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cp02-18-1992 c• AGENDA SPECIAL MEETING -- HUTCHINSON CITY COUNCIL TUESDAY, FEBRUARY 18, 1992 1. Call to Order - 12:00 Noon UNFINISHED BUSINESS -- DEFERRED FEBRUARY 13, 1992 2. Consideration of Entering Into Development Agreement with Erickson's Diversified Corporation for Phase II Downtown Redevelopment Action - Motion to reject - Motion to approve and enter into contract 3. Consideration of Entering Into Exchange Agreement with Erickson's Diversified Corporation for Phase II Downtown Redevelopment Action - Motion to reject - Motion to approve and enter into contract • 4. Consideration of Entering Into Purchase Agreement with Erickson's Diversified Corporation for Phase II Downtown Redevelopment Action - Motion to reject - Motion to approve and enter into contract 5. Consideration of Resolutions of Support for LAWCON And Outdoor Recreation Grants Action - Motion to reject - Motion to approve and waive readings and adopt Resolutions 6. CLOSED MEETING -- DISCUSSION OF COURT DECISION REGARDING JUNKER LITIGATION 7. Adjournment 40 F-EB 17 1 92 11:03 EVEREST DEVELOPMENT LTD A MEMRFR l7F THE EVER 41 CROUP LTD February 14, 1992 PAGE.002 G. Barry Anderson Arnold & McDowell pia Facsimile 101 Park Place 1- 587 -4096 Hutchinson, MN 55350 Re: Hutchinson Downtown Redevelopment - Phase II Your File No. 3244 -91046 Dear Barry: Enclosed and submitted for your review and approval are the revisions to the Development Agreement and Exchange Agreement which we have prepared today as a result of our • meetings and discussions yesterday. For ease of review, we have included only the pages containing the revisions, and we have underlined the revisions. Please call with your comments after you have reviewed the material. when we have finalized the language in these provisions, we will forward three full execution copies of the final documents to you for approval and execution at the special meeting of the city Council on Tuesday, February 18, 1992. Feel free to call me if you have any questions. Sincerely, EVEREST DEVELOPMENT, LTD. T othy J. Nelson Enclosure is TJNjjk cc: Doug Driscoll /Greg Erickson 2685 L" LAP Road PO. Box 13292 • RvrR Ile- MN 5.5113 (612) 6365500 . FEB -17 -92 MON 10:13 P.02 FEB 17 '92 11:04 DEVELOPMENT AGREEMENT PRGE.003 so long as the project is consistent with the • conceptual plans and specifications set forth in said Exhibit E. The parties agree that fees or charges by the City of Hutchinson for approval and permitting of the project shall be limited to the following: category Amgun Building Permit A10,560.00. Sever and pater Connecting charges 6 50.00 ReEOning Publication Fee $ 113.00 3.3 C_omylotioA 4f Construction Subject to unavoidable delays, Erickson's shall exercise reasonable efforts to complete construction of the minimum improvements within the following time frame: (i) The minimum improvements shall be completed within seven (7) months of the date that Hutchinson conveys and • delivers possession of the redevelopment property to Erickson's provided that such conveyance and delivery occurs between April let and August 15th of any year, (ii) The minimum improvements shall be completed within nine (9) months of the date that Hutchinson conveys and delivers possession of the redevelopment property to Erickson's if such conveyance and delivery occur between August 16th and March 31st of any year. For the purposes of this provision, unavoidable delays shall mean causes beyond the reasonable control of Erickson's and shall include without limiting the generality of the foregoing, delays attributable to acts of God, the other party, strikes, lockout, labor disputes, explosion, governmental restrictions, court injunctions, riot, civil commotion, war, invasion, insurrection, sabotage, malicious mischief, inability (notwithstanding good faith and diligent efforts) to procure, or general shortage of, labor, equipment, facilities, materials or supplies in the open market, failure of power, failure of transportation, fires, epidemics, • FEB -17 -92 MON 10:14 P.03 FEB 17 '92 11:05 • 4.2 Asse ssments for Publio Zmnrovamont PRGE.004 Erickson's acknowledges that street and utility improvements are planned in proximity to the — redevelopment property. The specific improvements, timing of construction and manner of construction are currently under consideration by and rest within the sole discretion of Hutchinson. Erickson's agrees to waive any right to appeal special assessments imposed by Hutchinson which relate to the following generally described projects: (a) First Avenue Northeast (from Hassan Street to Adams Street) and Adams Street (from First Avenue Northeast or Washington Avenue to Fair Avenue) are proposed to be completely reconstructed in 1992, with work to include replacement of sanitary sewer, water main, storm sewer, and reconstruction of the streets. Construction of Adams Street between Washington Avenue and the river bridge will likely wait until the bridge is replaced. • (b) The intersection of Adams Street north of Washington Avenue and First Avenue Northeast will be realigned as part of said street reconstruction, within the existing right of way for said streets as depicted in the survey dated January 15, 1992 by Pellinen Land Surveying attached hereto as Exhibit 8 -2. Erickson "s agrees to accept and pay assessments imposed by Hutchinson in connection with the above described improvements, which assessments, based on previous year projects, and applicable Hutchinson assessment policies, ,tire estimated ) as follows: • 5 FEB -17 -92 MON 10:15 P.04 FEB 17 1 92 11:05 Improvements Watermain Approximate Assessment units 321 F.F. (1) Estimated Assessment Rate Range $12 -15 Curb and Gutter, 321 F.F. $48 -52 Street (1) Trunk /Lateral 197,720 S.F. $.08 -.12 Storm Sewer (2) PAGE.005 Estimated Assessment cost Range $ 3,852.00 - 4,815.00 $15,408.00 - 16,692.00 $15,817.60 - 23,726.40 Total Estimated Assessments 35 77 6 - (1) Based on Adams Street frontage (2) Area of Parcel II and Parcel III, combined Hutchinson agrees that its usual and customary assessment practice, as of December 1991, will be followed in determining the amount of the assessments to be levied against the redevelopment property. notwithstanding the !or___� ecoinc, Hutchinson agrees that fotal_ assesamants to be levied against the redevelo property for the above described nroiects shall not exceed S. 8.1 InsurAACe Erickson's shall maintain, at its cost and expense, insurance against loss or damage to the improvements to the real estate covering such risks as are ordinarily insured against by similar businesses, including, without limiting the generality of the foregoing wind, fire, extended coverage, vandalism, malicious mischief, and water damage in an amount not less than the full insurable replacement value of the improvements. All insurance shall be taken out and maintained with responsible insurance carriers selected by Erickson's which are authorized under the laws of the State of Minnesota to issue and bind such coverage. Each policy shall contain a provision that the insurer shall not cancel nor modify the coverage without giving written notice to • • C] 6 FEB -17 -92 MON 10:15 P.05 FEB 17 1 92 11:06 PRGE.006 • 9.s Agreement to Pay Attorney's Peas and Upenses Whenever any Event of Default occurs and Hutchinson shall employ attorneys or incur other expenses for the collection of payments due or to become due or for the enforcement of performance or observance of any obligation or agreement on the part of Erickson's herein contained, Erickson's agrees that it shall, on demand therefor, pay to Hutchinson the reasonable fees of such attorneys and such other expenses so incurred by Hutchinson. lo. LEASE TP" The parties agree that Erickson's will lease to Hutchinson, and that Hutchinson will lease from Erickson's, approximately 6,000 square feet of space located within the building to be constructed by Erickson's pursuant to this Agreement. The space will be leased for purposes of operating a municipal liquor store, and the terms and conditions of the lease shall be as set forth in the Lease Agreement attached hereto as Exhibit F. Notwithstanding the foregoing, the City may elect not to proceed with said lease transaction • provided that the City gives Erickson's written notice of such election not to lease, within thirty (30) days of the date hereof. 