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HomeMy WebLinkAbout03/03/1998, 5 - REQUEST FOR TRANSFER OF CABLE TELEVISION FRANCHISE FROM SONIC CABLE TELEVISION OF SAN LUIS OBISPO TO CHARTER COMMUNICATIONS PROPERTIES LLC council j ac,Enaa IZEpout It=Nuo3bw s C ITY O F SAN L UIS OB ISP O FROM: Ken Hampian,Assistant City Administrative Officer Prepared By: Wendy George,Assistant to the City AdministrativemcerW,d SUBJECT: Request for Transfer of Cable Television Franchise from Sonic Cable Television of San Luis Obispo to Charter Communications Properties LLC CAO RECOMMENDATION Adopt a resolution approving the transfer of the City of San Luis Obispo's cable television franchise from Sonic Cable Television of San Luis Obispo to Charter Communications Properties LLC. and authorize the City Administrative Officer to sign the Change of Control Agreement. DISCUSSION Background In March, 1995, the City Council approved a 15-year franchise agreement with Sonic Cable Television of San Luis Obispo to provide cable service to City residents. Under the terms of the City's Cable Television Ordinance No. 1238 (1993),that franchise cannot be transferred without the consent of the Council through a resolution. On September 22, 1997, the City received an FCC Form 394 from Sonic Cable of San Luis Obispo requesting that the City consent to the transfer of the cable franchise to Charter Communications Properties LLC. In order to assure that the transfer takes place m an orderly manner, and that the City's interests are protected at all times, the City contracted with Sue Buske of The Buske Group to review the transfer request. This consultant was selected not only because of her experience with this type of transfer, but because her services were also being used by the County of San Luis Obispo and the City of Morro Bay to facilitate their Sonic franchise transfers. The City's Cable Television Ordinance requires that the new cable franchise grantee, Charter Communications, reimburse the City for the cost of the consultant's services. Timeline for Approval The Cable Communication Policy Act of 1984 requires that the Council take action to approve or disapprove a franchise transfer within 120 days of receiving the request for transfer. If the City does not act to approve or deny the request by that time,it is automatically deemed to be approved, unless the City and the requesting parties agree to an extension of time. Due to a number of unresolved issues, both with our City and with other local agencies, the cable companies have agreed to extend that time line until March 11, 1998. S-� r Council Agenda Report-Transfer of Sonic Cable Franchise Page 2 Summary of Key Findings The Buske Group has analyzed the information provided by Sonic and Charter on their respective Forms 394. After completing an initial review, a number of questions were submitted to the companies. Based on the responses to these questions, as well as the information initially provided, the consultant reached the following significant conclusions: • Charter Communications Properties LLC., the guarantor of the franchise obligations for the City, compares reasonably to industry norms on certain key financial ratios. Ratios evaluated included debt-to-equity,debt-to-cash-flow and the operating margin. • While Charter's cost structure may differ somewhat from Sonic's, there is presently no basis to forecast whether there will be significant rate impacts (either higher or lower) at some point in the future. (it should be noted that no rate increase can be triggered by costs related to the transfer.) • An interim transfer proposal to a company called Sonicvest, which is economically advantageous to Christopher Cohan, owner of Sonic Cable of San Luis Obispo, does not meet the financial, legal or technical requirements for a cable operating company. • Sonic Cable does not appear to be in compliance with certain primary franchise obligations. Issues to be Addressed in the Change of Control Agreement As a result of her findings, the consultant has suggested that the City include language in the Change of Control agreement which addresses the following areas of concern: Interim Transfer of Sonic Cable Television to Sonicvest LLC As far as actual cable operations are concerned, the transfer taking place is from Sonic Cable Television to Charter Communications. However, Christopher Cohan has requested an interim transfer of the franchise to an entity entitled Sonicvest LLC to accommodate his financial interests. This interim transfer would actually be a transfer of assets only. Sonic Cable Television would retain control of operations until the transfer from Somcvest LLC to Charter Communications is completed. Documentation of this interim transfer and Sonic Cable's continuing responsibility for operations throughout the interim transfer is included as part of the Change of Control Agreement The Agreement also requires the final transfer to Charter Communications to take place within 48 hours of the interim transfer or the City's approval is revoked. "Turn-key"Ssv tem for Live Broadcasting As part of the current franchise agreement, Sonic Cable is responsible for providing the City with a "tum-key" system for live broadcast from the City Council Chambers and the City/County Library Community. Room. After reviewing this section of the franchise with affected City staff, our consultant, and representatives of Sonic Cable, all parties are in agreement that it would be preferable for Sonic Cable to provide the City with adequate funds to install its own system, rather 3-s Council Agenda Report-Transfer of Sonic Cable Franchise Page 3 than having Sonic Cable actually do the installation. Sonic has agreed to pay the City $100,000 to purchase a system based on the current cost of the equipment list contained in the franchise plus several estimates we have received of design and installation costs.. The language of this offer is contained in the Change of Control Agreement. Franchise Language Concerning Closed Circuit Capability Included in the franchise agreement is a requirement that Sonic Cable provide the City with at least thirty megahertz(30 MHZ)of upstream and downstream closed circuit cable capacity, at no cost to government and educational users. Unfortunately, this language is somewhat vague and does not clearly state either the use for this network or the buildings to be networked together. While the City does not have a fully developed plan for such a network at this time,it is apparent that it would be an asset to current plans for creating a data link between all City buildings, and that it would also meet the Fire Department's needs for video conferencing and training at all its stations. The Change of Control Agreement addresses the fact that this issue must be resolved between the City and the new franchisee,Charter Communications,and sets a time frame of 3 months for resolution. Negotiations are still continuing between Charter Communications, Sonic Cable and our consultant concerning the fulfillment of this franchise obligation. Charter has indicated that it would like to have the issue resolved prior to signing the Change of Control Agreement:.If terms can be reached prior to the Council Meeting, new language will be provided to the Council for this section of the Change of Control Agreement. Other Remaining Issues There are several other franchise issues which remain to be resolved. However, resolution can be accomplished outside the Change of Control Agreement. They are: Verification of the System Rebuild Completion The franchise agreement requires Sonic Cable to perform an upgrade of the cable system, to be completed by March, 1998. Sonic Cable has indicated that the upgrade is complete and has requested that the City release it from security fund requirements. Before the City takes this step,it will be important that we are comfortable that all the requirements of the upgrade have been met. The consultant is recommending that the City hire an engineer who can do an evaluation and assure us that the upgrade is