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RES 1986-05 - 0000476200S IRESOLUTION NO. 5 — 1986 RESOLUTION OF THE APPROVAL OF THE MERGER OF STORER OD* UNICATIONS, INC., INTO A SUBSIDIARY OF SCI HOLDINGS, INC. WHEREAS, General Television of Minnesota, Inc. ( "Grantee ") has requested the City of Fridley to approve the merger of a subsidiary of SCI Holdings, Inc. ( "Holdings ") into Grantee's parent corporation, Storer Communications, Inc.; and WHEREAS, Section 405.13 (4) of the City of Fridley Cable Communications Franchise Ordinance ( "Franchise ") and Minnesota Statutes Section 238.083 prohibit the transfer of ownership of Grantee without prior approval of the City of Fridley; and WHEREAS, the City of Fridley Cable Television Ordinance Section 405.13 (4) allows City to inquire into the qualifications of the prospective controlling party; and WHEREAS, the City of Fridley has retained the law firm of Herbst & Thue, Ltd., to assist it in a review of the legal and technical qualifications of the Grantee after the proposed merger and the consulting firm of Don Richards Associates, to assist the City in its review of the financial qualifications of Grantee after the proposed transfer; and WHEREAS, Herbst & Thue, Ltd. and Don Richards Associates, have prepared AN ANALYSIS OF THE MERGER OF S7ORER C0MMUNICATIONS, INC., INTO A SUBSIDIARY OF SCI HOLDINGS, INC., ( "Consultants Report ") which has been considered by the City of Fridley; and WHEREAS, the Consultant's Report demonstrates that the transaction does not substantially alter the legal qualifications approved by Grantee at the time of the franchise award or adversely affect Grantee's subscribers; and WHEREAS, the Consultant's Report demonstrates that there will be no significant change in the technical qualifications of Grantee adversely affecting Grantee's subscribers; and WHEREAS, the Consultant's Report demonstrates significant concerns regarding the financial qualifications of Grantee after the proposed merger including, but not limited to, the following: 1. SCI will experience losses for several years following the merger; 2. SCI will not generate sufficient cash to meet its anticipated needs for capital expenditures, unless some assets are sold; 3. SCI will have difficulty meeting debt repayment requirements unless some assets are sold; 4. Holdings will have difficulty earning an adequate return on its investment in SCI, solely from operations; Page 2 - Resolution No. 5 - 1986 007 5. SCI could have difficulty obtaining additional funds from borrowing or other sources, should that be necessary, in light of an already ' heavy debt burden; 6. SCI could be severly limited for cash at any tine given the fact that large variations in operating cash flow can occur as the result of small variations in revenue growth; 7. SCI could be compelled to reduce operating expenses and /or increase rates if faced with a cash shortage; 8. Many of SCI's cable systems may soon be for sale, as well as some of the TV broadcasting systems; 9. Holdings primary return on its investment in SCI will need to come from the sale and disposition of major assets of SCI. WHEREAS, the City has conducted a public hearing that afforded reasonable notice and a reasonable opportunity to be heard regarding the proposed transfer and complied with all requirements of Minnesota law in considering the proposed transfer; and WHEREAS, the present franchise will expire on or about December 23, 1987, the City anticipates that significant capital expenditures will be necessary to upgrade the cable television system; and ' WHEREAS, the City finds that the Grantee may not possess the necessary financial qualifications to make the capital improvements and maintain adequate customer service practices; and WHEREAS, the failure of grantee to make capital improvements to the cable television system and maintain adequate customer service practices may adversely affect Grantee's subscribers; and WHEREAS, Section 405.13 (4) of the City of Fridley Cable Communications Franchise Ordinance provides that the City may condition any transfer upon such terms and conditions as it deems appropriate. NOW, THEREFORE, BE IT RESC,VED by the City Council of the City of Fridley, Minnesota as follows: The City of Fridley hereby approves Grantee's request for approval of the merger of Grantee's parent corporation, SCI, into a subsidiary of Holdings subject to the prior successful completion of the following conditions on or before January 28, 1986: A. Ordinance Amendments. Adoption by City and acceptance by Grantee of a Cable Communications Franchise Ordinance Amendment which include provisions requiring the following: 1. A 400 MHz, fully activated 54 channel cable television system no later than January 1, 1990; 2. A one -way addressable converter to each subscriber requiring a converter no later than January 1, 1990; 3. An emergency alert override system capable of overriding the audio on each channel no later than January 1, 1990; 1 1 1 Page 3 - Resolution No. 5 - 1986 4. Provision to each subscriber of all presently required access channels; Ott 3 5. Commitments of equipment in support of public, educational and governmental access; 6. Customer Service Requirements B. Acceptance Agreement. Grantee shall enter into an Acceptance Agreement of all Ordinance Amendments adopted in connection with the proposed transfer. Such Acceptance Agreement shall be of a substance, form and manner acceptable to City. C. Guaranty. SCI, Holdings and SCI Associates L.P. shall enter into a Guaranty Agreement in substance, form and manner acceptable to City which guarantees performance by them of all of Grantee's obligations under the Franchise and the Ordinance Agreement. D. Security. Grantee, SCI, and Holdings shall furnish a performance bond, certificate of deposit, confession of judgment or other type of instrument approved by City in an amount City deems to be adequate compensation for damages resulting from Grantee's nonperformance under the Ordinance Amendment. E. Acceptance Fee. Grantee shall provide the City an Acceptance Fee in an amount equal to the City's actual out -of- pocket expenses, including attorney's and consultant's fees, related to the consideration of the transfer request and Ordinance Amendments related thereto. F. Other Provisions. Other provisions deemed necessary or appropriate by legal counsel to the City to assure performance of the Ordinance Amendment. SASSED AND ADOFPED BY THE CITY ODUNCIL OF THE CITY OF FRIDLEY THIS 6TH DAY OF JANUARY, 1986 ATTEST: !TiMEY A. WWX A - MY CLERK WII.LIAM J. NE MAYOR