HomeMy WebLinkAbout7C - Triax/DD Cable Company
AGENDA #:
PREPARED BY:
SUBJECT:
DATE:
BACKGROUND:
DISCUSSION:
ISSUES:
ST AFF AGENDA REPORT
7110 f~r-{'\ ,
FRANK BOYLES, CITY MANAGER\..'\
CONSIDER APPROVAL OF RESOL ION 96-81
APPROVING THE PROPOSED MERGER OF
TRIAX/DD CABLE COMPANY
AUGUST 19, 1996
The City Council has conducted a Public Hearing with
respect to the proposed merger. This item has been on
numerous City Council Agendas because of the pending
nature of the investigation by the attorney representing
Prior Lake. At the August 5, 1996 meeting the item was
deferred until August 19, 1996 to afford the City's attorney
and the attorney representing the cable company an
opportunity to work out differences they have with respect
to Resolution 96-81.
Thomas D. Creighton with the law firm of Bernick and
Lifson has worked with Jane Bremer of Larkin, Hoffman,
Daly & Lindgren to resolve their differences in the
proposed resolution approving the transfer. A copy of the
revised resolution is attached for City Council
consideration. I have asked Mr. Creighton to be present at
the August 19, 1996 meeting to answer any questions
council members may have with respect to the proposed
transfer, the approving resolution and its implications.
The FCC guidelines provide criteria regarding the transfer
of cable company ownership. These criteria are fairly
detailed and complex. Mr. Creighton in his July 31, 1996
16200 ~~~~ve. S.E., Prior Lake. Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
memo (attached) found that the transfer is in conformance
with these requirements.
ALTERNATIVES:
The Council has the following alternatives:
1) Adopt Resolution 96-81 authorizing the merger of
Triax/DD Cable Company.
2) Deny Resolution 96-81.
3) Adopt a modified version of Resolution 96-81.
RECOMMENDATION: Alternative # 1
ACTION REQUIRED: Motion and Second to adopt Resolution 96-81 authorizing
the merger of Triax/DD Cable Company. Copies of the
staff reports on this subject are attached for Council
reference.
ST AF9626.DOC
RESOLUTION 96-81
CONSENT RESOLUTION CONSENTING TO THE TRANSFER OF
CONTROL OF AND CERTAIN OWNERSHIP INTERESTS IN
A CABLE TELEVISION FRANCHISEE; SUBJECT AND
CONDITIONED UPON COMPLIANCE WITH CERTAIN
TERMS AND CONDITIONS
WHEREAS, the cable television franchise of Prior Lake (the "Franchise") is currently
owned and operated by DD Cable Holdings, Inc. ("Holdings"); and
WHEREAS, Triax Midwest Associates, L.P. ("Triax"), DO Cable Holdings, Inc., 00
Cable Partners, L.P., and various subsidiaries of DO Cable Holdings, Inc. (collectively "DO
Cable If) and certain new investors have entered into a Contribution Agreement dated April 5, 1996
(the "Contribution Agreement") wherein they will create a new entity ("Merged Entity") to
assume the franchise obligations of Holdings, and Prior Lake (the "Authority If) has received a
valid and complete request from Holdings for consent to the transfer of control of and certain
ownership interests in Holdings (the "Transaction"); and
WHEREAS, the Authority has determined that subject to certain conditions which must
be met, Holdings possesses the requisite legal, technical and financial qualifications:
NOW, THEREFORE, BE IT RESOLVED, that the Transaction is hereby consented to
by Authority and permitted subject to the following conditions:
1. Payment by Triax, nn Cable and/or the Merged Entity of all reasonable fees
related to this Transaction and incurred by Authority.
2. Triax and DD Cable, inclusive of Holdings, and the Merged Entity shall each
execute a waiver of any rights relating to supposed procedural defects regarding
the Authority's review of this Transaction; and
BE IT RESOLVED FURTHER, failure to comply with Paragraphs numbered 1 and 2
above shall convert this Consent in its entirety to a denial of the Transaction.
BE IT RESOLVED FURTHER, no notice of breach or default under the Franchise has
been issued by Authority within the past 12 months and none is outstanding; and
BE IT RESOLVED FURTHER, that the Merged Entity may, at any time and from time
to time, assign or grant or otherwise convey one or more liens or security interests in its.assets,
including its rights, obligations and benefits in and to the Franchise (the "Collateral") to any
lender providing fmancing to the Merged Entity (" Secured Party"), from time to time. Secured
Party shall have no duty to preserve the confidentiality of the information provided in the
Franchise with respect to any disclosure (a) to Secured Party's regulators, auditors or attorneys,
(b) made pursuant to the order of any governmental authority, (c) consented to by the Authority
or (d) any of such information which was, prior to the date of such disclosure, disclosed by the
Authority to any third party and such party is not subject to any confidentiality or similar
disclosure restriction with respect to such information subject, however, to each of the terms and
conditions of the Franchise; and
BE IT RESOLVED FURTHER, that the consent to the Transaction herein provided shall
be effective upon and only effective concurrent with the closing of the transactions described in
the Contribution Agreement.
BE IT RESOL VED FURTHER, that this consent shall be the fmal action required by the
Authority regarding the Transaction consented to herein, provided that nonmaterial, non-
substantive changes are authorized hereto if in the judgment of legal counsel to Authority such
changes are necessary to comply with local, state or federal law , or otherwise required to prevent
the necessity of this consent returning to Authority for action, thereby exceeding the federally
prescribed time requirement related hereto.
