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HomeMy WebLinkAboutApril 6, 19921891 1991 6:30 p.m. Liquor Committee Meeting REGULAR COUNCIL MEETING AGENDA Monday, April 6, 1992 CALL TO ORDER 1. 2. 3. 8:00 p.m. 4. 7:30 p.m. Pledge of Allegiance Minutes of The Previous Meeting Consent Agenda: a) b) ¢) d) Consider Invoices To Be Paid Consider Approval of New MVTA Representative Consider Approval of LELS Contract Agreement Consider Approval of Temporary Beer Permit for Church of St. Michael Aprilfest Continuation of Public Hearing on Transfer of Star Midwest Inc. Cable Stock Ownership 5. Other Business a) Request For Closed Session to Discuss Pending Litigation *Ail times stated on the Council Agenda, with the exception of Public Hearings, are approximate and may start a few minutes earlier or later. 4629 Dakota St. S.E., Prior Lake, Minnesota 55372 / Ph. (612) 447-4230 / Fax (612) 447-4245 COMMUNITY 1991 ESo CALL TO ORDER 1. 2. 3. 8:00 p.m. 4. REGULAR COUNCIL MEETING AGENDA REPORT Monday, April 6, 1992 7:30 p.m. Pledge of Allegiance Minutes of The Previous Meeting Consent Agenda: a) Consider Invoices To Be Paid - see attached. b) Consider Approval of New MVTA Representative - see attached staff report. c) Consider Approval of LELS Contract Agreement - see attached staff report. d) Consider Approval of Temporary Beer Permit for Church of St. Michael Aprilfest - Enclosed please find a copy of a request from St. Michael's Church for a Temporary 3.2 Beer Permit during the Aprilfest Celebration. The application has been received and processed by City staff. A motion as part of the Consent Agenda to approve the Temporary Beer Permit for the St. Michael's Aprilfest Celebration on April 25 and 26, 1992 is in order. Continuation of Public Hearing on Transfer of Star Midwest Inc. Cable Stock Ownership - see attached staff report. 5. Other Business a) Request For Closed Session to Discuss Pending Litigation - Staff is requesting the Council to conduct a closed session to discuss pending litigation on a road repair issue in Raspberry Ridge Subdivision. *Ail times stated on the Council Agenda, with the exception of Public Hearings, are approximate and may start a few minutes earlier or later. 4629 Dakota St. S.E., Prior Lake, Minnesota 55372 / Ph. (612) 447-4230 / Fax (612) 447-4245 HERITAGE COMMUNITY 1891 1991 MINUTES OF THE CITY COUNCIL March 16, 1992 The Common Council of the City of Prior Lake met in regular session on Monday, March 16, 1992 at 7:30 p.m. in the City Council Chambers. Present were Mayor Andren, Councilmembers Fitzgerald, Scott, White, City Manager Unmacht, Assistant City Manager Schmudlach, Director of Planning Graser, City Attorney Kessel and Recording Secretary Birch. Mayor Andren called the meeting to order and asked everyone to rise for the pledge of allegiance. The minutes of the March 2, 1992 Council meeting were reviewed by Council. MOTION MADE BY SCOTT, SECONDED BY FITZGERALD, MARCH 2, 1992 COUNCIL MINUTES AS SUBMITTED. TO APPROVE THE (Councilmember Tom Kedrowski arrived at 7:38 p.m.). Upon a vote taken, ayes by Fitzgerald, Kedrowski, Scott and White. Andren abstained due to the fact she had been absent during the March 2, 1992 meeting. Motion carried. The next order of business was approval of the Consent Agenda as follows: a) b) c) d) e) f) g) h) i) J) k) Consider Approval of Invoices To Be Paid Consider Approval of Animal Warden Report Consider Approval of Building Report Consider Approval of Fire and Rescue Report Consider Approval of Election Judge Appointments for Presidential Primary Consider Approval of Electric Service Agreements Peak Controlled With NSP Consider Approval of Resolution 92-11 Establishing Compliance With Reimbursement Bond Regulations Consider Approval of Aerial Photography and Mapping for Proposed Business Office Park and Lakefront Park Consider Approval of Registered Land Survey for John Mahoney Consider Approval of Temporary 3.2 Beer Permit for Prior Lake Amateur Baseball Association Consider Approval of Treasurer's Report 4629 Dakota St. S.E., Prior Lake. Minnesota 55372 / Ph. (612) 447-4230 / Fax (612) 447-4245 Minutes of the Prior Lake City Council March 16, 1992 Council removed item (h) for further discussion to occur during other business. MOTION MADE BY FITZGERALD, SECONDED BY WHITE, TO APPROVE THE CONSENT AGENDA ITEMS (a) THRU (k) EXCEPT FOR ITEM (h). Upon a vote taken, ayes by Andren, Fitzgerald, Kedrowski, and White, the motion passed unanimously. Scott The next order of business was: Recognition of Thanks and Appreciation to the Prior Lake VFW. City Manager Unmacht commented briefly on the purpose of the recognition and introduced Fire Chief A1 Borchardt. Chief Borchardt, on behalf of the Prior Lake Fire Department, expressed his appreciation and gratitude to the VFW Post #6208 for their donation of $17,000 for the purchase of Rescue and Emergency Watercraft. Borchardt introduced Chuck Dresen and VFW Post Commander Rich Davidson. Commander Davidson addressed the Council and commented on the purpose of the donation, and presented a check in the amount of $17,000 to Mayor Andren. Mayor Andren thanked the Commander and presented him a with a Certificate of Appreciation from the City. Commander Davidson thanked the City for the plague and also thanked Fireman John Clemens for his assistance in researching information on emergency rescue watercraft. Councilmembers thanked the VFW for their many contributions to the City over the past years. A short recess was called for the purpose of viewing the donated emergency watercraft which was located at the fire hall. The meeting reconvened at 8:00 p.m. The next order of business was: Recognition of Thanks and Appreciation to Little Six Bingo, Inc. This item was tabled due to the participants being unable to attend the meeting. The next order of business was: Consider Administrative Plat and Variance Application of Jeannie Robbins and Eric Davis. Planning Director Graser presented an overhead of the proposed administrative land division and the request for a fifteen foot lot width variance for each Tract A and B. Graser stated that the DNR, utility companies and neighbors within one hundred feet of the subject site had been notified and the only reply he received was from the DNR suggesting that all cabins on the site be removed. A short discussion on the DNR's suggestion occurred. Jeannie Robbins stated that all cabins would be removed and new water hookups installed. Peter Broden, owner of lots 5 and 6 addressed the Council with regard to the driveway which encroaches on lot 5. A short discussion occurred on the driveway encroachment. MOTION MADE BY FITZGERALD, SECONDED BY SCOTT, ADMINISTRATIVE LAND DIVISION SUBJECT TO CONDITIONS: TO APPROVE THE THE FOLLOWING 2 Minutes of the Prior Lake City Council March 16, 1992 All existing non-conforming buildings on the site be removed. A utility easement be granted for service lines to Tract B, that encroach over Tract A or: the lines be abandoned and new lines installed entirely on Tract B, at the expense of the applicant. Five foot drainage and utility easements be granted adjacent to all boundaries of each tract, as required by the City Engineer. The applicant grant an easement to the owner of adjacent Lot 4, for driveway access or require that the driveway be relocated entirely upon Lot 4. Upon a vote taken, ayes by Andren, Fitzgerald, Kedrowski, and White, the motion passed unanimously. Scott The next order of business was: Continuation of Cable Television Franchise Transfer Public Hearing. City Manager Unmacht stated that all material required to process the Franchise Transfer has recently been submitted and is now being evaluated by .staff. Staff recommends that the public hearing be continued until 8:00 p.m. on April 6, 1992. MOTION MADE BY FITZGERALD, SECONDED BY KEDROWSKI, TO CONTINUE THE PUBLIC HEARING ON THE CABLE TELEVISION FRANCHISE TRANSFER UNTIL APRIL 6, 1992 AT 8:00 P.M. Upon a vote taken, ayes by Andren, Fitzgerald, Kedrowski, and White, the motion passed unanimously. Scott The next order of business was: Consider Variance Appeal for Crown CoCo, Inc. city Manager Unmacht commented briefly on the purpose of this agenda item and introduced Bradley Gunn, representative of Crown CoCo, Inc., who addressed the Council on his client's behalf. Horst Graser presented an overhead of the signs currently being displayed in front of the Crown CoCo, Inc. store on Highway 13 and Franklin Trail. A short recess was called for the purpose of reviewing information given to the Council by Mr. Gunn just prior to the meeting. The meeting reconvened at 8:48 p.m. Mr. Gunn again addressed the Council with regard to the dates the signs were erected and some changes they had made to the signs. Extensive discussion occurred by Councilmembers regarding the changes, possible removal of the price signs, amortization, sign permit fees, the current sign ordinance and equitable enforcement of the ordinance. The idea of possible canopy improvements to the site were discussed by Mr. Gunn. Further discussion occurred on non-conforming use, the impact of the canopy improvements on the issues before the Council and the possibility of working out a resolution of this issue with Crown Coco, Inc. Discussion occurred on the contents of any resolution with Crown CoCo, Inc. with respect to compliance with the ordinance. Minutes of the Prior Lake City Council March 16, 1992 MOTION MADE BY WHITE, SECONDED BY FITZGERALD, TO TABLE FOR 60 DAYS AND DIRECT STAFF TO ANALYZE THE ISSUE IN VIEW OF POSSIBLE CANOPY IMPROVEMENTS AND SEEK OUT A RESOLUTION WITH THE OWNER AFTER CONFERRING WITH THE CITY ATTORNEY ON ALL LEGAL ASPECTS OF THIS APPLICATION. Upon a vote taken, ayes by Andren, Fitzgerald, Kedrowski, and White, the motion passed unanimously. Scott MOTION MADE BY WHITE, SECONDED BY KEDROWSKI , TO ADJOURN FOR THE PURPOSE OF CONDUCTING AN ECONOMIC DEVELOPMENT AUTHORITY MEETING. Upon a vote taken, ayes by Andren, Fitzgerald, Kedrowski, and White, the motion passed unanimously. Mayor Andren called the Council meeting back to order at p.m. Scott 9:46 MOTION MADE BY KEDROWSKI, SECONDED BY WHITE, TO AFFIRM THE ECONOMIC DEVELOPMENT AUTHORITY'S ACTION ON THE OPTION AGREEMENT. Upon a vote taken, ayes by Andren, Fitzgerald, Kedrowski, and White, the motion passed unanimously. Topics discussed under Other Business are as follows: Scott Staff announced that the annual Scott County Transportation Coalition meeting would be held on Thursday, March 19 at the VFW. The meeting will begin at 6:30 p.m. City Manager Unmacht commented on the Equalization Meeting to be held on May 4, 1992. Discussion occurred on the D.D. Cable Partners Franchise information to be received and Councilmember White suggested that all members read the article in the Star Tribune on cable television. City Manager Unmacht presented an overhead of the proposed state aid cuts projected for metro area cities as proposed in Governor Arne Carlson's budget. A short discussion followed on possible City positions. Consent Agenda Item (h) Aerial Photography and Mapping for Proposed Business/Office Park and Lakefront Park was discussed. Councilmembers discussed costs and timing of the photography and mapping. Gene White requested Councilmembers to turn in any comments to him on the Metro Governance Task Force information. MOTION MADE BY FITZGERALD, SECONDED BY KEDROWSKI, TO ADJOURN TO A CLOSED SESSION FOR THE PURPOSE OF DISCUSSING UNION NEGOTIATIONS. Upon a vote taken, ayes by Andren, Fitzgerald, Kedrowski, and White, the motion passed unanimously. Scott 4 Minutes of the Prior Lake City Council March 16, 1992 Mayor Andren called the closed session to order. Present at the meeting were: Mayor Andren, Councilmembers Fitzgerald, Kedrowski, Scott and White. City Manager Unmacht, Assistant City Manager Schmudlach, City Attorney Kessel and Recording Secretary Birch. The purpose of the closed session was to discuss a possible settlement with the police bargaining unit. The next Council meeting will be Monday, April 6, p.m. 1992 at 7:30 There being no further business, the meeting adjourned at p.m. by general consent of the Council.~~./~ ~.~ vid ~J. -UnmacMt ~i~d~Janager 10:25 Dee Birch Recording Secretary 5 THE FOLLOWING IS A LIST OF INVOICES SCHEDULED FOR PAYMENT ON TUES. APRIL 7, 1992 MISC. DEPTS. R-Own Office Supply Prior Prints Tierney Bros. Inc. Xerox Corp. Perfect Forms & Supplies City of Lakeville Amoco Oil Co. P.F. Inc. Amoco MN Cellular One Northern States Power Co. M-V Gas Co. office Supplies office Supplies Kroy Supplies copier Supplies Printed Supplies MuniciPals Seminar Vehicle Maintenance Vehicle Maintenance Telephone Service Utilities Utilities 676.79 504.95 354.00 340.00 628.86 147.00 65.17 1,126.36 276.63 7,211.03 1,080.00 GENERAL GOVERNMENT Prior Lake American Office Electronics Inc. Postmaster Munici-Pals No. Amer. Lake Mgmt. Society Economics Press Laurie Davis Consolidated Typewriter Lommen Nelson Cole City of Savage Bernick & Lifson Franz Engineering Westwood Professional Service Horst Graser Urban Land Institute MN Computer Supply Co. AlphaSoft Inc. Modern Computer Systems LaserQuipt international Industrial Lighting Supply R & 0 Elevator Lagerquist ESI Communications Xerox Corp. R-Own Office Supplies B'ville Commercial Cleaning Want Ads copier Supplies Postage Dues Membership Fee Publications Mileage Supplies Attorney Fees Share of Prosecution Attorney Fees Planning Supplies Professional Services Meeting Expense Publications 144.00 848.00 501.80 5.OO 65.00 183.69 19.80 24.00 616.00 12,779.61 3,760.25 22.00 1,883.10 28.49 26.00 Computer Supplies 70.27 Hardware Maint. & Supplies 669.90 Hardware Maintenance Laser Maint. Contract Building Maint. Supplies Service Contract Elevator Repair Supplies Equipment Maintenance Copier Supplies Cap. Outlay-Equipment Custodial Service 202.00 597.00 32.63 104.92 836.00 419.00 158.64 547.97 1,100.00 CONTINGENCY Park Nicollet Medical Center Jerome Topitzhofer Jack Quiggle Professional Services Address Change Address Change 350.50 50.00 50.00 PUBLIC SAFETY Manpower Inc. Butterworth R-Own Office Supply Hibbing Technical College Govt. Training Service University of Minnesota Drivers License Guide Comm Center Temporary Help Printed Supplies Supplies Training Training Training Publication Cap. Outlay-Equipment 143.64 394.60 23.21 286.00 224.00 80.00 61.60 1,398.00 FIRE & SAFETY David Christopherson Dixie USA Emergency Medical Products St. Francis Medical Center Riverland Technical College Communication Auditors United Fire Fighters Assn. Scott-Carver Air Assn. Smokeater Safety Glasses Medical Supplies Medical Supplies Training Training Repairs Dues Dues Subscription 560.00 86.74 407.27 510.00 90.00 56.33 25.00 100.00 140.00 PUBLIC WORKS Prior Prints Printed Supplies Shakopee Basin Water Mgmt.Assn Assessment Share Mail Stop & Office Products UPS Charge Action Messenger Terminal Supply Co. Shiely Co. Earl F. Anderson & Assoc. Astleford Equipment Minnegasco Harris & Waderich Messenger Service Shop Supplies Sand & Gravel Signs Repair Supplies Utilities Supplies 19.80 183.75 11.76 20.60 141.80 584.44 95.50 3.45 125.77 25.00 PARK AND RECREATION Prior Prints Alex Audio & Video Fina Dancewear Target The Costume Shop Prchal Candy Co. ISD #719 Sax Arts & Crafts Diane Wikstrom Lisa Conlin Brent Arnold Fiona Keel Minnegasco Priordale Mall Valley Sports Minnesota UC Fund Outdoor Power House Turf Products Inc. Bailey Nurseries Larson Implement Viking Industrial Center Pioneer Mfg. Co. Sears Optimist Club A1 Friedges MTI Distributing Co. Metro South Lindsay Printed Supplies Equipment Repairs Dance Supplies Dance Supplies Dance Supplies Park Program Supplies Printing Costs Park Program Supplies Park Program Instructor Park Program Instructor Park Program Instructor Mileage Utilities Dance Studio Rental Supplies Unemployment Comp. Repair Supplies Repair Supplies Park Supplies Maint. Supplies Maint. Supplies Park Maint. Supplies Small Tools & Equipment Dues Seminar Expense Seminar Fees Building Maintenance 1,505.31 80.75 30.70 71.94 47.90 32.75 4.50 245.30 365.00 363.97 24.00 57.75 91.01 1,379.85 55.00 388.41 12.20 35.35 47.50 59.80 203.42 1,980.00 1,025.35 50.00 54.50 100.00 185.00 ECONOMIC DEVELOPMENT Advance Resources for Dev. Darwin Fosse Kay Schmudlach City of Maple Grove Craguns Conference Center WATER UTILITY Pederson-Sells Equipment Water Products Co. Serco SEWER UTILITY Powertronics Inc. Tri-State Pump & Control EQUIPMENT CERTIFICATES Great American Marine Prior Lake Marine Stearns Mfg. Co. Emergency Medical Products Valley Sign Marine Electric Recreational Equipment Inc. Professional Services 2,500.00 Meeting Expense 20.78 Meeting Expense & Supplies 99.12 Registration Fee 25.00 Housing Deposit 80.00 Repair Supplies Supplies Water Analysis 357.02 17.00 150.00 Repair Supplies Repair Supplies 161.70 2,213.34 Water Rescue Boat Boat Motor & Mounting Rescue Boat Supplies Rescue Boat Supplies Lettering on Boat Rescue Boat Supplies Rescue Boat Supplies 6,436.00 3,273.04 1,764.89 385.42 148.00 760.56 1,080.00 HERITAGE COMMUNITY 1891 1991 2o 1 AGENDA NUMBER: PREPARED BY: SUBJECT: DATE: 3(b) KAY SCHMUDLACH, ASSISTANT CITY MANAGER CONSIDER APPROVAL OF NEW MINNESOTA TRANSIT AUTHORITY REPRESENTATIVE APRIL 6, 1992 VALLEY INTRODUCTION: BACKGROUND: DISCUSSION: ACTION REQUIRED: Mayor Lydia Andren has served on the Minnesota Valley Transit Authority (MVTA) since September 25, 1990. The Mayor has represented the City on the Authority, providing direction for the coordination of the slx cities' transit plans. Mayor Andren is unable to continue her representation and has submitted her resignation from the Board. Tom Kedrowski has indicated interest in serving on the MVTA. The City of Prior Lake is a member of the six city MVTA. Currently the City has one voting member on the Board and one alternate. The resignation of the Board member requires an appointment of a Councilperson to serve as the primary representative. Kay Schmudlach continues to serve as the alternate, voting in absence of the regular Council appointee. The MVTA representative is required to attend monthly meetings and additional meetings as assigned at the Board meeting. Mr. Kedrowski and Kay Schmudlach will be attending an all day goal setting session for the MVTA scheduled for April 11, 1992. A motion to accept Mayor Andren's resignation and appoint Tom Kedrowski as the MVTA representative is in order. A motion approving the Consent Agenda will constitute positive action on this agenda item. 4629 Dakota St. S.E., Prior Lake, Minnesota 55372 / Ph. (612) 447-4230 / Fax (612) 447~4245 HERITAGE COMMUNITY 1891 1991 AGENDA NUMBER: PREPARED BY: SUBJECT: DATE: 3(c) DAVID UNMACHT, CITY MANAGER CONSIDER APPROVAL OF LELS CONTRACT AGREEMENT APRIL 6, 1992 INTRODUCTION: BACKGROUND: ALTERNATIVES: RECOMMENDATION: ACTION REQUIRED: The purpose of this agenda item is to adopt the 1992-1993 Labor Agreement between the city of Prior Lake and Law Enforcement Labor Services, Inc. Enclosed please find a copy of the Labor Agreement. The negotiations between City staff and Law Enforcement Labor Services, Inc. representatives have occurred since November 1991. On March 13, 1992 a mediation session was held between City and Union officials. This session was mediated by Jerry Butler from the Bureau of Mediation Services. A tentative settlement was reached and presented to the City Council under closed session on Monday, March 16, 1992. City Council directed staff to finalize the tentative settlement with the Union. Staff has revised the Labor Agreement and is seeking Council approval. The alternatives are as follows: 1. Adopt the Labor Agreement as presented. 