Fibrant Vote

The City will lease to Hotwire the City’s full right, title, and interest in the entire Fibrant System, including the following leased assets:

• the Fibrant Network Operations Center (“NOC”) premises, occupying approximately 5,144 square feet on the main level of the City’s Customer Service Center at 1415 S. Martin Luther King Jr. Avenue, and all furnishings and equipment used by the City in operating the NOC;
• all “Head End” equipment used by the City (including central control devices, “middleware,” servers, remodulation equipment, and other equipment”), and approximately 2,552 square feet on the main level of the Customer Service Center housing the Head End;
• all the City’s Satellite Dish premises, occupying a portion of the City’s Communications Center property at 310 Hill Street, and the antennae, satellite dishes, and related electronics and equipment used by the Fibrant System at the site;
• all “Outside Plant” of the Fibrant System, comprising fiber optic cable, conduits, and other equipment and components used in connection with the Fibrant System;
• all “Customer Premises Equipment” (including terminals, modems, and certain wiring) used for providing communications services to customers and subscribers; and
• the City’s fleet of approximately 15 vehicles used in connection with the Fibrant System

The initial term of the Lease Agreement will be 20 years, commencing on July 1, 2018, or, if later, the date all conditions precedent to the Lease Agreement have been satisfied or waived. Hotwire will have the option to renew the lease for one additional 20-year term, provided that it satisfies certain conditions during the initial term, including the making of certain minimum rent payments during the three-year period prior to expiration of the initial term.

Hotwire will pay rent to the City, quarterly, in an amount equal to certain agreed percentages of Hotwire’s Communication Service Revenue received in its operation of the Fibrant System. The percentages are set forth in the following table:

Communication Service	Revenue Percentage
Video Service	10%
Internet Service	30%
Voice Service	10%
Data Center Service	20%; subject to certain credits
Data Transport Service	25%
Dark Fiber Service	30%
Other Services	10%; subject to adjustment in certain circumstances

“Communication Service Revenue” means the funds received by Hotwire from subscribers and customers, but excluding (A) any amount collected for governmental excise, sales, or similar taxes and other governmental authorized fees and surcharges (such as local portability fees) that are invoiced to the customer, (B) rent charged to customers for rental of equipment, and (C) non-recurring, one-time charges to a customer.

Hotwire will be entitled to certain credits against its obligation to pay rent, including a credit for Hotwire’s cost of installing “Drops” (fiber connections from a pole or underground cable to the premises of a customer or subscriber) and NIDs (network interface devices that connect the Outside Plant to Customer Premises Equipment), plus a 15% administrative fee. Hotwire also would be entitled to a credit of $11,000 per quarter in consideration of Hotwire’s maintenance of certain dark fiber retained by the City and used for the City’s internal communications purposes and the costs of capital improvements incurred by Hotwire to provide certain Data Center Services.

The Lease Agreement provides that either the City or Hotwire could request a renegotiation of revenue percentages allocated to “Other Services,” which would include communication services that become available in the future, if the applicable percentage in the table is inconsistent with the economic relationship of the parties at the time the Lease Agreement is executed. If the parties are unable to agree, the disagreement may be submitted to an Independent Telecommunications Expert for a determination of the appropriate percentage adjustment.

Hotwire also will be responsible for paying, or reimbursing the City, for certain charges that may be incurred by the City in connection with the Fibrant System, including fees for easements and pole attachment agreements, certain insurance premiums, certain costs for the provision of electricity and HVAC services, and certain taxes and regulatory and governmental fees.

The Lease Agreement provides certain audit rights for the City to verify rent and additional charge amounts.

THE LEASE AGREEMENT DOES NOT REQUIRE ANY MINIMUM OR GUARANTEED LEVEL OF RENT PAYMENT.

Hotwire will have the exclusive right, and will be required, to use the Fibrant System Assets for marketing, offering, provision, routing, and delivery of Communication Services to businesses, residents, consumers, and other users only within the Grandfathered Fibrant Service Area. “Grandfathered Fibrant Service Area” includes the corporate limits of the City of Salisbury (as of April 1, 2011, or as expanded through annexation); the municipalities of Salisbury, Spencer, East Spencer, Granite Quarry, Rockwell, Faith, Cleveland, China Grove, and Landis and the “corridors between those cities,” as well as certain economic development sites, public safety facilities, governmental facilities, and educations schools and colleges located outside the municipalities. The Grandfathered Fibrant Service Area is defined in the Lease Agreement by reference to Section 160A-340.2 of the North Carolina General Statutes.

The Lease Agreement provides that Hotwire will provide Voice, Data Center, Data Transport, Internet, Video, “Dark Fiber,” and other communication services. Hotwire will provide such services in accordance with Legal Requirements, Prudent Communication Service Industry Practice, Competitive Requirements, and Service Level Standards.

