HomeMy WebLinkAbout04/21/1998, C9 - REQUEST FOR TRANSFER OF CABLE TELEVISION FRANCHISE FROM SONIC CABLE TELEVISION OF SAN LUIS OBISPO TO CHARTER COMMUNICATIONS PROPERTIES LLC court L "'°°°°`µZ,-til
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CITYOF SAN LUIS 0 B I S P 0
FROM: Ken Hampian,Assistant City Administrative Officer
Prepared By: Wendy George,Assistant to the City Administrative Officer lu�,(
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 in 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 Monro Bay to facilitate their Sonic franchise transfers. The City's Cable Television
Ordinance requires that Sonic Cable 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 April 21, 1998.
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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
Fomes 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 nomas 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.
Significant 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 Sonicvest 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"System 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 our own system, rather
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UWE ING AGENDA
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council memoizanbum
DATE: April 13, 1998
TO: City Council Members
VIA: John Dunn, City Administrative O c
FROM: Wendy George,Assistant to the CAO WY
SUBJECT: Transfer of Cable Franchise from Sonic Cable to Charter Communications
At the time of agenda distribution, City Staff was still attempting to complete
negotiations with Sonic Cable and Charter Communications regarding the transfer of the
cable television franchise. Unless an extension of time is agreed to by both cable
companies,the City must act on the transfer by April 21, 1998. An agenda report and
recommendation will be distributed later this week,pending the outcome of negotiations.
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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 equipment list contained in the franchise (at current cost) 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 fanchise 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. 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 link would also allow video signals originated at
any of the connected locations to move from the closed circuit network to a PEG access channel for
broadcast. For example, information from our Emergency Operations Center could be broadcast
over the PEG channel. The Change of Control Agreement documents .the agreement reached to
link all of the main City facilities, plus San Luis Junior High School; the fact that Sonic will work
with the City to assure that the network design will be compatible with our needs; the fact that
Charter Communications will pay $20,000 toward the cost of any equipment needed to switch the
signal from the closed circuit network to the PEG channel; and that all work will be completed by
no later than the end of 1998.
Non-Compliance by Sonic Cable of the Rate Order Dated January 24, 1995
In Resolution No. 8386 (1995 Series), the City ordered Sonic Cable to take several actions related
to rates. Among these actions was one to abide by FCC regulations regarding the establishment of
separate charges for remote control units and addressable converters. Sonic had "bundled" these
charges in with the Sonic Video Club. The result was that subscribers had to pay for membership
in the Video Club even though they may have only wanted the converter and remote control unit.
As part of the review related to the cable transfer, we found that Sonic Cable had continued to
"bundle" these charges up to the current time. Sonic Cable and Charter have acknowledged this
non-compliance with the rate order will be making refunds in the future to the approximately 1,600
subscribers affected. Furthermore, Sonic Cable has separated the charges effective April 1st and
will indicate in their advertising that this is the case.
Other Remaining Issue
There is another franchise issue which remains to be resolved. However, resolution can be
accomplished outside the Change of Control Agreement. It is:
Leri cation o 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 fiord 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.
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Council Agenda Report-Transfer of Sonic Cable Franchise
Page 4
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. The
franchise holder will not be released from its upgrade obligations until the City is satisfied that the
upgrade is completed.
FISCAL MIPACT
The request for transfer will not have a fiscal 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 Agreement, staff believes that
it is proper to approve the transfer at this time.
Attachments
1 -Resolution
2-Change of Ownership Agreement including the following:
Exhibit A-Guaranty of Charter Communications, Inc.
Exhibit B-Guaranty of Christopher Cohan
Exhibit C-Location to be connected by the closed circuit network
Exhibit D-Charter Ownership Chart
Exhibit E-Letter dated 12/10/97 from Charter Communications .
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RESOLUTION N.O. (1998 Series)
RESOLUTION OF THE CITY OF SAN LUIS OBISPO APPROVING
PROPOSED CABLE SYSTEM TRANSFERS
WHEREAS, Sonic Cable Television of San Luis Obispo ("Sonic") holds a
franchise to operate a cable television system in the City of San Luis Obispo ("City"); and
WHEREAS, Christopher Cohan ("Cohan") is the general partner and a limited
partner in Sonic Partners, L.P. ("Sonic Partners"), which is the sole owner of Sonic
Enterprises ("SE"), which in tum owns Sonic Communications ("SCI"), which in turn
owns Sonic; and
WHEREAS, Sonicvest is a new company created for the purpose of acquiring all
the stock of SE and facilitating the transaction more fully described in an FCC Form 394
submitted to the City on or about September 29, 1997, and prior to the consummation of
such sale of stock Cohan intends to transfer all of his interest in Sonic Partners to the
Trust, and the Trust intends to acquire all of the other partnership interests in Sonic
Partners, thereby terminating Sonic Partners' existence (collectively, the
"Cohan/Sonicvest Transactions"), which will result in a change in control from Sonic to
Sonicvest; and
WHEREAS, Charter Communications Properties, L.L.C. ("CCP") desires to
acquire all the assets of Sonic as more fully described in the FCC Form 394 submitted to
the City on or about September 29, 1997 (the"Sonic/CCP Transaction"); and
WHEREAS, CCP is an indirectly, wholly-owned subsidiary of Charter
Communications, Inc. ("Charter"); and
WHEREAS, CCP has entered into a management agreement with Charter; and
WHEREAS, more specifically, (1) Cohan, Sonic, and Sonicvest have asked the
City to approve a transaction that will ultimately result in an assignment of Cohan's
control of Sonic to Sonicvest, and (2) Sonic, and CCP have asked the City to approve a
second transaction that will result in a sale of Sonic's assets from Sonicvest to CCP,
which transactions are collectively referred to as the "Change of Control and Transfer of
Ownership"; and
WHEREAS, as of the date of this Resolution, Sonicvest does not have the
independent financial, technical or legal qualifications to justify the transfer to it, and
whereas CCP's Form 394 relies in part on the experience and resources available through
Charter, to justify the transfer to it; and
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Resolution No. k1998 Series)
Page 2
WHEREAS, the,parties to the Cohan/Sonicvest Transaction have represented that
Sonic will continue to be the grantee until the Sonic/CCP Transaction is completed, at
which time CCP will be the grantee; and
WHEREAS, the City is willing to approve the Change of Control and Transfer of
Ownership, but only if the parties are willing to satisfy certain conditions; if the
performance of CCP is unconditionally guaranteed by its parent, Charter
Communications, Inc.; and only subject to certain other conditions designed to ensure
that the interests of the public and the City are not adversely affected;
NOW THEREFORE BE IT RESOLVED BY THE CITY THAT:
SECTION 1. Subject to the provisions of this Resolution, the Change of Control and
Transfer of Ownership are approved, if-
(a)
f(a) by April 21, 1998, Sonic, Sonicvest, SCI, SE, Cohan (on his own behalf
and as Trustee of the Trust), CCP and Charter each sign and deliver to the City the
attached Change of Control and Transfer of Ownership Agreement (the "Transfer
Agreement"); and
(b) by April 21, 1998, Charter and Cohan each sign and deliver to the City the
Guaranties required by the Transfer Agreement; and
(c) all conditions set forth in the Transfer Agreement are satisfied, in
accordance with their terms, by the time that they are required to be satisfied. Without
limiting the foregoing, by way of example and not limitation, the limitations on
Sonicvest's holding of the franchise must be satisfied; and
(d) the Change of Control and Transfer of Ownership is completed by June
30, 1998, and the transactions and the relationships between Charter and CCP do not
differ in any material respect from the transactions and relationships as represented to the
City in writing; and
(e) CCP becomes a signatory to the franchise, or otherwise files an
unconditional acceptance of the franchise acceptable to the City immediately upon the
completion of the Change of Control and Transfer of Ownership.
