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Home My WebLink About6 District owned conduits Agenda Item # iP Memorandum To: Board of Directors From: Alan Harry, Director of Telecommunications Services Date: June 16, 2003 Subject: Broadband Business Planning—consideration of a contract for the sale and lease of District owned conduits Why the matter is before the Board The sale of conduit to Sierra Touch America has not been consummated. It appears that Sierra Touch America is unable to complete the deal. We have entered into negotiations with Sierra Pacific Communications (SPC)to purchase the conduit. This change needs to be approved by the Board of Directors. History As part of the Williams Communication project, completed approximately two years ago, the District received 16.5 miles of two 2" conduits. In May of last year, the District received a Bill of Sale from Williams, deeding over the conduit to the District. On October 16, 2002, the District Board directed General Manager Holzmeister to enter into a Brokerage Agreement with Aggregate Networks for the sale of District owed conduit. In January of this year, the District approved a Letter of Intent (LOI) with Sierra Touch America (STA), a partnership of Sierra Pacific Communications and Touch America, for the sale and lease of this conduit. At that time, the District received $65,000 in"earnest money"from Touch America. The LOI provided the following: 1s'Conduit $500,000 for the outright purchase of the conduit, paid in cash at closing. 2°tl Conduit $500,000 for an Indefeasible Right of Use (IRU). The initial term is twenty (20)years, with two(2)ten-year renewal options. The TDPUD will finance this at a rate of 10%, over a five (5)year period. Payments shall be made monthly in accordance with the agreed fixed- monthly payment schedule, attached. 9 Page 1 Metro Dark Fiber Within a STA conduit, the TDPUD shall retain two (2) strands of dark fiber in perpetuity. The TDPUD shall also retain the right for up to five (5)years to purchase up to two (2) additional strands of dark fiber throughout the 17- mile conduit stretch in Truckee. If the TDPUD does not exercise its Option to Purchase within the five years, then that right shall convert to a renewing Right of First Refusal. The cost of the fibers shall be the lesser of $68,500 for each fiber through Truckee or the then current Most Favored Nation* dark fiber rate. Long-Haul Dark Fiber t Touch America shall upon closing, provide two (2) strands of dark fiber from the Sierra Touch America Truckee, CA Op Amp site to the Touch America Sacramento, CA POP, or other Sacramento-area POP, hand hole or manhole of the TDPUD's choice to be determined prior to closing. The two strands shall be in the form of a twenty-year IRU with two (2)ten-year renewal options, at no additional charge to the TDPUD. merica, shall be monitored and maintained by Sierra Touch All fiber obtained by TDPUD from Sierra Touch A America at Sierra Touch America's sole cost and expense. Re-generation services shall be made available to the TDPUD by Sierra Touch America at a cost of $250 per month per re-generation site. Collocation Sierra Touch America shall also provide collocation space in each STA POP at no additional cost or expense to the TDPUD. Closing Costs& Procedure All transaction costs (including documentation fees, escrow fees, legal fees, title fees, insurance charges, and other related costs directly attributable to this transaction) shall be paid for by Touch America at closing, in addition to the above-stated acquisition fees. The amount of these fees shall not exceed $15,000 unless prior approval is obtained from STA. At your regular meeting of May 7, 2003, you approved the agreement and Directed staff to close the deal. New Information During the week of May 19`", District Staff and General Counsel became aware of financial troubles at Touch America, which included the de-listing of their stock by the Securities and Exchange Commission. On Friday, May 30'", District staff was advised by Sierra Touch America staff that they were not in the financial position to close the sale and lease of District owned Conduit. At that time, District Staff began the process of locating a new buyer. In addition, the District took control of the $65,000 in earnest money provided by Touch America. On June 4'", staff located and scheduled a meeting with Sierra Pacific Communications (SPC), a well-funded group to discuss the possible purchase of the conduit. On Thursday, June 12�, District staff and General Counsel met with representatives of Sierra Pacific Communications (SPC). t that control of the Sierra Touch 'ouchAmerricao s project, and were interested ted inconduitsarrangements,me we were advised that (SPC) had, via contractual purchasing ng onne of the two owned by 0 Page 2 the District to complete the Truckee portion of their Salt Lake City to Sacramento long haul build. After much discussion, District Staff, District General Counsel and SPC representatives came to a mutual agreement for the sale/purchase of one of the District's two telecommunications conduits. This new offer, described in the LOI attached provides the following: 's Assets to be Acquired: One (2)two-inch conduit throughout Truckee, CA Acquisition Structure & Cost: 1'Conduit - $350,000, cash payable upon execution of final documents i Long-Haul Dark Fiber— SPC shall upon closing, provide two (2) strands of dark fiber from the SPC POP in Reno, NV through the Sacramento, CA POP ("Route'). This shall be a twenty-year IRU with two (2)ten-year renewal options. TPUD agrees to purchase two (2) additional strands fiber in the Route via a 20 yr IRU, with two (2)ten year renewal options for$240,000. Payment terms of this IRU are $10,000/yr for years two through five, with the balance of the $240,000 to be divided into equal annual payments for the remainder of the twenty years. All fiber obtained by TDPUD from SPC, shall be maintained by SPC at SPC's sole cost and