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2. Transfer Cable TV System to Triax Midwest Associates.MEMORANDUM CITY OF e'p CHANHASSEN 690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317 (612) 937 -1900 0 FAX (612) 937 -5739 TO: Mayor and City Council FROM: Don Ashworth, City Manager DATE: July 1, 1996 SUBJ: Proposed. Transfer of Cable TV System to a Restructured Triax Midwest Associations, L.P., Continuation of Hearing [Note: Mr. Grogan's detailed report including conditions /recommendations may not be received until Wednesday. Given the staff requirements for the many activities that will be occurring during the July 4 th week, this report and attachments were run separately. Mr. Grogan's report should be included as a separate document at the end of this report.] The primary tests that Mr. Grogan will be looking at will be an attempt to answer the question as to whether or not the new entity can legally, technically, and financially provide a reasonable level of cable service for customers within the City of Chanhassen. Although the number of complaints received in regards to service levels from existing Triax customers have been very low, ;the city would not have a reasonable basis to not approve the franchise solely on the previous performance of Triax. Additionally, we have no legal basis to consider the basic terms of the previous franchise agreement, i.e. number of homes per mile which would trigger required service, rate regulation, etc. It appears as though that establishing.a reasonable fee, i.e. $1500 to $2000 for processing of a transfer request is reasonable and can be reasonably justified. This has continued to be my interpretation and I am anticipating that Mr. Grogan's bill will be within these parameters and Triax will reimburse the city its costs in processing this transfer. Recommendation: Approval of the proposed transfer with the conditions and stipulations outlined in Mr. Grogan's report is recommended. [Note: An executive summary has been provided at the beginning of Mr. Grogan's report with the detail following such.] ' gAmgrVriaxph.doc City Council Meeting - June 10, ,1996 Councilwoman Dockendorf: I'll move to table 'it to item 7.5' or later. How' about 12.5? Mayor Chmiel: Well we can go anywhere inbetween. It would be 12(a). Councilwoman Dockendorf moved, Mayor Chmiel seconded to table the request for on -sale beer and wine license for Byeriy' to item 12(a) on the. agenda. All voted in favor and .the motion carded., PUBLIC. HEARING: PROPOSED TRANSFER OF CABLE' TELEVISION SYSTEM TO A RESTRUCTURED TRIAX MIDWEST ASSOCIATES.: I.P. Mayor Chmiel opened the public hearing. Don Ashworth: Yes. Brian Grogan is present, I think. I talked to him late in the afternoon and anyway. We have received a request from, Triax to transfer their franchise:. It's really as ,a part of a merger. It would appear as though that Triax has survived as the name of the company coming out of`this. merger. The documentation associated with the proposed transfer is about 250 pages so I did not include a copy of that.- Brian again is in the process of carrying out a detailed review of those documents to prepare a' recommendation to the City Council. And so again, there are a number of legal requirements included and actually calling for this public hearing this evening. That had to be done within the 30 days after they had given us notice. And the actual hearing itself has to be held I believe within 30 days of this evening. So we are recommending that the hearing be held open and that this item appear back on the City Council, the first Council meeting in July which I believe is 'July 8th. And again if anyone in the audience has ,questions, what I would propose is to write those down. Submit those to Brian:and make sure we have the'responses by July 8th. Similarly should the City Council have questions, we would ensure that those are answered on July 8th Mayor Chmiel: Okay. Is the applicant here this evening? If not seeing the applicant, is there any other discussion in regard to this? Is there anyone objecting to this proposal? Seeing none, can we close the public hearing? Councilwoman Dockendorf: I thought we were going to continue it. Mayor Chmiel: Do you want to close it or leave it open? Don Ashworth: Leave it open: Mayor Chmiel: Okay. Is there a motion that we carry this through as Don has indicated to July 8th meetinng? Councilwoman Dockendorf: I'll move that. Councilman Mason: Second. Councilwoman Dockendorf moved, Councilman. Mason seconded to table the public hearing for the proposed, transfer of cable television system to a restructured Triax Midwest Associates, L.P. to the July 8, 1996 City Council meeting. All voted in favor and the. motion carried. 11 MEMORANDUM CITY OF CHANHASSEN 690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317 (612) 937 -1900 • FAX (612) 937 -5739 TO: Mayor and City Council FROM: Don Ashworth, City Manager DATE: June 5, 1996 ' SUBJ: Proposed Transfer of Cable Television System to a Restructured Triax Midwest Associates, L.P. As mentioned in my memorandum of May 15, 1996, Triax is requesting that their franchise ' agreement be transferred to various entities with which they have merged. The surviving corporation following the merger will be Triax. The application itself was presented in a three - ring binder consisting of approximately 250 pages. Given its length, I have not included a copy ' of it in this packet. ' The city employs Moss & Barnett, represented by Brian Grogan, to advise us in the arena of cable television. Moss & Barnett is but one of approximately five firms specializing in interpretations of FCC rules and cable television franchises. ' As will be seen from the attached letter, Brian has not completed his review of the application and, accordingly, there is no additional staff report included with this item. However, under FCC ' rules, we must officially open this hearing Monday evening. Assuming no one is present to make public comment, Mr. Grogan is recommending that we do not close the hearing but extend it to either our second meeting in June or first meeting in July. [Note: I will recommend one of these ' two Monday evening.] 1 gAmgr \cabletv.doc Very truly yours, ' MOSS & BARNETT, A Professional Association , �., RECEIVED ' 38007icbr0ll.DOC Brian T. Grogan JUN 0 4 1996 CITY OF CHANHASSEN L AW OFFICES MOSS & BARNETT ' A PROFESSIONAL ASSOCIATION 4800 NORWEST CENTER 90 SOUTH SEVENTH STREET ' MINNEAPOLIS, MINNESOTA 55402 -4129 BRIAN T. GROGAN TELEPHONE (612) 347 -0300 TELECOPIER (612) 339 -6686 ( 612) 347 -0340 June 3 1996 ' VIA FACSIMILE 937 -5739 Mr. Don Ashworth City Manager City of Chanhassen ' 690 Coulter Drive P.O. Box 147 Chanhassen, MN 55317 ' Re: Public Hearing on Proposed Transfer of Cable Television Franchise Our File No. 27981.4 ' Dear Don: As mentioned in my letter to you on May 31, 1996, I have spoken with legal counsel for DD ' Cable Partners, L.P. d /b /a Midwest Cablevision and Triax Midwest Associates, L.P. ( "Triax ") regarding a waiver of a Minnesota Statute which requires the City to take final action on the proposed transfer within thirty (30) days from the date of your public hearing. I requested a waiver of this requirement ' since we have not yet had an opportunity to review the voluminous information which was provided in response to our Transfer Questionnaire /Application. As a result, there may arise issues which will require resolution prior to final action by the City at its first meeting in July. For a variety of reasons , legal counsel for Midwest Cablevlslon and Triax Is unwilling to provide a waiver of this thirty (30) day requirement as provided in Minnesota Statutes Chapter 238.083. , Therefore, it is essential that your City Council not close the public hearing which you have scheduled to be conducted at your first meeting in June. Rather, this public hearing should be extended until the City's second regularly scheduled June meeting or its first meeting in July either of which will ' allow sufficient time to complete our review and provide the City with necessary documentation on which to base its final decision. Please therefore instruct the appropriate City representatives to ensure that the public hearing regarding this matter is not closed and is instead extended as outlined above. If you should have any questions regarding this matter please feel free to contact me. ' Very truly yours, ' MOSS & BARNETT, A Professional Association , �., RECEIVED ' 38007icbr0ll.DOC Brian T. Grogan JUN 0 4 1996 CITY OF CHANHASSEN MEMORANDUM CITY OF CHANHASSEN 690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317 (612) 937 -1900 • FAX (612) 937 -5739 TO: Mayor and City Council FROM: Don Ashworth, City Manager DATE: May 15, 1996 SUBJ: Call for Public Hearing on Proposed Transfer of Cable Television System, Triax Midwest Association We have received a request from Triax Television to transfer their franchise to a new firm. At this point, I am unsure as to whether the proposal represents a consolidation, merger, or outright sale. As can be seen from the attachments, w6 re requesting that Triax provide additional information on the proposal. In the meantime; `under federal law, we are required to set a public hearing date to consider the proposal within very stringefit.timelines. In discussing this item with Brian Grogan; we both believe that the city costs associated with processing the franchise transfer request will be totally reimbursed by Triax or the firm receiving the new franchise. '.gig �g It is recommended that the c i( 'council establish June 10 as thkpfficial public hearing date to t consider the Triax proposal: _ I_will be asking Mr. Grogan to attend the public hearing. 