• “Prudent Communication Service Industry Practice” means the standard of operating and maintenance practice, at any particular time, methods and acts, that, in light of the relevant facts, is generally engaged in or approved by a significant portion of the owners of distribution systems that are similar to the Fibrant System, that would have been expected to accomplish the desired result consistent with good business practice, reliability and safety, and in compliance with all Manufacturer’s Recommendations.
• “Competitive Requirements” means the offering and provision of Communication Services of a type and quality, and at a price, that are in all respects (i) competitive with the services offered by providers from time to time offering Communications Services in the City of Salisbury or other areas of Rowan County served by the System Assets; and (ii) no less favorable than the type, quality, and price of Communications Services offered by Hotwire or its Affiliates in other locations where Hotwire or such Affiliates offer Communications Services, taking into account differences in pricing of third-party content and products.
• “Service Level Standards” means the customer service level and performance standards set forth in Appendix 3 to the Lease Agreement, covering, among other things, service availability, timely response to and cure of trouble reports, customer service orders, customer hold time, customer service records, emergency 911 telephone service standards, video programming service standards, virus protection, and internet bandwith and service availability.

The Lease Agreement requires Hotwire to pay a penalty of $1,000 per day for failure to comply with Service Level Standards after a five-day resolution period and, in addition, to provide credits to subscribers for any day in which a communication service is not available.

Hotwire will be responsible, at its expense, for maintaining the Fibrant System Assets (except with respect to Customer Services Center roof and structure and certain pre-lease obligations regarding pole attachments), including repairing fiber cuts on a timely basis and replacing worn out or defective assets. All such maintenance and repair is to be done in accordance with Prudent Communication Service Industry Practice and with Engineering Standards set forth in the Lease Agreement.

“Engineering Standards” means standards and specifications for the construction, installation, repair, or replacement of Capital Improvements, and the use of materials and equipment, that are (i) in accordance with Required Licenses, Legal Requirements, Prudent Communication Service Industry Practice, System Insurance Requirements, System Contract Requirements, and Manufacturer’s Recommendations; (ii) requiring no less quality, precision, and care than the engineering standards applied by Hotwire or its Affiliates in distribution systems similar to the Fibrant System; (iii) do not degrade the structural integrity of the Fibrant System or any material System Asset, and (iv) in the case of any Capital Improvement that would reasonably be expected to cost $200,000 or more, the construction, installation, repair, or replacement thereof will be (A) effected pursuant to detailed plans and specifications approved by the City, and (B) conducted under the supervision of a qualified architect or engineer selected by Hotwire and approved by the City, such approval in each case not to be unreasonably withheld, conditioned, or delayed.

The City will remain responsible, at its expense, to maintain the roof and structural portions of the Customer Service Center and the HVAC Equipment serving the Customer Service Center, including any necessary capital improvements. In addition, the City will be responsible for correcting, repairing, or otherwise taking actions required to re-locate, repair, or replace certain pole attachments that may have been installed incorrectly prior to the date of the Lease Agreement.

Hotwire will be responsible, at its expense, for the construction, installation, repair, and replacement of all capital improvements to the Fibrant System, to the extent required by Prudent Communication Service Industry Practice, Engineering Standards, and Competitive Requirements. Without limiting the foregoing, Hotwire will be responsible to install Drops and NIDS (subject to Hotwire’s entitlement to a credit against rent with respect to such installations), improvements to the Outside Plant, and Customer Premises Equipment. Drops and NIDS and improvements to Outside Plant and Customer Premises Equipment will automatically become the property of the City. Other capital improvements, such as improvements to the NOC, Head End, and Satellite Dish Equipment, will remain Hotwire property. The City will have the option to purchase such improvements at termination of the lease for their fair market value as agreed, or if not agreement is reached, as determined by an independent appraiser.

The Lease Agreement requires Hotwire to maintain certain commercial general liability and other insurance and provides for the allocation of insurance proceeds in the event of casualty and the proceeds of any condemnation proceeding.

The Lease Agreement lists actions or occurrences that would constitute an “Event of Default” by Hotwire, some of which require notice from the City and provide Hotwire with a period of time in which to cure such Event of Default. Events of Default include, among others, the following:

• Failure to pay rent or other charges required of Hotwire;
• Certain bankruptcy filings or similar arrangements by Hotwire;
• Attachments of Hotwire’s rights in the Fibrant System assets;
• Breach by Hotwire of its representations and warranties in the Lease Agreement in any material respect;
• Actions or omissions by Hotwire that cause the City to be in violation of certain North Carolina statutes, or lose the City’s exemption from the application of certain statutes, including the provision of Communication Services outside the Grandfathered Fibrant Service Area; and
• Failure by Hotwire to perform any other term, covenant, or condition of the Lease Agreement in any material respect that adversely affects the City.

Upon the occurrence of an Event of Default, the Lease Agreement provides certain remedies to the City, including among others the right to terminate the Lease Agreement and recover from Hotwire liquidated damages in an amount equal to the greater of the Rent payable for 12 full calendar quarters immediately preceding such termination and the maximum amount payable under the Surety Bond ($3,000,000 as described below).

If the City defaults in its obligations under the Lease Agreement, including its obligation to make exclusive use of the Fibrant System available to Hotwire, Hotwire will be entitled to recover damages from the City in an amount determined by the Superior Court of North Carolina in Rowan County.

