iProvo agreement

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<p>INTEROFFICE MEMORANDUM</p> <p>TO: FROM: SUBJECT: DATE: CC:</p> <p>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</p> <p>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</p> <p>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.</p> <p>These documents support the transfer of the fiber network assets from Veracity to the City.</p> <p>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.</p> <p>2</p> <p>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.</p> <p>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</p> <p>3</p> <p>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</p> <p>4</p> <p>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 referred to herein collectively as the Transaction Agreements). Capitalized terms used and not defined herein shall have the meanings ascribed to them in any referenced Transaction Agreements. Pursuant to the Assignment, Veracity assumed all of BNIs covenants, duties and obligations under the Transaction Agreements.</p> <p>1</p> <p>E. On or about July 12, 2011, an Uncured Event of Default occurred under the Security Agreement, as provided in Section B.6.b. of the Amended Surety Agreement, when the remaining obligation of the Providers to pay the Support Amount became equal to or less than $ 1,665,033.30, giving Provo the right to foreclose on and repossess the System and other assets secured by the Security Agreement. F. In lieu of foreclosure, Provo and Veracity desire to resolve all claims, disputes and issues between or among them relating to the Uncured Event of Default under the Security Agreement, the Transaction Agreements, the System, or otherwise by transferring back to Provo all System assets secured by the Security Agreement in exchange for termination of the Amended Note and the releases set forth below, all upon the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the promises and covenants set forth herein and for other good and valuable consideration, the receipt, adequacy and legal sufficiency of which are hereby acknowledged, the Parties hereby release, promise, represent and agree as follows: 1. Transfer of System Assets. At Closing, Veracity shall duly execute and deliver to Provo an Assignment and Bill of Sale (Bill of Sale), in the form attached hereto as Exhibit A, to effect a transfer, conveyance and assignment to Provo of all assets associated with the System and secured by the Security Agreement (System Assets). Veracity shall execute and deliver to Provo such other and further agreements and instruments of conveyance, assignment or transfer as may reasonably be requested by Provo at any time in order to vest in Provo good and valid title in and to all System Assets. 2. Network Operating and Lease Agreement. The Parties shall execute and deliver at the Closing of this Agreement the Provo Network Operating and Lease Agreement attached hereto as Exhibit ___. 3. Releases. Subject to compliance with the obligations expressly set forth in this Agreement and the documents attached as Exhibits to this Agreement, the Parties, each for itself and for each of its owners, officers, executives, council members, employees, agents, agencies, departments, affiliates, predecessors, successors and assigns, hereby fully and completely releases and discharges the other Party and its owners, officers, executives, council members, employees, agents, agencies, departments, affiliates, predecessors, successors and assigns from any and all claims, liens, demands, causes of action, controversies, offsets, obligations, losses, warranties, design deficiencies, damages, fines, and liabilities of every kind and character whatsoever that relate to or arise out of the Transaction Agreements or the System. Without limiting the generality of the foregoing releases, the Parties stipulate and agree that in exchange for the transfer of System Assets set forth above, the Amended Note is hereby canceled, and the Amended Surety Agreement, Guarantee and other Transaction Agreements are hereby terminated. The Parties further agree, at the request and expense of a requesting Party, to perform such proper additional acts, and to execute such additional documents, as a requesting Party may reasonably request, to effectuate the foregoing releases, including, without limitation, physical cancelation of the</p> <p>2</p> <p>Amended Note and recording of a release of the Security Agreement with the Utah County recorder and the Utah Division of Corporations and Commercial Code. 4. No Reliance. Each Party represents and warrants that: (i) in executing this Agreement, it is not relying on any inducements, promises or representation of the other Party, any agent of the other Party or any other person, other than as set forth specifically in this Agreement; (ii) this Agreement contains the entire agreement among the Parties; (iii) each Party has had full and ample opportunity to consult, and has consulted, with independent legal counsel with respect to the impacts and advisability of executing this Agreement; (iv) each Party has made such investigation of the facts and law pertaining to this Agreement and all matters pertaining hereto, as such Party deems necessary; (v) each Party has read and understands all of the terms and provisions of this Agreement and the consequences of signing this Agreement; and (vi) each Party signs this Agreement voluntarily and of its own free will, without coercion or duress, intending to be legally bound. 5. Miscellaneous. Each Party shall bear its own fees, costs and expenses associated with this Agreement and the Exhibits attached hereto. 6. Authority. Each person who executes this Agreement on behalf of a Party hereby represents and warrants that he/she...</p>


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