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06/25/1986 - 00011572150 , THE MINCli'ES OF THE SPECIAL MEETING OF THE FRIDLEY CITY COUNCIL OF JUNE 25, 1986 The Special Meet,ing of the Fridle� City Counczl was called to order at 7:38 p.m. t� Mayor Nee. PLIDGE OF ALLEGIIINCE: NL�yor Nee led the Council and audience in the Pledge of Allegiance to tne Fl ag. ROLL CALL• MENBFRS PRESINT: Mayor Nee, Councilman Earnette, Councilman Schneider, Coimcilrr�n FitzFatrick, and Councilman Goodspeed NIENBFRS PBSINT: None ADOPTION OF AGEI�IDA: Mayor P7ee stated the administration requested two items be added to the agenda as follaas: (1) Consideration of a�ermit for a fxxewcrks display for the 49er's on June 29, 1986; and (2) Con�ic]eration of �nange Orcler P:o. 2 ' for Street Improvene.nt Pro�ect, ST 1986-1 & 2. NDTION ky Coimcilman Barnette to aclopt the ayenda with the ahove aclditions. Seoonded k� Councilman Goodspeed. U�on a voice vote, al] voting aye, Mayor Nee declared the motion carried unammously, TRANSFER OF CABLE TELEVISION FRANCHISE FROM SCI HOLDIAIGS, INC. TO NORIEL CABLE ASSOCIATES: Mayor Nee reoperied the public heaxing, which ha� been cont�nued on June 2, 1986, on the matter of the transfer of the Cabie Tel�rision franchise. Mr. Gerald KazRa, President of Nortel Cable Associates, state� ther� was a lot of doc�unentation prwided at the last meetiny and the3 have replied, in writing, to the prelimirr�ry and final re�arts. D4r. Kazma stated a letter was received frcm Mr. M3tz in wluch he raiaed three c�uestions relating to local origir�tion, public access and super heaaenc3s. Mr. Kazma stated in rec�rd to loeal origination� which is required unc3er Section 405 of the Cable Franchlse Ordinance, Storer supplies 2-1/2 people for support of local proc�ramming and Channel 3 is set aside far this pur�se. He stated Nortel's commitanent will mirror Storer's for the rsnainder of the franchise term. and the number of hours, persc�nnel ancl equi�znent the� have will all be the same. P�ir. Kazma stated he bel ieved a c+ommitrnent was made to the Cable Teleaision Cor�unission and Nortel will abide � i� the franchise and will prwide local origznation programrnzna, and will �minue with the renewal of the new franchise, Iie stated this �olnt is not an 15sue with Nortel. -1- , � ' COUNCIL MEEPING OF JUNE 25, 1986 Mr. Kazma stated in regard to the �cond question xaised by ML, Matz, all access requ�.rsnents oontained in the current franchise will be honored by Nortel. He stated there would be one channei far �ublic access, one For goverrment access and one for educational access. Mr. Kazma stated all equipment donated by Storer will remairz the grcperty of access and be maintained pursuant to Section 405 of the franchise orc7snance. He sLated ariy addttional e�uignent or personr�el needs will cantinue to be L-unded by the franchise fees Faid to the City. Mr. Kazrna stated they have noted the Storer �mmitment for further grants to access and iJortel ackr�owledges ancY agrees to tnose in the renewal iranchise. Mr. Kazma stated the other question ra��d Yr� ��7r. Nh�. concerned the sapec headend. He stated the� have decided not ta utilize one super headend in St. Louis Park, Bloanington and Fridle� and wil] continue with indivicival headends. He stated Nortel will muritain Storer's sup�ort to proGramrning as it is naa and accepts it as it pertains to arry renewal agreanent. Mr. Kazma stated in reference to the final reXort, it �ints out thac Nortel has the legal and techmcal qualificat�ons, i�ut an area of concern relares mainly to financing. Mr. Kazma stateol Amz�K is willinq to guarantee all the prwisions of the franchise; haaeaer, Coimtrysicle Cable cannot offer that guarantee. He stated Coimtryside Cable is rA�t an o�rator, rut an ir�vestor and is guaranteeing �3,OOO,D00 af the barilc debt to acc;uire the francYaise. He stated Countryside also has $1,500,000 more at risk in the frarichise and Amzak has $1,000,000 guaranteed under the �erfarmance. Mr. Kazma state� this amounts to $5,500,000 in yuararrtees and con�nifiierits. I3e felt this is all thEy can put at risk. F3e stated the systern w�11 have a iranchise