1 LAW OFFICES MOSS & BARNETT , A PROFESSIONAL ASSOCIATION 4800 NORWEST CENTER 90 SOUTH SEVENTH STREET , MINNEAPOLIS, MINNESOTA 55402 -4129 BRIAN T. GROGAN TELEPHONE (612) 347 -0300 TELECOPIER (612) 339 -6686 ( 612) 347 -0340 ' May 2, 1996 VIA FACSIMILE AND U.S. MAIL Mr. Don Ashworth ' City Manager 690 Coulter Drive ' P.O. Box 147 Chanhassen, MN 55317 Re: Proposed Transfer by and between Triax and DD Cable Partners Dear Don: ' Pursuant to our telephone conversation I understand the City of Chanhassen, Minnesota ' will be utilizing the services of Moss & Barnett to assist in reviewing the proposed transfer of ownership. As you may know, I am working with numerous communities to review this ' transaction and therefore I will be spreading the costs of my review over these many communities thereby reducing the cost to any one community. The services which I will provide to the City include a review of your local franchise ' documentation, a detailed analysis of the legal, technical and financial qualifications of the proposed buyer, preparation of a comprehensive transfer report, drafting of closing ' documentation for consideration by your City Council which will include a resolution, ordinance amendment, any necessary guarantees, and possibly an opinion of buyer's legal counsel if applicable. To the extent unique issues arise during the transfer process which require , negotiations with the companies involved in this transaction, I will discuss with you appropriate arrangements before any additional work is undertaken. As we discussed, I have enclosed herewith a draft letter which you may utilize to send to ' Triax placing them on notice that a public hearing will be called. I understand your City Council will order such a hearing at its May 79th meeting and that the hearing will be conducted at the , June 10th meeting. Remember that the letter notifying the cable operator on the public hearing must be received by the operator no more than 30 days from the date the City received the request for transfer. I have also included he a form which you may utilize to publish , notice of the public hearing. in -a local papey. This notice should be published 10 to 14 days in advance of the June 10th public hearing date. In the meantime, I will be requesting 1 MAY 0 3 1996 CITY Or CHANHASSEN , MOSS & BARNETT A PROFESSIONAL ASSOCIATION Mr. Don Ashworth May 2, 1996 Page 2 information from both the seller and buyer to learn more about the transaction and the restructuring of Triax. If you should have any questions or if I can provide any additional information please feel free to contact me. Very truly yours, MOSS & BARNETT, A Professional Association Brian T. Grogan BTG /slo 31645 / f101!.doc Enclosures [To be typed on City Letterhead] I May 2, 1996 [OR LOCAL MANAGER] I Bruce J. Stewart Vice President ' DD Cable Holdings, Inc. d/b /a Midwest Cablevision , 235 Montgomery, Suite 420 San Francisco, CA 94104 Re: Proposed Transfer of Control ' Dear Mr. Stewart: ' On April / , 1996 the City received a letter and numerous enclosures from DD Cable Holdings, Inc. d/b /a Midwest Cablevision and Triax Midwest Associates, L.P. ( "Triax "). This , information related to a proposed transfer whereby Midwest Cablevision would be merged and combined with into a restructured Triax Midwest Associates, L.P. Pursuant to Minnesota Statutes Chapter 238.083 the City has determined that the proposed transfer may have an adverse ' impact on subscribers and therefore a public hearing will be necessary to address this issue. The City's public hearing will be held on June 10, 1996 and appropriate notice will be placed in a newspaper of general circulation in our area. We invite representatives from Midwest ' Cablevision and Triax to attend the meeting and present any information they should desire. The City has also determined to utilize the services of Brian T. Grogan at Moss & ' Barnett, A Professional Association, in Minneapolis, Minnesota. Mr. Grogan will advise the City regarding the proposed transaction and will prepare a report for the City addressing the legal, technical and financial qualifications of the restructured Triax. Mr. Grogan will be , forwarding a request for supplemental information in the near future. Please direct all relevant correspondence regarding this matter to Mr. Grogan at Moss & Barnett, 4800 Norwest Center, 90 , South Seventh Street, Minneapolis, Minnesota. 55402 -4129, 612- 347 -0340, 61.2 339 -6686 (facsimile). Should you have any further questions please feel free to contact either myself or Mr. Grogan. I Very truly yours, I CITY OF CHANHASSEN, MINNESOTA Don Ashworth ' 31392/_8001 !.DOC cc: Mr. Brian Grogan 1 LAW OFFICES ' MOSS & BARNETT A PROFESSIONAL ASSOCIATION 44800 1VORWEST CENTER ' 90 SOUTH SEVENTH STREET MINNEAPOLIS, MINNESOTA 55402 -4129 BRIAN T. GROGAN TELEPHONE )612) 347 -0300 TELECOPIER )612) 339 -6686 ' '6121 347 -0340 May 8, 1996 ' Ms. Jane Bremer ' Larkin, Hoffinan, Daly & Lindgren 7900 Xerxes Avenue South Suite 1500 Bloomington, MN 55431 RECEIVED MAY 0 9 RECD CITY OF CHANHASSEN I Re: Proposed Transfer Involving DD Cable Partners, L.P. et al. and Triax Midwest Associates, L.P. ' Dear Jane: Enclosed herewith please find a Transfer Questionnaire /Application regarding the above referenced transfer. This Application has been submitted on behalf of eight (8) separate communities as identified within the Application. Other communities have expressed interest in using Moss & Barnett to review this proposed transfer and I will inform you as soon as possible ' if additional communities are added to our client list on this matter. I have attempted to reduce the administrative burden of responding to these questions for ' each individual municipality by requesting a single response from Triax Midwest Associates, L.P. with respect to the eight (8) communities I am representing. Each of the eight (8) ' communities have informed me of their intent to require a public hearing pursuant to Minnesota Statutes Section 238.083, subd. 2. With this in mind, I am hopeful that I can review a response to the enclosed Application as soon as possible in preparation for these hearings. To that end, ' please provide a response to the enclosed Application on or before May 24, 1996. If this time frame can be accommodated, I anticipate the communities I represent will be able to move forward with this review process in an efficient an expeditious manner. MOSS & BARNETT I A PROFESSIONAL ASSOCIATION Ms. Jane Bremer ' May 8, 1996 Page 2 , If you have any questions regarding this letter or the enclosed Application please feel free I to contact me. Very truly yours, I MOSS & BARNETT, ' A Professional Association Brian T. Grogan ' BTG /slo , 32842/PC @01 !.DOC ' Enclosure cc: Mr. Elliott Knetsch, Cannon Falls, MN (w /enc.) Mr. Don Ashworth, Chanhassen, MN (w /enc.) , Mr. William Lavin, Granite Falls, MN (w /enc.) Mr. Robert Wolfington, Rushford, MN (w /enc.) Mr. Dana Young, St. Charles, MN (w /enc.) ' Ms. Jean Gramling, Savage, MN (w /enc.) Ms. Cathy Magnus, Slayton, MN (w /enc.) Mr. Dale Powers, Spring Valley, MN (w /enc.) , MOSS & BARNETT A PROFESSIONAL ASSOCIATION RESTRUCTURED TRIAX MIDWEST ASSOCIATES, L.P. TRANSFER QUESTIONNAIRE /APPLICATION May 8,1996 Prepared by Brian T. Grogan, Esq. (612) 347 -0340 MOSS & BARNETT A Professional Association 4800 Norwest Center 90 South Seventh Street Minneapolis, MN 55402 -4129 (These forms are not for distribution or other use without the advance written consent of Moss & Barnett) © Moss & Barnett, A Professional Association, 1996 32746/p9m01 !.doc MOSS & BARNETT I A PROFESSIONAL ASSOCIATION INTRODUCTION Moss & Barnett, A Professional Association, has been retained to represent the following ' communities regarding the proposed transfer by and between DD Cable Partners, L.P., DD Cable Holdings, Inc., and its wholly owned subsidiaries (collectively "DD Cable ") and Triax Midwest Associates, L.P. ( "Triax "). 1 1. Cannon Falls ' 2. Chanhassen 3. Granite Falls 4. Rushford ' 5. St. Charles 6. Savage 7. Slayton ' 8. Spring Valley Other cities also expressed interest in utilizing our services and may retain Moss & ' Barnett for this purpose. We will advise Applicant if other cities choose to participate in Moss & Barnett's review of this proposed transaction. This Transfer Questionnaire /Application will serve as a request on behalf of each of these cities for supplemental information regarding the ' proposed transfer. The above referenced eight (8) cities will hereinafter collectively be referred to as "City." Please clarify in your response issues unique to each given jurisdiction. If in your , discretion you believe separate responses are necessary for each jurisdiction please respond accordingly. At the time of awarding their cable communications franchises and approving subsequent , transfers of their franchises, the City considered and approved the technical ability, financial condition, legal qualifications and character of the current Grantee/Franchisee. These same ' qualifications will be considered and reviewed as a part of any transfer request. The Applicant for the transfer is requested to use the following forms in order to inform ' the City of the Applicant's legal, technical and financial qualifications. In addition to the qualifications, the Applicant is requested to identify any and all changes proposed to the cable communications System now serving the City, the operation of that System or the franchise , document. The City recognizes that some of the information has already been included within FCC Form 394, however, the City prefers to review the responses of the parties to the proposed transaction in the format identified herein. In considering a request for transfer, the City will consider and review the legal, technical and financial qualifications of the Applicant together with any modifications requested by the Applicant. The City will comply with any and all state or federal procedural requirements. 