SECTION 2. The City finds that it is not in the public interest to approve the Change of
Control and Transfer of Ownership, given the status of the franchise, and the information
provided in the Form 394 and in response to document requests, unless all the conditions
in Section 1 are satisfied. The request for approval of the transactions shall be deemed
denied as of the date of this Resolution if each and every one of the conditions is not fully
satisfied, or if the provisions of this Resolution are for any reason deemed unenforceable.
SECTION 3. This Resolution is specifically made without a finding or representation
that Sonic is in compliance with all the terms and conditions of its franchise, or that
09--61
Resolution No. k1998 Series)
Page 3
Sonicvest or that CCP is or is not financially, technically or legally qualified to hold the
franchise.
SECTION 4. This Resolution is not an approval of any other transaction, whether
required or allowed by the Change of Ownership or Transfer of Control, nor does the
approval of the transactions in any respect limit the enforceability of any franchise
provision. In the event of a conflict between any provision of any document related to
the Change of Ownership or Transfer of Control and the Transfer Agreement, this
Resolution or the Franchise, then the Transfer Agreement, this Resolution and the
franchise shall control; CCP shall be required to comply with its obligations under the
same,notwithstanding the provisions of any other agreement.
SECTION 5. The City Administrative Officer is hereby authorized to sign the Transfer
Agreement attached hereto, on behalf of the City.
On motion of , seconded by
and on the following roll call vote:
AYES:
NOES:
ABSENT:
the foregoing Resolution was passed and adopted this day of April, 1998.
ATTEST:
Bonnie Gawf, City Clerk Allen K. Settle, Mayor
APPROVED AS TO FORM:
rl4x. J gen , C' Attorney
CHANGE OF CONTROL AND TRANSFER OF OWNERSHIP AGREEMENT
THIS AGREEMENT IS MADE THIS DAY OF , 1998,
BY AND BETWEEN: CITY OF SAN LUIS OBISPO, CALIFORNIA ("City"); SONIC
CABLE TELEVISION OF SAN LUIS OBISPO ("SONIC"); SONIC COMMUNICATIONS
("SCI"), SONIC ENTERPRISES ("SE"), SONICVEST, L.L.C. ("SONICVEST"),
CHRISTOPHER COHAN, INDIVIDUALLY ("COHAN") AND AS TRUSTEE UNDER
THE CHRISTOPHER COHAN REVOCABLE SEPARATE PROPERTY TRUST, DATED
AUGUST 14, 1997 (THE 'TRUST") AND CHARTER COMMUNICATIONS
PROPERTIES, L.L.C. ("CCP") AND CHARTER COMMUNICATIONS, INC.
("CHARTER").
WHEREAS, on April 20, 1995, the City entered into an agreement (the
"Franchise Agreement") with Sonic pursuant to which the City granted Sonic a franchise
to operate a cable television system in the City; and
WHEREAS, Cohan is the general partner and a limited partner in Sonic Partners,
L.P., which is the sole owner of SE, which in tum owns SCI, which in tum owns Sonic;
and
WHEREAS, Sonicvest is a new company created for the purpose of acquiring all
the stock of SE and facilitating the transaction more fully described in an FCC Form 394
submitted to the City on or about September 29, 1997, and prior to the consummation
of such sale of stock Cohan intends to transfer all of his interest in Sonic Partners to
the Trust, and the Trust intends to acquire all of the other partnership interests in Sonic
Partners, thereby terminating Sonic Partners' existence (collectively, the
"Cohan/Sonicvest Transactions") which will result in a change in control from Sonic to
Sonicvest; and
WHEREAS, CCP desires to acquire all the assets of Sonic as more fully
described in the FCC Form 394 submitted to the City on or about September 29, 1997,
(the "Sonic/CCP Transaction"); and
WHEREAS, CCP is an indirectly, wholly-owned subsidiary of Charter; and
WHEREAS, CCP has entered into a management agreement with Charter; and
WHEREAS, more specifically, (1) Cohan, Sonic, and Sonicvest have asked the
City to approve transactions that will ultimately result in an assignment of Cohan's
control of Sonic to Sonicvest, and (2) Sonic and CCP have asked the City to approve a
second transaction that will result in a sale of Sonic's assets from Sonicvest to CCP,
which transactions are collectively referred to as the "Change of Control and Transfer of
Ownership"; and
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WHEREAS, as of the date of this Agreement, Sonicvest does not have the
independent financial, technical or legal qualifications to justify the transfer to it, and
whereas CCP's Form 394 relies in part on the experience and resources available
through Charter, to justify the transfer to it; and
WHEREAS, the parties to the Cohan/Sonicvest Transactions have represented
that Sonic will continue to be the grantee under the Franchise Agreement, until the
Sonic/CCP Transaction is completed, at which time CCP will be the grantee under the
Franchise Agreement; and
WHEREAS, there are certain disputes between the City and Sonic regarding the
compliance of Sonic with the franchise; and
WHEREAS, all parties to the Cohan/Sonicvest Transactions and the Sonic/CCP
Transaction agree that certain disputes should be resolved prior to the completion of
the Change of Control and Transfer of Ownership, without in any respect preventing the
City from holding the grantee fully responsible for, and requiring the grantee to correct
acts and omissions of, itself and its predecessors under the Franchise Documents as
defined in Section 2.1; and
WHEREAS, the City has determined that the requests for Change of Control
and Transfer of Ownership should be granted, but only if there is an agreement to
certain conditions; and
WHEREAS, the parties to the Cohan/Sonicvest Transactions and the Sonic/CCP
Transaction are each willing to agree to those conditions and Cohan and Charter are
willing to provide certain guarantees;
NOW THEREFORE, IN CONSIDERATION OF THE FOREGOING AND THE MUTUAL
CONSENTS SET FORTH HEREIN THE PARTIES AGREE AS FOLLOWS:
PART I: AFFIRMATION OF FRANCHISE OBLIGATIONS AND GUARANTEES
1.1 Definitions - Cohan, the Trust, SCI, SE, Sonic and Sonicvest are referred to
herein as the "Sonic Parties." CCP and Charter are referred to as the "Charter Parties."
CCP on and after the transfer of ownership will be the grantee and will own and operate
the cable television system in the City. Charter will act as management agent for CCP
and will thereby provide consulting services with regards to the operation of the cable
television system which serves the City. Charter will provide such management
services on and after the transfer of ownership.
1.2 Acceptance - Sonic (for so long as it holds the franchise) and CCP (from and
after the date it becomes grantee) hereby accepts all of the commitments, duties and
obligations, present, continuing and future, of the grantee as set forth in the Franchise
Agreement, this Agreement and the relevant local cable ordinances (together, the
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"Franchise Documents"). CCP and the Sonic Parties each agree that if any obligations
in any other agreement associated with the Change of Control and Transfer of
Ownership (including, by way of example and not limitation, the Asset Purchase
Agreement or any agreement involving the shares held or formerly held by Christopher
Cohan, and the management agreement between CCP and Charter) are in conflict with
the obligations established by the Franchise Documents, the obligations in the
Franchise Documents shall control.