bond to �ck up their performance in the amount of $500,000 and this would be reduced to $100,000, after the rebuild. He stated they are ready, willing and able to tackle the �ob and one wh�.ch the�r will noL neglect as they are di rectly involvecl. Councilman Schneider asked [�Ir. Kazma if tdortel was willang to support a level of commitrnent simil.ar to the existinc� franchise ana to which Nlr. Kazn�a answered in the affinnative. Mr. I�htz, attorrey for the Cable Teleaisior, Cu�nisslon, stated the Council has the final report. He stated it is reconunended if this r�uest L-or transfer of aanership is cnnsidered, the Cowlcil sho��ld take into accounL the legal and financial aspects of the buyer. Mr. Matz stated Nortel has sukmitted ample cbcumentation establishing their legal qual�ficat�.ons to �perate a cable telc-vision system in the City and, generally, believe the3 have the techmcal c�ualifacations. Mr. I+�itz stated he has two questions wkuch he beliEUes, in �rt, have been ansaered. Mr. P13tz stated his first mncern is whether i-he comFariy adec�{u�tely budgeted for headend converters to go to 54 channels as �rt cf the upgrading. I3e stated the other wncern was the lEVel of support the oom�airy woulci �rovide for local programming. He stated, l�ased on his experience with the Cable Telc�ision Commission, he widerstands the im�ortance of loc�l programming for this �nun�ity. He stated he thought the applicarit clearly i�entified -2- � r� COUNCIL MEEPING OF JUNE 25, 1986 1�� ' the leael � wmmitment to local progr�nming. Mr. Matz stated the financial qualificatioris of raorte� is another area of concern and perhaps the most significant L-ar the City. He stated the upgrachng w�].1 re7wre ex�nding the charu�el�� fran 35 tc 54 and instaTling addressable oonverters to all subscribers. He statea these are the twc important hardaare imprwenents to the syst�i. Mr. I�tz stated, based on the revi�a lx Dan P.ichards, Flnancial Cr�nsultar�L, Nortel's financial plan requires the achieve�ment of basic service penetration of 54.64 by 1996 compared to the present basic service penetrat�.on of 39.6g. He shated Storer's ranye was frorn 36% to 410 and is consistes�t with what is happemng in the rest oi the metropolitan area. A7r. Matz revieaed the kxzsic service penetratian percentages for other ca'i�le teltvision o�rators zn the r�innea�lis/St. Paul area which ranged f rorn 36°; to 51%. Mr. N1�tz stated Nortel pro�ects a rate increase cf 10% in 1988 and 5� per year fran 1989 to 1996. He stateci Diortel pro�ects a decline iri the rnunber of anployees in Fridley Erom 9 to 6 in 1988 and thereafter. He stated for all three systems, St. Louis Park, &looninr�ton and Fridlep, Nortel pro�ects a decline in total number of �nployees from 56 to 41 by 1988. Mr. Matz stated Mr. R�.chards ran some pro�ections to c9emonstrate the sensitivity of the financial plan to chanyes zn the market. He c�uestionec! � what happens if the� �n't achieve the pro�ected graath. r'lr. I�tz stated iE Nortel's pro�ected graath in fihe rnunber of ka�sic service suhscnbers £or atl three syst�ns is off by two percentage points per year and a11 cther pro�ections are met, no management fee woulc7 be xaid fran 1989 on, defaults on tz�nk la�ns would begin in 1990 and Nortel wauld need to raise up to $2,000,000 of additional capital to meet de�t service and capital expenditure requ�.renents. Mr. N�tz statec3 rf Nortel is not able to increas� basic service penetration beyond the present 1eve1 for all three aystems, but all other pro�ections are met, thc� would run out o£ cash in 1988 and would �y no managenent fee fran that date fotward. He stated Nortel woulu also be in default on loan a5reenents in 1990 and would need to raise u� to $4,0OO,ODO of additional capital to meet debt service and capital eaipenciiture ra�u�.renents. Ae stated if the� clon't meet their �ro�eetioris, there isn't a great deal of cushion. Mayor Nee asked the risk to the oommunity. Mr. N�itz stateci several rhinys could possibly happen. He stated the worst is the3 may nat be able to make the capital unprovanents or may want to renegotiate the franchise and reduce the franchise fee or level of community proyramrnzny. Fle stated another considerata.on may he cutting o�rating expenses which coiil.d irraolve custaner service prwisions. He felt it may be wise Por the Council to acknowledge that cable oom�tmes have errored on their pro�ections. Mr. Richards, Financial Consultant, stated he felt the basic service penetratzon pra�ections were the most vulnerable of the presimlptions and � e�ense pro�ections were fa�rly ttyht. NU:. Richaxds statec� if they don't meet thezr pro�ections, he wondered haa much oould be cut without affectzng the le�el of service. -3- COUNCIL MEE,TING OF JUNE 25. 