1 0 MOSS & BARNETT A PROFESSIONAL ASSOCIATION Please provide two (2) copies of this TRANSFER QUESTIONNAIRE /APPLICATION to: i Brian T. Grogan Moss & Barnett ' 4800 Norwest Center 90 South Seventh Street Minneapolis, MN 55402 -4129 I The City expressly reserves the right to request additional information DEFINITIONS Unless the context otherwise requires, when used in this Application, the terms listed in ' this section shall have the following meanings: ' A. The term "Affiliate ", when used in reference to the Applicant or a Principal of the Applicant, shall mean any Person that directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with the ' Applicant or the Principal of the Applicant. B. The term "Applicant" shall mean the restructured Triax Midwest Associates, L.P. ( as identified in FCC Form 394 - please clarify if this is incorrect). C. The term "Person" shall mean any individual, corporation, general or limited ' partnership, joint venture, limited liability company, trust, association, or other entity. D. The term "Principal," when used in reference to the Applicant, shall mean (i) any officer, director, or beneficial owner of five percent (5 %) or more of any class of voting securities of the Applicant and any Affiliates of the Applicant, (ii) any Person who provides management or operational services with respect to the "System" (as hereinafter defined) and any officers, directors, or beneficial owners ' of five percent (5 %) or more of any class of voting securities of any such Person, (iii) any general or limited partner of the Applicant or any Affiliate of the Applicant and any officer, director, or beneficial owner of five percent (5 %) or more of any class of voting securities of any such partner, and (iv) any Person who or which serves in a capacity or stands in a relationship similar to any of the foregoing. E. The term "System" shall mean the cable communications systems covered b the Y Y Franchise Ordinances awarded by the above referenced cities, to which this Application relates. ' 2 32746/p9m01!.doc MOSS & BARNETT A PROFESSIONAL ASSOCIATION LEGAL QUALIFICATIONS 1. Identification of Applicant A. Applica Name Address B. Representation This Application for transfer is submitted by the undersigned who has been duly authorized to make the representations within and on behalf of the Applicant. Applicant recognizes that the City is relying upon all of the Applicant's representations herein in evaluating the Applicant's request for transfer and, if any such representation is false or misleading, it may result in revocation of any franchise that may be transferred as a consequence of this Application. Consent is hereby given to the City and its representatives to make inquiry into the legal, character, technical, financial and other qualifications of the Applicant and its Principals by contacting any Person identified herein, or by any other appropriate means. Name Affiant's Signature Official Position Date Subscribed and sworn to before me this day of , 1996. Notary Public 3 32746/p9m01 !.doc MOSS & BARNETT A PROFESSIONAL ASSOCIATION C. Principal to Whom Inquiries Should be Made Name Title Address Telephone 2. Ownership Information A. Multiple Systems Operator Will any of the Applicant's Principals guarantee the payment and performance of the Grantee's obligations under this franchise? B. Contribution Agreement Please provide copies of all schedules to the Contribution Agreement dated April 5, 1996. 32746/p9m01 !.doc 4 MOSS & BARNETT A PROFESSIONAL ASSOCIATION TECHNICAL QUALIFICATIONS 1. Current Franchises List below cable communications Systems owned, operated or controlled by the Applicant or any Principal of the Applicant or any Principal of the Applicant. ( Please speciAl whether the systems below are owned and operated by Applicant or a parent or subsidiary of Applicant Name of Franchise Holder (Municipality /State) Contact Person and Phone Number Date Franchise Award (indicate with * if this is a Renewal or Extension) Number of Current Subscribers 5 32746/p9m01 !.doc MOSS & BARNETT A PROFESSIONAL AssocIATION 2. Former Franchises . List below every community where the Applicant or any Principal of the Applicant has received a cable television franchise or operated a cable System without a franchise and subsequently disposed of all or a majority of its interest in such franchise or System. Name of Franchise Contact Date of Date of Reason and Holder Person and Franchise Franchise Manner of (Municipality/ Phone Number Award Disposition Disposition State) 32746/p9m01 !.doc Cel MOSS & BARNETT A PROFESSIONAL ASSOCIATION ;. Potential Franchises List below communities where the Applicant or any Principal of the Applicant has submitted a request for an initial franchise or the approval for a transfer of ownership. Community in which Franchise Sought Date of Application Expected Date of Action Estimated Number of Subscribers Estimated Cost Municipal Contact Person & Phone 7 32746/p9m01 !.doc MOSS & BARNETT A PROFESSIONAL ASSOCIATION 4. Changes to the System Is the Applicant proposing or will the Applicant undertake any changes in the System. 5. Changes in the Operation of the System Is the Applicant proposing, or will the Applicant undertake any changes in the operation of the System including, but not limited to, the following areas: rate increases, programming, customer service practices, billing practices, Personnel, etc. 6. Future Plans Please provide any applicable information to help explain any future plans applicant may have regarding the implementation of new technologies into the system serving the City. How will the introduction of these new technologies impact the growth of the system in the City? 7. New Services Does the Applicant have any plans to add new services to the existing system? Please describe any potential services which Applicant may consider providing over the system. 8. Direct Broadcast Satellite Please briefly comment on the impact of direct broadcast satellite on the services offered by the system in the City. Will the acquisition of the system by Applicant have any impact on the competition which direct broadcast satellite poses? 32746/p9m01 !.doc 8 MOSS & BARNETT A PROFESSIONAL ASSOCIATION 9. Programming_ Line -up Does Applicant own an interest in any cable programming services? Will Applicant make any changes to the programming line -up in the City? Will Applicant consider changing the programming line -up in the future? If so, in what way? 10. Costs Increases Please comment on any projected cost increases to the current services offered by applicant over the next two (2) years. 11. Billing System Please describe any changes Applicant will make in the current billing system. Will subscribers see a new billing system and if so, what modifications or improvements will result due to a change in the billing format? 12. Customer Service Centers Please describe any planned cutbacks in staff, operations or locations for customer service centers. E 32746/p9m01 !.doc 1 MOSS & BARNETT A PROFESSIONAL ASSOCIATION FINANCIAL QUALIFICATIONS 1. The Applicant and its Principals need to provide proof of financial qualifications. The information contained in FCC Form 394 is insufficient. therefore please provide the following: A. Annual Profit and loss Statements for the most recent three to five year period. B. Annual Balance Sheets for the most recent three to five year period. C. Annual Cash Flow Statements for the most recent three to five year period. D. Loan Agreements or a Commitment letter. E. A description of all sources of financing with supporting documentation for each source. For example, for limited partnerships, a proposed prospectus or offering circular; for a public corporation, registration statements and all other forms filed with the SEC. F. Pro forma Projections of annual operating data (i.e., homes passed, subscribers, rates, etc.) for the life of the franchise. G. Pro forma Projections of annual revenue and operating expenses for the life of the franchise. 1... H. Pro forma Projections of annual capital expenditures for the life of the franchise. I. Pro forma Projections of annual cash flow for the life of the franchise. 2. The existing Grantee /Franchisee also needs to supply the following financial information. A. A statement of annual operating results including households passed, basic service subscriber counts, pay TV subscriber counts, and subscriber rates. Monthly operating results for the most recent twelve month period (or portion thereof) should also be included. B. Annual Profit and Loss Statements including the operating expense detail for the balance of the franchise term. C. Annual Balance Sheets. D. Annual Cash Flow Statements. 