<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1998.
REGISTRATION NO. 333--
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
PATHNET, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 52-1941838
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
</TABLE>
1015 31ST STREET, N.W.
WASHINGTON, DC 20007
(202) 625-7284
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL A. LUBIN, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
1015 31ST STREET, N.W.
WASHINGTON, DC 20007
(202) 625-7284
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
PAUL D. GINSBERG, ESQ. ROBERT EVANS III, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & SHEARMAN & STERLING
GARRISON 599 LEXINGTON AVENUE
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10019 (212) 848-4000
(212) 373-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE (1)(2) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.01 per share............................................ $100,000,000 $29,500
</TABLE>
(1) Includes shares issuable upon exercise of over-allotment options granted to
the Underwriters.
(2) Estimated pursuant to Rule 457 solely for purposes of calculating the
registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to an offering in
the United States and Canada ("U.S. Offering") of an aggregate of shares
of common stock of Pathnet, Inc., par value $.01 per share (the "Common Stock"),
together with separate Prospectus pages relating to a concurrent offering
outside of the United States and Canada ("International Offering") of an
aggregate of shares of Common Stock. The complete Prospectus for the U.S.
Offering follows immediately after this Explanatory Note. After such Prospectus
are the following alternate pages for the International Offering: a front cover
page, an "Underwriting" section, a section captioned "Certain United States
Federal Tax Consequences to Non-United States Holders of Common Stock" and a
back cover page. All other pages of the Prospectus for the U.S. Offering are
identical and are to be used for both the U.S. Offering and the International
Offering. The complete Prospectus for each of the U.S. Offering and
International Offering in the exact forms in which they are to be used after
effectiveness of this Registration Statement will be filed with the Securities
and Exchange Commission pursuant to Rule 424(b).
<PAGE>
Information contained in this Prospectus is subject to completion or amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. This Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any jurisdiction in which such offer, solicitation or
sale would be unlawful prior to registration, qualification or filing under the
securities law of any such jurisdiction.
<PAGE>
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED , 1998
P_R_O_S_P_E_C_T_U_S
SHARES
[LOGO]
COMMON STOCK
--------------------
All of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by Pathnet, Inc. ("Pathnet" or the
"Company"). Of the shares of Common Stock offered hereby, shares are
being offered for sale initially in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and shares are being offered for sale
initially in a concurrent offering outside the United States and Canada by the
International Managers (the "International Offering" and, together with the U.S.
Offering, the "Offering"). The initial public offering price and the
underwriting discount per share will be identical for both the U.S. Offering and
the International Offering. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.
Application will be made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "PTNT".
At the Company's request, the U.S. Underwriters have reserved up to
shares of Common Stock for sale at the initial public offering price to certain
of the Company's officers, directors and employees, members of their immediate
families and other individuals who are business associates of the Company
(including certain vendors and consultants). The number of shares available for
sale to the general public will be reduced to the extent these individuals
purchase such reserved shares. Any reserved shares not purchased will be offered
by the U.S. Underwriters to the general public on the same basis as the other
shares offered hereby.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total.................................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the U.S. Underwriters and the International Managers
options to purchase up to an additional shares and shares of
Common Stock, respectively, in each case exercisable within 30 days after
the date hereof, solely to cover over-allotments, if any. If such options
are exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
----------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
----------------------
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
----------------------
The date of this Prospectus is , 1998.
<PAGE>
[ARTWORK: MAP SHOWING THE COMPANY'S NETWORK]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE PURCHASES OF SHARES TO STABILIZE THE MARKET PRICE OF
THE COMMON STOCK, PURCHASES OF SHARES OF COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS IN THE SHARES OF COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE OTHER
FINANCIAL DATA CONTAINED ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH HEREIN UNDER THE CAPTION "RISK
FACTORS" AND ARE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. PLEASE REFER TO
THE GLOSSARY FOR DEFINITIONS OF CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY
AND ELSEWHERE IN THE PROSPECTUS WITHOUT DEFINITION. UNLESS OTHERWISE INDICATED,
THE INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO THE CONVERSION OF ALL
OUTSTANDING SHARES OF THE COMPANY'S PREFERRED STOCK INTO COMMON STOCK (THE
"PREFERRED STOCK CONVERSION"), (II) GIVES EFFECT TO A FIVE-FOR-ONE SPLIT OF THE
COMPANY'S COMMON STOCK (THE "STOCK SPLIT") AND (III) ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTIONS ARE NOT EXERCISED. UNLESS OTHERWISE NOTED,
STATEMENTS IN THIS PROSPECTUS CONCERNING ROUTE MILES HAVE BEEN DERIVED FROM
INFORMATION PUBLICLY AVAILABLE FROM THE FEDERAL COMMUNICATIONS COMMISSION (THE
"FCC"). UNLESS OTHERWISE SPECIFIED OR THE CONTEXT OTHERWISE REQUIRES, REFERENCES
IN THIS PROSPECTUS TO THE "UNITED STATES" MEAN THE 48 CONTINENTAL STATES OF THE
UNITED STATES OF AMERICA AND REFERENCES TO THE "COMPANY" OR "PATHNET" MEAN
PATHNET, INC. AND ITS SUBSIDIARIES, COLLECTIVELY.
THE COMPANY
Pathnet intends to become a leading provider of high quality, low cost, long
haul telecommunications capacity to second and third tier markets throughout the
United States primarily by upgrading existing wireless infrastructure to develop
a state-of-the-art, digital SONET network. The Company is positioning itself
primarily as a 'carrier's carrier,' providing a high capacity, dedicated network
to interexchange carriers ("IXCs"), local exchange carriers ("LECs"), Internet
service providers ("ISPs"), the Regional Bell Operating Companies ("RBOCs"),
other 'carrier's carriers,' cellular operators and resellers (collectively,
"Telecom Service Providers"). The Company plans to deploy its digital network by
upgrading, integrating and leveraging existing telecommunications assets, sites
and rights of way, including those utilized by railroads, utilities, state and
local governments and pipelines ("Incumbents"). By integrating the existing
networks of Incumbents, the Company expects to obtain the equivalent of a
nationwide spectrum license at minimal licensing cost.
The Company's goal is to deploy a network covering 29,000 route miles within
two years and ultimately to deploy a network encompassing more than 100,000
route miles. Based on market research prepared for the Company by the Yankee
Group, a leading telecommunications research firm, the estimated addressable
market for the Company's services is expected to grow from approximately $6
billion in 1998 to approximately $17 billion by 2008. The Company believes its
strategy of developing a high quality, low cost, digital network primarily in
smaller markets will enable the Company to take advantage of (i) the limited
capacity currently available or expected to be constructed in smaller markets,
(ii) higher prices generally available in those markets and (iii) technological
and cost advantages of the Company's deployment strategy. The Company is
currently in various stages of designing, constructing, testing and
commissioning its digital network, which will initially serve markets in 34
states. The Company has completed over 800 route miles of its network, is
currently constructing approximately 2,100 additional route miles and has
entered into one agreement relating to the sale of capacity on its network.
The Company's core strategy for deploying its network is to form strategic
relationships with Incumbents and other owners of telecommunications assets that
will enable the Company to leverage these existing assets and thereby reduce the
Company's time to market and capital costs. The Company believes that Incumbents
will find a strategic relationship with the Company to be attractive due to the
opportunity for the Incumbents to (i) reduce the costs of upgrading internal
network infrastructure, (ii) receive incremental capacity which has greater
reliability characteristics than most of the Incumbents' existing systems and
(iii) leverage under-utilized assets and receive a share of the incremental
revenues generated by Pathnet. The Company has identified Incumbents currently
holding or operating private networks in the United States that in the aggregate
cover approximately 465,000 route miles. Through its sales staff and other
engineering, financial and legal professionals, the Company has held meetings
with over 300 of these
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Incumbents. To date, 47 of these entities, which together control approximately
89,000 route miles, have authorized the Company in writing to prepare
preliminary engineering evaluations of their networks for the intended purpose
of entering into a long-term strategic relationship with the Company. Of these
47 entities, seven, which collectively control approximately 11,000 route miles,
have entered into binding agreements relating to the initial design and
construction of approximately 7,000 route miles of network. Six of these binding
agreements are long-term fixed point microwave services agreements ("FPM
Agreements") with Enron, Idaho Power Company, KN Energy, Northeast Missouri
Electric Power Cooperative, Northern Indiana Public Service Company ("NIPSCO")
and Texaco or their affiliates. The seventh agreement is a binding term sheet
with American Tower Corporation ("ATC"), which controls certain
telecommunications assets, including certain assets divested by CSX Railroad,
ARCO Pipeline and MCI Communications Corporation ("MCI"). In addition, the
Company is currently pursuing long-term strategic relationships with 25 out of
the 47 entities that control approximately 63,000 additional route miles of
network. These potential relationships are in varying stages of evaluation,
system design and business and contract negotiations. In addition to deploying
its network by forming long-term relationships with Incumbents, the Company may
enter into alternative markets or acquire or deploy complementary
telecommunications assets or technologies.
The Company's network is being designed for maximum reliability and security
and will be capable of carrying a full array of voice, data and video
communications. Bell Communications Research ("Bellcore"), an independent
telecommunications technical consultant, has evaluated the Company's system
design and existing network and has confirmed that the Company's network will be
built using proven, off-the-shelf components and will meet or exceed prevailing
industry standards for reliability and error free operation. The Company's
network will employ various design features that enhance its reliability,
including SONET architecture.
Pathnet was founded in August 1995, and its initial investors include a
group of financial sponsors led by Spectrum Equity Investors ("Spectrum") and
New Enterprise Associates ("NEA"). The Company's current investors also include
Dennis R. Patrick, former Chairman of the FCC. The Company's Chairman, David
Schaeffer, has more than 20 years of business and entrepreneurial experience,
including building and operating wireless networks. Richard A. Jalkut, the
Company's President and Chief Executive Officer, has over 30 years of
telecommunications experience, including as President of NYNEX
Telecommunications, an operating subsidiary of NYNEX Corporation with more than
$12.0 billion in annual revenues and 60,000 employees. Kevin J. Bennis, formerly
President of Frontier Communications, is Executive Vice President of the Company
serving as President of the Company's Communications Services Division. Prior to
working at Frontier Communications, Mr. Bennis served in various positions for
21 years at MCI, including as Senior Vice President of Marketing. Michael L.
Brooks, the Company's Vice President of Network Development, directed the
initial construction of the 3,500-mile digital microwave network at Qwest
Microwave Communications, a predecessor of Qwest Communications International
Inc. ("Qwest"), as its Vice President of Engineering.
MARKET OPPORTUNITY
The Company believes there is a substantial market opportunity to provide
high quality, low cost, long haul telecommunications capacity for second and
third tier markets throughout the United States. The Company commissioned the
Yankee Group to study the Company's addressable market. The Yankee Group study
estimated the potential addressable market for the Company's services to be
approximately $6 billion in 1998 and estimated that such market will grow to
approximately $17 billion by 2008, indicating a compounded annual growth rate of
approximately 11% per year. The Yankee Group attributes this growth to (i) an
expected shift in market share of interexchange services away from established
carriers, such as AT&T Corporation ("AT&T"), MCI and Sprint Corporation
("Sprint"), to non-facilities-based IXCs that are more likely to rely on
alternative carriers such as the Company to transmit traffic, (ii) the
4
<PAGE>
development of the Internet, (iii) growth in data traffic, including WANs,
extranets, CAD/CAM and other applications which require substantial amounts of
bandwidth and (iv) continued growth in voice traffic.
Based on FCC data and other publicly available information, the Company
estimates that most existing or planned facilities-based long distance
providers' networks are designed to connect primarily the top 120 Metropolitan
Statistical Areas ("MSAs") in the United States. Facilities-based IXCs and other
telecommunications providers must rely, directly or indirectly, on facilities
provided primarily by incumbent local exchange carriers ("ILECs") to transmit
calls beyond their existing owned or leased facilities. Current facilities-based
providers serve the second and third tier markets primarily utilizing a
combination of copper, fiber or microwave transport facilities. The Company
believes that many Telecom Service Providers will choose the Company's network
for long haul capacity serving second and third tier markets as a result of its
(i) availability in markets where there are currently insufficient or limited
high capacity facilities, (ii) lower prices compared to those currently offered
by ILECs, (iii) ubiquity in these markets compared to many other long haul
carriers due to the projected reach of the Company's network, as well as an
increased number of access and termination points compared to most other long
haul networks, (iv) greater product flexibility as a result of the ability to
sell capacity in increments as small as DS-1s and as large as OC-24s, (v)
non-competitive marketing position as primarily a 'carrier's carrier', (vi)
comparable or greater reliability due to the digital SONET architecture of the
Company's network and (vii) ability to provide network redundancy and enhanced
reliability by offering an alternative to the existing network.
COMPETITIVE ADVANTAGES
The Company believes that it will enjoy the following competitive
advantages:
UBIQUITOUS COVERAGE. The Company's goal is to deploy a network covering
29,000 route miles within 24 months and ultimately to deploy a network
encompassing more than 100,000 route miles. The extensive scope of such existing
networks, combined with the attractive characteristics of Pathnet's network
architecture, should enable the Company to provide greater ubiquity than many
other long haul carriers. Pathnet's network architecture enables the Company to
provide access and termination points approximately every 25 miles, which is not
economically feasible for most fiber optic networks. This architecture increases
the number of cities that can be served cost effectively on each route. In
addition, the Company expects that its tower rights will enable it to
interconnect with Telecom Service Providers by digital microwave anywhere within
an approximate 25-mile line of sight surrounding any transmission tower on its
network. This will allow Pathnet in many cases to bypass existing local
infrastructure and deliver traffic directly to an access tandem, local serving
office, mobile switching office, ISP point of presence ("POP") or large
end-user.
LOWER NETWORK COST. By leveraging the resources of Incumbents and other
owners of telecommunications assets and by utilizing lower-cost wireless
technology, the Company believes it will gain a significant competitive
advantage over carriers seeking to deploy newly constructed digital networks to
serve the Company's target markets. The Company intends to reduce its initial
costs by utilizing the assets, including towers and rights-of-way, of Incumbents
and other owners of existing telecommunications assets. In addition, the Company
will be able to utilize many of the requisite local permits and local regulatory
approvals already in place. Based upon publicly available information, the
Company believes that, for capacity of OC-24, the Company's average capital cost
per DS-0 circuit mile will be approximately $1.55 versus approximately $1.90 for
newly constructed digital microwave capacity, approximately $3.00 for newly
constructed aerial fiber and approximately $4.10 for newly constructed fiber
buried in conduit.
SUCCESS-BASED CAPITAL EXPENDITURE. The Company's network is designed to
reduce the risk of capital investment by deploying a substantial portion of its
network on a demand-driven basis. After an Initial System is deployed, the
Company's additional capital expenditures will relate primarily to deploying
incremental equipment to provide additional capacity in response to specific
customer demand. As a result, the Company believes that a majority of its
capital expenditures will be success-based. The modular
5
<PAGE>
design of its network should allow the Company to expand rapidly in response to
increased customer demand or to delay the deployment of network equipment until
justified by specific customer demand. In addition, the Company will be able to
mitigate its capital expenditures by redeploying network equipment to respond to
shifting customer demand.
BARRIERS TO ENTRY. The Company's strategy of entering into long-term
relationships with Incumbents is designed to enable the Company to minimize the
significant costs and obstacles associated with the development of long haul
telecommunications capacity. Leveraging the existing assets of Incumbents will
enable the Company to avoid certain capital expenditures related to real estate
and right-of-way acquisition, permits and zoning requirements, and generally is
expected to shift to Incumbents certain costs of shelter development, tower
upgrades and enhancement of utility service. The Company's relationships with
Incumbents also are expected to mitigate maintenance and ongoing administrative
costs by using Incumbents' existing technicians to perform facility and
equipment maintenance and on-site circuit provisioning and by leaving ongoing
utility, real estate taxes and other infrastructure costs with Incumbents. The
Company believes that fiber networks, the primary alternative source of
bandwidth, may be too expensive to install in the smaller markets targeted by
the Company. The greater capacity offered by fiber networks may not be cost
effective in smaller markets due to the higher costs per bit of capacity sold to
low volume markets.