complete. Staff is considering this recommendation and anticipates possibly sharing the services of an engineer who is currently evaluating the County's cable system. It is not necessary for the City to approve completion of the upgrade for the transfer.to take place. Sonic will not be released from its upgrade obligations until the City is satisfied that the upgrade,is completed. Provision offmgMencv Alert System The franchise requires the cable system rebuild to include the provision of an emergency alert system with an audio override capability. Sonic has agreed to install the emergency alert system within 30 days from February 13, 1998, (barring delays resulting from extreme weather .33 Council AgendaReport-Transfer of Sonic Cable Franchise Rage 4 -- — - conditions).. FISCAL IMPACT The request for transfer will not have a.fi"scal impact on the City. Costs resulting from the transfer may not be passed along to .subscribers in the form of increased cable rates. The cost of the consultant's fee is to be paid by Sonic Cable and this:payment is documented in the Change of Control Agreement ALTERNATIVE The Council could act to disapprove the transfer. However;based on the recommendations of our consultant, and language to protect the City in the.Change of Control Agreementstaff believes that it is proper to approve the]transfer at this-time. Attachments 1 -Resolution 2-Change-of Ownership Agreement 3 :Report from Consultant - .. 4-Proposal from.Sonic dated 2/13/98 3� RESOLUTION No. (1998 Series) RESOLUTION OF THE CITY OF SAN LUIS OBISPO APPROVING CABLE TELEVISION TRANSFER OF OWNERSHIP WHEREAS, on February 14, 1995, the City of San Luis Obispo entered into an agreement with Sonic Cable Television of San Luis Obispo, pursuant to which the City of San Luis Obispo granted Sonic Cable Television of San Luis Obispo ("Sonic') a franchise to operate a cable television system in the City of San Luis Obispo; and WHEREAS, Christopher Cohan is the general partner and a limited partner in Sonic Partners, L.P.,which is the sole owner of Sonic Enterprises,Inc. ("SEPI which in tum owns Sonic; and WHEREAS, Sonicvest, L.L.C. is a new corporation created for the purpose of facilitating two transactions more fiilly described in FCC Form 394s submitted to the City of San Luis Obispo on or about September 29, 1997 (collectively, the transactions are referred to as the "Change of Control's that are designed to result in a change in control of the franchise to Charter Communications Properties, L.L.C. ("CCP' , a company that is indirectly wholly owned and controlled by its parent, Charter Communications,Inc. ("Charter'); WHEREAS, more specifically, Cohan, Sonic, Sonicvest and CCP have asked the City of San Luis Obispo to approve(1) a transaction that will ultimately result in an assignment of SEI's control of Sonic to Sonicvest, and (2) an additional transaction that will result in a sale of Sonic's assets from Sonicvest to CCP, and thereby result in the completion of the Change of Control of the franchise from the Sonic to CCP (which transactions are collectively referred to below as the "Change of Control"); and WHEREAS Sonicvest does not have the independent financial, technical or legal qualifications to justify the transfer to it, and whereas CCP relies on the experience and resources available through CCP's parent, Charter,to justify the transfer to it; WHEREAS, the parties to the Change of Control have represented that Sonic will continue to be the franchisee until the Change of Control is completed, at which time CCP will be the franchisee; and WHEREAS, there are certain questions regarding the compliance of Sonic with the franchise; and WHEREAS, all parties to the Change of Control affirm that they have been notified of these non-compliance issues, acknowledge that the City of San Luis Obispo provided them with an opportunity to address these issues, and further understand that their response to the City of San Luis Obispo with regard to certain of these issues is not satisfactory, and said parties nonetheless wish to complete the transaction, accepting all risks that the franchise is subject to all remedies under law that may be exercised by the City of San Luis Obispo including but not limited to drawing on the letter of credit,liquidated damages, or franchise revocation; and S'110 Resolution No. (1998 Series) Page 2 WHEREAS, the City of San Luis Obispo has determined that the request for Change of Control should be granted, but only if there is an agreement to certain conditions designed to (1) resolve certain outstanding issues related to the operations of Sonic under its franchise; (2) ensure that the Change of Control is entirely completed, given that Sonicvest is not qualified to hold the franchise; and(3) ensure that the proposed Change of Control does not harm the interests of the City of San Luis Obispo or the citizens of the City of San Luis Obispo; and WHEREAS, the parties to the Change of Control are each willing to agree to those conditions on their own behalf and on behalf of any partnership or corporation in the chain of ownership; NOW, THEREFORE, BE IT RESOLVED BY THE CITY OF SAN LUIS OBISPO AS FOLLOWS: SECTION 1. The City hereby denies the Transfer request as of the date hereof,unless all of the conditions in Sections 2-3 are fully satisfied by the dates specified below. If the conditions are not fully satisfied, then the Transfer to CCP will be deemed denied as of the date hereof, because the transfer may harm the legitimate interests of the City and of the public, and because there are serious questions concerning the status of the franchise. SECTION 2. No later than March 4, 1998, the Change of Ownership Agreement attached hereto as Exhibit A must be fully executed and effective, and all guarantees required by that Agreement must be delivered to the City. Each of the parties must be in full-compliance with each and every condition of the Agreement as of the date the Transfer is completed. SECTION 3. Without limiting any obligation of the parties under the Change of Ownership Agreement, the Transfer of ownership is denied unless (a) all payments, performance bonds, letters of credit and other matters that must be delivered on or before the date the Change of Control is completed must be timely delivered; (b) the Change of Control must be completed by April 30, 1998 so that CCP is the franchisee. SECTION 4. The City is not in any way determining that CCP is financially, legally, or technically qualified to hold a franchise, and the City has reserved consideration of those issues to any future transfer or franchise renewal proceeding. The City is further not finding that Sonic is in compliance with its franchise obligations. SECTION 5. The City Administrative Officer is hereby authorized to sign the Change of Control Agreement attached hereto,on behalf of the City. Upon motion of , seconded by and on the following roll call vote: AYES: NOES: ABSENT: �lo Resolution No. (1998 Series) Page 3 The foregoing Resolution was adopted this day of March, 1998. Mayor Allen Settle ATTEST: City Clerk APPROVED: me �'7 CHANGE OF CONTROL AGREEMENT THIS AGREEMENT IS MADE THIS DAY OF , 1998, BY AND BETWEEN:CITY OF SAN LUIS OBISPO; SONIC CABLE TELEVISION OF SAN LUIS OBISPO ("SONIC"); SONIC COMMUNICATIONS, INC. ("SCI"), SONIC ENTERPRISES, INC. ("SEI"), SONICVEST, CHRISTOPHER COHAN, CHARTER COMMUNICATIONS PROPERTIES, L.L.C. ("CCP") AND CHARTER COMMUNICATIONS, INC. ("CHARTER"), ON BEHALF OF ITSELF AND CERTAIN SUBSIDIARIES. WHEREAS, on February 14, 1995, the City of San Luis Obispo entered into an agreement with Sonic Cable Television of San Luis Obispo, pursuant to which the City of San Luis Obispo granted Sonic Cable Television of San Luis Obispo ("Sonic") a franchise to operate a cable television system in the City of San Luis Obispo; and WHEREAS, Christopher Cohan is the general partner and a limited partner in Sonic Partners, L.P., which is the sole owner of Sonic Enterprises, Inc. ("SEI") which in turn owns Sonic; and WHEREAS, Sonicvest, L.L.C. is a new corporation created. for