04/29/1986 - City Council SpecialSPECIAL CITY COUNCIL MEETING
Tuesday, April 29, 1986
6:00 P.M.
EAGAN MUNICIPAL CENTER BUILDING
I. ROLL CALL
II. FINANCIAL UPDATE
* 1987 Budget Process
* 1987-1991 C.I.P.
* Proposed 1986 Bond Sales
III. INSURANCE
* Status of General Liability &
Worker's Compensation Insurance
* Risk Management Issues
IV. COMPARABLE WORTH UPDATE
V. ORGANIZATIONAL ITEM
VI. DISCUSSION RE: DOWNZONING
VII. OTHER
VIII. JOINT BURNSVILLE CITY COUNCIL &
CABLE COMMISSION DISCUSSION RE:
SALE OF CABLE SYSTEM
IX. ADJOURNMENT
MEMO TO.: HONORABLE MAYOR & CITY COUNCILMEMBERS
FROM: CITY ADMINISTRATOR HEDGES
DATE: APRIL 25, 1986
SUBJECT: SPECIAL CITY COUNCIL MEETING, 4-29-86
At the last regular City Council meeting, a special City Council
meeting was scheduled for Tuesday, April 29, 1986, at 6:00 p.m.,
to handle general management issues, to be followed by a joint
Burnsville City Council and Cable Commission meeting at 8:00 p.m.
regarding the sale of the Group W system. Box lunches are planned
for your convenience (nothing fancy). The City Administrator is
planning to eat prior to the meeting so once the City Council
arrives, business can start promptly at 6:00 p.m. Those items
scheduled for discussion require direction and coordination on the
part of the City Council.
FINANCIAL UPDATE
The City Administrator is planning to make some brief comments
about the 1987 budget process which will begin in late May. The
Administrator is also planning to comment on the capital improve-
ments program (1987 - 1991). A draft is currently in the
preparation stages and should be available for review during June.
With the recent passage of H.R. 3838 and extention of the tax
exempt status on various municipal bond issuances until September
1, 1986, it is suggested that the City consider the sale of bonds
prior to that date. The Director of Finance and City Administrator
will provide information about three (3) bond sales that are
scheduled this year. Bonds to be considered are 1) a $5-$8
million general improvement bond issue, 2) the tax increment
financing for Sperry, and 3) a municipal state aid bond sale as
previously discussed for certain collector road improvements
throughout the City.
INSURANCE
The Director of Finance and City Administrator would like to
provide a further status report on the alternatives for general
liability and worker's compensation insurance. There are also
some issues related to risk management that need discussion and
coordination by the City Council. As an example, the City has a
well-trained S.W.A.T. team that is used sparingly as a part of our
police enforcement. Insurance carriers are no longer insuring for
that type of municipal operation. The City needs to determine
whether this type of municipal service should be continued consider-
ing the potential risk factor. There are other examples that the
City Administrator can share at the meeting on Tuesday. The
Director of Finance and City Administrator are continuing their
meetings with Bruce Medvec, the City insurance representative. It
might be advantageous -to the City Council to refer this item to
the Finance Committee under the direction of City Councilmember
Smith, to assist in the fact-finding for the City Council since a
number of important insurance decisions will be confronting the
City this summer.
Attached are copies of two letters received today from Mr. Medvec
regarding the City's insurance. Staff has not had an opportunity
to study these letters in any detail, but have enclosed them for
the Council's review and information.
COMPARABLE WORTH UPDATE
The City Administrator is planning a brief update on the status of
comparable worth. The Control Data Business Advisors comparable
worth study (sponsored by MAMA) is very close to completion.
According to Control Data, the City of Eagan can expect to receive
the final results on approximately May 9.
The City will receive time spent profiles for each employee
position (e.g., police officer, park maintenance worker, recreation
programmer, engineering/planning secretary, building inspector,
city administrator, etc.). The time spent profiles (TSP's) list
each task performed in a position and the average percentage of
time spent performing that task. In cases where the duties of a
position were similar, no matter which employee was performing the
duties, one TSP covers all employees in that position (e.g.,
police officer, clerk typist in the typing pool, dispatcher,
etc.). In cases where the duties of a position are different from
duties performed in another position, individual TSP's will cover
each separately (e.g., administrative assistant [Finance], admin-
istrative assistant [Administration/Personnel, Public Relations],
clerk typist [receptionist], clerk typist [utility billing], clerk
typist [Parks/Protective Inspections], etc.).
The City will also receive a value for each individual position as
a whole. Basically, the value is arrived at by taking the value
for each individual task in a TSP times (X) the percent of time
spent on it. Then all the resulting task/values are added to-
gether to arrive at a total job value. The job values will be
reported to the City in the form of a value hierarchy from most to
least. The previous explanation is overly simplified; the calcula-
tion of values is complex and will require more explanation at a
later date.
After this information is received, it will be studied very
thoroughly to determine the impact upon the City's pay structure,
if any, and also methods through which any disparities can be
adjusted. Please recall that it is the City's intention to
implement the first phase of internal equity adjustments for all
contract and contract personnel in October 1986.
Administrative Assistant Duffy has participated in numerous
meetings with Control Data and is very knowledgable of the
comparable worth process. The City Administrator has had a brief
conversation with City Councilmember Egan about the possibility of
a Personnel Committee meeting during the summer months with Admin-
istrative Assistant Duffy and the City Administrator to determine
the comparable worth values for all cities and present a proposed
plan for City Council consideration early this fall.
ORGANIZATIONAL ITEM
The City Administrator is planning to present a new organizational
concept for review and discussion. The organizational schedule
provides for the consolidation of various services. The City
Administrator is performing final review and analysis this weekend
and will have overheads ready for presentation purposes at the
meeting on Tuesday. The City Administrator is planning to provide
a brief update regarding a personnel item as a part of the
workshop meeting. This update could occur after the joint meeting
with the Burnsville City Council if time permits.
DISUCSSION REGARDING DOWNZONING
The City Administrator and City Attorney would like to spend a few
minutes discussing the whole concept of downzoning. The City
Administrator has learned through several contacts that other
communities are initiating rezonings and comp guide plan changes
based on community planning without regard to the assumed loss of
property values if a parcel of property is rezoned from a higher
use to a lower use. It has been our community's position that
property cannot be downzoned without compensating for the differ-
ence in value. Since there is a difference of opinion among
communities regarding this issue, the City Administrator felt a
responsibility to at least address the issue with the City Council
on Tuesday. City Attorney Hauge is planning to be present and has
shared some of.his thoughts in a memorandum which is attached for
your review.
VACANCIES/MULTI-MEMBER STATE AGENCIES
The attached Notice of Vacancies in Multi -Member State Agencies
was given to this office by the City Clerk. If anyone is inter-
ested in applying for one of these vacancies, please let us know
by Monday so we can meet the April 29 application deadline.
SUMMARY
The City Administrator has spoken with Mayor Blomquist and it is
their intention to allocate so much time to each item and move
through the agenda with as much brevity as possible so all items
are discussed within the time frame alloted on Tuesday. The City
Administrator will be concise with his presentation and recognizing
that specific motions and action are not necessarily required on
any of these items Tuesday evening; the meeting is more a goal -
setting, management workshop session.
JOINT BURNSVILLE & CABLE COMMISSION MEETING
The Cable Administrator has provided the attached memorandum dated
April 25, that provides a brief update on all of the current
status of transactions to date regarding the sale of Group W. Also
enclosed is some additional information supplied to the Cable
Commission that may be of interest to you.
/s/ Thomas L. Hedges
City Administrator
Special Note: Karen will be contacting each member of the City
Council to determine what kind of sandwich you would prefer for
Tuesday evening.
i
First I eau ra rice
Dalley View
P.
First Insurance Valley View
8200 Highwood Drive
Bloomington, Minnesota 55438
612 944-8200
April 24, 1986
Mr. Tom Hedges
City Administrator
City of Eagan
3830 Pilot Knob Road
Eagan, MN 55122
RE: City of Eagan Insurance Renewal 7-1-86
Dear Tom:
Pursuant to our recent meeting, we have been informed by The
Home Insurance Company that they will be unable to renew
coverages for the City of Eagan on July 1, 1986. This
non -renewal is based on The Home Insurance Company's decision
to withdraw entirely from the municipal insurance market in
the State of Minnesota. The lack of re -insurance, as well as
the rising number of municipal claims, forced this insurance
carrier to make this unfortunate decision. In no way, does
the non -renewal notice reflect the City of Eagan's
experience, loss prevention measures, or ability to procure
insurance at renewal.
For your information, I am enclosing a summary of current
coverages and the status for renewal. Please note that those
coverages subject to non -renewal or renewal difficulty I have
highlighted with a yellow marker.
As we had previously discussed, I have been in contact with
the League of Minnesota Cities Insurance Trust and have been
assured of a quotation for the City of Eagan. It is also our
intention to receive our quotation no later than June 1, 1986
so that staff and City Council will have sufficient time to
exam the many options we intend on presenting. Our research
indicates a very limited -marketplace for municipal
liability. While we fully intend on contacting other
available markets, in all likelihood, the most viable market
will indeed be through the L.M.C.I.T.
If you should have any comments or questions, please feel
free to call on me at any time.
Perso r gars
uce A. Medvec
Senior Account Executive
Enclosure
Member First Bank System
par•rrar-P.
Coverage:
GENERAL LIABILITY
Coverages:
AUTO
Coverage:
Ink.0l 10,114 D1;�Mw 01
Coverage:
CITY OF EAGAN
Carrier: The Home Insurance Co.
Policy #: IST -8776170-65660
Expires: 7-1-86
Property- $9,459,974. limit
Blanket Position Bond- 5,000
Dishonesty Bond- 10,000.
Comperhensive Valuable Papers & Records -100,000. limit
Accounts Receivable Coverage- 100,000. limit
Misc. Equipment- $112,215. limit
Contractors Equipment- $389,216. limit
Status: Non -renewal with The Home Ins. Co.
Carrier: The Home Insurance Co.
Policy #: GL -1699200 UN 82072
Expires: 7-1-86
Bodily Injury & Property Damage- $1,000,000. limit
Status: Non -renewal with The Home Ins. Co.
Carrier: The Home Insurance Co.
Policy #: BA 6094543 UN 78063
Expires: 7-1-86
Liability- 1,000,000. limit
Uninsured Motorist- 50,000. limit
Comprehensive- 100. Deductible (per schedule)
Collision- 1,000. Deductible (per schedule)
Status: Non -renewal with The Home Insurance Co.
Carrier: The Home Insurance Co.
Policy#: PWC 1776250 UN77145
Expires: 7-1-86
Employers Liability- 100/500/100 (Minnesota Statutory)
Status: Non -renewal with The Home Insurance Co.
City of Eagan- Coverages Cont.
1 u�Mifl
Coverages:
Carrier: Auto Owners
Policy#: 852106-71961499
Expires: 7-1-86
$2,000,000. limit- Each Occurance
$2,000,000. limit- Annual Aggregate
$10,000. - Retention
Status: Carrier is willing to offer renewal, but requiers
$1,000,000. CSL underlying. Availability of
coverage is therefore subject to securing the
required underlying limits.