ADOPTED by
this _ day of
, 1996.
Prior Lake
Mayor
Attest:
Clerk-Treasurer
The undersigned, being the duly appointed, qualified and acting Clerk of Prior Lake,
Minnesota hereby certify that the foregoing Resolution No. _ is a true, correct and accurate
copy of Resolution No. _ duly and lawfully passed and adopted by Prior Lake on the _ day
of , 1996.
Clerk
EXHIBIT A
WAIVER
This _ day of
, 1996, Triax Midwest Associates, L.P. ("Triax"), DD
Cable Holdings, Inc. ("Holdings"), DD Cable Partners, L.P. ("Partners") do for themselves,
their general partners, and their heirs, personal representatives, successors and assigns, waive,
release and forever discharge the Authority and its directors, officers, employees, successors,
personal representatives, heirs, and assigns, relating to alleged procedural defects including, but
not limited to, the procedure outline in Minn. Stat. ~ 238.083 regarding the Authority's review
of the merger transaction described above.
IN WITNESS WHEREOF, the parties execute this Release on the day set forth above.
TRIAX MIDWEST ASSOCIATES, L.P.
DD CABLE HOLDINGS, INC.
By:
Its
By:
Its
By:
Its
By:
Its
DD CABLE PARTNERS, L.P.
By:
Its
By:
Its
BERNICK AND LIFSON
A PROFESSIONAL ASSOCIATION
ATTORNEYS AT L.AW
ROSS A. SUSSMAN
NEAL .J. SHAPIRO
SAUL A. BERNICK'
THOMAS D. CREIGHTON
SCOTT A. LIFSON
rJAVID K. NIGHTINGALEt
'AUL oJ. QUAST'
rHERESA M. KOWALSKI
REBECCA oJ. HELTZER
SUITE 1200. THE COLONNADE
tALSO ADMITTED IN WISCONSIN
'ALSO CERTIFIED PUBLIC ACCOUNTANT
5500 WAYZATA BOULEVARD
MINNEAPOL.IS. MINNESOTA 55416-1270
LEGAL ASSISTANTS
FACSIMILE (612) 546-1003
oJO BROWN
.JOAN M. SCHULKERS
KATHRYN G. MASTERMAN
TELEPHONE (612) 546-1200
ROBERT oJ. V. VOSE
August 7, 1996
Mr. Frank Boyles
City Manager
City of Prior Lake
16200 Eagle Creek Avenue
Prior Lake, Minnesota 55372-1714
Dear Mr. Boyles:
Enclosed please find a revised Consent Resolution and Waiver, and a newly negotiated
Merger Fee Reimbursement Agreement regarding the merger of Triax and DD Cable. The
revised Resolution and associated Waiver and Agreement ensure the company's payment of your
fees related to reviewing this transaction. The enclosed revised documents are acceptable to the
cable company. Further, these modifications do not affect the substance of our report.
If you have already adopted the original Resolution, please call our office to receive further
instructions from me or Robert V ose.
After adoption of the enclosed revised Resolution, and after signing the enclosed
documents in all places provided for city signature, please send the signed originals to our office.
We have already forwarded a counterpart of the Agreement signature page to the merging
companies for their execution. We will return a fully executed copy of the Agreement to you once
all signatures are secured. Please keep a copy of the Resolution for your records.
Please do not hesitate to contact us if you have any questions.
Very truly yours,
Thomas D. Creighton
TDC/rs
Enclosures
cc: Ms. Jane E. Bremer
AGENDA #:
PREPARED BY:
SUBJECT:
DATE:
BACKGROUND:
DISCUSSION:
ISSUES:
6A .~
FRANK BOYLES, CITY MANAGER
CONSIDER APPROVAL OF 96-81 APPROVING THE
PROPOSED MERGER OF TRIAX/DD CABLE COMPANY
AUGUST 5, 1996
The Cable Television Franchise Agreement between the City of
Prior Lake and TriaxlMidwest Associates provides that the
City must consent to a transfer of the Cable Television
Franchise. We have received an application of the
TriaxlMidwest Associates, L.P., D.D. Cable Partners, L.P., and
the D.D. Cable Holdings, Inc. DBA Midwest and Northland
Cablevision for such a transfer.
This City Council has opened and closed a public hearing
effective June 17, 1996. The Agenda Report for that hearing is
attached. The Council has also considered the item on July 1,
1996, and was asked to delay further action until August 5,
1996 at the advice of the attorney reviewing the transfer.
Thomas Creighton with the law firm of Burnick and Lifson has
represented the City of Prior Lake on Cable Television
matters. Mr. Creighton has had the opportunity to review the
request for Cable Transfer together with additional
information that has been requested from the company.
Attached for Council information is a copy of a memo from Mr.
Creighton analyzing the transfer and recommending that the
Cities he represents authorize transfer of the Cable ownership
as proposed by the company. Also attached is a copy of a
resolution which would effectuate such approval. A copy of the
resolution will be given to the Cable company in accordance
with FCC guidelines. The notebook containing all transfer
information is available to Councilmemers in my office.
The FCC guidelines with respect to review of transfer of Cable
Company ownership is very restrictive. Mr. Creighton has
reviewed the material submitted by the Cable Company and
believes them to be in order.
16200 ~~~66PJilCAve. S.E., Prior Lake. Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
ALTERNATIVES:
Council has the following alternatives:
1. Adopt Resolution 96-81authorizing the merger of
Triax/DD Cable Company.
2. Take no action pending receipt of additional
information.