2. Remove the Labor Agreement from the Consent Agenda and discuss it. Remove the Labor Agreement from the Consent Agenda and table for further research. Staff recommends that City Council approve the Labor Agreement between the City of Prior Lake and Law Enforcement Labor Services, Inc. The Agreement will be effective January 1, 1992 through December 31, 1993. Motion as part of the Consent Agenda to approve the Labor Agreement is in order. 4629 Dakota St. S.E., Prior Lake, Minnesota 55372 / Ph. (612) 447-4230 / Fax (612) 447-4245 HERITAGE 1891 COMMUNITY 1991 April 1, 1992 Mr. Roland Miles Law Enforcement Labor Se~ices Inc. 10800 Lyndale Avenue South Minneapolis, MN 55420 RE: LETTER OF UNDERSTANDING Dear Roland: The following letter will serve as a Letter of Unde~ between the city of Prior Lake and Law Enforcement Labor Inc. (L.E.L.S.). The purpose of this Letter of Understanding is to out creation of a Task Force between representatives of the ¢ L.E.L.S. for the purposes of studying, reviewing and recc an alternative pay program to the existing longevity plan understood that the alternative plan will be a volun optional enrollment plan for the employee. The Task Force work will begin on execution of the 1992 Labor Agreement and will complete their work no la September 1, 1992. The Task Force shall consist of at le but no more than two representatives from each of the Prior Lake and Law Enforcement Labor Services Inc. Eac will be responsible for making appointments to the Task It is understood that both the City of Prior Lake and will make an independent decision on whether or participate in the optional pay plan developed by the Tas It is further understood that negotiations will occur parties to discuss implementation of any recommendations by the Task Force. The Apple Valley Master Pay ~lay provided to the Task Force for beginning discussion. understood that the Task Force will conduct research an other alternatives available prior to developing an optic plan for our consideration. cfi C] %cerely, , ~l ty Manager FY OF PRIOR LAKE 4629 Dakota St. S.E., Prior Lake, Minnesota 55372 / Ph. (612) 447-4230 / Fax (612) ' .infaen C I T Y O F P R I O R L A K E 4629 Dakota Street S.E. Prior Lake, MN 55372 Phone (612) 447-4230 - FAX (612) 447-4245 INFORMAL MEMO REPLY FROM: DATE: Response Required: Yes HERITAGE COMMUNIT 1891 1991 AGENDA: REQUESTED BY : SUBJECT MATTER: DATE: 4 RALPH TESCHNER, FINANCE DIRECTOR CONTINUATION OF PUBLIC HEARING ON TRANSFER OF STAR MIDWEST INC. CABLE STOCK OWNERSHIP APRIL 6, 1992 INTRODUCTION: DISCUSSION: This is a continuation of the public hearing process regarding the transfer of Star Midwest Inc.'s stock ownership to D.D. Cable Partners, L.P. As stated within our franchise ordinance, the transfer is contingent upon the approval of the City of Prior Lake. A "Municipal Request for Information" has been completed by D.D. Cable Partners L.P. and reviewed by both Staff and our cable legal counsel, Thomas Creighton. Attached to your agenda is a memorandum of analysis and proposed recommendation by Mr. Creighton regarding this transfer request. Please refer to the original "MRI" which was distributed to the Council on March 16 for further review. There are basically 4 factors that must pass I! !! judgment by the city plus an Other category that is probably the most important in our case. Staff has summarized these findings as follows: I. CHARACTER - The character qualifications are satisfactory as no information has surfaced pertaining to any criminal activity or convictions. II. LEGAL - The legal criteria supports the fact that D.D. Cable Partners L.P. is duly organized and authorized under federal law to operate a cable system. III. TECHNICAL ABILITY - InterMedia presently ranks as the 34th largest cable operator within the United States. The company currently serves 290,000 cable television customers. The purchase represents an increase of 112,000 to their subscriber base. Based upon their prior experiegce, the company's technological performance is adequate. IV. FINANCIAL STABILITY - As indicated by Mr. Creighton, if the financial resources are not available the transaction simply will not take place. The acquisition cost is in excess of $230,000,000 or equivalent to $2,056.00 per subscriber. 4629 Da~taSt. S.E.,Prior ~ke, Minnesota55372 / Ph.(612) 447-4230 / ~x(612) 447-4245 They have indicated an infusion of capital by D.D. Cable Partners L.P. of $85 million dollars. The majority of the remaining financing is to to be underwritten by GECC which is a $35 billion dollar corporation. V. OTHER RELEVANT FACTORS - These items should be of the most concern to the city as they impact the community on a direct basis. It is necessary for D.D. Cable Partners L.P. to express and reinforce its commitment to public access programming. The company has warranted in its response that it will comply with all existing franchise requirements. One of these is that an access studio must be maintained by the cable company. The current lease agreement for this facility which is located in the Prior Lake High School has expired and must be renewed. School officials are making this request and will be present to discuss this issue and Recommendation #2 below. RECOMMENDATION: In lieu of the city of Prior Lake's approval the ownership transfer is recommended to be approved subject to the following conditions: 1. Franchise Fee to be increased from 3% to 5% with a term extension of 5 years from the current franchise expiration date of 1997 to 12/31/02. 2. Public access studio lease agreement renewal to fund Coordinator's position on a yearly basis of $16,000.00 to be adjusted annually according to the Mpls/St. Paul consumer price index. 3. Consideration be given to a rate tiering system for basic cable service. 4. Regional Channel 6 will be activated and added to our current cable configuration. 5. Local office be established and available to residents during usual business hours as indicated on MRI. The extension of the franchise fee would still be subject to the applicability of all future federal law amendments. Also, the franchise would continue as a non-exclusive franchise. This would allow for other forms of cable competition should technological advances provide for other communication alternatives. ACTION REQUIRED: Motion by the Council to approve D.D. Cable Partnership's stock acquisition conditional upon the above referenced items. An ordinance and amendment to the City Code will be prepared and presented under the consent agenda at the next Council meeting. T~OMAS D. C~IEIGHTON TO: FROM: DATE: RE: BERNICK AND LIFSON A PROFI~'$5IONAL A$5OCIATION ATTORNEYS AT LAW SUITE 12OO THE COLONNADE 5500 WAYZATA BOULEVARD MINNEAPOLIS, MINNESOTA 55416 (612) 546-1200 FACSIMILE (612) B46-1003 MEMORANDUM *ALSO ADMITTED IN WISCONSIN eALSO CERTIFIED PUBLIC ACCOUNTANT City Council, City of Pri~ ~ Thomas D. Creight~~'"/~v~r -- March 30, 1992 ~/r - / Request for Approval of Transfer of control of Star Midwest Properties Please find below a summary and analysis of the proposed transaction regarding a request from Star Midwest, Inc. (hereinafter #Star~) to the City of Prior Lake to approve the transfer of control of Star from the current shareholders of Star to D. D. Cable Partners, L.P. (hereinafter #D. D.#). The purpose of this report is to provide the City with an understanding of the transaction and the standard for reviewing whether to approve it. INTRODUCTION At the time of awarding the original franchise and in subse- quent transfers of the cable communications franchise, the City considered and approved the technical ability, financial capability, legal qualifications and character of previous owners of the cable system, as well as other appropriate factors. The same qualifications are to be considered and reviewed as part of the transfer of control request as they relate to D. D. Cable Partners, L.P., and indirectly its general partner, InterMedia Partners II (hereinafter #I.P.-II#). The sources of information used in examining these factors include the Request for Information supplied to Star and D. D. and other supplemental information provided by Star and D. D. BERNICK AND LIF$ON A I=ROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 2 II. STANDARD OF REVIEW The City's task in this process is to review the information provided regarding the transaction and to approve or deny the transfer of control of Star. The Cable Communications franchise held by the City expressly reserves the right of the City to approve or disapprove such a transfer of control. The standard of review is that the City's consent shall not be unreasonable withheld. For the purpose of determining whether it will consent to the change in control of the owner of the system, the City has made inquiry into the legal, technical, character and financial qualifications of D. D. and I.P.-II, as well as other appropriate factors. In analyzing the transaction, the city must consider whether D. D. and I.P.-II meet all of the criteria originally considered in approving the transfer of the franchise to Star. Note, however, that this analysis is not a comparison between Star and the new owners. Rather, this analysis is an application of factors to determine whether the new owners satisfy the standards to the reasonable satisfaction of the City. The City should focus on the following factors in determining whether to approve or deny the transfer of control to D. D.: Legal and character qualifications of all entities involved in the transfer; 2. Technical ability of D. D. and I.P.-II; 3. Financial stability of D. D. and I.P.-II; and 4. Other appropriate factors. III. DESCRIPTION OF TRANSACTION Star Cablevision Group, a Wisconsin general partnership, owns 625 shares of common stock of Star Midwest, Inc., a Wisconsin corporation. The 625 shares constitute all of the issued and outstanding shares of capital stock of Star Midwest. Star Midwest and its subsidiaries own and operate the Prior Lake Cable System. Star Cablevision Group has entered into a Stock BERNICK AND LIFSON A PROFESSIONAL, ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 3 Purchase Agreement with D. D. Cable Partners, L.P. Star Midwest, Inc., is the current holder of the City of Prior Lake's cable television franchise. No request is made for a transfer of the franchise ordinance. This transaction is, instead, a transfer of control of stock ownership in Star Midwest, Inc. After completion of the transaction, D. D. Cable Partners, L.P. will be the owner of all outstanding shares of common stock in Star Midwest, Inc. Since D. D. was formed for the sole purpose of acquiring the Star Midwest properties and I.P.-II will not be closed until just prior to the acquisition date, it is also informative to review InterMedia Partners I, L.P. as a measure of company performance related to I.P.-II. The purchasers have informed the City that I.P.-II has been designed to perform in a manner similar to InterMedia Partners I. The ownership structure of D. D. will involve I.P.-II as the only general partner with a 12% ownership of the partnership. General Electric Capital Corporation will be a limited partner of D. D. with an 88% ownership of partnership. ANALYSIS Each of the factors will be analyzed separately although they are not exclusive. IV. LEGAL QUALIFICATIONS The legal qualifications standard relates primarily to an analysis of whether D. D. is duly organized and authorized to own the cable system. Certain entities, such as certain television broadcasting, and certain telephone companies are prohibited by Federal law from owning, operating or controlling certain cable television systems. Although these restrictions are primarily a concern of D. D. and its partners, we have reviewed the Federal cross-ownership prohibitions and have determined them not to effect this transaction. The City has been provided with an executed copy of an Agreement of Limited Partnership dated as of November 26, 1991, detailing the creation of D. D. Cable Partners, L. P. The Agreement indicates that InterMedia Partners II, L.P., a California Limited Partnership, shall be the initial general BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION city Council, City of Prior Lake Memorandum March 30, 1992 Page 4 partner. Midwest Franchises Corp., a Delaware corporation and wholly owned subsidiary of General Electric Corporation, a New York corporation, is the limited partner. The Agreement of limited partnership for D. D., appears to be in order. The City has also requested a copy of the Agreement of Limited Partnership of Intermedia Partners II, L.P., and it has been provided. This Agreement is dated July 1, 1991 and has been executed by the general partner, InterMedia Management II. L.P. The general partner of Intermedia Partners II, L.P., Intermedia Management II, L.P., has disclosed its list of general partners and limited partners. Leo J. Hindery, Jr., David G. Rozzelle, and Edward G. Liebst, Jr., are the general partners of the parent general partnership. Numerous limited partners are listed for InterMedia Management, II, L.P. Suffice it to say that the partnership structure of this proposed transfer of ownership is complicated and difficult to break down in a report such as this with a goal to clarify the transaction for the City Council's review. The partnership documents do trace their roots to the major owners of the InterMedia operation. Likewise, Mr. David Rozzelle, a general partner of the InterMedia parent operation will be primarily and directly responsible for the operations of the Prior Lake system. While the partnership structure is complex, the individuals who possess the necessary authority to efficiently and effectively render decisions related to the Prior Lake system are in place and in a direct line of communication with the City of Prior Lake. The character qualifications of D. D. and I.P.-II are satisfactory. D. D. has provided information showing that neither it nor its general partners at any level have ever been convicted in a criminal proceeding of any crimes against character. Information was not provided nor required for the limited partners as it does not hold the partnership equivalent of voting stock in D. D. Based upon our review of the information provided, it would appear that the City could not unreasonably withhold approval of the transfer based upon the legal or character qualifications of D. D. or I.P.-II. BERNICK AND LIF$ON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 5 Vo TECHNICAL ABILITy The technical ability factor relates to the technical expertise and experience of D. D. in operating and maintaining a cable system. This analysis focuses on the current and former experience of the proposed Transferee. Since D. D. and I.P.