PUBLIC OFFICIALS LIABLILITY
Coverages:
Carrier: Int'1 Surplus Lines
Policy#: 524-031935-4
Expires: 1-6-87
$1,000,000. limit- Each Occurance
$2,500. Deductible
$500. Retention Each Loss
VOLUNTEER FIREMAN'S BLANI= ACCIDENT POLICY
Coverage:
Carrier: St. Paul Fire & Marine
Policy#: VFP 866JX6578
Expires: 7-1-86
Accidental Death and Dismemberment- $15,000
Weekly Benefit for Disability- $100
Maximum Benefit Period- To Age 65
Status: Coverage will be offered, but through another carrier.
AMBULANCE DRIVERS MALPRACTICE LIABILITY
Coverage:
Carrier: Great American Surplus Lines
Polict#: CL40105
Expires: 7-1-86
$500,000.- Each Occurance
$500,000.- Aggregate
Status: Renewal quotation will be offered by current carrier.
City of Eagan- Coverages Cont.
AMBULANCE DRIVERS MALPRACTICE LIABILITY
(Excess Liability)
Coverage:
Carrier: Mount Vernon Insurance Co.
Policy #: XL128252
Expires: 7-1-86
$500,000.- Each Accident or Occurance
$500,000.- Aggregate
Status: Carrier has indicated non -renewal due to market of
coverage requested.
First Insurance
ValleyView
iew
First Insurance Valley View
8200 Highwood Drive z"
Bloomington, Minnesota 55438
612 944-8200
April 24, 1986
Mr. Tom Hedges
City Administrator
City of Eagan
3830 Pilot Knob Road
Eagan, MN 55122
RE: Risk Management For Municipalities
Dear Tom:
It goes without saying that the subject of insurance seems to
be on the mind of every manager and insurance buyer in the
Nation. For municipalities, the price increases and lack of
coverages have been particularly brutal. Many of our clients
have indicated strong desires to accept more of the "risk".
We have also heard from many city managers indicating a
desire to either hire risk managers or take upon themeselves
further anaylsis of the exposures and risk at hand. After 15
years in the insurance business, I am pleased to find our
clients not only listening but finally taking a pro -active
approach to controlling losses. Our agency's involvement in
risk management, particularly for municipalities, seems to be
growing on a day-to-day basis. Now more than ever, the City
of Eagan needs a pro -active approach to its risk management
needs. A thorough understanding of exposures and risk will
not only reduce the potential of claims but also make the
City of Eagan an attractive insurance prospect when this
insurance market changes. It is for those reasons that we
offer our services to the City of Eagan as your agent and.
consultant.
Our current risk management functions include, but are not
limited to, meetings with various department heads, creation
of safety committees, Volunteer Fire Department evaluation,
and recognition of liability exposures. Ideally, I would be
involved in making suggestions for your Fourth of July
celebration, overseeing the creation of a.safety committee,
and review of all independent contractors engaged by the City
of Eagan. My purpose is to inform all.City of Eagan
employees as to their responsibilities and value of their
observations. For the past three months, we have worked very
closely with the City of Minnetonka and have received
Member First Bank System
Mr. Tom Hedges
Page 2
April 24, 1986
very favorable results. You may wish to contact Mr. Barry
Johnson at the City of Minnetonka for his comments.
Admittedly, risk management is sometimes no more than common
sense. Our job is to simply make the City Council aware
before a decision is made.
The decision to take a "pro -active" approach to risk
management is yours. Insurance underwriters, agents, or
brokers do not wish to run your City. Only staff and the
City Council can do that. As your agent, I stand ready to
help you in any way that I may. Our compensation is earned
through our commission income. There is, of course, no
additional fee for these services. Only the willingness on
the part of the City of Eagan to make the work environment
safer and to protect itself through informed decision making.
If I may be of any assistance, please feel free to call on
me.
Perso reards
use A. dvec
Senior Account Executive
BAM/las
HAuGE, FIDE & KELLER, P. A.
ATTORNEYS AT LAW
WATER VIEW OFFICE TOWER, SUITE 303
1200 YANKEE DOODLE ROAD
EAGAN, MINNESOTA 55121
PAUL W. HAUGE
KEVIN W. EIDE
DAVID G. KELLER
LORI M. SELLIN
MICHAEL J. MAYER
April 25, 1986
Mr. Thomas Hedges
Eagan City Administrator
3830 Pilot Knob Road
Eagan, MN 55121
RE: Downzoning for Development
Dear Tom:
AREA CODE 612
TELEPHONE 456-9000
454-4224
You have asked in recent weeks for some suggestions regarding City authority
to downzone property and in particular, what the current state of the art is
regarding case law in Minnesota. As you are aware, there are cases coming out
of the Appellate Court and Supreme Court on a fairly regular basis concerning
zoning issues and in order to understand the direction of the Courts, we have
to review these cases on a regular basis.
ISSUES
Some of the issues that relate to the question at hand are as follows:
1. Eagan has had a variety of examples where downzoning has occurred either
by action of the Planning Commission and City Council or by the
development of property with the City's consent, less densely than the
zoning had permitted. One example was Duckwood Estates some years ago,
where the property was zoned R-4 and the use for at least a portion of the
property ended up as R-1. There was a recommendation that the City
actually downzoned to R-1 and I have not researched the facts to know
whether that was actually done.
2. Another factual situation arose with Drexel Heights on the east side of
Pilot Knob Road which was a part of a planned development with the
underlying zoning R-4 and R -I Planned Development use designation. The
Planning Commission recommended downzoning to R-1 and I believe that was
done but I have not checked the record.
3. The Planned Development Agreements generally have provided that in the
event that a planned development does not comply with the conditions
imposed by the City, incorporated into the Development Agreement at the
time of the determination of the planned development, the underlying
zoning would revert to A (Agricultural).
Mr. Thomas Hedges
April 25, 1986
Page 2
4. Also, in Planned Development Agreements, the City has attempted to retain
the underlying Agricultural status so that in the event that a planned
development is terminated, that the owner would then be required to submit
a new plan for approval by the City.
5. The primary question that you've asked is whether the City has the power
to downzone property absent an application of a property owner, whether at
the time of development of the property or where the City Council
determines that prior to any development, it would be desirable from a
land planning standpoint to reduce the density for potential future
development?
nT SCTTSSTnN
You are aware that under M.S.A. 462, an owner/developer or the City Council
has a right to request a public hearing before the Advisory Planning
Commission to determine whether to amend the zoning code or in effect, rezone
a specific parcel within the City. If the hearing is called at the
instigation of the City Council, the same notice procedures must be adhered to
and any event, adequate reasons must be provided by the Advisory Planning
Commission and the City Council to rezone under recent Court opinions. The
"rational basis test" must be shown by clearly setting forth reasons for the
rezoning decision in more than simply a conclusory fashion.
This memo is only intended to give the Council an introduction to -the subject,
which I understand will be discussed at its special meeting on April 29, 1986.
Probably a good resume of law oath in 1978 when the Metro Council did a memo
on downzoning and the state of the art today would be the conclusion
paragraph:
"Downzoning has been, and most probably will continue to be, a fertile
area for litigation. It is obviously important for communities in
Minnesota, in particular, to have engaged in some sort of comprehensive
consideration of existing and future land use and development within their
community before considering any governmental rezonings as well as for
assessing any private request that rezoning be undertaken. When assessing
rezonings, it is important to have accurate professional knowledge
regarding the facts and consequences relating to both particular rezoning,
as well as the entire community. There should be planning support to back
up any rezoning determination.
Reports should analyze, explain, and logically trace the consequences of
various alternatives which a community could adopt. It is preferable to
put these reports and considerations in some written form. It would also
be helpful in many instances to bring in an independent objective
consultant to assess both governmental and individual proposed rezonings.
Attempts should be made to give thorough consideration to any proposed
change and to insure that the proposal is consistent with other current
land use plans and determinations of the community, and that the
determination is logical from an historic land use development standpoint.
Ir
Mr. Thomas Hedges
April 25, 1986
Page 3
When adopting or considering downzonings, communities should be careful to
determine the precise objects that they intend to effect and give
consideration to mitigating features which should be provided by ordinance
or other enactments to minimize impacts including value loss reduction to
particular property owners."
There are a number of cases that have come out since 1978 that we have
reviewed again, and that the Council is also aware that the general tenure of
the Appellate Court decisions quite recently have appeared to move more in the
direction of City authority. I will be happy to discuss this further with
you.
Very ru'1y yours,
HA GE EIDE & KELLER -'P . A.
Paul H. Hauge
PHH: ras
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[lull league of minnesota cities
April 10, 1986
TO: City Clerks
FRO,4: Joel Jamnik, Legislative Counsel
RE: Notice of Vacancies in Multi -Member State Agencies
The League has received notice from the state of several available
positions in state agencies. Many of these agencies play very
important roles in local government. Applications forms may be
obtained at the Office of the Secretary of State, 180 State Office
Building, St. Paul, M11 55155, (612) 296-2805. The deadline for
applications is April 29 1986. The League strongly encourages
interested city officials to submit their applications. Please pass
this information on to your mayor and councilmembers.
For further information, please contact me at the League. We would be
happy to assist in any way possible.
MINNESOTA JOINT UNDERWRITING ASSOCIATION -LIABILITY INSURANCE has 6
vacancies open for public members. The association shall provide
liability insurance coverage for persons unable to obtain it through
ordinary means where coverage is required by law or is necessary for
the conduct of business and serves a public purpose. The appointing
authority is the Commissioner of Commerce. For specific information
contact the Minnesota Joint Underwriting Association -Liability
Insurance, Dept. of Commerce, 500 Metro Square Bldg., St. Paul, MN
55101; (612) 297-1118.
WASTE MANAGES,1EN T BOARD has 8 vacancies open for members; 1 from. each
congressional district. The board selects and may acquire sites for
hazardous waste facilities; encourages private sector to develop
hazardous waste facilities; develops hazardous waste management plan;
reviews petitions for Solid Waste Management Districts; administers
solid waste management project grants and loans. Members are
appointed by the Governor and confirmed by the Senate. Bi -weekly
meetings; members receive $50 per diem plus expenses. Members must
file with the Ethical Practices Board. For specific information
contact the Waste Management Board, 123 Thorson Blvd., 7323 58th Av.e.
N., Crystal, Mid 55428; (612) 536-0816.
METROPOLITA14 PARKS AND OPEN SPACE COMMISSION has 1 vacancy open for a
public member. 'The commission assists the Metropolitan Council in
planning the regional recreation open space system, and in making
grants for the acquisition and development of facilities in that
1 83 university avenue east, st. paul, minnesota 551 01 (6121227-5600
regional system; reviews master plan for regional facilities prepared
by metropolitan area park districts and counties to make sure they are
consistent with the Metropolitan Council regional plan for parks.
Members may not be members of the Metropolitan Council, or any other
metropolitan agency, board or commission, or hold judicial office.