RECOMMENDATIONS: Alternative 1.
ACTION REQUIRED:
att.
85966A.DOC
Motion and second to adopt Resolution 96- 81 authorizing the
merger of Triax/DD Cable Company.
RESOLUTION 96 - 81
CONSENT RESOLUTION CONSENTING TO THE TRANSFER OF
CONTROL OF AND CERTAIN OWNERSHIP INTERESTS IN
A CABLE TELEVISION FRANCHISEE; SUBJECT AND
CONDmONED UPON COMPLIANCE WITH CERTAIN
TERMS AND CONDmONS
WHEREAS, the cable television franchise of Prior Lake (the "Franchise") is currently
owned and operated by DD Cable Holdings, IDe. ("Holdings"); and.
WHEREAS, Triax Midwest Associates, L.P. C.Triax-). DD Cable Holdings, IDe., DD
Cable PartD:r5, LIP., and various subsidiaries of DO Cable Holdings, Inc. (collectively "DD
Cable") and certain TJl:W investors have entered into a Contribution Agreemcm dated April 5, 1996
(the "Contribution Agreement") wberein they will create a new entity (-Merged EntityJII) to
assume the ~~hise obligations of Holdings, and Prior Lake (the "Authority") has received a
valid and complete request from Holdings for coment to the t:raJ1Sfer of control of and certain
ownership interests in Holdings (the "Transaction"); and
WHEREAS, the Authority has deb:rmined that subject to certain ~OnditiODS which must
be met, Holdings possesses the requisite legal, tecbnical and financial qualifications:
NOW. THEREFORE. BE IT RESOLVED, that the Transaction is hereby permitted
subject to the following conditions:
1. Triax, DD Cable iIElusivc of Holdings m:l the Meried Emity sball each execute
a waiver In the form a~~ as Exhibit A. waiving any and all claims against the
Authority relating to the payment of costs. fees or expenses iDcum:d in reviewiDi
this transaction. To the extent allowed by federal law and applicable regulation,
this waiver sballl10t prevent the collection of such costS, fees, or ~~ directly
from subscribers but shall pRVeut tbI: retention or witbholdina of any fp"dUse fee
payment amoUDtS to Authority.
2. Triax. DD Cable inclusive of Holcliqs and the Merled Entity shall each execute
a waiver of any richU relating to supposed proccdura.l defects regarding the
Authority r s review of this traDSaction; and
BE IT RESOL VED FURTHER. DO DQticc of breach or default uncler the Franchise has
been issued by Authority within the past 12 months UId DODe is outstaDdiDg; and
BE IT RESOLVED FURTHER. tbat the Merged. Entity may, at any time UId from time
to time, assign or grant or otherwise convey ODe or more liens or security iDteresu in its assets,
~ludi11a its riahU. obligations and benefits in and to the Fnmchise (the "Collateral") to any
1eDder providing fiDaDciDg to the Merged Entity (-Secured Party"), from time to time. Secured
party shall have DO duty to preserve me coDfideDtiality of the information provided in the
Fr:a~hlsc with respect to any disclosure (a) to Secured Party's regulators. auditors or attomc)'s,
(b) made pursuant to the order of any governmental authority, (c) comented to by the Authority
or (d) any of such information which was, prior to the date of such disclosure, disclosed by the
Authority to any third party and such party is DOt subject to any confidentiality or similar
disclosure resaiction with respect to such infOIDJation subject, however, to each of the terms and
conditions of the Franchise; and
BE IT RESOL VBD FURTHER, that the couscnt to the Transaction herein provided shall
be effective upon and only effective coDaJrrent with the closing of the transactioDS described in
the Contribution Agreement.
ADOPTED by
this _ day of
. 1996.
,.
Prior Lake
Mayor
Attest:
Clerk-Treasurer
The undersigIJeci, being the duly appoiDtcd, qualified aJJd actiDc Clerk of Prior Lakc,
MinnesOta hereby certify that the foregoing Resolution No. _ is a truc. correct and accurate
copy of Resolution No. _ duly and lawfully passed and. adopted by Prior Lake 011 the _ day
of , 1996.
Clerk
EXHIBIT A
WAIVER
This _ day of
, 1996, Triax Midwest Associates. L.P. (-Tria"), DD
Cable Holdings, Inc. (-Holdings"), DD Cable Partners. L.P. (-Partners") do for thcm5elves.
their general partDers, and their heirs, personal representatives, successors and assigns, waive,
release and forever discharge tbe Authority and its directors. officers, employees, successors,
personal representatives, heirs. and assigns, of and from any and all claims, demands,
damages, offsets. actions, causes of actioD. defects, suits at law or equity, of whatsoever ldIJd
or namre arising out of or relating to the payment of costs, fees or expenses incurred in
reviewing the merger transaction outlined in that certain ContIibutioD Agreement dated April
.5, 1996 by and between Triax, Holdings, Partners and other related entities. The undersigned
do also waive, release and forever discharge the Authority and its directors, officers,
employees, successors, personal representatives, heirs, and assigns, relating to alleged
procedural defects including, but not limited. to, the procedure outline in Minn. Stat. I
238.083 regarding the Authority's review of the merger tramaction described above.
IN WITNESS WHEREOF, the parties execute this ~lease aD the day set forth above.
TRIAX MIDWEST ASSOCIATES, L.P.
DD CABLE HOLDINGS, INC.
By:
Its
By:
Its
By:
Its
By:
Its
DD CABLE PARTNERS. L.P.
