TO: FROM: SUBJECT: DATE: CC:
PROVO MUNICIPAL COUNCIL DAN FOLLETT, JOHN BORGET, KEVIN GARLICK, BRIAN JONES, ROBERT WEST, GARY DODGE, AARON LEACH, ROB LECKIE FIBER NETWORK IN PROVO 2/29/2012 MAYOR JOHN CURTIS, WAYNE PARKER
Provo Municipal Council, Attached for review and approval by the Municipal Council are the following agreements related to the Fiber Network in Provo: SETTLEMENT AGREEMENT GENERAL ASSIGNMENT, BILL OF SALE AND REPRESENTATIONS PROVO NETWORK OPERATING AND LEASE AGREEMENT
While these agreements are substantially complete, some attachments and updates will be added prior to the Council Study Meeting on March 6, 2012. SETTLEMENT AGREEMENT In lieu of foreclosure, the Settlement Agreement transfers the fiber network assets from Veracity Networks, LLC (Veracity) to the City. The City is also releasing and canceling the promissory note payable to the City. This will result in the City owning the fiber network. Taking ownership of the fiber network is a prerequisite to the City leasing, running, selling or otherwise utilizing the fiber network in Provo. GENERAL ASSIGNMENT, BILL OF SALE AND REPRESENTATIONS The General Assignment and Bill of Sale defines and transfers the specific fiber network assets and rights related to the fiber network to the City. The Representations section of the document represent and warrant the status of the network assets including disclosures related to the title, working order, liens, pending litigation and other matters related to the network.
These documents support the transfer of the fiber network assets from Veracity to the City.
PROVO NETWORK OPERATING AND LEASE AGREEMENT The Provo Network Operating and Lease Agreement outlines the terms and conditions of how Veracity will operate and maintain the network, perform necessary repairs and improvements, promote and protect the networks customer base, actively market network services to subscribers and provide high quality retail network services. Subject to Municipal Council approval, the City and Veracity have been operating under the terms of this agreement since January 1, 2012. The basic terms are as follows: The effective date of the agreement is January 1, 2012 (subject to Council approval). The term of the agreement is 14 months (February 28, 2013). Provo may terminate the agreement at any time with 90 days written notice. The agreement may be extended by mutual agreement of both parties. The base monthly transfer payment to the City from Veracity is $95,000 per month. The City will receive $23 per month for all residential customers added to the network. The City will receive 4 percent per month of commercial and MDU connection costs paid by Provo for new and existing customers. The City will receive 90 percent of all monthly gateway fees or other amounts charged to a network subscriber for portal or set-top boxes purchased by the City. The City will receive any amounts charged directly to customers for installs or upgrades. The City will receive $6,667 per month for rent on the Network Operations Center facility which is owned by the City. All customer payments will be deposited in a lockbox until sufficient funds have accumulated to cover the current months payment to the City plus a $120,000 security deposit. The security deposit can never drop below $120,000; however, the City may draw upon this amount if Veracity fails to make timely payments. The City controls and is responsible for most of the cost of capital improvements to the network. The City is responsible for the cost of new service connections to the network. Veracity is responsible for operation, maintenance and repair of the network. Veracity is responsible for customer billing. Veracity is responsible for customer support. Veracity is required to market network services. Veracity must meet all network standards as defined by the agreement and coordinate any changes to the standards with the City. The City is responsible for establishing performance standards. See Exhibit C.
Network product and service pricing may not be adjusted without the Citys prior approval. Customer service standards have been outlined in detail in Exhibit C. The customer service standards may not be changed or altered without the Citys advance approval. In addition to the existing customer base that will be transferred back to the City, all new customers acquired during the term of this agreement will belong to the City. The agreement allows Veracity to service non-city owned Veracity customers following the notice of termination of this agreement for a period of 12 months. Veracity must be in compliance with all terms of this agreement. The City has reserved the right to market the network and related services, add customers to the network, retail or wholesale network services, adjust product offerings, change pricing, establish or change network technical or customer service standards at any time. The City and Provo School District will continue to receive network services at no additional charge consistent with historical levels of service. Veracity is responsible for providing insurance for the network. Upon termination of the agreement the City may be required to reimburse Veracity a pro-rated portion of their actual realized costs for commissions and installations if certain requirements have been met including a signed 24 month customer agreement.