32746/p9m01 !.doc 10 CITY OF CHANHASSEN MINNESOTA NOTICE OF PUBLIC HEARING PROPOSED TRANSFER OF CABLE TELEVISION SYSTEM The City of Chanhassen, Minnesota, will hold a public hearing on June 10, 1996, at p.m., in the City Council Chambers of the City Hall to discuss issues regarding the proposed transfer of the Cable Television Franchise and system to a restructured Triax Midwest Associates, L.P. The City Hall is located at Any person may spe&lz to the City c::ncerning the proposed transfer at the time of the public hearing. Any person may submit written comments by addressing those comments to the City Clerk, . Any person who wishes to speak at the public hearing is requested to contact the City Clerk prior to the public hearing or to sign up to speak at the public hearing on a list which will be available in the City Council Chambers immediately prior to the hearing. The City Clerk's telephone number is Date this day of , 1996. CITY OF CHANHASSEN, MINNESOTA By: Its: 31452/ 9 01!.doc MOSS & BARNETT A PROFESSIONAL ASSOCIATION Report to the City of Chanhassen, Minnesota Regarding Proposed Transfer of the Cable Television Franchise Ordinance to a Restructured Triax Midwest Associates, L.P. July 2, 1996 Prepared by: Brian T. Grogan, Esq. Timothy E. Wuestenhagen, Esq. Moss & Barnett A Professional Association 4800 Norwest Center 90 South Seventh Street Minneapolis, MN 554024129 (612) 347 -0340 MOSS & BARNETT A PROFESSIONAL ASSOCIATION Report to the City of Chanhassen, Minnesota Regarding Proposed Transfer of the Cable Television Franchise Ordinance to a Restructured Triax Midwest Associates, L.P. July 2, 1996 Table of Contents Executive Summary 1 l Introduction....................................................................................................... ............................... ApplicableLaw .................................................................................................. .............................. P .............................. Description of Transfer of Control ..................................................................... .............................. LegalQualifications ......................................................................................... ..............................1 l TechnicalQualifications ................................................................................... ............................. FinancialQualifications .................................................................................... ............................. AdditionalIssues ............................................................................................... ............................. Recommendations............................................................................................. ............................. Draft Resolution Approving Proposed Transfer ............................................... .............................18 Resolution of the Board of Directors of Triax Midwest Associates, L. P ......... .............................22 Acceptance of a Franchise For a Cable Television System in the City of Chanhassen Minnesota ..................................................................................... ............................. 44508/YCCO 1 LDOC i MOSS & BARNETT A PROFESSIONAL ASSOCIATION Executive Summary On April 5, 1996, Triax Midwest Associates, L.P., a Missouri limited partnership ' and DD Cable Partners, L.P., a California limited partnership, and its wholly -owned subsidiary, DD Cable Holdings, Inc., and its various subsidiaries (collectively "DD Cable ") entered into a series of agreements which will result in the merger of Triax and DD Cable ' (the "Transaction ") and will place substantially all of the assets of such companies under the management and control of a restructured Triax Midwest Associates, L.P. ( "Triax "). The cable systems involved in this transaction are located in Arizona, Illinois, Indiana, Iowa, ' Minnesota, Ohio and Minnesota. ' As part of the proposed transaction, equity funding will be provided from various entities, including $20 Million for V.S. & A. Communications Partners II, L.P.; $15 Million from DL) Investment Partners, L.P.; $15 Million from Equity- Linked Investors -II c/o Desia ' Capital Management, Inc.; $52 Million from DD Cable Partners, L.P. and its affiliates (primarily cable system assets), and $5.6 Million from Triax Communications Corporation and its affiliates. Triax indicates that a total of $107.6 Million of new equity will result ' from the above - referenced funding sources with additional equity to be provided by bank financing in the amount of $375 Million. Of this $375 Million, approximately $270 Million will be used to retire the debt of DD Cable and Triax as of closing. The lead ' lenders providing this funding will be Chase/Chemical Bank, Bank of Montreal, G.E. Capital Corporation, and Canadian Imperial Bank of Commerce. ' Triax is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Missouri. Triax has stipulated that it has all requisite ' corporate power and authority to conduct its business and operations as now being conducted, to enter into the contribution agreement and to perform its obligations under that agreement as well as the Chanhassen Franchise. Based on our review of the ' information provided, the city cannot withhold approval of the transfer of the Chanhassen Franchise to the restructured Triax based upon Triax's legal qualifications. ' Triax's management team has significant experience in the day -to -day operations of cable television systems throughout the country. Triax's managing general partner, Triax Midwest General Partner, L.P. should provide sufficient technical oversight to assist Triax ' in the day -to -day operations of its systems. Based on our review of the technical capabilities of Triax and Triax's cable management expertise and experience, we conclude it would be unreasonable for the City to find that upon closing of the transaction, Triax will ' not be technically qualified to own and run the cable system in the City of Chanhassen. ' Triax has outstanding obligations of approximately $150 million on its books as of December 31, 1995. The outstanding obligations exceed its total assets by a margin of 2- to -1. A significant portion of Triax's assets consist of purchased intangibles, which may or may not have significant value to the company. Even though Triax is currently meeting the I 44508/YCCOMDOC MOSS & BARNETT ' A PROFESSIONAL ASSOCIATION payments on its debt obligations, the ability of Triax to continue to satisfy its outstanding obligations, absent the restructuring, is questionable. This observation was supported by ' the fact that Triax's public auditors, Arthur Andersen, LLP, issued a qualified opinion for the year ended December 31, 1994. In its opinion, Arthur Andersen, LLP stated that Triax's ability to continue in existence was questionable absent the proposed restructuring. ' Therefore, the infusion of new equity capital and restructuring of Triax's current outstanding debt may be crucial to its continued existence. ' in assets of DD Cable may or may not impact The addition of the operating y y act Triax's p ability to continue operations. DD Cable is contributing new equity of approximately $52 million in the form of operating assets. However, DD Cable is also transferring significant ' debt in excess of $100 million to Triax. Therefore, DD Cable's equity contribution is diluted by the assumption of the outstanding obligations. ' To the extent that i) the restructuring does not occur, ii) the equity financing is not made available to Triax or iii) the credit sought by Triax is not on as favorable terms as ' represented, it is quite possible that Triax may become financially unable to satisfy its obligations, meet the terms and conditions of the Chanhassen Franchise or ensure continuity of service to the cable franchisers. Therefore, these matters must be included as ' conditions in any resolution to be considered by the City approving the proposed transfer. Based on these findings, we recommend that: ' 1. The City counsel review this report, listen to public comment, as necessary ' or appropriate, and undertake all necessary action to pass and adopt a resolution similar in form and content to the document contained in this report. ' 2. The City follow -up to ensure that Triax submits the required documents including the Resolution of Corporate Authority and Acceptance Agreement which must be delivered within thirty (30) days of the closing of the transaction described within the , Contribution Agreement. 44508/YCCO 1 !.DOC 1.1 ' MOSS & BARNETT A PROFESSIONAL ASSOCIATION 1 Introduction The City of Chanhassen, Minnesota ( "City ") has before it a request from its Grantee, Triax Midwest Associates, L.P., to approve the proposed transfer of the Cable Television Franchise Ordinance to a restructured Triax Midwest Associates, L.P. ( "Triax "). Pursuant to Minnesota Statutes, Section 238.083 and the City of Chanhassen Cable Television ' Franchise Ordinance (the "Chanhassen Franchise "), at Article IX, Section 1, this proposed transfer of the Chanhassen Franchise is prohibited without the written consent of the City. ' In light of the request by Triax and the procedural requirements outlined in Minn. Stat. Section 238.083 as well as Article IX, Section 1 of the Chanhassen Franchise, Moss & ' Barnett, A Professional Association has been retained by the City and was asked to provide this report. ' In preparing this Report we have relied upon information submitted to the City by Triax which includes the following: Federal Communications Commission Form 394; dated April 15, 1996 identifying Triax's legal, technical and financial qualifications. 2. Contribution Agreement among Triax Midwest Associates, L.P., DD Cable Partners, L.P. and DD Cable Holdings, Inc. and certain subsidiaries of DD Cable Holdings, Inc., V.S. & A Communications Partners II, L.P., Equity- Linked Investors -II, and DLJ ' Investment Partners, L.P. dated April 5, 1996. 