Members are appointed by the Metropolitan Council.. Members must file
with the Ethical Practices Board. ►Members receive $50 per diem;
meetings twice monthly at Metro Square Bldg. For specific information
contact the Metropolitan Parks and Open Space Commission, 300 Metro
Square Bldg., St. Paul, MV 55101; (612) 291-6401.
MI°1NESOTA RURAL FINANCE ADMINISTRATION has 3 vacancies open for public
members. No public member may reside within the metropolitan area.
Tne administration shall develop the state's agricultural resources by
extending credit on real estate security. Members are appointed by
the Governor with the advice and consent of the Senate. Members
receive $35 per diem. For specific information contact the Minnesota
Rural Finance Administration, Dept. of Finance, 309 Administration
Bldg., St. Paul, MN 55155; (612) 29.5-5900.
Memorandum
Burnsville/Eagan Cable Communcations Commission
TO: The Honorable Connie Morrison, Mayor, City of Burnsville, and
Members of the City Council
The Honorable Bea Blomquist, Mayor, City of Eagan, and
Members of the City Council
Members of the Board Of Directors, Burnsville/Eagan Cable
Communcations Commission
FROM: Ralph B. Campbell, III, Administrator
SUBJECT: Background for 29 April 1986 Joint Work Session
DATE: 25 April 1986
CC: Tom Creighton, Legal Counsel
On 10 February 1986, the cities of Burnsville and Eagan and all other cities in the
Twin Cities metropolitan area that hold franchises with Group W Cable, Inc. (Group
W), received letters from Group W that requested two transfers of ownership and
control of these systems. .
The first transfer (Transfer 1) would involve a 100% transfer of Group W stock from
Westinghouse Broadcasting and Cable, Inc. (Westinghouse), Group W's parent, to a
group of five cable companies who joined together to own and operate all Group W
systems in the United States. The companies who make up this group are as follows:
• Telecommunications Incoraorated (TCI). the largest U.S. cable operator, through a
subsidiary called TCI Holdings, Inc., who would own 32.6% of the stock
* American Television and Communications Corporation (ATC), the 2nd largest U.S.
cable operator, who would own 26.4% of the stock
* Comcast Corporation, the 18th largest U.S. cable operator, through five
partnerships of two of its subsidiaries, who would own 25.4% of the stock
4
— -W
Burnsville/Eagan Cable Communications Commission
MEMORANDUM RE: Background for 29 April 1986 Joint Work Session
23 April 1986
+ Century Communications Corporation, the 23rd largest U.S. cable operator,
through a subsidiary called Century Southwest Cable Television, Inc., who would
own 12.0 "M of the stock
* Daniels & Associates. Inc.. the 29th largest U.S. cable operator, through an affiliate
called Daniels -Hauser Holdings, who would own 3.6% of the stock
This group has appointed a board of directors to generally oversee the operations of
the systems. To provide day-to-day management for the Twin Cities area systems, the
group has indicated an intention to sign a management agreement with North
Central Cable Communications, L.P. (North Central), a limited partnership composed
of Hauser Cable Communications, Inc. (Hauser), the general and operating partner,
and Daniels & Associates (Daniels), Inc., the only limited partner identified at this
time.
At the conclusion of Transfer 1, the owners would change but the corporate entity
that is presently Group W would remain as would all franchise obligations,
guarantees, letters of credit, bonds, and other city protections. In short, the
franchises and the company would remain intact.
The second transfer (Transfer 2) would entail a sale of Group W stock in the Twin
Cities area systems from the group to North Central. Precisely what the status of the
franchise and the company would be at the conclusion of this transfer is unclear.
The receipt of Group W's requests for transfer started a ninety (90) day process
within which the Commission's Board of Directors must ascertain whether to
recommend that the City Councils approve or deny Transfers 1 and 2, individually,
and, the City Councils must act upon these recommendations. This process is provided th
in e Cable Communications Ordinances of Burnsville and Eagan.
The standards of review mandated by the Minnesota State Cable Act require that the
Board and Councils consider three factors. The factors are these:
1) The legal and character qualifications of Group W and the buyers;
2) The technical ability of Group W as a result of the change in control (and, if
necessary, the technical ability of the buyers); and,
3) The financial stability of Group W as a result of the change in control (and, if
necessary, the financial stability of the stockholder, although such stockholders,
as was Westinghouse, are not required to pledge any of their corporate assets to
insure the financial stability of Group W).
In order to secure information adequate to fully consider these factors, a document
entitiled MUNICIPAL REQUEST FOR INFORMATION REGARDING REQUEST FOR APPROVAL
AND TRANSFER (Municipal Request) was prepared, in cooperation with legal counsel
and staff from the North Centrad Cable Communications Commission, the North
Page 2 of 3
Burnsville/Eagan Cable Communications Commission
MEMORANDUM RE: Background for 29 April 1986 Joint Work Session
25 April 1986
Suburban Cable Commission, and the Quad -Cities Cable Communications Commission.
This document, provided in questionnaire form similar to the original franchising
Request for Proposals, was designed to secure unambiguous and accurate information.
A key portion of the Municipal Request asked for financial information and was
analyzed by a financial advisor retained by franchising authorities listed above. This
advisor is Kevin Cattoor (kat -TOUR), an independent municipal cable financial
consultant who is thoroughly familiar with the methodology required to properly
evaluate the financial portion of the questionnaire. The costs associated with the
evaluation of Transfers 1 and 2, including Mr. Cattoor s portion, will be paid by Group
W.
The information provided by North Central to the Board regarding the financial
portion has so far been incomplete and partially inaccurate.
As part of the 90 -day process, the Board determined that approval of one or both of
these transfers may adversely affect the cable system's subscribers and opened a
public hearing on 10 April to receive public testimony.
At this hearing staff advised the Board that Transaction 1 met the three standards for
review and that Transfer 2 appeared to meet the legal, character and technical
standards. Staff requested that the hearing be continued to receive adequate
information about Transfer 2 concerning the financial stability standard because
North Central had not, at the time of the hearing, provided such information.
Because the proponents for Transaction 2 would not acknowledge that Transactions 1
and 2 are separate and unrelated, the Board continued the hearing until 8 May 1986
and directed staff to prepare the documents necessary to deny both transactions.
However, the Board took an additional action stating that if all proponents provided to
legal counsel proper aknowledgements regarding the separate and unrelated nature
of Transactions 1 and 2, the Board would reconsider its denial. Such aknowledgements
have been received by legal counsel.
Following the Board's actions on 8 May, the process requires that the city councils act
to approve or reject the Board's recommendations by Monday, 9 June.
After a transfer of ownership or control, the cities must submit all necessary
documents to the Minnesota Department of Commerce, thus providing proper notice
to the state that the transfer or transfers have occured.
Page 3 of 3
Me m o r a n d u m
Burnsville/Eagan Cable Communcations Commission
TO: Members of the Board of Directors
FROM: Ralph B. Campbell, III, Administrator
SUBJECT: Work Session with City Councils
DATE: Thursday 17 April 1986
A WORK SESSION including the Board of Directors, the Burnsville and Eagan
City Councils, and staff has been scheduled for
Tuesday 29 April 1986
8:00 p.m.
City Council Chambers at Eagan City Hall
The purpose of this work session is to inform the Councils of the evaluative
process presently being conducted by the Board regarding Croup W Cable,
Inc.'s request for transfer of ownership, to receive comments from Council
members regarding this process, and to provide a opportunity for
discussion among Board and Council members.
An explanatory memorandum will be sent to you prior to this work
session.
Please make every effort to attend this work session.
Please call me at 454-8100 if you have any questions or comments.
t
d
MEMORANDUM
TO: Directors of the North Central Suburban Cable
Communications Commission
FROM: Thomas D. Creighton
DATE: April 7, 1986
RE: Group W Cable, Incorporated Request for Approval of
Transfer of Ownership and Control
CHRISTINA W. FLEPS-
F. GORDON L
CHRISTOPHER D. COURSEN-
TIMOTHY M. MAAKE•
MICHAEL J. '""WGEORGE J. MANNINA. JR:
GILBERT E HARDY
CHARNEY REGENSTEIN-
PETER M. KAZON•
EMILY R. PARAOISE•
O. OEB RA AUBIN-
ANDREW A. JAKA-DEBICKI•
RACHEL DCMARCUS'
J. TIMOT MY O'NEILL'
TIMOTHY W. JENKINS'
DMIO A. ZISSEP-
L ARAT O.GALLEGOS-
JAMES A. NATIONS'
DIANE BLIESZNER-
Please find below a summary and analysis of proposed transactions
number 1 and 2 regarding a request from Group W Cable, Incorporated,
to the Member Cities of the North Central Suburban Cable Communications
Commission to approve the sale and transfer of all of the issued
and outstanding shares of the capital stock of Group W Cable,
Incorporated ("Group W") to a group of five buyers (Transaction
#1) and the sale of the stock in Group W Cable of the North
Central Suburbs, Incorporated and transfer of the cable franchise
to North Central Cable Communications Company, L.P. (Transaction
#2).
The purpose of this report is to provide the Commission
with an understanding of the transactions and the standard for
reviewing whether to approve such transactions.
TRANSACTION- #1
I. Introduction
This portion of the memorandum provides an analysis of
the proposed Transaction #1 involving the proposed sale and
transfer of all of the issued and outstanding shares of the
capital stock of Group W from Westinghouse Broadcasting and
Cable, Incorporated ("Westinghouse"), to a group of five buyers.
O'CONNOR & HAN NAN
ATTORNEYS AT LAW
MINNEAPOLIS
WASNINOTON
PATRICK J. O'CONNOR
JOE A. WALTERS
LAWRENCE A. G. MOLONEY
DAVID KANTOA
PATRICK J. O'CONNOR
EDWARD W. BROOKE -
THOMAS A. KELLER III
RICHARD L. EVANS
3800 IDS CENTER
M. ROBERT NALPER•
MICHAEL E. MCGUIRE
ROBERT J. C MRISTIANSON, JR.
KEVIN M. BUSCH
VIRGINIA M. LORD
JOSEPH E. DILLON
THOMAS H. OUINN•
'ROBERT
R. DORSEY
JULE M. XwN NAFORD IV
80 SOUTH EIGHTH STREET
DAv10 R. Mf LINCOiF•
ANDREW J. SHEA
WILLIAM R. MCGRANN
LAUREN R. LONERGAN
DANIEL L. WILES
RICHARD G. MORGAN
MILES J. AMBROSE-
EYRNIVAL
MINNEAPOLIS, MINNESOTA 55402-2254
iYD10MS. -
KENT E.
JAMES A. RUBENSTEIN
THOMAS R. SHCRAN
JOHN A. BURTON. JR.
