Charter 2002 Annual Report Download - page 116

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
(dollars in millions, except where indicated)
Separately, on February 12, 2003, a shareholders derivative suit (the ""Federal Derivative Action''), was
Ñled against Charter and its current directors in the United States District Court for the Eastern District of
Missouri. The plaintiÅ alleges that the individual defendants breached their Ñduciary duties and grossly
mismanaged Charter by failing to establish and maintain adequate internal controls and procedures.
UnspeciÑed damages, allegedly on the Charter's behalf, are sought by the plaintiÅs.
In addition to the Federal Class Actions, the State Derivative Action and the Federal Derivative Action,
six putative class action lawsuits have been Ñled against Charter and certain of its current directors and oÇcers
in the Court of Chancery of the State of Delaware (the ""Delaware Class Actions''). The Delaware
Class Actions are substantively identical and generally allege that the defendants breached their Ñduciary
duties by participating or acquiescing in a purported and threatened attempt by Defendant Paul Allen to
purchase shares and assets of Charter at an unfair price. The lawsuits were brought on behalf of Charter's
securities holders as of July 29, 2002, and seek unspeciÑed damages and possible injunctive relief. No such
proposed transaction by Mr. Allen has been presented.
The lawsuits discussed above are each in preliminary stages and no dispositive motions or other responses
to any of the complaints have been Ñled. No reserves have been established for those matters because the
Company believes they are either not estimable or not probable. Charter intends to vigorously defend the
lawsuits.
In August of 2002, Charter became aware of a grand jury investigation being conducted by the United
States Attorney's OÇce for the Eastern District of Missouri into certain of its accounting and reporting
practices, focusing on how Charter reported customer numbers, refunds that Charter sought from program-
mers and its reporting of amounts received from digital set-top terminal suppliers for advertising. Charter has
been advised by the U.S. Attorney's OÇce that no member of the Board of Directors, including its Chief
Executive OÇcer, is a target of the investigation. Charter is fully cooperating with the investigation.
On November 4, 2002, Charter received an informal, non-public inquiry from the StaÅ of the Securities
and Exchange Commission (SEC). The SEC has subsequently issued a formal order of investigation dated
January 23, 2003, and subsequent document subpoenas.
The investigation and subpoenas generally concern Charter's prior reports with respect to its determina-
tion of the number of customers, and various of its other accounting policies and practices including its
capitalization of certain expenses and dealings with certain vendors, including programmers and digital set-top
terminal suppliers. Charter is actively cooperating with the SEC StaÅ.
Charter is unable to predict the outcome of the lawsuits and the government investigations described
above. An unfavorable outcome in the lawsuits or the government investigations described above could have a
material adverse eÅect on Charter's results of operations and Ñnancial condition.
Charter is generally required to indemnify each of the named individual defendants in connection with
these matters pursuant to the terms of its Bylaws and (where applicable) such individual defendants'
employment agreements. Pursuant to the terms of certain employment agreements and in accordance with the
Bylaws of Charter, in connection with the pending grand jury investigation, SEC investigation and the above
described lawsuits, Charter's current directors and its current and former oÇcers have been advanced certain
costs and expenses incurred in connection with their defense.
In addition to the matters set forth above, Charter is also party to other lawsuits and claims that arose in
the ordinary course of conducting its business. In the opinion of management, after taking into account
recorded liabilities, the outcome of these other lawsuits and claims will not have a material adverse eÅect on
the Company's consolidated Ñnancial position or results of operations.
F-48