3. The Second Amended and Restated Limited Partnership Agreement of Triax. ' 4. The Management Services Agreement between Triax Telecommunications Company, L.L.C. and Triax 5. The Programming Management Agreement between InterMedia Capital Management IV, L.P., InterMedia Capital Management II, L.P., Triax and Triax ' Communications Corporation. 6. Right of First Offer Agreement among Triax Telecommunications Company, L.L.C., ' Triax Communications Corporation and Triax. 7. Triax's financial statements as of December 31, 1993 and December 31, 1994 together with report of independent public accountants Arthur Andersen, L.L.P. I 445OWYCCO1!.DOC 1 MOSS & BARNETT I A PROFESSIONAL ASSOCIATION Applicable Law , The following provisions of Federal law, Minnesota law and the Chanhassen Franchise govern the actions of the City in acting on the request for approval of the transfer of the Chanhassen Franchise to Triax. The Cable Communications Policy Act of 1984, as amended by the Cable ' Consumer Protection and Competition Act of 1992 and the Telecommunications Act of 1996 (the "Cable Act "), provides at Section 617 (47 U.S.C. § 537): ' Sales of Cable Systems A franchisin g Y authorit 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. The Cable Act also provides at Section 613(d) (47 U.S.C. § 533d) as follows: (d) Regulation of ownership by States or franchising authorities , Any State or franchising authority may not prohibit the ownership or control of a cable system by any person because of such person's ownership or control of any other ' media of mass communications or other media interests. Nothing in this section shall be construed to prevent any State or franchising authority from prohibiting the ownership or control of a cable system in a jurisdiction by any person (1) because of such person's ' ownership or control of any other cable system in such jurisdiction, or (2) in circumstances in which the State or franchising authority determines that the acquisition of such a cable system may eliminate or reduce competition in the delivery of cable ' service in such jurisdiction. Further, the Federal Communications Commission ( "FCC ") has promulgated ' regulations governing the sale of cable systems. Section 76.502 of the FCC's regulations (47 C.F.R. § 76.502) provides: , 47 C.F.R. § 76.502 Ownership of Cable Systems — Three -year Holding Requirement ' (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 ' 44508/YCCO 1 !.DOC 2 , ' MOSS & BARNETT A PROFESSIONAL ASSOCIATION 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 thirty (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 ten (10) days of such request. If the franchise authority fails to act upon such transfer request within 120 (c ) Y P q ' days, such request shall be deemed granted unless the franchise authority and the requesting party otherwise agree to an extension of time. ' Minnesota Statutes Section 238.083 Sale or Transfer of Franchise provides: Subd. 1. Fundamental corporate change defined. For purposes of this section, ' "fundamental corporate change" means the sale or transfer of a majority of a corporation's assets; merger, including a parent and its subsidiary corporation; consolidation or creation of a subsidiary corporation. ' Subd. 2. Written approval of franchising authority. A sale or transfer of a franchise, including a sale or transfer by means of a fundamental corporate change, ' requires the written approval of the franchising authority. The parties to the sale or transfer of a franchise shall make a written request to the franchising authority for its ' approval of the sale or transfer. The franchising authority shall reply, in writing, within 30 days of the request and shall indicate its approval of the request or its determination that a public hearing is necessary if it determines that a sale or transfer of a franchise may adversely affect the company's subscribers. The franchising authority shall conduct a public hearing on the request within 30 days of that determination. ' Subd. 3. Notice of hearing. Unless otherwise already provided for by local law, notice of the hearing must be given 14 days before the hearing by publishing notice of it once in a newspaper of general circulation in the area being served by the franchise. The ' notice must contain. the date, time, and place of the hearing and must briefly state the substance of the action to be considered by the franchising authority. ' Subd. 4. Approval or denial of sale or transfer request. Within 30 days after the public hearing, the franchising authority shall approve or deny, in writing, the sale or ' transfer request. The approval must not be unreasonably withheld. Subd. 5. Sale or transfer of franchise without system. The parties to the sale or transfer of a franchise only, without the inclusion of a cable communications system in I 445081YCCOI LDOC 3 MOSS & BARNETT ' A PROFESSIONAL ASSOCIATION ' which at least substantial construction has commenced, shall establish that the sale or transfer of only the franchise will be in the public interest. ' Subd. 6. Sale or transfer of stock. Sale or transfer of stock in a corporation so as , to create a new controlling interest in a cable communications system is subject to the ' requirements of this section. ' The term "controlling interest ", as used herein, is not limited to majority stock ' ownership, but includes actual working control in whatever manner exercised. The Chanhassen Franchise at Article IX, Section 1, Transfer of Ownership or Control, ' provides: A. This Franchise shall not be assigned or transferred, either in whole or in part, or ' leased, sublet or mortgaged in any manner, nor shall title thereto, either legal or ' equitable or any right, interest or property therein, pass to or vest in any person ' without the prior written consent of City, which consent shall not be unreasonably ' withheld. Further, Grantee shall not sell or transfer any stock or ownership interest so as to create a new controlling interest except with the consent of City, , which consent shall not be unreasonably withheld. The transfers described in this paragraph shall, in the sole discretion of City, be considered a sale or transfer of Franchise within the meaning and intent in the following paragraph. ' B. Any sale or transfer of Franchise, including a sale or transfer by means of a fundamental corporate change, requires the written approval of City. Any sale or ' transfer of Franchise shall be subject to the provisions of Board rules prohibiting certain ownership. The parties to the sale or transfer of Franchise shall make a written request to City of its consent. City shall reply in writing within 30 days of , actual receipt of the request and shall indicate its approval of the request or its determination that a public hearing is necessary. City shall conduct a public ' hearing on the request within 30 days of such determination if it determines that a sale or transfer of Franchise may adversely affect the Grantee's subscribers. ' C. Unless otherwise p rovided for by local law, notice of any such hearing shall be given 12 days prior to the hearing by publishing notice thereof once in a newspaper of general circulation in the City. The notice shall contain the date, ' time and place of the hearing and shall briefly state the substance of the action to be considered by City. ' D. Within 30 days after the public hearing, City shall approve or deny in writing the sale or transfer request. E. Any sale or transfer of Franchise, including a sale or transfer by means of a fundamental corporate change, requires notification to the Board by City. The , notification shall be accompanied by the written certification of the transferee that 44508NMI LDOC 4 , ' MOSS & BARNETT A PROFESSIONAL ASSOCIATION it meets all of the requirements established by.City for original Grantee including ' but not limited to technical ability and financial stability. City shall cause to be sent to the Board at Grantee's expense a copy of all public documents related to sale or transfer of the Franchise. F. The parties to the sale or transfer of onkthis Franchise, without the inclusion of the System in which at least substantial construction has commenced, shall be ' required to establish to the sole satisfaction of City that the sale or transfer of only this Franchise is in the public interest. ' G. For purposes of this section, a fundamental corporate change means any sale or transfer of the stock of a corporation which results in a change of controlling interest or the sale or transfer of all or a majority of a corporation's assets, merger (including parent and its subsidiary (corporation), consolidation nor creation of a subsidiary corporation. ' H. The word "control ", or the phrase "controlling interest ", as used herein, is not limited to major stockholders, but includes actual working control in whatever ' manner exercised. As a minimum, "control ", as used herein, means a legal or beneficial interest (even though actual working control does not exist) of a least five (5 %) percent. Every change, transfer or acquisition of control of Grantee shall make ' the Franchise subject to cancellation unless and until City shall have consented in writing thereto, which consent shall not be unreasonably withheld. For the purpose of determining whether it shall consent to such change, transfer or acquisition of control, City may inquire into the qualifications of the prospective controlling party, and Grantee shall assist City in any such inquiry and pay all costs incurred by City in so inquiring, including City staff time at a value determined by City. I. In the absence of extraordinary ircumstances City will not approve an transfer or Y � Y pp Y ' assignment of the Franchise prior to substantial completion of construction of System, as determined solely by City. J. In no event shall a transfer or assignment of ownership or control be approved without transferee becoming a signator to this Franchise. ' K. Any transferee shall be subordinate to any right, title or interest of City. J I 44508/YCCOI LDOC 5 MOSS & BARNETT A PROFESSIONAL ASSOCIATION Process Based on 47 U.S.C. §§ 533 and 537, Minn. Stat. § 238.083, 47 C.F.R. § 76.502 and Article IX, Section 1 of the Chanhassen Franchise, we believe the following process promotes an effective and orderly review by the City of the proposed transfer of the Chanhassen Franchise to Triax resulting in an informed decision: A. Parties to the sale or transfer of a franchise shall make a written request to the City for approval of the sale or transfer. B. This written request, however, is not final until the parties to the sale or transfer have provided the City the information on which to base a decision. 