VISION 2030 SUPPORT The actions proposed in this memorandum support objective 5.2.1 of Vision 2030: Ensure a technological infrastructure that can support and sustain individual, educational and business demands. The infrastructure should enable the access and use of the best proven technology tools. This proposal also furthers objective 14.2.1: Develop models of balancing government revenues and expenditures so that government budgets are sustainable over the long term. SUMMARY The Provo City Fiber Network Team carefully considered a number of relevant factors when they negotiated and drafted the Provo Network Operating and Lease Agreement. The team considered and attempted to minimize the financial impact to the residents and taxpayers while balancing the need to ensure a quality network product and customer experience. The team also worked diligently to ensure the City received a functional working network, with improvements or upgrades where applicable, back from Veracity. The Team focused on drafting an agreement that would work for both parties as well as allow the City to improve the network and the overall customer experience throughout the term of the agreement. Since Veracity is in default, the City is currently operating without a signed agreement. In good faith, Veracity has been making the $95,000 monthly payment plus the $6,667 NOC
rent payment since January 1, 2012 as proposed in this agreement. The Provo City Fiber Network Team recommends the Municipal Council reviews and approves this agreement as soon as reasonably possible. We look forward to discussing these documents with the Municipal Council. Provo Fiber Network Team
SETTLEMENT AGREEMENT This Settlement Agreement ("Agreement") is made and entered into effective as of the 1st day of January, 2012, by and among Provo City Corporation, a Utah municipal corporation (Provo) and Veracity Networks, LLC, a Delaware limited liability company (Veracity), Veracity Communications, Inc., a Utah corporation (VCI), Broadweave Networks of Provo, LLC, a Utah limited liability company (Broadweave), and Broadweave Networks, Inc., a Utah corporation (BNI) (each individually a Party and collectively, Parties). RECITALS A. Provo entered into an Asset Purchase Agreement dated May 5, 2008, with Broadweave, wherein Broadweave agreed to purchase and Provo agreed to sell substantially all of the assets relating to the fiber-to-the-premises communication network known as the iProvo network (System). B. In connection with the sale and purchase of the System, Provo and Broadweave executed and delivered various documents and agreements including: a senior secured promissory note in the amount of $38,850,000 (Note); a senior secured promissory note for certain headend facilities in the amount of $1,750,000 (Headend Note); a deed of trust, assignment of contracts and receivables, security agreement and financing statement (Security Agreement); a surety agreement (Surety Agreement); a corporate guarantee by BNI (Guarantee); a lease of the network operations center building (Lease); a license agreement (License Agreement); a services agreement (Services Agreement); and a joint facilities agreement (Joint Facilities Agreement). All of the foregoing documents and agreements, including the Asset Purchase Agreement and the documents and exhibits referenced in all such agreements, are referred to herein collectively as the Original Transaction Agreements. Provo, Broadweave and BNI closed on the Original Transaction Agreements on or about August 29, 2008. C. On or about November 18, 2009, Broadweave and VCI entered into a joint venture, pursuant to which Veracity was formed and the Broadweave membership interests were contributed to Veracity. D. In connection with the Veracity transaction, on or about November 18, 2009, (i) Provo, Broadweave and BNI entered into that certain Forbearance Agreement (Forbearance Agreement), Notices and Acknowledgments Agreement (Notices Agreement), and First Amendment to Surety Agreement (as amended, Amended Surety Agreement); (ii) Broadweave, BNI and Veracity entered into that certain Assignment and Assumption of Rights and Obligations under Guarantee and Other Transaction Documents (Assignment); and (iii) Broadweave and BNI entered into that certain First Amendment to Note (as amended, Amended Note). All of the foregoing agreements and documents, including the Original Transaction Documents, as amended, are refer