HIGH QUALITY, TECHNOLOGICALLY ADVANCED NETWORK. The Company's network is
being deployed using a high capacity digital SONET platform, which will provide
high quality voice, data and video transmission comparable to or exceeding that
of most fiber optic networks. The Company expects to deliver 99.999% network
reliability on any individual path with a bit error rate of no greater than
10(-13). The capacity created by Pathnet is expected to meet the highest
industry standards, including those of AT&T and MCI, and Bellcore specifications
for reliability. The Company will continuously monitor and maintain high quality
control of its network on a 24 hours per day, seven days per week basis through
its Network Operations Center (the "NOC").
EXPERIENCED MANAGEMENT. Pathnet's management team includes its Chief
Executive Officer, Richard A. Jalkut, the former President of NYNEX
Telecommunications, and Kevin J. Bennis, who is Executive Vice President serving
as President of the Company's Communications Services Division and was formerly
President of Frontier Communications and Senior Vice President of Marketing at
MCI. The Company has commenced development of its network under the direction of
Michael L. Brooks, who was responsible, as Vice President of Engineering of
Qwest Microwave Communications, a predecessor of Qwest, for the initial
construction of the 3,500-mile digital microwave network of Qwest. This team has
significant and proven operational, technical, financial and regulatory
experience in the telecommunications industry.
BUSINESS STRATEGY
Key components of the Company's business and operating strategies are
described below:
FOCUS ON SMALLER, CAPACITY CONSTRAINED MARKETS. The Company intends to focus
on smaller markets that typically have limited access to transmission capacity
and that currently are served by ILECs and few other competitors. Private line
rates in second and third tier markets are believed by the Company to be
significantly higher than rates between larger markets because there are few
suppliers. Smaller markets are often unattractive to new entrants because their
relatively limited traffic does not normally economically justify new network
construction. Focusing on smaller markets should enable the Company to take
advantage of its low cost, flexible network, which is capable of servicing
markets requiring small increments of capacity.
POSITION THE COMPANY AS A 'CARRIER'S CARRIER.' The Company intends to sell a
majority of its capacity to Telecom Service Providers. The Company believes
there are substantial benefits to a 'carrier's carrier' strategy, including (i)
lower sales, marketing and servicing costs, (ii) elimination of significant
capital outlays to provide switching services to end-users, (iii) the ability to
carry most of its customer traffic on its
6
<PAGE>
own network, thereby increasing operating margins, and (iv) increased
attractiveness to Telecom Service Providers, who will not view the Company as a
potential competitor.
ESTABLISH STRATEGIC RELATIONSHIPS WITH INCUMBENTS AND OTHER OWNERS OF
TELECOMMUNICATIONS ASSETS. The Company's core strategy for deploying its network
is to form strategic relationships with Incumbents and other owners of
telecommunications assets that will enable the Company to utilize existing
infrastructure, permits and other regulatory approvals in order to reduce the
Company's time to market and construction costs. The Company believes that
Incumbents will find a strategic relationship with the Company to be attractive
due to the opportunity for Incumbents to (i) reduce the costs of upgrading the
Incumbent's infrastructure, (ii) receive incremental capacity which has greater
reliability characteristics than most of the Incumbents' existing systems, and
(iii) leverage under-utilized assets and receive a share of the incremental
revenues generated by Pathnet. See "Risk Factors--Dependence on Relationship
with Incumbents; Rights of Incumbents to Certain Assets."
BUILD EFFECTIVE SALES FORCE AND PROVIDE SUPERIOR CUSTOMER SERVICE. The
Company is building a national accounts sales force that will use a consultative
approach designed to provide a systematic review of a large carrier's network
requirements in smaller markets and to offer solutions to reduce the carrier's
network costs and improve its reliability. The Company will also build a
regional sales force that will market the Company's network capacity to smaller
carriers and to selected large end-users. The Company expects to offer high
reliability and superior customer service, including maintaining a centralized
NOC to initiate new services and monitor existing circuit capacity more easily.
In addition, pursuant to the FPM Agreements, the Company utilizes Incumbents as
an alternative sales channel to sell to large end-users who reside in the cities
near Incumbents' facilities.
FINANCING PLAN
To date, the Company has funded its expenditures primarily with equity
investments made by the Company's stockholders and the proceeds from the
Company's debt financings. The development of the Company's business plan will
require substantial additional capital to fund capital expenditures, working
capital and operating losses. The Company's principal capital expenditures
include costs related to the installation of digital transmission equipment and,
to a lesser extent, site preparation work. The Company projects that a majority
of its capital expenditures will relate to deploying incremental capacity to
meet specific customer demand. This characteristic of the Company's network is
expected to reduce materially the risks associated with the Company's capital
investment. The Company currently forecasts that it will require approximately
$380 million to fund the Company's operating losses, working capital and capital
expenditures for the next 24 months, at which time the Company expects to have
completed a 29,000 route mile network. Proceeds from the Offering and cash on
hand are expected to provide the Company with adequate resources to meet these
projected capital requirements. The Company intends to use any additional
available funds to accelerate its development plans. The Company's financing
plan consists of the following components:
- DEBT OFFERING. On April 8, 1998, the Company completed the issuance and
sale of the 350,000 units (collectively, the "Units"), consisting of
Senior Notes due 2008 (the "Notes") and warrants to purchase shares of
Common Stock (the "Warrants"), resulting in net proceeds to the Company of
$339.5 million (the "Debt Offering"). The Company used $81.1 million of
the net proceeds of the Debt Offering to purchase securities (the "Pledged
Securities") in an amount sufficient to provide for payment in full of the
interest due on the Notes through April 15, 2000 and which have been
pledged as security for repayment of the Notes.
- PRIVATE EQUITY INVESTMENT. Concurrently with the Debt Offering, the
Company completed the issuance and sale of 1,879,699 shares of Series C
Convertible Preferred Stock at an aggregate price of $20.0 million (the
"1998 Private Equity Investment"), bringing the total investment by the
Company's private equity investors to $36.0 million. In connection with
the Offering, all of the
7
<PAGE>
Company's outstanding preferred stock will be converted into an aggregate
of 27,352,975 shares of Common Stock (the "Preferred Stock Conversion").
The Debt Offering, the 1998 Private Equity Investment and the Preferred
Stock Conversion are collectively referred to herein as the
"Transactions."
- INITIAL PUBLIC OFFERING. Net proceeds of the Offering to the Company are
estimated to be $ million.
In addition, the Company is currently exploring several vendor financing
alternatives and other credit facilities. Although the Company has received
commitments (subject to definitive documentation) from certain of its vendors
and prospective lenders in connection with two such proposed vendor financing
facilities, as of the date of this Prospectus, the Company has not decided to
pursue any one particular proposed facility.
The actual amount of the Company's future capital requirements will depend
upon many factors, including the costs of the development of its network in each
of its markets, the speed of the development of the Company's network, the
extent of competition and pricing of telecommunications services in its markets,
other strategic opportunities pursued by the Company and the acceptance of the
Company's services. See "Risk Factors--Significant Capital Requirements;
Uncertainty of Additional Financing."
------------------------
The Company was formed under the laws of the State of Delaware and commenced
operations in August 1995. The Company's principal executive office is located
at 1015 31st Street, N.W., Washington, D.C. 20007, and its telephone number is
(202) 625-7284.
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THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby:
U.S. Offering.............................. shares
International Offering..................... shares
Total.................................... shares
Common Stock to be outstanding after the
Offering(1)................................ shares
Use of proceeds.............................. The Company intends to use the net proceeds
from the Offering for capital expenditures,
working capital and other general corporate
purposes, including the funding of operating
losses. The precise allocation of funds among
these uses will depend on a variety of
factors.
Proposed Nasdaq National Market symbol....... "PTNT"
</TABLE>
- ------------------------
(1) Includes 27,352,975 shares of Common Stock to be issued in connection with
the Preferred Stock Conversion. Does not include (i) 1,925,000 shares of
Common Stock issuable upon exercise of the Warrants and (ii) 4,258,530
shares of Common Stock issuable upon the exercise of outstanding options
under the Company's existing stock option plans.
RISK FACTORS
Prospective purchasers of Common Stock should carefully consider the risk
factors set forth under the caption "Risk Factors" and the other information
included in this Prospectus prior to making an investment decision. See "Risk
Factors."
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<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK INVOLVES A SIGNIFICANT DEGREE OF RISK. IN
DETERMINING WHETHER TO MAKE AN INVESTMENT IN THE COMMON STOCK, PROSPECTIVE
PURCHASERS SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION SET FORTH IN THIS
PROSPECTUS AND, IN PARTICULAR, THE FOLLOWING FACTORS.
LIMITED HISTORY OF OPERATIONS; OPERATING LOSSES AND NEGATIVE CASH FLOW
The Company was formed in August 1995 to begin deployment of its digital
network. The Company has completed over 800 route miles of its network, which
are commercially available, and to date has entered into one customer capacity
contract. There can be no assurance that the Company will enter into any
additional customer contracts. Based on Pathnet's experience, it expects that it
may take between six and 18 months from the initial contact with an Incumbent to
complete a long-term contract and 12 months thereafter to complete a
commercially available system. Prospective investors, therefore, have extremely
limited historical financial information about the Company upon which to base an
evaluation of the Company's performance and an investment in the Common Stock.
As a result of development and operating expenses, the Company has incurred
significant operating and net losses to date. The Company's operations have
resulted in cumulative net losses of $8.8 million and cumulative net losses
before interest income (expense), income tax benefit, depreciation and
amortization of $8.8 million from inception in 1995 through March 31, 1998.
The Company expects to incur significant operating losses, to generate
negative cash flows from operating activities and to invest substantial funds to
construct its digital network during the next several years. There can be no
assurance that the Company will achieve or sustain profitability or generate
sufficient positive cash flow to meet its debt service obligations, capital
expenditure requirements or working capital requirements. If the Company cannot
achieve operating profitability or positive cash flows from operating
activities, it will not be able to meet its debt service obligations, capital
expenditure requirements or working capital requirements, which would have a
material adverse effect on the financial condition and results of operations of
the Company. See "--Significant Capital Requirements; Uncertainty of Additional
Financing," "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the financial statements
included elsewhere in this Prospectus.
SIGNIFICANT CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FINANCING
Deployment of the Company's network and expansion of the Company's
operations and services will require significant capital expenditures, primarily
for continued development and construction of its network and implementation of
the Company's sales and marketing strategy. The Company anticipates that it will
require approximately $120 million and $260 million to fund capital
expenditures, working capital and operating losses for the twelve-month periods
ending June 30, 1999 and 2000, respectively. By March 31, 2000, the Company
expects to have approximately 29,000 route miles operational plus additional
route miles under construction. The Company will need to seek additional
financing to fund capital expenditures and working capital to expand further its
network to its target of approximately 100,000 route miles. The Company
estimates that this will require substantial additional external financing but
presently has no negotiated commitments for any such additional financing. The
Company may also require additional capital for activities complementary to its
currently planned businesses, or in the event it decides to pursue network
development through acquisitions, joint ventures or strategic alliances. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
The actual amount of the Company's future capital requirements will depend
upon many factors, including the costs of network deployment in each of its
markets, the speed of the development of the Company's network, the extent of
competition and pricing of telecommunications services in its markets, other
strategic opportunities pursued by the Company and the acceptance of the
Company's services.
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Accordingly, there can be no assurance that the actual amount of the Company's
financing needs will not exceed (perhaps significantly) the current estimates.
There can be no assurance that the Company will be successful in raising
additional capital on terms that it will consider acceptable, that the terms of
such indebtedness or other capital will not impair the Company's ability to
develop its business or that all available capital will be sufficient to service
its indebtedness. Sources of additional capital may include cash flow from
operations, additional equipment financing facilities and public and private
equity and debt financings. If the Company decides to raise additional capital
through the issuance of equity, the ownership interests represented by the
Common Stock will be diluted. In addition, the Indenture relating to the Notes
(the "Indenture") contains, and other debt instruments governing future
indebtedness may contain, covenants that limit the operational and financial
flexibility of the Company. Failure to raise sufficient funds may require the
Company to modify, delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on the Company's
business, financial condition and results of operations, including the Company's
ability to make principal and interest payments on its indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS
The Company is highly leveraged. As of March 31, 1998, on a pro forma basis
after giving effect to the Transactions and the Offering, the Company would have
had $345.9 million of indebtedness outstanding (__% of total invested capital).
The Company will incur substantial additional indebtedness (including secured
indebtedness) following the Offering, for the development of its network and
other capital and operating requirements. The level of the Company's
indebtedness could adversely affect the Company in a number of ways. For
example, (i) the ability of the Company to obtain necessary financing in the
future for working capital, capital expenditures, debt service requirements or
other purposes may be limited; (ii) the Company's level of indebtedness could
limit its flexibility in planning for, or reacting to, changes in its business;
(iii) the Company will be more highly leveraged than some of its competitors,
which may place it at a competitive disadvantage; (iv) the Company's degree of
indebtedness may make it more vulnerable to a downturn in its business or the
economy generally; (v) the terms of the existing and future indebtedness
restrict, or may restrict, the payment of dividends by the Company; and (vi) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of principal and interest on its indebtedness and will not be
available for other purposes.
The Indenture and certain of the Company's FPM Agreements contain, or will
contain, restrictions on the Company and its subsidiaries that will affect, and
in certain cases significantly limit or prohibit, among other things, the
ability of the Company and its subsidiaries to create liens, make investments,
pay dividends and make certain other restricted payments, issue stock of
subsidiaries, consolidate, merge, sell assets and incur additional indebtedness.
There can be no assurance that such covenants and restrictions will not
adversely affect the Company's ability to finance its future operations or
capital needs or to engage in other business activities that may be in the
interest of the Company. See "Description of Certain Indebtedness" and
"Business--Agreements with Incumbents and Other Telecommunications Assets--
Fixed Point Microwave Services Agreements."
In addition, any future indebtedness incurred by the Company or its
subsidiaries is likely to impose similar restrictions. Failure by the Company or
its subsidiaries to comply with these restrictions could lead to a default under
the terms of the Company's indebtedness notwithstanding the ability of the
Company to meet its debt service obligations. In the event of such a default,
the holders of the Company's indebtedness could elect to declare all such
indebtedness due and payable, together with accrued and unpaid interest. In such
event, a significant portion of the Company's indebtedness may become
immediately due and payable, and there can be no assurance that the Company
would be able to make such payments or borrow
11
<PAGE>
sufficient funds from alternative sources to make any such payments. Even if
additional financing could be obtained, there can be no assurance that it would
be on terms that would be acceptable to the Company.
The successful implementation of the Company's strategy, including expanding
its digital network and obtaining and retaining a sufficient number of
customers, and significant and sustained growth in the Company's cash flow will
be necessary for the Company to meet its debt service requirements. The Company
does not currently, and there can be no assurance that the Company will be able
to, generate sufficient cash flows to enable it to meet its debt service
obligations. If the Company were unable to generate sufficient cash flow or
otherwise obtain funds necessary to make required payments, or if the Company
otherwise fails to comply with the various covenants under the terms of its
existing or future indebtedness, it could trigger a default under the terms
thereof, which would permit the holders of such indebtedness to accelerate the
maturity of such indebtedness and could cause defaults under other indebtedness
of the Company. The ability of the Company to meet its obligations will be
dependent upon the future performance of the Company, which will be subject to
prevailing economic conditions and to financial, business, regulatory and other
factors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Description of
Certain Indebtedness."
RISKS OF COMPLETING THE COMPANY'S NETWORK; MARKET ACCEPTANCE
The Company's ability to achieve its strategic objectives will depend in
large part upon the successful, timely and cost effective completion of its
network, as well as on selling a substantial amount of its capacity. The
successful completion of the Company's network may be affected by a variety of
factors, uncertainties and contingencies, many of which are beyond the Company's
control. Although the Company believes that its cost estimates and build-out
schedules are reasonable, only 12% of route miles under contract have been
completed to date. There can be no assurance that the Company's network will be
completed as planned at the cost and within the time frame currently estimated,
if at all. In addition, the Company currently has only one contract relating to
the sale of capacity to Telecom Service Providers and there can be no assurance
that the Company will attract additional purchasers of capacity.
