the parties shall each
select a different arbitrator and renew the above procedure. If the
position of an arbitrator is vacated, the person or persons who originally
selected the arbitrator to fill such position shall select a new arbitrator
to fill the position, unless the parties agree to continue the arbitration
with the remaining arbitrators. When used hereinafter, the term
"arbitrator" shall refer to the three arbitrators so selected when
appropriate and a decision of a majority of such arbitrators shall
constitute a decision by the arbitrator in the appropriate context.
-4-
28
(B) The arbitration shall be conducted in accordance with
the rules set forth in Exhibit A. The arbitration shall not be conducted
under the auspices of the American Arbitration Association.
(C) Each party within thirty (30) days after engagement
of the arbitrator shall submit to the arbitrator a written statement of the
party's position (including the total net amount it asserts is owed by it
or is due to it) regarding the total amount in dispute, which position
shall be consistent with the With and Without Calculations exchanged
pursuant to Section 4(A), together with copies of such calculations.
(D) The arbitrator shall base his or her decision on the
following standards. In the case of a factual dispute between the parties,
the arbitrator shall make a determination of the correct facts. In the case
of a dispute regarding a legal issue or a settlement amount, the arbitrator
shall consider the strength of the parties' litigation positions relative
to the costs and risks of litigation. Upon making determinations with
respect to all issues in dispute, the arbitrator shall find in favor of the
party whose With and Without Calculations exchanged pursuant to Section
4(A) proposed the amount closest to the aggregate of the amounts so
determined.
(E) The arbitrator shall render a written decision
stating only the amount of such decision as soon as practicable. The
arbitrator shall also orally explain the bases of such decision to both
parties as soon as practicable. If and only if both parties request, the
arbitrator shall state the bases of such decision in writing. The
arbitrator's decision shall be in an amount equal to one of the total
amounts asserted by one of the parties in the With and Without Calculations
exchanged pursuant to Section 4(A). The arbitrator shall not, and is not
authorized to, render a decision in any other amount. The arbitrator's
decision shall be final.
6. Miscellaneous.
(A) This Tax Agreement constitutes the parties' entire
agreement with respect to the subject matter hereof and supersedes all
other agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof, other than the Exchange Agreement. This Tax Agreement may not be
amended, altered or modified except by a writing signed by both parties.
(B) Each party hereto agrees to execute any and all
further documents and writings and to perform such other actions which may
be or become necessary or expedient to effectuate and carry out this Tax
Agreement.
(C) Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be
sufficiently given if delivered in person or transmitted by telecopy or
similar means or recorded electronic communication to the relevant party,
addressed as follows (or at such other address as either party shall have
designated by notice as herein provided to the other party):
-5-
29
If to any Xxxxx Entity: [______________]
[______________]
[______________]
Attention: [______________]
Telecopy:[______________]
with a copy to: Irell & Xxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxx, Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx X. Xxxxx
Telecopy: (000) 000-0000
If to the Company: Charter Communications, Inc.
00000 Xxxxxxxxxxx Xxxxx, Xxxxx 000
Xx. Xxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxx and Xxxxxx Xxxx
Telecopy: (000) 000-0000
with copies to: Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
000 Xxxx Xxxxxx
Xxxxxx-Xxxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx
Telecopy: (000) 000-0000
Any such notice or other communication shall be deemed to have been given
and received on the day on which it is delivered or telecopied (or, if such
day is not a Business Day or if the notice or other communication is not
telecopied during business hours, at the place of receipt, on the next
following Business Day); provided, however, that any such notice or other
communication shall be deemed to have been given and received on the day on
which it is sent if delivery thereof is refused or if delivery thereof in
the manner described above is not possible because of the intended
recipient's failure
-6-
30
to advise the sending party of a change in the intended recipient's address
or telecopy number.
(D) None of the provisions of this Tax Agreement shall be
for the benefit of, or enforceable by, any Person that is not a party to
this Tax Agreement.
(E) With regard to any power, remedy or right provided
herein or otherwise available to any party hereunder (I) no waiver or
extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (II) no alteration, modification
or impairment shall be implied by reason of any previous waiver, extension
of time, delay, or omission in exercise or other indulgence.
(F) The validity, legality, or enforceability of the
remainder of this Tax Agreement shall not be affected even if one or more
of the provisions of this Tax Agreement shall be held to be invalid,
illegal, or unenforceable in any respect.
(G) Except as provided herein to the contrary, this Tax
Agreement shall be binding upon and shall inure to the benefit of the
parties, their respective successors (including any successor by merger,
consolidation, or otherwise to all or substantially all of a party's
business or assets) and permitted assigns.
(H) This Tax Agreement shall be governed by the laws of
the State of New York, without regard to any choice of law provisions of
that state or the laws of any other jurisdiction.
(I) The Section headings in this Tax Agreement are
inserted only as a matter of convenience and in no way define, limit,
extend, or interpret the scope of this Tax Agreement or of any particular
Section.
(J) This Tax Agreement may be executed simultaneously in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(K) Except as otherwise provided in this Tax Agreement,
each party will bear its own costs in connection with the performance of
its obligations under this Tax Agreement.
(L) In the event of any legal action between the parties
arising out of or in relation to this Tax Agreement, the prevailing party
in such legal action shall be entitled to recover, in addition to any other
legal remedies, all of its costs and expenses, including reasonable
attorney's fees, from the non-prevailing party, regardless of whether such
legal action is prosecuted to completion.
[Remainder of Page Intentionally Left Blank]
-7-
31
IN WITNESS WHEREOF, the parties have executed this Tax Agreement as of
the day first heretofore mentioned.
Charter Communications, Inc.
By:__________________________
Name:
Title:
_____________________________
By:__________________________
Name:
Title:
The Exchanging Holder ELECTS/DOES NOT ELECT
[strike one] pursuant to Section 3 of the
foregoing Tax Agreement that Charter LLC make
the special allocations.
-8-