1. The parties to the sale or transfer should be allowed a reasonable time within which to provide all required information to the City. 2. Upon receipt by the City of all required information, the written request from the parties to the sale or transfer is effective. II. A. The City shall reply within thirty (30) days of the written request by. either approving the sale or transfer, or by determining that a public hearing is necessary. B. A public hearing is necessary if the City determines that a sale or transfer of the franchise may adversely affect subscribers. 1. The City shall conduct a public hearing on the request within thirty (30) days of that determination. C. The City shall review the financial, legal and technical qualifications of the buyer or proposed transferee. 1 L 0 1. The City shall also prepare a report regarding the proposed transfer ' to be used in arriving at a decision regarding the transfer request. III. A. Notice of the public hearing must be given between fourteen (14) and ten (10) days before the public hearing by publishing notice of it once in a newspaper of general circulation in the franchise area. B. The notice must contain the date, time, and place of the hearing and must briefly state the substance of the action to be considered by the City. MOSS & BARNETT A PROFESSIONAL ASSOCIATION IV. A. The City holds the public hearing. B. This public hearing may be continued, if necessary, to solicit additional information from the proposed transferee. V. A. Within thirty (30) days after the close of the public hearing, the City shall adopt a resolution in writing approving or denying the sale or transfer request. This approval must not be unreasonably withheld. B. In addition, this resolution may make findings which include: 1. Amendments to the Franchise Agreement incorporating any modifications which are applicable. 2. Acceptance of the Agreement by the transferee. 3. Guarantees made by applicable entities. 4. Compliance with other closing requirements, including reimbursement of expenses of the City for legal and consulting costs, and delivery of necessary corporate authorizations to enter into the Acceptance Agreement. NOTE: The timing of the process outlined above and steps to be followed may be modified basest upon the need to evaluate issues in the Franchise that are unresolved and modifications to the Franchise. This is best accomplished through a negotiation process mutually agreed upon by the parties. 44508/YCCO 1 !.DOC 7 MOSS & BARNETT A PROFESSIONAL ASSOCIATION Description of Transfer of Control I On April 5, 1996, Triax Midwest Associates, L.P., a Missouri limited partnership and DD Cable Partners, L.P., a California limited partnership, and its wholly -owned ' subsidiary, DD Cable Holdings, Inc., and its various subsidiaries (collectively "DD Cable ") entered into a series of agreements which will result in the merger of Triax and DD Cable ' (the "Transaction ") and will place substantially all of the assets of such companies under the management and control of a restructured Triax Midwest Associates, L.P. ( "Triax "). The cable systems involved in this transaction are located in Arizona, Illinois, Indiana, Iowa, . Minnesota, Ohio and Minnesota. As of December 31, 1995, Triax passed 196,717 homes in the Upper Midwest and served 127,303 customers, and DD Cable passed 164,199 homes and served 114,277 customers. Consequently, the merged company will pass 360,916 homes and serve 241,580 customers under common management and control and within close geographic ' proximity. Under the terms of the "Contribution Agreement ", DD Cable will contribute substantially all of its assets, consisting primarily of cable communications systems to Triax, in exchange for a limited partnership interest in Triax and an additional payment at closing. Simultaneously, Triax will be internally reorganized to create a new managing general partner, Triax Midwest General Partner, L.P. which through a series of entities, including a new entity, Triax Telecommunications, L.L.C., will be one hundred percent (100 %) owned by James DeSorrento and Jay R. Busch, the current majority owners of Triax Communications Corporation ( "Triax Communications "). As of December 31, 1995, Triax Communications served 377,135 customers in the r states of Arizona, Arkansas, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Missouri, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and Minnesota. Following this transaction, Triax Communications and its affiliates will have interests in cable communications systems serving 487,135 customers, making it one of the nation's 25 largest multiple system operators. ' As part of the proposed transaction, equity funding will be provided from various ' entities, including $20 Million for V.S. & A. Communications Partners II, L.P.; $15 Million from DLJ Investment Partners, L.P.; $15 Million from Equity- Linked Investors -II do Desia Capital Management, Inc.; $52 Million from DD Cable Partners, L.P. and its affiliates (primarily cable system assets), and $5.6 Million from Triax Communications Corporation and its affiliates. Triax indicates that a total of $107.6 Million of new equity will result from the above - referenced funding sources with additional equity to be provided by bank financing in the amount of $375 Million. Of this $375 Million, approximately $270 Million will be used to retire`the debt of DD Cable"and Triax as of closing. The lead 44508/YCC01!.D0C 8 1 MOSS & BARNETT A PROFESSIONAL ASSOCIATION lenders providing this funding will be Chase/Chemical Bank, Bank of Montreal, G.E. Capital Corporation, and Canadian Imperial Bank of Commerce. As a result, $105 million of bank financing and $55.6 million of other funding (excluding DD Cable's asset contribution) will be available to the restructured Triax for capital improvements, system upgrades and related operating activities. The following page shows the organizational structure of the City of Chanhassen's proposed new grantee, the restructured Triax Midwest Associates, L.P. 44508/YCCO 1 !.DOC E Corporate Structure of Triax D D Cable Partners, L.P. a Missouri Limited Partnership DLJ Investment Partners, L.P. AMTILE, Inc. a Delaware Limited Partnership a Delaware Corporation 100% D D Cable'Holdings, Inc. a California Limited Partnership Triax Investors Midwest, L.P. I I I VS &A - TMA, L.L.C. a Wisconsin Corporation a Delaware Limited Liability Corporation Jay R. Busch I I James DeSorrento 100% Limited Partners Triax Telecommunications, L.L.C. a Delaware Limited Liability Company 100% Triax Midwest, L.L.C. I Triax Midwest General Partner, L.P. General Partner a Delaware Limited Partnership Triax Cable General Partner, L.P. Triax Midwest Associates, L.P. a a Missouri Limited Partnership Missouri Limited Partnership Managing General Partner Non - Managing General Partner Grantee MOSS & BARNETT A PROFESSIONAL ASSOCIATION 1 1 r Legal Qualifications The legal qualifications standard relates primarily to an analysis of whether the restructured Triax is duly organized and authorized to own and control the cable system and the Chanhassen Franchise. The standard of- review applicable is that the City's consent shall not be unreasonably be withheld. We have focused our analysis on the legal qualifications of the restructured Triax. Triax has stipulated that no adverse finding has been made nor an adverse final action been taken in any court or administrative body with respect to Triax in a civil, criminal or administrative proceeding found in the provisions of any law or regulation relating to the following: felony, revocation, suspension or involuntary transferal of any authorization (including cable franchise) to provide video programming services; mass media related - anti -trust or unfair competition; fraudulent statements to another government unit; or employment discrimination. Triax is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Missouri. Triax has stipulated that it has all requisite corporate power and authority to conduct its business and operations as now being conducted, to enter into the contribution agreement and to perform its obligations under that agreement as well as the Chanhassen Franchise. Based on our review of the information provided, the city cannot withhold approval of the transfer of the Chanhassen Franchise to the restructured Triax based upon Triax's legal qualifications. I 44508/YCCO1!.DOC 11 MOSS & BARNETT I A PROFESSIONAL ASSOCIATION Technical