The successful and timely construction of the Company's network will depend
upon, among other things, the Company's ability to (i) obtain substantial
amounts of additional capital and financing at reasonable cost and on
satisfactory terms and conditions, (ii) manage effectively and efficiently the
construction of its network, (iii) enter into agreements with Incumbents and
other owners of telecommunications assets that will enable the Company to
leverage the assets of Incumbents and of other owners of telecommunications
assets, (iv) access markets and enter into customer contracts to sell capacity
on its network, (v) integrate successfully such networks and associated rights
acquired in connection with the development of the Company's network including
cost-effective interconnections and (vi) obtain necessary FCC licenses and other
approvals. Successful construction of the Company's network also will depend
upon the timely performance by third party contractors of their obligations.
There can be no assurances that the Company will achieve any or all of these
objectives. Any failure by the Company to accomplish these objectives may have a
material adverse affect on the Company's business, financial condition and
results of operations. See "--Significant Capital Requirements; Uncertainties of
Additional Financing" and "--Dependence on Relationship with Incumbents; Rights
of Incumbents to Certain Assets."
The development of the Company's network and the expansion of the Company's
business may involve acquisitions of other telecommunications businesses and
assets and implementation of other technologies either in lieu of or as a
supplement to the excess capacity created by upgrading Incumbents' networks. In
addition, the Company may enter into relationships with Telecom Service
Providers or other entities to manage existing assets or to deploy alternative
telecommunications technologies. If pursued, these opportunities could divert
the resources and management time of the Company and could require integration
with the Company's other operations. There can be no assurance that any such
opportunity, if pursued, could be successfully integrated into the Company's
operations or that any such opportunity
12
<PAGE>
would perform as expected. Furthermore, as the Company builds out its network,
there can be no assurance that the Company will enter into agreements with the
best suited Incumbents or such other owners of telecommunications assets, as the
case may be, or that the Company will continue to pursue its core strategy of
leveraging the assets of Incumbents as opposed to other telecommunications
assets, technologies or other markets. Moreover, there can be no assurance that
the resulting network will match or be responsive to the demand for
telecommunications capacity or will maximize the possible revenue to be earned
by the Company. There can be no assurance the Company will be able to develop
and expand its business and enter new markets as currently planned. Failure of
the Company to implement its expansion and growth strategy successfully could
have a material adverse effect on the Company's business, financial condition
and results of operations.
DEPENDENCE ON RELATIONSHIP WITH INCUMBENTS; RIGHTS OF INCUMBENTS TO CERTAIN
ASSETS
Although the Company has entered into long-term contracts with six
Incumbents, entered into one binding term sheet with an independent tower
company, and is currently pursuing long-term contracts with 25 additional
Incumbents, there can be no assurances that existing long-term relationships
will be maintained or that additional long-term relationships will result on
terms acceptable to the Company, on terms substantially similar to those
described herein or at all. If the Company is not successful in negotiating such
agreements, its ability to deploy its network would be adversely affected.
The Company does not typically expect to own the underlying sites and
facilities upon which its network is deployed. Instead, the Company expects to
enter into long-term relationships with Incumbents whereby each such Incumbent
agrees to grant to the Company a leasehold interest in or a similar right to use
such Incumbent's facilities and infrastructure as is required for the Company to
deploy its network. In some cases, system assets may be held by subsidiaries in
which both the Company and the Incumbent own an interest. In the case of Idaho
Power, the Incumbent owns a majority interest in a subsidiary formed in April
1998 to hold its Initial System. As a result, the Company will depend on the
facilities and infrastructure of its Incumbents for the operation of its
business. Long-term relationships with Incumbents may expire or terminate if the
Company does not satisfy certain performance targets with respect to sales of
excess capacity or fails to commission an Initial System within specified time
periods. In such case, certain equipment relating to the Initial System will be
transferred to the Incumbent. Any such earlier than expected expiration of a
relationship with an Incumbent, and the resulting loss of use of the Initial
System and opportunity to utilize such segment of its network, could result in
the Company not being able to recoup its initial capital expenditure with
respect to such segment and could have a material adverse effect on the business
and financial condition of the Company. In addition, such a loss under certain
circumstances could result in an event of default under the Company's existing
or future indebtedness. There can be no assurance that the Company will continue
to have access to such Incumbent's sites and facilities after the expiration of
such agreements or in the event that an Incumbent elects to terminate its
agreement with the Company. If such an agreement were terminated or expires and
the Company were forced to remove or abandon a significant portion of its
network, such termination or expiration, as the case may be, could have a
material adverse effect on the business, financial condition and results of
operations of the Company. See "Business--Agreements with Incumbents and Other
Owners of Telecommunications Assets."
The Company expects to rely significantly on its Incumbents for the
maintenance and provisioning of circuits on its network. The Company has entered
into maintenance agreements with three Incumbents and expects to enter into
agreements with additional Incumbents pursuant to which, among other things, the
Company will pay the Incumbent a monthly maintenance fee and a provisioning
services fee in exchange for such Incumbent providing maintenance and
provisioning services for that portion of the Company's network that primarily
resides along such Incumbent's system. Failure by the Company to enter
successfully into similar agreements with other Incumbents or the cancellation
or non-renewal of any of such existing agreements could have a material adverse
effect on the Company's business. To the extent the
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Company is unable to establish similar arrangements in new markets with
additional Incumbents or establish replacement arrangements on systems where a
maintenance agreement with a particular Incumbent is canceled or not renewed,
the Company may be required to maintain its network and provision circuits on
its network through establishment of its own maintenance and provisioning
workforce or by outsourcing maintenance and provisioning to a third party. The
Company's operating costs under these conditions may increase. See
"Business--Agreements with Incumbents and Other Owners of Telecommunications
Assets--Network Maintenance and Provisioning of Circuits."
MANAGEMENT OF GROWTH
The Company's business plan may, if successfully implemented, result in
rapid expansion of its operations. Rapid expansion of the Company's operations
may place a significant strain on the Company's management, financial and other
resources. The Company's ability to manage future growth, should it occur, will
depend upon its ability to monitor operations, control costs, maintain
regulatory compliance, maintain effective quality controls and expand
significantly the Company's internal management, technical, information and
accounting systems and to attract and retain additional qualified personnel. See
"--Dependence on Key Personnel." Furthermore, as the Company's business develops
and expands, the Company will need additional facilities for its growing
workforce. There can be no assurance that the Company will successfully
implement and maintain such operational and financial systems or successfully
obtain, integrate and utilize the employees and management, operational and
financial resources necessary to manage a developing and expanding business in
an evolving and increasingly competitive industry which is subject to regulatory
change. Any failure to expand these areas and to implement and improve such
systems, procedures and controls in an efficient manner at a pace consistent
with the growth of the Company's business could have a material adverse effect
on the business, financial condition and results of operations of the Company.
The expansion and development of the Company's business will depend upon,
among other things, the Company's ability to implement successfully its sales
and marketing strategy, evaluate markets, design network path routes, secure
financing, install facilities, obtain any required government authorizations,
implement interconnection to, and co-location with, facilities owned by
Incumbents, purchasers of capacity and other owners of telecommunications
assets. The Company's ability to implement its growth strategy successfully will
require the Company to enhance its operational, management, financial and
information systems and controls and to hire and retain qualified sales,
marketing, administrative, operating and technical personnel. There can be no
assurance that the Company will be able to do so, and any failure to accomplish
these objectives could result in lower than expected levels of customer service,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The success of the Company will depend to a significant extent upon the
abilities and continued efforts of its senior management, particularly members
of its senior management team, including David Schaeffer, Chairman, Richard A.
Jalkut, President and Chief Executive Officer, Kevin J. Bennis, Executive Vice
President serving as President of the Company's Communications Services Division
and Michael L. Brooks, Vice President of Network Development. Other than its
Employment Agreement with Richard Jalkut, the Company does not have any
employment agreements with, nor does the Company maintain "key man" insurance
on, these employees. The loss of the services of any such individuals could have
a material adverse effect on the Company's business, financial condition and
results of operations. The success of the Company will also depend, in part,
upon the Company's ability to identify, hire and retain additional key
management personnel, including the senior management, who are also being sought
by other businesses. Competition for qualified personnel in the
telecommunications industry is intense. The inability to identify, hire and
retain such personnel could have a material adverse effect on the Company's
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results of operations. See "--Management of Growth" and "Management--Directors
and Executive Officers."
COMPETITION; PRICING PRESSURES
The telecommunications industry is highly competitive. In particular, price
competition in the 'carrier's carrier' market has generally been intense and is
expected to increase. The Company competes and expects to compete with numerous
competitors who have substantially greater financial and technical resources,
long-standing relationships with their customers and potential to subsidize
competitive services from less competitive service revenues and from federal
universal service subsidies. Such competitors may be operators of existing or
newly deployed wireline or wireless telecommunications networks. The Company
will also face intense competition due to an increased supply of
telecommunications capacity, the effects of deregulation and the development of
new technologies, including technologies that will increase the capacity of
existing networks.
The Company anticipates that prices for its 'carrier's carrier' services
will continue to decline over the next several years. The Company is aware that
certain long distance carriers are expanding their capacity and believes that
other long distance carriers, as well as potential new entrants to the industry,
are constructing new microwave, fiber optic and other long distance transmission
networks in the United States. If industry capacity expansion results in
capacity that exceeds overall demand along the Company's routes, severe
additional pricing pressure could develop. As a result, within a few years, the
Company could face dramatic and substantial price reductions. Such pricing
pressure could have a material adverse effect on the business, financial
condition and results of operations of the Company.
While the Company generally will not compete with Telecom Service Providers
for end-user customers, the Company may compete, on certain routes, as a
'carrier's carrier' with long distance carriers such as AT&T, MCI, Sprint,
WorldCom, Inc. ("WorldCom") and operators of nationwide fiber optic systems,
such as IXC Communications, Inc., Qwest and Level 3 Communications, Inc., who
would otherwise be the Company's customers in second and third tier markets. The
Company will also face competition increasingly in the long haul market from
local exchange carriers, regional network providers, resellers and satellite
carriers and may eventually compete with public utilities and cable companies.
In particular, RBOCs are now allowed to provide inter-LATA long distance
services outside their home regions, as well as inter-LATA mobile services
within their regions. RBOCs will be allowed to provide inter-LATA long distance
services within their regions after meeting certain regulatory requirements
intended to foster opportunities for local telephone competition. Certain RBOCs
have requested regulatory approval to provide inter-LATA data services within
their regions. The RBOCs already have extensive fiber optic cable, switching,
and other network facilities in their respective regions that can be used for
their long distance services after a waiting period. In addition, other new
competitors may build additional fiber capacity in the geographic areas served
and to be served by the Company.
The Company may also face competitors seeking to deploy a digital wireless
network in the same manner as the Company by leveraging the assets of Incumbents
or other owners of telecommunications assets or from Incumbents leveraging their
own assets. Although the Company believes its strategy will provide it with a
cost advantage, there can be no assurance that technological developments will
not result in competitors achieving even greater cost efficiency and therefore a
competitive advantage. See "--Risk of Rapid Technological Changes."
A continuing trend toward business combinations and strategic alliances in
the telecommunications industry may create stronger competitors to the Company,
as the resulting firms and alliances are likely to have significant
technological, marketing and financing resources which will, in many cases, be
greater than those available to the Company. See "Business--Competition."
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RELIANCE ON EQUIPMENT SUPPLIERS
The Company currently purchases most of its telecommunications equipment
pursuant to an agreement with NEC America, Inc. and its affiliates ("NEC") and
has entered into an equipment purchase agreement with Andrew Equipment
Corporation ("Andrew"). Any reduction or interruption in supply from either
supplier or any increase in prices for such equipment could have a disruptive
effect on the Company. Currently NEC is the only manufacturer of SONET radios
that are compatible with the Company's proposed system design and reliability
standards, although Northern Telecom Ltd. ("Nortel"), Harris Corporation and
Alcatel Alsthom Compagnie Generale d'Electricite SA ("Alcatel") are in the
process of developing and testing a similar product which would be compatible
with the Company's SONET wireless network. Further, the Company does not
manufacture, nor does it have the capability to manufacture, any of the
telecommunications equipment used on its network. As a result, the failure of
the Company to procure sufficient equipment produced by NEC at reasonable prices
could adversely affect the Company's successful deployment of its network and
results of operations. See "Business--Equipment Supply Agreements."
TECHNICAL LIMITATIONS OF THE NETWORK
The Company's network requires a direct line of sight between two antennae
(each such interval comprising a "path") and are subject to distance
limitations, freespace fade, multipath fade and rain attenuation. In order to
meet industry standards for reliability, the maximum length of a single path
similar to those being designed by the Company is generally limited to 40 miles
and, as a result, intermediate sites in the form of back-to-back terminals or
repeaters are required to permit digital wireless transmission beyond this limit
based on the climate and topographic conditions of each path. In the absence of
a direct line of sight, additional sites may be required to circumvent
obstacles, such as tall buildings in urban areas or mountains in rural areas.
Topographic conditions of a path and climate can cause reflections of signals
from the ground which can affect the transmission quality of digital wireless
services. In addition, in areas of heavy rainfall, the intensity of rainfall and
the size of the raindrops can affect the transmission quality of digital
wireless services. Paths in these areas are engineered for shorter distances to
maintain transmission quality and use space diversity, frequency diversity,
adaptive power control and forward error correction to minimize transmission
errors. The Company will not be able to offer route diversity until such time as
it has completed a substantial portion of its mature network. The use of
additional sites and shorter paths to overcome obstructions, multipath fade or
rain attenuation will increase the Company's capital costs. While these
increased costs may not be significant in all cases, such costs may render
digital wireless services uneconomical in certain circumstances.
Due to line of sight limitations, the Company currently installs its
antennae on towers, the rooftops of buildings or other tall structures. Line of
sight and distance limitations generally do not present problems because
Incumbents have already selected, developed and constructed unobstructed
transmission sites. In certain instances, however, the additional frequencies
required for the excess capacity to be installed by the Company may not be
available from Incumbents' existing sites. In these instances, the Company
generally expects to use another developed site already owned or leased by such
Incumbent. In some instances, however, the Company has encountered, and may in
the future encounter, line of sight, frequency blockage and distance limitations
that cannot be solved economically. While the effect on the financial condition
and results of operations of the Company resulting from such cases has been
minimal to date, there can be no assurance that such limitations will not be
encountered more frequently as the Company expands its network. Such limitations
may have a material adverse effect on the Company's future development costs and
results of operations. In addition, the current lack of compression applications
for wireless technology limits the Company's ability to increase capacity
without significant capital expenditures for additional equipment.
In order to obtain the necessary access to install its radios, antennae and
other equipment required for interconnection to the PSTN or to POPs of the
Company's capacity purchasers, the Company must acquire
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the necessary rights and enter into the arrangements to deploy and operate such
interconnection equipment. There can be no assurance that the Company will
succeed in obtaining the rights necessary to deploy its interconnection
equipment in its market areas on acceptable terms, if at all, or that delays in
obtaining such rights will not have a material adverse effect on the Company's
development or results of operations.
RISK OF RAPID TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid and significant changes
in technology. Although the Company believes that, for the foreseeable future,
these changes will neither materially affect the continued use of its network
equipment, nor materially hinder its ability to acquire necessary technologies,
the effect of technological changes on the business of the Company, such as
changes relating to emerging wireline (including fiber optic) and wireless
(including broadband) transmission technologies, cannot be predicted. There can
be no assurance that (i) the Company's network will not be economically or
technically outmoded by technology or services now existing or developed and
implemented in the future, (ii) the Company will have sufficient resources to
develop or acquire new technologies or to introduce new services capable of
competing with future technologies or service offerings or (iii) the cost of the
equipment used on its network will decline as rapidly as that of competitive
alternatives. The occurrence of any of the foregoing events may have a material
adverse effect on the operations of the Company and the ability of the Company
to make principal and interest payments on its outstanding indebtedness.
