BusHsgDev Highlights 2011 0908 - Laserfiche WebLink

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Lit San Leandro - License Agreement Deal Points The City of San Leandro has received a proposal from OSlsoft, a local software company, to license an 11 -mile loop of City conduit for the purpose of installing fiber optic cable. The loop will provide extremely high -speed data communications for OSlsoft as well as other businesses that opt to tie in to the system. Thus, the system has the potential to serve as a business development tool, positioning San Leandro to attract and retain companies that rely on high -speed internet connectivity. The Lit San Leandro License Agreement is an agreement between SL Dark Fiber LLC (OSlsoft) and the City of San Leandro for the use of City conduit to install a fiber optic loop. Although most terms have been agreed upon, the Agreement has not been executed and future changes and revisions are still possible. Deal Points Term —The initial term is for twenty years, and SL Dark Fiber has the right to renew for four additional five -year terms. Each extension can be exercised as early as 15 years, and no later than 180 days, prior to its commencement. Analysis: A long -term agreement is crucial to the success of the fiber system because users will need to make substantial capital investments to make use of the loop. License Fee — For the first ten years, the fee will be $1.00 annually. For years 11 -20, the fee will be set at market rate unless SL Dark Fiber can demonstrate that it has not yet achieved profitability. Beginning in year 20, the fee will be set a market rate. Market rate is to be determined by mutual consent based on a review of recently negotiated commercial conduit license agreements. The Agreement has a provision for arbitration should the parties be unable to agree on a market rate. Once established, the market rate will be adjusted annually for inflation. Analysis: Given the substantial upfront investment by SL Dark Fiber needed to install the loop and initiate the system, the project is unlikely to generate substantial profits in the near -term. Staff review of other fiber loops in northern California also suggests that the system does not have a large profit potential in the foreseeable future, although the use of a "market rate" license fee means that the City will be able to recoup more substantial lease revenue if conditions change. City Approval of Sale, Right of First Refusal, and Abandonment — If SL Dark Fiber wishes to sell the system, the City will have right of first refusal to purchase it. If the City does not exercise its right of first refusal, the system can be sold to another party with the City's written consent, which cannot be unreasonably withheld. If SL Dark Fiber abandons the system, the City will take ownership at no cost. Analysis: These conditions give the City the opportunity to maintain control of the system should SL Dark Fiber wish to sell or become insolvent. Although the City might not necessarily have the resources to acquire and manage the system, it would have the opportunity to line up a partner of its choosing for continued operation. If SL Dark Fiber abandons the system, the City will take ownership.