1.3 Assumption of Obligations - Except as otherwise expressly provided in this
agreement, CCP and the Sonic Parties agree that the Change of Control and Transfer
of Ownership and the City's approval of the Change of Control and Transfer of
Ownership shall have no effect on the past, present or future obligations of the entity
that operates as the grantee, or operate to prevent the City from taking any action
against the entity operating as the grantee that it could have taken had the Change of
Control and Transfer of Ownership 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
completion of the Change of Control and Transfer of Ownership, known and unknown
that are not expressly remedied by this Agreement. Furthermore, the assumption of
liability by CCP shall not act to release any of the Sonic Parties from any liability that
such party may have for acts and omissions prior to either the Cohan/Sonicvest
Transactions or Sonic/CCP Transaction. Any liability of any of the Sonic Parties shall
be joint and several with CCP. The City may release any or all of the Sonic Parties or
any or all of the Charter Parties from liability for any particular act or omission without in
any respect releasing the liability of the other Sonic Parties 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 CCP, but the failure of the
Sonic Parties to comply with their obligations to CCP shall in no respect relieve CCP of
its obligation to the City.
1.4 City's Reliance Upon Representations - The Sonic Parties and CCP
acknowledge and agree that the City will consent to the Change of Control and Transfer
of Ownership in reliance upon the representations, documents and information provided
by them to the City, including, by way of example and not limitation, the two FCC Forms
394 and all information submitted to the City in support thereof, as if fully set forth
herein. It is not the intent of the parties by this section to change the status of
documents that are claimed to be confidential as a matter of law.
PART II: PROMISES OF THE PARTIES
2.1 Compliance with Franchise - (a) Each of the Sonic Parties and CCP agrees that
it will not take any action inconsistent with the promises contained in the Franchise
Documents.
(b) Charter agrees to execute and deliver a guaranty in a form approved by the
City and attached hereto as Exhibit A.
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(c) All documents within Charter's possession or control that in any respect
relate to the cable television system (individually, or as a group of systems) shall be
treated as the grantee's documents and shall be made available for inspection or
copying by the City to the same extent other documents of the grantee must be made
available for inspection or copying under the terms of the Franchise Documents and
applicable law. CCP shall be responsible for all acts and omissions of Charter to the
extent it is engaged in any activities with respect to CCP or the cable television system,
as if they were CCP's own acts and omissions.
(d) 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 from and after the consummation of
the Cohan/Sonicvest Transactions. Cohan specifically guarantees the performance of
Sonicvest. Cohan agrees to execute a guaranty in a form approved by the City, and
attached hereto as Exhibit B.
(e) To the extent that any provisions of any document associated with either
the Cohan/Sonicvest or Sonic/CCP Transfer of Ownership and Change of Control, or
any other contract conflicts with the Franchise Documents, this Agreement or applicable
federal, state or local laws, such provisions shall be of no force or effect with respect to
the Cable System serving the City.
2.2 Access to Documents - Each of the Sonic Parties agrees that, except to the
extent the same are transferred to CCP or any of the other Sonic Parties, they will
retain all documents related to the Cable System. Each of the Sonic Parties agrees to
make these documents available to CCP, as CCP may request in order to respond to a
demand for information from the City. The City may require CCP to produce any
document from the Sonic Parties that the Sonic Parties would have been required to
provide to the City or permit the City to inspect had Sonic continued to be the grantee,
and this shall be considered a franchise obligation of CCP. Provided that, the Sonic
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 submitted to it
by CCP or the City on or before January 1, 2003.
PART III: NO WAIVER
3.1 Any consent given by the City in this Agreement and in the Transfer of
Ownership/Change of Control Consent Resolution is not an affirmation that Sonic is in
compliance with its Franchise. Any consent is made without prejudice to, or waiver of,
the City's right to obtain full remedy from CCP for any past non-compliance by Sonic,
except as specifically provided below. Any consent given by the City in this Agreement
and in the Transfer of Ownership/Change of Control Consent Resolution is not a finding
that CCP is or is not financially, technically or legally qualified, and no inference will be
drawn, positively or negatively, as a result of the absence of a finding on this issue.
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Any consent is therefore made without prejudice to, or waiver of, the City's right to fully
investigate and consider CCP's financial, technical and legal qualifications and any
other relevant considerations during any future proceeding.
3.1.1. No later than 5:00 p.m. on April 24, 1998, Sonic shall pay the City
$100,000 to fulfill certain obligations regarding the provision of equipment for City
Council Chambers and the City Council Auxiliary Chamber, as described more
specifically 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 turnkey
system at City Council Chambers and the City Council Auxiliary Chamber as
provided in Paragraph 5.2.(d) and Exhibit CA. 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. Upon payment of
$100,000, the Franchisee shall have no further obligations under Section 5.2.(d)
to provide any video production equipment pursuant to Exhibit CA. or to repair,
replace or maintain any equipment purchased by the City with the $100,000
payment.
3.1.2 The City, Sonic and CCP agree that certain provisions of Section 5.2,
Exhibit B, and Exhibit C of the Franchise require the Grantee to provide an
interactive two-way "closed circuit" network (the "CC-Network"). As of the date
of this Transfer Agreement, this requirement has not been fulfilled. In fulfillment
of this obligation to provide a CC-Network, Grantee shall by a date not later than
December 31, 1998, make available for use by the City and the San Luis Coastal
Unified School District a CC-Network, which shall provide at least thirty
megahertz (30MHz) upstream capacity and thirty megahertz (30MHz)
downstream capacity. The City and school locations listed on Exhibit C attached
hereto, shall be connected to the CC-Network.
3.1.2.1 Grantee shall be responsible for the costs of constructing and
maintaining such cable plant and equipment attached to that plant as may
be necessary to permit video, voice and data to be transmitted to, from
and between the locations listed in Exhibit C. Further, Grantee shall
construct the CC-Network so as to permit video signals originated at any
of these locations to be transmitted from the CC-Network to a PEG
access channel on Grantee's subscriber network.
3.1.2.2 Government and educational users of the CC-Network shall be
responsible for the procurement, installation and operating costs of any
terminal and network interface equipment needed at the user facilities to
utilize this interactive bandwidth. Government and educational users of
the CC-Network shall further be responsible for the costs of any switching
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equipment required to select among the CC-Network signals and transmit
the appropriate signals from the CC-Network sites to City Hall (or any
other site with upstream capacity), and from City Hall (or any other site
with upstream capacity) to the headend for transmission over the
subscriber network on PEG access channels.
3.1.2.3 Grantee shall be responsible for all those costs associated with
the construction, installation, maintenance and operation of the cable
plant and headend (and equipment on the plant and in the headend)
necessary to permit the CC-Network to function from the "demarcation
lines" (within each facility listed on Exhibit C) out and throughout the CC-
Network. In order to more precisely define the obligation, the plant
provided must support the transmission and the routing of signals from
point to point and point to multi-point to the City at a variety of speeds
selected by the users. It must be maintained with the speed and quality
required to provide a high-quality operational network for voice, video and
data traffic.
3.1.2.4 CCP agrees to provide $20,000 to the City in support of that video
processing and switching equipment necessary to permit video signals
from the CC-Network to be routed from City Hall upstream on the
dedicated fiber link to the headend. Grantee shall be responsible for any
headend equipment necessary to receive from the City Hall site on the
CC-Network a number of signals equal to the number of PEG channels
carried on the subscriber network and providing a video switch or
connection for those signals to the appropriate PEG channel(s).
3.1.2.5 None of the Grantee's costs associated with the construction,
operation, equipment or maintenance of the CC-Network shall be
deducted from the PEG Fund established pursuant to the Franchise.
There shall be no cost to government agencies and educational
institutions for the construction, maintenance or use of this network.
Grantee agrees to coordinate closely with the City during the construction
and testing of the CC-Network.
3.1.3 Pursuant to Section 5.2. of the Franchise, Sonic and CCP agree that the
obligations described above in Sections 3.1.1 and 3.1.2 are voluntarily entered
into pursuant to the provisions of the Cable Communications Policy Act of 1984.
Sonic and CCP also agree that the costs of providing such commitments: (a) will
not be considered to be an amount required to satisfy Franchise requirements to
support PEG access during the term of the Franchise, and (b) will not be
charged against any PEG funding due to the City during the term of the
Franchise.
3.1.4. Sonic and CCP agree that the City is asserting that Sonic failed to
comply with the provisions of Resolution No. 8386, adopted by the City Council
6
on January 24, 1995, and the franchise, with respect to unbundling of
addressable converters and remotes. Sonic represents that it has unbundled
addressable converters and remotes as of April 1, 1998, and grantee agrees
that, so long as addressable converters and/or remotes are offered in the Cable
System, they shall remain unbundled as required by FCC regulations. The
parties acknowledge that the City is lawfully certified to regulate the Grantee's
rates consistent with FCC regulations and that nothing herein shall be deemed to
be a waiver by any party of any of its rights with respect to any alleged failure by
Sonic to comply with certain provisions of Resolution No. 8386, or the franchise,
including, but not limited to any right that the City may have to issue an order to
the Grantee requiring the Grantee to make refunds to subscribers who
purchased services which were bundled with addressable converters and/or
remotes.
3.2 The approval of the Change of Control and Transfer of Ownership is an approval
of (1) the transfer of control of Sonic, to Sonicvest; and (2) the transfer of assets to the
chain of ownership as shown on Exhibit D. It is not an approval of any other transaction
or change 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 and Transfer of Ownership discussed herein. Further, the approval of (1) the
Cohan/Sonicvest Transactions and (2) the Sonic/CCP Transaction is conditioned on the
completion of both transactions as approved. There may not be a material change in
the transactions resulting in or affecting the Change of Control and Transfer of
Ownership, as represented to the City, without the prior approval of the City.
3.3 The approval is specifically subject to CCP obtaining the bank facility described
at paragraph 3 of that certain letter dated December 10, 1997 from Ms. Foushee to Mr.
John Dunn, City Administrative Officer (attached hereto as Exhibit E), on substantially
the same terms and conditions represented to the City.
3.4 Any approval shall be specifically subject to completion of the entire Change of
Control and Transfer of Ownership by June 30, 1998. Sonicvest may only control the
franchise for the minimum period of time required to complete the Sonic/CCP
Transaction and therefore, the transfers shall be deemed disapproved unless the
parties have scheduled completion of the Cohan/Sonicvest Transactions so that, at the
time the transfer to Sonicvest occurs, the Sonic/CCP Transaction is to be completed
within 48 hours. If the Change of Control and Transfer of Ownership is not completed
in its entirety, then the parties agree that the City will be deemed to have denied both
requests that are before it in a proper and timely manner; any part of the Change of
Control and Transfer of Ownership 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,
except to the extent that Sonic has performed under Sections 3.1.1 through 3.1.4,
neither this Agreement nor any Guaranty executed hereunder shall be of any further
force or effect.
7
PART IV: COSTS AND RATES
4.1 Obligations Not Franchise Fees - CCP and Sonic agree that, under the
circumstances of this Agreement, 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 and Transfer of Ownership Agreement constitute franchise fees, and
instead fall within one or more of the exceptions set out in 47 U.S.C. §542, and each of
them further agrees not to raise any claim or defense to the contrary in any forum with
respect to the costs incurred, or the payments that are required by this agreement.
4.2 CCP and Sonic Parties represent and warrant that there will not be an increase
in subscriber rates as a result of any cost associated with compliance with this
Agreement. CCP and the Sonic Parties further agree that any costs associated with
complying with this Transfer Agreement (other than the payment as provided for in
Section 3.1.2.) shall not be treated as external costs. CCP further stipulates that for
purposes of any rate proceeding, the Transfer does not result in a cognizable increase
in good will, intangibles or tangible assets of the cable system serving the City, above
the level that could have been reflected in rates prior to the Change of Control and
Transfer of Ownership. Provided, however, any rates regulated pursuant to federal law
will be established pursuant to FCC regulations.
4.3 City's Costs Reimbursed - Sonic agrees that pursuant to Section 24.2 of the City
Communication Ordinance and Section 27 of the Franchise Agreement, the City shall
be reimbursed for all reasonable processing and review expenses in connection with a
transfer of the franchise and of 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.
PART V: REPRESENTATIONS AND WARRANTIES; INDEMNITY
5.1. Representations and Warranties - Each of the Sonic Parties, CCP, and Charter
hereby represent and warrant, each as to itself only, and not as to any other party 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 it
is a party or by which it or any of its 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 it is subject;
5.1.2 except for Cohan, Sonicvest, and the Trust, each is duly organized, legally
existing and in good standing under the laws of the states of its respective
organization and each is duly qualified to do business in the State of California;
8
5.1.3 this Agreement (and for CCP and Sonic as grantees, the Franchise
Documents; and for Charter and Cohan, the Guaranties executed pursuant to
this Agreement) 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 Change of
Control and Transfer of Ownership Agreement, and the Franchise Documents as
applicable to each parry, are within its powers and authority without the joinder or
consent of any other party and has been duly authorized by all requisite action
and is not in contravention of its respective charters, bylaws, partnership
agreements or other organizational documents, as the case may be, or of any
indenture, agreement or undertaking to which it is a party or by which it is bound;
5.1.5 the Cohan/Sonicvest Transactions will not adversely affect Sonic'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 will devote the
financial and technical resources necessary to ensure compliance with all
obligations under this Agreement and the Franchise Documents for so long as it
holds the franchise; and
5.1.6 the Sonic/CCP Transaction will not adversely affect 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 CCP will devote the financial
and technical resources necessary to ensure compliance with all obligations
under this Agreement and the Franchise Documents.
5.2 Indemni - Each of the Sonic Parties and Charter Parties agree to indemnify and
hold the City harmless against any loss, claim, damage, liability or expense (including,
without limitation, reasonable attomeys' fees) incurred as a result of any representation
or warranty made by it 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 10 days prior to the Closing
Date of the Sonic/CCP Transaction, CCP must provide satisfactory proof to the City that
the letter of credit, insurance, and bonding required by the Franchise Documents 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 Documents so long as the franchise is under the control of any
Sonic Party.
6.2 Bindina Agreement - This Agreement shall bind and benefit the parties hereto
and their respective heirs, beneficiaries, administrators, executors, receivers, trustees,
9
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) each of the Sonic
Parties and Charter Parties accept, and agree to comply with, each provision hereof
that is applicable to it; (ii) the Sonic Parties and Charter Parties acknowledge and
accept the City's right to consent to the Change of Control and Transfer of Ownership
pursuant to the Franchise Documents, and to enter into this Agreement; (iii) the Sonic
Parties and CCP agree that they will not oppose intervention by the City in any
proceeding affecting the System; and (iv) the Sonic Parties and Charter Parties agree
that the request for approval of the Change of Control and Transfer of Ownership were
acted upon in a timely manner, that there is no impediment to the effectiveness of this
Agreement or the City's action with respect to the Change of Control and Transfer of
Ownership, 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, CCP, or Charter fail to
satisfy the conditions in this Agreement or in the Change of Control and Transfer of
Ownership Consent Resolution applicable to it, then the Change of Control and
Transfer of Ownership Consent Resolution, to the extent it approves either Change of
Control and Transfer of Ownership transaction described herein, shall be void and of no
force or effect, and that the Change of Control and Transfer of Ownership Application
shall, without any further action by the City, 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.
6.6 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 Counterparts - 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.
IN WITNESS WHEREOF, the parties hereto have executed this Change of Control
Agreement as of the day and year first above written.
10
For. SONIC CABLE TELEVISION OF SAN
LUIS OBISPO
By:
Title:
For: SONIC COMMUNICATIONS
By:
Title:
For: SONIC ENTERPRISES
By:
Title:
For: SONICVEST
By:
Title:
For: CHRISTOPHER COHAN REVOCABLE
SEPARATE PROPERTY TRUST,
UNDER TRUST DATED AUGUST 14,
1997
By: Christopher Cohan
Title: Trustee
For: CHRISTOPHER COHAN
11
Cly!4
For: CHARTER COMMUNICATIONS
PROPERTIES, L.L.C.