11. XISCELLANEOUS 31.1 axecut+on IM All Parties in counterparts This Agreement shall not become effective and binding until executed by all parties. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original and all of which shall constitute a single instrument, and the signature of any party to any counterpart shall be deemed a signature to and may be appended to any other counterpart. 11.2 Notice All notices, demands and /or consents provided for in this Agreement shall be in writing and shall be deemed given when delivered to the parties hereto by hand or by United States registered or certified mail, return receipt requested, with postage prepaid. All such notices and communications shall be deemed to have been served • 17 FEB -17 -92 MON 10:16 P•06 FEB 17 '92 11:06 EXCHANGE AGREEMENT PAGE.007 Hutchinson shall be responsible for taking • all action necessary to permit conveyance of the property as a single platted lot. (2) site Clearing and Clean IIn Hutchinson shall demolish and remove all guu,X, buildings, structures, foundations, all utility lines and services, public utility lines (except as otherwise identified and reserved in attached Exhibit 2), I.J. and any other improvements located on the parcel. Hutchinson shall also remove and properly dispose of any and all asbestos, asbestos containing materials, underground storage tanks, hazardous or toxic substances, material or waste (including contaminated soils, if any) and defective or unsuitable soils. (3) sit# work Hutchinson shall supply and deliver, or have delivered to the redevelopment site, all salvaged aggregate soil material available • from street improvement projects under construction in the City Of Hutchinson in the calendar year 1992, up to the mazimum amount required to correct and balance the redevelopment site, as determined by Erickson's and its engineering consultants. The guaranteed minimum amount of said aggregate material to be provided by Hutchinson shall be cubic yards of acceptable material. safd material shall be delivered to the redevelopment site without charge to sriakson's for the material or the hauling, and'shali be stockpiled at a location within the redevelopment site ap- proved in advance by Erickson's. 3ricksoa's, or its representatives, shall also have the right to inspect the material in advance to determine its suitability as fill material and the right to refuse acceptance of such material as it deans unsuitable. In addition to the foregoing, Hutchinson shall construct, install or replace sidewalks, curb and gutter, as required, on • 17 FEB -17 -92 MON 10:16 P.07 • FEB 17 '92 11 07 DESCRIPTION OF BUILDING PAGE.008 The building to be constructed as part of the project will be a single -story Type IIN slab on grade structure with exterior walls constructed of load - bearing decorative concrete masonry units, with an interior post and beam structural system, steel roof deck and canopy entrance. The building footprint will have an area of approximately 46,000 square feet, consisting of an ap=oximate_ square foot tenant area to be leased to the City of Hutchinson for operation of a municipal liquor store, and a Festival Foods grocery store of approximately 41,000 square feet. The liquor store space will have a separate exterior entrance and, in addition, an interior entry /connection to the grocery store. The building will be served by a truck loading flock and loading service area located in the rear of the building. The site JMRrovements de elofl_e_ in o nn otioa • area from Dublia view, In the event no liquor store is ct construed, the building footprint will have an area, exclusive of mezzanine, of approximately 41,000 S.F. The building is further depicted in the conceptual floor plan attached hereto as Exhibit E -1. u buMwX rulan' eutwmo 60PPY ** TOTAL PAGE.008 ** C February 12, 1992 • • TO: Mayor & Council FROM: Dolf Moon, Director Parks & Recreation SUBJECT: LAWCON Outdoor Recreation Grant Resolutions The Minnesota Park and Recreation Association is asking Minnesota communities to endorse their effort to lobby the Minnesota Legisla- ture to continue funding levels and possibly increasing funding levels for LAWCON and outdoor recreation grants. Since Hutchinson has been the recipient of these grants, I feel every effort to maintain or increase funding levels will benefit our community. /mjs City Hall 37 Washington Avenue West (612) 587 -5151 Parks &Recreation 900 Harrington Street (612) 587 -2975 Police Department 10 Franklin Street South (612) 587 -2242 Hutchinson, Minnesota 55350 - Primed �n rc_: ;,led ! ape,- RESOLUTION NO. 0 EXTRACT OF MINUTES OF MEETING OF THE MINNESOTA HELD ON FEBRUARY 1992 Pursuant to due call and notice thereof, a regular meeting of the (Board /Commission /Council) of (Clty /County). Minnesota, was duly held at the (location) In said municipality on the (day) of February, 1992, at (time). The following (Board /Commission /Council) members were present: Introduced the following resolution and moved its adoption. RESOLUTION OF THE (Board /Commission /Council) OF (City /County), MINNESOTA, URGING THE EXPANSION OF THE FEDERAL LAND AND WATER CONSERVATION FUND PROGRAM WHEREAS, the Federal Land and Water Conservation Fund Program LAWCON has provided greatly needed grant assistance for local government and state outdoor recreation and open space projects. WHEREAS, In Minnesota almost $57 million In ( LAWCON) funds have been provided for over 1,1DD projects In every county and hundreds of cities and townships throughout the State. WHEREAS, the program supported by revenues from offshore oil leases and sale of surplus federal property does not cost additional tax dollars and has left an important legacy for future generations. WHEREAS, In recent years the allocations available to local governments have been drastically reduced while the needs have remained as great as ever. • NOW THEREFORE, BE IT RESOLVED by the (Board /Commission /Council) of (City /County), Minnesota, that the (Board /Community /Council) urges the Increase in the allocation of LAWCON funds for local government and state park projects to help provide adequate outdoor recreation opponuntties, acquire and protect open space areas and Improve the quality of life for present and future generations. The motion for the adoption for the foregoing resolution was duly seconded by and upon roll call being taken thereon the following voted via voice: Whoreupon said resolution was declared duly passed and adopted and was signed by the and attested to by . Passed by the (Board /Commission /Council) of (City/County), Minnesota this day of February, 1992 ►mil • (SEAL) /0-,4 RESOLUTION NO. EXTRACT OF MINUTES OF MEETING OF THE MINNESOTA HELD ON FEBRUARY . 