-II are newly created entities, it is necessary to review the cable management performance of individuals who will be involved in the general management. For such purposes it is legitimate to reference those individuals'experience in I.P. I. Additionally, reference should be made to Star Midwest since it can be assumed that the existing local management will exist for the time being providing the level of service previously experienced by Prior Lake subscribers. InterMedia Partners was formed in 1988 by Messrs. Hindery, Rozzelle and Liebst. InterMedia now ranks as the nation's 34th largest operator of cable systems. Prior to the founding of InterMedia, Mr. Hindery was Chief Officer for planning and finance of The Chronicle Publishing Company of San Francisco. This company serves more than 290,000 cable television customers and operates various other media interests. In his capacity, Mr. Hindery was responsible for all acquisitions, finance and development of activities. His primary experience appears to be in the area of financial officer. Mr. Rozzelle is a general partner of InterMedia and is the Chief Executive Officer of cable operations. Mr. Rozzelle is responsible for budgeting, franchise relations, system operations, personnel and acquisitions. His experience is as a communications attorney representing cable companies throughout the United States. While such experience is related, it is not direct operational experience within a cable company. Mr. Liebst is InterMedia's Chief Financial Officer and has eleven years of experience developing and financing cable television transactions as investment banker. Three other partners, Terry Cotten, Director of Operations, David Large, Director of Engineering and Richard Maul, Director of Marketing have a combined experience of over fifty years in the cable television industry. It is at this level of the organization that the vaulable hands-on experience seems to reside. The experience of these three individuals appears BERNICK AND LIFSON A PROFESSIONAl- ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 6 sufficient to meet the needs of Piror Lake, experienced local management. coupled with I communicated directly with city cable Administrator, Clayton Hamilton, city of Tucson, Arizona. The Tucson cable system has been owned by the InterMedia partners for approximately eighteen months. Mr. Hamilton and I discussed numerous issues including customer service issues, technological upkeep of the system, and City/Company communications and relations. Mr. Hamilton's experience is that InterMedia's management is highly decentralized. This authority at the local level is very helpful in communication directly with the local management for the purpose of making decisions. Mr. Rozzelle, the individual also ultimately responsible for the management of the Prior Lake system, was characterized as very accessible when necessary. Mr. Hamilton was pleased with his relationship with the company through Mr. Rozzelle. Mr. Hamilton was also impressed with the community involvement of the company saying that they have surpassed expectations as to their relationship in such things as community food drives and the like. It is important to recognize that the Tucson system is over 85,000 subscribers. Obviously, problems will be significantly magnified in such a system which would not even be a problem in the Prior Lake system. The Company in Tucson has taken two major #hits# but both have been in areas where changes needed to be made and will eventually be very positive for the company. The Company has staggered its billing so that all the bills do not come out at the same time of the month. This is a positive change but caused considerable confusion with the community. The Company also changed its billing service which caused seriously increased phone delays in customer service which have since been straightened out. Neither of these problems would be problems in Prior Lake and throughout the changes, InterMedia was credited with good communications with the City. From a technological prospective, the Company has performed above average in Tucson in the maintenance of the system, even surpassing a technological goal of a three year fiber trunk rebuild which was done in one year (even in the face of negative cash flow). Based on our review of the information provided it would appear that the Commission could not reasonably withhold approval of the transfer based upon the technical ability of D. D. BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 7 VI. FINANCIAL STABILITY The financial stability factor relates to whether D.D has the financial resources available or committed to not only acquire the system, but also whether its financial plan as presented is reasonable and economically viable. The City has chosen not to engage a financial consultant to undertake a review of this factor. Although the financial information supplied has been reviewed for obvious problems, a review by a qualified communications financial consultant was not undertaken. This report will not, therefore, opine as to a final conclusion regarding the financial ability of D. D. or its partners. Suffice it to say that if I.P.-II and General Electric Capital Corporation do not have the financial resources available to them to close the transaction, it will not take place. Additionally, with the City's inability to regulate rates, experience has shown that the viability of the buyer's financial plan is of the most concern to the Company itself. The franchise requires performance standards which are enforceable against the Company. Should D. D.'s financial viability decrease to such an extent as to render system performance below required standards, adequate remedies from fines to franchise termination are available to the City. In conversations with the City of Tucson apparently Tucson was also very concerned regarding the economic viability of the purchase of the system. They have received the 1990 financials (a period in which InterMedia only owned the system for one half of a year). The 1991 financials, the first full year of operation by InterMedia are not due until March 31, 1992. While the City of Tucson has some concern, as should the City of Prior Lake, with the negative cash flow of InterMedia, Tucson also shares the perception that cash losses are the problem of the company until such time as service or system maintenance and upgrade are effected. Tucson had some significant community commitments regarding community programming and access which required a significant pre-payment by InterMedia prior to Tucson's approval of its transfer of ownership. The Prior Lake commitments are not of such a magnitude as to require such a concern, however, the city should diligently administer those requirements that do exist so as to insure continued compliance of the franchise. BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 8 VII. OTHER RELEVANT FACTORS Other appropriate factors which have been reviewed for the purpose of determining whether to approve or deny this transaction are contained in the Request for Information. The most significant factor to be considered is whether the cable franchise will remain intact and whether D. D. will agree to comply with all existing franchise requirements, promises and representations of its predecessors. D. D. has warranted in its response that it will comply with all existing franchise requirements. With respect to the franchise requirements regarding the existing service area and line extensions, D. D. has indicated it will comply with the existing franchise requirements and obliga- tions. The construction practices of D. D. regarding aerial and underground standards will also conform to existing franchise requirements. For example, any property damage and restoration work will be properly corrected. D. D. has not proposed any modifications to the channel capacity or system design and will assume all existing franchise obligations regarding performance testing and system maintenance policies. D. D. has informed the City that it will convert to American Express Cable Services billing system. Such a change caused serious problems in Tucson, Arizona, but should not have such an impact upon the smaller number of subscribers in Prior Lake. The Company has stated that it will construct cable plant underground in newly platted areas at the time electronic and telephone distribution plants are constructed, assuming the trench is available on reasonable notice and at reasonable rates. The Company agrees to comply with all existing obligations regarding interconnection including Metro Channel 6. Star is currently in negotiation with the operator of the Burnsville system regarding a channel feed for Metro Channel 6. Performance testing, system maintenance, customer complaint policies and response are all consistent with the franchise. The Company is obligated to provide and maintain certain equipment for community programming and Eight to Ten thousand Dollars ($8,000.00-$10,000.00) per year for Staff. Discussion during this analysis has indicated that Star may not have BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 9 complied with these requirements. InterMedia is investigating this issue and will report more fully at the public hearing. The Company has agreed to assume all community programming obligations of the franchise. The Company has agreed also not to propose any modifications to community programming commitments for three years. The City has expressed an interest in negotiating the franchise fee from three (3) percent to the five (5) percent allowed by Federal Statute. The recommendations resulting from those discussions will be presented at the public hearing. The City has also raised concerns about the lack of service options presented by the current tiering system. In a letter dated March 25, 1992, Mr. Rozzelle explained the probability of providing a broadcast/basic tier, but could not commit at this time to its implementation. This appears to represent a responsible approach to a system which is not yet owned and budgeted. The Company will assume all existing staff positions with the addition of technical crew and a regional office. The system will, however, retain a local manager and a regional manager. Assuming resolution of the issues regarding community programming equipment, monetary contribution to staff and final discussion as to the franchise issue, it does not appear that there is any other legally justifiable cause for the City to withhold approval of the transfer of control to D. D. in the areas of legal, technical or financial factors, provided however that the issues outlined above are resolved. VIII. CONCLUSIONS Assuming a resolution by D. D. the above outlined issues, the City may approve the Transfer of control to D. D. Cable Partners, L.P. NS'AL J. SHAPIRO SAUL A, BIrRNICKt THOMAS O. CREIGHTON TO: FROM: DATE: RE: BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION ATTORNEYS AT LAW SUITE I:~00 THE COLONNADE 5500 WAYZATA BOULEVARD MINNEAPOLIS, MINNESOTA 55416 (612) 5'~-6- 120 0 FACSIMILE {612) 546-1003 MEMORANDUM IALSO ADMITTED IN WISCONSIN ~ALSO CERTt~'I[D PUBLIC ACCOUNTANT City Council, City of Prio~~ ~ Thomas D. Creigh t~~_ ~~v~' -- March 30, 1992 ~./ /~" / Request for Approval of Transfer of control of Star Midwest Properties Please find below a summary and analysis of the proposed transaction regarding a request from Star Midwest, Inc. (hereinafter "Star") to the City of Prior Lake to approve the transfer of control of Star from the current shareholders of Star to D. D. Cable Partners, L.P. (hereinafter #D. D.#). The purpose of this report is to provide the city with an understanding of the transaction and the standard for reviewing whether to approve it. INTRODUCTION At the time of awarding the original franchise and in subse- quent transfers of the cable communications franchise, the City considered and approved the technical ability, financial capability, legal qualifications and character of previous owners of the cable system, as well as other appropriate factors. The same qualifications are to be considered and reviewed as part of the transfer of control request as they relate to D. D. Cable Partners, L.P., and indirectly its general partner, InterMedia Partners II (hereinafter #I.P.-II"). The sources of information used in examining these factors include the Request for Information supplied to Star and D. D. and other supplemental information provided by Star and D. D. BERNICK AND LIF$ON A PROFESSIONAL ASSOCIATION City Council, city of Prior Lake Memorandum March 30, 1992 Page 2 II. STANDARD OF REVIEW The City's task in this process is to review the information provided regarding the transaction and to approve or deny the transfer of control of Star. The Cable Communications franchise held by the City expressly reserves the right of the city to approve or disapprove such a transfer of control. The standard of review is that the City's consent shall not be unreasonable withheld. For the purpose of determining whether it will consent to the change in control of the owner of the system, the city has made inquiry into the legal, technical, character and financial qualifications of D. D. and I.P.-II, as well as other appropriate factors. In analyzing the transaction, the city must consider whether D. D. and I.P.-II meet all of the criteria originally considered in approving the transfer of the franchise to Star. Note, however, that this analysis is not a comparison between Star and the new owners. Rather, this analysis is an application of factors to determine whether the new owners satisfy the standards to the reasonable satisfaction of the City. The City should focus on the following factors in determining whether to approve or deny the transfer of control to D. D.: Legal and character qualifications of all entities involved in the transfer; 2. Technical ability of D. D. and I.P.-II; 3. Financial stability of D. D. and I.P.-II; and 4. Other appropriate factors. III. DESCRIPTION OF TRANSACTION Star Cablevision Group, a Wisconsin general partnership, owns 625 shares of common stock of Star Midwest, Inc., a wisconsin corporation. The 625 shares constitute all of the issued and outstanding shares of capital stock of Star Midwest. Star Midwest and its subsidiaries own and operate the Prior Lake Cable System. Star Cablevision Group has entered into a Stock BERNICK AND LIF$ON A PROFESSIONAL ASSOCIATION City Council, city of Prior Lake Memorandum March 30, 1992 Page 3 Purchase Agreement with D. D. Cable Partners, L.P. Star Midwest, Inc., is the current holder of the city of Prior Lake's cable television franchise. No request is made for a transfer of the franchise ordinance. This transaction is, instead, a transfer of control of stock ownership in Star Midwest, Inc. After completion of the transaction, D. D. Cable Partners, L.P. will be the owner of all outstanding shares of common stock in Star Midwest, Inc. Since D. D. was formed for the sole purpose of acquiring the Star Midwest properties and I.P.-II will not be closed until just prior to the acquisition date, it is also informative to review InterMedia Partners I, L.P. as a measure of company performance related to I.P.-II. The purchasers have informed the City that I.P.-II has been designed to perform in a manner similar to InterMedia Partners I. The ownership structure of D. D. will involve I.P.-II as the only general partner with a 12% ownership of the partnership. General Electric Capital Corporation will be a limited partner of D. D. with an 88% ownership of partnership. ANALYSIS Each of the factors will be analyzed separately although they are not exclusive. IV. LEGAL QUALIFICATIONS The legal qualifications standard relates primarily to an analysis of whether D. D. is duly organized and authorized to own the cable system. Certain entities, such as certain television broadcasting, and certain telephone companies are prohibited by Federal law from owning, operating or controlling certain cable television systems. Although these restrictions are primarily a concern of D. D. and its partners, we have reviewed the Federal cross-ownership prohibitions and have determined them not to effect this transaction. The City has been provided with an executed copy of an Agreement of Limited Partnership dated as of November 26, 1991, detailing the creation of D. D. Cable Partners, L. P. The Agreement indicates that InterMedia Partners II, L.P., a California Limited Partnership, shall be the initial general BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 4 partner. Midwest Franchises Corp., a Delaware corporation and wholly owned subsidiary of General Electric Corporation, a New York corporation, is the limited partner. The Agreement of limited partnership for D. D., appears to be in order. The City has also requested a copy of the Agreement of Limited Partnership of Intermedia Partners II, L.P., and it has been provided. This Agreement is dated July 1, 1991 and has been executed by the general partner, InterMedia Management II. L.P. The general partner of Intermedia Partners II, L.P., Intermedia Management II, L.P., has disclosed its list of general partners and limited partners. Leo J. Hindery, Jr., David G. Rozzelle, and Edward G. Liebst, Jr., are the general partners of the parent general partnership. Numerous limited partners are listed for InterMedia Management, II, L.P. Suffice it to say that the partnership structure of this proposed transfer of ownership is complicated and difficult to break down in a report such as this with a goal to clarify the transaction for the City Council's review. The partnership documents do trace their roots to the major owners of the InterMedia operation. Likewise, Mr. David Rozzelle, a general partner of the InterMedia parent operation will be primarily and directly responsible for the operations of the Prior Lake system. While the partnership structure is complex, the individuals who possess the necessary authority to efficiently and effectively render decisions related to the Prior Lake system are in place and in a direct line of communication with the City of Prior Lake. The character qualifications of D. D. and I.P.-II are satisfactory. D. D. has provided information showing that neither it nor its general partners at any level have ever been convicted in a criminal proceeding of any crimes against character. Information was not provided nor required for the limited partners as it does not hold the partnership equivalent of voting stock in D. D. Based upon our review of the information provided, it would appear that the City could not unreasonably withhold approval of the transfer based upon the legal or character qualifications of D. D. or I.P.-II. BERNICK AND LIFSON A I~I~OFES.~IONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 5 Ve TECHNICAL ABILITY The technical ability factor relates to the technical expertise and experience of D. D. in operating and maintaining a cable system. This analysis focuses on the current and former experience of the proposed Transferee. Since D. D. and I.P.