8-KMaterial AgreementsShareholder MattersCorporate Changes+1

CHARTER COMMUNICATIONS, INC. /MO/ 8-K Report, Material Agreement (Aug 15, 2007)

Filed August 15, 2007For Securities:CHTR

Summary

Charter Communications, Inc. (CHTR) filed an 8-K on August 15, 2007, announcing the adoption of a shareholder rights plan, often referred to as a "poison pill." This plan was implemented by the Board of Directors on August 13, 2007, and involves a dividend of one preferred share purchase right for each outstanding share of Class A and Class B common stock, payable to shareholders of record as of August 31, 2007. The primary stated purpose of this rights plan is to protect Charter's substantial net operating loss carryforwards (NOLs) from being significantly limited or delayed in their use due to an "Ownership Change" as defined by Section 382 of the Internal Revenue Code. The company views these NOLs as a significant asset that can offset future federal income tax obligations. The rights plan aims to deter any single entity or group from acquiring 5.0% or more of the company's Class A common stock without the Board's approval, thereby safeguarding the value of these tax assets.

Key Highlights

  • 1Charter Communications adopted a shareholder rights plan (poison pill) effective August 13, 2007.
  • 2The plan involves issuing one preferred share purchase right per outstanding Class A and Class B common stock share.
  • 3The primary goal is to preserve the value of the company's Net Operating Loss carryforwards (NOLs) by preventing an "Ownership Change" under IRS Section 382.
  • 4The plan is designed to deter hostile takeovers by limiting any single party from acquiring 5.0% or more of Class A common stock without Board approval.
  • 5The rights become exercisable 10 business days after a public announcement that an "Acquiring Person" (defined as a 5.0% or more shareholder) has emerged.
  • 6The rights plan has an expiration date of December 31, 2008, unless terminated earlier by the Board or holders of a majority of Class B common stock.
  • 7A Certificate of Designation for Series B Junior Preferred Stock was filed, related to the implementation of the rights plan.

Frequently Asked Questions

The main purpose of the rights plan is to protect Charter Communications' substantial Net Operating Loss carryforwards (NOLs) from being impaired or significantly limited due to an "Ownership Change" under Section 382 of the Internal Revenue Code. These NOLs represent a valuable asset that can reduce future tax liabilities.

The rights plan is triggered if any person or group acquires 5.0% or more of Charter's outstanding Class A common stock without the Board's approval. Such an entity would be considered an "Acquiring Person," and the rights would become exercisable 10 business days after this is publicly announced.

For existing shareholders of record as of August 31, 2007, the plan provides them with a "right" to purchase additional shares at a discount under certain circumstances, which acts as a deterrent to a hostile takeover. Shareholders who already own 5.0% or more as of August 13, 2007, are grandfathered in, provided they do not acquire additional shares.

The rights plan will expire on December 31, 2008, or earlier if the Board determines that Charter's Section 382 Ownership Level has dropped below 25%, if the rights are redeemed or exchanged, or if holders of a majority of the Class B common stock decide to terminate the plan.