MICHAEL J.IGRI ES
MARGARET M. VAN VALKENSURG
MARK J. ATOTTE
ROBERT 8. JASKOWIAK
(612) 341-3800
ASR .Biai�r•
BARRYJ. CUTLER•
PETER C. KISSEL•
PATRICK E. O'OONNELL-
ROBERT A. BRUNIG
WILLIAME. FLYNN
DEBRA G. STREHLOW
COREY J. AILING
JOSEPH M. BLATCHFORD-
MICHAEL E. •
DONALD S. AASOUR
P.O'MEARA
TELEX 29-0584
CHARLES W. GAVEV RERISON 111•
JAMES
DOUGLAS J. FRANZEN
Or COUNSEL
FREDERICK W. THOMAS
DENVER
WILLIAM O. MULLTELECOPIER
(612) 341-3800 (2561
ARNOLDR.KAPIANNR-
DAVID W. KELLEY
THOMAS D. CRE IG MTON
SPtC1Al COUNSEL
THEODORE K. FURSER
TEPENCE P. BOYLE-
NICK MAY
ROBERT O. STRAUGHN
WILLIAM C. KELLY 11910-19701
ROBERT WIEGANO 11 -
NO LA S. OPAL -
DIRECT DIAL NUMBER
DENVER OrrIC[ WASMINGTOM. D.C. OrPICE MADRID OFF CZ
SUITE 4700 SUITE BOO VELAZOUEZ. 21
ONE UNITED BANK CENTER 1919 PENNSYLVANIA AVENUE ..W. MADRID I. SPAIN
'
1700 LINCOLN STREET WASHINGTON. D. C. 20000.3483 431.31.00
DENVER. CO 80203-4547 12021887.1400 TELE%23343
13031 830.1700
Or COUNSEL LOCAL COUNSEL
OF COUNSEL WILLIAM T. HANNAN 11911-19 8 0 1 FRANK J. WIRGA-
DAVID BURLINGAME- JOHN J. FLYNN
WILLIAM R. FISHMAN- DAVID C. TREEN-
MEMORANDUM
TO: Directors of the North Central Suburban Cable
Communications Commission
FROM: Thomas D. Creighton
DATE: April 7, 1986
RE: Group W Cable, Incorporated Request for Approval of
Transfer of Ownership and Control
CHRISTINA W. FLEPS-
F. GORDON L
CHRISTOPHER D. COURSEN-
TIMOTHY M. MAAKE•
MICHAEL J. '""WGEORGE J. MANNINA. JR:
GILBERT E HARDY
CHARNEY REGENSTEIN-
PETER M. KAZON•
EMILY R. PARAOISE•
O. OEB RA AUBIN-
ANDREW A. JAKA-DEBICKI•
RACHEL DCMARCUS'
J. TIMOT MY O'NEILL'
TIMOTHY W. JENKINS'
DMIO A. ZISSEP-
L ARAT O.GALLEGOS-
JAMES A. NATIONS'
DIANE BLIESZNER-
Please find below a summary and analysis of proposed transactions
number 1 and 2 regarding a request from Group W Cable, Incorporated,
to the Member Cities of the North Central Suburban Cable Communications
Commission to approve the sale and transfer of all of the issued
and outstanding shares of the capital stock of Group W Cable,
Incorporated ("Group W") to a group of five buyers (Transaction
#1) and the sale of the stock in Group W Cable of the North
Central Suburbs, Incorporated and transfer of the cable franchise
to North Central Cable Communications Company, L.P. (Transaction
#2).
The purpose of this report is to provide the Commission
with an understanding of the transactions and the standard for
reviewing whether to approve such transactions.
TRANSACTION- #1
I. Introduction
This portion of the memorandum provides an analysis of
the proposed Transaction #1 involving the proposed sale and
transfer of all of the issued and outstanding shares of the
capital stock of Group W from Westinghouse Broadcasting and
Cable, Incorporated ("Westinghouse"), to a group of five buyers.
f
TRANSACTION #1
I. Introduction
This portion of the memorandum provides an analysis of
the proposed Transaction #1 involving the proposed sale and
transfer of all of the issued and outstanding shares of the
capital stock of Group W from Westinghouse Broadcasting and
Cable, Incorporated ("Westinghouse"), to a group of five buyers.
II. Descriotion of Transaction
The proposed Transaction #1 involves the following entities:
1. Westinghouse Broadcasting and Cable, Incorporated;
2. American Television and Communications Corporation
and its affiliates and assignees ("ATC");
3. Comcast Corporation and its affiliates and assignees
("Comcast");
4. Daniels & Associates, Inc. and its affiliates and assignees
("Daniels");
5. TCI Holdings, Inc. and its affiliates and assignees
("TCIH"); and
6. Century Southwest Cable Television, Inc. and its affiliates
and assignees ("Century").
Numbers two through six, above, or their designated affiliates
or assignees are hereby referred to collectively as "buyers".
Sometime in June of 1986 (hereinafter referred to as the
"closing") the buyers are jointly and severally obligated to
close the purchase of Group W's stock subject to the terms and
conditions of a purchase agreement dated as of December 23,
1985.
Upon the closing, the stock and assets of Group W will
be owned by the buyers in the following approximate proportions:
TCIH and
its
affiliates or
assignees
32.6%
ATC and
its
affiliates or
assignees
26.4%
Comcast
and
its affiliates
or assignees
25.4%
Century
and
its affiliates
or assignees
12.0%
Daniels
and
its affiliates
or assignees
3.6%
100.0%
The buyers have agreed that, upon the closing, they will
elect the following individuals to serve as directors of Group W:
Presentl,•/ an
Name Officer of: Office Held
Thomas W. Binning ATC Executive Vice President
Stewart Blair TCIH Senior Vice President
- 2 -
27)3
Julian A. Brodsky Comcast Senior Vice President
Thomas A. Marinkovich Daniels President
Leonard Tow Century President
After the closing -Group W will be supervised by the Board
of Directors specified above and each buyer will have primary
operational responsibility for a group of cable systems which
it has agreed to subsequently purchase or dispose of pursuant
to the purchase agreement.
For the purpose of our analysis the six suburban Minnesota
systems have been assigned to Daniels. Daniels & Associates
has assigned its interests to Daniels -Hauser Holding Company
("D -H Holdings"), a Colorado general partnership consisting
of Daniels & Associates, Inc. and North Central Cable Communications,
L.P. as general partners. North Central Cable Communications,
L.P. ("North Central") is a Minnesota limited partnership consisting
of Hauser Cable Communications Incorporated as general partner
and R.E. Hauser Incorporated as limited partner.
The buyers have agreed that as soon as possible after the
closing Group W will transfer control and ownership of the Group
W subsidiaries to the individual buyers (in our case Daniels
which has assigned its interest to D -H Holdings). This transaction
is described as Transaction #2, below, and cannot occur without
your specific review and approval. Nevertheless, the management
of your system will be immediately undertaken by North Central,
as agreed by the buyers, upon the conclusion of Transaction
#1. Although Transactions #1 and #2 require your approval,
this change in management of your system can legally occur without
your approval.
III. Standard of Review
The Commission's task in Transaction #1 is to review Transaction
#1 and to recommend to its Member Cities approval or denial
of the transfer of stock from Westinghouse to the group of buyers.
The Cities must make the ultimate determination. The standard
of review is that the Cities' consent shall not be unreasonably
withheld. For the purpose of determining whether it will consent
to the change of control in Group W, the Commission has made
inquiry into the legal, technical, and financial qualifications
of the buyers.
The analysis of the proposed Transaction #1 is somewhat
different from the analysis of the proposed Transaction #2.
Since proposed Transaction #1 is a stock transfer, in which
Group W Incorporated and Group W of the North Central Suburbs,
Incorporated remain intact, it is not necessary to transfer
the franchise at the conclusion of Transaction #1. Therefore,
the performance of your cable communications franchise is still
guaranteed by Group W Incorporated who will be controlled by
new stock owners. The assets of Group W Incorporated appear
3 -
27C
r
to remain intact at the conclusion of Transaction #1. Only
the management of Group W, Incorporated (through its Board of
Directors) and of the six Minnesota suburban systems through
North Central will be affected.
The purchase agreement between Westinghouse and the buyers
requires that the buyers assume all Group W Incorporated systems
"as is". The buyers are not permitted to request or make any
franchise modifications, nor have you been requested by the
buyers to make any such franchise modifications.
The Commission should consider the following factors in
determining whether to recommend approval or denial of the transfer
to the Group of buyers:
1) Legal and character qualifications of Group W and the
buyer;
2) Technical ability of Group W as a result of the change
in control (and if necessary the technical ability
of the buyers); and
3) Financial stability of Group W as a result of the change
of control (and if necessary the financial stability
of the stockholder, although such stockholders, as
was Westinghouse, are not required to pledge any of
their corporate assets to insure the financial stability
of Group W Incorporated).
IV. Analvsis
A. Legal arualifications
The legal qualifications standard relates primarily to
an analysis of whether the entities involved in the transaction
are duly organized and authorized to own the cable system and
franchise.
Each of the entities involved in this transaction are duly
organized and authorized to own a cable system and franchise.
Two of the buyers are the two largest cable companies in the
United States.
The character qualifications of the buyers are satisfactory.
Therefore, based upon our review of the information provided,
it would appear that the Commission or Cities could not reasonably
withhold approval of Transfer #1 based upon the legal or character
qualifications of the buyers.
B. Technical ability
The technical ability factor relates to the technical expertise
and experience in operating and maintaining a cable system.
Since Group W Incorporated will remain in existence, the technical
ability of the franchise holder is not at question. However,
a review of the Buyers may be*undertaken. In such a review,
IN
it is noted that the Buyers have extensive cable television
experience. Therefore, in reviewing the technical abilities
of the buyers, it would be unreasonable to assume that the buyers
are not technically qualified to own and operate your cable
system.
Since North Central has been designated as the manager
of your cable systems, it may be a valid inquiry to determine
the technical ability of such management. The analysis found
in Transaction #2, below, more fully analyzes the technical
ability of North Central. Based upon the information provided
to us, North Central through its principals, have extensive
cable management capability and experience sufficient to satisfy
the technical ability factor as applied to your respective cable -
system.
Based upon our review of the information provided, it would
appear that neither the Commission nor Cities could reasonably
withhold approval of Transfer #1 based upon the technical ability
of the transferee.
C. Financial stability
The financial stability factor relates to whether the transferee
has the financial resources available or committed to not only
acquire the system, but also to meet the existing franchise
requirements. It was not necessary to evaluate the financial
resources of the buyers for the purpose of Transaction #1.
The buyers, and stockholders, are not required to commit their
individual corporate assets to the performance of Group W Incorporated
or its subsidiaries. Although Westinghouse Incorporated has
at times apparently provided financial assistance to Group W,
Incorporated, as a stockholder Westinghouse would not be required
to commit financial resources to the performance of its subsidiary.
Therefore, apparently nothing has changed as to the stockholder
resources available to Group W Incorporated. Additionally,
the assets of Group W Incorporated apparently remain intact
at the conclusion of Transaction #1. This, also, does not change
from that situation which existed prior to the closing of Transaction
#1.
As the new corporate board of directors proceeds to transfer
systems in Group W Incorporated to the ultimate buyers, obviously,
the resources available to Group W Incorporated will dwindle.
While this is of concern, Group W, Inc. could have apparently
at any time, even prior to Transaction #1, "sold -off" its other
existing systems. A Court would have likely concluded that
the Member Cities would not have had authority to stop Group
W, Inc. from diluting its assets by selling other systems.