Qualifications ' The technical qualifications standard relates to Triax's technical expertise and experience in operating and maintaining a cable system. In such a review, the standard of ' review is once again that the city's consent shall not be unreasonably withheld. As of December 31, 1995, Triax Communications Corporation served 377,135 ' customers in the states of Arizona, Arkansas, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Missouri, North Carolina, Ohio, Pennsylvania, Tennessee, West ' Virginia and Minnesota. Following the acquisition of DD Cable, Triax Communications Corporation and its affiliates will have interest in cable communications systems serving 487,135 customers, making it one of the top twenty -five (25) multiple system cable , operators in the country. Triax believes that the combination of DD Cable and Triax together with the infusion of new equity will create a stronger entity with greater access to funding for system improvements and capital expenditures designed to enhance customer service and choice, improve system reliability and increase system functionality. Further, Triax ' believes that given the geographic coverage of DD Cable and Triax, the combination of the systems will provide Triax the opportunity to maximize service, delivery and quality in a ' more efficient manner to the benefit of its customers. Triax has proposed no changes to the operations in the city nor has it sought any ' changes to the franchise obligations under the Chanhassen Franchise. Customers served by DD Cable will generally see no disruption in existing operations as offers of continued employment have been extended to the vast majority of DD Cable personnel, in particular, ' its systems managers and engineers. Triax's management team has significant experience in the day -to -day operations of ' cable television systems throughout the country. Triax's managing general partner, Triax Midwest General Partner, L.P. should provide sufficient technical oversight to assist Triax in the day -to -day operations of its systems. Based on our review of the technical capabilities of Triax and Triax's cable management expertise and experience, we conclude it would be unreasonable for the City to find that upon closing of the transaction, Triax will not be technically qualified to own and run the cable system in the City of Chanhassen. ' 44508/YCCO 1 !.DOC 12 1 MOSS & BARNETT A PROFESSIONAL ASSOCIATION Financial Qualifications We have reviewed Triax's financial information with regard to commenting on its ' financial capacity to operate the Chanhassen Franchise after its merger with DD Cable. The information submitted included: ' 1) The 1993, 1994 and 1995 audited financial statements for Triax; ii) Ten year projections of income and pro forma balance sheets for the reorganized partnership; iii) Proposed financing agreements between Triax and the various lenders; and iv) Audited financial statements for DD Cable for 1994 and 1995. ' Based upon our analysis of the information submitted, the proposed transferee, Triax, proposes to restructure its current equity and liabilities. The restructuring would occur in conjunction with the proposed merger of DD Cable with and into Triax. Triax has ' represented that new equity capital and new bank debt would replace the currently existing debt obligations. 0 � "I Neither federal law nor FCC regulations provide franchising authorities with any guidance concerning evaluation of a proposed transferee's financial qualifications. We have based our recommendations on generally accepted industry standards which are more precisely identified below. Based on the information presented we have prepared the below chart describing a financial analysis Triax as of December 31 of the following years: Description Industry Standard 1995 1. Operating Ratio 60% or less 47.34% (op -expen /revenue) 1994 45.99% 2. Operating Margin 40% or more 52.66 54.56 (op- profit/revenue) 3. Pretax profit Margin + 10% or more (27.61) (31.85) (pretax income/revenue) 4. Debt/Equity Ratio N/A Negative Negative (long -term debt/total equity) Partner Partner Equity Equity 5. Current Ratio 50% or more 44.95 32.62 (current assets /current liabilities) I 44508/YCCOMDOC 13 MOSS & BARNETT A PROFESSIONAL ASSOCIATION 6. Annual Cash Flow (net income plus depreciation) N/A $6,427,000 *Does not tax into account investing and financing activities. L $6,944,000 Triax has outstanding obligations of approximately $150 million on its books as of December 31, 1995. The outstanding obligations exceed its total assets by a margin of 2- to -1. A significant portion of Triax's assets consist of purchased intangibles, which may or may not have significant value to the company. Even though Triax is currently meeting the payments on its debt obligations, the ability of Triax to continue to satisfy its outstanding obligations, absent the restructuring, is questionable. This observation was supported by the fact that Triax's public auditors, Arthur Andersen, LLP, issued a qualified opinion for the year ended December 31, 1994. In its opinion, Arthur Andersen, LLP stated that Triax's ability to continue in existence was questionable absent the proposed restructuring. Therefore, the infusion of new equity capital and restructuring of Triax's current outstanding debt may be crucial to its continued existence. The addition of the operating assets of DD Cable may or may not impact Triax's ability to continue operations. DD Cable is contributing new equity of approximately $52 million in the form of operating assets. However, DD Cable is also transferring significant debt in excess of $100 million to Triax. Therefore, DD Cable's equity contribution is diluted by the assumption of the outstanding obligations. Triax has represented that additional equity of up to $107,000,000 will be provided by subscribers to new limited partnership units. Also, as part of the restructuring, Triax will retire approximately $46,000,000 of existing equity partners. The remaining equity, along with new debt of $375,000,000 will be used to retire current debt and to fund working capital, capital expenditure and general operating needs. The new debt obligations will contain term and revolving credit line provisions, which will require principal payments in the following yearly amounts: Year Revolving Credit Loan Term Loan -: A> Term Loam....... B 1998 - $ 2,250,000 $ 250,000 1999 $16,875,000 12,600,000 250,000 2000 20,250,000 25,200,000 250,000 2001 21,600,000 31,950,000 250,000 2002 24,300,000 36,900,000 250,000 2003 30,375,000 45,450,000 250,000 2004 21,600,000 25,650,000 9,000,000 2005 - - 49,500,000 �l 445081YCCO1 LDOC 14 1 J � "I l J MOSS & BARNETT A PROFESSIONAL ASSOCIATION Based upon the foregoing and limited strictly to the information made available to Moss & Barnett in conducting this review, it appears that Triax, although burdened by substantial debt, does have positive cash flow for each of the previous two fiscal years. This indicates that Triax is continuing to meet its financial obligations. As a result of the proposed restructuring of Triax, Triax has extended its time frame for repayment of its principal obligations with respect to the debt. Therefore, while Triax appears to possess sufficient financial qualifications to own and operate its cable systems as more precisely described in the Contribution Agreement, a downturn in the economy or a failure by Triax to meet its financial forecast would have a significant impact on its ability to meet its operating obligations. The addition of DD Cable's operating assets may or may not have a significant impact upon Triax's ability to continue as an ongoing enterprise. Also, the proposed restructuring of Triax's debt obligations may significantly impact its ability to conduct day - to-day operations in the short term, but will present significant challenges as the debt obligations mature in 1999 and thereafter. To the extent that i) the restructuring does not occur, ii) the equity financing is not made available to Triax or iii) the credit sought by Triax is not on as favorable terms as represented, it is quite possible that Triax may become financially unable to satisfy its obligations, meet the terms and conditions of the Chanhassen Franchise ensure continuity of service to the cable franchisers. Therefore, these matters must be included as conditions in any resolution to be considered by the City approving the proposed transfer. 44508/YCCO 1 !.DOC 15 MOSS & BARNETT A PROFESSIONAL ASSOCIATION ' Additional Issues ' On May 8, 1996, Brian T. Grogan of Moss & Barnett sent a letter to Ms. Jane Bremer, of Larkin Hoffman Daly & Lindgren, legal counsel for Triax with respect to the regulatory approvals for this transaction, enclosing a Transfer Questionnaire/Application which included specific questions regarding the transaction as it relates to the City of Chanhassen. i No specific questions or issues were raised by the City of Chanhassen which required clarification within the Chanhassen Franchise in the form of an amendment to the ' Cable Television Franchise Ordinance. No additional issues or concerns were raised during the public hearings which ' required a specific response on the part of Triax. !.DOC 44508/YCCO 1 16 MOSS & BARNETT A PROFESSIONAL ASSOCIATION Recommendations Based specifically on the foregoing information and evaluations, we believe Triax ' possesses the necessary legal, technical, and financial qualifications based on the standards of review identified in applicable local, state and federal laws as described within this report. Therefore, we find no reasonable grounds on which to deny the request for ' approval of the transfer of Chanhassen Franchise to Triax. Based on these findings, we recommend that: 1. The City counsel review this report, listen to public comment, as necessary ' or appropriate, and undertake all necessary action to pass and adopt a resolution similar in form and content to the document following these recommendations. 