So, if as expected, the first Broadband Stimulus grant/loan award recipients are announced tomorrow, it will be very educational to learn the projects that were worthy enough to stand out among the lot of 2,2oo other applicants.
Congrats if your project is one of those named.
As my source revealed yesterday, the fact that the government had given certain companies HOURS to get in information not related to due diligence but rather general information about the company perhaps to be folded into a speech or press release, the signs pointed that an announcement was eminent within days. So that's pretty good investigative work by that source as s/he/it was only off by a day!
As the first awardees pop the champagne and start clinking glasses, I'd warn they not go overboard, and stay sober long enough to get ready for maneuvering through all the strings that are attached to this money.
If their attorney/counsel/consultant haven't already gone through the agreement they have to enter with RUS(and presumably NTIA will have a similar document) here are some items to keep in mind, especially for any investor that will be contributing matching funds:
(these are cleaned up versions of my compliance tweets from September 30, 2009)
Congrats if your project is one of those named.
As my source revealed yesterday, the fact that the government had given certain companies HOURS to get in information not related to due diligence but rather general information about the company perhaps to be folded into a speech or press release, the signs pointed that an announcement was eminent within days. So that's pretty good investigative work by that source as s/he/it was only off by a day!
As the first awardees pop the champagne and start clinking glasses, I'd warn they not go overboard, and stay sober long enough to get ready for maneuvering through all the strings that are attached to this money.
If their attorney/counsel/consultant haven't already gone through the agreement they have to enter with RUS(and presumably NTIA will have a similar document) here are some items to keep in mind, especially for any investor that will be contributing matching funds:
(these are cleaned up versions of my compliance tweets from September 30, 2009)
1. You can't make any profit off of your project. For RUS, Any profit must be reinvested in the RUS/BIP fund for the project and not pocketed and distributed among your investors and management team. There is a similar project fund under BTOP.
2. LLC awardees can't directly or indirectly add or issue new member units or transfer more than than 49% interest of company without permission from the government.
3. Your assets cannot be pledged without permission.
4. Awardess cannot dissolve before obligation owed to government is fulfilled including loan payments. (This one is a given and should be expected anyway, yes?)
5. Salaries, wages, & other compensation for services, directors, members, managers, shall be reasonable & comparable to companies like awardee. I've heard from folks that one way to get around the profit limitation would be to pad the salary of the executive management team so I guess this provision is meant to close that loophole.
6. Awardees can't reorganize, consolidate, merge into any other corporation, sell, lease or transfer property w/out permission of government. It makes sense that once you take public money, the government owns you -- and it owns your assets for a long time too...check the next one:
7. Awardees can't sell or lease award funded facilities for 10 YEARS!! There are strict exceptions however. (This may be a stickler for investors because in this volatile market, I'm not certain there are too many investors around willing to put their money into a project with which there are so many restrictions and no clear immediate exit options. I understand the government wanting to protect its investment and curb applicants unjustly enriching their pockets and bottom lines on the backs of the American taxpayer, but sheesh, is this not a non-starter for getting matching private equity dollars.)
8. You can attempt to sell it if you want after the 10 years, but do know that the federal government STILL retains an interest in property in the event that it is sold after the 10 year unjust enrichment period ends . Again, I know this is an institutional standard that has been around for years of RUS program implementation, but it can be a hard pill to swallow.
You've got loads of paperwork to file - Some of which is due as early as the first two weeks in January whether you've gotten a dime yet or not
9. Among the type of information you have to submit for each quarterly report, you must TRACK and report every single new broadband customer you gain and You must provide your rates for services.
So it seems the government is supposed to be carefully watching to make sure you pull off what you claim to pull off in your application including costs! If you say you will provide low cost broadband that is competitive to the incumbent, you have to deliver. No price skimming! No redlining or whitelining or greenlining.
You have to align your accounting practices with the government's
10.You have to switch to GAAP principals of accounting before you are given a dime.
No bulk payment should be expected:
11. Most likely, You will not be given your entire funding request in a bulk payment. You may well have to receive your funding on an invoice basis (as that is how RUS does it). You can only invoice within 60 days of the funding being used.
12. Awardees must open account to hold all govt payments and place it in an account that is approved by the government. Without the prior written approval of RUS, the Awardee can't place Advances in any bank or other depository that is NOT insured by the FDIC
13. You may have to evidence all withdrawals/disbursements by canceled checks for accounting.
14. Awardees can't change their legal name or place of incorporation or organization without giving RUS sixty 60 days prior written notice.