REGULATION
The Company's arrangements with Incumbents contemplate that the Company's
digital network will provide largely "common carrier fixed point-to-point
microwave" telecommunications services under Part 101 of the FCC's Rules ("Part
101"), which services are subject to regulation by federal, state and local
governmental agencies. Changes in existing federal, state or local laws and
regulations, including those relating to the provision of Part 101
telecommunications services, any failure or significant delay in obtaining
necessary licenses, permits or renewals, or any expansion of the Company's
business that subjects the Company to additional regulatory requirements could
have a material adverse effect on the Company's business, financial condition,
and results of operations.
LICENSING BY THE COMPANY AND INCUMBENTS. Many Incumbents whose existing
systems operate in the 2 GHz band of the frequency spectrum will be required to
relocate their systems and operations to the 6 GHz band or other alternate
spectrum. In most instances the Company will enter into a strategic relationship
with an Incumbent and, as part of the upgrade of such Incumbent's system, the
Company will license the upgraded network in the 6 GHz band, which will depend
on its obtaining newly issued Part 101 licenses for the use of existing
facilities and infrastructure of such relocated Incumbents.
The Company intends to establish any such arrangement so as to ensure that
there is no DE FACTO transfer of control of a FCC license from an Incumbent,
which has obtained authorization from the FCC to operate a Part 101
telecommunications system at the newly occupied 6 GHz location (a "Licensed
Incumbent"), to the Company, because such a transfer without FCC consent would
violate the FCC's rules. Because any review by the FCC of such an arrangement
would be fact specific and would involve the review of conduct that has not yet
occurred, there can be no assurance that, if such an arrangement between the
Company and a Licensed Incumbent were challenged, the FCC would not deem such as
arrangement to constitute an unauthorized transfer of control. Such a finding
could result in a restructuring of the arrangement with a Licensed Incumbent or
the loss of the FCC license.
MUTUAL EXCLUSIVITY. Pursuant to its arrangements with Incumbents, the
Company will, in most cases, apply to the FCC for new Part 101 licenses to
operate in the 6 GHz band. As each such Part 101 license is granted by the FCC
with respect to the frequencies to be used between two specific points as
designated by specific latitude and longitude coordinates, and as Incumbents
already own the infrastructure and sites that
17
<PAGE>
comprise each such licensed point along the network, the Company expects to be
the first and only entity to apply for these licenses at or near the specific
locations and in the frequencies to be designated by the Company, and hence to
have licensing priority under the FCC's procedures. There can be no assurance,
however, that other entities will not seek licenses to operate in the same
portion of the frequency spectrum as the Company, in locations geographically
close to those designated by the Company.
In the event that a mutually exclusive situation were to arise, the FCC may
hold a comparative hearing to decide which applicant will be awarded the
relevant licenses, in which case there can be no assurance that the Company
would be able to obtain the desired license. In the event that numerous mutually
exclusive applications were to be filed, the FCC may decide to impose a filing
freeze with respect to additional applications, and would, in the interim,
decide on the most appropriate manner in which to resolve the mutual
exclusivity. In this vein, the FCC may decide to seek from Congress enabling
legislation that would permit the FCC to hold an auction in order to determine
which of the competing applicants would obtain the sought-after licenses, in
which case the Company could be required to pay potentially large sums in order
to obtain the necessary license, and there would be no assurance that the
Company would be able ultimately to obtain any auctioned licenses. The FCC might
also decide to impose fees on the use of the desired spectrum, in which case the
Company would be required to pay potentially large sums in order to obtain and
use its FCC licenses.
FREQUENCY COORDINATION. Prior to applying to the FCC for authorization to
use portions of the 6 GHz band, the Company must coordinate its use of the
frequency with any existing licensees, permittees, and applicants in the same
area whose facilities could be subject to interference as a result of the
Company's proposed use of the spectrum. There can be no assurance in any
particular case that the Company will not encounter other entities and proposed
uses of the desired spectrum that would interfere with the Company's planned
use, and that the Company will be able to successfully coordinate such usage
with such entities. See "--Technical Limitations of the Network." If the Company
were unable to coordinate effectively with other users of or applicants for the
spectrum at a substantial number of proposed sites, there can be no assurance
that the Company would be able to obtain and retain the licenses necessary for
the successful operation of the Company's network.
FCC LICENSE REQUIREMENTS. As part of the requirements of obtaining a Part
101 license, the FCC will require the Company to demonstrate the site owner's
compliance with the reporting, notification and technical requirements of the
Federal Aviation Administration ("FAA") with respect to the construction,
installation, location, lighting and painting of transmitter towers and
antennae, such as those to be used by the Company in the operation of its
network. Specifically, the FCC requires compliance with the FAA's notification
requirement, and where such notification is required, a "no hazard"
determination from the FAA before granting a license with respect to a
particular facility. Any failure by the Company to comply with the FAA's
notification procedures, any finding of a hazard by the FAA with respect to a
proposed new or substantially modified facility, or any delay on the part of the
FAA in making such a finding, may have an adverse effect on the Company's
ability to obtain in a timely manner all necessary FCC licenses in accordance
with its business plan.
In addition to FAA requirements, in order to obtain the Part 101 licenses
necessary for the operation of its network, the Company, and in some cases
Licensed Incumbents, will have to file applications with the FCC for such
licenses and demonstrate compliance with routine technical and legal
qualification to be an FCC licensee. The Company must also obtain FCC
authorization before transferring control of any of its licenses or making
certain modifications to a licensed facility. Such requirements for obtaining
such Part 101 licenses and for transferring such licenses include items such as
certifying to the FCC that frequency coordination has been completed, disclosing
the identity and relationship of all entities directly or indirectly owning or
controlling the applicant, and demonstrating the applicant's legal, technical
and other qualifications to be an FCC licensee. Nevertheless, there can be no
assurance that the Company or any Licensed Incumbent will obtain all of the
licenses or approvals necessary for the operation of the
18
<PAGE>
Company's business, the transfer of any license, or the modification of any
facility, or that the FCC will not impose burdensome conditions or limitations
on any such license or approval.
CONSTRUCTION OF FACILITIES AND CHANNEL LOADING REQUIREMENTS. Under the
FCC's rules, the Company will be required to have each licensed Part 101
facility constructed and "in operation" (I.E., capable of providing service),
and to complete each authorized modification to an existing facility, within 18
months of the grant of the necessary license or approval. Failure to meet the
FCC's timetable for construction or operation or to obtain an extension of said
timetable will automatically cancel the underlying license or approval, to the
detriment of the Company's ability to execute its business plan. A license or
authorization will also lapse if, after construction and operation, the facility
is removed or altered to render it non-operational for a period of 30 days or
more. Similarly, the FCC's rules provide that, in the absence of the Company
obtaining a waiver of such rule, any authorized Part 101 station that fails to
transmit operational traffic during any 12 consecutive months after construction
is complete is considered permanently discontinued under the FCC's rules, and
its underlying license is forfeited. In addition, the FCC requires that a
certain portion of the available channels on Part 101 digital systems be loaded
with traffic within 30 months of licensing. There can be no assurance that the
Company's Part 101 licenses will not lapse because of failure to meet the FCC's
construction or channel loading benchmarks or to obtain an extension of such
deadlines, or because of the Company's failure to comply with the FCC's
requirements with respect to operational traffic.
FCC LICENSE RENEWAL. The Part 101 licenses obtained by the Company or a
Licensed Incumbent will be issued for a term of 10 years, after which such
licenses will have to be renewed by the filing of applications with the FCC.
Although such renewals are typically granted routinely, there can be no
assurance that necessary license renewals will be granted by the FCC.
PROVISION OF COMMON AND PRIVATE CARRIER SERVICES. The Company's and
Licensed Incumbents' Part 101 licenses will allow the Company to sell excess
capacity on its network to the customers targeted under the Company's business
plan. Although the Part 101 licenses that the Company and Licensed Incumbents
will hold are designated for "common carriers," under the FCC's rules, a Part
101 licensee may provide both common carriage and private carriage over Part 101
facilities. The Company is currently offering, and expects to offer in the
future, its services on a private carrier basis. The Company's private carrier
services will be essentially unregulated, while any common carrier offerings
would be subject to additional regulations and reporting requirements including
payment of additional fees and compliance with additional rules and regulations
including that any such services must be offered pursuant to filed tariffs and
non-discriminatory terms, rates and practices. There can be no assurance that
the FCC will not find that some or all of the private carrier services offered
by the Company are in fact common carrier services, and thus subject to such
additional regulations and reporting requirements including the
non-discrimination and tariff filing requirements imposed on common carriers, in
which case the Company may be required to pay additional fees or adjust, modify
or cease provision of certain of its services in order to comply with any such
regulations, including offering such services on the same terms and conditions
to all of those seeking such services, and pursuant to rates made public in
tariff filings at the FCC.
FOREIGN OWNERSHIP. As the licensee of facilities designated for common
carriage, the Company is subject to Section 310(b)(4) of the Communications Act,
which by its terms restricts the holding company of an FCC common carrier
licensee (the Company is such a holding company, because it expects to hold all
FCC licenses indirectly, through subsidiaries) to a maximum of 25% foreign
ownership and/or voting control. The FCC has determined that it will allow a
higher level (up to 100%) on a blanket basis with respect to all common carrier
licensees, but only for foreign ownership by citizens of, or companies organized
under the laws of, World Trade Organization ("WTO") member countries. The FCC
continues to apply the 25% foreign ownership limitation with respect to citizens
or corporations of non-WTO nations.
19
<PAGE>
Although the Company is presently within the 25% foreign ownership
limitation, there can be no assurance that, as a result of future financings,
the Company will not exceed this limitation, in which case the Company would
have to analyze its foreign ownership with respect to the WTO status of the
nations with which the Company's foreign owners are associated. In addition, if
any Incumbent elects to be a Licensed Incumbent on the portion of the Company's
network relating to its system, such Licensed Incumbent would also be subject to
such foreign ownership restrictions. If such analysis showed that the Company or
any Licensed Incumbent had more than 25% foreign ownership from non-WTO member
nations, the Company or such Licensed Incumbent, as the case may be, would have
to seek a further ruling from the FCC and/or reduce its non-WTO foreign
ownership. In the event that a Licensed Incumbent were to choose to hold the
relevant Part 101 license itself, and not through a holding company, that
Licensed Incumbent would be subject to Section 310(b)(3) of the Communications
Act, which limits direct foreign ownership of FCC licenses to 20%. The FCC does
not have discretion to waive this limitation, and there can be no assurance than
such a Licensed Incumbent would not exceed the 20% limitation, in which case the
Licensed Incumbent would be required to reduce its foreign ownership in order to
obtain or retain its Part 101 license.
STATE AND LOCAL REGULATION. Although the Company expects to provide most of
its services on an interstate basis, in those instances where the Company
provides service on an intrastate basis, the Company may be required to obtain a
certification to operate from state utility commissions in certain of the states
where such interstate services are provided, and may be required to file tariffs
covering such intrastate services. In addition, the Company may be required to
obtain authorizations from or notify such states with respect to certain
transfers or issuances of capital stock of the Company. The Company does not
expect any such state or local requirements to be burdensome; however, there can
be no assurance that the Company will obtain all of the necessary state and
local approvals and consents or that the failure to obtain such approvals and
consents will not have a material adverse affect on the Company's business,
financial condition and results of operations. In addition, there can be no
assurance that Incumbents will be able to obtain all necessary authorizations or
permits from state or local authorities, or that state or local authorities will
not impose burdensome taxes, requirements or conditions on the Incumbent or the
Company.
RADIO FREQUENCY EMISSION CONCERNS
The use of wireless equipment may pose health risks to humans due to radio
frequency ("RF") emissions from the radios and antennae. Any allegations of
health risks, if proven, could result in liability on the part of the Company.
The FCC recently adopted new guidelines and methods for evaluating the
environmental effects of RF emissions from FCC regulated transmitters, including
wireless antennae which are more stringent than those previously in effect. The
FCC also incorporated into its rules provisions of the Communications Act which
preempt state or local government regulation of wireless service facilities
based on environmental effects, to the extent such facilities comply with the
FCC's rules concerning such RF emissions. The Company cannot predict whether
more stringent laws or regulations will be enacted in the future. Compliance
with more stringent laws or regulations regarding RF emissions could in the
future require material expenditures by the Company which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
CONTROL BY EXISTING STOCKHOLDERS
The Company's principal equity investors (collectively, the "Original
Investors"), including Spectrum, NEA, Onset Enterprise Associates II, L.P.,
Toronto Dominion Capital (U.S.A.) Inc., Grotech Partners IV, L.P. and David
Schaeffer, Chairman of the Company, beneficially own % of the common stock
of the Company on a pro forma basis after giving effect to the Transactions and
the Offering. As a result, the Original Investors have the ability to control
the election of the members of the Company's Board of Directors and the outcome
of all corporate actions requiring stockholder approval and have the right to
20
<PAGE>
approve other significant corporate actions. The Original Investors, as
stockholders of the Company and through their ability to control the election of
directors, may authorize actions that could have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including an attempt that might result in
the receipt of a premium over the market price for the shares held by such
stockholder. See "Description of Capital Stock" and "Security Ownership of
Certain Beneficial Owners and Management."
INVESTMENT COMPANY ACT CONSIDERATIONS
After the Offering, the Company will have substantial cash, cash equivalents
and short-term investments. The Company intends to invest the proceeds of the
Offering and other financings so as to preserve capital by investing in
short-term instruments consistent with prudent cash management and not primarily
for the purpose of achieving investment returns. Investment in securities
primarily for the purpose of achieving investment returns could result in the
Company being treated as an "investment company" under the Investment Company
Act of 1940 (the "1940 Act"). The 1940 Act requires the registration of, and
imposes various substantive restrictions on, investment companies that are, or
hold themselves out as being, engaged primarily, or propose to engage primarily
in, the business of investing, reinvesting or trading in securities, or that
fail certain statistical tests regarding the composition of assets and sources
of income and are not primarily engaged in businesses other than investing,
reinvesting, owning, holding or trading securities.
The Company believes that it is primarily engaged in a business other than
investing, reinvesting, owning, holding or trading securities and, therefore, is
not an investment company within the meaning of the 1940 Act. If the Company
were required to register as an investment company under the 1940 Act, it would
become subject to substantial regulation with respect to its capital structure,
management, operations, transactions with affiliated persons (as defined in the
1940 Act) and other matters. Application of the provisions of the 1940 Act to
the Company would have a material adverse effect on the Company's business,
financial condition and results of operations.
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, no public market for the Common Stock has existed.
The initial public offering price will be determined by negotiation between the
Company and representatives of the Underwriters and may not be indicative of the
price at which the Common Stock will trade after the Offering. See
"Underwriting" for the factors to be considered in determining the initial
public offering price. The Company has applied for quotation of the Common Stock
on the Nasdaq National Market. No assurance can be given that an active trading
market for the Common Stock will develop or, if developed, continue after the
Offering. The market price of the Common Stock after the Offering may be subject
to significant fluctuations from time to time in response to numerous factors,
including variations in the reported periodic financial results of the Company,
changing conditions in the economy in general or in the Company's industry in
particular and unfavorable publicity affecting the Company or its industry. In
addition, stock markets generally, and the stock prices of competitors in the
Company's industry in particular, may experience significant price and volume
volatility from time to time which may affect the market price of the Common
Stock for reasons unrelated to the Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in the Offering will experience an immediate and
substantial dilution of $ in the net tangible book value per share of
their investment based on an assumed initial public offering price of $ per
share (the midpoint of the range set forth on the cover page of this
Prospectus). In the event the Company issues additional Common Stock in the
future, purchasers of Common Stock in the Offering may experience further
dilution in the net tangible book value per share of their shares of Common
Stock. See "Dilution."