Therefore a logical analysis would be that the Member Cities
cannot control what the new corporate board will do with the
other Group W Systems. So long as Group W, Inc. exists and
guarantees performance of the existing franchises, we cannot
5 -
2?F
discern a reasonable basis to deny the transfer based on the
financial stability of Group W, Inc. in light of the considerable
financial resources available to Group W at the conclusion of
Transaction #1.
V. Conclusion
As a result of the above, it would appear that the Commission
or Cities could not reasonably withhold approval of Transfer
#1.
- 6 -
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Transaction #2
I. INTRODUCTION
This memorandum provides an analysis of the proposed Transaction
#2 involving the sale of the stock in Group W Cable of the North
Central Suburbs, Inc. and Group W, Inc. and transfer of the
cable franchise to North Central Cable Communications Company,
L.P. The purpose of this report is to provide the Commission
with an understanding of the transaction and the standard for
reviewing whether to approve it.
II. DESCRIPTION OF TRANSACTION
The proposed transaction involves the following entities:
1. Daniels & Associates, Inc. ("Daniels") -- a Delaware
Corporation.
2. Daniels - Hauser Holding Company ("D -H Holdings") --
a Colorado general partnership consisting of Daniels
& Associates, Inc. and North Central Cable Communications,
L.P. as general partners.
3. North Central Cable Communications, L.P. ("North Central")
-- a Minnesota limited partnership consisting of
Hauser Cable Communications Inc. as general partner,
and R.E. Hauser, Inc. as limited partner.
4. Hauser Cable Communications, Inc. ("Hauser") -- a Delaware
corporation.
We have reviewed the necessary documentation to conclude
that each of the entities is duly organized and in existence.
We have reviewed a Certification Regarding Daniels -Hauser Holdings,
which constitutes the partnership agreement of D -H Holdings,
a Certificate of Formation issued by the Minnesota Secretary
of State and Limited Partnership Agreement creating North Central,
and a Certificate of Formation issued by the Delaware Secretary
of State and Articles of Incorporation creating Hauser. Additionally,
8 -
2? F4
L.
we have reviewed an Application of Foreign Corporation for a
Certificate of Authority to Transact Business in Minnesota on
behalf of Hauser. The genuineness of all documents and authenticity
of all signatures has been presumed. The organizational existence
of Daniels has been certified by the Buyers.
To facilitate an understanding of the transaction, it should
be kept in mind that each of the aforementioned organizations
is a separate and distinct entity. North Central, Hauser, and
D -H Holdings are entities which have been newly created for
the purpose of accomplishing Transaction #2.
From the information we have reviewed, it appears that
Daniels is an original member of the Buyer group to acquire
the stock in Group W Cable, Inc. from Westinghouse Broadcasting
and Cable, Inc. (Transaction #1). The Purchase Agreement allows
Daniels to assign its rights to purchase stock to other entities.
We have reviewed a certification indicating that Daniels has
assigned its rights -and obligations in Transaction #1 to D -H
Holdings. In effect, D -H Holdings is now a member of the Buyer
group.
Upon the closing of Transaction #1 in June of 1986, D -H
Holdings, in conjunction with the other four members of the
Buyer group, will own 100 percent of the outstanding stock in
Group W Cable, Inc. (Group W -New York). D -H Holdings' approximate
proportion of ownership is 3.6 percent. The Buyer group has
agreed among themselves how they intend to operate Group W -New
York, after the closing of Transaction #1. The Buyers have
agreed to elect certain individuals to the Board of Directors
to supervise the business of.Group W -New York.
9 -
2: 1
D -H Holdings, has an option to purchase and immediately
receive transfer of your specific system, from Group W -New York
at any time after the closing of Transaction #1. If D -H Holdings
exercises this option, it will immediately transfer your system
to North Central. Until such time as D -H Holdings exercises
this option, North Central will manage your system, which will
remain owned by Group W -New York.
The apparent reason for the complexity and subsequent transfers
of your system is certain potential tax ramifications arising
from the transactions. Congress is currently considering legislation
which may dramatically increase the tax liability of the transaction.
It is possible that enactment of the tax legislation or other
unanticipated changes in the business or regulatory climate
may delay the exercise of the option to purchase by D -H Holdings
and the subsequent transfer of your system to North Central.
Nevertheless, the management of your system will be immediately
undertaken by North Central, as agreed by the Buyers, upon the
conclusion of Transaction #1. Although Transactions #1 and
#2 require your approval, this change in management of your
system can legally occur without your approval. .
III. STANDARD OF REVIEW
The Commission's task in Transaction #2 is to review the
information provided regarding the transaction and to recommend
to its member Cities approval or denial of the transfer of stock
and transfer of the franchise from Group W, Inc. to D -H Holdings
and subsequently to -North Central. The Cities must make the
10 -
2 -',� -i
ultimate determination. The franchise and state statute provides
the Cities with the express right to approve or disapprove the
transfer of ownership in Group W of the North Central Suburbs,
Inc. and the transfer of the franchise. The standard of review
is that the Cities' consent shall not be unreasonably withheld.
For the purpose of determining whether it will consent to the
change in control and transfer of the franchise, the Commission
has made inquiry into the legal, technical, and financial qualifications
of North Central.
In analyzing the proposed transaction, the Commission must
consider whether North Central meets all of the criteria originally
considered in initially granting the franchise to Group W of
the North Suburbs, Inc. Note, however, that this analysis is
not a comparison between Group W and North Central to determine
which is more qualified. Rather, the analysis is an application
of the same factors to determine whether North Central satisfies
the standards to the -reasonable satisfaction of the City.
The Commission should consider the following factors in
determining whether to recommend approval or denial of the transfer
to North Central:
1) Legal and character qualifications of North Central;
2) Technical ability of North Central; and
3) Financial stability of North Central.
IV. ANALYSIS
The sources of information used in examining the legal,
technical, and financial abilities of North Central include
the Municipal Request For Information and other supplemental
information provided by Group W and North Central.
2qK
r A. Legal Qualifications
The legal qualifications standard relates primarily to
an analysis of whether the entities involved in the transaction
are duly organized and authorized to own the cable system and
franchise. Certain entities, such as certain television broadcasting
stations, national television networks, and certain telephone
companies, are prohibited by Federal law from owning, operating,
or controlling a cable television system. We have reviewed
the Federal cross -ownership prohibitions and have determined
them to be inapplicable. Moreover, we have been provided with
the necessary documentation which shows that each of the entities
involved in this transaction are duly organized and authorized
to own a cable system and franchise.
The character qualifications of North Central, as well
as the principals of the organization, are satisfactory. North
Central has provided information showing that neither it nor
any principal has ever been convicted in a criminal proceeding
of any crimes against character.
Based upon our review of the information provided, it would
appear that the Commission or Cities could not reasonably withhold
approval of the transfer based upon the legal or character qualifications
of North Central.
B. Technical Ability
The technical ability factor relates to the technical expertise
and experience in operating and maintaining a cable system.
This analysis focuses upon the current and former experiences
of the transferee. Since North Central is a new entity, it
I has not directly owned or operated any cable systems. Therefore,
the ability of its managing principals must be reviewed. Information
has been provided concerning such other individuals' and entities'
experiences in owning, operating, and managing cable systems.
Hauser Cable Communications, Inc., as general partner of
North Central, will be primarily responsible for the management
of North Central. A majority interest in Hauser will be held
by Gustave M. Hauser, or a company controlled by Mr. Hauser.
Additionally, John D. Evans, or a company controlled by Mr.
Evans, will also own stock in Hauser.
Moreover, Hauser has stated that it intends to enter into
a standard management agreement with Hauser Communications,
Inc. ("HC") to be responsible for the day-to-day supervisory
management of North Central and the cable systems.
The information which we have reviewed indicates that Mr.
Hauser, Mr. Evans, and HC have extensive cable management capability
and experience sufficient to satisfy the technical ability factor
as applied to your respective cable system. Mr. Hauser is Chairman
and Chief Executive Officer of HC, Arlington Cable Partners,
and Suburban Cablevision Company. He formerly served as Chairman
and Chief Executive Officer of Warner Amex Cable Communications,
Inc. He has been involved in cable television and other electronic
communications since the early 19601s. Mr. Evans, as President
of HC and Arlington Cable Partners, has 13 years of management
experience in the cable television industry. He manages a 34,000
subscriber cable system in Arlington, Virginia and a 33,000
subscriber system in Brooklyn Park, Minnesota. He has also
- 13 -
2-7 M
served as System and Regional Manager for over 90,000 subscribers
in Columbus, Ohio, for American Television and Communications.
Hauser Communications, Inc., which will be the manager
of your cable system, has experience in managing the Arlington
System, Brooklyn Center system, and is intending to acquire
a 23,000 subscriber system in Montgomery County, Maryland.
Based upon our review of the information provided, it would
appear that neither the Commission nor Cities could reasonably
withhold approval of the transfer based upon the technical ability
of the transferee.
C. Financial Stability
The financial stability factor relates to whether the transferee
has the financial resources available or committed to not only
acquire the system, but also to meet the existing franchise
requirements. The Commission has engaged Mr. Kevin P. Cattoor,
Financial Communications Consultant, to undertake a review of
this factor. Mr. Cattoor has prepared an independent report
of his analysis and the Commission is referred thereto.
D. 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 Municipal Request For Information. The
most significant factor to be considered is whether the cable
franchise will be transferred intact and whether North Central
will agree to comply with all existing franchise requirements.
The information which we have reviewed indicates that North
Central is not currently requesting any franchise modifications
- 14 -
2�1�
as a condition of the transfer. Moreover, the Purchase Agreement
among the parties to Transaction #1 specifically prohibits any
franchise modifications. In other words, all systems are to
be sold and transferred "as -is". Consequently, North Central
will agree to receive transfer of the franchise intact.
With respect to the franchise requirements regarding the
existing service area and line extensions, North Central has
indicated that it will comply with the existing franchise requirements
and obligations. The construction practices of North Central
regarding aerial and underground installation and standards
will also conform to existing franchise requirements. North
Central has not propos'ed any modifications to the channel capacity
or system design and will assume all existing franchise obligations
regarding future activation of channel capacity and upstream
capabilities, interconnection, performance testing and system
maintenance and customer complaint policies. North Central
does not propose any addition or deletion of any programming
services.
In the area of local programming and public access, North
Central will agree to assume all existing franchise commitments,
including equipment, facilities, staff, and funding. With respect
to the information contained on Form M, North Central has indicated
a desire in the future to divest itself of the local origination
and access programming functions and transfer these obligations
to the Commission or Cities. Additionally, North Central would
desire the creation of a non-profit corporation to administer
the community programming commitment and would propose a contribution
- 15 -
of $ .45 per subscriber (with an annual escalation) toward access
in addition to the 5 percent franchise fee.
It is essential that the Commission understand that the
information ccntained in Fcrm M is not a current request for
a franchise modification. Moreover, the statements made are
not a definite proposal which the Commission or Cities must
accept should it approve the transfer to North Central. North
Central will agree to accept the transfer of the franchise as
it exists without any modification of community programming
obligations. To the extent North Central would seek any franchise
modification subsequent to a transfer, the Commission would
be free to accept or reject any proposal at that time consistent
with any applicable law which would affect the negotiations
at the time they took place.