By:
Title:
For: CHARTER COMMUNICATIONS, INC.
By:
Title:
For: CITY OF SAN LUIS OBISPO
By:
Title:
APPROVED AS TO FORM:
I If% ol,'�' -
f7pr&nvv'
Ci Attorney
12
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EXHIBIT A
GUARANTY
OF
CHARTER COMMUNICATIONS, INC.
This Guaranty ("Guaranty") is executed as of April 1998, by Charter
Communications, Inc. (Guarantors) for the benefit of the municipality of the City of San Luis
Obispo (the "City").
WITNESSETH:
WHEREAS, Guarantor, as the parent of Charter Communications Properties, L.L.C.
("CCP") and as a party to a management agreement between itself and CCP has a
substantial interest in the completion of that transaction more fully described in a certain
Change of Control and Transfer of Ownership Agreement dated ; and
WHEREAS, that transaction cannot be completed until and unless CCP becomes a
grantee authorized to provide cable service in the City; and CCP cannot become grantee
without the approval of the City of the transaction;
WHEREAS, Charters interests will be advanced by providing this Guaranty to the City
to ensure that the City's interests are fully protected if the transaction is approved
NOW THEREFORE, Guarantor hereby agrees as follows:
1. Guarantor hereby jointly and severally, irrevocably and unconditionally
guarantees to the City, its successors and assigns prompt and satisfactory performance by
CCP of the Franchise and those certain agreements, understandings and Franchise
amendments related thereto (including the Change of Control and Transfer of Ownership
Agreement dated , and including the franchise fee provisions thereof), and all
applicable federal, state and local laws, ordinances and regulations, and shall be obligated to
perform if CCP fails to perform.
2. The Guaranty shall be effective upon the opening of business on the date when
CCP acquires the Franchise, and shall run throughout the term of the Franchise and any
renewal or extension thereof, except that this Guaranty shall terminate at such earlier time
that the ownership and control of the franchise is lawfully transferred with the consent of the
City for such transfer and a substitute of a Guarantor acceptable to the City is provided.
3. In the event that Guarantor should breach or fail to timely perform any
provisions of this Guaranty, Guarantor shall pay the City all costs and expenses (including
court costs and attomeys' fees) incurred by the City in the successful enforcement hereof.
c'yozo
4. Guarantor represents and warrants that the execution, delivery and
performance by Guarantor of the Guaranty, and the consummation of the transactions
contemplated hereunder, do not, and will not, contravene or conflict with any law, statute or
regulation whatsoever to which Guarantor is subject, or constitute a default (or an event
which with notice or lapse of time or both would constitute a default) under, or result in the
breach of any indenture, mortgage, deed of trust, charge, lien or any contract, agreement or
other instrument to which Guarantor is a party or which may be applicable to Guarantor. This
Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance
with its terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to the enforcement of creditors' rights.
5. The City may proceed against Guarantor under this Guaranty at any time after
first having demanded performance from CCP, if City is not satisfied with the performance of
CCP. Any action may proceed against CCP and Guarantor separately or concurrently. The
Guaranty does not require the City to provide additional notice beyond that it is required to
give under the Franchise to the Transferee, and Guarantors waive any notice requirement
that might otherwise apply. Guarantors obligations are irrevocable, unconditional and
absolute (except as provided by paragraph 2 hereof) and shall not be affected by:
a. The waiver by the City of the performance or observance by the Transferee or
Guarantor of any of the obligations under the Franchise, this Guaranty, or the Change of
Control and Transfer Agreement dated , 1998.
b. The extension of the term of, or the extension of time for performance
under, or any other amendment to, the Franchise, or applicable law affecting the Franchise
(whether material or otherwise); -
C. The release of Guarantor or CCP or any other person who may be liable
under the franchise, or any agreement related thereto;
d. The voluntary or involuntary liquidation, dissolution, sale of all or
substantially all of the assets, marshalling of assets and liabilities, receiverships,
conservatorship, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other proceeding affecting
CCP, Guarantor, or any of their assets.
6. Guarantor agrees that no failure to exercise, and no delay in exercising, on the
part of the City, any right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the exercise of any
other right. The rights of the City hereunder shall be in addition to all other rights provided by
the law. No modification or waiver of any provision of this Guaranty, nor consent to
departure therefrom, shall be effective unless agreed to in writing, and no such consent or
waiver shall extend beyond the particular case and purpose involved. No notice or demand
given in any case shall constitute a waiver of the right to take other action in the same,
similar or other instances without such notice or demand.
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7. This Guaranty shall be governed by and construed in accordance with the laws
of the State of California
8. This Guaranty may be amended only by an instrument in writing executed by
the party or an authorized representative of the parry or parties whom such amendment is
sought to be enforced.
9. For purposes of this Guaranty, Sections 1-9, the term CCP includes CCP and
its lawful successors and assigns.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed by
their respective duly authorized officers as of the day and year first above written.
CHARTER COMMUNICATIONS, INC.
By
Title
ATTEST:
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Exhibit B
GUARANTY
OF
CHRISTOPHER COHAN
This Guaranty(this"Guaranty")is executed as of , 19982 by Christopher
Cohan (the "Guarantor') for the benefit of the municipality of the City of San Luis Obispo (the
"City'). All capitalized terms not otherwise defined herein shall be given the meaning ascribed in
the Franchise Documents(as defined below).
WITNESSETH:
WHEREAS, pursuant to the Ordinance No. 1238 and the Cable Television Franchise
Agreement,dated April 20, 1995,between the City and Sonic Cable Television of San Luis Obispo
("Franchisee'),as such may be amended in a manner that applies to Franchisee or its successors and
assigns from time to time(the"Franchise Documents")and the Transfer of Ownership and Change
of Control Agreement (described in paragraph 5a below), Franchisee has certain rights and
obligations related to the provision of cable television and related services for the citizens of San
Luis Obispo, California(the"Franchise"); and
WHEREAS,Guarantor has proposed to transfer his control of the Franchisee through a sale
of stock of the Franchisee's ultimate parent company to Sonicvest,LLC,a Delaware limited liability
company C'Sonicvest);
WHEREAS,Guarantor is providing this Guaranty to the City to further support the financial
qualifications of Sonicvest as a part of the process to transfer control of the Franchisee in compliance
with the requirements of the City;
WHEREAS,Guarantor will benefit financially from the transfer of control to Sonicvest and
is therefore willing to execute this Guaranty;
NOW THEREFORE, Guarantor hereby agrees as follows:
1. Guarantor hereby irrevocably and unconditionally guaranties the City,its successors
and assigns prompt and satisfactory payment and performance by Sonicvest in causing the
Franchisee to perform its obligations under the Franchise Documents and all applicable federal,state
and local laws, ordinances and regulations relating to the operation of the Cable System by the
Franchisee.
2. The Guaranty shall be effective upon effective consummation of the transfer of
control to Sonicvest, except that this Guaranty shall terminate at such earlier time that Franchisee
lawfully transfers ownership and control of the Franchise with the consent of the City for such
transfer.
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3. In the event that Guarantor should breach or fail to timely perform any provisions of
this Guaranty, Guarantor shall pay the City all costs and expenses (including court costs and
attorneys' fees)incurred by the City in the successful enforcement hereof.
