RISKS AND REASONABLY LIKELY WORST CASE SCENARIOS. The failure to correct a
material year 2000 problem could result in system failures leading to a
disruption in, or failure of certain normal business activities or operations.
Such failures could materially and adversely affect our results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the year 2000 problem, resulting in part from the uncertainty of the year 2000
readiness of third-party suppliers and customers, we are unable to determine at
this time whether the consequences of year 2000 failures will have a material
impact on our results of operations, liquidity or financial condition. The year
2000 taskforce is expected to significantly reduce our level of uncertainty
about the year 2000 problem and, in particular, about the year 2000 compliance
and readiness of our material vendors.
We are in the process of acquiring certain cable televisions systems, and
have negotiated certain contractual rights in the acquisition agreements
relating to the year 2000. We have included the acquired cable television
systems in our year 2000 taskforce's plan. We are monitoring the remediation
process for systems we are acquiring to ensure completion of remediation before
or as we acquire these systems. We have found that these companies are following
a three stage process similar to that outlined above and are on a similar time
line. We are not currently aware of any likely material system failures relating
to the year 2000 affecting the acquired systems.
CONTINGENCY AND BUSINESS CONTINUATION PLAN. The year 2000 plan calls for
suitable contingency planning for our at-risk business functions. We normally
make contingency plans in order to avoid interrupted service providing video,
voice and data products to our customers. The normal contingency planning is
being reviewed and will be revised by August 1999, where appropriate, to
specifically address year 2000 exposure with respect to service to customers.
COST. We have incurred $5.6 million in costs to date directly related to
addressing the year 2000 problem. We have redeployed internal resources and have
selectively engaged outside vendors to meet the goals of our year 2000 program.
We currently estimate the total cost of our year 2000 remediation programs,
including recent acquisitions closed as of June 30, 1999, to be approximately
$7.5 million. Although we will continue to make substantial capital expenditures
in the ordinary course of meeting our telecommunications system upgrade goals
through the year 2000, we will not specifically accelerate those expenditures to
facilitate year 2000 readiness, and accordingly those expenditures are not
included in the above estimate.
In accordance with an employment agreement between Charter Investment and
Jerald L. Kent, the President and Chief Executive Officer of Charter Investment,
and a related option agreement between Charter Communications Holding Company
and Mr. Kent, an option to purchase 3% of the equity value of Charter
Communications Holding Company, or 7,044,127 membership interests, was issued to
Mr. Kent. The option vests over a four year period from the date of grant and
expires ten years from the date of grant.
In February 1999, Charter Holdings adopted an option plan, which was
assumed by Charter Communications Holding Company in May 1999, providing for the
grant of options to purchase up to an aggregate of 10% of the equity value of
Charter Communications Holding Company. The option plan provides for grants of
options to employees, officers and directors of Charter Communications Holding
Company and its affiliates and consultants who provide services to Charter