By:
Its
By:
Its
(Merged Entity)
By:
Its
By:
Its
2
AGENDA #:
PREPARED BY:
SUBJECT:
DATE:
INTRODUCTION:
DISCUSSION:
ISSUES:
ALTERNATIVES:
STAFF AGENDA REPORT
6B
FRANK BOYLES, CITY MANAGER
PUBLIC HEARING TO CONSIDER PROPOSED MERGER
OFTID~DCABLECOMPANY
ruL Y 1,1996
The cable television franchise agreement between the City of
Prior Lake and Triax Midwest Associates provides that the
City must consent to a transfer of the cable television
franchise. We have received an application by Triax Midwest
Associates, L.P., D.D. Cable Partners, L.P., and D.D. Cable
Holdings, Inc. d/b/a Midwest and Northland Cablevision for
such a transfer.
Thomas Creighton, with the law firm of Bumick and Lifson,
has historically represented Prior Lake on cable television
matters. Mr. Creighton has instructed the cities served by his
firm to open a Public Hearing on or before June 17. The City
Council opened the public hearing on june 17 and continued it
to July 1. Attorney Creighton's is in the-process of reviewing
the provi~ns of the proposed transfer.
Mr. Creighton indicates that our deadline is August 22, 1996.
Therefore he recommends that the hearing be continued to the
Council's Augus. 5th meeting for final Council action.
'-. The Council has the following alternatives:
1. Continue the Public Hearing to Agust 5, 1996.
RECOMMENDATION: Alternative #1.
ACTION REQUIRED: Continue the Public Hearing to August 5, 1996.
16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
~ ~/,-~. ,
AGENDA #:
PREPARED BY:
SUBJECT:
DATE:
INTRODUCTION:
DISCUSSION:
~J..
ISSUES:
ALTERNATIVES:
--------
...,
.1;
)
/
'-
/
" I
STAFF AGENDA REPORT
6A f\~ \
FRANK BOYLES, CITY MANAGER X
PUBLIG' HEARING TO CONSIDER PRO
OF TRIAxlDO CABLE COMPANY
JUNE 17, 1996
f
The cable television franchise agreement between the City of
Prior Lake and T riax Midwest Associates provides that the
City must consent to a transfer of the cable television
franchise. We have received an application by Triax Midwest
Associates, L.P., D.O. Cable Partners, L.P., and D.O. Cable
Holdings, Inc. d/b/a Midwest and Northland Cablevision for
such a transfer.
Thomas Creighton, with the law firm of Bumick and Lifson,
has historically represented Prior Lake on cable television
matters. I have attached a May 16, 1996 letter from Mr.
Creighton which instructs the cities served by his firm to open
a Public Hearing on or before June 17. The City Council is to
open a Public Hearing and continue it until further notice from
Burnick and Lifson. In the meantime, it is Attorney
Creighton's intent to review the provisions of the proposed
transfer. Among his priorities is to assure that reimbursement
of City expenses is paid for by the petitioner.
Mr. Creighton will be present at a subsequent hearing to
further discuss the cable transfer issue.
The Council has the following alternatives:
1. Open the Public Hearing and continue it pending
notification from the attorney's office.
RECOMMENDATION: Alternative #1. I am advised by the attorney that there is little
leverage available for the City under the terms of our franchise
agreement and other state and federal laws to appreciably
16200 Eagle Creek Ave. S.E., Prior Lake. Minnesota 55372-1714 /. Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQL'AL OPPORTCNITY E~PLOYER
improve the conditions of our existing franchise agreement.
Instead, Mr. Creighton has suggested that it would be
appropriate for the cities of Prior Lake and Savage and the
school district to approach the companies once the transfer has
taken place in an effort to initiate a more productive
relationship than has existed in the past.
ACTION REQUIRED: Open the Public Hearing and continue it until further notice
from the attorney's office.
(i
Attachment
AG60617.DOC
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BERNICK AND LIFSON
A PROP'ESSIONAL ASSOCIATION
ATTORNEYS AT LAW
ROSS A. SUSSMAN
NEAl.. .J. SHAPIRO
SAUl.. A. BERNICK"
THOMAS O. CREIGHTON
SCOTT A. I..IFSON
SUITE 1200, THE COL..ONNAOE
5500 WAVZATA BOUI..EVARO
tAL..SO AOMITTe:O IN WISCONSIN
"AL..SO Ce:RTIFIe:O F>U6L..IC ACCOUNTANT
MINNEAPOLIS. MINNESOTA 55416-1270
L..EOAL. ASSISTANTS
OAVIO K. NIGHTINGAL..E'
F'ACSIMIL..E 16121 546-1003
..JO BROWN
.JOAN M. SCHUI..KERS
KATH RVN O. MASTERMAN
TEL..EPHONE (6121 546-1200
PAUl.. .J. QUAST"
THERESA M. KOWAI..SKI
REBECCA .J. HEI..TZER
ROBERT J. V. VOSE
MEMORANDUM
TO:
Clients Currently Served By Triax Midwest Associates, L.P. and
DD Cable Partners, L.P.
FROM:
Thomas D. Creighton, Robert J. V. V ose, Theresa M. Kowalski
RE:
Request for Approval of Merger of Triax and DD Cable
DATE:
July 31, 1996
FINAL REPORT, ANALYSIS AND CONCLUSIONS
Please find below a summary and analysis of the proposed transaction regarding the
merger of Triax Midwest Associates, L.P. and DD Cable Partners, L.P. (hereinafter referred to
as "Current Owners") into Triax Midwest Associates, L.P. (hereinafter referred to as "Merged
Entity").