It is also our opinion that any statements made by North
Central with respect to its desire to seek any franchise modifications
in the future are legally irrelevant to consideration of the
transfer under current applicable law. In other words, the
Commission or Cities could not unreasonably withhold approval
of the transfer based upon anticipated requests for future franchise
modifications. Current litigation involving the new Federal
law related to "commercial impracticability" may affect this
analysis. Prior to your final consideration, the most current
legal decisions in this area must be reviewed. The key point
for the Commission's consideration at this point is whether
North Central will agree to accept the existing obligations
and commitments in the franchise. To this extent, North Central
has agreed.
- 16 -
2-
4
With respect to proposed rates, North Central is not proposing
any changes in the applicable franchise requirements and will
operate consistent with federal law in setting rates. For those
rates which are deregulated under federal law, North Central
is permitted to charge whatever it desires. Any regulated rate
will remain the same.
North Central has also indicated that it will comply with
all federal, state, and local laws relating to discrimination,
equal opportunity employment programs and affirmative action
programs. Moreover, North Central will abide by all existing
franchise requ-irements relating to staff positions and managers,
to the extent these issues are subject to the Commission's control.
Based upon our review of the information constituting other
appropriate factors, and recognizing the uncertainty as to judicial
interpretations of the 1984 Federal Cable Act, it does not appear
that there is any legally justifiable reason to withhold approval
of the transfer to North Central in the areas of legal, technical
or other relevant considerations.
The area of financial ability to perform the franchise
commitments appears to be the only remaining question for the
Commission's consideration, albeit an extremely significant
consideration. Upon the completion of Mr. Cattocr's analysis,
a staff recommendation as to financial ability will be forthcoming.
Until such time, the Commission should not approve or disapprove
Transaction #2.
- 17 -
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18
RESOLUTION RECOMMENDING APPROVAL
REGARDING THE TRANSFER OF OWNERSHIP
OF GROUP W CABIE, INC.
WHEREAS, the North Central Suburban Cable Communications Commission
II (hereinafter "Commission") is delegated the authority
and responsibility to coordinate, administer and enforce
the Cable Communications Franchise Ordinances, as amended,
of its Member Cities pursuant to the terms of a Joint and
Cooperative Agreement for the Adir.inistration of a Cable
Television Franchise; and
WHEREAS, Group W Cable, Inc., a New York Corporation (hereinafter
"Group W Cable"), by and through Group W Cable of the North
Central Suburbs, Inc., a wholly-owned subsidiary, owns,
operates and maintains a cable television system in the
Meirf.er Cities pursuant to the terms and conditions of the
Cable Communications Franchise Ordinances, as amended,
in effect in the Meurer Cities; and
WHEREAS, Group W Cable's parent corporation, Westinghouse Broadcasting
and Cable, Inc., an Indiana Corporation (hereinafter "Westinghouse"),
desires to sell and otherwise transfer all of the issued
and outstanding shares of the capital stock of Group W
Cable to Century Southwest Cable Television, Inc., a Delaware
Corporation; TCI Holdings, Inc., a Cclorado Corporation;
American Television and Communications Corporation, a Delaware
Corporation; and affiliates of, or subsidiaries or partnerships
owned or controlled by, Houston Industries Incorporated,
a Texas Corporation, Comcast Corporation, a Pennsylvania
Corporation, Daniels & Associates, Inc., a Delaware Corporation,
2:7S
and American Television and Communications Corporation
(hereinafter "Buyers"), and thereby transfer control of
Group W Cable to the Buyers; and
WHEREAS, Group W Cable has requested the consent from the Member
Cities to a change in ownership and control of Group W
Cable to the Buyers and the transfer of ownership and control
and ultimate transfer of the Cable Communications Franchise
Ordinance as amended to North Central Cable Communications,
L.P.; and
WHEREAS, the Commission has reviewed the legal, technical, and
financial qualifications of Buyers and found them adequate
to own and operate Group W Cable; and
WHEREAS, the Commission is continuing to review the legal, technical,
and financial qualifications of North Central Cable Communications,
L.P. as it relates to the transfer of ownership and control
and ultimate transfer of the Cable Communications Franchise
Ordinance, as amended; and
WHEREAS, the Commission is only willing to recommend to its
Member Cities approval of the transfer of control of Group
W Cable to Buyers subject to the actual closing of the
stock sale in June, 1986; and
WHEREAS, the Commission has been advised by Group W Cable that
the approval of such stock transfer to Buyers shall in
no way be interpreted as an approval of the transfer of
ownership and control and ultimate transfer of the Cable
Communications Franchise Ordinance to North Central Cable
Communications, L.P.
NOW THEREFORE, BE IT RESOLVED by the North Central Suburban
Cable Communications Commission II:
1. That the North Central Suburban Cable Communications Commission
II recommends to its Member Cities approval by resolution
of the sale by Westinghouse of all of the issued and outstanding
shares of the capital stock of Group W Cable, Inc. and the
transfer of control of Group W Cable, Inc. to the Buyers
subject to an actual closing of the stock sale transaction
in June, 1986 pursuant to the terms and conditions currently
understood by the Commission as evidenced by the Notice
of transfer to said Commission and its Member Cities.
2. That the approval of the transfer of ownership and control
of Group W Cable, Inc. to the Buyers is hereby deemed not
to include any approval, either express or implied, as to
any subsequent transfer of ownership or control or transfer
of the Cable Communications Franchise Ordinance to North
Central Cable Communications, L.P., or to any other entity
or individual.
3. That the North Central Cable Communications Commission II
will continue to review the request of Group W Cable, Inc.
regarding a change in control and transfer of the Cable
Communications Franchise Ordinance as amended to North Central
Cable Communications, L.P. and will in the future prepare
a separate recommendation for its Member Cities regarding
such change in control and transfer.
4. That this recommendation and its acceptance by the Member
Cities shall be null, void and of no effect should any entity
or individual successfully litigate that the recommendation
2a U
3 -
s
or approval is also an approval, either express or implied,
as to any subsequent transfer of ownership or control or
transfer of the Cable Communications Franchise ordinance
to North Central Cable Communications, L.P., or to any other
entity or individual.
5. That this approval is specifically conditioned upon payment
in full prior to an actual closing of the stock sale transaction
in June, 1986 of all expenses incurred by Commission related
to the Request for Approval of Transfer dated February 4,
1986, including those related expenses incurred prior to
February 4, 1986, but incurred in preparation for the receipt
of the Request for Approval.
The above listed resolution was moved by Commission Director
, and duly seconded by Commission
Director
The following Commission Directors voted in the affirmative:
The following Commission Directors voted in the negative:
The above resolution was duly adopted this day
of , 1986.
ATTEST:
- 4 -
27 V
i
GROUP
GIABLE
Group W Cable, Inc., A Subsidiary of
WESTINGHOUSE BROADCASTING AND CABLE, INC.
888 SEVENTH AVENUE. NEW YORK. NY 10106 (212) 247.8700
April 7, 1986
Thomas D. Creighton, Esq.
O'Connor & Hannan
3800 IDS Center
80 South 8th Street
Minneapolis, MN 55402-2254
Re: North Suburban Cable Commission;
Quad Cities Cable Communications Commission;
North Central Cable Commission;
Burnsville -Eagan Cable Communications Commission
Dear Mr. Creighton:
Reference is made to the "Notice Regarding Change of Control
of Ownership of Group 41 Cable, Inc." dated February 4, 1986 and
the "Notice Regarding Consent to Transfer Franchise" on behalf of
North Central Cable Communications, L.P. Copies of both notices
are attached for your reference.
The Notices concern consent for two distinct and separate
transactions. The first is the change in control and ownership
of Group 41 Cable, Inc., wherein the stock of Group W Cable, Inc.
now held by Westinghouse Broadcasting and Cable, Inc. will be
transferred to a group of buyers, which buyers are more fully
described in the attached Notices. The second transaction
requests consent for the group of buyers to transfer the
particular cable systems to North Central Cable Communications,
L.P. This second transaction is now envisioned to take place --
assuming express municipal consent is ultimately obtained -- at a
future date after the first transaction has been consummated.
You have advised us that because of numerous questions
regarding North Central Cable Communications, L.P., that the
above -captioned Commissions are unable at this time to approve
the second transaction, pertaining to the transfer of the
particular cable systems to North Central Cable Communications,
L.P. However, you have advised that these Commissions could now
consider the first transaction separate and apart from the second
transaction.
14 71 B Group W Tetevrs+on Grot p W Radio + Group W Clete
Ftlmatton AsscCtatt:S • Group W Productions • Group YJ Satetuda Canmwj�cat+ons • Group W Te:ewsron 531es
HGme Theater NeIAWK • MuraK • Group W Had.o Saes • rVSC
Z.4 W
Thomas D. Creighton, Esq.
April 7, 1986
page two
This letter is formal notice to you that Group W Cable, Inc.
specifically requests that you bifurcate your consideration for
consent and that you immediately consider consent to the change
of control and ownership of Group W Cable, Inc. -- the first
transaction -- separate and apart from the second transaction --
the transfer to North Central Cable Communications, L.P. In
making this request for bifurcation, we understand that you will
later separately consider the ultimate transfer of the cable
systems by the group of buyers to North Central Cable
Communications, L.P. We also acknowledge and represent that your
separate consideration and any ultimate consent of the first
transaction shall in no way be construed, interpreted or viewed
as consideration or consent to the second transaction. Consent
to the First transaction will have absolutely no effect
whatsoever upon the second transaction and unless and until the
above- captioned Commissions actually grant express written
consent to the second transaction, there will be no acceptance or
consent by such Commissions to the second transaction regardless
of their actions ,respecting the first transaction.
Thank you very much for your time and attention. I hope this
clarifies the matter. If you have any questions, please contact
me directly.
Very truly yours,
Louis J. Briskman
Vice President
LJB/ddb
Enc.
cc: North Central Cable Communications, L.P.
Buyer's Group
1471B
2-7X
2
February 4, 1986
NOTICE REGARDING CHANGE IN CONTROL
The stock of Group W Cable,'Inc. is'being sold to a group of buyers,
including five cable operators. As a result of that sale of stock and
pursuant to Minnesota Statute 238.083, the undersigned respectively requests
your consent to change in control of ownership of Group W Cable, Inc. A form
which recognizes that sale of stock and which specifically identifies the
buyers, and all of the subsidiaries or affiliated companies which will be
involved in the sale is attached for your review and consideration.
Under the buyers' current plan, one of the buyers of the stock will
have primary responsibility for the operation and management of the Group W
Cable system which serves your community. The enclosed form also recognizes
that designation and chain of responsibility and requests your approval of the
ultimate transfer of the franchise interest and system facilities to that
particular and responsible buyer.
Thank you for your continued support and cooperation. We at Group W
Cable, Inc. stand ready to assist you in this change of control process.
Group W Cable, Inc., a New York corporation
B ? "
y�
Title; Ytei President & Assistant Secretary
23 y
4'Jptp.a: v i
ft
February 4, 1986
N4lIC REMRDIN6 CHANGE IN CgBTRUL
OF CWWERSHIP OF -GROUP W CABLE. INC.