the purpose of facilitating two transactions more fully described in FCC Form 394s submitted to the City of San Luis Obispo on or about September 29, 1997 (collectively, the transactions are referred to as the "Change of Control") that are designed to result in a change in control of the franchise to Charter Communications Properties, L.L.C. ("CCP"), a company that is indirectly wholly owned and controlled by its parent, Charter Communications, Inc. ("Charter"); WHEREAS, more specifically, Cohan, Sonic, Sonicvest and CCP have asked the City of San Luis Obispo to approve (1) a transaction that will ultimately result in an assignment of SEI's control of Sonic to Sonicvest, and (2) an additional transaction that will result in a sale of Sonic's assets from Sonicvest to CCP, and thereby result in the completion of.the Change of Control of the franchise from the Sonic to CCP; and WHEREAS Sonicvest does not have the independent financial, technical or legal qualifications to justify the transfer to it, and whereas CCP relies on the experience and resources available through CCP's parent, Charter, to justify the transfer to it; WHEREAS, the parties to the Change of Control have represented that, Sonic will continue to be the franchisee, until the Change of Control is completed, at which time CCP will be the franchisee; and WHEREAS, there are certain questions regarding the compliance of Sonic with the franchise; and 1 ATTACHMENT 2 s-� WHEREAS, all parties to the Change of Control affirm that they have been notified of these non-compliance issues, acknowledge that the City of San Luis Obispo provided them with an opportunity to address these issues, and further understand that their response to the City of San Luis Obispo with regard to certain of these issues is not satisfactory, and said parties nonetheless wish to complete the transaction, with the Charter parties accepting all risks associated with the exercise of remedies available under the franchise and at law, which remedies may include, by way of example and not limitation, drawing on the letter of credit, liquidated damages, or franchise revocation; and WHEREAS, the City of San Luis Obispo has determined that the request for Change of Control should be granted, but only if there is an agreement to certain conditions designed to (1) resolve certain outstanding issues related to the operations of Sonic under its franchise; (2) ensure that the Change of Control is entirely completed, given that Sonicvest is not qualified to hold the franchise; and (3) ensure that the proposed Change of Control does not harm the interests of the City of San Luis Obispo or the citizens of the City of San Luis Obispo; and WHEREAS, the parties to the Change of Control are each willing to agree to those conditions on their own behalf and on behalf of any partnership or corporation in the chain of ownership; NOW THEREFORE, IN CONSIDERATION OF THE FOREGOING AND THE MUTUAL CONSENTS SET FORTH HEREIN, THE CITY OF SAN LUIS OBISPO, THE PARTIES AGREE AS FOLLOWS: PART I: AFFIRMATION OF FRANCHISE OBLIGATIONS AND GUARANTEES WITH RESPECT TO THE IMPACT OF THE CHANGE OF CONTROL ON THE City of San Luis Obispo AND SUBSCRIBERS 1:1 Definitions - Cohan, Sonic Partners, L.P., SEI, Sonic and Sonicvest are referred to here as the "Sonic Panties." CCP and Charter, on behalf of itself and Charter Communications Properties, Inc., and Charter Communications Properties Holding Corp. are referred to as the "Charter Parties." 1.2 Acceptance — Sonic (for so long as it holds the franchise) and CCP (from and after the date it becomes franchisee) hereby accepts all of the commitments, duties and obligations, present, continuing and future, of the franchisee as set forth in the Franchise Agreement, this Agreement and the relevant local cable ordinances (together, the "Franchise Documents'). The Charter Parties and the Sonic Parties each agree that any obligations in any other agreement associated with the Change of Control (including the Asset Purchase Agreement or any agreement involving the shares held or formerly held by Christopher Cohan) are subordinated to the obligations established by the Franchise Documents. 2 S•9 1.3 Assumption of Obligations — The Charter Parties and the Sonic Parties agree that the Change of Control and the City of San Luis Obispo's approval of the Change of Control shall have no effect on the past, present or future obligations of the entity that operates as the franchisee, or operate to prevent the City of San Luis Obispo from taking any action against the entity operating as the franchisee that it could have taken had the Change of Control not been approved. By way of example and not limitation, CCP shall be liable for all of the acts and omissions occurring prior to the Change of Control, known and unknown. The Sonic and Charter Parties agree further that the Change of Control and the City of San Luis Obispo's approval thereof, will not operate to prevent the City of San Luis Obispo from considering the performance of Sonic prior to the Change of Control in connection with any future renewal proceeding. Furthermore, the assumption of liability by CCP shall not act to release Sonic or any of the other Sonic Parties from liability for acts and omissions prior to the Change of Control, which liability shall be joint and several with CCP and Sonicvest. The City may release any or all of the Sonic or Charter parties from liability for any particular act or omission without in any respect releasing the liability of the other Sonic or Charter Parties for the same or different acts or omissions. Nothing in this Section 1.3 shall be read to relieve the Sonic Parties from any obligation that they may have to the Charter Parties, but the failure of the Sonic Parties to comply with their obligations to the Charter Parties shall in no respect relieve the Charter Parties of their obligation to the City. 1.4 City of San Luis Obispo's Reliance Upon Representations - The Sonic Parties and Charter Parties acknowledge and agree that the City of San Luis Obispo will consent to the Change of Control in reliance upon the representations, documents and information provided by them to the City of San Luis Obispo, including, by way of example and not limitation, the two FCC Forms 394 and all information submitted to the City of San Luis Obispo in support thereof, all of which are incorporated into this Agreement by this reference. PART II: PROMISES OF THE PARTIES 2.1 Compliance with Franchise — Each of the Sonic Parties and CCP agrees that, from and after the consummation of the Change of Control, it will not take any action inconsistent with the promises contained in the Franchise Documents. Each of the Charter Parties agrees that it shall cause CCP to fully comply with all of the terms and conditions set forth in the Franchise Documents, and (when executed and delivered), this Agreement. Charter specifically guarantees the performance of CCP, and further agrees that, should CCP fail to comply with any provision of the Franchise Documents, the City of San Luis Obispo may proceed against CCP, Charter or both. Charter agrees to execute a guarantee in a form approved by the City of San Luis Obispo. Each of the Sonic Parties agrees that it will cause Sonicvest to fully comply with its obligations under the terms and conditions in the Franchise Documents and (when executed and delivered) this Agreement. Cohan specifically guarantees the performance of Sonicvest, and further agrees that, should Sonicvest fail to comply with any provision of the Franchise Documents, the City of San Luis Obispo may proceed against Sonicvest, 3 64-w Cohan or both. Cohan agrees to execute a guarantee in a form approved by City of San Luis Obispo. To the extent that any provisions of any document associated with the Change of Control, or any other contract conflicts with the Franchise Documents, this Agreement or applicable federal, state or local laws, the parties agree they are not approved, and the Change of Control is subject to the condition that such provisions, if any, shall be of no force or effect with respect to the Cable System serving the City of San Luis Obispo. 