expense. Additionally, Spectrum Project Management Services (representative for SPC) agrees to assist TPUD in negotiating with Williams or AT&T for co- location space along the Route and further agrees to assist TPUD in the acquisition of a redundant network path. Closing Costs & Procedure If TPUD agrees to these terms, then we will begin moving towards a formal closing of this transaction. The closing shall take place prior to June 30, 2003 at a location to be mutually agreed upon and reasonably near Truckee, CA. All transaction costs (including documentation fees, escrow fees, legal fees, title fees, insurance charges, and other related costs directly attributable to this transaction) shall be paid for by SPC at closing, in addition to the above-stated acquisition fees. District staff has been in contact with Aggregate Networks to determine the value of the new offer, presented by SPC, and how it differs from that previously approved by the Board. Attached please find a document highlighting the changes. The value of the offer presented by SPC is as follows: 1. Cash at Closing $350,00 •Page 3 2. Two (2) strands of dark fiber from the SPC Reno POP to the SPC Sacramento POP (or nearby $; mutually agreeable POP) ` Fair Market Value = $239,750, ($875/fiber/mile) g Orderly Liquidation Value = $41,100, ($150/fiber/mile) AVERAGE Value=$140 2424 ; *Valuation of Orderly Liquidation value from a distressed value sale by 360 Networks based on their recent overcapacity from an acquisition of Dynegy's National network. >` 3. Two (2) additional strands of dark fiber from the SPC Reno POP to the SPC Sacramento POP (or i cost of $240,000 over 20 years broken down as follows: nearby mutually agreeable POP) at a total Year $0 Years 2-5 $10,000 per year Years 6-20 $13,333 per year Fair Market Value of 2 dark fiber is $239,750: Therefore the $240,000 price is exactly a fair price to the TDPUD. This is presented for an explanation as part of the transaction, but does not add nor subtract to the value of this offer or transaction. 4. SPC to provide maintenance on all four(4) dark fiber strands for Orderly Liquidation Value = $ 19,775 per fiber per year** x 4 = $ 79,100 per fiber per year x 20=$1,582,00 over 20 years **Valuation of Orderly Liquidation value from a distressed value sale by 360 Networks based on their recent overcapacity from an acquisition of Dynegy's National network at$39,550 for 2 per year. Total Value of the Offer= $ 350,000 425 $ 1,582,000 2$ ,072,42 (Value of STA's previous offer per conduit: $2,921,399/2 = $1,460,699/conduit) Recommendation It is recommended that; 1. The District Board formally acknowledge that the previously approved contract with Touch America is null and void due to a breach in the signed Letter of Intent, thus allowing the District to retain the $65,000 in earnest money; and 2. Approve the attached Letter of Intent with Sierra Pacific Communications, and direct the General Manager to execute same; and 3. Direct the General Manager to execute the final contract with Sierra Pacific Communications, to include only those items included in the approved Letter of Intent, upon its completion. 0 Page 4 r June 13, 2003 z Truckee Public Utility District Attn: Alan Harry 11570 Donner Pass Truckee, CA 96160 Re: Sierra Pacific Communication's Acquisition of Truckee Donner PUD's Conduit Dear Alan: On behalf of our client Sierra Pacific Communications ("SPC"), we are submitting the following draft Letter of Intent ('LOI") to Truckee Donner Public Utility District ("TDPUD"). If this LOI is acceptable to TPUD, then a final document will be drafted which incorporates the following business terms and conditions ("Final Document"). This offer is valid only in it's entirety through 12pm, June 26, 2003. Owner/Lessor: Truckee Donner Public Utility District Purchaser/Lessee: Sierra Pacific Communications Assets to be Acquired: One (2) two-inch conduit throughout Truckee, CA Acquisition Structure & Cost: 1" Conduit - $350,000, cash payable upon execution of final documents Long-Haul Dark Fiber— SPC shall upon closing, provide two (2) strands of dark fiber from the SPC POP in Reno, NV through the Sacramento, CA POP ("Route"). This shall be a twenty-year IRU with two (2) ten-year renewal options. TPUD agrees to purchase two (2) additional strands fiber in the Route via a 20 yr IRU, with two (2) ten year renewal options for$240,000. Payment terms ofr this IRU are $10,000/yr for years two through five, with the balance of the$240,000 to be divided into equal annual payments for the remainder of the twenty years. All fiber obtained by TDPUD from SPC, shall be maintained by SPC at Touch America's sole cost and expense. Additionally, Spectrum Project Management Services agrees to assist TPUD in negotiating with Williams or AT&T for co-location space along the Route and further agrees to assist TPUD in the L acquisition of a redundant network path. Closing Costs & Procedure If TPUD agrees to these terms, then we will begin moving towards a formal closing of this transaction. The closing shall take place prior to June 30th, 2003 at a location to be mutually agreed upon and reasonably near Truckee, CA. All transaction costs (including documentation fees, escrow fees, legal fees, title fees, insurance charges, and other related costs directly attributable to this transaction) shall be paid for by SPC at closing, in addition to the above-stated acquisition fees. This Letter only addresses the business terms of the contemplated transaction and is a non-binding. This draft LOI has not been approved by the Board of the TDPUD, and any final agreement between the Parties must be approved by the Board of the TDPUD. These terms shall be incorporated into a mutually-agreeable contract and will not be binding until it is signed by both Parties. Sincerely, Keith J Pinter Chief Executive Officer Spectrum Project Management Services i agree with the terms stated herein, and evidence this by signing below. By: TPUD Title: Date: