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HomeMy WebLinkAbout3.a. FTTH Update 4 ROSENILOUNT EXECUTIVE SUMMARY CITY COUNCIL City Council Workshop Meeting November 17, 2009 AGENDA ITEM: FTTH Update AGE PREPARED BY: Dwight Johnson, City Administrator AGENDA NO. 'J ATTACHMENTS: Memo from Attorney Bob Vose; Letter to FTTH and EveresTV; Revised buildout APPROVED BY: schedule py RECOMMENDED ACTION: Update only BACKGROUND On October 14th, the City Council met with Jeffrey Feldman of EveresTV in Fort Lee, New Jersey. Mr. 'Feldman is the President and CEO of EveresTV and is the proposed buyer of FTTH. On the same evening, the City Council voted to extend the current FTTH franchise until April 21, 2010 to allow time for a new or transferred franchise agreement to be developed and approved for the new owner. DISCUSSION The attached memo from Attorney Bob Vose indicates that, based on information from Mr. Feldman, we are moving the in direction of amending the current franchise agreement rather than develop an entirely new one, since FTTH will continue to exist in its current corporate form, but with new ownership and management. Issues being discussed include the build out of the system. Current state law indicates that the build out needs to occur within five years. Mr. Feldman has submitted a revised buildout funds will be obligated for the entire buildout within five years, but actual construction of one subarea may not be complete until early 2015. Other issues under discussion include our request for assurance that proper financing is in place to complete at least the first year's build out in 2010. If this satisfactorily accomplished, we believe that the required letter of credit could return to the original amount of $10,000 as Mr. Feldman has requested. Mr. Feldman has agreed to pay up to $10,000 of our legal costs. We have recently advised Mr. Feldman that he must complete form FCC 394, which will serve as his formal application and requests financial information about the company. When this is received, we intend to engage the Ehlers Company, financial advisors, to review the financial information on our behalf. Mr. Feldman would like to have a franchise agreement in place by the end of the year; we have made it clear that much of our timetable depends upon how fast he can provide us with the information that we need. t;:',' 470 US Bank Plaza r 200 South Sixth Street Minneapolis MN 55402 (612) 337 -9300 telephone 3 lii ji \ds���l M E (612) 337 -9310 fax http://www.kennedy-graven.com CHARTERED MEMORANDUM TO: Dwight Johnson, Rosemount City Administrator FROM: Bob Vose, Assistant City Attorney DATE: November 10, 2009 RE: FTTH franchise; potential transfer to EveresTV This is to provide a brief status update. As you know, there have been several recent communications between the parties including your letter to Mr. Engels and Mr. Feldman dated October 22, 2009. The fundamental question we have been focused on is whether Rudder's proposed transaction with EveresTV should be processed as a franchise transfer or as a request for issuance of a new franchise. This question is somewhat complicated because there are different processes to follow and different risks and potential benefits associated with each. Moreover, the current franchise has been revoked effective in April, 2010. We have decided to base this decision on the nature of the proposed transaction. Accordingly, in your letter you asked Mr. Feldman, EveresTV's representative, whether the plan is to acquire FTTH as a going concern or simply buy FTTH's assets. Mr. Feldman responded that: "I am setting up an LLC entity to buy the equity units held by the current LLC owners of FTTH so a stock purchase versus an asset purchase." As a result, we will treat this as a transfer of control over the franchise from Rudder to EveresTV. This is how the City treated the prior transaction in which Rudder assumed control. There is relatively little to be gained by revoking the current franchise held by FTTH (under Rudder) and issuing a new franchise to FTTH (under EveresTV). The entity holding the franchise —FTTH— remains the same. The parties must file an FCC form 394 to start the transfer review process. This process gives the City 120 days for review but we anticipate a much shorter timeline. The form will contain information about EversTV's finances which we will have reviewed by a third -party financial advisor. Everestv has acknowledged its obligation to reimburse the City's legal and other professional expenses in this process. Of course, EversTV is also seeking franchise amendments to modify the build -out schedule and reduce the letter of credit amount We anticipate that any resolution approving the transaction will be conditioned upon EveresTV's production of proof that the initial phases of any modified build -out will actually be completed. Finally, your letter noted the statutory requirement that any build -out be substantially competed within 5 years and proceed at a rate of at least 50 plant miles per year. Minn. Stat. 238.084, Subd. 1(m). I understand that EveresTV is producing a proposed build out schedule that will comply. In any case, the company will indemnify the City fully against any potential claims arising over this issue. I would anticipate presentation of the results of the financial review, a proposed resolution addressing the franchise transfer, and proposed franchise ordinance amendments as a "package." The timing for Council consideration of these matters is largely in EveresTV's hands but must occur prior to April, 2010 when the franchise revocation becomes effective. The $60,000 letter of credit previously issued by Alliance Bank expired on or about November 8, 2009. The City drew approximately $38,000 from that LOC in 2007 and only the difference remained. 