21
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Company can make no prediction as to the effect, if any, that future
sales of Common Stock or the availability of shares for future sale will have on
the market price of the Common Stock prevailing from time to time. Sales of a
substantial number of shares of Common Stock in the public market following the
Offering, or the perception that such sales could occur, could have an adverse
effect on the market price of the Common Stock. As of March 31, 1998 after
giving effect to the Transactions and the Offering, shares of Common Stock
will be outstanding and shares will be issuable upon exercise of
outstanding stock options and the Warrants ( of which will be immediately
exercisable). The shares of Common Stock sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act, except for any shares held by an "affiliate" of the Company (as
that term is defined under the Securities Act), which will be subject to the
resale limitations of Rule 144 under the Securities Act. Substantially all of
the remaining outstanding shares of Common Stock held by the Company's
current stockholders will be "restricted securities" (within the meaning of Rule
144) and, therefore, will not be eligible for sale to the public unless they are
sold in transactions registered under the Securities Act or pursuant to an
exemption from Securities Act registration, including pursuant to Rule 144. See
"Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company has not paid and does not anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company intends to retain its
earnings, if any, for use in the Company's growth and ongoing operations. In
addition, the terms of the Indenture and the Company's future credit facilities
restrict, or may restrict, the ability of the Company to pay dividends on the
Common Stock. See "Dividend Policy" and "Description of Certain Indebtedness."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Amended and Restated
Bylaws (the "Bylaws"), as well as provisions of the Delaware General Corporation
Law (the "DGCL"), may have the effect of delaying, deferring or preventing a
change of control of the Company, including transactions in which stockholders
might otherwise receive a substantial premium for their shares over then current
market prices. For example, under the Certificate of Incorporation, the Board of
Directors (or a committee thereof) is authorized to issue one or more series of
preferred stock having such designations, rights and preferences as may be
determined by the Board of Directors. Also, the Certificate of Incorporation and
the Bylaws provide for a classified Board of Directors, and the Bylaws provide
advance notice procedures for stockholders to submit proposals for consideration
at stockholders' meetings or to nominate persons for election as directors. See
"--Control by Existing Stockholders" and "Description of Capital Stock."
In addition, the Indenture includes provisions regarding a change of control
of the Company. Under the Indenture, a change of control would be triggered, if,
for among other reasons, any person other than certain permitted holders becomes
the beneficial owner, directly or indirectly, of more than 50% of the total
outstanding voting stock of the Company, thereby requiring the Company to offer
to purchase the Notes at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest thereon. See "Description of Certain
Indebtedness."
22
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $ million, based on an assumed initial public offering price
of $ per share (the midpoint of the range set forth on the cover page of
this Prospectus) after deducting the underwriting discounts and other estimated
expenses payable by the Company. The Company intends to use the net proceeds
from the Offering for capital expenditures, working capital and other general
corporate purposes, including the funding of operating losses. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company currently intends to
allocate substantial proceeds to each of the foregoing uses; however, the
precise allocation of funds among these uses will depend on future
technological, regulatory and other developments in or affecting the Company's
business, the competitive climate in which it operates and the emergence of
future opportunities.
DIVIDEND POLICY
Since its inception, the Company has not declared or paid any dividends on
its Common Stock and does not expect to pay cash dividends on its Common Stock.
The Company anticipates substantial net losses and negative cash flow for the
foreseeable future. It is anticipated that earnings, if any, which might be
generated from operations of the Company will be used to finance the growth of
the Company and that cash dividends will not be paid to holders of the Common
Stock. Any future decision regarding the payment of dividends, however, will be
at the discretion of the Company's Board of Directors, subject to applicable
law. In addition, the terms of the Indenture and other credit facilities
governing future indebtedness of the Company restrict, or may restrict, the
payment of dividends. See "Description of Certain Indebtedness."
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<PAGE>
DILUTION
As of March 31, 1998, the pro forma net tangible book value of the Company's
Common Stock after giving effect to the Transactions was $ million, or
approximately $ per share outstanding. As of March 31, 1998, the pro
forma net tangible book value of the Company's Common Stock after giving effect
to the Transactions and the Offering and the application of the net proceeds
from the Offering (after deducting underwriting discounts and estimated offering
expenses) was $ million, or approximately $ per share, assuming
an inital public offering price of $ per share (the midpoint of the range
of initial public offering prices set forth on the cover page of this
Prospectus). This represents an immediate increase in net tangible book value of
$ per share to stockholders holding shares prior to the Offering and an
immediate dilution in net tangible book value of $ per share to new
investors in the Offering. The net tangible book value per share of Common Stock
represents the amount of the Company's tangible assets less its liabilities
divided by the number of shares of Common Stock outstanding.
The following table illustrates this dilution in pro forma net tangible book
value per share to new investors at March 31, 1998:
<TABLE>
<S> <C> <C>
Assumed initial public offering price(1) $
Pro forma net tangible book value per share at March
31, 1998 after giving effect to the Transactions $
Increase in net tangible book value per share
attributable to new investors in the Offering $ $
Pro forma as adjusted net tangible book value per share
at March 31, 1998 after giving effect to the
Transactions and the Offering $
--------- ---------
Dilution per share to new investors $
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The following table sets forth, at March 31, 1998 and after giving effect to
the Transactions and the Offering, the difference between the number of shares
of Common Stock issued by the Company, the total consideration paid and the
average price per share paid by the existing holders of Common Stock (including
securities convertible into Common Stock) and to be paid by purchasers of Common
Stock in the Offering, assuming that shares in the Offering are sold at $
per share (the midpoint of the range of set forth on the cover page of this
Prospectus), before deducting underwriting discounts and estimated offering
expenses payable by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------ ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... % $ % $
New investors..................................
Total...................................... % $ %
------------- --------- ------------- ---------
100.0% 100.0%
------------- --------- ------------- ---------
------------- --------- ------------- ---------
</TABLE>
24
<PAGE>
CAPITALIZATION
The following table sets forth the cash, Pledged Securities and
capitalization of the Company, as of March 31, 1998, (i) on an actual unaudited
basis; (ii) on a pro forma basis as adjusted to give effect to the Debt Offering
and the 1998 Private Equity Investment; (iii) on a pro forma basis as further
adjusted to give effect to the Offering assuming an initial public offering
price of $ per share (the midpoint of the range set forth on the cover page
of this Prospectus) in each case as if the same occurred on March 31, 1998 and
the Preferred Stock Conversion. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------------------
PRO FORMA PRO FORMA
AS AS FURTHER
ACTUAL ADJUSTED(1) ADJUSTED(2)
---------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents (excluding restricted
cash)(3).......................................... $4,856,610 $282,547,857 $
---------- ----------- -----------
---------- ----------- -----------
Pledged Securities(4)............................... $ -- $81,128,751 $81,128,751
---------- ----------- -----------
---------- ----------- -----------
Total debt:
Senior Notes(5)................................... $ -- $345,905,000 $345,905,000
---------- ----------- -----------
Convertible preferred stock:
Series A convertible preferred stock, par value
$0.01 per share, 1,000,000 shares authorized;
1,000,000 shares issued and outstanding, actual
and pro forma as adjusted; none issued or
outstanding, pro forma as further adjusted...... 1,000,000 1,000,000 --
Series B convertible preferred stock, par value
$0.01 per share, 1,651,046 shares authorized;
1,651,046 shares issued and outstanding, actual
and pro forma as adjusted; none issued or
outstanding, pro forma as further adjusted...... 5,008,367 5,008,367 --
Series C convertible preferred stock, par value
$0.01 per share, 2,819,549 shares authorized;
939,850 shares issued and outstanding actual;
2,819,549 shares issued and outstanding pro
forma as adjusted; none issued or outstanding,
pro forma as further adjusted................... 9,961,274 29,961,272 --
---------- ----------- -----------
Total convertible preferred stock............. 15,969,641 35,969,639 --
---------- ----------- -----------
Stockholders' equity (deficit):
Common Stock, par value $0.01 per share, 7,500,000
shares authorized; 5,004,065 shares issued and
outstanding actual and pro forma as adjusted;
issued and outstanding, pro forma as
further adjusted(6)............................. 50,041 50,041
Additional paid in capital........................ 382,030 4,477,030
Deficit accumulated during development stage...... (8,872,702) (8,872,702) (8,872,702)
---------- ----------- -----------
Total stockholders' equity (deficit).......... (8,440,631) (4,345,631)
---------- ----------- -----------
Total capitalization........................ $7,529,010 $377,529,008 $
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
FOOTNOTES ON FOLLOWING PAGE
25
<PAGE>
- ------------------------------
(1) Gives pro forma effect to the Debt Offering and the 1998 Private Equity
Investment as if each occurred on March 31, 1998.
(2) Gives pro forma effect to the transactions described in footnote (1) above,
the Offering and the Preferred Stock Conversion.
(3) Cash and cash equivalents excludes approximately $289,000 of restricted cash
held in escrow to secure the Company's obligations under its FPM Agreement
with Texaco Pipeline, Inc. Cash and cash equivalents on a pro forma basis as
further adjusted includes the net cash proceeds of the Offering.
(4) The Company used $81.1 million of the net proceeds from the Debt Offering to
purchase the Pledged Securities.
(5) Of the $350.0 million gross proceeds of the Debt Offering, approximately
$345.9 million and $4.1 million were allocated to the Notes and the
Warrants, respectively. No assurance can be given that the value allocated
to the Warrants will be indicative of the prices at which the Warrants may
actually trade.
(6) Common Stock excludes (i) 4,258,530 shares of Common Stock issuable upon
exercise of outstanding options and (ii) 1,925,000 shares of Common Stock
issuable upon exercise of the Warrants. See "Management--1995 Stock Option
Plan," "--1997 Stock Incentive Plan" and "Description of Certain
Indebtedness."
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following balance sheet data of the Company as of December 31, 1996 and
1997 and statement of operations data for the periods from inception to December
31, 1995 and the twelve months ended December 31, 1996 and 1997 and the period
from August 25, 1997 (date of inception) to December 31, 1997, have been derived
from the Company's financial statements and the notes thereto, included
elsewhere in this Prospectus, which have been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated in their report included herein. Such
summary statement of operations and balance sheet data should be read in
conjunction with such audited financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The following balance sheet data of the Company as of December 31,
1995 have been derived from the Company's audited financial statements which are
not included in this Prospectus, which have been audited by Coopers & Lybrand
L.L.P. The following balance sheet data as of March 31, 1998 and statement of
operations data for the three months ended March 31, 1997 and 1998 and the
period from August 25, 1995 (date of inception) to March 31, 1998 have been
derived from unaudited consolidated financial statements of the Company included
elsewhere in this Prospectus. In the opinion of management, the unaudited
financial statements of the Company have been prepared on the same basis as the
audited financial statements and include all adjustments necessary for the fair
presentation of financial position and results of operations at these dates and
for these periods, which adjustments are only of a normal recurring nature. The
results of the three months ended March 31, 1998, as reported, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM PERIOD FROM
AUGUST 25, 1995 AUGUST 25, 1995 AUGUST 25, 1995
(DATE OF YEAR ENDED (DATE OF THREE MONTHS ENDED (DATE OF
INCEPTION) TO DECEMBER 31, INCEPTION) TO MARCH 31, INCEPTION) TO
DECEMBER 31, ------------------------ DECEMBER 31, ------------------------ MARCH 31,
1995 1996 1997 1997 1997 1998 1998
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue..................... $ -- $ 1,000 $ 162,500 $ 163,500 $ 10,000 $ 100,000 $ 263,500
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
Expenses:
Cost of revenue........... -- -- -- -- -- 714,740 714,740
General and
administrative.......... 290,318 913,646 3,537,926 4,741,890 486,630 1,922,217 6,664,107
Research and
development............. 19,038 226,021 -- 245,059 -- -- 245,059
Legal and consulting...... 120,083 202,651 755,817 1,078,551 71,324 225,813 1,304,364
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
Total expenses............ 429,439 1,342,318 4,293,743 6,065,500 557,954 2,862,770 8,928,270
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
Net operating loss.......... (429,439) (1,341,318) (4,131,243) (5,902,000) (547,954) (2,762,770) (8,664,770)
Interest expense(1)......... -- (415,357) -- (415,357) -- -- (415,357)
Interest and other income,
net....................... 2,613 13,040 153,843 169,496 17,107 77,929 247,425
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
Net loss.................. $ (426,826) $(1,743,635) $(3,977,400) $ (6,147,861) $ (530,847) $(2,684,841) $ (8,832,702)
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
Basic and diluted loss per
common share.............. $ (0.09) $ (0.35) $ (0.80) $ (1.23) $ (0.11) $ (0.54) $ (1.77)
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
Weighted average number of
common shares
outstanding............... 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,001,762 5,000,167
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
--------------- ----------- ----------- --------------- ----------- ----------- ---------------
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash equivalents... $ 82,973 $ 2,318,037 $ 7,831,384 $ 1,688,533 $ 4,856,610
Property and equipment,
net....................... 8,551 46,180 7,207,094 77,453 9,964,580
Total assets................ 91,524 2,365,912 16,097,688 1,767,681 15,266,642
Total liabilities........... 17,350 145,016 5,892,918 77,633 7,737,632
Convertible preferred
stock..................... 500,000 4,008,367 15,969,641 4,008,367 15,969,641
Stockholders' equity
(deficit)................. $ (425,826) $(1,787,471) $(5,764,871) $(1,690,048) $(8,440,631)
</TABLE>
- ------------------------
(1) Relates to a beneficial conversion feature of a bridge loan. See Note 5 to
the financial statements included elsewhere in this Prospectus.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL
STATEMENTS AND THE NOTES THERETO AND THE OTHER FINANCIAL DATA APPEARING
ELSEWHERE IN THIS PROSPECTUS. CERTAIN STATEMENTS UNDER THIS CAPTION CONSTITUTE
FORWARDING-LOOKING STATEMENTS. SEE "FORWARD-LOOKING STATEMENTS."
OVERVIEW
The Company intends to capitalize on the growing demand for high quality,
low cost, long haul telecommunications capacity and the capacity constrained
long haul infrastructure that currently serves second and third tier markets
throughout the United States. The Company's core strategy for deploying its
network is to form strategic relationships with Incumbents and other owners of
telecommunications assets that will enable the Company to leverage these assets
and thereby reduce the Company's time to market and capital costs. The Company
intends to offer high quality, low cost, long haul telecommunications capacity
to Telecom Service Providers as a 'carrier's carrier.' The Company believes its
strategy of developing a high quality, low cost digital network in smaller
markets will enable the Company to take advantage of (i) the limited capacity
currently available or expected to be constructed in smaller markets, (ii)
higher prices generally available in those markets and (iii) technological and
cost advantages of the Company's deployment strategy.
The Company's business commenced on August 25, 1995 and has been funded
primarily through equity investments by the Company's stockholders and the Debt
Offering in April 1998. A substantial portion of the Company's activities to
date has involved developing strategic relationships with Incumbents. The
Company has identified Incumbents currently holding or operating large private
networks in the United States that in the aggregate cover approximately 465,000
route miles. To date, the Company has entered into seven binding agreements, six
of which are long-term FPM Agreements and the seventh of which is a binding term
sheet with ATC. The Company is currently pursuing long-term relationships with
25 Incumbents that control approximately 63,000 route miles of network and is in
varying stages of evaluation, system design and business and contract
negotiations. The Company has also entered into one agreement relating to the
sale of its network capacity. See "Risk Factors--Dependence on Relationship with
Incumbents; Rights of Incumbents to Certain Assets" and "Business--Commercial
Roll-Out." Due to Pathnet's focus on developing strategic relationships with
Incumbents, the Company's historical revenues only reflect certain consulting
services in connection with the design, development and construction of digital
microwave infrastructure. The Company has also been engaged in the acquisition
of equipment, the development of operating systems, the design and construction
of a NOC, capital raising and the hiring of management and other key personnel.
In addition to deploying its network by forming long-term relationships with
Incumbents, the Company may pursue other strategic opportunities that may arise
to acquire or deploy complementary telecommunications assets.