1992 Pursuant to due call and notice thereof, a regular meeting of the (Board /Commission /Council) of (City /CouruyP Minnesota, was duly held at the Qocation) In said municipality on the (day) of February, 1992, at (time). The following (Board /Commission /Counc9) members were present: Introduced the following resolution and moved Its adoption. RESOLUTION OF THE (Board /Cormission /Counc9) OF (City /County), MINNESOTA, URGING THE STATE OF MINNESOTA TO EXPAND THE FUNDING FOR THE STATE OUTDOOR RECREATION GRANT PROGRAM WHEREAS, the State has Invested over $50 million In local outdoor recreation projects, which has been matched by over $57 million in local government funds. WHEREAS, the State program has been significant Incentive to local governments to undertake needed park acquisition and development projects. WHEREAS, the State program has helped accelerate renovation and replacement of facilities that did not meet the handicapped accessible standards. WHEREAS, parks play an Important role in many communhles' economic development efforts by Improving the desirability of the community as a place to live and work WHEREAS, the demand for State assistance through this program remains strong and that In 1991 only $1 mill* in State funds was available to help meet over $4 million in grant requests. NOW THEREFORE, BE IT RESOLVED by the (Board /Commission /Council) of (City /County), Minnesota, that the (Board /Community /Council) urges the State to continue and expand funding for the State's Outdoor Recreation Program to help local governments throughout Minnesota provide adequate outdoor recreation opportunities, acquire and protect open space areas and improve the quality of Iffe for present and future generations. The motion for the adoption for the foregoing resolution was duly seconded by and upon roll can being taken thereon the following voted via voice: Whereupon said resolution was declared duly passed and adopted and was signed by the and attested to by . Passed by the (Board /Commission / Councl) of (Clry /County), Minnesota this day of February, 1992- (SEAL) • /o -A, C February 18, 1992 • • TO: Mayor & Council FROM: Gary D. Plotz, City Administrator SUBJECT: Liquor Store Purchase -- Breakdown By Vendor Attached is the breakdown by vendor (primary products above vendor's name) for the past 12 months. Lenneman, as you may know, is the local vendor (Coors, Old Miller, Stohbs). Second, I have attached the sales for November, December, and January. Third, Chuck Nelson has provided me with his intentions on advertising with KDUZ (attached). Fourth, regarding scheduling of employees, I have attached his schedule for January 20- February 1 and February 3 -15. Our liquor store consultant is reviewing the schedules and will make recommen- dations in this area, as well as many other areas. Currently the consultant's priority in the next two weeks is: (1) site evaluation, (2) interior layout /sizing, and (3) build our own/ remodel vs. lease. /mjs Attachments cc: Ken Merrill Chuck Nelson City Hall 37 Washington Avenue West (612) 587 -5151 Parks & Recreation 900 Harrington Street (612) 587 -2975 Police Department 10 Franklin Street South (612) 587 -2242 Hutchinson, Minnesota 55350 - Prim nn r- -man • 1260 AM *�� tC T Irr STEREO JANUARY 22, 1992 PROPOSAL FOR HUTCHINSON MUNICIPAL LIQUOR STORE JANUARY..... SUPER BOWL FEBRUARY..... WINTER BLAH BUSTER MARCH........ FRIDAY -13TH APRIL........ TWINS OPENING DAY OR WEEKEND PROMOTION MAY.......... OPENING FISHING/ MEMORIAL WEEKEND JUNE......... WATER CARNIVAL SPECIALS JULY......... 4TH OF JULY AUGUST....... DOG DAY SPECIALS SEPTEMBER.... HARVEST MOON SPECIAL (OR LABOR DAY) OCTOBER...... OCTOBER FEST NOVEMBER..... THANKSGIVING DECEMBER..... CHRISTMAS, NEW YEAR TOTAL AMOUNT OF COMMERCIAL ....... 218 TOTAL INVESTMENT ...............$1920.00 5% DISCOUNT... PAID IN FULL ....... $96.00 TOTAL INVESTMENT ...............$1824.00 USE ON KDUZ AND KKJR AS NEEDED RATES GUARANTEED FOR ONE YEAR. SINCERELY, • BRUCE KOTTKE ACCOUNT EXECUTIVE BK /Mz Highway 15 North, Hutchinson, MN 55350 -0010 Telephone 612/587 -21.10 Fax No. 587.5158 CITY OF HUTCHINSON LIQUOR FUND JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER 2 YEAR PURCHASE Cools, Old /*, /o, A rty LENNEMAN 1991 1990 $12, 35 $14,703.10 $1 $13,837.55 $13,051.70 $16,237.70 $16,095.25 $17,897.60 $17,778.50 $18,682.75 $13,354.60 $10,709.20 $11,442.70 $13,300.30 $15,162.50 $16,451.65 $16,560.95 $20,009.70 $23,212.30 $19,631.45 $20,426.60 $16,474.10 $14,279.20 $14,495.80 $16,570.90 COMPARIS 3 /9Illm. LOCHER r 1991 LARGEST BEER VENDORS /,3 v 1990 19 9�� $a, 26.70 $11,337.75 $19,466.95 $12,748.90 $32,826.85 $14,445.10 $28,503.67 $30,161.85 $20,643.20 $26,991.90 $14,430.45 $30,651.85 TRIPLE G 1990 18.80 $7,460.85 $9,790.18 $11,318.75 $13,836.45 $13,395.45 $16,661.60 $16,184.15 $17,388.45 $11,107.40 $12,142.70 $12,290.20 $11,956.45 $11,391.65 $12,024.15 $10,626.05 $13,106.95 $19,544.20 $14,055.25 $18,485.75 $11,637.15 $8,444.85 $13,762.05 $12,130.25 $9,913.85 $9,616.75 $14,680.40 $13,376.70 $15,069.30 $19,309.85 $19,023.95 $26,604.30 $10,856.00 $19,722.25 $10,292.35 $18,938.55 ------------------------------------------------------------------------ $175,304.20 $207,978.25 $158,000.58 $152,669.15 $250,735.17 $186,406.25 • • Liquor Store Comparison US ' am ■f ■1�!!�? ■1.111"!`; ■l■nl'1�■ ■. ��nl■i ■I ■i■�■ HI ■ . � !�7 ■L1!! . .�111!� ■I. t�fa1 R'k1 0 lamp" ■ ��. ®wry ■i IN ■M`.1 ■ONE �}' ®!!�►, ■t■ : i - I � ■i■i■■u■iin ■�■ ■ w- ■ .■ ■ _ � ■� n11■ ■i ■■IMMUNE �I■i■r�■f■w�r■ulia OMNI B■I■IBW ■l ■ 1■ a 'tea • C ', RISE ■ ■■� 11111 i1■MPAe■1111 - ■iN a � ■��' 1111 ■ �f• �- 7 ►�;.f ■�►1��"�i ■i�1'�.I■�NIS' ■ p i I■ �� Miami ii ■! ■lHIM I ■/■/■�� in MIN ■� ■ �m■�■' 111.1 . �l�l1■� ■�'in■I■la �� ■/%P.", , . �i■�1R4C' In mi■w1 =�� ■�■ 1 ■Ini ■I■Ip �I ■� Muni la ■I ■ip ■■�■■■�n� ■i■ainiuw■ ■w nw■ ,, ■ir �� In■i■ inii�■nli i t ®li i■I■iiiin ■I■Iiiiiiiilill ■I■ ■�IIIii ■I■ 111111 ■!■ 111111■ '.lIIIIiI ■! ■tlliil ■': 11 i i 1 ii ■� ■w1u■I■ 111111■ I■ ullu■ � ■IUU1■f■ulul■f■IIIU1■i■IIIn1■li 1111■■ WIIi■ I■ w1u■ i ■Illiil■■ip1i1■i ■Iil1i1■f■IU11i � ■■u� ■� ■n■m ■��nw■��t�u■�w n■i■ � ■!�m��.i■vu�■�� LIQUORS fir UP WP 0 4d 8 I A 1 C77 2? W-W. W- i . : -M, 4 5 W 17 4 Cl 7 7 iC A 10 111 CON ov T . Wrl f L I upr- S J v r K' n dr Aran T'u eg 0* T'hur Fir Soo a/e �i�rs ��► Sa. �` 17 02 7D 3 iiol, 8; oD 8.00 l 7• 0 g :oo 9:09 3a ;g 3o g:3D t� h'al. 6 : 3D G: 30 oo :a o . C � � J.'.?o /: oo S of Q V� oo 7 , p o 10 o (1 G/^ 0 7 5 1 Al req v oo 72 Re 3 0 (9 1 0) g- I0:00 IQ - ; 4.00 �C oo '.00 :_ •�o p 74 l ey 00 I LA. O D l,L �{S� lfvl :00 q. ? 0 1 5 1 '3:001 a V 1 n _ Q a •oo A- Y ! r X / - n o - -- . .1 K /rah 7'"��> �'�zoi Thar I�ri Sal Scrn f flcn 7uc:s teediurs F�'► 3'a.f'` 4. rat C n n L' ^^ �'�^ '�?�� 2_ �p ? ? �': ?�7 Ot .Y20 �• ^� �:;,!i $'.'.3� 8:3�,�a x-:00 �..'o� '",'O� �;�0 ;.'0� ': .:o L 1.30 Ole g J 0 a 1(j7P 10 4:00 �:oo .1 �5 n y 0.7 1 r ; ; I i /25- Ll �e v 1 n /0 :0 ir /D' Z3 3 , . _ o ��" _ 9. 3fl 13 • DAVID B. ARNOLD GARY D. MCDOWELL STEVEN A. ANDERSON O. HARRY ANDERSON' STEVEN S. HOOE LAURA E. FBHTLAND DAVID A. BRUEOOEMANN PAUL D. LIVE" JOSEPH M. PAIEMENT JAMES UTLEY RICHARD O. MCOEE TIMOTHY W. FAFIN681 MARY E. HOHROCES CATHRYN D -REHER February 11, 1992 ARNOLD & MCDOWELL ATTORNEYS AT LAw 101 PARK PLACE HUTCHINSON, MINNESOTA 55350 2563� (612) 567 PAS (612) 581 -4096 L ,� Mr. Gary D. Plotz City Administrator 37 Washington Avenue West Hutchinson, Mn. 55350 HESIDE ATTORNEY U l l y l r O. BARRY ANDH RSO L V � I � Re: Star Midwest, Inc. /D.D. Cable Partners, L.P. Cable Franchise Transfer Our File No. 3244 -92054 OF CO➢ SEL WILLIAM W. CAMERON RAYMOND C. 7 A .LIER PAUL M, BEOICH CHARLES H.CARMICHAEL" NNO CEDAR LAXE ROAD MINNEAPOLIS, MINNESOTA 55416 (612) 545 - 9000 MN TOLL FREE 800'343'4345 FAX(612)845-1793 501 SOUTH FOURTH STREET PRINCETON, MINNESOTA 55311 (612) 389 - 2214 FAX (612) 389 - 5506 1213;415; 66 • Dear Gary: On Wednesday, February 5, 1992, a meeting was held at the Hutchinson Fire Hall to consider a proposal by Moss & Barnett, a Minneapolis law firm, which would involve representing various cities in connection with a study of the financial feasibility and technical issues relating to the transfer of our present cable franchise to D.D. Cable Partners, L.P. I am enclosing for the Council's information, a copy of the registration for the meeting and as you can see, there were a