-II are newly created entities, it is necessary to review the cable management performance of individuals who will be involved in the general management. For such purposes it is legitimate to reference those indiwiduals'experience in I.P. I. Additionally, reference should be made to Star Midwest since it can be assumed that the existing local management will exist for the time being providing the level of service previously experienced by Prior Lake subscribers. InterMedia Partners was formed in 1988 by Messrs. Hindery, Rozzelle and Liebst. InterMedia now ranks as the nation,s 34th largest operator of cable systems. Prior to the founding of InterMedia, Mr. Hindery was Chief Officer for planning and finance of The Chronicle Publishing Company of San Francisco. This company serves more than 290,000 cable television customers and operates various other media interests. In his capacity, Mr. Hindery was responsible for all acquisitions, finance and development of activities. His primary experience appears to be in the area of financial officer. Mr. Rozzelle is a general partner of InterMedia and is the Chief Executive officer of cable operations. Mr. Rozzelle is responsible for budgeting, franchise relations, system operations, personnel and acquisitions. His experience is as a communications attorney representing cable companies throughout the United States. While such experience is related, it is not direct operational experience within a cable company. Mr. Liebst is InterMedia's Chief Financial Officer and has eleven years of experience developing and financing cable television transactions as investment banker. Three other partners, Terry Cotten, Director of Operations, David Large, Director of Engineering and Richard Maul, Director of Marketing have a combined experience of over fifty years in the cable television industry. It is at this level of the organization that the vaulable hands-on experience seems to reside. The experience of these three individuals appears BERNICK AND LIFSON A I:~ROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 6 sufficient to meet the needs of Piror Lake, experienced local management. coupled with I communicated directly with city cable Administrator, Clayton Hamilton, City of Tucson, Arizona. The Tucson cable system has been owned by the InterMedia partners for approximately eighteen months. Mr. Hamilton and I discussed numerous issues including customer service issues, technological upkeep of the system, and City/Company communications and relations. Mr. Hamilton's experience is that InterMedia's management is highly decentralized. This authority at the local level is very helpful in communication directly with the local management for the purpose of making decisions. Mr. Rozzelle, the individual also ultimately responsible for the management of the Prior Lake system, was characterized as very accessible when necessary. Mr. Hamilton was pleased with his relationship with the company through Mr. Rozzelle. Mr. Hamilton was also impressed with the community involvement of the company saying that they have surpassed expectations as to their relationship in such things as community food drives and the like. It is important to recognize that the Tucson system is over 85,000 subscribers. Obviously, problems will be significantly magnified in such a system which would not even be a problem in the Prior Lake system. The Company in Tucson has taken two major #hits# but both have been in areas where changes needed to be made and will eventually be very positive for the company. The Company has staggered its billing so that all the bills do not come out at the same time of the month. This is a positive change but caused considerable confusion with the community. The Company also changed its billing service which caused seriously increased phone delays in customer service which have since been straightened out. Neither of these problems would be problems in Prior Lake and throughout the changes, InterMedia was credited with good communications with the City. From a technological prospective, the Company has performed above average in Tucson in the maintenance of the system, even surpassing a technological goal of a three year fiber trunk rebuild which was done in one year (even in the face of negative cash flow). Based on our review of the information provided it would appear that the Commission could not reasonably withhold approval of the transfer based upon the technical ability of D. D. BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION city Council, City of Prior Lake Memorandum March 30, 1992 Page 7 VI. FINANCIAL STABILITy The financial stability factor relates to whether D.D has the financial resources available or committed to not only acquire the system, but also whether its financial plan as presented is reasonable and economically viable. The City has chosen not to engage a financial consultant to undertake a review of this factor. Although the financial information supplied has been reviewed for obvious problems, a review by a qualified communications financial consultant was not undertaken. This report will not, therefore, opine as to a final conclusion regarding the financial ability of D. D. or its partners. Suffice it to say that if I.P.-II and General Electric Capital Corporation do not have the financial resources available to them to close the transaction, it will not take place. Additionally, with the City's inability to regulate rates, experience has shown that the viability of the buyer's financial plan is of the most concern to the Company itself. The franchise requires performance standards which are enforceable against the Company. Should D. D.'s financial viability decrease to such an extent as to render system performance below required standards, adequate remedies from fines to franchise termination are available to the City. In conversations with the City of Tucson apparently Tucson was also very concerned regarding the economic viability of the purchase of the system. They have received the 1990 financials (a period in which InterMedia only owned the system for one half of a year). The 1991 financials, the first full year of operation by InterMedia are not due until March 31, 1992. While the City of Tucson has some concern, as should the City of Prior Lake, with the negative cash flow of InterMedia, Tucson also shares the perception that cash losses are the problem of the company until such time as service or system maintenance and upgrade are effected. Tucson had some significant community commitments regarding community programming and access which required a significant pre-payment by InterMedia prior to Tucson's approval of its transfer of ownership. The Prior Lake commitments are not of such a magnitude as to require such a concern, however, the City should diligently administer those requirements that do exist so as to insure continued compliance of the franchise. BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 8 VII. OTHER RELEVANT FACTORS Other appropriate factors which have been reviewed for the purpose of determining whether to approve or deny this transaction are contained in the Request for Information. The most significant factor to be considered is whether the cable franchise will remain intact and whether D. D. will agree to comply with all existing franchise requirements, promises and representations of its predecessors. D. D. has warranted in its response that it will comply with all existing franchise requirements. With respect to the franchise requirements regarding the existing service area and line extensions, D. D. has indicated it will comply with the existing franchise requirements and obliga- tions. The construction practices of D. D. regarding aerial and underground standards will also conform to existing franchise requirements. For example, any property damage and restoration work will be properly corrected. D. D. has not proposed any modifications to the channel capacity or system design and will assume all existing franchise obligations regarding performance testing and system maintenance policies. D. D. has informed the City that it will convert to American Express Cable Services billing system. Such a change caused serious problems in Tucson, Arizona, but should not have such an impact upon the smaller number of subscribers in Prior Lake. The Company has stated that it will construct cable plant underground in newly platted areas at the time electronic and telephone distribution plants are constructed, assuming the trench is available on reasonable notice and at reasonable rates. The Company agrees to comply with all existing obligations regarding interconnection including Metro Channel 6. Star is currently in negotiation with the operator of the Burnsville system regarding a channel feed for Metro Channel 6. Performance testing, system maintenance, customer complaint policies and response are all consistent with the franchise. The Company is obligated to provide and maintain certain equipment for community programming and Eight to Ten thousand Dollars ($8,000.00-$10,000.00) per year for Staff. Discussion during this analysis has indicated that Star may not have BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 9 complied with these requirements. InterMedia is investigating this issue and will report more fully at the public hearing. The Company has agreed to assume all community programming obligations of the franchise. The Company has agreed also not to propose any modifications to community programming commitments for three years. The City has expressed an interest in negotiating the franchise fee from three (3) percent to the five (5) percent allowed by Federal Statute. The recommendations resulting from those discussions will be presented at the public hearing. The City has also raised concerns about the lack of service options presented by the current tiering system. In a letter dated March 25, 1992, Mr. Rozzelle explained the probability of providing a broadcast/basic tier, but could not commit at this time to its implementation. This appears to represent a responsible approach to a system which is not yet owned and budgeted. The Company will assume all existing staff positions with the addition of technical crew and a regional office. The system will, however, retain a local manager and a regional manager. Assuming resolution of the issues regarding community programming equipment, monetary contribution to staff and final discussion as to the franchise issue, it does not appear that there is any other legally justifiable cause for the City to withhold approval of the transfer of control to D. D. in the areas of legal, technical or financial factors, provided however that the issues outlined above are resolved. viii. CONCLUSIONS Assuming a resolution by D. D. the above outlined issues, the City may approve the Transfer of control to D. D. Cable Partners, L.P. TO: FROM: DATE: RE: BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION ATTORNEYS AT LAW SUITE 1200 THE COLONNADE 5500 WAYZATA BOULEVARD MINNEAPOLIS, MINNESOTA 55416 (612} 546-1200 FACSIMILE {612) 546-1003 MEMORANDUM *AT*SO ADMITTEO IN WISCONSIN tAt. SO C£RTIFICD ~=U~ILIC ACCOUNTANT March 30, 1.992 ~ /~'~-e" - / Request for Approval of Transfer of control of Star Midwest Properties Please find below a summary and analysis of the proposed transaction regarding a request from Star Midwest, Inc. (hereinafter #Star#) to the City of Prior Lake to approve the transfer of control of Star from the current shareholders of Star to D. D. Cable Partners, L.P. (hereinafter #D. D.#). The purpose of this report is to provide the City with an understanding of the transaction and the standard for reviewing whether to approve it. INTRODUCTION At the time of awarding the original franchise and in subse- quent transfers of the cable communications franchise, the City considered and approved the technical ability, financial capability, legal qualifications and character of previous owners of the cable system, as well as other appropriate factors. The same qualifications are to be considered and reviewed as part of the transfer of control request as they relate to D. D. Cable Partners, L.P., and indirectly its general partner, InterMedia Partners II (hereinafter #I.P.-II#). The sources of information used in examining these factors include the Request for Information supplied to Star and D. D. and other supplemental information provided by Star and D. D. BER. NICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 2 II. STANDARD OF REVIEW The City's task in this process is to review the information provided regarding the transaction and to approve or deny the transfer of control of Star. The Cable Communications franchise held by the City expressly reserves the right of the City to approve or disapprove such a transfer of control. The standard of review is that the city's consent shall not be unreasonable withheld. For the purpose of determining whether it will consent to the change in control of the owner of the system, the City has made inquiry into the legal, technical, character and financial qualifications of D. D. and I.P.-II, as well as other appropriate factors. In analyzing the transaction, the City must consider whether D. D. and I.P.-II meet all of the criteria originally considered in approving the transfer of the franchise to Star. Note, however, that this analysis is not a comparison between Star and the new owners. Rather, this analysis is an application of factors to determine whether the new owners satisfy the standards to the reasonable satisfaction of the City. The city should focus on the following factors in determining whether to approve or deny the transfer of control to D. D.: Legal and character qualifications of all entities involved in the transfer; 2. Technical ability of D. D. and I.P.-II; 3. Financial stability of D. D. and I.P.-II; and 4. Other appropriate factors. III. DESCRIPTION OF TRANSACTION Star Cablevision Group, a Wisconsin general partnership, owns 625 shares of common stock of Star Midwest, Inc., a Wisconsin corporation. The 625 shares constitute all of the issued and outstanding shares of capital stock of Star Midwest. Star Midwest and its subsidiaries own and operate the Prior Lake Cable System. Star Cablevision Group has entered into a Stock BER. NICK AND LIF$ON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 3 Purchase Agreement with D. D. Cable Partners, L.P. Star Midwest, Inc., is the current holder of the City of Prior Lake's cable television franchise. No request is made for a transfer of the franchise ordinance. This transaction is, instead, a transfer of control of stock ownership in Star Midwest, Inc. After completion of the transaction, D. D. Cable Partners, L.P. will be the owner of all outstanding shares of common stock in Star Midwest, Inc. Since D. D. was formed for the sole purpose of acquiring the Star Midwest properties and I.P.-II will not be closed until just prior to the acquisition date, it is also informative to review InterMedia Partners I, L.P. as a measure of company performance related to I.P.-II. The purchasers have informed the City that I.P.-II has been designed to perform in a manner similar to InterMedia Partners I. The ownership structure of D. D. will involve I.P.-II as the only general partner with a 12% ownership of the partnership. General Electric Capital Corporation will be a limited partner of D. D. with an 88% ownership of partnership. ANALYSIS Each of the factors will be analyzed separately although they are not exclusive. IV. LEGAL QUALIFICATIONS The legal qualifications standard relates primarily to an analysis of whether D. D. is duly organized and authorized to own the cable system. Certain entities, such as certain television broadcasting, and certain telephone companies are prohibited by Federal law from owning, operating or controlling certain cable television systems. Although these restrictions are primarily a concern of D. D. and its partners, we have reviewed the Federal cross-ownership prohibitions and have determined them not to effect this transaction. The City has been provided with an executed copy of an Agreement of Limited Partnership dated as of November 26, 1991, detailing the creation of D. D. Cable Partners, L. P. The Agreement indicates that InterMedia Partners II, L.P., a California Limited Partnership, shall be the initial general BERNICK AND LIF$ON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 4 partner. Midwest Franchises Corp., a Delaware corporation and wholly owned subsidiary of General Electric Corporation, a New York corporation, is the limited partner. The Agreement of limited partnership for D. D., appears to be in order. The City has also requested a copy of the Agreement of Limited Partnership of Intermedia Partners II, L.P., and it has been provided. This Agreement is dated July 1, 1991 and has been executed by the general partner, InterMedia Management II. L.P. The general partner of Intermedia Partners II, L.P., Intermedia Management II, L.P., has disclosed its list of general partners and limited partners~ Leo J. Hindery, Jr., David G. Rozzelle, and Edward G. Liebst, Jr., are the general partners of the parent general partnership. Numerous limited partners are listed for InterMedia Management, II, L.P. Suffice it to say that the partnership structure of this proposed transfer of ownership is complicated and difficult to break down in a report such as this with a goal to clarify the transaction for the City Council's review. The partnership documents do trace their roots to the major owners of the InterMedia operation. Likewise, Mr. David Rozzelle, a general partner of the InterMedia parent operation will be primarily and directly responsible for the operations of the Prior Lake system. While the partnership structure is complex, the individuals who possess the necessary authority to efficiently and effectively render decisions related to the Prior Lake system are in place and in a direct line of communication with the City of Prior Lake. The character qualifications of D. D. and I.P.-II are satisfactory. D. D. has provided information showing that neither it nor its general partners at any level have ever been convicted in a criminal proceeding of any crimes against character. Information was not provided nor required for the limited partners as it does not hold the partnership equivalent of voting stock in D. D. Based upon our review of the information provided, it would appear that the City could not unreasonably withhold approval of the transfer based upon the legal or character qualifications of D. D. or I.P.-II. BER. NICK AND LIF$ON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 5 Ve TECHNICAL ABILITY The technical ability factor relates to the technical expertise and experience of D. D. in operating and maintaining a cable system. This analysis focuses on the current and former experience of the proposed Transferee. Since D. D. and I.P.