4. Guarantor represents and warrants that the execution, delivery and performance by
Guarantor of this Guaranty does not, and will not, contravene or conflict with any law, statute or
regulation whatsoever to which Guarantor is subject,or constitute a default(or an event which with
notice or lapse of time or both would constitute a default) under, or result in the breach of any
indenture, mortgage, deed of trust, charge, lien or any contract, agreement or other instrument to
which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and
binding obligation of Guarantor and is enforceable in accordance with its terms,except as limited
by bankruptcy, insolvency or other laws of general application relating to the enforcement of
creditors' rights.
5. The City may proceed against Guarantor under this Guaranty without initiating or
exhausting its remedy or remedies against Sonicvest,and may proceed against Sonicvest and/or any
one or more other guarantors separately or concurrently. The Guaranty does not require the City to
provide additional notice beyond that it is required to give under the Franchise to the Franchisee,
and, Guarantor waives any notice requirement that might otherwise apply. Guarantor's obligations
are irrevocable,unconditional and absolute(except as provided by paragraph 2 hereof)and shall not
be affected by:
a. The waiver by the City of the performance or observance by Sonicvest or any
other guarantors of any of the obligations under the Franchise Documents, or the Change of Control
and Transfer of Ownership Agreement dated 1998;
b. The extension of the term of,or the extension of time for performance under,
or any other amendment to, the Franchise, or applicable law affecting the Franchise (whether
material or otherwise);
C. The voluntary or involuntary liquidation, dissolution, sale of all or
substantially all of the assets,marshaling of assets and liabilities, receiverships, conservatorship,
insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of,or other proceeding affecting the Franchisee, Sonicvest, any other
guarantors, or any of their assets.
6. Guarantor agrees that no failure to exercise, and no delay in exercising,on the part
of the City, any right hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The
rights of the City hereunder shall be in addition to all other rights provided by the law. No
modification or waiver of any provision of this Guaranty,nor consent to departure therefrom, shall
be effective unless agreed to in writing, and no such consent or waiver shall extend beyond the
particular case and purpose involved. No notice or demand given in any case shall constitute a
waiver of the right to take other action in the same, similar or other instances without such notice
or demand.
7. This Guaranty shall be governed by and construed in accordance with the laws of the
State of California and applicable laws of the United States of America.
8. This Guaranty may be amended only by an instrument in writing executed by the
party or an authorized representative of the party or parties whom such amendment is sought to be
enforced.
IN WITNESS WHEREOF,Guarantor has caused this Guarantyto be duly executed as of the
day and year first above written.
Christopher Cohan
1%.«wsnc,RZor1ncanRMWOGxM4M
i
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EXHIBIT C
To
Change of Control and Transfer of Ownership Agreement
For the City of San Luis Obispo
Locations in the City of San Luis Obispo which shall be connected with at least
thirty megahertz (30 MHZ) of upstream capacity and thirty megahertz (30 MHZ)
of downstream capacity on a closed-circuit basis:
City Hall Police Station Fire Station #1
990 Palm 1042 Walnut 2160 Santa Barbara
Fire Station #2 Fire Station #3 Fire Station #4
136 North Chorro 1280 Laurel Lane 1395 Madonna Road
Senior Citizens Center City Recreational Center City County Library
1455 Santa Rosa 864 Santa Rosa 995 Palm
City Recreation Department Public Works Department Utilities and Public Works
1341 Nipoma 955 Morro Administration Corporation
Yard.
25 Prado Road
San Luis Obispo Junior High
School
1530 Lizzie Street
Exhibit D
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.
L��l �7
OCHARTEA EXHIBIT E
COMMUNICATIONS
December 10, 1997
VIA FACSIMILE AND
NEXT DAY SERVICE
Mr. John Dunn, City Administrative Officer
City of San Luis Obispo �.
990 Palm Street
San Luis Obispo, California 93401-3249 G'j�y 0 lggJ
Re: FCC Form 394 �a/77Ih/S�r�<:
City of San Luis Obispo IIOn
Dear Mr. Dunn:
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.
With regards to your concern that the entire contract was not submitted with the FCC
Form 394, it is Charter's belief that all relevant information necessary 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:
1. 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 Powerscourt Drive•Suite 400•St. Louis,Missouri 63131-3660•(314)965-0555•Fax(314)965-8793
Mr. John Dunn
December 10, 1997
Page 2
3. The Bank of Montreal, Mercantile Bank, CoreStates and NationsBank 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,
di McColl m oushee
Vice Pres t and Senior Counsel
Law and Regulatory Affairs
TMF:smf
Attachments
`�
Charte ommunications Properties Inc
Pro-Forma Balance Sheet Exhibit A
At Closing
Total
Current Assets
Cash 1,136,581
Accounts Receivable 6,484,460
Intercompany Receivables (44,499)
Prepaids 358,001
Inventory 961,353
Other Assets • 830
Total Current Assets 8,896,726
Non-Current Assets
Property Plant & Equipment 75,709,761
Intangible Assets 208,584,982
Total Non-Current Assets 284,294,743
Total Assets 293,191,469
Current Liabilities
A/P and Accrued Liabilities 6,329,812
Deferred Revenue 3,086,134
Other Liabilities 40,353
Total Current Liabilities 9,456,299
Long Term Liabilities
Capital Lease Obligation 853,200
Senior Bank Debt 204,258,883
Other Liabilities 51,172
Total Long Term Liabilities 205,163,255
Partners Equity 78,571,915
Total Liabilities & Equity 293,191,469
G:\LOTUS\SONIC\FRANREQ.WK4
CHARTER COMMUNICATIONS PROPERTIES, INC Exhibit A
PROJECTED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED 1997
Revenues
Basic Service $43,266,984
Expanded Basic $6,297,793
Equipment Rental $903,216
Installation $1,099,410
Premium Service $6,682,025
Pay Per View $1,175,100
Ancillary Revenue $1,449,406
Advertising $1,218,500
Home Shopping $133,230
Franchise Fees $2,791,399
Late Fees & Other $953,300
Total Revenues $65,970,363
Operating Costs
Service Costs $4,637,209
Programming Expenses $16,711,311
L. 0. & Ad Sales Costs $210,750
Marketing Expenses $1,438,255
General & Administrative Expense $12,328,814
Total Operating Costs- $35,326,338
Operating Income $30,644,024
Margin 46.45%
Capital Expenditures
Rebuild Capital $3,495,000
Maintenance Capital $12,023,910
Total Capital Expenditures $15,518,910
Total Subscribers 161,923
GALOTUS\SONIC\FRANREQ.WK4
E tB
Confidential Charter Communications Properties LLC ILA
Summary Of 'Terms and. Conditions
Borrower: Charier Communications Properties LLC("CCP")
Facility; $230 million senior secured credit facility, comprised of the following:
Reducing Revolver: $90MM
Term Loan A: $60MM
Term Loan B: $80MM
Administrative
Agent: $ank of Montreal
Co-Syndication&
Documentation Agents: Bank of Montreal and Mercantile Bank("Agents")
Co-Underwriters: Bank of Montreal,Mercantile Bank,CoreStates and NationsBank
Purpose: To.refinance existing indebtedness of Charter Communications Properties,Inc.,
to finance the acquisition of terrain cable systems from Sonic Communications
(the"Acquisition")for an aggregate purchase price not to exceed$226,350,000
subject to closing adjustments satisfactory to Lenders; for the payment of
related fees and transaction costs and for general corporate purposes, including
working capital and capital expenditures.
Closing Date: Execution of documentation expected on or about [December_,1997], but in
no event later than. [December 31, 1997]. To the extent that conditions
precedent to initial funding have not been met by July 1, 1998, the Facilities
shall be cancelled.
Availability: Proceeds under the Reducing Revolver_ may be borrowed, prepaid and
reborrowed from time to time.from Closing through Final Maturity, subject to
mandatory corrunitment reductions and satisfaction of applicable conditions to
borrowing. Proceeds under Term Loans A and B will be available at Closing,
and once repaid may not be reborrowed.