2.2 Access to Documents - Each of the Sonic Parties agrees that, except to the extent the same are transferred to the Charter Parties, they will retain all documents related to the cable system in the City of San Luis Obispo including all documents that show or record revenues derived from the operation of the cable system in the City of San Luis Obispo. These documents will be made available to the City of San Luis Obispo for inspection at the Office of the City Administrative Officer of the City of San Luis Obispc_within 30 days of a request therefor. The obligation under this section extends to retaining and producing documents recording revenues received from sales of advertising and other revenues that are based on national or regional sales, where only a portion of the revenues are attributable to the operations in the City of San Luis Obispo. Each of the Sonic Parties will identify an agent within the jurisdiction of the court to whom requests for information can be submitted and service of process rendered. The Sonic Parties each agree that the failure to produce'the materials on a timely basis or otherwise comply with the requirements of this paragraph.would cause the City of San Luis Obispo damage, the precise amount of which would be difficult to ascertain, and hence each agrees that it will pay liquidated damages of $250/day for each day (after the initial 30 days provided for above) that it fails to produce the requested documents at the City of San Luis Obispo City Hall. The Sonic parties further agree that this provision shall be enforceable against them in the state court in San Luis Obispo County.and hereby waive any objection to jurisdiction of that court)—'� over them, and agree to submit to the jurisdiction of the court. Provided that, the So►is Parties obligations under this section will terminate on the later of (1) January 1, 2003; or (2) the date that the Sonic Parties fully respond to a document request subn1lited on or before January 1, 2003. PART III: NO WAIVER The Sonic Parties and the Charter Parties agree that: 3.1 Any consent given by the City of San Luis Obispo in this Agreement and in the Change of Control Consent Resolution is not an affirmation that Sonic is in compliance with its Franchise, or that Sonic, after the transfer to Sonicvest, or CCP, after the , Change of Control will be financially, technically or legally qualified to operate as promised. Any consent is therefore made without prejudice to, or waiver of, tine•City of San Luis Obispo's right to fully investigate and consider past performance or financial, technical and legal qualifications and any other relevant considerations during any future franchise renewal or transfer process; or to obtain full remedy for;any past non- . , 4 !/ compliance, except as specifically provided below. 3.1.1. No later than 5:00 p.m. on March 5, 1998, Sonic shall pay the City $100,000 in settlement of certain disputes regarding equipment for City Council Chambers more specifically described below. Any transfer approval shall be of no force or effect unless the payment is made in a timely manner by Sonic. If Sonic makes the payment, it shall be deemed to be in compliance with its obligation to provide a turn-key system at City Council Chambers and the City Council Auxiliary Chamber as provided in Paragraph 5.2.(d) and Exhibit C.4. of the Franchise Agreement. Nothing herein shall release the franchisee from its obligation to provide and maintain facilities and equipment and property that were already provided pursuant to those sections, including by way of example and not limitation the easements obtained and conduit laid across Palm Street. 3.1.2 The City and the Sonic Parties and Charter Parties agree that the provisions of the franchise, including the provisions of Exhibit B.1.(d) are fully enforceable. However, there is a dispute as to what must be done to comply with Exhibit B.1.(d) in order to fully comply with the franchise obligation. The City and Charter agree to meet within 10 days of the date this agreement is signed to discuss the steps Charter must take to comply, and agree to conclude those discussions in a manner satisfactory to the City within 3 months of the date the City approves the change of control and franchise transfer- requested by Sonic and the Charter Parties. The Sonic Parties hereby waive any claim or defense they might otherwise raise with respect to such discussions. 3.2 The approval of the Change of Control is an approval of (1) the transfer of interests from Sonic to Sonicvest; and (2) the transfer of assets to the chain of rn�nership as shown on Exhibit A. It is not an approval of any other transaction, or chane, in control, whether or not referenced, required or permitted under any agreement related directly or indirectly to the transactions resulting in the Change in Control. Fui-Lher, the Change in Control is conditioned on the completion of both the transactions described.above. There may not be a material change in the transactions resulting in or affecting fne`Change in Control, as represented to the City of San Luis Obispo, without the prior approval-aflhe City of San Luis Obispo. 3.3 The approval is specifically subject to the Charter Companies obtaining the bank facility described at paragraph 3 of that certain letter dated Decbmber 10, 1997 from Ms. Foushee to Mr. John Dunn, City Administrative Officier, on substantially the same terms and conditions represented to the City of San Luis Obispo (Exhibit B). 3.4 -A,my-.approval shall be specifically subject to completion of the entire Change of Control by Ap61.,30, 1998. Sonicvest may only hold the franchise for the minimum period of time required to complete the Change of Control and therefore, the transfer to it shall be deemed disapproved unless the parties have scheduled completion of the Change of Control sc,that, at the time the transfer to Sonii vest occurs, the Change of \\` 5 Cohan or both. Cohan agrees to execute a guarantee in a form approved by City of San Luis Obispo. To the extent that any provisions. of any document associated with the Change of Control, or any other contract conflicts with the Franchise Documents, this Agreement or applicable federal, state or local laws, the parties agree they are not approved, and the Change of Control is subject to the condition that such provisions, if any, shall be of no force or effect with respect to the Cable System serving the City of San Luis Obispo. 2.2 Access to.Documents - Each of the Sonic Parties agrees that, except to the extent the same are transferred -to the Charter Parties, tidy,will retain all documents related to the cable system in the Cit y.,of,San.Luis Obispo including all documents that show or record revenues derived ..from the.operation of=the 'cable system in the City of San LuitJ Obispo. These documents will be made available to the City of San Luis Obispo.for inspection at_the Office'of the City. Adibinistrative_Officer of the City. of San Luis Obispo_within 30 days of a,request therefor_ 7,he obligation under this section extends to retaining and producing documents.recording•revanues received from sales of advertising and other„revenues that are based%on:natidnai or`regional sales, where only a portion of the retinues;are,attributable to the operatioris 1n the City of San Luis l Obispo. Each of the So7E Parties will .identify aniagerd Wdifiin tfie�jurisdiction "of the i court whom requests' ,for information can be -6ulimitted`fid'§eivice'`�bf°process rendered: The So i6 agree that 1:116 ailure'to iij iice`tl a matefia'Is.on a timely basis-or otherwise � ti a�� {' comply:with the requirements bf 4his� raph-V'bLil . cause l the City of San Luis Obispo da'mage,-the.precise>amount:of 7cf -%�ddfd%e difficult`#o ascertain, and hence each agrees that it will pay liquidated damages of $250/day for each day (after the initial 30 days provided for above) that it'-fails to produce the requested documents.at.the.City of San Luis:Q6ispo't.7ity"R" We�=Soinic parties further agree that this provision.