The stock .of Group W Cable, Inc. is being sold to a group consisting
of the undersigned as shown below. its a result of that sale of stock and
pursuant to Minnesota Statute 238.083, the undersigned respectively request
your consent to change in control of ownership of Group W Cable, Inc. A form
which recognizes that sale of stock and which specifically identifies the
buyers, and all of the subsidiaries or affiliated companies which will be
involved in the sale is attached for your review and consideration.
Under the buyers' current plan, one of the buyers of the stock will
have primary responsibility for the operation and management of the Group W
Cable system which serves your community. The enclosed form also recognizes
that designation and chain of responsibility and requests your approval of the
ultimate transfer of the franchise interest and system facilities to that
particular and responsible buyer.
Thank you for your attention and cooperation. bre look forward to
beginning .•thi-snow relationship aad we•stand. ady to.As;1s1 WUJA-,t4I*,4KaO%W..4; �,_..�...:
change of control process.
Century Sout t Cab14 Television, Inc.,
a Delaware TOP0.7
r
_4
Tit 7 e
,�'
`-XI--Holdings, Inc., a Colorado corporation
By:
Title /
American television and Communications
Corporation ("ATC'), a Delaware corporation
on behalf of itself and on behalf of its
joint -venture consisting of ATC and
KBLCOH, Incorporated, a Texas corporation,
which is a wholly-owned subsidiary of
Houston Industries, Incorporated
By:
Title
2:7 2-
ri
,NOTICE .REGARDING CONSENT TO'NANSFER FRANC
•rne stock of Group
buyers which P W Cable, Inc. is being sold to a
transfer the' ne a uent to obtaining control of ownership in
ownershi grOtip of
affiliates of P and control of particular cables ' tense t,�
its members.
systems to
The and control Of intends to cause Group
of Group W Cable of RamsW Cable to transfer ownership
Cable Communications, L.P., a Minnesota Jim Inc to
limited North Central
Pursuant to partnership.
requests your conMinnesota Statute
238.083
er f thethe franchiselanddthesSectfully
business and facilities to North Central Cable
Communications, L.P. s
A form of consent to the
Cable Communications, L.P, is attachedforto
consideration. North Central
Your review and
Thank you for your continued support stand .ready .to assist
you I'm this and cooperation. We
proce
NORTH CENTRAL CABLE COMMUNICATIONS, L.P.
4780 IDS Center
Minneapolis, Minnesota
C/O Hessian McKasy and Soderberg, P.A.
By: Hauser Cable Communications, Inc.
General Partner
Gustave Hauser
Chairman
2� AAt
KEVIN P. CATTOOR
FINANCIAL COMMUNICATIONS CONSULTANT
2224 73rd COURT NORTH
MINNEAPOLIS, MN 55444
Bus. (612)-370-0688
April 3, 1986 Res. (612)-566.5294
Mr. Ralph Campbell
Burnsville/Eagan Cable Cc uunication Commission
3830 Pilot Knob Road
PO Box 21199
Eagan, MN 55121
Dear Ralph:
As we discussed, I am enclosing the following:
1) Final copy of my Preliminary Analysis of the North Central Communications
Company, L.P. (North Central) Financial Projections.
2) A copy of Group W's Budget Variance Reports (BVR's) as of 12/31/85 for your
system identifying revenues, expenses and cash profit.
3) A copy of Group W's capital expenditure estimate as of 12/31/85, broken down by
system and by general expenditure category.
The financial analysis enclosed represents only a preliminary analysis of North
Central's plan. I've requested additional information from North Central so a complete
analysis can be performed. Assuming that North Central is responsive in supplying the
additional information, I will try to give you and your Commission a good understanding
of what the impact of the operating assumptions have on North Central's plan and for
the communities.
The enclosed financial analysis does not include a review of the projected financial
performance of your system individually. If you wish to pursue the potential financial
performance of your system individually, you may call me and we can discuss this
matter.
In order to determine how Group W is currently operating your system, I requested frau
Tom Sharrard a copy of the BVR's noted in 2) above. I've enclosed these reports for
your information. At this point, I am going to proceed to request additional
information from Mr. Sharrard supporting the BVR's (employment levels, local access,
miles of plant, etc.).
As we discussed previously, I would appreciate it if you would please summarize certain
requirements that Group W is obligated to provide in operating your system under the
current franchise agreement. It is necessary that you provide only those requirements
that have a significant financial impact (staffing, local programming facilities and
equipment, system construction, etc.) to either North Central and/or your communities.
This information is necessary for me to perform a complete analysis of North Central's
plan.
Should you have any questions, please do not hesitate to call me.
Sincerely,
,4,e: (11e`�
27 2R
PRELIMINARY FINANCIAL ANALYSIS
OF THE
NORTH CENTRAL COMMUNICATIONS COMPANY, L.P.
FINANCIAL PROJECTIONS SUBMITTED TO THE
BURNSVILLE/EAGAN CABLE COMMUNICATIONS COMMISSION
April 3, 1986
Prepared By:
KEVIN P. CATTOOR
FINANCIAL COMMUNICATIONS CONSULTANT
2224 - 73rd Court North
Minneapolis, Minnesota 55444
(612) 370-0688
27 CC
PRELIMINARY FINANCIAL ANALYSIS
This report represents a preliminary analysis of the
cable television financial projections presented to the
Burnsville/Eagan Cable Communications Commission (Commission)
by the North Central Cable Communications Company, Limited
Partnership (North Central).
The financial projections submitted by North Central
in the Municipal Request for Information Regarding Request
for Approval and Transfer (Response) propose for the acquisition
and operation of six cable systems in the Twin Cities area.
The six cable systems proposed to be acquired by North
Central from Group W, Inc. (Group W) are listed below:
Group W Cable of the North Central Suburbs, Inc.
Group W Cable of Quad Cities, Inc.
Group W Cable of Burnsville/Eagan, Inc.
Group W Cable of Columbia Heights/Hilltop, Inc.
Group W Cable of North Suburbs, Inc.
Group W Cable of Ramsey/Washington, Inc.
It should be noted that this report represents a preliminary
analysis of North Central's proposal to acquire and operate
the six cable systems above on;a consolidated basis. Statements
documented in this report in no shape or form represent
an analysis of financial projections for any of the six
- cable systems individually. Additionally, all statements
made herein are subject to a final analysis to be completed
at a later date.
The purpose of performing a financial analysis of
North Central's projections is to give the Commission a
better understanding of North Central's plans for purchasing
2-q DD
r
and operating the systems and determine whether an economically
viable plan has been proposed. In performing the analysis,
concentration is placed on the following:
1. Determine terms of purchase price and whether
the price is properly reflected in the projections.
2. Determine if proposed financing is adequate to
purchase and operate the cable systems and whether
the terms of financing are properly reflected
in the projections.
3. Determine if assumptions used to project revenues
and expenses are reasonable and whether operating
margins projected therefrom are adequate enough
to service debt, and generate a favorable return
on equity investment.
4. Determine that the income tax assumptions used
in the projections are reasonable and properly
reflected.
5. Determine whether the capital expenditures projected
reasonably reflect the following:
a. Expenditures required to be made to complete
the construction of the systems within the
franchise agreement.
b. Expenditures required to be made in the
future are in compliance with line extension
policies or other requirements as defined.
In order to perform a complete financial analysis
of North Central's plan additional information will be
required. The financial projections included in North
Central's Response do not document many of the assumptions
used to develop their plan. Therefore, financial analysis
performed to date is preliminary. The completeness of
the financial analysis documented in a final report will
be dependent upon North Central's response to the questions
attached. In performing a financial analysis to date the
following observations are made within each of the five
categories listed above:
- 2 -
2,4 EE
1. Purchase Price
North Central has indicated that the purchase price
is estimated at $56,660,000. If one assumes that this
price is final, North Central will be paying approximately
$1,030 to $1,130 per subscriber. These amounts are calculated
using a base of 50,000 to 55,000 subscribers for the six
systems. This rate per subscriber approximates the market
rate paid for a cable system. Acquisition prices per
subscriber in the cable industry range from as low as $800
to as high as $1,200 per subscriber.
Another approach to determining the purchase price
of a cable system is to relate the price to the operating
cash flow (operating revenues less operating expenses before
depreciation, income taxes and interest) of a system.
Generally, cable systems sell at a factor of eight to ten
times current operating cash flow. This approach cannot
completely be applied to the purchase of the Group W systems
as current operating margins (operating cash flow as a
percentage of operating revenues) are significantly below
the industry averages. However, if one were to take the
purchase price of $56,660,000 and divide by nine, you would
determine an operating cash flow level of $6,296,000.
In reviewing North Central's projected operating cash flow
(assuming implementation of proposed community programming
funding) for 1987, it is noted that they project $6,981,000.
The fact that these amounts approximate each other may
- 3 -
2-4 FT7
support that North Central appears to be paying a fair
market price for the Group W systems.
Additional information has been requested from North
Central regarding the purchase price for the Group W systems.
2. Financing
In reviewing North Central's plans for financing the
purchase and operation of the Group W systems, equity and
debt investment are anticipated. In North Central's Response,
it is indicated that the sources of financing are as follows:
Equity (and/or Senior Subordinated Debt) $13,000,000
Daniels Equity 7,660,000
Senior Debt 42,200,000
Operations 1,500,000
$64,360,000
The above investment will be used to finance the following:
Purchase Price
Closing Costs and ,
Working Capital
Capital Expenditures
Interest
Total
$56,660,000
1,000,000
3,700,000
2,800,000
$64,160,000
The capital expenditures and interest shown above both
represent costs which are projected for the first six months
after the purchase is expected to close in June of 1986.
At this point, North Central's financing is not finalized.
North Central is proposing to obtain a total of $50,000,000
in Senior debt per Schedule B of Exhibit II in the Response.
Of the $50,000,000 in senior debt proposed, it assumed
in North Central's projections that $42,100,000 will be
drawn in the first six months of system operation. It
is noted that this amount does not agree with the $42,200,000
documented above. Clarification of this discrepancy should
4 -
2 :� &G-
be made by North Central. Additional debt financing of
$3,700,000 in 1987, $4,100,000 in 1988 and $8,000,000 in
1991 is proposed. These amounts total to $57,900,000 which
exceeds the amount of financing proposed on Schedule B
of Exhibit II. North Central should also clarify this
discrepancy.
Interest will be tied to either the prime rate, LIBOR,
or the Federal funds rate plus a margin. It is assumed
in North Central's projections that interest will cost
14% per year. North Central has also proposed that they
will repay the principal balance on debt investment in
ten years. All these terms for the senior debt as proposed
appear reasonable in comparison to other acquisitions in
the.communications industry but subject to North Central
finalizing the terms and conditions of financing.
It is uncertain at this point what the amount of equity
investment is going to be. On Schedule B of Exhibit II
in the Response, it is indicated that $20,660,000 will
be invested as equity and/or subordinated debt. Of this
amount, North Central indicates that the Daniels LP (Daniels)
will invest $7,660,000
in equity.