1986 ' 1�`� � Mayor Nee stated he oouldn't see Nortel irivesting this much cap�tal without some guarantee. Mr. N�tz stated we aren't necessarily �ying th� can't get to 54.6% penetration in 1996, but what happens if they don't. He state-u� based on the ar�alysis, it isn't the most pieasant situaticn. He stated when they looked at the different scenarios of the corapany missing theix pro7ected graath, theY presuned all the other gro�ections woulc7 happen. Mayor Nee stated if the Coimcil gave consic7erable weight to the financial re�rt and there may be the �ter�ial for financial Gefunct, what wauld be the appropriate action. He questioned if they coul.d deny the transfer on the basis of an tuidetermined question. Mr. Nl�tz stated the Minnesota statute states the Councal cannot �mreasonably withhold the�.r approval. He stated he would recommend a yuarantee from Amzak and Countryside so that if Nortel cannot �rfarm lmder the franchise, Pmzak or Countryside will provide the necessary financial support. P9r. M�tz stated another alternative is, if and when, the operator comes back to the Colmcil requesting relief because thc� misseG their pro�ections, the lenda.ng institutions should share in those cuts. Coimcilman Schr�eider asked if there is arry way, at this time, to cliscuss the process that would take glace if Amzak re�uested relief. Mr. D�&t� sLated �.t would be difficult to address as there are no such circumstane:es at this time. � Nlr. ICazma stated the�r l�sic servioe penetration pro7ections are ior 53.5% and not 54.6% and this one percent could make a difference. He staten in regard to the headend and addressable converters, they have budgeted fur these expenses. He stated the� need 5,000 converters in Friclley and have a co�nitrnent to purchase then for $400,000. I3e state�, as far as the increase in channels, there are seven thEy plan to add in the next year. He stated beyond these, there isn't a lot the� coulc] put on and as stations cone on the satellite, the� will add. He stated they woulc�n't take the headend eqw.pnent and thrav it away, but would adcl at a cos� ranging frcm $2,500 to $3,00� per channel. He felt both the o�st for the oanverters ancl addition of the chaiu�els was high in the financial report. Mr. I�azma stated he is camfortable with the oonstruction fiyures. Mr. Qiris Wegemer reviewed the t�sic service �enetratior. fiyures in other areas of the country which ranged fran 58% to 67�. rle statec� the 'Itain Cities is a relatively new market for ca�le television and their basic service Fenetration is 410. He stated most cable c�om�ames have problans in a rew m�rket in raising thetir s�rvice leveTs. EIe stated the franchising itself sometimes creates negative attitu�7es and once the franchise is awarded, operators ooncentrate on conskruction sa there may t�e sone �ublic relations problans at this time. Ntr. Wegemer stated once the system is operating, steps need to be taken to qenerate s�scribers and felt this is where the 7Win Cities has arrivecl. He stated Twin Cities cable corn�anies are focusing on better marketa ng. � Hlr. Wec�ner stated Exhibit G shaas a gain of 3% in h�sic service penetration in 15 months and in Fridlc� alone, 3� was gained in two months. He stated -4- COUNCIL MEETING OF JUNE 25. 