Final Maturity: Reducing Revolver: 8 'i years from Closing
Term Loan A: 8 V2 years from Closing
Term Loan B: 9 V2 years from Closing
Vqn
Bank of Montreal 15 pPXK
Charter Communis is Properties LLC ILI
Confidential `
Mandatory Commitment
Reductions and
Amortization: Availability under the Reducing Revolver and outstandings under Term Loans
A and B shall be reduced in equal quarterly instalments commencing March 31,
1999 as follows:
Y
ear Reducing Term Loan A Term Loan B
Revolver
0.0% 0.0% 0.0%
3.5% 0.0% 0.0%a
7.0% 6.0%a 1.0%
9.0%a 8.0% 1.0%a
10.5% 11.0% 1.0%a 165% 16.5% 1.0%
21.0% 21.0% 1.0%
23.0% 30.0% 1.0%
95% 7.5% 44.0%- - 50.0%
100.0% 100.0% 100.0%
Borrowing Options: Base Rate or LIBOR at Borrower's option. Interest period shall be 30, 60, 90
or I80 days at Borrower's option.
Interest Rate Margins: The interest tate margins on outstandings under the Reducing Revolver and
Term Loan A shall be based on the ratio of Total Debt/Annualized Operating
Cash Flow(the"Leverage Ratio")as follows:
Ratio Base Rate Plus LIBOR Plus
>_6.50 1.500% 2.750%
<6.50 but z 6.25 1.250% 2500%
<6.25 but 2 6.00 1.125% 2.2509o'
<6.00 but>_5.50 1.000% 2.125%
<5.50but>_5.00 0.625% 1.875%
<5.00 but z 4.50 0.375% 1.62590
<4.50 but>_4.00 0.125% 1.375%
<4.00 0.000% 1.250%
Interest rate margins on Term Loan B shall be based on the Leverage Ratio as
follows:
Ratio LIBOR Plus
>5.25 2.875%
<_5.25 2.625%
"Base Rate" means the higher of Bank of Montreal's U.S. Prime Rate or the
Federal Funds Rate plus 1/2 of 1%a per annum. Base Rate shall be calculated on
the basis of a 365(6) day year for the actual number of days elapsed, payable
quarterly in arrears on the last day of March,June, September and December.
Minimum amount of each Base Rate drawing to be determined.
NERCA A(C
Bank of Montreal 16
�-
Charter Communica• Properties LLC�l
Confidential
"LIBOR" shall be calculated on the basis of a 360 day year for the actual
number of days elapsed and adjusted for Reserve Requirements (if any).
Interest shall be payable in arrears at maturity but no less frequently than
ouarterly. "Interest Period" shall be 30, 60, 90, or 180 days at CCP's option.
Mamount mount of each LIBOR drawing to be determined
Documentation shall include customary yield, breakage and capital adequacy
protections.
Default Rate: Base Rate plus the applicable margin plus 2%.
Commitment Fee: based on pnumber f days elapsed.
Fees
shall be calculated on a 360 day year,
r
Mandatory Prepayments: Usual and customary for a transaction of this type including,but not limited to.-
Asset
o:Asset Sales. Subject to permitted reinvestments and asset swaps, 100% of the
net proceeds from the sale, transfer or other disposition of any businesses or
assets in excess of $1 million shall be applied to reduce all remaining
Mandatory Commitment Reductions and Amortization on a pro rata basis
between the Facilities, to be applied in inverse order of maturity.
Notwithstanding the forgoing, holders of Term Loan B may elect to forgo such
prepayments, and all prepayment amounts shall then be allocated pro rata
among the Reducing Revolver and Term Loan A.
Excess Cash Flow: Within 120 days of the end of 2000 and each year
thereafter,CCP shall make a prepayment equal to 50%of Excess Cash Flow for
such fiscal year. These payments shall be applied to remaining Mandatory
Commitment Reductions and Amortization on a pro rata basis in the inverse
order of maturity,as detailed above.
Optional Commitment
Reductions: Optional commitment reductions and prepayments shall be permitted without
penalty (other than LIBOR breakage costs) in minimum amounts of
$1,000,000.
Security: The Facilities,and all obligations under interest rate protection products(if such
interest rate protection product is provided by a Lender)shall be secured by the
following:
- First perfected security interest in all assets of CCP and its subsidiaries,
including a pledge of all equity interests in CCP's present and future
subsidiaries;
- Pledge by Charter Communications Properties Inc. of 100% of the equity
interests in CCP;
- Pledge of intercompany debt between CCP and CCP's subsidiaries.
Guarantees: All obligations under the Facility shall be unconditionally guaranteed by each
existing or future subsidiary of CCP.
17 lA�Cl�LEM
Bank of Montreal
cy �y
Confidential Charter Cornm �
unicatie •operties LLC 2
Conditions Precedent
To Closing Usual and customary for a transaction of this type including,but not limited to:
i) Normal due diligence;
Establishment of CCP as a limited liability corporation 100% owned
by CCP Inc., to be documented in form and substance reasonably
satisfactory to Lenders and their counsel;
iii) Execution and delivery of all documentation in form and substance
reasonably satisfactory to Lenders and their counsel;
iv) Satisfactory review of all documentation related to the Acquisition,
including terms of the preferred equity interests to be issued at closing
of the Acquisition;
V) Compliance with all Representations and Warranties;
vi) Satisfactory review of projected operating results;
vii) No material adverse change shall have occurred in the business
condition (financial or otherwise), operations, properties or prospects
of CCP, CCP Inc. or the properties being acquired since the date of
the last audited financial statements and in the financial markets in
general;
viii) Evidence of appropriate levels of insurance;
ix) Receipt of a solvency certificate in form and substance satisfactory to
the Lenders and counsel;and
X) Receipt of required approvals or consents.
Conditions Precedent
to Initial Borrowing: Usual and customary for a transaction of this type including,but not limited to:
i) Contribution of the assets of CCP Inc. to CCP, to be documented in
form and substance reasonably satisfactory to Lenders and their
counsel;
ii) Completion of the Acquisition in accordance with agreed terms and
conditions for an aggregate purchase price not to exceed $22635
million,subject to closing adjustments;
iii) Receipt by CCP of no less than$7 million in new cash common equity
interests and $55 million in newly issued preferred equity interests in
accordance with the terms provided at Closing;
iv) Repayment of existing CCP,Inc. indebtedness and termination of the
existing CCP,Inc.Credit Agreement
ALAL 111E�iCRE'P M
Bank of Montreal 18 8RrK
i
• Confidential _ Charter Corrirnuni�_..ons Properties LLC®.d
V) Certification that no default exists or shall exist after giving effect to
the initial borrowing,together with pro forma financial statements;
vi) Perfection of security interests and receipt of legal opinions in form
and substance reasonably acceptable to the Lenders;
vii) Payment of fees and expenses to the Lenders.
Conditions Precedent
to all Borrowin.-s: Customary for transactions of this type,to include without limitation absence of
defaults and accuracy of representations and warranties.
Representations and
Warranties: Customary for transactions of this type, to include without limitation
organization and authority; enforceability; absence of material adverse change;
compliance with laws;accuracy of financial statements; taxes; employee benefit
plans;ERISA;and environmental matters.
Reporting Requirements: CCP shall furnish to the Lenders copies of the following financial statements,
reports,notices and information
Monthly Operating Reports: Within 45 days after the end of each caJendar
month.
Quarterly Financial Statements: Quarterly unaudited consolidated and
consolidating financial statements within 45 days of the end of each fiscal .
quarter along with a Compliance Certificate with supporting calculations, all
certified by an authorized officer.