-shall be-enforceable-agairig4*1eiti inithd.Ma e`cpur jQ. . San Luis Obispo"County:and.hereby. x �- r Y wave:anyrobjection •to lunsdiction ib�f,t _0 .over them, and agree to supmit to the.junsdiction;6f the. urtF PffiP that, Parties obli'ations under this section will terminate on�the'later 'of (1') Jany �9 a 9. or (2) the date,"that the,SW Parties fully respond-locwdocument eguest or before January 1; 2003. ; .. Aon PART III: NO WAIVER _ ,x• The Sonic Parties and.the Charger-Parties..agree that: . 3:1 Any consent givenFts ,the City of San Luis Obispo in this'i4greement and in the Change of Control'Corlution ':is not an affirmationahat Sonic is in compliance with its Franchise, or t6a� S`Onic, after the transfer to Sonicvest, or CCP, after the . Change of Control, will be. -technically-.or 'le all Y,. 'legally qualified toy riper, as promised. Any codsent is thereto'ro:.�'nade.without prejudice W,-or waiver of, "e City of San Luis Obispo's right to fufly_n_ tigate and consider past performance r financial, technical and legal g qualifications nd, ppy. :other relevant consideration during any e.. future francnise_renewal. or trartsfgr. 10cess; or to obtain full remedy for,an y past non- . , j 4 t S compliance, except as specifically provided below. 3.1.1. No later than 5:00 P.M. on March 5, 1998, Sonic shall pay the City $100,000 in settlement of certain disputes regarding equipment for City .Council Chambers more specifically described below. Any transfer approval shall be of no force or effect unless.-the payment is made in a timely, manner by Sonic. If Sonic makes the payment, it shall be deemed to be in compliance with its obligation to provide a tum-key system at City Council Chambers and the City Council Auxiliary Chamber as provided in Paragraph 5.2.(d) and..Exhibft C.4. of the Franchise Agreement. -Nothing-herein shall release.the frarichisee.;from its obligation to provide and maintain facilities and ,equipirieht and .-"'.. Ey that were already provided pursuant.toAhose sections,including by way'of example and not limitation the easements obtained and conduit laid across Palm Street. 3.1.2 The.,.City, and;.the.%Sonic ftt-ties and Charter Parties :a gripe,-that,,the provisions of. the franchise, including'-the provisions of l=xti bit B'1:(d) are fully , enforceable. However,where is'a dispute as to what must:be ddhe,to corn"pl�i�niith f de ,t„ ,.er._ _,i Ejchlbit�6?.(d).in orderto fully,compIYWith the franchise`obligation. The`City and Ch�r�er agree to.,meet within 10 days of the date'this agreement is signed to disc s ;,tie steps.,Charter must take eto )comply, 'and`a"lgree-to ncTu�iin.e,those , lscussions m 'a..manner.satisfactoryto the-City within 3`months of the date the x..{.c , r, r r ti ity approves_the change of control}and franchise 'transfer requested'.by Sonic . and the Charter Parties. The Son►c Parties hereby inranien �'claim or.defense they might otkiervvise-raise discussidns" `F 3.2 The apprrQval of the -Ch apgerefX- trbl 'je'ah appr64T'of'(1) `the. tkansfer of interesfs�fr m�$.onic„to;Ser{igvest„end, e`�trar�sfe�`eli agets to ,the. chain of er§�jp�a�sl'iown.on .Exhibit A �ls`� `<an ppfd�al' o�f'an %otlYer`tiansaction .or ch an i'nr cogtr�olrhetheq or,notrefereriaie�dfi� 'n ,1 rehaired, or.:pem�tted •under. any agreeme`:t related ,directly; of:iradirectly,3toe�traneaons resultiii in the . tian e., m Control } er, thg,CFiange in,Contwtdj!:bdr14it�orled nn:the pletion of.both the transactions d above. There may.:notbe.a material change in the transactions resulting in or affectingis. ange in Control; as represented to the City.of San Luis Obispo, without the prior approval, f. e City,of San Luis Obispo. 3.3 The approval is specifically subject:t6',,tl ev��h'aiter Companies obtaining the bank facility described at paragraph '3 of that certain letter dated Debernber 10,,1997.;from Ms. Foushee to.Mr. John Dunn,. City.Adrnihistrative-Officier; on sulist ntially t ie''same terms and conditions represented to the.City'of San�Luis Obispo (EXFi'ibit:B). •4` proval shall be specifically suNect to'completion of the eritir$ Change of Control by A 7 30, 1998. Sonicvest may .only hold tAe franchise for.theininimum Period oftime req�iired to complete the Change of C©ntrol and therefore,.the transfer to it shall be deemed`disapproved uniessy the parties”have cheduied`completion of the Change of.Control sd at, at the time the transfer'to Sonievesi occurs, the Change of ' i Control to CCP is to be completed within 48 hours. If the Change of Control is not completed in its entirety, then the parties agree that the City of San Luis Obispo will be deemed to have denied the requests that are before it in a proper and timely manner; any part of the Change of Control that has been completed will be promptly reversed and rescinded, so that the Sonic Parties and Charter Parties are returned to the ownership positions that they were in prior to submission of the Form 394 requests. 3:5 The approval is specifically subject to Sonic and the Charter Parties' acceptance of risks of revocation and other remedies, as more particularly described in the recitation of facts. PART IV: COSTS AND RATES— 4.1 Obligations Not Franchise Fees - CCP and Sonic agree that none of the costs CCP or any of the Sonic Parties must incur, or payments that CCP or any of the Sonic Parties must make under this Change of Control Agreement constitute franchise fees, and instead fall within one or more of the exceptions set out in 47 U.S.C. §542, and the each of them further agrees it will not raise any claim or defense to the contrary, in any forum. Without limiting the materiality of any other provision, it is agreed that the City of San Luis Obispo would not have approved the Change of Control without this provision. 4.2 CCP and Sonic Parties covenant and agree that neither the Change of Control nor this Agreement will have any effect (whether by increasing costs, or debt, or otherwise) that would result in or lead to an increase in rates or charges to subscribers within the City of San Luis Obispo. 4.3 City's Costs Reimbursed - Sonic agrees that pursuant to City Ordinance No 1238, Section 1.8, the City shall be reimbursed for all reasonable processing and review expenses in connection with a .transfer of the franchise and control of the franchise, including without limitation, costs of administrative review, financial, legal and technical evaluation of the proposed transferee, consultants (including technical and legal experts and all costs incurred by such experts), notice and publications costs and document preparation expenses. No later than 5:00 p.m. on March 5, 1998, Sonic shall pay the City $7,000 to cover the costs incurred by the City as described in above. Any transfer approval shall be of not force or effect unless the payment is made in a timely manner by Sonic. If Sonic makes the payment it shall be deemed to be in compliance with its obligation to reimburse the City for all costs associated with the transfer and change of control. PART V: REPRESENTATIONS AND WARRANTIES; INDEMNITY Section 5.1. Representations and Warranties Each of the Sonic Parties and Charter Parties hereby represent and warrant that: 5.1.1 the execution and delivery of this Agreement do not contravene, result in a breach of, or constitute a default under, any contract or agreement to which 6 s-/3 any of them is a party or by which any of them or any of their properties may be bound (nor would such execution and delivery constitute such a default with the passage of time or the giving of notice or both), and do not violate or contravene any law, order, decree, rule, regulation or restriction to which any of them is subject; 5.1.2 each is duly organized, legally existing and in good standing under the laws of the states of their respective organization and each are duly qualified to do business in the State of California. 