Federal Communications Commission Form 394 ("FCC 394") dated April 13, 1996, was
received by the various Franchise Authorities (hereinafter "Authority" or "Authorities") on dates
ranging from Apri115 through April 19. The confidential supplemental information to FCC 394
was dated April 17, and received by Authorities on or about April 22-23, 1996. Federal law
provides for a 120 day review period from the date of receipt of FCC 394, together with all
MEMORANDUM
July 31, 1996
Page 2
exhibits and any additional information required by the terms of the Franchise Agreement or
operative state or local law . Although additional information was required and received from the
Merged Entity, for the purpose of this report, only the 120-day period is calculated from the date
of receipt of the confidential documents supplementing FCC 394. Authorities should therefore
conclude their review on or before August 20, 1996.
The purpose of this report is to provide the Authorities with an understanding of the
transaction and the standard for review.
1. INTRODUCTION.
At the time of awarding the original Cable Communications Franchise and in subsequent
transfers, if any, of the Franchise, the Authorities considered and approved the technical ability,
fmancial capacity, legal qualifications and character of the original and subsequent owners of the
cable system, as well as other appropriate factors. These same qualifications are to be considered
and reviewed as part of the review by Authorities of the merger of the Current Owners. The
sources of information used in examining these factors included FCC 394, its exhibits, the current
Franchise Ordinance, various FCC rules and regulations regarding cable communication systems,
the Merged Entity's Response to the Request for Additional Information Regarding Request for
Approval of Transfer of Control, and the Merged Entity's response to questions regarding
confidential information (Form M), along with direct oral communications with representatives
of Merged Entity.
MEMORANDUM
July 31, 1996
Page 3
All levels of government have something to say about such mergers. The local franchise,
Minnesota state law, federal law and FCC rules all apply to this merger. Many Authority's
Franchises require that Authority review the merger pursuant to the same standards used to award
the original Franchise. Minnesota law, Minn. Stat. ~ 238.083, provides that the local franchising
authority must consider a written request to approve a transfer of ownership, and the franchise
authority cannot unreasonably withhold such approval. Minnesota law also arguably requires a
shorter review period than the 120 days, with certain procedural requirements which have been
complied with by Authorities. However, in any event, we have opined that it is more probable
than not that the federal statutory time of 120 days preempts those state statutory timelines which
are inconsistent with federal timelines.
2. STANDARD OF REVIEW.
The Authority's task in this process is to review the information provided regarding the
merger and to approve or deny the merger of the Current Owners. The Franchise Authorities
have the express right to approve or disapprove such a merger. The standard of review is that
the Authority's consent shall not be unreasonably withheld. For the purpose of determining
whether it will consent to the merger, the Authority has made inquiry into the legal, technical and
financial qualifications of the Merged Entity, a well as other appropriate factors.
In analyzing the transaction, the Authority must consider whether the Merged Entity meets
all of the criteria originally considered in the granting of the Franchise. Note, however, that this
analysis is not a comparison between the Current Owners and the Merged Entity. Rather, this
MEMORANDUM
July 31, 1996
Page 4
analysis is an application of factors to determine whether the Merged Entity satisfies the standards
to the reasonable 'satisfaction of the Authority.
The Authority should focus on the following factors in determining whether to approve
or deny the merger:
i. . Legal and character qualifications of the Merged Entity;
11. Technical ability of the Merged Entity;
111. Financial stability of the Merged Entity; and
IV. Other appropriate factors.
This office has conducted an extensive review of all relevant materials on behalf of the
Authority. This report is a "shorthand" synthesis of that review in an attempt to fully inform the
Authority without overwhelming the decision-making body with detail and minutia. Obviously,
our review extended far beyond the summary of this report, and we will be available to further
expand on this summary should the Authority have any questions.
3. DESCRIPTION OF TRANSACTION.
The merger will place substantially all of the assets of the Current Owners under the
management and control of a restructured Merged Entity. The Contribution Agreement outlines
the terms of the merger between Triax Midwest Associates, L.P. and DD Cable Partners, L.P,
its wholly owned subsidiary, DD Cable Holdings, Inc., and all its wholly owned subsidiaries
("DD Cable Group"). As a part of the merger, existing limited partners' interests will be
MEMORANDUM
July 31, 1996
Page 5
redeemed and new equity investors (VS&A Communications Partners II, L.P., Equity-Linked
Investors, II, L.P., and DLJ Investment Partners, L.P.) will become limited partners.
The merger will be accomplished through the contribution of assets of the DD Cable
Group to Triax Midwest Associates, L.P., which will operate the cable systems. In addition to
the limited partnership interest, all existing liabilities of the DD Cable Group will be assumed by
the partnership and DD Cable Partners, L.P. will be paid $4,200,000 for out-of-pocket costs
associated with the merger. The current limited partners, whose interests are being redeemed,
are to be paid $44,500,000. The Agreement does not identify the current limited partners or
specify how much is to be paid to each limited partner.
The Revised and Restated Partnership Agreement is the governing document for the post-
nlerger ownership of the cable franchises. The partnership is a limited partnership and the limited
partners have no management and control except for such issues as dissolution or replacing the
general partner. The existing general partner, Triax Cable. General Partner, L.P., is to be
replaced by Triax Midwest General Partner, L.P.