The Company has experienced significant operating and net losses and
negative operating cash flow to date and expects to continue to experience
operating and net losses and negative operating cash flow until such time as it
is able to generate revenue sufficient to cover its operating expenses. See
"Risk Factors-- Limited History of Operations; Operating Losses and Negative
Cash Flow." Upon completion of the construction of digital microwave paths, the
Company intends to sell capacity to Telecom Service Providers. The opportunity
to begin offering service on a route specific basis will enable the Company to
generate revenue and positive operating cash flow on a particular route as soon
as sufficient capacity can be sold. The Company expects to be able to produce
positive operating cash flow results on an individual route basis prior to
achieving overall profitability due to (i) low marginal costs associated with
the operation of each individual route, (ii) low fixed costs due to the
anticipated responsibility of Incumbents to pay for a majority of the
maintenance, utilities, upkeep and taxes associated with the network
infrastructure and (iii) demand-driven capital expenditures, which are expected
to enable the Company to delay a substantial portion of its capital outlays
until receipt of customer orders. While individual networks
28
<PAGE>
may produce positive operating cash flow relatively quickly after start-up, the
Company's ability to achieve positive operating cash flow as a whole is not
expected to be achieved until 2000 at the earliest due to the costs associated
with the operation of the Company's sales, marketing, network operation and
management activities. As the Company's network approaches completion, the
Company expects that it will produce net income and positive free cash flow as a
result of declining capital outlays associated with network development and
construction. See "Risk Factors--Significant Capital Requirements; Uncertainty
of Additional Financing," "--Risks of Completing the Company's Network; Market
Acceptance" and "--Liquidity and Capital Resources."
FACTORS AFFECTING FUTURE OPERATIONS
ADDRESSABLE MARKET. The Company commissioned the Yankee Group, a leading
telecommunications research firm, to study the Company's addressable market. The
Yankee Group study estimated the potential addressable market for the Company's
services to be approximately $6 billion in 1998 and estimated that such market
will grow to approximately $17 billion by 2008, indicating a compounded annual
growth rate of approximately 11% per year. The Yankee Group attributes this
growth to (i) an expected shift in market share of interexchange services away
from established carriers, such as AT&T, MCI and Sprint, to non-facilities-based
IXCs that are more likely to rely on alternative carriers such as the Company to
transmit traffic, (ii) the development of the Internet, (iii) growth in data
traffic, including WANs, extranets, CAD/CAM and other applications which require
substantial amounts of bandwidth and (iv) continued growth in voice traffic. See
"Risk Factors--Risks of Completing the Company's Network; Market Acceptance."
TARGET MARKET PENETRATION. The Company intends to position itself primarily
as a 'carrier's carrier' providing high quality, low cost, long haul
telecommunications capacity to Telecom Service Providers. The Company believes
that Telecom Service Providers will choose the Company's network for long haul
capacity serving second and third tier markets as a result of its (i)
availability in markets which currently have insufficient or limited high
capacity facilities, (ii) lower prices compared to those currently offered by
existing carriers, (iii) ubiquity due to the projected reach of the Company's
network, as well as a greater number of access and termination points compared
to most other long haul networks, which reduces or eliminates the need to
utilize multiple carriers to transmit traffic to second and third tier markets,
(iv) greater product flexibility as a result of the ability to sell capacity in
increments as small as DS-1s and as large as OC-24s, (v) non-competitive
marketing position as primarily a 'carrier's carrier,' (vi) comparable or
greater reliability due to the SONET architecture of the Company's network and
(vii) ability to provide network redundancy and enhanced reliability by offering
alternative capacity to the ILEC or other facilities-based carriers. See "Risk
Factors--Risks of Completing the Company's Network; Market Acceptance" and
"--Competition; Pricing Pressures."
SERVICE OFFERING. Pathnet intends to derive a majority of its revenues
through the sale of dedicated, high capacity long haul circuits. As compared
with a network comprised solely of fiber optic cable, the Company's network
provides more frequent access and termination points and an ability to deliver
traffic by digital microwave anywhere within an approximate 25-mile line of
sight surrounding any transmission tower on its network for interconnection to
other Telecom Service Providers. This will allow Pathnet in many cases to bypass
existing local infrastructure and deliver traffic directly to an access tandem,
local serving office, mobile switching office, ISP POP or large end-user. The
flexibility of the Pathnet network, combined with its projected ubiquity, should
enable the Company to provide comprehensive capacity arrangements for Telecom
Service Providers. Specifically, Pathnet expects to be able to provide dedicated
circuit capacity from most IXC POPs to access tandems or local serving offices
throughout the Pathnet network, thereby enabling Telecom Service Providers to
bypass ILECs for a substantial portion of their transport requirements.
29
<PAGE>
PRICING. Pathnet's pricing structures will vary according to bandwidth
requirements and the demand characteristics of specific routes. Dedicated
capacity is expected to be sold on a monthly basis based on DS-0 circuit
capacity multiplied by the circuit length. Pathnet charges customers for this
capacity regardless of the actual usage of the dedicated circuits. The Company
is selling dedicated capacity in increments as small as DS-1s and as large as
OC-24s and may offer volume discounts for larger volumes and multiple routes.
See "Risk Factors--Competition; Pricing Pressures."
CUSTOMER TURNOVER. Unlike telecommunications service providers who have a
preponderance of end-user customers, Pathnet is positioning itself as a
'carrier's carrier' providing long haul capacity to Telecom Service Providers.
The Company believes that similar companies which provide long haul dedicated
capacity have experienced levels of customer turnover which are lower than those
experienced by end-user service providers. The Company also believes that
Pathnet will encounter generally low levels of customer turnover as a result of
(i) the scarcity and expense of provisioning new circuits on other networks,
(ii) the lower prices which the Company expects to charge for capacity on its
network as compared with competing ILEC rates, and (iii) the network reliability
advantages of the Company's digital, SONET-based architecture.
NETWORK-RELATED COSTS
The limited incremental cost of operating and maintaining Pathnet's network,
as well as the financial support of Incumbents who will be responsible for a
significant portion of such operating and maintenance costs, are expected to
enable the Company to enjoy significant operating leverage. The Company's
primary network operating costs are expected to be the costs of maintenance,
provisioning of new circuits, interconnection and operation of the NOC.
MAINTENANCE COSTS. The vast majority of the Company's network nodes are
expected to be located on sites currently owned and operated by Incumbents. Each
Incumbent will be required to maintain the physical assets at each site along
its route. The Company intends to enter into agreements with Incumbents whereby
Incumbents' existing maintenance staff will maintain the upgraded network
equipment. These agreements are expected to provide the Company with an
established workforce to maintain and install new capacity on the network. This
arrangement allows Incumbents to retain oversight of their allocated circuits on
the Company's network and to receive maintenance revenue from the Company. The
Company intends to maintain network nodes which are not located on an Incumbent
site through Incumbents' staff deployed nearby or through third party
maintenance suppliers. In addition, the Company expects to provide an inventory
of spare parts for maintenance of its network. See "Business--Agreements with
Incumbents and Other Owners of Telecommunications Assets" and "--Equipment
Supply Agreements."
PROVISIONING COSTS. A substantial majority of the Company's network circuit
capacity will be provisioned remotely at the Company's NOC. There will be
occasions, however, when the physical configuration of portions of the network
must be modified through the installation of additional network components.
While much of this work is expected to be performed by Incumbents' staff, the
Company will also require a number of network engineers and technicians to
perform network modifications in certain areas or facilities not covered by an
Incumbent's staff.
INTERCONNECTION COSTS. Because it intends to be a 'carrier's carrier,' the
Company's network will originate and terminate at facilities owned and operated
by other Telecom Service Providers. These facilities may be IXC, ISP, or CLEC
POPs, an ILEC's access tandem, central office, or local serving office or at an
end-user. The Company will require a secure location at these facilities to
house its equipment and may be required to construct the housing for such
equipment. In addition, the Company may interconnect portions of its network via
fiber optic cable or other media.
NETWORK OPERATIONS CENTER COSTS. The Company has constructed a
state-of-the-art NOC located in Washington, D.C., which currently monitors its
network operations during business hours. The Company is
30
<PAGE>
currently increasing its NOC staff and expects to monitor its network operations
24 hours per day, seven days per week in 1999. For the period before the NOC
becomes operational on a 24 hour per day basis, the Company has engaged TCI
Wireline, Inc. ("WTCI") to assist in monitoring its network. As this function is
relocated to the Company's NOC, the Company will begin to incur NOC operating
costs similar to those of other facilities-based telecommunications companies,
including the cost of additional personnel to monitor the network, plan and
provision circuits, and manage and monitor maintenance operations. Additional
costs associated with the NOC include software licensing and maintenance fees
and the costs of transmitting network data to and from the NOC.
COST OF OPERATIONS
Pathnet will incur costs common to all telecommunications providers,
including customer service and technical support, information systems, billing
and collections, general management and overhead expenses. As a facilities-based
'carrier's carrier,' the Company will differ from non-facilities-based Telecom
Service Providers in the scope and complexity of systems supporting its business
and network. The Company anticipates that the vast majority of its customers
will be Telecom Service Providers purchasing bulk private line transport
capacity across multiple portions of the Company's network. Consequently, the
Company's customer base is expected to be comprised of a relatively limited
number of companies that are generally sophisticated and knowledgeable regarding
telecommunications. The relatively small number of customers and the limited
additional support and servicing of customers beyond initial provisioning should
enable the Company to maintain a relatively low ratio of overhead expenses to
revenues compared to other Telecom Service Providers.
SALES AND MARKETING COSTS. The Company is building a national accounts
sales force that will pursue a consultative approach designed to provide a
systematic review of a large carrier's network requirements in smaller markets
and to offer solutions to reduce the carrier's network costs and improve its
network reliability. The Company also intends to build a regional sales force
which will market the Company's network capacity to smaller carriers and to
selected large end-users. The Company is assembling a centralized marketing
organization to focus on product development, market analysis and pricing
strategies, as well as customer communications, public relations, and branding.
ADMINISTRATION COSTS. The Company's general and administrative costs will
include expenses typical of other telecommunications service providers,
including infrastructure costs, customer care, billing, corporate
administration, and human resources. The Company expects that these costs will
grow significantly as it expands operations.
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is computed using the straight-line
method, generally over three to ten years, based upon estimated useful lives.
Leasehold improvements are amortized over the lesser of the useful lives of the
assets or the term of the lease. Network construction costs incurred during
development are capitalized. Amortization of network construction costs begins
when the network equipment is ready for its intended use and will be amortized
over a ten-year period.
CAPITAL EXPENDITURES
The Company's principal capital requirements include installation of digital
equipment and, to a lesser extent, site preparation work. The Company's goal is
to leverage the assets of Incumbents to (i) reduce the capital costs associated
with developing long haul, digital network capacity, (ii) lower the future
operating costs of a digital wireless network by relying on Incumbents to pay
for the costs of facilities maintenance, local taxes and utilities for Incumbent
sites and (iii) improve the Company's speed to market due to the elimination of
site preparation activities, including local permitting, power connection,
securing road access and rights of way and tower construction.
31
<PAGE>
The Company believes that utilizing the Incumbent's infrastructure will also
enable the Company to reduce significantly its cost of constructing an initial
network path. For markets requiring OC-24 capacity or less, the Company believes
this deployment strategy will result in the Company having the lowest capital
costs per circuit mile in comparison to fiber or "green field" digital wireless
networks. In addition, because more than half of all of the Company's capital
expenditures are expected to be related to incremental capacity built to meet
customer demand, the network will have substantially less capital at risk than
comparable fiber-based networks, which require that a substantial majority of
all capital expenditures be spent prior to serving any customers. See "Risk
Factors -- Significant Capital Requirements; Uncertainty of Additional
Financing."
NETWORK CONFIGURATION. The Company's network is expected to be made up
predominantly of digital wireless equipment designed to provide high quality,
low cost, long haul transmission capacity. The Company expects the typical trunk
route will be approximately 400 miles. Based upon an average length of 25 miles
per wireless path, the Company expects to upgrade the digital wireless
electronics on an average of 16 trunk paths per network route. In order to
connect Pathnet's network to the PSTN, the Company also expects to construct one
interconnection path for every three trunk paths. These interconnection paths,
which the Company estimates will average 20 miles in length, will typically
originate at an Incumbent tower site and terminate at a Telecom Service Provider
facility. Most of these facilities are designed and equipped to handle wireless
traffic. In other instances, the network will connect to the PSTN from an
Incumbent facility by fiber optic cable or alternate media. These Incumbent
facilities could include office buildings or tower sites with access to the
PSTN.
The primary capital costs of deploying the Company's network include the
costs of tower enhancement, site preparation work, base digital wireless
equipment and incremental digital wireless equipment. Based on its limited
experience to date, the Company expects that Incumbents will be primarily
responsible for site development costs and Pathnet will be responsible for the
costs of base and incremental digital wireless equipment. The actual allocation
of costs between the Company and each Incumbent is expected to vary, perhaps
significantly, on a case-by-case basis.
The Company currently has no plans to purchase switching equipment to
provide switched minutes of capacity on a wholesale or end-user basis. Virtually
all of the Company's capacity will be utilized for dedicated private line
capacity, which does not require such switching equipment.
NETWORK ECONOMICS. The following tables compare the estimated cost and
economics of the Pathnet program versus construction of a "green field" digital
microwave network. The tables show the estimated average costs (i) on a path by
path basis, (ii) for a 500 route mile network consisting of 16 trunk paths and
five additional interconnection paths of 20 miles each, and (iii) per circuit
mile. The following tables are based on information and estimates available as
of the date of this Prospectus, reflect only the Company's limited experience in
the construction of its network to date and are for illustrative purposes only.
Although the Company believes that these estimates are reasonable, there can be
no assurance that the Company's actual cost of building its network will not
vary significantly from the estimates set forth below, that Incumbents will
share costs as shown or that the actual cost of a "green field" construction
would not be lower. See "Risk Factors--Risks of Completing the Company's
Network; Market Acceptance" and "--Dependence on Relationships with Incumbents;
Rights of Incumbents to Certain Assets."
32
<PAGE>
ESTIMATED PATH COSTS
<TABLE>
<CAPTION>
PATHNET PROGRAM
----------------------- GREEN PATHNET VS.
PATHNET INCUMBENT FIELD(7) GREEN FIELD
---------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
Site Development Costs(1)....................................... $ 25,000 $ 75,000 $ 250,000
Base Digital Wireless Equipment(2).............................. 215,000 -- 215,000
---------- ----------- ----------
Base Path Cost.............................................. 240,000 75,000 465,000 (48%)
Incremental Digital Wireless Equipment(3)....................... 320,000 -- 320,000
---------- ----------- ----------
Maximum Capacity Path Cost(4)............................... $ 560,000 N/A $ 785,000 (29%)
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
500 MILE INCUMBENT SEGMENT INCLUDING INTERCONNECTIONS CAPITAL COSTS(4)
<TABLE>
<CAPTION>
GREEN PATHNET VS.
PATHNET FIELD(7) GREEN FIELD
------------- ------------- ---------------
<S> <C> <C> <C>
Upgrade 16 Trunk Paths................................................ $ 3,840,000 $ 7,440,000
Install Five Interconnection Paths.................................... 1,200,000 1,200,000
------------- -------------
Total Base Segment................................................ 5,040,000 8,640,000 (42%)
Incremental Capacity.................................................. 6,720,000 6,720,000
------------- -------------
Maximum Capacity.................................................. $ 11,760,000 $ 15,360,000 (23%)
------------- -------------
------------- -------------
</TABLE>
ANALYSIS OF ESTIMATED COSTS PER CIRCUIT MILE
<TABLE>
<CAPTION>
GREEN PATHNET VS.
PATHNET FIELD(7) GREEN FIELD
---------- ---------- ------------
<S> <C> <C> <C>
Total Mileage (trunk plus interconnection paths)........................... 500 500
Base Circuit Capacity in DS-3s(5).......................................... 5 6
Maximum Circuit Capacity in DS-3s(5)....................................... 23 24
Base DS-0 Circuit Mile Capacity(5)(6)...................................... 1,680,000 2,016,000
Maximum DS-0 Circuit Mile Capacity(5)(6)................................... 7,728,000 8,064,000
Capital Cost Per Circuit Mile:
Base Capacity.......................................................... $3.00 $4.29 (30%)
Maximum Capacity....................................................... $1.55 $1.90 (19%)
</TABLE>
- ------------------------
(1) Includes site acquisition, site preparation, tower strengthening or
replacement, road and utility access and miscellaneous related costs.
(2) Based on OC-6 installation.
(3) Represents the cost to upgrade an Incumbent path to OC-24 of capacity.
(4) Assumes 16 trunk paths of 25 miles and an additional five interconnection
paths of 20 miles each (100 miles total).
(5) Assumes in the Pathnet case that one DS-3 of capacity is allocated to the
Incumbent.