2. The City follow -up to ensure that Triax submits the required documents including the Resolution of Corporate Authority and Acceptance Agreement which must be delivered within thirty (30) days of the closing of the transaction described within the ' Contribution Agreement. I 44508/YCC01!.DOC 17 MOSS & BARNETT A PROFESSIONAL ASSOCIATION i Draft Resolution Approving Proposed Transfer 1 44508/YCCO 1 ! .DOC .18 1 MOSS & BARNETT A PROFESSIONAL ASSOCIATION RESOLUTION NO. APPROVAL OF THE TRANSFER OF THE CABLE TELEVISION FRANCHISE WHEREAS, on or about April 2, 1984, the City of Chanhassen, Minnesota ( "City ") granted a Cable Television Franchise Ordinance (the "Chanhassen Franchise ") to Dow -Sat of Minnesota, Incorporated; and WHEREAS, Triax Midwest Associates, L.P. ( "Triax "), subsequently acquired ownership of the Chanhassen Franchise; and WHEREAS, Triax is the current and lawful holder of the Chanhassen Franchise; and WHEREAS, on or about April 15, 1996, Triax Midwest Associates, L.P. ( "Triax ") and other investors, entered into a Contribution Agreement whereby all assets Triax together with the Chanhassen Franchise will be transferred and merged into a restructured Triax Midwest Associates, L.P. ( "TMA "); and WHEREAS, under the Chanhassen Franchise and Minnesota Statutes Section 238.083, the transfer of the cable system serving the City together with the transfer of the Chanhassen Franchise is prohibited without the prior written approval of the City; and WHEREAS, the City, with the assistance of Moss & Barnett, A Professional Association, has reviewed the proposed transfer and the legal, technical, and financial qualifications of TMA; and 445081YCCO1 !.DOC 19 MOSS & BARNETT A PROFESSIONAL ASSOCIATION WHEREAS, based on information obtained by the City, the City has found no reason to disapprove of the transfer to TMA. NOW, THEREFORE, the City Council for the City of Chanhassen, Minnesota resolves as follows: 1. The City hereby consents and approves of the transfer of the Chanhassen Franchise from Triax to TMA subject to the following conditions being met within thirty (30) days of the closing of the transaction contemplated by the Contribution Agreement: a. Closing of the transaction contemplated within the Contribution Agreement pursuant to the terms and conditions described in information provided by Triax to the City particularly with respect to the financing arrangements represented. b. Triax promptly notifying the City in writing of the completion of the transfer. C. Triax providing a signed Acceptance Agreement in a form supplied by and acceptable to the City. d. Triax providing evidence of corporate authority, in a form acceptable to the City, to enter into the Chanhassen Franchise and to sign the Acceptance. 2. In the event the transfer contemplated by the foregoing resolutions is not completed, for any reasons, the City's consent to the transfer shall not be effective. 44508/YCCO 1 LDOC 20 MOSS & BARNETT A PROFESSIONAL ASSOCIATION 3. This Resolution shall take effect and continue and remain in effect from and after the date of its passage, approval and adoption. A motion to approve the foregoing Resolution No. was made by Council Member and duly seconded by Council Member The following Council Members voted in the affirmative: The following Council Members voted in the negative: Passed and adopted by the City Council for the City of Chanhassen this day of , 1996. ATTEST: 44508/YCCO 1 !.DOC CITY OF CHANHASSEN, MINNESOTA By: Its: 21 MOSS & BARNETT A PROFESSIONAL ASSOCIATION Resolution of the Board of Directors of Triax Midwest Associates, L.P. 44508/YCCO 1 LDOC 22 MOSS & BARNETT A PROFESSIONAL ASSOCIATION RESOLUTION OF THE BOARD OF DIRECTORS ' OF TRIAX MIDWEST ASSOCIATES, L.P. ' WHEREAS, the City of Chanhassen, Minnesota ( "City ") granted a Cable Television Franchise Ordinance (the "Chanhassen Franchise "); and ' WHEREAS, the City, acting through its governing body, on , 1996, adopted a Resolution approving the transfer of the cable system and Chanhassen Franchise to Triax Midwest Associates, L.P. ( "Triax "); and ' WHEREAS, the City has requested, as a part of this transfer, the execution of a Acceptance from Triax; NOW THEREFORE BE IT RESOLVED: ' 1. Upon final approval and adoption of this Resolution, any one or more of the officers of Triax are hereby authorized to execute and to deliver to the City an ' acceptance of the obligations of Triax under the terms and conditions of the Chanhassen Franchise. ' 2. Upon the aforementioned approvals, any one or more officers of Triax are hereby authorized to execute other documents and take such actions as may be necessary or desirable to give effect to the foregoing and to consummate the transfer, and any and ' all such actions taken to date by any of said officers are hereby ratified. I Dated , 1996 TRIAX MIDWEST ASSOCIATES, L.P. Its: I 44508/YCCO1!.DOC 23 MOSS & BARNETT 'A PROFESSIONAL ASSOCIATION CERTIFICATION I HEREBY CERTIFY that the foregoing is a true and correct copy of a Resolution duly passed by the Directors of Triax Midwest Associates, L.P. on the _ day of , 1996, and that said Resolution is in full force and effect, unamended. DATED this _ day of , 1996. Secretary for Triax 44508/YCCO1 LDOC 24 MOSS & BARNETT A PROFESSIONAL ASSOCIATION Acceptance of a Franchise For a Cable Television System in the City of Chanhassen, Minnesota 44508/YCCO 1 !.DOC 25 MOSS & BARNETT , A PROFESSIONAL ASSOCIATION ACCEPTANCE OF A FRANCHISE FOR A CABLE TELEVISION SYSTEM IN THE ' CITY OF CHANHASSEN, MINNESOTA WHEREAS, the City of Chanhassen, Minnesota ( "City ") by action 'of its governing body on , 1996, adopted a resolution no. ( "Resolution ") approving ' the transfer of the cable system and to the restructured Triax Midwest Associates, L.P. ( "Triax "); and WHEREAS, the City of Chanhassen Cable Television Franchise Ordinance adopted , April 2, 1984 (the "Chanhassen Franchise "), together with the Resolution require that Triax accept the Chanhassen Franchise and the conditions contained in the Resolution in ' form and substance acceptable to the City. ' NOW, THEREFORE, pursuant to the terms and requirements of the Chanhassen Franchise and the Resolution, and in consideration of the City's approval of the transfer of , the Chanhassen Franchise, Triax accepts the Chanhassen Franchise and all conditions in the Resolution and makes the following representations and warranties to the City: ' I. Triax is a Missouri limited partnership duly organized, validly existing, and ' in good standing under the laws of the State of Missouri, and authorized to do business in Minnesota and with full power, authority, and legal capacity to execute, deliver, and perform this Acceptance and perform the terms and conditions of the Chanhassen , Franchise, as amended, and the Resolution. 2. All actions necessary to authorize the execution and delivery of this I Acceptance and the performance of the Chanhassen Franchise, as amended and Resolution, have been duly authorized by all necessary and required proceedings. 1 44508NM I LDOC 26 1 MOSS & BARNETT ' A PROFESSIONAL ASSOCIATION 3. The execution and delivery of the Acceptance and the performance of the ' Chanhassen Franchise, as amended and the Resolution, does not and will not conflict with or result in the breach or termination of, or constitute a default under, any indenture or instrument with respect to the borrowing of money, or any material contract, lease or agreement, or order, judgment or decree or any law, rule or regulation to which Triax is a party or by which it or any of its property is bound or affected. 4. Triax has carefully read the terms and conditions of the Chanhassen Franchise as amended and the Resolution and accepts the rights, duties and obligations p g g ' created thereunder, subject to its rights under applicable state and federal law. 5. Neither Triax or any of its representatives or agents have committed any illegal acts or engaged in any wrongful conduct contrary to, or in violation of, any federal, state, or local law or regulation in connection with the obtaining of the Chanhassen Franchise, as amended. 6. Triax acknowledges and agrees that the transfer, the consent process, the ' Resolution, and this Acceptance Agreement do not provide an basis for increasing the Y g amounts paid by subscribers through cost pass- through as so- called "external costs" or as ' new franchise requirements and the consent process, this Acceptance Agreement, and the Resolution do not provide any basis for increasing the amount paid by subscribers in any other manner provided, however, this paragraph (iv) shall not be construed or interpreted I as a waiver of any rate adjustment Triax may be entitled to under FCC rules and orders.. 44508/YCC01!.DOC 27 MOSS & BARNETT A PROFESSIONAL ASSOCIATION 7. Triax agrees that any payments to be made to the City under the Resolution shall not be considered franchise fees as set forth in Section 622(g)(2) of the Cable Act, as amended (47 U.S.C. § 542(g)(2)). Dated , 1996 STATE OF ss. COUNTY OF TRIAX MIDWEST ASSOCIATES, L.P. Its: The foregoing instrument was subscribed and sworn to before me this , 1996, by , the of Triax Midwest Associates, L.P. SEAL Notary Public 44508NM 1 LDOC 28