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HomeMy WebLinkAbout09 COMCAST/TIME WARNER 11-21-05 AGENDA REPORT Agenda Item Reviewed: City Manager ~ Finance Director ~ MEETING DATE: NOVEMBER 21,2005 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: LOIS JEFFREY, CITY ATTORNEY A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, STATE OF CALIFORNIA, CONSENTING TO THE TRANSFER OF OWNERSHIP AND CONTROL OF THE CABLE TELEVISION FRANCHISE FROM COMCAST TO AN INDIRECT SUBSIDIARY OF TIME WARNER CABLE INC. AND APPROVING THE ASSIGNMENT OF THE PROGRAMMING AGREEMENT ASSOCIATED THERETO, SUBJECT TO THE CONDITIONS HEREOF SUBJECT: SUMMARY: On June 14, 2005, Comcast and Time Warner requested that the City consent to the transfer of Comcast's Cable Television Franchise to a wholly owned subsidiary of Time Warner. Tustin City Code § 7418(d) requires the prior approval of the City Council expressed by resolution prior to the transfer of the Franchise or a change in control of the franchisee. The parties have agreed to the terms of the transfer except for an issue that arose involving the undergrounding of existing cable pedestals, and staff is seeking City Council direction pertaining to that issue. RECOMMENDATION: Consider whether to adopt the attached resolution as presented, consenting to the transfer of the cable television franchise and associated programming agreement from Comcast to Time Warner, and consider whether the resolution should be amended to include a program for design review of existing pedestals. FISCAL IMPACT: None. BACKGROUND: Tustin City Code § 7418(d) requires that the City Council, by resolution, approve an actual change in control or acquisition of more than 50% of the voting stock of a cable television system franchisee. On June 14, 2005, Comcast and Time Warner filed an application with the City requesting that the City consent to the transfer of Comcast's cable television franchise to Time Warner. The request is part of a broader transaction wherein Comcast and Time Warner are collaborating to purchase the assets of Adelphia Cable, which is currently in bankruptcy proceedings. The transaction, which is being reviewed by the Federal Communications Commission (FCC) and the Bankruptcy Court in New York, involves the transfer of Comcast's Southern California cable television systems to Time Warner. Time Warner will also acquire the Adelphia cable systems in Southern California. More specifically to the City, the transaction proposes that the Tustin franchise be transferred to a wholly-owned subsidiary of Time Warner Cable, Inc. The franchisee would become C-NATIVE EXCHANGE I, LLC, a Delaware LLC ("C-NATIVE"). In reviewing the transfer application, staff identified the following concerns, which Comcast and Time Warner agreed to address in the context of the attached resolution and attachments, except for item 3 below, about which staff seeks direction from the City Council: 1. Proqramminq Aqreement. In May 2003, the City and Comcast entered into an Agreement for Program Production Services (the "Programming Agreement") covering the provision of cable programming services by Comcast for the City, which includes the production of council meetings and community events. The initial application was silent as to the assignment of the Programming Agreement, but Time Warner (C-NATIVE) has agreed to its assignment and will accept all of the rights and responsibilities of Comcast in that agreement as provided in the attached Resolution and Acceptance form (Attachment 1 to the Resolution). 2. Performance Guarantee by Parent Company. Although Time Warner is a reputable and experienced cable television company, the City needs to ensure that the actions or policies of Time Warner as the parent company of C-NA TIVE do not affect C- NATIVE's performance of its franchise obligations. Time Warner has agreed to provide a guarantee in the form attached to the Resolution (Attachment 2 to the Resolution). 3. Underqoundinq of Pedestals. Mayor Lou Bone inquired about the application of Ordinance No. 1232, which established a design review process of aboveground utility facilities. Mayor Bone would like to see cable system pedestals underground. Although Ordinance No. 1232 grandfathered facilities that were in place at the time of its adoption, it requires new and replacement facilities to comply with the design review process, which normally requires aboveground utility facilities to be underground, camouflaged, or screened. Although the cable company would argue that the City is limited to reviewing the proposed franchisee's legal, technical, and financial qualifications, there is no law that 210785.1 limits the City's authority to reviewing only those issues. The only limitation to the City exists at Section 1 (c) of the Franchise Agreement and Section 7418(d) of the Municipal Code, which stipulate that the City will not unreasonably withhold consent to a request for a transfer of the Franchise. Therefore, the real issue is whether it is reasonable for the City to require the cable company to go through the design review process as a condition of consenting to the transfer of the Franchise. The City Council may impose a reasonable condition that requires the new franchisee to submit plans to retrofit existing pedestals over a reasonable period of time. Under State law, rather than grandfathering facilities existing at the time Ordinance No. 1232 became effective, the City Council could have incorporated