-II are newly created entities, it is necessary to review the cable management performance of individuals who will be involved in the general management. For such purposes it is legitimate to reference those indi¥iduals'experience in I.P. I. Additionally, reference should be made to Star Midwest since it can be assumed that the existing local management will exist for the time being providing the level of service previously experienced by Prior Lake subscribers. InterMedia Partners was formed in 1988 by Messrs. Hindery, Rozzelle and Liebst. InterMedia now ranks as the nation's 34th largest operator of cable systems. Prior to the founding of InterMedia, Mr. Hindery was Chief Officer for planning and finance of The Chronicle Publishing Company of San Francisco. This company serves more than 290,000 cable television customers and operates various other media interests. In his capacity, Mr. Hindery was responsible for all acquisitions, finance and development of activities. His primary experience appears to be in the area of financial officer. Mr. Rozzelle is a general partner of InterMedia and is the Chief Executive Officer of cable operations. Mr. Rozzelle is responsible for budgeting, franchise relations, system operations, personnel and acquisitions. His experience is as a communications attorney representing cable companies throughout the United States. While such experience is related, it is not direct operational experience within a cable company. Mr. Liebst is InterMedia's Chief Financial Officer and has eleven years of experience developing and financing cable television transactions as investment banker. Three other partners, Terry Cotten, Director of Operations, David Large, Director of Engineering and Richard Maul, Director of Marketing have a combined experience of over fifty years in the cable television industry. It is at this level of the organization that the vaulable hands-on experience seems to reside. The experience of these three individuals appears BERNICK AND LIFSON City Council, City of Prior Lake Memorandum March 30, 1992 Page 6 sufficient to meet the needs of Piror Lake, coupled with experienced local management. I communicated directly with city cable Administrator, Clayton Hamilton, City of Tucson, Arizona. The Tucson cable system has been owned by the InterMedia partners for approximately eighteen months. Mr. Hamilton and I discussed numerous issues including customer service issues, technological upkeep of the system, and City/Company communications and relations. Mr. Hamilton's experience is that InterMedia's management is highly decentralized. This authority at the local level is very helpful in communication directly with the local management for the purpose of making decisions. Mr. Rozzelle, the individual also ultimately responsible for the management of the Prior Lake system, was characterized as very accessible when necessary. Mr. Hamilton was pleased with his relationship with the company through Mr. Rozzelle. Mr. Hamilton was also impressed with the community involvement of the company saying that they have surpassed expectations as to their relationship in such things as community food drives and the like. It is important to recognize that the Tucson system is over 85,000 subscribers. Obviously, problems will be significantly magnified in such a system which would not even be a problem in the Prior Lake system. The Company in Tucson has taken two major #hits# but both have been in areas where changes needed to be made and will eventually be very positive for the company. The Company has staggered its billing so that all the bills do not come out at the same time of the month. This is a positive change but caused considerable confusion with the community. The Company also changed its billing service which caused seriously increased phone delays in customer service which have since been straightened out. Neither of these problems would be problems in Prior Lake and throughout the changes, InterMedia was credited with good communications with the City. From a technological prospective, the Company has performed above average in Tucson in the maintenance of the system, even surpassing a technological goal of a three year fiber trunk rebuild which was done in one year (even in the face of negative cash flow). Based on our review of the information provided it would appear that the Commission could not reasonably withhold approval of the transfer based upon the technical ability of D. D. BER. NICK AND LIF$ON city Council, City of Prior Lake Memorandum March 30, 1992 Page 7 VI. FINANCIAL STABILITY The financial stability factor relates to whether D.D has the financial resources available or committed to not only acquire the system, but also whether its financial plan as presented is reasonable and economically viable. The City has chosen not to engage a financial consultant to undertake a review of this factor. Although the financial information supplied has been reviewed for obvious problems, a review by a qualified communications financial consultant was not undertaken. This report will not, therefore, opine as to a final conclusion regarding the financial ability of D. D. or its partners. Suffice it to say that if I.P.-II and General Electric Capital Corporation do not have the financial resources available to them to close the transaction, it will not take place. Additionally, with the City's inability to regulate rates, experience has shown that the viability of the buyer's financial plan is of the most concern to the Company itself. The franchise requires performance standards which are enforceable against the Company. Should D. D.'s financial viability decrease to such an extent as to render system performance below required standards, adequate remedies from fines to franchise termination are available to the city. In conversations with the City of Tucson apparently Tucson was also very concerned regarding the economic viability of the purchase of the system. They have received the 1990 financials (a period in which InterMedia only owned the system for one half of a year). The 1991 financials, the first full year of operation by InterMedia are not due until March 31, 1992. While the City of Tucson has some concern, as should the City of Prior Lake, with the negative cash flow of InterMedia, Tucson also shares the perception that cash losses are the problem of the company until such time as service or system maintenance and upgrade are effected. Tucson had some significant community commitments regarding community programming and access which required a significant pre-payment by InterMedia prior to Tucson's approval of its transfer of ownership. The Prior Lake commitments are not of such a magnitude as to require such a concern, however, the City should diligently administer those requirements that do exist so as to insure continued compliance of the franchise. BER. NICK AND LIF$ON A I~I~OFE:SSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 8 VII. OTHER RELEVANT FACTORS Other appropriate factors which have been reviewed for the purpose of determining whether to approve or deny this transaction are contained in the Request for Information. The most significant factor to be considered is whether the cable franchise will remain intact and whether D. D. will agree to comply with all existing franchise requirements, promises and representations of its predecessors. D. D. has warranted in its response that it will comply with all existing franchise requirements. With respect to the franchise requirements regarding the existing service area and line extensions, D. D. has indicated it will comply with the existing franchise requirements and obliga- tions. The construction practices of D. D. regarding aerial and underground standards will also conform to existing franchise requirements. For example, any property damage and restoration work will be properly corrected. D. D. has not proposed any modifications to the channel capacity or system design and will assume all existing franchise obligations regarding performance testing and system maintenance policies. D. D. has informed the City that it will convert to American Express Cable Services billing system. Such a change caused serious problems in Tucson, Arizona, but should not have such an impact upon the smaller number of subscribers in Prior Lake. The Company has stated that it will construct cable plant underground in newly platted areas at the time electronic and telephone distribution plants are constructed, assuming the trench is available on reasonable notice and at reasonable rates. The Company agrees to comply with all existing obligations regarding interconnection including Metro Channel 6. Star is currently in negotiation with the operator of the Burnsville system regarding a channel feed for Metro Channel 6. Performance testing, system maintenance, customer complaint policies and response are all consistent with the franchise. The Company is obligated to provide and maintain certain equipment for community programming and Eight to Ten thousand Dollars ($8,000.00-$10,000.00) per year for Staff. Discussion during this analysis has indicated that Star may not have BER. NICK AND LIFSON A PROFESSIONAL ASSO(::IATION city Council, City of Prior Lake Memorandum March 30, 1992 Page 9 complied with these requirements. InterMedia is investigating this issue and will report more fully at the public hearing. The Company has agreed to assume all community programming obligations of the franchise. The Company has agreed also not to propose any modifications to community programming commitments for three years. The City has expressed an interest in negotiating the franchise fee from three (3) percent to the five (5) percent allowed by Federal Statute. The recommendations resulting from those discussions will be presented at the public hearing. The City has also raised concerns about the lack of service options presented by the current tiering system. In a letter dated March 25, 1992, Mr. Rozzelle explained the probability of providing a broadcast/basic tier, but could not commit at this time to its implementation. This appears to represent a responsible approach to a system which is not yet owned and budgeted. The Company will assume all existing staff positions with the addition of technical crew and a regional office. The system will, however, retain a local manager and a regional manager. Assuming resolution of the issues regarding community programming equipment, monetary contribution to staff and final discussion as to the franchise issue, it does not appear that there is any other legally justifiable cause for the City to withhold approval of the transfer of control to D. D. in the areas of legal, technical or financial factors, provided however that the issues outlined above are resolved. VIII. CONCLUSIONS Assuming a resolution by D. D. the above outlined issues, the City may approve the Transfer of control to D. D. Cable Partners, L.P. N£AL J. SHAPIRO SAUL A, B£RNICKt THO~4A$ D, CREIGHTON TO: FROM: DATE: RE: BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION ATTORNEYS AT LAW SUITE 12OO THE COLONNADE 5500 WAYZATA BOULEVARD MINNEAPOLIS, MINNESOTA 55416 {~12) =~ ~%~;-- I :~ O O FACSIMILE (61~'~ 5~6-1OO3 MEMORANDUM eAt. SO ADNIITT~'O IN WISCONSIN fALBO C~'RTIFI£O PUBT.IC ACCOUNTANT March 30, ~992 ~ //~" - / Request for Approval of Transfer of control of Star Midwest Properties Please find below a summary and analysis of the proposed transaction regarding a request from Star Midwest, Inc. (hereinafter #Star#) to the City of Prior Lake to approve the transfer of control of Star from the current shareholders of Star to D. D. Cable Partners, L.P. (hereinafter #D. D.#). The purpose of this report is to provide the City with an understanding of the transaction and the standard for reviewing whether to approve it. INTRODUCTION At the time of awarding the original franchise and in subse- quent transfers of the cable communications franchise, the City considered and approved the technical ability, financial capability, legal qualifications and character of previous owners of the cable system, as well as other appropriate factors. The same qualifications are to be considered and reviewed as part of the transfer of control request as they relate to D. D. Cable Partners, L.P., and indirectly its general partner, InterMedia Partners II (hereinafter #I.P.-II"). The sources of information used in examining these factors include the Request for Information supplied to Star and D. D. and other supplemental information provided by Star and D. D. BER.NICK AND LIF$ON A PROFESSIONAL ASSOCIATION city Council, City of Prior Lake Memorandum March 30, 1992 Page 2 II. STANDARD OF REVIEW The City's task in this process is to review the information provided regarding the transaction and to approve or deny the transfer of control of Star. The Cable Communications franchise held by the City expressly reserves the right of the city to approve or disapprove such a transfer of control. The standard of review is that the City's consent shall not be unreasonable withheld. For the purpose of determining whether it will consent to the change in control of the owner of the system, the City has made inquiry into the legal, technical, character and financial qualifications of D. D. and I.P.-II, as well as other appropriate factors. In analyzing the transaction, the City must consider whether D. D. and I.P.-II meet all of the criteria originally considered in approving the transfer of the franchise to Star. Note, however, that this analysis is not a comparison between Star and the new owners. Rather, this analysis is an application of factors to determine whether the new owners satisfy the standards to the reasonable satisfaction of the City. The City should focus on the following factors in determining whether to approve or deny the transfer of control to D. D.: Legal and character qualifications of all entities involved in the transfer; 2. Technical ability of D. D. and I.P.-II; 3. Financial stability of D. D. and I.P.-II; and 4. Other appropriate factors. III. DESCRIPTION OF TRANSACTION Star Cablevision Group, a Wisconsin general partnership, owns 625 shares of common stock of Star Midwest, Inc., a Wisconsin corporation. The 625 shares constitute all of the issued and outstanding shares of capital stock of Star Midwest. Star Midwest and its subsidiaries own and operate the Prior Lake Cable System. Star Cablevision Group has entered into a Stock BER. NICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 3 Purchase Agreement with D. D. Cable Partners, L.P. Star Midwest, Inc., is the current holder of the City of Prior Lake's cable television franchise. No request is made for a transfer of the franchise ordinance. This transaction is, instead, a transfer of control of stock ownership in Star Midwest, Inc. After completion of the transaction, D. D. Cable Partners, L.P. will be the owner of all outstanding shares of common stock in Star Midwest, Inc. Since D. D. was formed for the sole purpose of acquiring the Star Midwest properties and I.P.-II will not be closed until just prior to the acquisition date, it is also informative to review InterMedia Partners I, L.P. as a measure of company performance related to I.P.-II. The purChasers have informed the City that I.P.-II has been designed to perform in a manner similar to InterMedia Partners I. The ownership structure of D. D. will involve I.P.-II as the only general partner with a 12% ownership of the partnership. General Electric Capital Corporation will be a limited partner of D. D. with an 88% ownership of partnership. ANALYSIS Each of the factors will be analyzed separately although they are not exclusive. IV. LEGAL OUALIFICATIONS The legal qualifications standard relates primarily to an analysis of whether D. D. is duly organized and authorized to own the cable system. Certain entities, such as certain television broadcasting, and certain telephone companies are prohibited by Federal law from owning, operating or controlling certain cable television systems. Although these restrictions are primarily a concern of D. D. and its partners, we have reviewed the Federal cross-ownership prohibitions and have determined them not to effect this transaction. The City has been provided with an executed copy of an Agreement of Limited Partnership dated as of November 26, 1991, detailing the creation of D. D. Cable Partners, L. P. The Agreement indicates that InterMedia Partners II, L.P., a California Limited Partnership, shall be the initial general BER. NICK AND LIF$ON A PROFESSIONAL AS,~OC:IATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 4 partner. Midwest Franchises Corp., a Delaware corporation and wholly owned subsidiary of General Electric Corporation, a New York corporation, is the limited partner. The Agreement of limited partnership for D. D., appears to be in order. The City has also requested a copy of the Agreement of Limited Partnership of Intermedia Partners II, L.P., and it has been provided. This Agreement is dated July 1, 1991 and has been executed by the general partner, InterMedia Management II. L.P. The general partner of Intermedia Partners II, L.P., Intermedia Management II, L.P., has disclosed its list of general partners and limited partners.. Leo J. Hindery, Jr., David G. Rozzelle, and Edward G. Liebst, Jr., are the general partners of the parent general partnership. Numerous limited partners are listed for InterMedia Management, II, L.P. Suffice it to say that the partnership structure of this proposed transfer of ownership is complicated and difficult to break down in a report such as this with a goal to clarify the transaction for the City Council's review. The partnership documents do trace their roots to the major owners of the InterMedia operation. Likewise, Mr. David Rozzelle, a general partner of the InterMedia parent operation will be primarily and directly responsible for the operations of the Prior Lake system. While the partnership structure is complex, the individuals who possess the necessary authority to efficiently and effectively render decisions related to the Prior Lake system are in place and in a direct line of communication with the City of Prior Lake. The character qualifications of D. D. and I.P.