1986 1 S�� � the� have tripled their marketing expenses anc7 felt Lhe 53.5o penetration figure was reasonable. Nlayor Nee asked about Storer's marketing. P4r. hegemer stated in 1984, a typical n�arketi.ng approach would be a mass mailer once a year. He stated when the� tripled the marketing expenses, the3 went door-to-door and zt made a big dif£erence. He felt some of the marketing e�enses may be reallccated for mass media advert,ising. Mr. Duane F�terson, (hai�man of the Cable Television Commission, asked if there would be a re.ntal charge for the oorrderters or a c3eposit ra�u�.red. Mr. Kazma stated the franchise provides far eaerycne to rec�ive a converter at no additional charge. He stated there would be an extra chary2 for renote oontrols, but no charge for the oonverter or no security deposit. Ms. Barbara Hughes, a menber of the Cable Teleaision Cotmnission, stated she wishecl to call Nortel's attention to the fact that all access requirenenis would be honored, but the library was not listea. Mr. Kazina stated he is aware the library should be included, but was i�dvertently left aut of the letter. Ms. Hughes stated the school chstricts may possibly want access so there oould be ra�uests for some additional channels. ' Mr, Ecl Raspszak, a menber of the Cable Telerision Commission, c7idn't feel snme of the cable systans in other areas of the country could be cam�ared with the 7Win Cities as this is a different market. i-Ie stated Minnesotans are involved in other outdoor activities and television is competing for their time. He stated in the absence of a marketing plan, he finds it difficult to foresee a 53� penetration. Mr. Kazma stated he welcomed Mr. Kaspszak's oor�nents, hut c]�d feel confident with their pro�ections. Mr. Richards stated there are two clifferent �netration factors. He stated Fridle� is naa at 39.6g and pro�ected to qo to 54.6o; however, all three systens oombined (St. Louis Park, Blaxnington, and FridlEy) are at 41.3g and pro�ected to go to 53.5%. Mr. Ral�h Stouffer, a menber af the C�ble Televislon Commission, askecl if Mr. f�zma lmew that the reference to the access grant refers to the m.tmmtan and not the maxim�n. Mr. Kazma stated he cioes recognize it and it isn't a probl an. Mr. Nhrk Newmarr5oott, of the ACQ�V, stated he was impressed with Nortel's presentation. He stated thei r concern is the cornmitment to public access and asked about Nortel's la3ckgroimd in other s�stens. � Mr. Kazma stated thetr background is in l�cal origir�tion. I-Ie sLatec! they have made access channels and studio sp�ce available, but the access wasn't the same as he has seen it here. He felt the City is really doing something -5- � � � COUNCIL MEEPING OF JUNE 25, 1986 that hasn't caught on in other areas. Mr. NewmairScott asked about the rebuild ir� Fridle�. Ms. Kazma stated the Fndle� systen has to have the entire feec�er cable replaced and all af the lim extender anplifiers replaced. Mr. Naaman-Scott asked hwr many of the 54 channels wauld be useable. Mr. Kazma stated probably 52. Mr. Nc�man-•5oott stated he wantecl to �e the company succeed and wouldn' t ask for another studLO or s�ce, but a sizeable amount of equi�rnent woulci need to he replaced within the rext several years. He stated Storer has been good about the maintenance and hoped Nortel fallaas su�t. He statec� the Workshop looks forward to working with tdortel. Iie also statec3 the Workshop was chosen as the ntmber one access channel in tne a��mtry and wzll be receiving an award in San Francisoo. N�yor Nee stated thas award by the Workshop is a c�reat credit to all oi those involved. Nlr. Paul ICaspszak stated a concern was an irxterconnection with surrounding systens as a representat�ve of the school district had mentianed it this evening. He felt this was a ma�or question which shouid be addresseci. Cotmcilman Barrette stated this really isn't a new issue. He stated the schools wanted an iriteraonnecting systen for marry years. Mr. Wegemer stated they haven't done an interconnect with the schools because other cable operators are involved and it takes a �oir7t effort. Mr. Kaspszak asked �f this could be consiclered in the rebuild. N3r. Iiazrna stated he needed further information so they muld rEVi�ta it. Ms. Hughes stated she hoped Nortel would cornmit to having a system cahere thexe are personnel to answer complaints and to provlde pxoml-�.t reFalr service. Mr. Kazma stated th�y nwst