5.1.3 this Agreement (and for CCP and Sonic as franchisees, and Charter and Cohan as guarantor, the Franchise Documents), constitute the legal, valid and binding obligations of each of them, enforceable in accordance with their terms; 5.1.4 the execution and delivery of, and performance under, this Agreement, the Change of Control and the Franchise Documents are within their respective powers and authority without the joinder or consent of any other party and have been duly authorized by all requisite action and are not in contravention of their respective charters, bylaws, partnership agreements or other organizational documents, as the case may be, or of any indenture, agreement or undertaking to which any of them is a party or by which any of them is bound; 5.1.5 the Change of Control will not adversely affect Sonic's or CCP's financial, technical and legal ability to comply with all of its obligations, including those set forth in the Franchise Documents and herein, and Sonic and the Charter Parties will devote the financial and technical resources necessary to ensure compliance with all obligations under this Agreement and the Franchise Documents; and Section 5.2 Indemnity. The Sonic Parties and Charter Parties each agree to indemnify and hold the City of San Luis Obispo harmless against any loss, claim, damage, liability or expense (including, without limitation, reasonable attorneys' fees) incurred as a result of any representation or warranty made by each of them herein which proves to be untrue or inaccurate in any material respect. PART VI: MISCELLANEOUS 6.1 Proof of Credit Bonds Guarantees - No later than 30 days prior to the Closing Date of the Change of Control, CCP must provide satisfactory proof to the City of San Luis Obispo that the letter of credit, insurance, and bonding required by the Franchise that will be in effect after the Change of Control have been obtained, and that there will be no gaps in coverages or liabilities. The Sonic Parties must maintain the letters of credit and bonds that they were required to maintain under the franchise so long as the franchise is under the control of any Sonic Party, and (if later) for so long as there is an outstanding dispute as to Sonic's performance under the franchise. By this agreement, the existence of a dispute is acknowledged. 6.2 Binding Agreement - This Agreement shall bind and benefit the parties hereto and their respective heirs, beneficiaries, administrators, executors, receivers, trustees, successors and assigns, and the promises and obligations herein shall survive the effective date hereof. 6.3 Acceptance of Agreement - By accepting this Agreement, (i) the Sonic Parties and Charter Parties accept, and agree to comply with, each provision hereof, (ii) the Sonic Parties and Charter Parties acknowledge and accept the City of San Luis Obispo's right to consent to the Change of Control pursuant to the Franchise Documents, and to enter into this Agreement; (iii) the Sonic Parties and Charter Parties agree that they will not oppose intervention by the City of San Luis Obispo in any proceeding affecting the System; and (iv) the Sonic Parties and Charter Parties agree that the Change of Control was granted pursuant to processes and procedures consistent with applicable law, and that they will not raise, and hereby expressly waive, all claims to the contrary. 6.4 Failure to Satisfy Conditions - If either the Sonic Parties and Charter Parties challenge, or fail to satisfy the conditions in this Agreement or in the Change of Control Consent Resolution, then the Sonic Parties and Charter Parties agree that the Change of Control Consent Resolution, to the extent it approves the Change of Control, shall be void and of no force or effect, and that the Change of Control Application shall, without any further action by the City of San Luis Obispo, be deemed denied as of the date of this Agreement. 6.5 Governing Law - This Agreement shall be governed in all respects by the laws of the State of California. 16.6 Time of the Essence - In determining whether a party has complied with this Agreement, the parties agree that time is of the essence. 6.7 Counteroarts - This document may be executed in multiple counterparts, and by the parties hereto on separate counterparts, and each counterpart, when executed and delivered, shall constitute an original agreement enforceable against all who signed it without production of, or accounting for, any other counterpart, and all separate counterparts shall constitute the same agreement. 6.8 Captions - The captions and headings of this Agreement are for convenience and reference purposes only, and shall not affect in any way the meaning and interpretation of any provisions of this Agreement. 8 S'� r r IN WITNESS WHEREOF, the parties hereto have executed this Change of Control Agreement as of the day and year first above written. FOR: SONIC CABLE TELEVISION OF SAN LUIS OBISPO BY: ITS: FOR: SONIC COMMUNICATIONS, INC. BY: ITS: FOR: SONIC ENTERPRISES, INC. BY: ITS: ` FOR: SONICVEST BY: ITS: FOR: CHRISTOPHER COHAN' BY: ITS: FOR: CHARTER COMMUNICATIONS PROPERTIES, L.L.C. BY: ITS: 9 /6 FOR: CHARTER COMMUNICATIONS, INC., FOR ITSELF AND CHARTER COMMUNICATIONS PROPERTIES, INC. AND CHARTER COMMUNICATIONS PROPERTIES HOLDING CORP. BY: ITS: FOR: THE CITY OF SAN LUIS OBISPO BY: ITS: G:ldient\Buske-5362103-SoniWntTmsfrlSan Luis Obispo City transfer agreement.doc 10 02-19-1998 12:32PM The Buske Group 916 441 7670 P.01 EXHIBIT A CHARTER OWNERSHIP CHART CHARTER COMMUNICATIONS PROPERTIES LLC Which is 100% Owned by CHARTER COMMUNICATIONS PROPERTIES, INC. Which is 100% Owned by CHARTER COMMUNICATIONS PROPERTIES HOLDING CORPORATION Which is 100% Owned by CHARTER COMMUNICATIONS, INC. OCHART -wR EXHIBIT B COMMUNICATIONS December 10, 1.997 VIA FACSIMILE AND NEXT DAY SERVICE Mr. John Dunn, City Administrative City of San Luis Obispo Officer _ 990 Palm Street San Luis Obispo, California 93401-3249loec 7 ��l✓ 110 Re: FCC Form 394 �a +Y221 City of San Luis Obispo /1241st Vit.. Dear Mr. Dunn: 7 Please find attached hereto the responses to those questions posed to Charter in your letter of October 27, 1997. The questions are answered seriatim. If you have any questions regarding the information contained herein, please feel .free to call me directly. Form 394, it is Charter's belief that all relevant information necessWith regards to your concern that the entire contract was not submitted with the FCC ary to understand the implications of the transfer was submitted along with the FCC Form 394. The form, on its face, specifically allows an applicant to redact "Confidential trade, business, pricing or marketing information, or other information not otherwise publicly available . . .". Schedule 3.06(b) is such a confidential document which is not otherwise publicly available; however, given your concern regarding its relevance, it is being transmitted for your review on a confidential basis under separate cover. Upon review of this document, it should alleviate any concern that it is the type of information as would materially or otherwise effect your review of this transaction. With regards to the specific questions posed to Charter, please be advised as follows: I. Charter Communications Properties, Inc. ("Charter"), the parent of Charter Communications Properties LLC ("CCP") will guarantee performance of the franchise obligations. Also, please see Exhibit A "Charter Communications Properties, Inc. Pro Forma Balance Sheet at Closing" attached hereto and incorporated herein by reference. 2. As noted in No. 1, Charter will guarantee performance of the franchise obligations and CCP is not consolidated into Charter. Thus, the relevant entity is Charter, which pro formas were provided in conjunction with No. 1. Please see Exhibit A "Charter Communications Properties, Inc. Pro Forma Balance Sheet at Closing" attached hereto and incorporated herein by reference. 