-II are satisfactory. D. D. has provided information showing that neither it nor its general partners at any level have ever been convicted in a criminal proceeding of any crimes against character. Information was not provided nor required for the limited partners as it does not hold the partnership equivalent of voting stock in D. D. Based upon our review of the information provided, it would appear that the City could not unreasonably withhold approval of the transfer based upon the legal or character qualifications of D. D. or I.P.-II. BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 5 Ve TECHNICAL ABILITY The technical ability factor relates to the technical expertise and experience of D. D. in operating and maintaining a cable system. This analysis focuses on the current and former experience of the proposed Transferee. Since D. D. and I.P.-II are newly created entities, it is necessary to review the cable management performance of individuals who will be involved in the general management. For such purposes it is legitimate to reference those individuals'experience in I.P. I. Additionally, reference should be made to Star Midwest since it can be assumed that the existing local management will exist for the time being providing the level of service previously experienced by Prior Lake subscribers. InterMedia Partners was formed in 1988 by Messrs. Hindery, Rozzelle and Liebst. InterMedia now ranks as the nation's 34th largest operator of cable systems. Prior to the founding of InterMedia, Mr. Hindery was Chief Officer for planning and finance of The Chronicle Publishing Company of San Francisco. This company serves more than 290,000 cable television customers and operates various other media interests. In his capacity, Mr. Hindery was responsible for all acquisitions, finance and development of activities. His primary experience appears to be in the area of financial officer. Mr. Rozzelle is a general partner of InterMedia and is the Chief Executive Officer of cable operations. Mr. Rozzelle is responsible for budgeting, franchise relations, system operations, personnel and acquisitions. His experience is as a communications attorney representing cable companies throughout the United States. While such experience is related, it is not direct operational experience within a cable company. Mr. Liebst is InterMedia's Chief Financial Officer and has eleven years of experience developing and financing cable television transactions as investment banker. Three other partners, Terry Cotten, Director of Operations, David Large, Director of Engineering and Richard Maul, Director of Marketing have a combined experience of over fifty years in the cable television industry. It is at this level of the organization that the vaulable hands-on experience seems to reside. The experience of these three individuals appears BERNICK AND LIF$ON A PROFESSIONAL. ASSOCIATION city Council, city of Prior Lake Memorandum March 30, 1992 Page 6 sufficient to meet the needs experienced local management. of Piror Lake, coupled with I communicated directly with city cable Administrator, Clayton Hamilton, City of Tucson, Arizona. The Tucson cable system has been owned by the InterMedia partners for approximately eighteen months. Mr. Hamilton and I discussed numerous issues including customer service issues, technological upkeep of the system, and City/Company communications and relations. Mr. Hamilton's experience is that InterMedia's management is highly decentralized. This authority at the local level is very helpful in communication directly with the local management for the purpose of making decisions. Mr. Rozzelle, the individual also ultimately responsible for the management of the Prior Lake system, was characterized as very accessible when necessary. Mr. Hamilton was pleased with his relationship with the company through Mr. Rozzelle. Mr. Hamilton was also impressed with the community involvement of the company saying that they have surpassed expectations as to their relationship in such things as community food drives and the like. It is important to recognize that the Tucson system is over 85,000 subscribers. Obviously, problems will be significantly magnified in such a system which would not even be a problem in the Prior Lake system. The Company in Tucson has taken two major ~hits# but both have been in areas where changes needed to be made and will eventually be very positive for the company. The Company has staggered its billing so that all the bills do not come out at the same time of the month. This is a positive change but caused considerable confusion with the community. The Company also changed its billing service which caused seriously increased phone delays in customer service which have since been straightened out. Neither of these problems would be problems in Prior Lake and throughout the changes, InterMedia was credited with good communications with the City. From a technological prospective, the Company has performed above average in Tucson in the maintenance of the system, even surpassing a technological goal of a three year fiber trunk rebuild which was done in one year (even in the face of negative cash flow). Based on our review of the information provided it would appear that the Commission could not reasonably withhold approval of the transfer based upon the technical ability of D. D. BER. NICK AND LIF$ON A PROFESSIONAL ASSOCIATION city Council, City of Prior Lake Memorandum March 30, 1992 Page 7 VI. FINANCIAL STABILITY The financial stability factor relates to whether D.D has the financial resources available or committed to not only acquire the system, but also whether its financial plan as presented is reasonable and economically viable. The City has chosen not to engage a financial consultant to undertake a review of this factor. Although the financial information supplied has been reviewed for obvious problems, a review by a qualified communications financial consultant was not undertaken. This report will not, therefore, opine as to a final conclusion regarding the financial ability of D. D. or its partners. Suffice it to say that if I.P.-II and General Electric Capital Corporation do not have the financial resources available to them to close the transaction, it will not take place. Additionally, with the City's inability to regulate rates, experience has shown that the viability of the buyer's financial plan is of the most concern to the Company itself. The franchise requires performance standards which are enforceable against the Company. Should D. D.'s financial viability decrease to such an extent as to render system performance below required standards, adequate remedies from fines to franchise termination are available to the City. In conversations with the City of Tucson apparently Tucson was also very concerned regarding the economic viability of the purchase of the system. They have received the 1990 financials (a period in which InterMedia only owned the system for one half of a year). The 1991 financials, the first full year of operation by InterMedia are not due until March 31, 1992. While the City of Tucson has some concern, as should the City of Prior Lake, with the negative cash flow of InterMedia, Tucson also shares the perception that cash losses are the problem of the company until such time as service or system maintenance and upgrade are effected. Tucson had some significant community commitments regarding community programming and access which required a significant pre-payment by InterMedia prior to Tucson's approval of its transfer of ownership. The Prior Lake commitments are not of such a magnitude as to require such a concern, however, the City should diligently administer those requirements that do exist so as to insure continued compliance of the franchise. BERNICK AND LIF$ON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 8 VII. OTHER RELEVANT FACTORS Other appropriate factors which have been reviewed for the purpose of determining whether to approve or deny this transaction are contained in the Request for Information. The most significant factor to be considered is whether the cable franchise will remain intact and whether D. D. will agree to comply with all existing franchise requirements, promises and representations of its predecessors. D. D. has warranted in its response that it will comply with all existing franchise requirements. With respect to the franchise requirements regarding the existing service area and line extensions, D. D. has indicated it will comply with the existing franchise requirements and obliga- tions. The construction practices of D. D. regarding aerial and underground standards will also conform to existing franchise requirements. For example, any property damage and restoration work will be properly corrected. D. D. has not proposed any modifications to the channel capacity or system design and will assume all existing franchise obligations regarding performance testing and system maintenance policies. D. D. has informed the City that it will convert to American Express Cable Services billing system. Such a change caused serious problems in Tucson, Arizona, but should not have such an impact upon the smaller number of subscribers in Prior Lake. The Company has stated that it will construct cable plant underground in newly platted areas at the time electronic and telephone distribution plants are constructed, assuming the trench is available on reasonable notice and at reasonable rates. The Company agrees to comply with all existing obligations regarding interconnection including Metro Channel 6. Star is currently in negotiation with the operator of the Burnsville system regarding a channel feed for Metro Channel 6. Performance testing, system maintenance, customer complaint policies and response are all consistent with the franchise. The Company is obligated to provide and maintain certain equipment for community programming and Eight to Ten thousand Dollars ($8,000.00-$10,000.00) per year for Staff. Discussion during this analysis has indicated that Star may not have BERNICK AND LIF$ON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 9 complied with these requirements. InterMedia is investigating this issue and will report more fully at the public hearing. The Company has agreed to assume all community programming obligations of the franchise. The Company has agreed also not to propose any modifications to community programming commitments for three years. The City has expressed an interest in negotiating the franchise fee from three (3) percent to the five (5) percent allowed by Federal Statute. The recommendations resulting from those discussions will be presented at the public hearing. The City has also raised concerns about the lack of service options presented by the current tiering system. In a letter dated March 25, 1992, Mr. Rozzelle explained the probability of providing a broadcast/basic tier, but could not commit at this time to its implementation. This appears to represent a responsible approach to a system which is not yet owned and budgeted. The Company will assume all existing staff positions with the addition of technical crew and a regional office. The system will, however, retain a local manager and a regional manager. Assuming resolution of the issues regarding community programming equipment, monetary contribution to staff and final discussion as to the franchise issue, it does not appear that there is any other legally justifiable cause for the City to withhold approval of the transfer of control to D. D. in the areas of legal, technical or financial factors, provided however that the issues outlined above are resolved. VIII. CONCLUSIONS Assuming a resolution by D. D. the above outlined issues, the City may approve the Transfer of control to D. D. Cable Partners, L.P. TO: FROM: DATE: RE: BERNICK AND LIFSON A pROFESSIONAl ASSOCIATION ATTORNEYS AT LAW SUITE 1200 THE COLONNADE 5500 WAYZATA BOULEVARD MINNEAPOLIS, MINNESOTA 55416 {61:~} Sa~6-1::)O0 FACSIMILE (612) 546-1003 MEMORANDUM ADMITTED IN WISCONSIN CERTI~'ll[o PUBLIC ACCOUNTANT March 30, 1992 ~ /r~" / Request for Approval of Transfer of control of Star Midwest Properties Please find below a summary and analysis of the proposed transaction regarding a request from Star Midwest, Inc. (hereinafter "Star#) to the City of Prior Lake to approve the transfer of control of Star from the current shareholders of Star to D. D. Cable Partners, L.P. (hereinafter #D. D.#). The purpose of this report is to provide the City with an understanding of the transaction and the standard for reviewing whether to approve it. INTRODUCTION At the time of awarding the original franchise and in subse- quent transfers of the cable communications franchise, the city considered and approved the technical ability, financial capability, legal qualifications and character of previous owners of the cable system, as well as other appropriate factors. The same qualifications are to be considered and reviewed as part of the transfer of control request as they relate to D. D. Cable Partners, L.P., and indirectly its general partner, InterMedia Partners II (hereinafter #I.P.-II"). The sources of information used in examining these factors include the Request for Information supplied to Star and D. D. and other supplemental information provided by Star and D. D. BERNICK AND LIFSON A I~ROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 2 II. STANDARD OF REVIEW The City's task in this process is to review the information provided regarding the transaction and to approve or deny the transfer of control of Star. The Cable Communications franchise held by the City expressly reserves the right of the City to approve or disapprove such a transfer of control. The standard of review is that the City's consent shall not be unreasonable withheld. For the purpose of determining whether it will consent to the change in control of the owner of the system, the City has made inquiry into the legal, technical, character and financial qualifications of D. D. and I.P.-II, as well as other appropriate factors. In analyzing the transaction, the City must consider whether D. D. and I.P.-II meet all of the criteria originally considered in approving the transfer of the franchise to Star. Note, however, that this analysis is not a comparison between Star and the new owners. Rather, this analysis is an application of factors to determine whether the new owners satisfy the standards to the reasonable satisfaction of the City. The City should focus on the following factors in determining whether to approve or deny the transfer of control to D. D.: Legal and character qualifications of all entities involved in the transfer; 2. Technical ability of D. D. and I.P.-II; 3. Financial stability of D. D. and I.P.-II; and 4. Other appropriate factors. III. DESCRIPTION OF TRANSACTION Star Cablevision Group, a Wisconsin general partnership, owns 625 shares of common stock of Star Midwest, Inc., a Wisconsin corporation. The 625 shares constitute all of the issued and outstanding shares of capital stock of Star Midwest. Star Midwest and its subsidiaries own and operate the Prior Lake Cable System. Star Cablevision Group has entered into a Stock BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 3 Purchase Agreement with D. D. Cable Partners, L.P. Star Midwest, Inc., is the current holder of the City of Prior Lake's cable television franchise. No request is made for a transfer of the franchise ordinance. This transaction is, instead, a transfer of control of stock ownership in Star Midwest, Inc. After completion of the transaction, D. D. Cable Partners, L.P. will be the owner of all outstanding shares of common stock in Star Midwest, Inc. Since D. D. was formed for the sole purpose of acquiring the Star Midwest properties and I.P.-II will not be closed until just prior to the acquisition date, it is also informative to review InterMedia Partners I, L.P. as a measure of company performance related to I.P.-II. The purchasers have informed the City that I.P.-II has been designed to perform in a manner similar to InterMedia Partners I. The ownership structure of D. D. will involve I.P.-II as the only general partner with a 12% ownership of the partnership. General Electric Capital Corporation will be a limited partner of D. D. with an 88% ownership of partnership. ANALYSIS Each of the factors will be analyzed separately although they are not exclusive. IV. LEGAL OUALIFICATIONS The legal qualifications standard relates primarily to an analysis of whether D. D. is duly organized and authorized to own the cable system. Certain entities, such as certain television broadcasting, and certain telephone companies are prohibited by Federal law from owning, operating or controlling certain cable television systems. Although these restrictions are primarily a concern of D. D. and its partners, we have reviewed the Federal cross-ownership prohibitions and have determined them not to effect this transaction. The City has been provided with an executed copy of an Agreement of Limited Partnership dated as of November 26, 1991, detailing the creation of D. D. Cable Partners, L. P. The Agreement indicates that InterMedia Partners II, L.P., a California Limited Partnership, shall be the initial general BERNICK AND LIFSON A PI:~OFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 4 partner. Midwest Franchises Corp., a Delaware corporation and wholly owned subsidiary of General Electric Corporation, a New York corporation, is the limited partner. The Agreement of limited partnership for D. D., appears to be in order. The City has also requested a copy of the Agreement of Limited Partnership of Intermedia Partners II, L.P., and it has been provided. This Agreement is dated July 1, 1991 and has been executed by the general partner, InterMedia Management II. L.P. The general partner of Intermedia Partners II, L.P., Intermedia Management II, L.P., has disclosed its list of general partners and limited partners. Leo J. Hindery, Jr., David G. Rozzelle, and Edward G. Liebst, Jr., are the general partners of the parent general partnership. Numerous limited partners are listed for InterMedia Management, II, L.P. Suffice it to say that the partnership structure of this proposed transfer of ownership is complicated and difficult to break down in a report such as this with a goal to clarify the transaction for the City Council's review. The partnership documents do trace their roots to the major owners of the InterMedia operation. Likewise, Mr. David Rozzelle, a general partner of the InterMedia parent operation will be primarily and directly responsible for the operations of the Prior Lake system. While the partnership structure is complex, the individuals who possess the necessary authority to efficiently and effectively render decisions related to the Prior Lake system are in place and in a direct line of communication with the City of Prior Lake. The character qualifications of D. D. and I.P.