a reasonable amortization period over which existing facilities would comply with the new regulations. However, such condition raises a greater policy issue because retrofitting existing facilities prior to the end of their useful life will undoubtedly increase the cable company's operating costs, which may cause it to increase customer rates, which were effectively deregulated by the Federal Telecommunications Act of 1996. For the foregoing reasons, it is recommended that the City Council consider the attached resolution, and determine whether to adopt it as presented, or whether it should be amended to include a program for design review of existing pedestals. ~J~ Omar Sandoval, Assistant City Attorney Joe 1l::s~ PW Administratiye Services Manager ATTACHMENT: Resolution with attachments 210785.1 RESOLUTION NO. 05-116 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, STATE OF CALIFORNIA, CONSENTING TO THE TRANSFER OF OWNERSHIP AND CONTROL OF THE CABLE TELEVISION FRANCHISE FROM COMCAST CORPORATION TO AN INDIRECT SUBSIDIARY OF TIME WARNER CABLE INC. AND APPROVING THE ASSIGNMENT OF THE PROGRAMMING AGREEMENT ASSOCIATED THERETO SUBJECT TO THE CONDITIONS HEREOF. WHEREAS, COMCAST OF LOS ANGELES, INC., a California Corporation ("COM CAST-LA") currently holds a cable franchise (the "Franchise") from the CITY pursuant to Ordinance No. 1273, an ordinance of the City Council of the CITY renewing a franchise for a cable television system granted to COM CAST-LA dated as of May 19, 2003 (the "Franchise Agreement"), and subject to Tustin City Code §§ 7410 et seq., (the "Cable Ordinance"), all documents, of which as any of them may lawfully be or may have been amended from time to time, are collectively referred to as the "Franchise Documents"; and WHEREAS, COM CAST-LA entered into an Agreement for Program Production Services (the "Programming Agreement") with the CITY, regarding the provision of cable programming services by COMCAST-LA for the CITY; and WHEREAS, pursuant to an Exchange Agreement dated as of April 20, 2005, among COMCAST-LA's parent company, COMCAST CORPORATION, a Pennsylvania Corporation ("COMCAST"), TIME WARNER CABLE INC., a Delaware Corporation, ("TIME WARNER"), and their related entities (the "Master Transaction Agreement"), C- NATIVE EXCHANGE I, LLC, a Delaware LLC ("C-NATIVE"), an indirect subsidiary of TIME WARNER will acquire the Franchise currently held by COM CAST-LA and the cable television system serving the City of Tustin (the "Proposed Transaction"); and WHEREAS, Section 1 (c) of the Franchise Agreement provides that the prior written consent of the City is required for the Proposed Transaction and Section 7418(d) of the Cable Ordinance proYides that the Franchise Agreement or its control shall not be assigned, transferred, sold or disposed of without the prior consent of the CITY as authorized by resolution of the City Council of the CITY; and WHEREAS, on or about June 14, 2005, COMCAST and TIME WARNER filed an FCC Form 394 with the City and requested that the City consent to the Proposed Transaction (the "Transfer Application"); and WHEREAS, in conjunction with the Proposed Transaction, COMCAST-LA desires to assign its rights and obligations under the Programming Agreement to C- NATIVE; and 207991 v5 WHEREAS, C-NATIVE agrees to proYide the CITY with a guaranty from TIME WARNER guaranteeing performance by C-NATIVE of all of C-NATIVE's obligations under the Franchise Documents; and WHEREAS, C-NATIVE has agreed to comply with the Franchise Documents and the Programming Agreement and applicable federal and state law from and after the consummation of the Proposed Transaction; and WHEREAS, relying on COMCAST-LA's and C-NATIVE's representations, the City is willing to grant its consent to the Proposed Transaction and the assignment of the Programming Agreement from COM CAST-LA to C-NATIVE, subject to the terms and conditions set forth herein. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUSTIN, STATE OF CALIFORNIA, finds, determines and consents to the transfer of the cable television system to C-NATIVE, the assignment of the Programming Agreement, and hereby approves the Transfer Application subject to the following conditions: 1. Within sixty (60) days of the close of the Proposed Transaction, C-NA TIVE shall provide the City with an executed copy of Exhibit A, "Acceptance of Franchise and Programming Agreement by the Franchisee" and an executed copy of a Guarantee from TIME WARNER in the form attached hereto as Exhibit B, "Guarantee." 2. Within sixty (60) days of the close of the Proposed Transaction, C-NA TIVE shall remit the City the sum of $2,500.00 to defray the City's costs in reviewing the transfer application. 3. The City's consent to the Proposed Transaction and the transfer of the Franchise and Programming Agreement shall not in any respect relieve COMCAST-LA of responsibility for past acts or omissions, known or unknown. 4. The City waiyes none of its rights with respect to the compliance of COM CAST-LA and C-NATIVE with the requirements set forth in the Franchise Documents and the Programming Agreement. The CITY's consent to the Proposed Transaction shall in no way be deemed a representation by the City that either franchisee is in compliance with all of its obligations under the Franchise Documents and the Programming Agreement. 5. Neither this approval, nor any other action or omission by the City at or before the adoption of this resolution shall be construed to grant the City's consent to any future transfer of the Franchise and/or the cable television system, and/or any future change in ownership and/or control of C-NATIVE, the Franchise and/or the cable television system. The CITY's consent to the Proposed Transaction is limited solely to the transfer of the Franchise and the Cable Television system from COMCAST-LA to C- NATIVE. 207991v5 6. C-NATIVE shall have obtained and filed with the City an insurance certificate and performance bond described in and required by the Franchise Documents, within sixty (60) days after the closing of the Proposed Transaction. PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin on the 21st day of November, 2005. Lou Bone, Mayor ATTEST: PAMELA STOKER, CITY CLERK STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF TUSTIN RESOLUTION NO. 05- Pamela Stoker, City Clerk and ex-officio Clerk of the City Council of the City of Tustin, California, does hereby certify that the whole number of the members of the City Council of the City of Tustin is fiye; that the above and foregoing Resolution was passed and adopted at a regular meeting of the City Council held on the 21st day of Noyember, 2005, by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: PAMELA STOKER, City Clerk 207991v5 EXHIBIT A ACCEPTANCE OF FRANCHISE AND PROGRAMMING AGREEMENT BY THE FRANCHISEE C-NATIVE EXCHANGE I, LLC (the "Franchisee") hereby accepts the assignment of, and accepts to be bound by, the Agreement for Program Production Services between the City of Tustin and Comcast of Los Angeles, Inc., (the "Programming Agreement") and the franchise to erect, construct, operate and maintain a cable television system in the City of Tustin (the "Franchise") pursuant to Ordinance No. 1273 dated as of May 19, 2003 (the "Franchise Agreement"). By this acceptance, the Franchisee agrees that it shall be bound by the terms and conditions of the Programming Agreement and the Franchise Agreement, and subject to Tustin City Code §§ 7410 et seq. (collectively, the "Franchise Documents"). By accepting to be bound by the Franchise Documents, the Franchisee further: (1) acknowledges and accepts the City's legal right to issue and enforce the Franchise Documents; (2) agrees that it will not oppose the City's intervention in any proceeding affecting the Franchise Documents or obligations thereunder; (3) accepts and agrees to comply with each and eyery proYision of the Franchise Documents subject to applicable law; and (4) agrees that the City's consent to the transfer thereof, was granted pursuant to processes and procedures consistent with applicable law, and that it will not raise any claim to the contrary. Delivery of an executed copy of this "Acceptance of Franchise and Programming Agreement by the Franchisee" shall be accompanied by an executed Guarantee from Time Warner Cable Inc. in the form attached hereto as Exhibit B. The Franchisee declares that it has carefully read all of the terms and conditions of the Franchise Documents, and accepts and agrees to abide by same. The Franchisee is bound to maintain and operate a cable television system under the terms, conditions and limitations set forth in the Franchise Documents and other applicable federal and state law, as of the time and date it files this written acceptance with the City. AGREED TO THIS DAY OF ,2006. C-NATIVE EXCHANGE I, LLC By: By: Its: 207991 v5 EXHIBIT B GUARANTEE GUARANTEE, dated as of , 2006, made by TIME WARNER CABLE INC., a Delaware corporation ("Guarantor"), in favor of the City of Tustin, California, ("Beneficiary"). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce Beneficiary to timely consent to the transfer of the cable television franchise issued by Beneficiary and currently held by Comcast of Los Angeles, Inc. (the "Franchise") to C-Native Exchange I, LLC ("Transferee") in accordance with the Federal Communications Commission Form 394 filed by Transferee, Guarantor agrees as follows: I. A. II. A. 207991 v5 Interpretive Provisions. The words "hereof," "herein" and "hereunder" and words of similar import, when used in this Guarantee, shall refer to this Guarantee as a whole and not to any particular provision of this Guarantee, and section and paragraph references are to this Guarantee unless otherwise specified. B. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. Guarantee. Effective upon the close of the Proposed Transaction, Guarantor unconditionally and irrevocably guarantees to Beneficiary the timely and complete performance of all Transferee obligations under the Franchise (the "Guaranteed Obligations"). The Guarantee is an irrevocable, absolute, continuing guarantee of payment and performance, and not a guarantee of collection. If Transferee fails to pay any of its monetary Guaranteed Obligations in full when due in accordance with the terms of the Franchise, Guarantor will promptly pay the same to Beneficiary or procure payment of same to Beneficiary. Anything herein to the contrary notwithstanding, Guarantor shall be entitled to assert as a defense hereunder any defense that is or would be available to Transferee under the Franchise or otherwise. B. This Guarantee shall remain in full force and effect until the earliest to occur of: (i) performance in full of all Guaranteed Obligations at a time when no additional Guaranteed Obligations remain outstanding or will accrue to Transferee under the Franchise; and (ii) subject to any required consent of the Beneficiary, any direct or indirect transfer of the Franchise from Transferee to (or direct or indirect acquisition of Transferee or any successor thereto by (whether pursuant to a sale of assets or stock or other equity interests, merger or otherwise)) any other person or entity a majority of whose equity and voting interests are not beneficially owned and controlled, directly or indirectly, by Guarantor. Upon termination of this Guarantee in accordance with this Section 11(8), all contingent liability of Guarantor in respect hereof shall cease, and Guarantor shall remain liable solely for Guaranteed Obligations accrued prior to the date of such termination. . III. Waiver. Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Guaranteed Obligations and notice of or proof of reliance by Beneficiary upon this Guarantee or acceptance of this Guarantee. Guarantor waives diligence, presentment, protest and demand for payment to Transferee or Guarantor with respect to the Guaranteed Obligations; proYided, howeyer, that Guarantor shall be furnished with a copy of any notice of or relating to default under the Franchise to which Transferee is entitled or which is served upon Transferee at the same time such notice is sent to or served upon Transferee. IV. Representations and Warranties. Each of Guarantor and Beneficiary represents and warrants that: (i) the execution, delivery and performance by it of this Guarantee are within its corporate, limited liability company or other powers, have been duly authorized by all necessary corporate, limited liability company or other action, and do not contravene any law, order, decree or other goyernmental restriction binding on or affecting it; and (ii) no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by it of this Guarantee, except as may have been obtained or made, other than, in the case of clauses (i) and (ii), contraventions or lack of authorization, approyal, notice, filing or other action that would not, indiYidually or in the aggregate, impair or delay in any material respect such party's ability to perform its obligations hereunder. V. Binding Effect. This Guarantee, when executed and delivered by Beneficiary, will constitute a valid and legally binding obligation of Guarantor, enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency or other similar laws applicable to creditors' rights generally and by equitable principles (whether enforcement is sought in equity or at law). VI. Notices. All notices, requests, demands, approyals, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given and made if served by personal delivery upon the party for whom it is intended or delivered by registered or certified mail, return receipt requested, or if sent by Telecopier, proYided that the telecopy is promptly confirmed by telephone confirmation thereof, to the party at the address set forth below, or such other address as may be designated in writing hereafter, in the same manner, by such party: 207991v5 To Guarantor and Transferee: Time Warner Cable Inc. 290 Harbor Drive Stamford, CT 06902-6732 Telephone: (203) 328-0631 Telecopy: (203) 328-4094 Attention: General Counsel To Beneficiary: City of Tustin 300 Centennial WayTustin, CA 92780 Telephone: (714) 573-3000 Telecopy: (714) 832-0825 Attention: City Manager VII. Integration. This Guarantee represents the agreement of Guarantor with respect to the subject matter hereof and there are no promises or representations by Guarantor or Beneficiary relative to the subject matter hereof other than those expressly set forth herein. VIII. Amendments in Writing. None of the terms or proYisions of this Guarantee may be waived, amended, supplemented or otherwise modified except by a written instrument executed by Guarantor and Beneficiary, provided that any right, power or privilege of Beneficiary arising under this Guarantee may be waived by Beneficiary in a letter or agreement executed by Beneficiary. IX. Section Headings. The section headings used in this Guarantee are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in'the interpretation hereof. X. No Assignment or Benefit to Third Parties. This Agreement shall be binding upon and inure to the benefit of the parties hereto. Nothing in this Agreement, express or implied, is intended to confer upon anyone other than Guarantor and Beneficiary and their respective permitted assigns, any rights or remedies under or by reason of this Guarantee. XI. Expenses. All costs and expenses incurred in connection with this Guarantee and the transactions contemplated hereby shall be borne by the party incurring such costs and expenses. XII. Counterparts. This Guarantee may be executed by Guarantor and Beneficiary on separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 207991v5 XIII. Governing Law. This guarantee shall be governed by and construed and interpreted in accordance with the laws of the state of California without regard to principles of conflicts of law. TO EFFECTUATE THIS GUARANTEE, each of the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer on the date set forth below the authorized signature. XIV. Waiver of Jury Trial. To the extent permitted by then applicable law, each party hereto irrevocably and unconditionally waives trial by jury in any legal action or proceeding relating to this guarantee and for any counterclaim therein. "GUARANTOR" TIME WARNER CABLE INC. By: Name: Title: Date: "BENEFICIARY" CITY OF TUSTIN By: Name: Title: Date: 207991 v5