12444 PowerscourtDrive•Suite 400•St. Louis,Missouri 63131.3660•(314)965.0555•Fax(314)965-8793 S-/ Mr. John Dunn December 10, 1997 Page 2 3. The Bank of Montreal, Mercantile Bank, CoreStates andNationsBank have underwritten the bank facility at CCP. We are currently in the process of syndicating the facility to additional banks. The term sheet for the bank financing, although not fully executed, has been attached. The term sheet contains the terms of the credit facility. The only entity which will be drawing on this facility is CCP. The total facility will be $230 million. This will be a new credit facility and currently there is nothing drawn down. Also, please see Exhibit B "Summary of Terms and Conditions", attached hereto and incorporated herein by reference. 4. Please see Exhibit C "Charter Communications Properties LLC City of San Luis Obispo Capital Expenditures" attached hereto and incorporated hereto by reference. -5. As you are no doubt aware, rates are regulated in accordance with 47 C.F.R. §76.900 et seq. As such, any rate sought to be charged would be subject to the rules and regulations of the Federal Communications Commission. While some cost variables may be higher under Charter, others will be lower. Charter will try to make every attempt to maximize value to consumers with a sensitivity to rates and charges. It is difficult to predict the outcome of rate filing, but Charter will make all filings in accordance with applicable law. 6. This information will be provided under separate cover. With regards to the date of the close of the transaction, both Charter and Sonic realize that the December 31 date is or was ambitious. We will seek to close as soon as all necessary consents are obtained. Thank you for your consideration in this regard. Please do not hesitate to call if you have additional or follow-up questions. Sinc rely, j di McColl m oushee Vice Presi t and Senior Counsel TMF:smf Law and Regulatory Affairs Attachments s'o� February 17, 1998 TO: Wendy George City of San Luis Obispo From: Sue Buske The Buske Group Jay Smith Public Knowledge, Inc. RE: Proposed Sonic Ownership Transfer INTRODUCTION In late September of 1997, Sonic Cable of San Luis Obispo submitted FCC Form 394 to the City, requesting your consent to the transfer of control of the cable system serving your community. A review of the San Luis Obispo franchise and/or ordinances indicated that a change of ownership requires the approval of the City. The Cable Communication Policy Act of 1984, as amended, states the following with regard to the sale of a cable system: (47 USC 537) "A franchising authority shall, if the franchise requires franchising authority approval of a sale or transfer, have 120 days to act upon any request for approval of such sale or transfer that contains or is accompanied by such information as is required in accordance with Commission regulations and by the franchising authority. If the franchising authority fails to render a final decision on the request within 120 days such request shall be deemed granted unless the requesting party and the franchising authority agree to an extension of time." ATTACHMENT 3 S�� The Federal Communication Commission's rules state as follows: (Section 76.502) "(a) A franchise authority shall have 120 days from the date of submission of a completed FCC Form 394, together with all exhibits, and any additional information required by the terms of the franchise agreement or applicable state or local law to act upon an application to sell, assign, or otherwise transfer controlling ownership of a cable system. (b) A franchise authority that questions the accuracy of the information provided under paragraph (a) must notify the cable operator within 30 days of the filing of such information, or such information shall be deemed accepted, unless the cable operator has failed to provide any additional information reasonably requested by the franchise authority within 10 days of such request (c) If the franchise authority fails to act upon such transfer request within 120 days, such request shall be deemed granted unless the franchise authority and the requesting party otherwise agree to an extension of time." The City, Sonic, Sonicvest, and Charter Communications agreed- to extend the timeframe permitted for the City to review the change of ownership and transfer of control due to the complexity of the two-tiered transfer. Pursuant to an extension agreement and a letter further extending the time to act,the City must act to approve or deny the transfer by March 11, 1998. SUMMARY OF KEY FINDINGS We have analyzed the information provided by Sonic and Charter in their filing of the FCC Form 394. After completing the initial review, we submitted a series of questions to Sonic and Charter. During the past weeks, we have had numerous meetings and telephone conversations with representatives of both Sonic and Charter regarding matters related to the transfer of ownership. This memo is intended to summarize our findings. We have also prepared a draft transfer resolution and transfer agreement. These documents were developed as a result of our analysis of the requested transfer of ownership and its implications for the City and the citizens of your community who subscribe to the cable system and services provided by Sonic. Both Sonic and Charter were provided a copy of a draft of the Change of Ownership Agreement on February 2, 1998 and provided an opportunity to submit any proposed changes. As of the date of this memo, neither company has provided any suggested changes or modifications to the Change of Ownership Agreement. - 2 - ,�.tZ This memo summarizes our observations regarding the financial aspects of the proposed transfers of the City of San Luis Obispo CA (City) cable franchise. A two-stage transfer is formally proposed: (1) a transfer of the interests of Christopher Cohan in Sonic Partners, L.P. (Sonic Partners is the sole owner of Sonic Enterprises, the ultimate parent company of the local franchisee, Sonic Cable Television of San Luis Obispo) to Sonicvest LLC, and (2) a purchase of the assets of Sonic Cable Television of San Luis Obispo by Charter Communications Properties LLC. Charter Communications Properties LLC would be 100 percent owned by Charter Communications Properties, Inc., which would be 100 percent owned by Charter Communications Properties Holding Corp., which in tum would be 100 percent owned by Charter Communications, Inc. For purposes of the discussion below, the first stage is referred to as the "Sonicvest" transaction, and the second stage as the "Charter" transaction. Our observations are based on: ■ FCC Form 394 applications for the Sonicvest and Charter transactions. ■ Responses from Charter and Sonic to inquiries we made based upon our initial review of the Form 394s and to questions we raised about the initial responses. Our principal findings and conclusions regarding the proposed Sonicvest transaction are as follows: ■ Sonic indicates that it proposed the interim transfer to Sonicvest because it will be economically advantageous to Mr. Cohan. ■ We cannot conclude that Sonicvest is financially, legally, or technically qualified because Sonic did not provide any financial statements for Sonicvest and Sonicvest has no previous experience in operating cable systems. Sonic stated that the operational control of the system will not change and that the financial resources currently available will remain available. ■ Given the lack of Sonicvest financial information, it would be appropriate for the City to place reasonable conditions upon any approval of the transfer to Sonicvest. For example, the City could possibly place a time limit on its approval, with the approval to expire if the consummation of the second stage transaction with Charter has not been completed within the specified period. Regarding the proposed ultimate transfer to Charter, our chief findings and conclusions are the following: ■ Charter Communications Properties, Inc. compares reasonably to industry norms on certain key financial ratios (we assessed this entity because it is one that Charter proposes as the guarantor of the franchise obligations; pro forma 1997 year-end data were applied): - 3 - Sit" - The pro forma debt-to-equity is about 2.6. Debt-to-equity is the ratio of long- term debt divided by the