-II are satisfactory. D. D. has provided information showing that neither it nor its general partners at any level have ever been convicted in a criminal proceeding of any crimes against character. Information was not provided nor required for the limited partners as it does not hold the partnership equivalent of voting stock in D. D. Based upon our review of the information provided, it would appear that the City could not unreasonably withhold approval of the transfer based upon the legal or character qualifications of D. D. or I.P.-II. BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 5 TECHNICAL ABILITY The technical ability factor relates to the technical expertise and experience of D. D. in operating and maintaining a cable system. This analysis focuses on the current and former experience of the proposed Transferee. Since D. D. and I.P.-II are newly created entities, it is necessary to review the cable management performance of individuals who will be involved in the general management. For such purposes it is legitimate to reference those individuals'experience in I.P. I. Additionally, reference should be made to Star Midwest since it can be assumed that the existing local management will exist for the time being providing the level of service previously experienced by Prior Lake subscribers. InterMedia Partners was formed in 1988 by Messrs. Hindery, Rozzelle and Liebst. InterMedia now ranks as the nation's 34th largest operator of cable systems. Prior to the founding of InterMedia, Mr. Hindery was Chief Officer for planning and finance of The Chronicle Publishing Company of San Francisco. This company serves more than 290,000 cable television customers and operates various other media interests. In his capacity, Mr. Hindery was responsible for all acquisitions, finance and development of activities. His primary experience appears to be in the area of financial officer. Mr. Rozzelle is a general partner of InterMedia and is the Chief Executive Officer of cable operations. Mr. Rozzelle is responsible for budgeting, franchise relations, system operations, personnel and acquisitions. His experience is as a communications attorney representing cable companies throughout the United States. While such experience is related, it is not direct operational experience within a cable company. Mr. Liebst is InterMedia's Chief Financial Officer and has eleven years of experience developing and financing cable television transactions as investment banker. Three other partners, Terry Cotten, Director of Operations, David Large, Director of Engineering and Richard Maul, Director of Marketing have a combined experience of over fifty years in the cable television industry. It is at this level of the organization that the vaulable hands-on experience seems to reside. The experience of these three individuals appears BERNICK AND LIFSON A I~I~OFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 6 sufficient to meet the needs experienced local management. of Piror Lake, coupled with I communicated directly with city cable Administrator, Clayton Hamilton, City of Tucson, Arizona. The Tucson cable system has been owned by the InterMedia partners for approximately eighteen months. Mr. Hamilton and I discussed numerous issues including customer service issues, technological upkeep of the system, and city/Company communications and relations. Mr. Hamilton's experience is that InterMedia's management is highly decentralized. This authority at the local level is very helpful in communication directly with the local management for the purpose of making decisions. Mr. Rozzelle, the individual also ultimately responsible for the management of the Prior Lake system, was characterized as very accessible when necessary. Mr. Hamilton was pleased with his relationship with the company through Mr. Rozzelle. Mr. Hamilton was also impressed with the community involvement of the company saying that they have surpassed expectations as to their relationship in such things as community food drives and the like. It is important to recognize that the Tucson system is over 85,000 subscribers. Obviously, problems will be significantly magnified in such a system which would not even be a problem in the Prior Lake system. The Company in Tucson has taken two major #hits# but both have been in areas where changes needed to be made and will eventually be very positive for the company. The Company has staggered its billing so that all the bills do not come out at the same time of the month. This is a positive change but caused considerable confusion with the community. The Company also changed its billing service which caused seriously increased phone delays in customer service which have since been straightened out. Neither of these problems would be problems in Prior Lake and throughout the changes, InterMedia was credited with good communications with the City. From a technological prospective, the Company has performed above average in Tucson in the maintenance of the system, even surpassing a technological goal of a three year fiber trunk rebuild which was done in one year (even in the face of negative cash flow). Based on our review of the information provided it would appear that the Commission could not reasonably withhold approval of the transfer based upon the technical ability of D. D. BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 7 VI. ~INANCIAL STABILITY The financial stability factor relates to whether D.D has the financial resources available or committed to not only acquire the system, but also whether its financial plan as presented is reasonable and economically viable. The City has chosen not to engage a financial consultant to undertake a review of this factor. Although the financial information supplied has been reviewed for obvious problems, a review by a qualified communications financial consultant was not undertaken. This report will not, therefore, opine as to a final conclusion regarding the financial ability of D. D. or its partners. Suffice it to say that if I.P.-II and General Electric Capital Corporation do not have the financial resources available to them to close the transaction, it will not take place. Additionally, with the City's inability to regulate rates, experience has shown that the viability of the buyer's financial plan is of the most concern to the Company itself. The franchise requires performance standards which are enforceable against the Company. Should D. D.'s financial viability decrease to such an extent as to render system performance below required standards, adequate remedies from fines to franchise termination are available to the City. In conversations with the City of Tucson apparently Tucson was also very concerned regarding the economic viability of the purchase of the system. They have received the 1990 financials (a period in which InterMedia only owned the system for one half of a year). The 1991 financials, the first full year of operation by InterMedia are not due until March 31, 1992. While the City of Tucson has some concern, as should the City of Prior Lake, with the negative cash flow of InterMedia, Tucson also shares the perception that cash losses are the problem of the company until such time as service or system maintenance and upgrade are effected. Tucson had some significant community commitments regarding community programming and access which required a significant pre-payment by InterMedia prior to Tucson's approval of its transfer of ownership. The Prior Lake commitments are not of such a magnitude as to require such a concern, however, the City should diligently administer those requirements that do exist so as to insure continued compliance of the franchise. BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 8 VII. OTHER RELEVANT FACTORS Other appropriate factors which have been reviewed for the purpose of determining whether to approve or deny this transaction are contained in the Request for Information. The most significant factor to be considered is whether the cable franchise will remain intact and whether D. D. will agree to comply with all existing franchise requirements, promises and representations of its predecessors. D. D. has warranted in its response that it will comply with all existing franchise requirements. With respect to the franchise requirements regarding the existing service area and line extensions, D. D. has indicated it will comply with the existing franchise requirements and obliga- tions. The construction practices of D. D. regarding aerial and underground standards will also conform to existing franchise requirements. For example, any property damage and restoration work will be properly corrected. D. D. has not proposed any modifications to the channel capacity or system design and will assume all existing franchise obligations regarding performance testing and system maintenance policies. D. D. has informed the City that it will convert to American Express Cable Services billing system. Such a change caused serious problems in Tucson, Arizona, but should not have such an impact upon the smaller number of subscribers in Prior Lake. The Company has stated that it will construct cable plant underground in newly platted areas at the time electronic and telephone distribution plants are constructed, assuming the trench is available on reasonable notice and at reasonable rates. The Company agrees to comply with all existing obligations regarding interconnection including Metro Channel 6. Star is currently in negotiation with the operator of the Burnsville system regarding a channel feed for Metro Channel 6. Performance testing, system maintenance, customer complaint policies and response are all consistent with the franchise. The Company is obligated to provide and maintain certain equipment for community programming and Eight to Ten thousand Dollars ($8,000.00-$10,000.00) per year for Staff. Discussion during this analysis has indicated that Star may not have BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 9 complied with these requirements. InterMedia is investigating this issue and will report more fully at the public hearing. The Company has agreed to assume all community programming obligations of the franchise. The Company has agreed also not to propose any modifications to community programming commitments for three years. The city has expressed an interest in negotiating the franchise fee from three (3) percent to the five (5) percent allowed by Federal Statute. The recommendations resulting from those discussions will be presented at the public hearing. The city has also raised concerns about the lack of service options presented by the current tiering system. In a letter dated March 25, 1992, Mr. Rozzelle explained the probability of providing a broadcast/basic tier, but could not commit at this time to its implementation. This appears to represent a responsible approach to a system which is not yet owned and budgeted. The Company will assume all existing staff positions with the addition of technical crew and a regional office. The system will, however, retain a local manager and a regional manager. Assuming resolution of the issues regarding community programming equipment, monetary contribution to staff and final discussion as to the franchise issue, it does not appear that there is any other legally justifiable cause for the City to withhold approval of the transfer of control to D. D. in the areas of legal, technical or financial factors, provided however that the issues outlined above are resolved. VIII. CONCLUSIONS Assuming a resolution by D. D. the above outlined issues, the City may approve the Transfer of control to D. D. Cable Partners, L.P. TO: FROM: DATE: RE: BERNICK AND LIFSON A PROFESSIONAL ASSOCIATION ATTORNEYS AT LAW SUITE 1200 THE COLONNADE 55OO WAYZATA BOULEVARD MINNEAPOLIS, MINNESOTA 55416 (~12) S46-1200 FACSIMILE {612) 546-1003 MEMORANDUM *ALSO ADMITTED IN WISCONSIN tAL$O CERTIFIED PUBLIC ACCOUNTANT city Council, City of Prio~~ ~ Thomas D. Creight~~~ March 30, !992 ~ /~" / Request for Approval of Transfer of control of Star Midwest Properties Please find below a summary and analysis of the proposed transaction regarding a request from Star Midwest, Inc. (hereinafter #Star#) to the City of Prior Lake to approve the transfer of control of Star from the current shareholders of Star to D. D. Cable Partners, L.P. (hereinafter #D. D.#). The purpose of this report is to provide the city with an understanding of the transaction and the standard for reviewing whether to approve it. INTRODUCTION At the time of awarding the original franchise and in subse- quent transfers of the cable communications franchise, the City considered and approved the technical ability, financial capability, legal qualifications and character of previous owners of the cable system, as well as other appropriate factors. The same qualifications are to be considered and reviewed as part of the transfer of control request as they relate to D. D. Cable Partners, L.P., and indirectly its general partner, InterMedia Partners II (hereinafter #I.P.-II#). The sources of information used in examining these factors include the Request for Information supplied to Star and D. D. and other supplemental information provided by Star and D. D. BER. NICK AND LIF$ON A P~:~OFE~--.,.~.IONAL A,~,~OCIATION City Council, city of Prior Lake Memorandum March 30, 1992 Page 2 II. STANDARD OF REVIEW The city's task in this process is to review the information provided regarding the transaction and to approve or deny the transfer of control of Star. The Cable Communications franchise held by the City expressly reserves the right of the City to approve or disapprove such a transfer of control. The standard of review is that the City's consent shall not be unreasonable withheld. For the purpose of determining whether it will consent to the change in control of the owner of the system, the City has made inquiry into the legal, technical, character and financial qualifications of D. D. and I.P.-II, as well as other appropriate factors. In analyzing the transaction, the City must consider whether D. D. and I.P.-II meet all of the criteria originally considered in approving the transfer of the franchise to Star. Note, however, that this analysis is not a comparison between Star and the new owners. Rather, this analysis is an application of factors to determine whether the new owners satisfy the standards to the reasonable satisfaction of the City. The City should focus on the following factors in determining whether to approve or deny the transfer of control to D. D.: Legal and character qualifications of all entities involved in the transfer; 2. Technical ability of D. D. and I.P.-II; 3. Financial stability of D. D. and I.P.-II; and 4. Other appropriate factors. III. DESCRIPTION OF TRANSACTION Star Cablevision Group, a Wisconsin general partnership, owns 625 shares of common stock of Star Midwest, Inc., a Wisconsin corporation. The 625 shares constitute all of the issued and outstanding shares of capital stock of Star Midwest. Star Midwest and its subsidiaries own and operate the Prior Lake Cable System. Star Cablevision Group has entered into a Stock BERNICK AND LIF$ON A PROFESSIONAL ASSOCIATION city Council, City of Prior Lake Memorandum March 30, 1992 Page 3 Purchase Agreement with D. D. Cable Partners, L.P. Star Midwest, Inc., is the current holder of the City of Prior Lake's cable television franchise. No request is made for a transfer of the franchise ordinance. This transaction is, instead, a transfer of control of stock ownership in Star Midwest, Inc. After completion of the transaction, D. D. Cable Partners, L.P. will be the owner of all outstanding shares of common stock in Star Midwest, Inc. Since D. D. was formed for the sole purpose of acquiring the Star Midwest properties and I.P.-II will not be closed until just prior to the acquisition date, it is also informative to review InterMedia Partners I, L.P. as a measure of company performance related to I.P.-II. The purchasers have informed the City that I.P.-II has been designed to perform in a manner similar to InterMedia Partners I. The ownership structure of D. D. will involve I.P.