The business of the partnership is run by the general partner in conjunction with an
advisory committee. The advisory committee is made up of people appointed by the general
partner and some of the new equity partners. The advisory committee has the power to
preapprove business decisions to the general partner before they are implemented. The
partnership is to be conducted in accordance with the five year business plan of the partnership.
MEMORANDUM
July3!,1996
Page 6
The Partnership Agreement provides that a priority return of 13 % internal rate of return will be
paid to Triax Cable and each limited partner.
The Partnership Agreement provides that its existence will end on December 31, 2006.
This raised some concern in analysis and the Merged Entity was asked to clarify the termination
of the Partnership Agreement. In its response, the Merged Entity stated that on or before
December 31, 2006, the Partnership Agreement could be extended or the systems divested to a
new entity. Any such divestiture would require the review and approval of the Franchise
Authority, therefore, this termination date is not of concern to this analysis.
Triax Telecommunications Company, LLC, is providing management services for the
partnership. Triax will provide such services for the operation of each of the cable systems
subject to this merger. Under the Agreement, Triax is required to oversee the operation of the
systems, but the work is actually performed by partnership employees. Triax Telecommunications
Company, LLC, will receive a management fee equal to 4 % of the gross. revenues of the
partnership. The fee is to be paid in monthly installments of $275,000, but is capped at an annual
amount equal to 4 % of gross revenues. The analysis generated some concern over the magnitude
of this fee. Our concern is that the syphoning of such large amounts of money off the top of the
operations of a cable system might tend to leave less money available for those things important
to the City, such as system upgrade upon franchise renewal. It is, of course, impossible to tell
from the information available to us whether there would be upward pressure on the rate as a
result of such fees. Triax' response is that Triax Telecommunications Company, LLC, is an
MEMORANDUM
July 31, 1996
Page 7
experienced national company which has in the past and will continue to provide valuable
management and leadership expertise to the operating systems.
While this fee is of concern to this analysis, it does not rise to the level of a reasonable
basis for withholding approval of the merger. Suffice it to say, however, that the Franchise
Authorities should factor the existence of such fees into any responses received from the Nlerged
Entity that resources are simply not available to comply with franchise requirements or enhance
the operation of the system.
Triax Telecommunications Company, LLC, is responsible for keeping the books and
records of the partnership and preparing the financial statements of the partnership. The cost of
Triax Telecommunications Company, LLC employees, as well as the cost of preparing the
fmancial statements, is to be paid by Triax Telecommunications Company, LLC. The partnership
is responsible for paying for an aIUlual audit of the fmandal statements and the preparation of the
partnership tax return.
The term of the Management Services Agreement is equivalent to the term of the
partnership. Triax Telecommunications Company, LLC is not required under the Agreement to
devote all energies and resources to the partnership's system management. In addition, the
standard of liability for Triax Telecommunications Company, LLC is determined to be gross
negligence or fraud. The partnership will indemnify Triax Telecommunications Company, LLC
for any liability resulting from actions which do not arise to the gross negligence or fraud
standard.
MEMORANDUM
July 31, 1996
Page 8
A chart showing the current ownership/control structure of DD Cable entities is attached
hereto as Exhibit 1. The current ownership/control structure of Triax entities is attached hereto
as Exhibit 2. A post-merge chart is attached hereto as Exhibit 3.
4. LEGAL QUALIFICATIONS.
The legal qualifications standard relates primarily to an analysis. of whether the Merged
Entity is duly organized and authorized to own the cable systems. It should be noted that current
federal law is shifting dramatically regarding the ownership of cable systems. However, this
transaction is not affected by those changes in federal law. Since you basically have Triax
absorbing the DD Cable holdings through a merger, you are not faced with many of the cross-
ownership issues addressed in federal law . We have reviewed the current law and found that this
transaction is not affected by such rules. According to the FCC 394 and resulting responses to
inquiries, both original owners were qualified to transact business in the State of Minnesota as
is the Merged Entity. We have reviewed those corporate documents available to us and have
determined that the Merged Entity will be legally organized and constituted sufficient to pass the
standards of the lending institution such that further review on the Franchise Authorities' part
would be duplicative and an unnecessary expenditure of funds. The purchase documents require
that the Merged Entity be duly organized and qualified to operate the cable systems.
5. CHARACTER QUALIFICATIONS.
In response to our Request for Additional Information, the Merged Entity has represented
that it has not been convicted in a criminal proceeding relating to any of the usual inquiries
MEMORANDUM
July 31, 1996
Page 9
regarding character. The character qualifications of the Merged Entity, as well as the individuals
involved, are satisfactory.
Based upon our review of the information provided, it would appear that the Franchising
Authorities could not reasonably withhold approval of the merger based on the legal or character
qualifications of the Merged Entity or its principals.
6. TECHNICAL ABILITY.
The technical ability factor relates to the technical expertise and experience of the Merged
Entity in operating and maintaining a cable system. This analysis focuses on the current and
former experience of the proposed owner. As to the management of the cable operations, it
appears that the overall Triax management structure will survive. Inquiries were made as to local
management, and the Merged Entity advised the Authorities that while they have tremendous
respect for current local managers, obviously this merger is taking place for the purpose of
consolidating such functions. No decisions have been made by the Merged Entity, but a review
of the existing management structure is promised post-merger.
Experience has shown that the Franchise Authorities can assume a consolidation of
management functions and no doubt a consolidation of local offices. The closing of a local office
is often a traumatic experience for an Authority, and those Authorities which require local offices
in their franchises will retain that authority to approve or disapprove the closing of such local
offices. That being said, however, it is often very difficult to withstand pressure from a new
owner who is determined to close a local office.