(6) Factors which likely will decrease the actual measurement of the capacity
available for sale include the provisioning of protection circuits and the
variance between geographic route miles versus direct miles.
(7) Company estimate based on "green field" construction by the Company and
Incumbents.
33
<PAGE>
BUSINESS DEVELOPMENT, CAPITAL EXPENDITURES AND ACQUISITIONS
From inception through March 31, 1998, expenditures for property, plant and
equipment, including construction in progress, totaled $10.1 million. In
addition, the Company incurred significant other costs and expenses in the
development of its business and has recorded cumulative losses from inception
through March 31, 1998 of $8.8 million. See "Risk Factors--Limited History of
Operations; Operating Losses and Negative Cash Flow."
RESULTS OF OPERATIONS
The Company's principal activity from inception through the third quarter of
1996 involved introducing its business plan to over 300 Incumbents with
significant private networks through face to face meetings. As the Company began
to enter into formal relationships with Incumbents in 1996, additional
engineering, legal, and financial personnel were recruited to support the
increased workflow and to negotiate Incumbent contracts. By the first quarter of
1997, the Company initiated construction on the first segment of the network,
and additional engineering and management personnel were recruited, including
Mr. Jalkut. The Company has also begun marketing and sales efforts, and hired
Mr. Bennis to develop and execute its marketing plan.
REVENUE. In establishing relationships with Incumbents, the Company has
acted as a provider of services for transitioning the Incumbents from their old
network system onto the Company's network. The services provided by the Company
to Incumbents, including analysis of existing facilities and system performance,
advisory services relating to PCS relocation matters, and turnkey network
construction management, provided substantially all of the Company's historical
revenues. The Company expects substantially all future revenue to be generated
from the sale of telecommunications services. For the three months ended March
31, 1998, the Company generated revenues of $100,000 from construction
management services. For the year ended December 31, 1997, the Company generated
revenues of $162,500, of which $100,000 was derived from construction management
services and $62,500 from PCS relocation advisory services compared with
revenues of $1,000 from PCS relocation advisory services for the year ended
December 31, 1996. The Company generated no revenue during the period from
inception (August 25, 1995) to December 31, 1995.
COSTS AND EXPENSES. For the three months ended March 31, 1998, the Company
incurred operating expenses of approximately $2.8 million. For the year ended
December 31, 1997, the Company incurred operating expenses of approximately $4.3
million compared to operating expenses of $1.3 million for the year ended
December 31, 1996 and $429,000 for the period from inception through December
31, 1995. The increase in expense was directly related to an increase in
selling, general and administrative expenses ("SG&A") as the Company expanded
its engineering, technical, legal, finance, and general management personnel in
connection with the continued signing of new Incumbent agreements and the
ongoing construction of the Company's network. The Company expects SG&A to
continue to increase in 1998 as additional staff is added in all functional
areas, particularly in sales and marketing.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to generate cash primarily from external financing and,
as its network matures, from operating activities. The Company's primary uses of
cash will be to fund capital expenditures, working capital and operating losses.
Deployment of the Company's digital network and expansion of the Company's
operations and services will require significant capital expenditures. Capital
expenditures will be used primarily for continued development and construction
of its network, implementing the Company's sales and marketing strategy and
constructing and improving the Company's NOC. The Company anticipates that, for
the twelve month periods ending June 30, 1999 and 2000, it will require
approximately $120 million and $260 million, respectively, to fund capital
expenditures, working capital and operating losses. See "Risk
Factors--Significant Capital Requirements; Uncertainty of Additional Financing."
34
<PAGE>
On April 8, 1998, the Company completed the sale of the Units (comprised of
the Notes and the Warrants) for net proceeds of $339.5 million. The Notes bear
interest at 12 1/4% per annum and principal on the Notes is due in full in 2008.
Of the net proceeds from the issuance of the Units, $81.1 million were used to
purchase the Pledged Securities which secure the repayment of the Notes and are
sufficient to provide for payment in full of interest due on the Notes through
April 15, 2000. The Indenture contains provision restricting, among other
things, the incurrence of additional indebtedness, the payment of dividends and
the making of restricted payments, the sale of assets and the creation of liens.
Also on April 8, 1998, the Company completed the 1998 Private Equity
Investment from which the Company received gross proceeds of $20 million.
In addition, the Company is currently exploring several vendor financing
alternatives. Although the Company has received commitments (subject to
definitive documentation) from certain of its vendors and prospective lenders in
connection with two such proposed vendor financing facilities, as of the date of
this Prospectus, the Company has not decided to pursue any one particular
proposed facility.
The Company expects that a majority of future capital expenditures will
result from customer orders for additional capacity. The Company believes that
the modular design of its network will enable the Company to rely on traditional
sources of financing. In addition, the Company expects to rely on other sources,
including public and private debt and equity financings and operating cash flow
to fund future growth. The Company has not finalized commitments for any
additional financing and there can be no assurance that the Company will be able
to secure financing from these sources on terms that are favorable to the
Company. In addition, the Company may require additional capital in the future
to fund operating deficits and net losses and for potential strategic alliances,
joint ventures and acquisitions. Actual capital requirements may vary based upon
the timing and success of the Company's network roll out. Although there can be
no assurance, if the network roll out were delayed from the schedule currently
anticipated by the Company or if demand for the Company's services were lower
than expected, the Company expects that it would be able to defer or reduce
portions of its capital expenditures.
Immediately following the consummation of the Offering, the Company expects
to have $[ ] million in cash and cash equivalents (on a pro forma basis giving
effect to the Transactions and the Offering as if each had occurred as of March
31, 1998). Based on its current business plan, the Company believes that such
amounts will provide sufficient liquidity to meet the Company's capital
requirements for the next 24 months, at which time the Company expects to have
completed a 29,000 route mile network. See "Risk Factors--Significant Capital
Requirements; Uncertainty of Additional Financing." The Company intends to use
any additional available funds to accelerate its development plans.
Because the Company's cost of rolling out its network and operating its
business, as well as its revenues, will depend on a variety of factors
(including the ability of the Company to meet its roll-out schedules, its
ability to negotiate favorable prices for purchases of network equipment, the
number of customers and the services they purchase, regulatory changes and
changes in technology), actual costs and revenues will vary from expected
amounts, possibly to a material degree, and such variations are likely to affect
the Company's future capital requirements. Accordingly, there can be no
assurance that the Company's actual capital requirements will not exceed the
anticipated amounts described above. Further, the exact amount of the Company's
future capital requirements will depend upon many factors, including the cost of
the development of its network, the extent of competition and pricing of
telecommunication services in its markets, the acceptance of the Company's
services and the development of new products.
INFLATION
Management does not believe that its business is affected by inflation to a
significantly different extent than the general economy.
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YEAR 2000
The Company has established processes for evaluating and managing the risks
and costs associated with Year 2000 software failures. Management is in the
process of taking steps to ensure a smooth Year 2000 transition, including
working with its software vendors to assure that by the end of the first quarter
of 1999, the Company is fully prepared for the Year 2000. The Company has
identified and analyzed both internally developed and acquired software that
utilizes date embedded codes that may experience operational problems when the
Year 2000 is reached. The Company is making and intends to complete necessary
modifications to the identified software by the end of the first quarter of
1999. The Company is also communicating with Incumbents, suppliers, financial
institutions and others with which it does business to coordinate Year 2000
compliance. Management does not anticipate that the Company will incur
significant operating expenses or be required to invest heavily in computer
systems improvements to be Year 2000 compliant, and does not anticipate that
business operations will be disrupted or that its customers will experience any
interruption of service as a result of the millenium change.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued two new standards that
became effective for reporting periods beginning after December 15, 1997:
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). Effective March 31, 1998, the Company adopted SFAS 130 and SFAS 131. The
adoption of these standards has no material affect on the Company's financial
statements.
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BUSINESS
THE COMPANY
Pathnet intends to become a leading provider of high quality, low cost, long
haul telecommunications capacity to second and third tier markets throughout the
United States primarily by upgrading existing wireless infrastructure to develop
a state-of-the-art, digital SONET network. The Company is positioning itself
primarily as a 'carrier's carrier,' providing a high capacity, dedicated network
to IXCs, LECs, ISPs, RBOCs and other Telecom Service Providers. The Company
plans to deploy its digital network by upgrading, integrating and leveraging
existing telecommunications assets, sites and rights of way, including those
utilized by Incumbents. By integrating the existing networks of Incumbents, the
Company expects to obtain the equivalent of a nationwide spectrum license at
minimal licensing cost.
The Company's goal is to deploy a network covering 29,000 route miles within
two years and ultimately to deploy a network encompassing more than 100,000
route miles. Based on market research provided for the Company by the Yankee
Group, a leading telecommunications research firm, the estimated addressable
market for the Company's services is expected to grow from approximately $6
billion in 1998 to approximately $17 billion by 2008. The Company believes its
strategy of developing a high quality, low cost, digital network primarily in
smaller markets will enable the Company to take advantage of (i) the limited
capacity currently available or expected to be constructed in smaller markets,
(ii) higher prices generally available in those markets and (iii) technological
and cost advantages of the Company's development strategy. The Company is
currently in various stages of designing, constructing, testing and
commissioning its digital network, which will initially serve markets in 34
states. The Company has completed over 800 route miles of its network, is
currently constructing approximately 2,100 additional route miles and has
entered into one agreement relating to the sale of capacity on its network.
The Company's core strategy for deploying its network is to form strategic
relationships with Incumbents and other owners of telecommunications assets that
will enable the Company to leverage these existing assets and thereby reduce the
Company's time to market and capital costs. The Company believes that Incumbents
will find a strategic relationship with the Company to be attractive due to the
opportunity for the Incumbents to (i) reduce the costs of upgrading internal
network infrastructure, (ii) receive incremental capacity which has greater
reliability characteristics than most of the Incumbents' existing systems and
(iii) leverage under-utilized assets and receive a share of the incremental
revenues generated by Pathnet. The Company has identified Incumbents currently
holding or operating private networks in the United States that in the aggregate
cover approximately 465,000 route miles. Through its sales staff and other
engineering, financial and legal professionals, the Company has held meetings
with over 300 of these Incumbents. To date, 47 of these entities, which together
control approximately 89,000 route miles, have authorized the Company in writing
to prepare preliminary engineering evaluations of their networks for the
intended purpose of entering into a long-term strategic relationship with the
Company. Of these 47 entities, seven, which collectively control approximately
11,000 route miles, have entered into binding agreements relating to the initial
design and construction of approximately 7,000 route miles of network. Six of
these binding agreements are long-term FPM Agreements with Enron, Idaho Power
Company, KN Energy, Northeast Missouri Electric Cooperative, NIPSCO and Texaco
or their affiliates. The seventh agreement is a binding term sheet with ATC,
which controls certain telecommunications assets including certain assets
divested by CSX Railroad, ARCO Pipeline and MCI. In addition, the Company is
currently pursuing long-term strategic relationships with 25 out of the 47
entities that control approximately 63,000 additional route miles of network.
These potential relationships are in varying stages of evaluation, system design
and business and contract negotiations. In addition to deploying its network by
forming long-term relationships with Incumbents, the Company may enter into
alternative markets or acquire or deploy complementary telecommunications assets
or technologies.
The Company's network is being designed for maximum reliability and security
and will be capable of carrying a full array of voice, data and video
communications. Bellcore has evaluated the Company's
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system design and existing network and has confirmed that the Company's network
will be built using proven, off-the-shelf components and will meet or exceed
prevailing industry standards for reliability and error free operation. The
Company's network will employ various design features that enhance its
reliability, including SONET architecture.
Pathnet was founded in August 1995, and its initial investors include a
group of financial sponsors led by Spectrum and NEA. The Company's current
investors also include Dennis R. Patrick, former Chairman of the FCC. The
Company's Chairman, David Schaeffer, has more than 20 years of business and
entrepreneurial experience, including building and operating wireless networks.
Richard A. Jalkut, the Company's President and Chief Executive Officer, has over
30 years of telecommunications experience, including as President of NYNEX
Telecommunications, an operating subsidiary of NYNEX Corporation with more than
$12.0 billion in annual revenues and 60,000 employees. Kevin J. Bennis, formerly
President of Frontier Communications, is Executive Vice President of the Company
serving as President of the Company's Communications Services Division. Prior to
working at Frontier Communications, Mr. Bennis served in various positions for
21 years at MCI, including as Senior Vice President of Marketing. Michael L.
Brooks, the Company's Vice President of Network Development, directed the
initial construction of the 3,500-mile digital microwave network at Qwest
Microwave Communications, a predecessor of Qwest, as its Vice President of
Engineering.
MARKET OPPORTUNITY
The Company believes there is a substantial market opportunity to provide
high quality, low cost, long haul telecommunications capacity for second and
third tier markets throughout the United States. The Company commissioned the
Yankee Group to study the Company's addressable market. The Yankee Group
estimated the potential addressable market for the Company's services to be
approximately $6 billion in 1998 and estimated that such market will grow to
approximately $17 billion by 2008, indicating a compounded annual growth rate of
approximately 11% per year. The Yankee Group attributes this growth to (i) an
expected shift in market share of interexchange services away from established
carriers, such as AT&T, MCI and Sprint, to non-facilities-based IXCs that are
more likely to rely on alternative carriers such as the Company to transmit
traffic, (ii) the development of the Internet, (iii) growth in data traffic,
including WANs, extranets, CAD/CAM and other applications which require
substantial amounts of bandwidth and (iv) continued growth in voice traffic. The
Yankee Group determined this addressable market size by estimating the amount of
off-network traffic in the Company's targeted geographic markets for long
distance and other services. The Yankee Group estimates indicate that
approximately 16% of the $108 billion long distance, special access, and
intra-LATA market in the United States is carried off-network by carriers that
lease capacity from other providers such as ILECs or the Company. Of that 16%
carried off-network, the Yankee Group believes that Pathnet will be positioned
to address 35% of that market based upon the geographic and market profile of
the Company's business plan.
Based on FCC data and other publicly available information, the Company
estimates that most existing or planned facilities-based long distance
providers' networks are designed to connect primarily the top 120 MSAs in the
United States. Facilities-based IXCs and other telecommunications providers must
rely, directly or indirectly, on facilities provided primarily by ILECs to
transmit calls beyond their existing owned or leased facilities. Current
facilities-based providers serve the second and third tier markets primarily
utilizing a combination of copper, fiber and microwave transport facilities. The
Company believes that many Telecom Service Providers will choose the Company's
network for long haul capacity serving second and third tier markets as a result
of its (i) availability in markets where there are currently insufficient or
limited high capacity facilities, (ii) lower prices compared to those currently
offered by ILECs, (iii) ubiquity in these markets compared to many other long
haul carriers due to the projected reach of the Company's network, as well as an
increased number of access and termination points compared to most other long
haul networks, (iv) greater product flexibility as a result of the ability to
sell capacity in increments as small as DS-1s and as large as OC-24s, (v)
non-competitive marketing position as
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primarily a 'carrier's carrier', (vi) comparable or greater reliability due to
the digital SONET architecture of the Company's network, and (vii) ability to
provide network redundancy and enhanced reliability by offering an alternative
to the existing network.
COMPETITIVE ADVANTAGES
The Company believes that it will enjoy the following competitive
advantages:
UBIQUITOUS COVERAGE. The Company's goal is to deploy a network covering
29,000 route miles within 24 months and ultimately to deploy a network
encompassing more than 100,000 route miles. The extensive scope of such existing
networks, combined with the attractive characteristics of Pathnet's network
architecture, should enable the Company to provide greater ubiquity than many
other long haul carriers. Pathnet's network architecture enables the Company to
provide access and termination points approximately every 25 miles, which is not
economically feasible for most fiber optic networks. This architecture increases
the number of cities that can be served cost effectively on each route. In
addition, the Company expects that its tower rights will enable it to
interconnect with Telecom Service Providers by digital microwave anywhere within
an approximate 25-mile line of sight surrounding any transmission tower on its
network. This will allow Pathnet in many cases to bypass existing local
infrastructure and deliver traffic directly to an access tandem, local serving
office, mobile switching office, ISP POP or large end-user.