number of communities represented at the meeting. The City of Hutchinson cable franchise does not expire for another couple of years. However, the City is entitled to conduct an investigation of the proposed franchisee to whom the franchise will be transferred and does have limited rights to reject a franchisee if the franchisee is obviously unsuitable. The kinds of grounds which would justify disapproval include lack of qualification on the buyer's part, refusal on the buyer's part to undertake franchise obligations, a failure on the part of the buyer to agree to lawfully imposed conditions, the possibility that the buyer might present a risk to the community of non compliance and general legal, technical and financial qualifications. • 'CERTIFIED AS A CIVIL TRIAL SPECIALIST BY THE MINNESOTA STATE BAH ASSOCIATION "CERTIFIED AS A REAL PROPERTY LAW SPECIALIST BY THE MINNESOTA STATE BAH ASSOCIATION /O_ Mr. Gary D. Plotz February 11, 1992 • Page 2 This is also a good opportunity to review the obligations imposed on the franchisee by the City franchise and to discuss minor modifications to the franchise agreement that might be helpful in securing approval of the franchise switch. I am enclosing for the Council's consideration a copy of the retainer agreement prepared by the law firm of Moss & Barnett. It would be the recommendation of the Cable Television Advises Committee that this agreement be approve ad n - ERa oss arnett e re ained by the City to re resent the City's interests in th overall review of the a ifications of D.D. Cab e ar ners. The r7urmtnZT would not include specific items of nego iaticn between the City and the proposed franchisee, although I would be involved in those issues as City Attorney. You should also be aware that the Minnesota Cable Communications Act and the Cable Communications Policy Act of 1984 contemplate that the franchisee would be required to pay reasonable attorney's • fees incurred in the review process. While there are no guarantees, it thus appears to be reasonable to expect that the financial commitment the City makes at the present time will likely be reimbursed at the time the review process is completed and the City approves the change in franchise. I did have a question regarding the City's obligation to Moss & Barnett if fewer than the anticipated number of communities were to sign up, and Moss & Barnett has confirmed and agreed that the maximum charge to the City will be the $1,250.00 specified in the retainer agreement. By separate correspondence (see enclosed) , I have corresponded with D. D. Cable Partners, L.P. and advised them that this review process is underway. The City Council should also be aware that we have undertaken a request for bids on the performance of a technical audit of the system which would not be included in the performance review by Moss & Barnett. I, at the present time, do not have an estimate of the expense of that item and the Council is not committed to the technical audit until it has reviewed the bids and awarded a contract. It was the Advisory Committee's feeling that a technical review of the system was important as it is apparent there are technical • problems in several different areas of the community. How serious Mr. Gary D. Plotz • February 11, 1992 Page 3 those problems are and how expensive they will be to correct at unknown at the present time. The only commitment the City Co 1 needs to consider at this moment is whether or not to oin in the eview outlined in this correspondence for the cos of $1,250.00. ) You may recall that when th c ise switch was approved from North American to Star, the City of Hutchinson was one of the few communities that demanded and received additional concessions in connection with that transfer. However, it is my opinion that we did not do an adequate job in terms of reviewing Star's ability to perform and had we known then what we know now regarding Star, there might have been some questions about whether or not to authorize the transfer in the first place. In any event, I would recommend that we enter into the agreement as outlined with the notation that a "cap" would be placed on the expense for legal services in the amount of $1,250.00. I would anticipate billing the City an additional amount for legal services rendered by the City Attorney, but I would also agree that my bill would be paid out of proceeds made available by the franchisee, and not from City funds. Please do not hesitate to contact me in connection with any of these matters. Best regards. Very t ARNO G.'B�aY y Anderson GBA:lm Enclosures . It __ n Pc J oilll d�rt � rJ �.��• js3� �e- c�Slr -1 r ynFL% 'DOA) f 4 00 L 4t ccmr 7 --:-)V+, L/a, a-- i [ 6 UJI ( � ; cif y_ KA triY/.f.4T� .A J, �Cc _i _�� te a•: / (L oFt C< v exA1! A T Z? �7c.•�c � /� ST i �r� .S • . 1. [CY[T 1. LUUI rA I. X0.f01 I. YI A wlnn l TANm Yort M [DwA[D I. Yp'YA I. [. Y® S. A,1111INALS .A WI AMM K, ANN [. X[WNALL PAM V AS GVL VAN VALIDIIUID L AxillN MdA6 L. N YAX[II 1. wQ A... m. xAL DICID M. LOIT AO r cuX 11 A. T! JDIIIAY . wATfLW 111 L A 1— L o -iiaux LOYIi IGIND I. MK fO1M OR )omim I. SI I SXNOYG � DAU rA YL 4 X0[AINI M. W WXG M A DXAAD L wMLL KA . GYALA AD WM L 1I 11MT DAVID r . IANOI J , DKP TIDLW X. [ D. . D NIWAY A. MAW D . W,,M O SVRX CNAIIY A . AALADNA. J. DA" I DA" r. 5A]A]AA MDJI A. VAULT HIKE A. WIi1N IM]IAID J - IDIO9p' IUUIS 1. srnn LAw Omcu MOSS & BARNETT A PROIISLONAL ASSOCIATION 4800 NORWISST CENTER YIACN N. MX YcNAU 1. [GDU, 90 SOUTH SEVENTH STRzzT ATTII A. ApJll MINNEAPOLIS, MINNESOTA 55402-4119 YIxA, swruY I[ANN[ [. Mn AraulD 1. nLAn •AA][ A. CX AZICI jileM D uluu le.w D . pnu 1U. C N A. fNAL101 fuMNC I Y. 1pYA Ml PAM . T. I RI NM DA . w DAVID I. IL[IN DAVID Y XLN11T TK J612) 347 -0300 TN MER (6121 3396686 347 -0448 MIV}All S .. DIAL .YUYYI January 30, 1992 Ms. Sue Potter HCVN -10 105 2nd Avenue SW Hutchinson, MN 55350 Dear Ms. Potter: IMNIIGI A. AIWA YALE G[ARD T PTMG ANM Y. YR.[ nl,�rr 1 IAXYGNOG NANCT Y. N. NOq A... NN 11 A A LL A. N., LOL A. GrGN WAY T. IIDDAM LOUT LAILf01 I[RIlIGA •R AD 1. IILMNUD cu IOQN nAYDxr c. n,ncxu MINA w. MOSL JAMB N. XANM6fY STAIiIIT II. STASAL Thank you for contacting us about participating with other Minnesota communities in the review of the proposed sale of the cable system owned and operated by Star Midwest, Inc., and /or its subsidiaries (hereinafter "Star "). • I understand you or a representative of your community plans to attend an informational meeting we will be holding on Wednesday, February 5, 1992, at 7:00 p.m. in the Hutchinson Fire Station. For your review prior to that meeting, I have enclosed a draft of a Retainer Agreement for our services. We expect that a number of Minnesota communities will ask for our assistance relating to the sale and transfer. Our current estimate is that at least fifteen communities will retain our services. Consequently, we estimate that the shared cost for the general legal services (not specific to any one community) will be in the range of $1,200 - $1,500 per community. Other service that you may require involving unique matters, unresolved compliance issues with the franchise, nonpayment of franchise fees, attendance at public hearings and drafting of closing documents for your community would be done on a regular hourly basis. Moss b Barnett's Cable Communications department performs legal and consulting work at a blended rate, reflecting shared time between several attorneys and legal assistants, to keep the expense of the work at a reasonable level. On this basis, work done on an hourly basis would be at the average billing rate of $110.00 per hour. As you know, Minnesota law requires that Star request your community's written approval of the proposed sale. Minnesota law also permits your community to evaluate the impact of the sale on subscribers. We have developed a