2. LLC awardees can't directly or indirectly add or issue new member units or transfer more than than 49% interest of company without permission from the government.
3. Your assets cannot be pledged without permission.
4. Awardess cannot dissolve before obligation owed to government is fulfilled including loan payments. (This one is a given and should be expected anyway, yes?)
5. Salaries, wages, & other compensation for services, directors, members, managers, shall be reasonable & comparable to companies like awardee. I've heard from folks that one way to get around the profit limitation would be to pad the salary of the executive management team so I guess this provision is meant to close that loophole.
6. Awardees can't reorganize, consolidate, merge into any other corporation, sell, lease or transfer property w/out permission of government. It makes sense that once you take public money, the government owns you -- and it owns your assets for a long time too...check the next one:
7. Awardees can't sell or lease award funded facilities for 10 YEARS!! There are strict exceptions however. (This may be a stickler for investors because in this volatile market, I'm not certain there are too many investors around willing to put their money into a project with which there are so many restrictions and no clear immediate exit options. I understand the government wanting to protect its investment and curb applicants unjustly enriching their pockets and bottom lines on the backs of the American taxpayer, but sheesh, is this not a non-starter for getting matching private equity dollars.)
8. You can attempt to sell it if you want after the 10 years, but do know that the federal government STILL retains an interest in property in the event that it is sold after the 10 year unjust enrichment period ends . Again, I know this is an institutional standard that has been around for years of RUS program implementation, but it can be a hard pill to swallow.
You've got loads of paperwork to file - Some of which is due as early as the first two weeks in January whether you've gotten a dime yet or not
9. Among the type of information you have to submit for each quarterly report, you must TRACK and report every single new broadband customer you gain and You must provide your rates for services.
So it seems the government is supposed to be carefully watching to make sure you pull off what you claim to pull off in your application including costs! If you say you will provide low cost broadband that is competitive to the incumbent, you have to deliver. No price skimming! No redlining or whitelining or greenlining.
You have to align your accounting practices with the government's
10.You have to switch to GAAP principals of accounting before you are given a dime.
No bulk payment should be expected:
11. Most likely, You will not be given your entire funding request in a bulk payment. You may well have to receive your funding on an invoice basis (as that is how RUS does it). You can only invoice within 60 days of the funding being used.
12. Awardees must open account to hold all govt payments and place it in an account that is approved by the government. Without the prior written approval of RUS, the Awardee can't place Advances in any bank or other depository that is NOT insured by the FDIC
13. You may have to evidence all withdrawals/disbursements by canceled checks for accounting.
14. Awardees can't change their legal name or place of incorporation or organization without giving RUS sixty 60 days prior written notice.
And you are being watched ...
They will take your auditor's word for it:
15. BIP Awardees will have to file an annual audited CPA financial statement approved by the RUS; compliance report & a management letter.
Or will do it themselves:
16. RUS/NTIA will impose random audit, site visits, ongoing monitoring & inspections to make sure the government's investment is not being squandered or wasted or mismanaged. Remember, one of the key criticisms from incumbents is that the money will go to nascent newbies who are clueless how to manage it and will waste the people's money. I suppose this is why you are required to proved your source of independent working capital and show how your business will be sustainable for three years.
And if any audit reveals any funny stuff:
17. If RUS learns that the Awardee did not use the Loan and/or Grant exclusively for approved Project, it may suspend payment or demand repayment! Whoa Nelly!
Anyway, that's it for me. Until the next buzz comes my way!
Have a scoop you want to share anonymously? Create a Yahoo account and email me at broadbandlawyer(at)yahoo.com
They will take your auditor's word for it:
15. BIP Awardees will have to file an annual audited CPA financial statement approved by the RUS; compliance report & a management letter.
Or will do it themselves:
16. RUS/NTIA will impose random audit, site visits, ongoing monitoring & inspections to make sure the government's investment is not being squandered or wasted or mismanaged. Remember, one of the key criticisms from incumbents is that the money will go to nascent newbies who are clueless how to manage it and will waste the people's money. I suppose this is why you are required to proved your source of independent working capital and show how your business will be sustainable for three years.
And if any audit reveals any funny stuff:
17. If RUS learns that the Awardee did not use the Loan and/or Grant exclusively for approved Project, it may suspend payment or demand repayment! Whoa Nelly!
Anyway, that's it for me. Until the next buzz comes my way!
Have a scoop you want to share anonymously? Create a Yahoo account and email me at broadbandlawyer(at)yahoo.com
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