give good service ancl this is their number a:e �rionty. He felt (]zris Wegener has cbne an excellent �ob in the last year or so and would continue this �mmitrnent so thcy don'`� lose subscnbers. Mr. Wegener stated thc� are irivestigating ar. on-line oomputer syscem which woiald free a tr�nendous amount of manhours for communication with the custaners to make sure the� are satisfied. Councilman Schneider stated the pro�ections shaa a decrease in employment and asked about the cuts in �rsonnel. Mr. Kazma statec� it is a maLter of re-degla�ing and FridlEy probably wouldn't lose arg% anpla�ees. �le statea in Bloanington thc-y are making local origirat�.an self-sufficient. N�r. Kazma stated for budget pur�ses, the� have et�.mi;�ted four �xople. He statea, at the present time, there is enough work in the overall system that is sub- contcacted and felt these peogle should be hired. fftr. Kazma stated whes7 �S � �; � COUNCIL MEETING OF JOI� 25. 1986 1 ��' � thcy install the o�mputer systen and beoome more ef-ficient, it lo�ks like there muld be a reduction in anployees in this area. He stated nothing would Y�e cbne to cut the peogle i�olved in the on-yoing construction. He stated even thaugh they shav a drop in six people, thEy j�rola3bly will enplo� an additional six and get out of the contracting business, Mr. Kazrna outlined other possible areas for additional revenue which covered ii�estmer�t of the cash flaa uito money markets, pay previea for which he oould see at least $50,000 from this industry in a twc� year period, and advertising on the satellite channel. Mr. Kazma stated Nortel is ooirnnit,ing a guarantee and guarartteeiny Citizen's FYdelzty Bank $3,000,000 on the lxznk c1ebt, as well as commiting $1,SOO,OOU in cash in the lunited g�rtrership anc7 $500,000 to the franchise. Councilman Barnette asked the value of the cable systen. Mr. Kazna statec� the3 aze �aying $23,0OO,ODO and spencU.ny $7.000,000. NL�yor Nee asked what lund of guarantees would be reasonable or prudent. Nir. N�tz stated under the e�.sting franchise and the one Nortel would assLUae, there are several requir�nents. He stated one requirement is for the $10,000 cash security fimd and the other r�uirexnent is $100,000 for the franchise taond which was negotiatecl as a result of the RKk transfer. He stated, in addition, at Yl�e time Nortel accepts the franchise renewal, the $100,000 bond becomes $500,000 c1uring that �riod oi tirne for upgrading the � systen. He stated when the upgrading is completec7, Nortel r�otifies the Coimcil and the $500,000 bond then reverts to $100,000. He statea the otheL guarantees are frau vanous Xarties irivolved with HIQ2. Mr. Nhtz stated if this transfer is apprwed, the Council shoulcd look for guarantees from Amzak and Countryside Cable. He stated it is his �derstanding the applicant is w�llinq to provide ihe guarar�tee from Arnzak, but has cU.fficulty with guarantees fran Coimtry�de Cable. Mr. I[azma stated Amzak has assets and other syst�s, and Countrysicie has tx�nk debt and also assets. He stated the� have more borraaing pawer thar, thc� have used. He stated the3 have a ca�acity to borraa L�secl on the casn flaa in systans the� aan elsewhere. No other �rsans in the audience spoke reyarciing this proposed transier oP the cable television franchise. NDTION l� Co�mcilman Fitzgatx�ck to close the Zxablic hearing. Seconcled by Coimcilman Schneider. Upon a voice vote, �11 voting aye, Ns�yor Nee declared the motion carried unarumously and the publlc heurirag closed at 9:32 p.m. Cnuncilman Barnette stated he was impressed oiith the presentatLOn and had no objections to the transfer. Cotmcilman Schneider stated he appreciateci the last oonunents frcn IUIr. FCazma ' wYuch he belie�es are open and honest. He st,atecd he would still like to see some fozm of guarantees and looked to staff to see if the Pmzak guarantee is adequate. He stated assuning it is adequate and, w�th the imderstandinc o� -7- COUNCIL MEETING OF JUNE 25, 1986 15 �' � the mmmitrnents that have been made zn the record, he would support tne transf er. I�yox �Iee stated he felt everytl�ing coulcjri't be �.ut on �afier in this sart