MEMORANDUM
July 31, 1996
Page 10
Experience has shown that the perpetuation of local management structures do not survive
for the long term, so it is necessary for the Authority to investigate the management abilities and
style of the parent entities.
Information has been provided concerning Triax' experience in owning, operating and
. managing cable systems. We have reviewed the information provided by Triax as it relates to
cable management experience.
Triax is an experienced cable operator. The Merged Entity will pass 361,000 homes and
serve 242,000 customers under common management and control. The transaction is explained
as providing a significant opportunities for enhanced customer service and choice.
Mr. James DeSorrento has served as the Chief Executive Officer and Chairman of Triax
since the company's formation in 1982. He has had cable television experience since 1970. He
has had various management and operational responsibilities through the cable industry. Mr. J.
R. Busch has served as President and a Director of Triax since January of 1988. He is a 20 year
veteran of the cable industry focusing on corporate finance, mergers and acquisitions. The rest
of the management team of Triax has significant experience in the cable television industry.
While Triax is not as large as many of the cable operations in the United States, its
principals have significant experience in the industry. The Triax organization appears to be
staffed from top to bottom with technical expertise in the cable industry.
MEMORANDUM
July 31, 1996
Page 11
The Merged Entity has replied to the Franchise Authorities' Request for Additional
Information by stating that it will comply with all FCC technical standards and will comply with
all current franchise requirements regarding the technology of the cable system.
Based on our review of information provided, it would appear that the Franchise
Authorities could not reasonably withhold approval of the transfer based upon the technical ability
of the Merged Entity, its management and its principals.
7. FINANCIAL STABILITY.
The financial stability factor relates to whether the Merged Entity has the financial
resources available or committed to not only acquire the system, but also whether its financial
plan, as presented, is reasonable and economically viable. In the interest of preserving financial
resources, the Authority has chosen not to engage a separate financial consultant to undertake a
comprehensive review of this factor. However, the fmancial information which was supplied has
been reviewed by this office and a cursory due diligence analysis performed.
The Authority can assume that if the Merged Entity does not have the financial resources
available to it to close the transaction, the closing will not take place. Therefore, further scrutiny
of the actual sale transaction has not been undertaken. However, of concern to the Authority is
whether the resources are available to the Merged Entity to comply with the franchise
requirements of the Authority now and in the foreseeable future. Since the review has focused
on information provided by the Merged Entity, it must be assumed that no material
misrepresentations of fact are present.
MEMORANDUM
July 31, 1996
Page 12
A merger of this sort is different from the usual purchase of an entire entity by another
entity. In a purchase transaction, the new entity brings with it its own financial history and
fmancial situation which must be reviewed in detail regarding the new entity which will own the
franchises. In this merger, it may be assumed that the assets of the two previously existing
owners will be merged, logically presenting a situation where the sum of the parts could be
stronger than the individual parts.
This philosophy permeates the information provided by the Merged Entity as it discusses
the economies of scale and the economies of consolidation of the management structures of the
two current owners. Additionally, emphasis is placed on the ability of the Merged Entity to
continue to take advantage of such things as the affiliation with Tel for the purpose of purchasing
programming at a rate not otherwise available to a relatively small cable operator.
In a merger transaction such as this, it is necessary to investigate whether funds are being
taken out of the transaction at the time of merger which could weaken the financial stability of the
Merged Entity. In other words, is profit taking underway such that the resources remaining for
the Merged Entity are considerably diminished from those available to the original two owners?
Frankly, there was some initial concern in this area.
While the assumption of all existing liabilities of DD Cable group by the partnership was
merely a transferring of liabilities that the owning companies already had (although the nn Cable
group is strengthened by the assumption of its liabilities and Triax is weakened by such
assumption), this assumption of liabilities does not appear to significantly weaken the Merged
MErvIORANDUM
July 31, 1996
Page 13
Entity. The payment of $4,200,000 out-of-pocket costs associated with the merger to DD Cable
Partners does appear to be excessive and is not significantly documented in the materials provided
to us. However, it does not appear to rise to the level of a problem sufficient to withhold
approval of the transfer.
The partnership is to obtain $375,000,000 of senior debt financing commitments for the
transaction to go forward and is to retire the existing bank obligations and redeem the current
limited partnership interest in the amount of $44,500,000. These monies are characterized as
sufficiently financed in the transaction and leaving money available for the NIerged Entity to
proceed with existing and future capital commitments to the systems. Since the Merged Entity
agrees to comply with all existing franchise requirements, all those Authorities with existing
capital commitments should seek compliance with those requirements. However, no specifics
were given as to the distribution of the remaining monies, and those areas in renewal and seeking
future capital upgrades will be in competition for the remaining funds available.
Additionally, monies are being paid by the partnership at closing to other entities. Almost
$2,000,000 in fees are being paid to various entities for closing fees and out-of-pocket costs. This
is not significant given the magnitude of this transaction.
Notice is again taken of the monthly fee of $275,000 to Triax as a management fee. The
Authority will need to monitor future developments in the system to be assured that the skimming
off of this money does not significantly impact the Merged Entity's ability to comply with existing
franchise requirements and to make the necessary commitments for future improvement of the
MEMORANDUM
July 31, 1996
Page 14
systems. It should be noted that technological improvement of the systems are in the best interest
of the Merged Entity, and a number of the answers to our future inquiries indicate that they are
interested in such enhanced technological advancement of the systems. Therefore, the Authorities
must simply remain diligent to ensure that the systems keep pace with necessary technological
advancements, as promised by the Merged Entity.