procedure which reviews the legal, technical and financial qualifications of a proposed new cable operator, in order to assist cities in • determining the Impact of a cable system sale on subscribers. MOSS 61 BARNETT A PRDIISAONAL AStoaA Ms. Sue Potter • Page 2 January 30, 1992 In — order to put your community in charge of this process, we recommend that an Application, together with a notice of the process, be sent to Star at the earliest possible time. You may have already received notice from Star about the proposed transfer. Many communities believe Minnesota law requires that they must make a determination on the request for approval within thirty (30) days from the date of receipt of that notice. However, we believe a city cannot make a decision regarding the impact of the system transfer on subscribers until such time as the city receives information on the legal, technical and financial qualifications of the new cable operator. For this reason, your community's initial response to Star's request for approval of the transfer should make it very clear that the time period does not begin until the Application is fully completed and returned as directed in the Application. We have prepared an Application form and transmittal letter to Star, for this purpose. If you retain our services, these documents will be provided to you, as soon as possible, to begin the process of reviewing Star's request for approval of the sale. If you do wish to retain our services for either the general work, or the • general work and special work for your community, please indicate that by executing the enclosed Retainer Agreement and bring it with you to the February 5, 1992 informational meeting. If you are unable to attend the meeting and do wish to retain our services, please return the signed Retainer Agreement in the mail. We recommend that you not delay in light of the thirty (30) day time limit for response to Star. Please give me a call after you that we can review any questions or c choose to retain Moss 6 Harnett, we such as the Franchise, including correspondence, be forwarded for our process. have received the Retainer Agreement so omments that you might have. Should you request that all applicable documents, all amendments, and other relevant review in connection with the transfer Very truly yours, Adrian E. Herbst AEH /kmg 886ZKMG RETAINER AGREEMENT REGARDING CONSULTING AND LEGAL ASSISTANCE FROM MOSS & BARNETT RELATING TO SALE AND TRANSFER • OF CABLE TELEVISION FRANCHISE The undersigned understands that Moss & Barnett, a Professional Association, is retained by a number of communities that have cable television franchises with Star Midwest, Inc. or one of its subsidiaries (hereinafter "Star "). The services of Moss & Barnett have been engaged for the purpose of providing assistance relating to the review of a proposed sale and transfer of the cable television system owned and operated by Star and serving a number of communities throughout the State of Minnesota. Inasmuch as Moss & Barnett will represent a number of communities in Minnesota, the City of Hutchinson believes that it would be in its best interest to utilize the services of Moss & Barnett jointly together with these other communities. Further, the City of Hutchinson understands that Minnesota law provides certain authority to cities pursuant to §238.083, to review a proposed transfer or sale of the cable television system. This review requires the city to consider whether there may be an adverse impact on subscribers as a result of the proposed sale. In order for the City to evaluate the proposed transfer and to make such a finding, it will be necessary for the City to review the legal, technical, financial and character qualifications of the proposed new cable operator. In addition, the City may evaluate whether certain conditions relating to the performance of Star under the existing franchise have been met and complied with. The process required to review the legal, technical and financial qualifications of the proposed transferee may be similar in each of the Minnesota communities served by Star. The work to be performed by Moss & Barnett in assisting the City of Hutchinson and other Minnesota communities will include the following "general services ": 1. preparation of an Application form for the City to provide to Star and the proposed transferee for completion; 2. preparation of a Notice, with a request for response, to Star and the proposed transferee; 3. preparation of an Evaluation Report for the City, which will include evaluation of the legal, technical and financial qualifications of the proposed transferee and recommended action for the City. This E Evaluation will be based on the information furnished • in response to the Application form and will include a 'track record" check of the proposed transferee, as well as a financial review and evaluation of the responses furnished in the Application form. The general services will be performed in a timely manner and of good quality. Therefore, with respect to those matters that are general to all communities, the City of Hutchinson believes that there will be cost savings to the City in this review. However, the City also understands that there may be matters unique to the City of Hutchinson that may require further review or further assistance by Moss & Barnett. Those additional matters, which may be unique to the City of Hutchinson, include at least the following: 1. review of the City's existing Franchise Ordinance to determine whether there has been full compliance by Star with all terms and conditions; 2. financial information unique to the City; 3. technical information unique to the City concerning the specifics of the existing cable system, upgrade or changes contemplated; 4. a hearing in the City which may require assistance from or attendance by Moss & Barnett and, additionally, the preparation of certain closing documents which may include: a. a Notice of Public Hearing; b. a Resolution to make findings and to approve or disapprove of the proposed transfer; C. an Ordinance Amendment modifying the existing Franchise; d. an Acceptance Agreement to be signed by the proposed transferee, certain closing documents that must be reviewed, including payment of fees and expenses to the City, furnishing of insurance documentation, furnishing of a parent company guarantee and other or special requirements as may be specified under the City of Hutchinson's Franchise. Based on the foregoing, the City of Hutchinson desires utilizing the services of Moss & Barnett for general services. • The general services cost estimate, based on an understanding that Moss & Barnett will be providing similar services for other Minnesota communities (currently estimated at 15), will • be $1,250 per community. It is understood that the City's share of costs for service may decrease if more communities retain Moss & Barnett for these general services. The City of Hutchinson does does not _ (please indicate choice) desire the special or unique additional services for the City relating to tare proposed transfer. The City of Hutchinson understands that the special or unique services to be performed by Moss & Barnett are provided at the average hourly rate of $110. A detailed cost estimate for special services will be provided by Moss & Barnett, at the City's request. The City of Hutchinson also understands that, in the sale or transfer of the cable system, there may be controversial issues involving noncompliance or other unanticipated matters that may be raised at a Public Hearing or otherwise brought up during the proceedings involving the transfer which are not contemplated at this time. If, at any time during the process, it becomes apparent that special negotiation assistance may be required to complete the transfer and