of relattonship. He felt an assessnent had to be made on whether or not Nortel is tolerant of the mmm�mity's goals in addit�.on to thea.r aan. He stated he is �ncerned the� may not make their pro�ected percentages far graath, hut as long as thEy imderstand a.t, he is pre�«rc� to support the transfer. Councilman Fitzxstrick stated a great deal depends on the pro�ections of suhscriber increases and the prognosis isn't imquestionably good. He stated he has seen figures where it may not be p�ssible and fiqures where the� meet tl�ea.r pro�ections. He stated tt isn't awfully confiderit of the total nLmiber of subscribers for then to o�xrate in the way the� wish. Coimcilman Goodspeed stated he was going to put his trust in Nortel and c3idn't see any reason to stand in the way of what they «re trying to accomplish. Mr. M3tz stated he would continue to reoonmiend pursuing guarantees fran both Pmzak and Coimtryside and would like the opportunity to �rsue it further. Mayor Nee questioned why guarantees are neede� from both Amzak and Coimtryside. � Mr. Richards stated Amzak is 1D0g owned by Nir. Kazina or his fami3y and Count[yside Qble is also a fanily aaned corn�Xry, but Mr. Forbes ownes 5�. He stated Countryside is approximately five times the size of Pmzak in terms of total assets. He stated the bulk of the assets aren't liqw d, but Amzak has liquid assets which are the lund the� look to in order ta provide any assistance Nortel may reqw re. Mr. Itichards stated Amzak appears to have borraaing power and Countrysic� has 1� far more asseLS and probably wauld have better �tential cash flaa fran those assets. He ielt the character of Pmzak could change in the ne�ct several months so they are recommending co look als> at Cowitryside because the3 are lar;er. Mr. Kazma stated Countryside Cable is not ai. owner in the system, it is a l�mited �rtner. He stated there is sane r�uestion if the limited partner can guarantee the performance of the general �rtner and stzll be a lzmite� �rtner. He stated Cowltryside aaes $12,QOO,QOQ ta the Maryland National Bank and cbubts if th� would allaa than to yuararatee �,ecause they ure not the avner. NDTION Y� Councilman Schneider to instruct staff to pre�.are the resolutian and necessary dociunents to transfer the Cable Tele�ision franchise from SCI Ho1cti ngs, Inc. to Nortel Cable Associates prwiding the rec:essary guaranL-ees are received fran Amzak and that Amzak wil.l enter irito a renewal franchise as approved Ix the City. Seconded l� CA�cilman Barrette. U�n a roll call vote, Co�mcilman Schneider, Councilman Sarnette, Mayor Nee, Councilman ' Fitz�atrick and Cowzcilman Goodspeed all voted in favor of the motion, and Mayor Nee declared the motion carried unammously. �;D � T + • ��V CWNCIL MEETING OF JUNE 25. 1986 CONSIDERATION OF APPRpVAL OF A LICENSE FOP. THE FRIDLEY 49ER'S FIREWORKS DISPLAY ON JUNE 29. 1986: NDTION 1� Councilman Schneider to apprwe the license for the Fridl.e� 49er's fireworks display on Jtime 29, 1986. Seoonded 1� Coimcilrnan Barnette. ligon a voice vote, all voting aye May or Nee deci ared the motion carried unammously. CONSIDERATION OF CHANGE ORDER NO. 2 WITH H& S ASPHALT. FOR STREET IMPROVEMEDfP PROJEC`i', ST 1986-1 & 2: NDTION b� Councilman Schneider to approve Change Order No. 2 with H& S 11spl�alt for Street Improvenent Pro� ect, ST 1986-1 & 2, in the �nount oi $12,080.00. Seconded by Councilman Gooclspeed. Upon a voice vote, all vota.ng aye, Nhyor Nee c7eclared the motion carned unanimously. CONE'ERENCE MEETING, JULY 30, 1986: Mayor Nee stated a request was received that the Conf erence Meeting scheduled for Ju].y 30 be cancelled. None of the Council manbers objected and staff was advised the Coimcil would not rneet on this date. �� � �i� � MpTION by Councilman Schneider to adjourn the meeting. Seconded 6y Coimcilman Barnette. Upon a voice vote, all voting aye, [�yor Nee aeclared the motion carried unanimously and the Special hSeetinq of the Fradley City Oaimcil of June 25, 1986 acY�ourr�ed at 9:47 �.m. Respectfully sutmitted, Carol e✓Haddad���� Secretaxy to the Ca ty Cotimcil Apprwed: � � �.�,,!c�.����- - ��y�°�--- 44�11 i vn J. N�, Mayor t �.