The
projections indicate
that Daniels will receive
a payout
of
$3,000,000 in 1988
-and $8,101,032 in 1991.
The terms
and
conditions of Daniels'
investment have not been revealed. They have been requested
from North Central. It is not determinable whether the
remaining $13,000,000 will be equity -and/or subordinated
debt. North Central in their projections is assuming that
a« - 5
2'-�-HR
the entire $13,000,000 will be equity. However, to the
extent that any of the $13,000,000 is subordinated debt,
North Central's projections would need to reflect this
change. Dependent upon the terms of any potential subordinated
debt, it could have a significant impact upon North Central's
ability to service the debt and interest.
On a preliminary basis, it appears that the resources
needed to finance the acquisition and operation of the
six cable systems are not clearly identified. Additionally,
it appears that the projection could change significantly
based upon the levels of equity, subordinated debt and
senior debt ultimately invested. It is important to verify
what the financing arrangements are going to be in order
to accurately assess the economic viability of North Central's
proposed venture.
3. Revenues and Exnenses
In reviewing the operating margins of the financial
plan, North Central is projecting an average margin of
40% over the 1011 years. This margin is consistent with
what mature cable systems are experiencing in the industry.
Margins can range from as low as 35% to as high as 50%.
It appears that North Central is projecting a favorable
relationship between revenues and expenses.
At this point, these are the only observations that
can be made. The projected operating margins are subject
to determining whether the assumptions used for projecting
revenues and expenses are reasonable. This review is subject
to North Central's response to the attached questions.
Imperative to North Central's plan are the following
assumptions:
1. North Central is proposing to purchase all six
systems and operate them on a consolidated basis.
2. North Central is anticipating that they will be
able to improve operating margins if the following
occurs:
a. Subscriber penetration levels will increase
from approximately 37% in 1986 to 50% in 1991.
b. Basic rates per month per subscriber are
projected to increase 5% in 1987, 12% in 1988,
and approximately 5-6% in the years thereafter.
c. Responsibility for all local origination
and access (community programming) will be
transferred to the Commission or cities.
4. Income Taxes
North Central has not projected that income taxes
will be paid in their plan. This appears to be an accurate
assumption as the tax basis of the property acquired (and
therefore tax depreciation) may be significant enough to
generate taxable losses through 1991. If North Central
is in fact a limited partnership, the limited partners
will be able to utilize the tax losses generated from the
system. It should be determined what the exact tax ramifications
are planned to be. Information has been requested in the
attached letter.
5. Caoital Expenditures
The scope for reviewing capital expenditures in North
Central's plan is certainly different from that in a plan
which requires a system to be built from the beginning.
Certainly the major investment in capital expenditures
for the Group W system has already been made. Therefore,
review of capital expenditures should concentrate on those
needed to improve the performance of the system and/or
those expenditures necessary to be in compliance with the
current franchise agreements. Documentation of the capital
expenditures is limited in North Central's plan. Information
has been requested from both North Central and the Cable
Administrator to evaluate the expenditures projected and
the expenditures required under the franchise agreement.
Summary
At this point, North Central's projected financial
plan lacks a significant amount of documentation and support.
The financing arrangements are not finalized. It is important
that the details of financing and operating assumptions
be determined in order to assess the economical viability
of North Central's-plan. Once the necessary information
is remitted, an analysis will be made to the economic viability
of North Central's plan. A specific analysis will be made
of the assumptions for local access programming.
The Commission at this point should begin to consider
the ramification of the following:
I. North Central is proposing to consolidate the
operations of all six systems. Is this an acceptable proposal
on behalf of the cable Commissions?
2. Is the Commission willing to accept North Central's
proposal for the Commission to become responsible for local
programming?
The answers to these two questions may determine the
alternatives the Commission may wish to consider.
8 -
27 KK
KEVIN P. CATTDOR
2224 73RD COURT NORTH
MINNEAPOLIS, MN 55444
March 25, 1986
Mr. John D. Evans
Arlington Cable Partners
2707 Wilson Boulevard
Arlington, VA 22201
Dear John:
I have reviewed your response to the Municipal Request
for Information Regarding Request for Approval and Transfer
(Response) as submitted to the Burnsville/Eagan Cable Communications
Commission (Commission). Per my discussion with you last
week I will need additional information in order to perform
a complete analysis of your financial projections. In
performing the analysis, I will concentrate on the following
areas:
I. Determine terms of purchase price and whether
the price is properly reflected in the projections.
II. Determine whether financing is adequate to purchase
and operate the cable systems and whether the terms
of financing are properly reflected in -the projections.
III. Determine whether the assumptions to project
revenues and expenses are reasonable and that operating
margins projected therefrom are adequate enough to
service debt and generate a favorable return on equity
investment.
IV. Determine that the income tax assumptions used
in the projections are reasonable and properly reflected.
V. Determine whether the capital expenditure projected
reasonably reflect the following:
a. Expenditures required to be made to complete
the construction of the systems within the franchise
agreements.
b. Expenditures required to be made in the future
are in compliance with line extension policies or
other requirements as defined.
.;john, I understand that some of -he ite:as above such
as purchase price and financing are .not finalized. To
2-:� LL
Mr. John D. Evans
Page Two
March 25, 1986
the extent that certain information is not final or information
not supplied, my report will conclude "subject to" or "except
for" the review of the items for which the information
was not final or not supplied.
I have attached to this letter my list of questions.
The questions are categorized into the areas stated above.
Look forward to hearing from you. Should you have
any questions, please do not hesitate to call.
KPC:abg
Enclosure
Sincerely,
Kevin P. Cattoor
2-4 MM
0
QUESTIONS FOR NORTH CENTRAL CABLE
COMMUNICATIONS COMPANY, L.P.
REGARDING FINANCIAL PROJECTIONS
SUBMITTED TO THE BURNSVILLE/EAGAN
CABLE COMMUNICATIONS COMMISSION
March 24, 1986
Prepared By:
KEVIN P. CATTOOR
FINANCIAL COMMUNICATIONS CONSULTANT
2224 - 73rd Court North
Minneapolis, Minnesom 55444
(612) 370-0688
2 w N v41
I. Purchase Price
1. On Form A of your Response, you indicate that
the total cost to the group of buyers purchasing all Group
W systems is approximately $2.1 billion. This amount you
indicate has been estimated by industry financial analysts.
Can you provide a summary of the analyst's estimate?
2. How is the $2.1 billion purchase price broken
down between the price for the stock, tax recapture, assumption
of certain liabilities etc.?
3. Would you please provide an analysis of how you
reconcile the $56,660,000 purchase price to North Central
with the total $2.1 billion purchase price for the group
of buyers?
4. Would you provide the detail for your $1 million
of closing costs and working capital as projected?
5. Can you break the $56,660,000 purchase price down
by system? If so, please provide a summary.
II. Financing
1. In Schedule B of Exhibit II, you indicate that
Daniels will invest $7,660,000 into this venture. What
are the terms of this investment?
2. The remaining equity to be invested may be in
the form of subordinated debt. Are there any new developments?
Is a definite portion going to be subordinated debt? If
so, please indicate.
3. What progress has been made recarding debt investment.
If you can provide any documentation substantiating the
amount urojected, please do so.
4. After the acquisition'is complete, what financing
will be available to cover capital expenditures and any
potential operating cash shortfalls that may occur?
III. Revenues and Expenses
1. What financial goals have you set for this system?
Please state at a minimum your goals in the following areas:
a. Operating margins
b. Subscriber penetration
V
Rate of "eturn on 4nve:t:-e :t (please _ndicate
rte z.^od of determining raze c-_ re zu_n )
2. Please provide a breakdown of your average subscriber
levels by individual system for each of =he 102 years projected.
In doing this, I need only the following for each franchise
area:
a. Households
b. Households passed
C. Subscribers (Basic and pay)
3. Please provide a breakdown of the average cable
miles by individual system for each of the 10� years projected.
4. How do you calculate average density/plant mile?
You've calculated 53. I calculate approximately 62. Please
provide a sample calculation.
5. Under your Homes Passed Data, you indicate that
growth of homes in area will be 2,920 per year. Is this
right? Or should it be 2% per year on the beginning homes
in franchise area each year?
6. How do you calculate average subscribers per year?
For 1987 I've taken the subscribers beginning (57,986)
and subscribers ending (64,565), added them and divided
by two. My average is 61,275, your average is 60,891.
Please explain.
7. What assumptions have you made regarding price
increases for the basic and pay services?
8. Under your expense assumptions, please provide
a detailed summary of the salaries and positions projected.
9. Please document your assumptions for pay TV service
fees.
10. Please document your assumptions for satellite
signal fees.
11. Please document your zssummptions for copyright
fees.
12. Please provide your assumptions for payroll taxes
and c=oup insurance.
13. Please provide your assumptions for the following
Operating Expenses:
a. Repairs and maintenance
b. Auto accident expense
C. System maintenance
d. Dasa processsing service
e. Postage b_'_-_r:g
f. Converter maintenance
g. Vehicle operating expense
h. Light, heat and power
i. Pole rent
j. Productivt?
2 -
Z �V9
14. Please provide your assumptions for the following
Administrative Expense:
a. Repairs and maintenance
b. Light, heat and power
C. Telephone expense
d. General insurance
e. Office rent
f. Legal fees
g. Professional consultant
h. Bad debt write-off
i. Employee benefits
j. Equipment rent
15. Please provide your assumptions for the following
Marketing Expenses:
a. Telephone market
b. Other market/Data processing
c. Contract sales
d. Direct sales OV -RD
e. Direct mail promo
f. Mass media promo
g. Subscriber maintenance
h. Creative services
i. Less Coop dollars
16. For all your expenses what general inflation assumptions
have you made.
17. Overall, would you please discuss how you intend
to increase the current subscriber penetration levels?
What do you plan zo do that Group W hasn't been successful
at?
18. Overall, would you please address the current
financial performance of each Group W system. Can you
provide financial statements (balance sheet and income
statement) supporting their performance?
19. Would you please address how your plans for operating
the system differ from tha;. of Group W's? Please cover
the following specific items:
a. Employee levels
b. Local origination (what is Group W currently
obligated to?)
c. Major administrative expenses
_v. T_nccme Tax Assumpzlons
1. how do you determine the allocation of purchase
price to the following:
- 3 -
2 77- Q. Q
a. Goodwill
b. Franchise fee
c. Loan origination fee
d. Organization fee
e. Property
2. How are the profits and losses from the system
being treated for tax purposes?
V. Capital Expenditures
1. What are the assumptions supporting the capitalized
tv operating expenses below:
a. Office electronics
b. Vehicle capital leases
c. Billing computer
d. Telephone system
2. How do you compute projected costs for install
material, house install labor capital, and sub -contract
labor?
3. What's the basis for the converter costs projected?
4. Please address the current plant miles constructed,
what the franchise requires to be constructed and how these
relate to the capital costs that you've projected.
5. How do you calculate your costs for construction?
Please address in detail the costs per drop and distribution
cost per mile. Please substantiate your estimate.
6. Please provide documentation for any other capital
expenditures not mentioned above.
2 T n',
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