to satisfy the needs of the City of Hutchinson, Moss & Barnett will advise the City of Hutchinson and the City of Hutchinson will then have the opportunity to review the negotiation requirements, cost for negotiation assistance and provide authority to Moss & Barnett to perform any such negotiation services as may be deemed • appropriate between Moss & Barnett and the City of Hutchinson. The foregoing represents an understanding by and between the City of Hutchinson and Moss & Barnett, a Professional Association. DATE CITY OF HUTCHINSON By Its MOSS & BARNETT A ProfiS L s is 'on Adrian E. Herbst Shareholder 4282040 AEH /mfd February 12, 1992 ARNVOLD & MCDOWELL ATTORNEYS AT LAW 101 PARK PLACE HUTCHINSON, MINNESOTA 55350 -2563 01 COIINSZL WILLIAM W. CAMERON RAYMOND C. TALLIER PAUL M.BEGICH CHARLES R.CARMICHAEL" (612) 587 -7575 FAX (612) 587 -4096 RESIDENT ATTORNEY O. HARRY ANDERSON 5681 CEDAR LASE ROAD MINNEAPOLIS, MINNESOTA 55416 (612) 545 -9000 MN TOLL FREE 800-34."i-4545 PAX (612) 545 -1793 Mr. Gary D. Plotz City Administrator 37 Washington Avenue West Hutchinson, Mn. 55350 Re: Cable TV Franchise Transfer Our File No. 3244 -92054 501 SOUTH FOURTH STREET PRINCETON, MINNESOTA 55371 (612) 389 -2214 FAA (612) 389 -5506 Dear Gary: • In connection with my prior correspondence, 1 am also passing along a copy of a letter received from Brian T. Grogan dated January 17, 1992 and the Cable Communications Practice brochure that Moss & Barnett put together for the review of various municipalities. These documents should be added to the Council packet so that the Council will have the full information on this matter. Please do not hesitate to contact me should you have any questions. Best regards. Very truly yours, & Mq'�OWELL 3 1 G. Bares A GBA:lm Enclosures u 'CERTIFIED AS A CIVIL TRIAL SPECIALIST BY THE MINNESOTA STATE BAR ASSOCIATION "CERTIFIED AS A REAL PROPERTY LAW SPECIALIST BY THE MINSESOTA STATE BAR ASSOCIATION DAVID B. ARNOLD • GARY D. MtDOWE I.L STEVEN A.ANDEHSON O. DARRY ANDERSON' STEVEN S. HOGE LAURA H. PRETLAND DAVID A. BRUEOOEMANN PAUL D. DOVE" JOSEPH M. PAIEMENT JAMES UTLEY HICHARD O -MCGEE TIMOTHY W. PAPINSEI MARY E- HORROCES CATHRYN D. REHER February 12, 1992 ARNVOLD & MCDOWELL ATTORNEYS AT LAW 101 PARK PLACE HUTCHINSON, MINNESOTA 55350 -2563 01 COIINSZL WILLIAM W. CAMERON RAYMOND C. TALLIER PAUL M.BEGICH CHARLES R.CARMICHAEL" (612) 587 -7575 FAX (612) 587 -4096 RESIDENT ATTORNEY O. HARRY ANDERSON 5681 CEDAR LASE ROAD MINNEAPOLIS, MINNESOTA 55416 (612) 545 -9000 MN TOLL FREE 800-34."i-4545 PAX (612) 545 -1793 Mr. Gary D. Plotz City Administrator 37 Washington Avenue West Hutchinson, Mn. 55350 Re: Cable TV Franchise Transfer Our File No. 3244 -92054 501 SOUTH FOURTH STREET PRINCETON, MINNESOTA 55371 (612) 389 -2214 FAA (612) 389 -5506 Dear Gary: • In connection with my prior correspondence, 1 am also passing along a copy of a letter received from Brian T. Grogan dated January 17, 1992 and the Cable Communications Practice brochure that Moss & Barnett put together for the review of various municipalities. These documents should be added to the Council packet so that the Council will have the full information on this matter. Please do not hesitate to contact me should you have any questions. Best regards. Very truly yours, & Mq'�OWELL 3 1 G. Bares A GBA:lm Enclosures u 'CERTIFIED AS A CIVIL TRIAL SPECIALIST BY THE MINNESOTA STATE BAR ASSOCIATION "CERTIFIED AS A REAL PROPERTY LAW SPECIALIST BY THE MINSESOTA STATE BAR ASSOCIATION Ms. Sue Potter Access Coordinator Hutchinson Community Video Network 105 - 2nd Ave. SW Hutchinson, MN 55350 RE: TRANSFER OF OWNERSHIP OF STAR MIDWEST, INC. Dear Sue: Pursuant to our telephone conversation on January 16, 1992, enclosed • herewith please find an Overview of Transfers of Ownership prepared by Moss 5 Barnett. I understand you will be discussing the proposed transfer of Star Midwest, Inc. with City representatives and, in particular, will address whether outside assistance from Moss 6 Barnett will be required. I hope you find the enclosed information helpful as you analyze the qualifications of the incoming transferee. Regardless of your decision, I would appreciate receiving a copy of the material which Star has forwarded to your attention, inasmuch as we are assisting several municipalities on this matter and the flow of information from Star Cablevision will be quite helpful to us. I look forward to hearing from you in the near future regarding the outcome of your discussions with City representatives. In the meantime, should you have any questions, please do not hesitate to contact me. Very truly yours, MOSS 6 BARNETT A Professional Association J ✓.�` Brian T. Grogan 1002ZKJD Enclosure • cc: Adrian E. Herbst, Esq. (w /o enclosure) LAW OFFK13 MOSS 61 BARNETT A YEO/L NAL AdTOLT MN • 4NO NORW EST CENTE r.rs A. [o wNCw* I. r •••^ MU1CT Y. [!m! r•T[Kl I. MM /RT 1.. A6 x6CM 94 SOUTH SEVENTH STREET ,iLYY L WIAM Na T uru IAYn x_ xwNun [oWLO I. x crNL PYF[ [. 1TYRM MW A . " ". lC1MGDu WAIN[ •. Y•NW" ICMi Y•LOp L f}IIVrI® MINNEAPOLIS, MINNESOTA $5442 -4119 nouLO I. wu CNA[!l[ t. NLm A [7® [. cN[[IC[ "owun L con Ylau¢ 1. ,u ux YuYL "�.[*� TELEPHONE 1612 347.0300 YLlA 1' � Mux i. oLOGAN 0 V" TAUwruLC I- A YYYA 1LA" O'AQVIfI J 4YTY L C9CMR nyNlT L TTY[L YOIAliL 1Y" - •r rIC3lT oApLlr Elrt[LrL w•Ha TELEOOIIER 1612) 339-6686 O°'LL^' " f1pjpM W, tort xu/oo Jn[vi [. r ®o RnA" c ANOrY WAnn A. xuooTT nsu 1. L�oTU Y. mw. ur TIIOYAr Y. NIIUM6 Y L o'� OAY •L wYA� r "UL T. OCWd RA"1 r. rt0A[ MWIM o- TNYr aYm LR,"o.0 run a. YoYA,m uTm P. 1["ompa 347 -0340 YYT 4 IJN.MP m1rAm L IrM[l GAIm J. Oo1DOG WIM1m1 ". YmT 1m.1M L M4El L]ILN o. YYRI F0N L 6ID. AlYY ". [Wry oA`/[ /. IDgY W[rI[R S ol[1CT p.LL L. N[IILY Mlam RLAY A MA YL YW L YYrP .'111YLa pevu 1. Moau P 1. uuxm a.•Lml atria A..um. n rldrA. T lam 1- 17, 1992 � I. ) M YIOY6 P O.WiT January YYM. M. ,Ctr Ms. Sue Potter Access Coordinator Hutchinson Community Video Network 105 - 2nd Ave. SW Hutchinson, MN 55350 RE: TRANSFER OF OWNERSHIP OF STAR MIDWEST, INC. Dear Sue: Pursuant to our telephone conversation on January 16, 1992, enclosed • herewith please find an Overview of Transfers of Ownership prepared by Moss 5 Barnett. I understand you will be discussing the proposed transfer of Star Midwest, Inc. with City representatives and, in particular, will address whether outside assistance from Moss 6 Barnett will be required. I hope you find the enclosed information helpful as you analyze the qualifications of the incoming transferee. Regardless of your decision, I would appreciate receiving a copy of the material which Star has forwarded to your attention, inasmuch as we are assisting several municipalities on this matter and the flow of information from Star Cablevision will be quite helpful to us. I look forward to hearing from you in the near future regarding the outcome of your discussions with City representatives. In the meantime, should you have any questions, please do not hesitate to contact me. Very truly yours, MOSS 6 BARNETT A Professional Association J ✓.