Based upon our review of the information provided, it would appear that the Authority
could not unreasonably withhold approval of the transfer based on the financial stability of the
Merged Entity or its principals, provided that the Merged Entity agrees to comply with all local
franchise requirements, as it has done.
8. OTHER RELEVANT FACTORS.
Other appropriate factors which have been reviewed for the purpose of determining
whether to approve or deny this merger are contained in the information received for our review.
The most significant factor to be considered is whether the franchise will remain intact and
whether the Merged Entity will agree to comply with all existing franchise requirements, promises
and representations of its predecessors.
With respect to the franchise requirements, the Merged Entity has indicated that it will
comply with all existing franchise requirements and obligations.
The Merged Entity has not proposed any modifications to the channel capacity or system
design. The Merged Entity has indicated in its responses that it intends to conduct a complete
review of all systems toward the possibility of technological upgrade and, where feasible,
MEMORANDUM
July 31, 1996
Page 15
interconnection. After that review is completed, if franchise modifications are required, the
Merged Entity indicates that it will work with individual Franchise Authorities to accomplish
mutually acceptable goals.
The Merged Entity has also indicated that its review of the existing systems may involve
consolidation of local management structures as well as local offices. Those Authorities which
require local offices in their franchises should be vigilant in their position that closing a local
office would require the approval of the local Franchise Authority. The ~Ierged Entity has
indicated that it would seek any approvals otherwise required by franchises, but often the battle
is whether the franchise in fact requires such an approval. Any Authority with the requirement
for a local office should maintain the position that closing such a local office would require the
approval of the Authority.
The Merged Entity has indicated that it will comply with FCC technical specifications
regarding the location and length of subscriber drops. The Merged Entity will seek to
accommodate each subscriber's request for the location of drops and will restore property
damaged during an installation.
The Merged Entity has agreed to comply with all undergound installation policies as such
are established in existing franchises. If an Authority's franchise does not refer to underground
drops but does require compliance with local ordinances, and local ordinances reqUIre
underground construction, those ordinances should be enforced by the Authority.
MEMORANDUM
July 31,1996
Page 16
The Merged Entity will maintain normal business hours for the purpose of receiving
customer complaints. The customer service line will refer callers to a second number after normal
business hours which is answered by a person 24 hours a day, 365 days per year.
The Merged Entity has agreed to work with each community to meet its needs regarding
public education, government access and will continue current channel designations for public
education and government access channels unless a mutual agreement is reached with the affected
community or unless such a move is otherwise permitted by state or federal law .
Those systems which previously were owned and operated by DD Cable will be converted
to a new billing system, Cable Data. Cable Data is the largest cable billing service in the country.
The change will not affect billing policies.
The Merged Entity has indicated that franchise renewal negotiations will still be conducted
by the system manager responsible for the Authority, assisted by local legal counsel. All system
managers will report directly to Mr. Ric Hanson, who reports directly to Mr. Noel Bambrough.
A final point of contention is in the payment of all fees incurred by the Authorities for the
purpose of this approval process. This office has opined that the parties requesting your approval
of this transaction are responsible for the payment of reasonable fees incurred in the Authorities'
review of this merger. Legal counsel for the parties requesting your approval has indicated that
no such obligation to pay such fees exists, however, fees would be reimbursed with the
qualification that the company reserves the right to withhold such fees from future franchise fee
payments or take other action. We have opined and communicated to you in previous
MEMORANDUM
July 31, 1996
Page 1 7
correspondence that such withholding of franchise fees is inconsistent with federal, state and local
law, and would be unacceptable. Therefore, the proposed Resolution provides for the franchise
Authority approving the merger subject to the payment of all reasonable fees by the parties
requesting your approval. Should the payment of such fees not occur prior to closing, your
approval shall not be effective and your action shall be. deemed a denial.
9. CONCLUSION.
As a result of the above analysis, and subject to the contingencies of the attached
Resolution and Waiver, there does not appear to be any reasonable basis for the Authority to deny
the request for approval of the merger.
TDC/rs
EXHIBIT 1
Current Ownership/Control Structure of DD Cable Entities
Intermedia Capital
Management II, LP
(CA Ltd. partnership)
/aeneral
Partner
Intermedia Partners
II,LP
(CA Ltd. partnership)
DD Cable Partners, LP
(CA Ltd. partnership)
I
100% Ownership
9 Subsidiaries
Operating
Cable Systems
LEO HINDERY, JR.
General
Partner
EXHIBIT 2
Current Ownership/Control Structure of Triax Entities
JAMES DeSORRENTO
Majority
Shareholders
Triax Communications Corporation
Triax Associates IV, Inc'.
Triax Cable General Partner, L.P.
\
Cable Systems
General Partner
Parent
Corporation
EXHIBIT 3
Ownership/Control Following Triax/DD Cable Merger
JA Y BUSCH
JAMES DeSORRENTO
Members
VS&A Communications
Partners II, LP
Triax Telecommunications Company LLC,
a Delaware limited liability company
DD Cable
Partners, LP
Member
Equity Linked
Investors II
D LJ Investment
Partners, LP
Triax Midwest, LLC, a Delaware
limited liability company
Unidentified
Limited Partners
General Partner
Triax Cable General
Partner, LP
Nonmanaging
General Partner
Limited
Partners
Triax Midwest General Partners, LP,
a Delaware limited partnership
Managing
General Partner
Cable Systems