The Lease Agreement requires Hotwire to provide a Surety Bond in the form of a “Contract Bond (Miscellaneous – Not Construction)” of Travelers Casualty and Surety Company of America in the amount of $3,000,000, to be paid to the City in the event of failure by Hotwire to carry out its undertakings, covenants, and agreements in the Lease Agreement.

The Lease Agreement provides that the City may terminate the Lease Agreement in certain events, including a termination at any time after December 31, 2020, upon 180 days’ written notice to Hotwire if Hotwire fails to pay to the City Rent in amounts equal to the applicable Yearly Rent Target for any two years in a 3-year period. The Yearly Rent Targets are amounts agreed by the City and Hotwire and set forth in Appendix 7 to the Lease Agreement. In addition, the City would be permitted to terminate the Lease Agreement upon the occurrence of any transaction or transactions that result in control, directly or indirectly, of Hotwire by any other provider of Communication Services within the Grandfathered Fibrant Service Area. Following any termination of the System Lease, Hotwire will, at the City’s request, provide certain transition services in respect of the Fibrant System for a period of up to 18 months. In consideration for such transition services, the City would pay to Hotwire, as a management fee, 110 per cent of Hotwire’s reasonable and documented operating costs (including Hotwire’s “standard allocated costs”) and expenses of providing such services.

The obligations of the City and Hotwire to perform the Lease Agreement are conditioned upon the satisfaction or waiver of certain conditions, including among others the following:

• approval by a majority of those voting in a “vote of the people” (Referendum) of the City as required by Section 160A-321 of the North Carolina General Statutes;
• the City will have completed the refinancing of all amounts outstanding under its Installment Financing Contract with STI Institutional and Government, Inc., dated September 14, 2016;
• the absence of judgements, court orders, or laws that prohibit, prevent, or make illegal the performance of the System Lease; and
• the absence of a “material adverse event” with respect to Hotwire.

The Lease Agreement prohibits Hotwire from assigning, transferring, or conveying the Hotwire Lease without the prior written consent of the City, which consent will not be unreasonably withheld, conditioned, or delayed; provided, however, that Hotwire may assign or sublease to a wholly owned subsidiary or an Affiliate (as defined in the Lease Agreement) of Hotwire. The City may sell or convey its interest in the Fibrant System Assets; provided, however, that the City must provide to Hotwire a “Right of First Refusal” to acquire the Fibrant System Assets if the City seeks to sell or assign at any time during the first 12 years of the initial term of the System Lease. The Right of First Refusal allows Hotwire to acquire the Fibrant System Assets for the same consideration that the City would receive from any other purchaser and upon the same terms and conditions of sale.

The City will assign to Hotwire, and Hotwire will assume, certain contracts and agreements of the City with respect to the Fibrant System, including all agreements between residential, commercial, or other customers of the Fibrant System and the City. Certain agreements between the City and third-party providers of services will not be assigned to Hotwire and the City may be required to pay fees to such providers in connection with termination of the agreements.

The City and Hotwire make certain representations and warranties to each other in the Lease Agreement, including with respect to the due organization of each Party, authorization and valid execution of the Lease Agreement, absence of conflicts with law or other agreements, absence of pending lawsuits, and with respect to certain financial statements of Hotwire.

In the event of disagreements between the City and Hotwire as to certain matters, including the reporting of revenues used as the basis for determining rent payments, the Fair Market Value of capital improvements, and “reopeners” with respect to revenue percentages applicable to future “Other Services,” the Lease Agreement provides an “independent arbiter procedure” for the resolution of such disagreements. The decisions of the applicable independent arbiter in such matters would be binding and conclusive absent manifest error.

During a “Transition Management Period” commencing on the date of Lease Agreement and ending on the Lease Commencement Date, the City will appoint Hotwire as manager of the Fibrant System. During such period, Hotwire will manage the Fibrant System and will provide certain services requested by the City, including supervision of sales, marketing, pricing, and branding of Communication Services, procurement of television content and other third-party services, supervision of billing and collection, and supervision of customer service functions.. Hotwire will make available to the City a fulltime Transition Management Officer during this period. The City will remain responsible during the Transition Management Period for the compensation of Fibrant Employees and other operating costs of the Fibrant System. Hotwire will be responsible for compensation of the Transition Management Officer and other expenses incurred by Hotwire in providing such management services. During the Transition Management Period, the City will pay Hotwire a management fee equal to $25,000 per month and 50 percent of any “third-party contract savings” achieved by Hotwire on the City’s behalf. If the Lease Agreement is not approved in the Referendum, then the Transition Management Period will end on July 31, 2018, in which case Hotwire will continue providing certain consulting services to the City for a period of three years, subject to the right of either Hotwire or the City to terminate the consulting agreement upon 90 days’ written notice at any time after December 31, 2019. The City will pay to Hotwire a consulting fee of $5,000 per month, plus 50 percent of the third-party contract savings achieved during such consulting period.