�` Brian T. Grogan 1002ZKJD Enclosure • cc: Adrian E. Herbst, Esq. (w /o enclosure) Moss & Barnett, a professional association, represents municipalities, joint powers commissions, and nonprofit organizations across the country in the administration and oversight of cable television franchise operations. The firm advises and assists cable communications clients on franchise renewals, transfers of ownership, municipal ownership, and franchise performance evaluations. • Moss & Barnett generally advises communities on the impact of the Cable Communications Policy Act of 1984 (the "Cable Act "), on the status of current federal legislation, and on FCC regulations and proceedings. The firm recently participated in FCC hearings regarding the impact of the Cable Act. The firm seeks to continuously update its clients on the ever - changing regulatory climate and its impact on local cable franchise operations. . Moss & Barnett has represented several large cable commissions in transfer -of- ownership proceedings. The firm represented the Northwest Suburbs Cable Communications Commission in the transfer proceedings from Suburban Cablevision Company Limited Partnership to King Video Cable Company. In this proceeding, Moss & Barnett was able to negotiate a large monetary settlement on behalf of the Northwest Commission in exchange for a waiver of its right of first refusal (recapture provision) under the franchise. In addition, Moss & Barnett has taken aggressive steps toward establishing municipally -owned cable systems to compete with incumbent cable operators. The firm regularly provides clients with advice on constitutional and antitrust issues which arise during a municipal ownership process. Further, Moss & Barnett has developed a detailed and effective franchise renewal process which allows municipalities to negotiate • favorable provisions within a cable ordinance to protect their rights over the entire franchise term. MOSS & BARNETT • A Paor..wo "..L As AnoY 4800 NOaw6ST CLNTU .N:. XnT L I Yawn [YtI i :X.L M.YY" I AA l V.VIGD f IRLTMIL 90 50L. S8V9NTH STxzrT .W wL [ YT1 T.M .aaOR ILITNn ,1 TALP YU A NLYVLY. MICMwB' .XY" HLV NYA PO LI6, VIIN N850TA 55402 4119 '3.Lan: .r.m.. 11.0U '.DaT .Iwilul .DwTTUr ].Y16[ 0. "DIU IXIWP:A,N i TZLIP ON[ 347-0300 .G ... T 'w IAA 1612) i4t4 . I4: :'Ml t.L%v M vmaY:.O MWT l RYM rNoYUI Y4oR. TEI oru 16121 3396686 A . Im.rY .. mx Vo.nc. w •.LUw.I'w RnwuT a. %Tu R7N C .YDO, IM W. ,OON6 L 14 ".G4r a,WiN C. ZT T]41L TXOYY V. XLLNY W Y XpyC OW V. w1GMU Y. C.CTI:A MT v aT!n .. XOLOTI ML.Y f(1.11 Ia"IRIn n006 I.WY ..O YVY O. vIO, MDWIO ww " Yartl M. r Ran Duo =) cOLn.sac D..rD V X.x. w col "uL rnit D Xn.uxY Glm. ] uurN Y na4 . m nurD"r _ rutxn YY".VID L .n..a r.Ttl I ZVYDx, ""'R V ' °` ^• .Dun" ,. x>m,T Dnn r U"Gn VQIa I DIa vk "LYau , .LL - OD.rIW ," ... .. UM p"n rlW I WAR LDxv. -aoY uru CHA n, r.wois n. uGC4 ,. .[n.m x.OY .. " YDtl riDyr .. ,,.IR♦ GtlCAfT D rRL1CI. CIY4Y . C"O IIlTI.1D Yw1[ r [T'4L"L"l Ial'Y 1. i,.LR wr. r :[W Ui I wlr allD claaaOn UCIUN 1 .® . 4MN Ak. " CO" AD IiDnR I LLm wCYALL J IUD= J- V.CIY6 gnCY YCMMO 1 nIW CABLE COMMUNICATIONS PRACTICE Moss & Barnett, a professional association, represents municipalities, joint powers commissions, and nonprofit organizations across the country in the administration and oversight of cable television franchise operations. The firm advises and assists cable communications clients on franchise renewals, transfers of ownership, municipal ownership, and franchise performance evaluations. • Moss & Barnett generally advises communities on the impact of the Cable Communications Policy Act of 1984 (the "Cable Act "), on the status of current federal legislation, and on FCC regulations and proceedings. The firm recently participated in FCC hearings regarding the impact of the Cable Act. The firm seeks to continuously update its clients on the ever - changing regulatory climate and its impact on local cable franchise operations. . Moss & Barnett has represented several large cable commissions in transfer -of- ownership proceedings. The firm represented the Northwest Suburbs Cable Communications Commission in the transfer proceedings from Suburban Cablevision Company Limited Partnership to King Video Cable Company. In this proceeding, Moss & Barnett was able to negotiate a large monetary settlement on behalf of the Northwest Commission in exchange for a waiver of its right of first refusal (recapture provision) under the franchise. In addition, Moss & Barnett has taken aggressive steps toward establishing municipally -owned cable systems to compete with incumbent cable operators. The firm regularly provides clients with advice on constitutional and antitrust issues which arise during a municipal ownership process. Further, Moss & Barnett has developed a detailed and effective franchise renewal process which allows municipalities to negotiate • favorable provisions within a cable ordinance to protect their rights over the entire franchise term. MOSS & BARNETT 1 P. s : • Moss & Barnett is keenly aware of environment in cable communications law. the firm emphasizes flexibility when between municipalities and cable operato the municipalities' rights should changes or federal law. the rapidly changing With this in mind, drafting agreements rs, so as to protect occur in either state Through the years, Moss & Barnett has developed a two -fold reputation with respect to its cable communications services. First, Moss & Barnett has developed, among its clients, a reputation for providing thorough representation and high - quality work product in a timely manner. Secondly, Moss & Barnett has developed, among cable television operators, a reputation of professionalism and expertise in cable communications law. 1092140 • • 2 0 OVERVIEW OF TRANSFERS OF OWNERSHIP • . . Adrian E. Herbst, Esq. (612) 347 -0448 Brian T. Grogan, Esq. (612) 347 -0340 MOSS & BARNETT A Professional Association 4800 Norwest Center 90 South Seventh Street Minneapolis, MN 55402 -4119 • INTRODUCTION • Cable television systems are typically valued on a per subscriber or multiple of cash flow basis. Cash flow being defined as operating income before deducting depreciation, amortization, interest expense, and taxes. The following chart is intended to provide a general background on the valuation of cable television systems in recent years. Per Subscriber Values 1977 - $390 per subscriber 1978 - $350 per subscriber 1979 - $400 per subscriber 1980 - $650 per subscriber 1981 - $780 per subscriber 1982 - $900 per subscriber 1983 - $900 per subscriber 1984 - $980 per subscriber 1985 - $1,050 per subscriber 1986 - $1,400 per subscriber 1987 - $1,700 per subscriber 1988 - $2,000 per subscriber 1989 - $2,400 per subscriber 1990 - up to $3,000 per subscriber • Nearly everyone agrees that this strong market evidenced by the higher market values is a result of the Cable Communications Policy Act of 1984 and the resulting rule- making of the Federal Communications Commission deregulating Basic Service rates for the vast majority of cable televisions systems. While the high market value may be a cause of optimism within the industry, it is our opinion that it will become increasingly evident that operators will have a difficult time achieving a satisfactory rate of return on systems acquired at current market value. If the current market value is, in fact, artificially inflated, then as cable operators have difficulties in achieving a satisfactory rate of return, cities will increasingly be confronted with requests for relief from franchise requirements. In addition, the degree of leverage (debt) used in recent acquisitions (i.e. 80% debt -20$ equity) increases the degree of risk to the operator and leaves the operator vulnerable to slight shifts in revenues or costs. SCOPE OF CITY'S AUTHORITY IN A TRANSFER PROCESS In reviewing a transfer of ownership the City should review and consider the following items relating to the Buyer • or proposed transferee: 1. Legal qualifications. • 2. Technical qualifications. 3. Financial qualifications. The extent of the review will depend upon the particular circumstances within the community. For example, a profitable newly built system will entail a different review than where a franchise will soon expire and significant capital expenditures will be required. The City should request the Buyer to provide certain information regarding its qualifications in a format prepared by or approved by the City. REVIEWING LEGAL QUALIFICATIONS In reviewing the legal qualification of the buyer the City should document the ownership structure of the Buyer. Is the Buyer a corporation or partnership. Who are the principals? In addition, inquires should be made into the following items: 1. Current cable franchises. • 2. Criminal or civil proceedings involving the Buyer. 