4 ROSEMOUNT MINNESOTA October 22, 2009 Rick Engels Rudder Capital Corporation 2980 Commers Drive Suite 200 St Paul,MN55121 Jeffrey Feldman Everest Broadband Networks, Inc. One Executive Drive Fort Lee, MN 07024 Re: City of Rosemount; Cable Franchise Dear Rick and Jeffrey: As you know, the Rosemount City Council has extended the franchise revocation date six (6) months to allow EveresTV to request a franchise and submit an appropriate application. This letter is to identify the information that must be provided and steps that must be completed initially. First, we have discussed whether EveresTV should request transfer of the current franchise or issuance of a new franchise, We believe additional information is needed to make this determination. Among other things, we need to understand the nature of the proposed relationship between FTTH and EveresTV and identify the interests or assets EverestTV intends to acquire. Accordingly, please submit a copy of the purchase agreement and any other documents (redacted as necessary) memorializing the proposed transaction. Regardless of which approach is selected, we understand that EveresTV will request further modification to the system build -out requirements. As we noted at our meetings last week, Minnesota Statutes, Section 238.084, Subd. 1(m) provides that a cable franchise must include: SPIRIT OF PRIDE AND PROGRESS Rosemount City Hall 2875 145th Street West Rosemount, MN 55068 -4997 651 423 -4411 TDD /TTY 651- 423 -6219 Fax 651 423 -5203 www.c1.rosemount.mn.us (m) a provision in initial franchises identifying the system capacity and technical design and a schedule showing: (1) that construction of the cable communications system must commence no later than 240 days after the granting of the franchise; (2) that construction of the cable communications system must proceed at a reasonable rate of not less than 50 plant miles constructed per year of the franchise term; (3) that construction throughout the authorized franchise area must be substantially completed within five years of the granting of the franchise; and (4) that the requirement of this section be waived by the franchising authority only upon occurrence of unforeseen events or acts of God; We will need documentation from you that these statutory provisions will be met in your build out proposal. In addition, we request that you address our request for extension of facilities to the Business Park located South of County Road 42, east of Highway 3, and west of Biscayne Avenue. In addition, it also appears that Area 9 must be built before 2015 as indicated in the "Preferred Build Out Schedule" to meet the statutory five year timetable. We also indicated to you that the City Council will likely require additional assurance beyond the franchise itself regarding the build -out schedule. Specifically, we anticipate a need for some means of ensuring completion of the first phase of that build -out. We request your feedback concerning this issue. In a related matter, please be advised that Alliance Bank has notified us by letter dated October 13, 2009 that letter of credit no. 4475 -80 in the amount of sixty thousand dollar ($60,000.00) will not be renewed. This letter of credit was required by the franchise. It apparently remains in place but will expire on or about November 8, 2009. Accordingly, a replacement letter of credit must be received by the City on or before November 4, 2009. We also would like clarification of how the Telcom Construction, Inc. claim and associated mechanic's lien filed against City right of-way will be addressed. We particularly want to know when the lien will be released as this has the potential to impact private real estate transactions throughout the community. Finally, regardless of whether EveresTV proceeds with a transfer or new franchise, we will need the type of financial information listed on form FCC 394. We intend to have this information reviewed by a qualified professional, so it would facilitate the process to have this information forwarded to us as soon as possible. Of course, the City will also continue to incur legal expenses. As is customary, the City's professional fees incurred going forward must be reimbursed. In the prior Rudder transaction, the City agreed to a $10,000 not -to- exceed amount for these out of pocket expenses. We are prepared to accept this cap again. Please provide us with written approval of reimbursement of these expenses as soon as possible. We understand the importance of a timely review and approval of the proposed transaction. We are prepared to move this process along as quickly as is possible. However, the timing of the City's consideration depends upon prompt response to the issues noted above. Please feel free to contact me with any questions. Sincerely, Dwight Johnson City Administrator cc: Bob Vose, Assistant City Attorney Kim Lindquist, Community Development Director Alan Cox, Communications Coordinator Preferred Build Out Schedule Served Total Preferred Phase Area From Name Subs 700k YR i t priYE' Al ''p r 9 t 2010 1.1 :i i' t' f B rk' a e 323 2010 1 Area 12 WT Bloomfield Park 510 2010 1 Area 13 WT Biscayne Park 306 2010 2 Area 01 HE Shannon Park SW 358 2011 2 Area 02 HE Connemera Park 478 2011 2 Area 03 HE Twin Puddles 311 2012 2 Area 04 HE Chippendale Park 312 2012 2 Area 05 HE Camfield Park 395 2013 3 Area 06 151st Claret Park 304 2013 3 Area 07 151st Winds Park 420 2014 3 Area 08 151st Lions Park 318 2014 3 Area 09 151st Jaycee Park 428 2014* 4,729 Area 9 will have capital allocation for build in 4th Quarter 2014. However, there is a Iikelyhood that completion may extend into 2015.