Annual Financial Statements: Annual audited consolidated financial
statements within 120 days after the close of each fiscal year, along with a
Compliance Certificate with supporting calculations, all certified by an
authorized officer of the Company. The financial statements shall be
accompanied by an unqualified opinion thereon of an independent certified
public accountant of recognized national standing selected by CCP.
Annual budget within 60 days after the end of each of CCP's fiscal years.
Notices: Promptly after knowledge thereof comes to the attention of any
executive officer of CCP,written notice of(a)any threatened or pending license
revocation, litigation or governmental proceeding against CCP or its
subsidiaries which would have a material adverse effect on its financial
condition, operations, assets, business, properties or prospects and (b) the
occurrence of any event of default or condition that with the giving of notice or
the passage of time(or both)would constitute an event of default
IrMLE
Bank of Montreal 19 �RfIK
cy 36
Confidential Charter Corrununicar Properties LLC ILA
Financial Covenants: To include without limitation the following:
Leverage Ratio (Total Debt to Annualized Operating Cash Flow)at the end
of each quarter shall not exceed the following amounts during the following
periods:
Period Ratio
Closing-6/30/98 6.75x
7/1/98- 12/31/98 6.50x
1/1/99- 12/31/99 6.25x.
1/1/00-6/30/00 6.00x
7/1/00. 12/31/00 5.75x
1/VOl -6/30/01 5.50x
7/1/01 - 12/31/01 5.25x
1/1/02-6/30/02 5•00x
7/1/02- 12/31/02 4.75x,
1/1/03 and thereafter 4.50x
Pro Forma Debt Service Coverage (Annualized Operating Cash Flow to
Pro Forma Debt Service) shall be at least the following during the periods
indicated:
Period Ratio
Closing- 12/31/99 1.35x
1/l/00 and thereafter 1.15x
Fixed Charge Coverage Ratio (Operating Cash Flow to Fixed Charges) at
the end of each fiscal quarter shall be at least the following amounts during the
following periods:
Period Ratio
Closing through 12/31/00 Not applicable
1/1/01 and thereafter LGOx
Interest Coverage Ratio (Operating Cash Flow to Interest Expense) for
each fiscal quarter shall be at least the fallowing amounts during the following
periods:
Period Ratio
Closing through 9/30/00 1.75x
12/31/00 and thereafter 2.00x
Capital Expenditures shall not be greater than the following amounts in the
periods indicated:
Year Amount
FYE 12/31/98 $20,000M
FYE 12/31/99 $25,000M
FYE 12/31/00 $14,000M
The Borrower shall be allowed to cant' forward any unused capital
expenditures for a period of one year. _
N� SAM
of Montreal 20
.i
Confidential Charter Corm. .cations Properties LLC
Management Fees shall be limited to a maximum of 59ro of revenues, of which
up to 60% (3%) may be paid in cash during the od from Closing through
� P� g g
[ December 31,2002,provided that no event of default exists or would be caused
by such payment. Notwithstanding the forgoing, for any period in which
leverage exceeds 6.5:1 management fees shall be deferred until the Facility is
repaid in full. After December 31, 2002, all management fees shall be deferred
in their entirety until the Facility is repaid in full.
Interest Rate Fledging shall be required on at least 50% of its outstanding
bank debt within 180 days of closing for a weighted average duration of 18
months. The Borrower may enter into various forms of interest rate protection
r to satisfy this requirement, provided that the interest rate related thereto shall
E not exceed 2%per annum in excess of the Treasury tate in effect on the date of
the agreement for the applicable hedge period. Any interest rate hedging
6 agreements entered into with any Lender shall rank pari passu with the Facility.
Restricted Payments will be prohibited, with the exception that the Borrower
will be permitted to make payments in respect of: (i) Management Fees as
detailed above;and(ii)so long as CCP's Leverage Ratio is below 5.00x before
and after giving effect to such Restricted Payment,distributions of up to 50%of
Excess Cash Flow subject to mandatory prepayments, proforma covenant
compliance and maintenance of a minimum cash balance to be determined.
' Other Covenants: Other covenants which are usual and customary for this type of transaction,
which shall include without limitation the following: maintenance of corporate
existence, rights and properties; maintenance of insurance; payment of taxes;
use of proceeds; compliance with laws; cost and yield protection; additional
indebtedness limited to an aggregate of [$ ], of which up to [$ ] may be
secured (secured indebtedness may include Letters of Credit, performance
bonds & similar instruments), limitations on sale and leaseback transactions;
transactions with affiliates; limitations on investments, loans and advances;
mergers, consolidations, sales of assets limited to a maximum of[$_] over
the life of the facility and acquisitions limited to [$_] in aggregate subject to
pro forma covenant compliance (subject to permitted reinvestment and asset
swap provisions);restrictions on dividends,distributions and stock repurchases;
change of control and management;ERISA.
Events of Default: Usual and customary for this type of transaction including, but not limited to,
the following:
i) Non-payment of principal,interest and other obligations to the Banks;
ii) Breach of Representations and Warrandes;
iii) Non-performance of covenants and obligations under the credit
agreement;
iv) Failure to maintain material licenses;
V) Bankruptcy or insolvency;
vi) Cross default to other indebtedness.
ALA NEB3MrML-=
Bank of Montreal 21 BEAK
' L,y ��:
Confidential Charter Cornmuni ns Properties LLC
vii) The failure to meet any other obligation under the Credit Agreement
and such default shall remain unremedied for 30 days;and
ix) Material adverse change(to be defined in the Credit Agreement).
Assignment and
Participations: The Lenders shall have the right to assign up to 49% of their initial allocated
commitments to other parties in amounts not less than $5,000,000 subject to
CCP's and the Agent's consent, which consent shall be not unreasonably
withheld. Information may be provided to potential assignees on a confidential
basis. The Lenders may participate portions of their loans and commitments to
other parties,but will retain all of their rights and obligations.
r
Required Lenders: 662/317b.
Governing Law: New York State.
Waiver of Tzial by Jury: Lenders and Borrower shall waive any right to trial by jury in all actions,
proceedings, etc. arising out of or in connection with the Facility and the
definitive loan documentation.
Fees and Expenses: Borrower shall be responsible for the reasonable fees and expenses of Agent's
counsel and any other reasonable out-of-pocket expenses incurred by the Agent
in connection with the documentation and enforcement of the Facility.
NEEFIMM5
Bank of Montreal 22
Confidential Charter Communicat Properties LLC
CERTAIN DEFINITIONS
Annualized Operating
Cash Flow: Operating Cash Flow for the most recent fiscal quarter multiplied by four.
Effective Date: The date at which all conditions precedent to the initial borrowing have been
met.
Excess Cash Flow: For any fiscal period, Operating Cash Flow minus Interest Expense, actual
capital expenditures, required principal payments, cash income taxes paid and
management fees paid in cash,minus[$500,000].
Fixed Charges: For any fiscal period, the sum of(i) Interest Expense; (ii) required principal
paXments; (iii) capital expenditures; (iv) cash income taxes; and (v)
management fees paid or payable in cash.
Interest Expense: All interest and commitment fees on Total Debt paid or payable in cash.
Operating Cash Flow: For any fiscal quarter, net income before extraordinary gains and losses and
related taxes;plus Interest Expense, depreciation, amortization, income taxes,
management fees and any other non-cash charges.
Pro Forma Debt Service: The sum, for the prospective twelve month period, of required principal
payments on Total Debt,Interest Expense(based upon amounts outstanding and
prevailing interest rates on the date of deternunation) and cash management
fees.
Total Debt: All obligations for borrowed money and for the deferred purchase
price of property,including capital lease obligations and contingent
obligations.
Nimm
BRrK
Bank of Montreal 23
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