3. Revocations, suspensions, non - renewals of any business license of the Buyer. 4. Other cable systems sold by the Buyer or any pending cable franchise applications. 5. Cable franchise violations. REVIEWING TECHNICAL QUALIFICATIONS It is essential to identify any changes the Buyer may seek in the operation of the cable system or the franchise document. Inquiries should be made into the following items. 1. Changes to the system Is the Buyer proposing, or will the Buyer undertake any changes in the system including, but not limited to, the following areas: programming, access, access support, equipment, etc.? 2. Changes in the operation of the system Is the Buyer proposing, or will the buyer undertake any changes in the operation of the system including, but not limited to, billing • practices'; plersonnel, etc.? -2- • • Ll 3. Chances to the franchise Is the Buyer requesting or will the buyer request any changes to the franchise document? REVIEWING FINANCIAL QUALIFICATIONS A review of the financial qualifications of the Buyer is a critical element in the review process. The financial capability of the buyer will impact directly on the quality of service and the ability of the Buyer to live up to its commitments under the franchise. The City should be provided with the documentation necessary to enable the City to evaluate the Buyer's financial qualifications. At a minimum, the City should receive the following information: 1. A letter of intent and /or purchase agreement. These documents will assist the City in identifying the Buyer and the content of the agreement to transfer the cable system. 2. Corporate or business formation documents such as Articles of Incorporation, Partnership and limited Partnership Agreements and Management Agreements. 3. Financing documents such as a bank loan agreement or commitment letter; for limited partnerships, a proposed prospectus agreement or offering circular, terms, and conditions of the limited partnership agreement; for a public corporation, registration statements S -1 and all other forms filed with Securities and Exchange Commission. 4. Current and historical financial statements of the Buyer including growth and revenue projections, income statements, sources and uses of funds, anticipated capital' expenditures, justifications, depreciation schedules, charges for services, expenditures, other system new build commitments, cash flow analysis, balance sheets, and proposed penetration rate. This financial information and other documentation will help the City assess the financial impact of the proposed transfer on the system and its subscribers. The following elements and assumptions are critical to the determination of whether the financial projections provided by the buyer are reasonable: 1. Profitability There are several components to consider: A. Operating Ratio - Operating Expenses Revenue -3- The result revenues. For a • be 50% to 60 %. is a ratio ( %) of operating expenses to fully developed cable system this ratio should B. Operating Margin - Operating Profit Revenue The result is a ratio ( %) of operating profit to revenues, or an operating profit margin. A fully developed cable system should produce an operating margin of 40% to 50 %. C. Operating Expenses = Normally, operatir fee that is charged affiliated company. D. Pretax Profit The result is a Revenue. All expenses of operating a cable system except interest, depreciation, amortization and income taxes. ig expenses will include any management to the company by its parent or an Margin = Income Before Taxes Revenue ratio ( %) of Income Before Taxes to • Cable systems should attain pretax margins of 10% to 15% in order to provide an overall rate of return on equity of 15% to 20% after tax, which is generally considered necessary for cable systems to attract capital investment. 2. Market factors. Several market factors should be addressed in the pro forma financial statements, including basic service penetration, pay -to -basic penetration, revenue per subscriber and household density. These projections should be reviewed carefully against past performance in the market. 3. Capital Expenditures There are many components to the category of capital expenditures including plant distribution costs, pre- operating expense, headend costs, converter costs, connection costs and building cost or leasehold improvements. The capital costs projected in the pro forma financials for such categories should be scrutinized for the reasonableness of the assumptions compared to general industry standards. 4. Debt to Equity ratio The debt to equity ratio is a significant measurement in the content of a transfer transaction. This measurement shows long -term debt as a percentage of overall capitalization. A low or conservative debt to equity ratio suggests that capacity to borrow additional funds. A high debt to equity ratio suggests a • -4- highly leveraged entity vulnerable to slight shifts in revenue • or costs. Cash Flow -Debt Service. The pro forma financial should include a cash flow or source of funds schedule indicating projected annual income or depreciation which in turn would indicate projected cash flow, i.e., net income plus depreciation. Each of the foregoing components should be examined and compared to industry standards to determine whether the projections demonstrate that the proposed transfer and subsequent operation of the cable system is financially feasible. ANSFER APPROV 1. As a general rule, the issue facing the City is not whether to approve or deny the proposed transfer but rather on what terms and conditions the proposed transfer will be approved. 2. Issues raised as a result of the review of the technical and financial qualifications might result in the need for further analysis and clarification of the Buyer's proposed business plant, franchise amendments or consideration for • franchise renewal issues in conjunction with consideration of transfer approval. 3. The City may determine to approve the transfer upon certain conditions including, in some instances, franchise amendments designed to remedy concerns related to the financial or technical qualifications reviewed by the City. These conditions should be met prior to the effective date of the transfer approval. 4. Some conditions should be considered simply as a result of the existence of a new cable operator. These conditions would include those which are imposed on the original franchisee and might include the following: A. Acceptance agreement The execution of an acceptance agreement whereby the Buyer is contractually bound by the terms of the current franchise. B. Guaranty If the Buyer is a subsidiary or otherwise owned by a parent company, the parent company. should be required to execute a guaranty which requires the parent company to perform the obligations under which the buyer may be in default through the life of the franchise. • C.' performance Bond Letter of Credit and /or Security Fund The Buyer should be required to provide -5- the City, at a minimum, with the • which were required of the ezisti D. Cert fiQatg of Insuran required to provide the City insurance to demonstrate the insurance in the amounts which &ranchise. same financial securities ng cable operator. rte. The Buyer should be with a certificate of transferee has obtained may be required by the E. Acceptance Fee The Buyer should be required to provide the City with an acceptance fee in the amount of the City's out -of- pocket costs in considering the franchise request. These out -of- pocket costs would include attorney fees, consultant fees, publications costs, etc. 362Z140 \J L J MM