stockholders' equity. Lower ratios indicate less "leverage," (that is, less reliance on borrowed funds). Many cable companies have negative equity. - The debt-to-cash-flow ratio is about 6.7, compared to an average of about 8 in 199495 for selected companies in the industry. Debt-to-cash-flow measures how well the operator will be able to service debt out of cash flow from operations. A lower ratio generally means it will be easier to do so (other factors being equal). - The operating margin is about 46.5 percent, which falls in the middle of a selected group of cable operators. The operating margin indicates the degree to which revenue exceeds expenses, before depreciation, amortization, interest, and taxes. A higher operating margin is more favorable for the operator. ■ Substantial Sonic expenditures for a system upgrade prior to December 31, 1997 is a condition of the asset sale. ■ While Charter's cost structure may differ somewhat from Sonic's., there is presently no basis to forecast whether there will be significant rate impacts (either higher or lower). In addition to reviewing the FCC Form 394's, we also conducted a cursory review of primary franchise obligations. (It should be noted that The Buske Group was not contracted to do a compliance audit, franchise fee review, or technical review of the cable system.) We identified certain primary franchise obligations with which Sonic did not appear to be in compliance, discussed the status of those franchise obligations with City staff, and scheduled and held a meeting with representatives of both companies. On February 13, 1998, more than three weeks after the meeting, the City received a proposal from Sonic which indicated how the company would address certain identified areas of noncompliance: 1. Sonic proposed to provide a $100,000 payment to satisfy its obligation under Franchise Section 5.2. (d) and Exhibit C. 4 (provision of a turnkey video equipment system for the City Council Chambers and the Auxiliary City Council Chambers). We believe this is a reasonable offer and have integrated the offer into the attached Change of Ownership Agreement. 2. There is debate between the City and Sonic with regard to its Franchise obligation in Exhibit B.1.(d)which reads as follows: "(d.) Upon completion of the system rebuild provided in Section 3.1, Grantee shall make available for interactive EG use at least thirty megahertz (30MHz) of upstream capacity and thirty (30MHz) of downstream capacity, on a close circuit basis, at no cost to EG users.... Grantee shall be responsible for the procurement, installation and operation costs of all equipment external to the EG -4 - J Sell user facilities necessary to provide and maintain the communications network paths, except that Grantee shall be responsible for maintenance of the external cable plant at its sole expense." Exhibit B.1. (e.)further defines EG users for purposes of paragraph (d) as follows: "(e.)As used in subparagraph (d) above, "EG use" shall mean the use of the channels and bandwidth to provide live, taped or character generated programming, or data transmission, for educational or governmental purposes by the Grantor and the governmental and educational institutions listed in Exhibit C (collectively the "other EG Users"). Grantee reserves the right to add other governmental and educational institutions to the list of other EG Users in a timely manner to allow for construction of the necessary facilities in connection with the rebuild." Due to the offer contained in Sonic's February 13 proposal, further discussions between the City and Sonic/Charter will be required to reach agreement on how this franchise obligation will be satisfied. Given the fact that the City must choose to approve or deny the transfer at this time, we believe that a reasonable approach to take with regard to this matter would be to define a procedure for reaching agreement in the Change of Ownership Agreement that we have drafted. 3. Section 3.3 of the Franchise requires the cable system rebuild to include the provision of an emergency alert system with an audio override capability. Sonic has agreed to install the emergency alert system within 30 days (barring delays resulting from extreme weather conditions). 4. Sonic has indicated that it would like the City to "sign-off' that the system rebuild has been completed. We have concerns about the City doing so for a number of reasons. For example, the unresolved issue discussed in item 2 above is directly connected to the rebuild completion. We do not believe that the City should approve the system rebuild as complete until it has an independent engineer confirm that the rebuild has been properly completed, consistent with the Franchise and all appropriate City codes. Should you have any questions with regard to the matters discussed herein or any other matters relating to the franchise renewal, please do not hesitate to give me a call. - 5 - 3-.25 • "" �"" �-"�`+r�'� the Euske Group 916 441 7670 P.02 �.d MOTbS Wd6z:t►0 866T-£T-Z0 ' I PtOPOWI:City of San Luis Obispo Dated.Feb=xy 13, I998 This leu sea oat Snnic Cable Television of San Luis Obispo's Proposal to =&Vo 1r4,*d by the�tbtaggh ns cansubM The PrVO al set fotth herein is for a e"olutioa offose issues in coon with the Gay's appmrd of the f mmchise tr mm:&r vloaed �tls that ParagW h 52(b)of the Franchise requires ymvisiou of �bLI9 to all gem and cduc�tion users Estes oa Exh bit C. Sonic stttatgly di�eas with 8va contemlon. kbit C lista nomerotts EG rias but uaderthtee casegmics. 7be H&g ad west cbWU is those addW to a free drop. 11m second category are t m azo to etffide capability The t>tad at$goiy lisp only one ,.�'Hall,which]s Sonic bas mct its obligate with mVcd to the first t�ti+ou Am-sties have been 0�` lista 8�emtneut and provided with a free dmp dttdng system rebtu Soni=.has also MGC its abligadons under the second cdWy All listed sites have Im progtam otigia cm capabday- VI& zcsprot to the cloud aetr M, the data msadsdon OPWOEY rcftaccd is the bEW zaquind in Pantograph l.b.(d)of Exhibit B to the Frees AgmmmmL provided s fiber optic oomneciion Io city Hall as was dis sw4 dmiag f =bim Snarls has "®S O0 the City was W advise Sonic as to the e�ct location ofthe ooh at ons. Hail The Cltp also bad the right to add`otbar govcmmgnW and mal inti as Other ECt Uses ma time►man=tD allowfcr cansOuctim of the==guy hcgWes in conueclion with the rebuild:' The pry was and rains uaomtsm as to r m desires in this mgmd cad bas neminformed Sonic of any desire to add any additional govextmmQ or c&=abomW insatufim. Therefore,ifthe City waits to&sign&other so�tal and cdocadonai kSdttmoas to PWPOsa4 both be conaeamd in a"cloud Chartw ca,cmP'wM re ivlth Cily Hall widdu 88rm daps as>;r '° cable Vcmw�"0w sem-meq, °f p� Of will not be 1,93pond-ble for any am Which mW bmbemavoidcdifSo=basbeenatnsedOfft Qty'-noels d�moa. If lb-.City noes mm9 rogaest wifizm Ihis day period,then treither caWe OWatm fur S say f>uiber provision forthe-closed death."systeaa will be ramble Vsk' Couacrl villPaYtD the City $100,000 as fail mddactift ofita obtiga6ons m provide a mdibe City payment 5.2{d)of the FMP;Nm A This men t w Au6iary�fig Iscvided is P°�raph f nebise transfer: ill&��at the timt:ofibe approval of the ATTACHMENT 4 _ r nusre group 916 441 7670 p.03 b0'd Z08zTVS WmW38 866T-£T-M • I ' Samir is in the prods of wq*tiog the itutatiatioa of the an e WM FCC reg�g, Sonic that such it s, mmWill Y alert SYsdem in �'� S delays resulting iiam: , conft=. within 30 do£Rebut7d Ibe C*'s row has suggested tsar,if the City arrapts the fid,it is�battrrd �MV�g abo &S - -gs mthe system. Wer uy aSm It is our is amepang rho systma,the Ci with that srtgt the cyst=bas bxazebuik is a with the D is meaaly'aciazow that the not mesa that the MY caaaot of the Franchise Doctnmedts. It does :educe this �0�5'raise de5cietaaes is the tiara, We propose to �de�taadmg to WzWmg if necas&v�'to alle"ieto-my�. DOG=xob and Proposal &*meets the terms, eonftm aad int of tbe.Ftancbise as soon as pom off,flu oII to the City. We look forward to comsgletYng ttaasararoa