-II as the only general partner with a 12% ownership of the partnership. General Electric Capital Corporation will be a limited partner of D. D. with an 88% ownership of partnership. ANALYSIS Each of the factors will be analyzed separately although they are not exclusive. IV. LEGAL QUALIFICATIONS The legal qualifications standard relates primarily to an analysis of whether D. D. is duly organized and authorized to own the cable system. Certain entities, such as certain television broadcasting, and certain telephone companies are prohibited by Federal law from owning, operating or controlling certain cable television systems. Although these restrictions are primarily a concern of D. D. and its partners, we have reviewed the Federal cross-ownership prohibitions and have determined them not to effect this transaction. The City has been provided with an executed copy of an Agreement of Limited Partnership dated as of November 26, 1991, detailing the creation of D. D. Cable Partners, L. P. The Agreement indicates that InterMedia Partners II, L.P., a California Limited Partnership, shall be the initial general BERNICK AND LIF$ON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 4 partner. Midwest Franchises Corp., a Delaware corporation and wholly owned subsidiary of General Electric Corporation, a New York corporation, is the limited partner. The Agreement of limited partnership for D. D., appears to be in order. The City has also requested a copy of the Agreement of Limited Partnership of Intermedia Partners II, L.P., and it has been provided. This Agreement is dated July 1, 1991 and has been executed by the general partner, InterMedia Management II. L.P. The general partner of Intermedia Partners II, L.P., Intermedia Management II, L.P., has disclosed its list of general partners and limited partners.. Leo J. Hindery, Jr., David G. Rozzelle, and Edward G. Liebst, Jr., are the general partners of the parent general partnership. Numerous limited partners are listed for InterMedia Management, II, L.P. Suffice it to say that the partnership structure of this proposed transfer of ownership is complicated and difficult to break down in a report such as this with a goal to clarify the transaction for the City Council's review. The partnership documents do trace their roots to the major owners of the InterMedia operation. Likewise, Mr. David Rozzelle, a general partner of the InterMedia parent operation will be primarily and directly responsible for the operations of the Prior Lake system. While the partnership structure is complex, the individuals who possess the necessary authority to efficiently and effectively render decisions related to the Prior Lake system are in place and in a direct line of communication with the City of Prior Lake. The character qualifications of D. D. and I.P.-II are satisfactory. D. D. has provided information showing that neither it nor its general partners at any level have ever been convicted in a criminal proceeding of any crimes against character. Information was not provided nor required for the limited partners as it does not hold the partnership equivalent of voting stock in D. D. Based upon our review of the information provided, it would appear that the City could not unreasonably withhold approval of the transfer based upon the legal or character qualifications of D. D. or I.P.-II. BERNICK AND LIF$ON A PROFESSIONAL A~-..~,OCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 5 Ve TECHNICAL ABILITY The technical ability factor relates to the technical expertise and experience of D. D. in operating and maintaining a cable system. This analysis focuses on the current and former experience of the proposed Transferee. Since D. D. and I.P.-II are newly created entities, it is necessary to review the cable management performance of individuals who will be involved in the general management. For such purposes it is legitimate to reference those individuals'experience in I.P. I. Additionally, reference should be made to Star Midwest since it can be assumed that the existing local management will exist for the time being providing the level of service previously experienced by Prior Lake subscribers. InterMedia Partners was formed in 1988 by Messrs. Hindery, Rozzelle and Liebst. InterMedia now ranks as the nation's 34th largest operator of cable systems. Prior to the founding of InterMedia, Mr. Hindery was Chief Officer for planning and finance of The Chronicle Publishing Company of San Francisco. This company serves more than 290,000 cable television customers and operates various other media interests. In his capacity, Mr. Hindery was responsible for all acquisitions, finance and development of activities. His primary experience appears to be in the area of financial officer. Mr. Rozzelle is a general partner of InterMedia and is the Chief Executive Officer of cable operations. Mr. Rozzelle is responsible for budgeting, franchise relations, system operations, personnel and acquisitions. His experience is as a communications attorney representing cable companies throughout the United States. While such experience is related, it is not direct operational experience within a cable company. Mr. Liebst is InterMedia's Chief Financial Officer and has eleven years of experience developing and financing cable television transactions as investment banker. Three other partners, Terry Cotten, Director of Operations, David Large, Director of Engineering and Richard Maul, Director of Marketing have a combined experience of over fifty years in the cable television industry. It is at this level of the organization that the vaulable hands-on experience seems to reside. The experience of these three individuals appears BERNICK AND LIF$ON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 6 sufficient to meet the needs of Piror Lake, experienced local management. coupled with I communicated directly with city cable Administrator, Clayton Hamilton, City of Tucson, Arizona. The Tucson cable system has been owned by the InterMedia partners for approximately eighteen months. Mr. Hamilton and I discussed numerous issues including customer service issues, technological upkeep of the system, and City/Company communications and relations. Mr. Hamilton's experience is that InterMedia's management is highly decentralized. This authority at the local level is very helpful in communication directly with the local management for the purpose of making decisions. Mr. Rozzelle, the individual also ultimately responsible for the management of the Prior Lake system, was characterized as very accessible when necessary. Mr. Hamilton was pleased with his relationship with the company through Mr. Rozzelle. Mr. Hamilton was also impressed with the community involvement of the company saying that they have surpassed expectations as to their relationship in such things as community food drives and the like. It is important to recognize that the Tucson system is over 85,000 subscribers. Obviously, problems will be significantly magnified in such a system which would not even be a problem in the Prior Lake system. The Company in Tucson has taken two major #hitsu but both have been in areas where changes needed to be made and will eventually be very positive for the company. The Company has staggered its billing so that all the bills do not come out at the same time of the month. This is a positive change but caused considerable confusion with the community. The Company also changed its billing service which caused seriously increased phone delays in customer service which have since been straightened out. Neither of these problems would be problems in Prior Lake and throughout the changes, InterMedia was credited with good communications with the City. From a technological prospective, the Company has performed above average in Tucson in the maintenance of the system, even surpassing a technological goal of a three year fiber trunk rebuild which was done in one year (even in the face of negative cash flow). Based on our review of the information provided it would appear that the Commission could not reasonably withhold approval of the transfer based upon the technical ability of D. D. BEKNICK AND LIFSON A PROFESSIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 7 VI. FINANCIAL STABILITY The financial stability factor relates to whether D.D has the financial resources available or committed to not only acquire the system, but also whether its financial plan as presented is reasonable and economically viable. The city has chosen not to engage a financial consultant to undertake a review of this factor. Although the financial information supplied has been reviewed for obvious problems, a review by a qualified communications financial consultant was not undertaken. This report will not, therefore, opine as to a final conclusion regarding the financial ability of D. D. or its partners. Suffice it to say that if I.P.-II and General Electric Capital Corporation do not have the financial resources available to them to close the transaction, it will not take place. Additionally, with the City's inability to regulate rates, experience has shown that the viability of the buyer's financial plan is of the most concern to the Company itself. The franchise requires performance standards which are enforceable against the Company. Should D. D.'s financial viability decrease to such an extent as to render system performance below required standards, adequate remedies from fines to franchise termination are available to the City. In conversations with the City of Tucson apparently Tucson was also very concerned regarding the economic viability of the purchase of the system. They have received the 1990 financials (a period in which InterMedia only owned the system for one half of a year). The 1991 financials, the first full year of operation by InterMedia are not due until March 31, 1992. While the City of Tucson has some concern, as should the city of Prior Lake, with the negative cash flow of InterMedia, Tucson also shares the perception that cash losses are the problem of the company until such time as service or system maintenance and upgrade are effected. Tucson had some significant community commitments regarding community programming and access which required a significant pre-payment by InterMedia prior to Tucson's approval of its transfer of ownership. The Prior Lake commitments are not of such a magnitude as to require such a concern, however, the City should diligently administer those requirements that do exist so as to insure continued compliance of the franchise. BERNICK AND LIF$ON A PROFESSIONAL ASSOCIATION city Council, City of Prior Lake Memorandum March 30, 1992 Page 8 VII. OTHER RELEVANT FACTORS Other appropriate factors which have been reviewed for the purpose of determining whether to approve or deny this transaction are contained in the Request for Information. The most significant factor to be considered is whether the cable franchise will remain intact and whether D. D. will agree to comply with all existing franchise requirements, promises and representations of its predecessors. D. D. has warranted in its response that it will comply with all existing franchise requirements. With respect to the franchise requirements regarding the existing service area and line extensions, D. D. has indicated it will comply with the existing franchise requirements and obliga- tions. The construction practices of D. D. regarding aerial and underground standards will also conform to existing franchise requirements. For example, any property damage and restoration work will be properly corrected. D. D. has not proposed any modifications to the channel capacity or system design and will assume all existing franchise obligations regarding performance testing and system maintenance policies. D. D. has informed the City that it will convert to American Express Cable Services billing system. Such a change caused serious problems in Tucson, Arizona, but should not have such an impact upon the smaller number of subscribers in Prior Lake. The Company has stated that it will construct cable plant underground in newly platted areas at the time electronic and telephone distribution plants are constructed, assuming the trench is available on reasonable notice and at reasonable rates. The Company agrees to comply with all existing obligations regarding interconnection including Metro Channel 6. Star is currently in negotiation with the operator of the Burnsville system regarding a channel feed for Metro Channel 6. Performance testing, system maintenance, customer complaint policies and response are all consistent with the franchise. The Company is obligated to provide and maintain certain equipment for community programming and Eight to Ten thousand Dollars ($8,000.00-$10,000.00) per year for Staff. Discussion during this analysis has indicated that Star may not have BERNICK AND LIFSON A PROFE~:SIONAL ASSOCIATION City Council, City of Prior Lake Memorandum March 30, 1992 Page 9 complied with these requirements. InterMedia is investigating this issue and will report more fully at the public hearing. The Company has agreed to assume all community programming obligations of the franchise. The Company has agreed also not to propose any modifications to community programming commitments for three years. The City has expressed an interest in negotiating the franchise fee from three (3) percent to the five (5) percent allowed by Federal Statute. The recommendations resulting from those discussions will be presented at the public hearing. The City has also raised concerns about the lack of service options presented by the current tiering system. In a letter dated March 25, 1992, Mr. Rozzelle explained the probability of providing a broadcast/basic tier, but could not commit at this time to its implementation. This appears to represent a responsible approach to a system which is not yet owned and budgeted. The Company will assume all existing staff positions with the addition of technical crew and a regional office. The system will, however, retain a local manager and a regional manager. Assuming resolution of the issues regarding community programming equipment, monetary contribution to staff and final discussion as to the franchise issue, it does not appear that there is any other legally justifiable cause for the City to withhold approval of the transfer of control to D. D. in the areas of legal, technical or financial factors, provided however that the issues outlined above are resolved. VIII. CONCLUSIONS Assuming a resolution by D. D. the above outlined issues, the City may approve the Transfer of control to D. D. Cable Partners, L.P. PUBLIC HEARING PUBLIC HEARING CITY OF PRIOR LAKE CABLE TELEVISION FRANCHISE TRANSFER MONDAY, APRIL 6, 1992 8:00 p.m. I ! I I I 1 I I I I I I I I I I I I I ,1 I I I I I I ! I I CONrlD CLOSED SESSION: AGENDA 5 (a) MEMORANDUM TO: FROM: SUBJECT: DATE: MAYOR & CITY COUNCIL LARRY J. ANDERSON, DIRECTOR OF PUBLIC WORKS DEVELOPER'S FAILURE TO REPAIR STREET IN RASPBERRY RIDGE SUBDIVISION APRIL 6, 1992 On December 20, 1989, the City accepted the streets in the First Addition to Raspberry Ridge Subdivision. In the Summer of 1990, Timberglade Circle settled significantly. The contractor, Q.R.S. Corporation, was requested to make the necessary repairs as part of the warranty. The contractor, late in the construction season, removed the pavement to make subgrade repairs. The method the contractor was using for repair was inadequate. The contractor claimed he could not get the equipment necessary to make the repair due to the lateness of the year, and pulled off the job. He stated that he would be back in the Spring to complete the repair. Portions of the road at this point were either pavement or gravel. (See the attached drawing.) The contractor failed to make the repairs in 1991 and appears to be defunct. The bonding company denied responsibility for the repair and the developer has not completed the re~air; nor has the developer committed to complete the repair. The City obtained quotes to make the repairs in 1991 and the cost at that time was $14,503.00. Glenn Kessel and I have been unsuccessful in resolving this matter with Bob Walsh and his attorney. The developer did propose that the cost of the repair be split into one-thirds each - Developer, Developer's Engineer, and the City of Prior Lake. That offer has been rejected by Staff to get the developer to pay 100% of the cost. The developer has requested that the offer be reconsidered. Although this may be a reasonable settlement offer, Staff does not believe we are responsible for any part of the cost. The developer provided the City with a Certificate of Deposit at the time the Developer's Agreement was executed. Unfortunately, the Certificate of Deposit was released at the time of the acceptance by the City. Future Developer's Agreements will be amended to prevent this problem from occuring during the warranty period. The City has two (2) options: One is to accept the settlement offer, and the other is to take legal action against the developer to allow the City to place a lien against the eight (8) 4629 DakoTa St. S.E. Prior Lake, Minnesota 55372 Ph '612:4;74230 ~ F.~x {612! 447.424:5 lots that the developer still owns. The City did this on the Willow's Sixth Addition for a drainage problem and it was very effective in resolving the problem. After liens are placed on the lots, the developer cannot close on the lots until the matter is resolved. Glenn Kessel is out of town until Monday, April 6, 1992, but he is planning on attending the City Council Meeting. Glenn can address, at this meeting, the length of time that this process will take, the cost, and the risk that is involved. The residents have been very patient in waiting for the repair, and the City should be prepared to complete the repair this Spring. The repairs would be made either through cost sharing with the developer or making the improvements and collecting the money through liens. Staff is looking to get the matter resolved and is either option. Council discussion will determine the for future action. open to direction II I PRIOR LAKE FiRE DEPARTMENT 1~776 FISH POINT ROAD SE PRIOR LAKE, MINNESOTA 55372 Date of Rescue Date of Fire Call Number Address/Street l/0 ::z.::z. ff J/Ci~/.,.~ es erv a}io net owns h i~) CR S?L MA NAME Anderson, Carter Boda, Terry Boemer, Tom Buffeind, Scott Buss, Joe Chard, Dale Chelgren, Kud Chromy, David Davis, Brian Friedrich, Mark Hanbh, Jeanne Hadman, Doug Hennen, Tony Johnson, Branden Johnson. Brent Johnson, Chris Kathan, Rick Keel, Fiono Klein, J.D. Kleist, Kevin Klimers, Michael Klin e, James Klingberg, Kenny Korkowski, Chris Larson, James Jr. Lyrenmann, Michael Morris, Jeff Muelken, Jim Nelson, Doug Niemann, Jan Oreskavich, Victor Pa}chin, Brad Peterson, Stacy Radanke, Dale Rieged, John Ruzicka, Jim Sames, Bruce Schommer, Lawrence Steinhaus, Rick Weber, Bill Weber, Clarence Zieska. Joe ~poy, Bryan Circle Type of Call:/'"-Fir~ Paged~ No~ NumberResponding: EMS Responded 63 90 75 87 57 93 64 8] 46 94 52 78 83 38 49 88 41 7O 22 89 47 34 54 56 67 25 Medical Unit cvz"c 0 Time Out o wa Time In O~oE Hours 10/5~ Comments: Mutual Aid CO Alarm Fire/Smoke Alarm