Indefeasible Right to Use Agreements (IRU’s): Key Legal Considerations Alex Preiser Associate Counsel UCAR

IRU Agreements IRU Defined Key Terms Considerations Strategies Summary Questions

Definition Indefeasible Right to Use Agreement (“IRU”): An agreement whereby one party (the “User”) obtains the right to use specified network facilities and/or fiber of another party (the “Grantor”). Essentially it is a lease. The User is granted rights to use the facilities and/or fiber of the Grantor for a specified period of time.

Key Terms Connection Acceptance Testing Maintenance Construction Fees Performance Property Rights Term/Usage Rights Payments/Taxes Force Majeure

Connection What is agreement for? Fiber only vs. Fiber and Equipment What are the responsibilities of each party? Ensure that all responsibilities are clearly outlined Which party pays connection fees? Where is connection to occur? If at Grantor’s facility, what are Grantors rights at facility? User access What if Grantor loses rights at that facility Does Grantor own facility? If not, what is lease term?

Acceptance Testing Extensive Specificity of Tests Make part of the contract Grantor is only going to do that which is required Ensure Tests Accurately Demonstrate Required Functionality Require Specific Timeframes/Levels of Effort Penalties and/or Credits Termination

Maintenance Generally provided by Grantor In most cases User will not be allowed to access fiber Fines and/or criminal penalties Costs are expensive Understand what is being provided Should cover scheduled and unscheduled maintenance Penalties and/or Service Credits and the right to terminate should be included for User

Construction Costs Property Rights Who owns Fiber? Penalties May be very expensive Often borne by the User Property Rights Who owns the property ? Who owns Fiber? If Grantor is to retain ownership of fiber, what rights does Grantor have beyond the rights granted to User If there is potential value to Grantor, costs of construction should be shared Penalties Time delays and cost over-runs are not uncommon and should be addressed in advance

Fees Fees can be significant percentage of overall costs and to the extent possible should be negotiated in advance: Management Fee – May be as much as 50% of the costs incurred by Grantor. DP&E: Design, Planning, and Engineering Fees should not be profit center for Grantor

Performance Maintenance/Outages Re-routing Understand Grantor Obligations Penalties/Credits Re-routing Potential performance issue Could effect Grantor’s property rights

Property Rights What are Grantor’s rights with regard to the “Associated Property”(Easements, Licenses, etc)? What if Grantor loses rights or has to pay unanticipated license fees? May be force majeure event (read carefully) Fees may be passed on to User Obtaining of Rights/Penalties Negotiate terms that ensure you are covered

Term/Usage Rights Term Usage Rights Strategies Based on User’s needs Useful life/Type of fiber Case-by-Case basis Usage Rights Does User have the right to lease to third parties? Strategies Balance term with usage rights/potential to enter into agreements with third parties and act as grantor Consider shorter terms with extension rights

Payments/Taxes Lump Sum Payments vs. Monthly Taxes If making lump sum, should receive deep discount Grantor should put Bond or LOC in place to protect in the event of termination, bankruptcy, etc… Taxes Almost all taxes will be borne by the User Understand all taxes up front. Grantor may provide accounting for previous year(s) Agree that User’s tax liability will not exceed certain amounts or increase by more than specific percentages

Force Majeure Understand all potential events covered Is losing “Associated Property” rights a force majeure event? In the case of force majeure events, what are User’s rights/Grantor’s responsibilities? If fiber is damaged, understand maintenance ramifications – is this carved-out?

Summary Understand your goals and timeframes Do not try to cover every specific contingency, rather address the overall concerns Understand all your rights and obligations under the Agreement – Even if they do not appear applicable

Questions?