LOWER NETWORK COST. By leveraging the resources of Incumbents and other
owners of telecommunications assets and by utilizing lower-cost wireless
technology, the Company believes it will gain a significant competitive
advantage over carriers seeking to deploy newly constructed digital networks to
serve the Company's target markets. The Company intends to reduce its initial
costs by utilizing the assets, including towers and rights of way, of Incumbents
and other owners of existing telecommunications assets. In addition, the Company
will be able to utilize many of the requisite local permits and local regulatory
approvals already in place. Based upon publicly available information, the
Company believes that, for capacity of OC-24, the Company's average capital cost
per DS-0 circuit mile will be approximately $1.55 versus approximately $1.90 for
newly constructed digital microwave capacity, approximately $3.00 for newly
constructed aerial fiber and approximately $4.10 for newly constructed fiber
buried in conduit.
SUCCESS-BASED CAPITAL EXPENDITURE. The Company's network is designed to
reduce the risk of capital investment by deploying a substantial portion of its
network on a demand-driven basis. After an Initial System is deployed, the
Company's additional capital expenditures will relate primarily to deploying
incremental equipment to provide additional capacity in response to specific
customer demand. As a result, the Company believes that a majority of its
capital expenditures will be success-based. The modular design of its network
should allow the Company to expand rapidly in response to increased customer
demand or to delay the deployment of network equipment until justified by
specific customer demand. In addition, the Company will be able to mitigate its
capital expenditures by redeploying network equipment to respond to shifting
customer demand.
BARRIERS TO ENTRY. The Company's strategy of entering into long-term
relationships with Incumbents is designed to enable the Company to minimize the
significant costs and obstacles associated with the development of long haul
telecommunications capacity. Leveraging the existing assets of Incumbents will
enable the Company to avoid certain capital expenditures related to real estate
and right-of-way acquisition, permits and zoning requirements, and generally is
expected to shift to Incumbents certain costs of shelter development, tower
upgrades and enhancement of utility service. The Company's relationships with
Incumbents also are expected to mitigate maintenance and ongoing administrative
costs by using Incumbents' existing technicians to perform facility and
equipment maintenance and on-site circuit provisioning and by leaving ongoing
utility, real estate taxes and other infrastructure costs with Incumbents. The
Company believes that fiber networks, the primary alternative source of
bandwidth, may be too expensive to install in the smaller markets targeted by
the Company. The greater capacity offered by fiber networks
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may not be cost effective in smaller markets due to the higher costs per bit of
capacity sold to low volume markets.
HIGH QUALITY, TECHNOLOGICALLY ADVANCED NETWORK. The Company's network is
being deployed using a high capacity digital SONET platform, which will provide
high quality voice, data and video transmission comparable to or exceeding that
of most fiber optic networks. The Company expects to deliver 99.999% network
reliability on any individual path with a bit error rate of no greater than
10(-13). The capacity created by Pathnet is expected to meet the highest
industry standards, including those of AT&T and MCI, and Bellcore specifications
for reliability. The Company will continuously monitor and maintain high quality
control of its network on a 24 hours per day, seven days per week basis through
its NOC.
EXPERIENCED MANAGEMENT. Pathnet's management team includes its Chief
Executive Officer, Richard A. Jalkut, the former President of NYNEX
Telecommunications, and Kevin J. Bennis, who is Executive Vice President serving
as President of the Company's Communications Services Division and was formerly
President of Frontier Communications and Senior Vice President of Marketing at
MCI. The Company has commenced development of its network under the direction of
Michael L. Brooks, who was responsible, as Vice President of Engineering of
Qwest Microwave Communications, a predecessor of Qwest, for the initial
construction of the 3,500-mile digital microwave network of Qwest. This team has
significant and proven operational, technical, financial and regulatory
experience in the telecommunications industry.
BUSINESS STRATEGY
Key components of the Company's business and operating strategies are
described below:
FOCUS ON SMALLER, CAPACITY CONSTRAINED MARKETS. The Company intends to
focus on smaller markets that typically have limited access to transmission
capacity and that currently are served by ILECs and few other competitors.
Private line rates in second and third tier markets are believed by the Company
to be significantly higher than rates between larger markets because there are
few suppliers. Smaller markets are often unattractive to new entrants because
their relatively limited traffic does not normally economically justify new
network construction. Focusing on smaller markets should enable the Company to
take advantage of its low cost, flexible network, which is capable of servicing
markets requiring small increments of capacity.
POSITION THE COMPANY AS A 'CARRIER'S CARRIER.' The Company intends to sell
the majority of its capacity to Telecom Service Providers. The Company believes
there are substantial benefits to a 'carrier's carrier' strategy, including (i)
lower sales, marketing and servicing costs, (ii) elimination of significant
capital outlays to provide switching services to end-users, (iii) the ability to
carry most of its customer traffic on its own network, thereby increasing
operating margins, and (iv) increased attractiveness to Telecom Service
Providers, who will not view the Company as a potential competitor.
ESTABLISH STRATEGIC RELATIONSHIPS WITH INCUMBENTS AND OTHER OWNERS OF
TELECOMMUNICATIONS ASSETS. The Company's core strategy for deploying its network
is to form strategic relationships with Incumbents and other owners of
telecommunications assets that will enable the Company to utilize existing
infrastructure, permits and other regulatory approvals in order to reduce the
Company's time to market and construction costs. The Company believes that
Incumbents will find a strategic relationship with the Company to be attractive
due to the opportunity for Incumbents to (i) reduce the costs of upgrading the
Incumbent's infrastructure, (ii) receive incremental capacity which has greater
reliability characteristics than most of the Incumbents' existing systems, and
(iii) leverage under-utilized assets and receive a share of the incremental
revenues generated by Pathnet. See "Risk Factors--Dependence on Relationships
with Incumbents; Rights of Incumbents to Certain Assets."
BUILD EFFECTIVE SALES FORCE AND PROVIDE SUPERIOR CUSTOMER SERVICE. The
Company intends to build a national accounts sales force that will use a
consultative approach designed to provide a systematic review
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of a large carrier's network requirements in smaller markets and to offer
solutions to reduce the carrier's network costs and improve its reliability. The
Company will also build a regional sales force that will market the Company's
network capacity to smaller carriers and to selected large end-users. The
Company expects to offer high reliability and superior customer service,
including maintaining a centralized NOC to initiate new services and monitor
existing circuit capacity more easily. In addition, pursuant to the FPM
Agreements, the Company utilizes Incumbents as an alternative sales channel to
sell to large end-users who reside in the cities near Incumbents' facilities.
SALES AND MARKETING STRATEGY
CUSTOMERS
The Company primarily targets Telecom Service Providers as well as smaller
carriers and large end-users. The Company's marketing focus is to (i) offer
capacity to fill gaps in its customers' networks; (ii) provide alternative
capacity to ILECs, and (iii) capture demand, as a lower cost provider, from
incremental growth in the Company's addressable market. The Company markets its
network to major IXCs such as AT&T, MCI, Sprint and WorldCom to satisfy their
expanded requirements for feeder and gathering networks. The Company expects
that it will be well positioned to provide capacity to meet spot shortages in
isolated geographic areas and to provide economic transport facilities that will
complement existing IXC networks. The Company plans to exploit its network
flexibility in providing access and termination capabilities and in providing
capacity to small IXCs that need both a feeder network and backbone transport.
The Company also intends to market capacity to ISPs by providing additional POPs
for local dial-up connectivity, rather than toll-free service, to the ISPs'
customer base, thereby eliminating the ISPs' dependence on IXCs for capacity.
The Company believes there will be significant opportunities to market its
capacity to the RBOCs when they commence long distance service outside of their
current service areas. The Company also plans to market the Company's network to
RBOCs for use within their own service areas. The Company believes RBOCs will be
attracted to the Company's ability to provide supplemental capacity on a leased
basis, permitting them to conserve capital and providing a low-cost redundancy
alternative. The Company believes its network will allow RBOCs to focus on
larger cities while providing small communities within their service areas with
broadband connectivity.
The Company expects that mobile wireless operators (both PCS and cellular)
will be attracted to the Company's ability to provide the backhaul capacity
needed to interconnect its mobile switches with backbone transport capacity. The
Company also intends to market its capacity to competitive access providers and
CLECs who can utilize the Company's network to interconnect various service
areas on an intra-LATA and inter-LATA basis. Lastly, the Company also
anticipates offering capacity to providers of switched video services, as the
Company's 1.2 gigabyte per second OC-24 network is expected to be capable of
providing up to 150 digital video channels on demand as advances in digital
switching continue.
PRODUCTS AND SERVICES
The Company is offering dedicated private line access for voice, data and
video transmission in DS-1, DS-3 and OC-3 increments that are well suited to
second and third tier markets. The Company expects that its state-of-the-art
network architecture will enable it to provide access and termination points as
frequently as every 25 miles, thereby providing a more flexible routing capacity
than networks comprised solely of fiber optic cable. This architecture is
expected to increase the number of cities that can be cost effectively served on
each route. In addition, the Company expects this architecture to enable it to
deliver traffic anywhere within an approximate 25-mile line of sight surrounding
any Incumbent tower, allowing it in many cases to bypass existing local
infrastructure and deliver traffic directly to the access tandem, local serving
office, mobile switching office, ISP POP or to large end-users. This flexibility
plus the ubiquity of the Company's network is expected to appeal to a broad
variety of customers.
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The Company also is offering provisioning services and other customer
service features. The Company's network architecture is designed to allow it to
deploy incremental equipment rapidly in response to customer needs. The Company
will employ a state-of-the-art operating support system that will be capable of
supporting on-line order entry and remote circuit provisioning. The Company also
employs information systems that permit customers to monitor network quality
using benchmarks such as network uptime, mean time to repair, installation
intervals, timeliness of billing and NOC responsiveness. The Company expects
that its state-of-the-art NOC will permit pro-active service monitoring and
system management on a 24 hours per day, seven days per week basis. The Company
expects to combine network management, billing and customer care on an
integrated platform to offer its customers a single point of contact.
The Company expects that it will locate network nodes near LEC and IXC
service offices and expects to be able to interconnect with customers using
multiple technologies, including both fiber optic and microwave transmission
media. The diagram below illustrates the portion of a telecommunications circuit
for which the Company intends to provide service:
[Artwork: Diagram showing a typical telecommunications circuit and the portion
served by the Company.]
PRICING
Private line rates in second and third tier markets are believed by the
Company to be significantly higher than rates between larger markets because
there are fewer suppliers serving such markets. Although the Company intends to
take advantage of its lower network costs to offer competitive pricing, it
believes that demand for capacity in second and third tier markets will
nonetheless permit higher profit margins than those obtainable in larger
markets. Moreover, the Company believes that services currently available in
second and third tier markets do not offer the flexibility and route diversity
that the Company's network is expected to offer. The Company believes that
customers may be willing to pay premium prices for use of the Company's flexible
and diverse routes.
Pathnet's pricing structures will vary according to bandwidth requirements
and the demand characteristics of specific routes. Dedicated capacity is
expected to be sold on a monthly basis based on DS-0 circuit capacity multiplied
by the circuit length. Pathnet charges customers for this capacity regardless of
the actual usage of the dedicated circuits. The Company sells dedicated capacity
in increments as small as DS-1s and as large as OC-24s and expects to offer
volume discounts for larger volumes and multiple routes.
SALES AND MARKETING RESOURCES
The Company is building a sales force designed to focus on large carriers
and small carriers. A national accounts sales force will pursue a consultative
approach to provide a systematic review of a large carrier's network
requirements in smaller markets and to offer solutions to reduce the carrier's
network costs and improve its network reliability. A regional sales force will
market the Company's network capacity to smaller carriers and to selected large
end-users. The Company will deploy its sales force in regional offices
throughout the United States. The Company is recruiting an experienced and well
trained sales force and retaining its sales and marketing team with a
compensation package that includes salary, quarterly performance bonuses and
stock option incentives. In addition, the Company utilizes Incumbents as an
alternate sales channel to sell to large end-users who reside in the cities near
Incumbents' facilities in return for a referral fee.
The Company is also assembling a centralized marketing organization to focus
on product development, market analysis and pricing strategies as well as
responsibility for customer communications, public relations and branding.
Pathnet intends to develop its brand name and its service mark, "A Network of
Opportunities" through advertising in carrier trade publications and quarterly
newsletters to update network development, service statistics and Company
highlights.
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COMMERCIAL ROLL-OUT
The Company is currently deploying its network on a modular basis. In its
efforts to attract Incumbents, the Company is capitalizing on the fact that many
Incumbents currently operate on outmoded analog platforms which provide
low-quality transmission and little room for network expansion. In addition,
many Incumbents currently use a portion of the spectrum recently reallocated by
the FCC to PCS providers and other emerging technology licensees. Pursuant to
the FCC's rules and regulations, an Incumbent must relocate its operations to
another portion of the spectrum whenever the 2 GHz frequencies used by such
Incumbent are needed to implement PCS or another emerging technology. The FCC's
rules provide for a voluntary negotiation period during which the Incumbent and
PCS licensee may, but are not required to, negotiate the Incumbent's relocation.
After the expiration of such period, a mandatory negotiation period commences,
during which time the Incumbent and PCS licensee must negotiate in good faith.
The starting dates and durations of these negotiation periods vary depending on
the PCS spectrum block in which the Incumbent operates and whether the Incumbent
operates a public safety service (I.E., fire, police or emergency medical
service). Mandatory negotiation periods for all Incumbents expired or, will
expire, as follows: (i) April 1998 and April 2000, for non-public safety and
public safety Incumbents, respectively, in the PCS A and B blocks; (ii) May 1998
and May 2001, for non-public safety and public safety Incumbents, respectively,
in the PCS C block; and (iii) January 1999 and January 2002, for non-public
safety and public safety Incumbents, respectively, in the PCS D, E and F blocks.
Should any Incumbent and PCS licensee fail to agree on a relocation plan by the
end of their respective mandatory negotiation periods, the PCS licensee can
request that the Incumbent be involuntarily relocated; the FCC's rules do,
however, provide incentives for parties to agree to relocation plans on their
own.
As part of developing a long-term relationship with an Incumbent, the
Company generally will offer to assist the Incumbent in the relocation of its
system to the 6 GHz portion of the spectrum and, in certain cases, assist the
Incumbent in negotiating legally mandated reimbursement for the cost of such
relocation from the new PCS entrant. Any funds received from such PCS entrants
are generally applied to the cost of the relocation and an upgrade of the
Incumbent's network and, as such, benefit both the Incumbent and the Company.
Based on Pathnet's experience, it may take between six and 18 months from
the initial contact to complete a long-term contract with an Incumbent and 12
months thereafter to complete a commercially available system utilizing the
Incumbent's assets. After a long-term agreement is signed, and throughout the
installation and construction of a system, the Company provides a project
manager for each Incumbent to provide a single point of contact for
installations across many sites and the upgrade of the Incumbent's
telecommunications system. The system replacement and upgrade is planned in two
stages. During the first stage, the Company's engineering department visits the
Incumbent to evaluate the existing system and to recommend an optimum route for
the system. The Company's engineering department develops a detailed system
design to satisfy the Incumbent's build out and routing requirements. Once
approved by the Incumbent, the Company begins the construction and build-out of
the new system.
In the second stage, the Company oversees and manages the construction,
installation, testing and cutover of the new system within a mutually agreed
upon timetable. The Incumbent is invited to observe and participate in
acceptance testing. Once the Incumbent has accepted the new system the cutover
plan can proceed with the commissioning of circuits on the new equipment. The
Company coordinates with the Incumbent cutover of the new system to minimize
system downtime and service interruption. Once installed, the new system is
expected to deliver 99.999% network reliability on any individual path with a
bit error rate not greater than 10(-13). The capacity created by Pathnet is
expected to meet the highest industry standards, including those of AT&T and
MCI, and Bellcore specifications for reliability. See "Risk Factors--Risks of
Completing the Company's Network; Market Acceptance."
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AGREEMENTS WITH INCUMBENTS AND OTHER OWNERS OF TELECOMMUNICATIONS ASSETS
FIXED POINT MICROWAVE SERVICES AGREEMENTS
As of the date of this Prospectus, the Company has entered into six
long-term FPM Agreements with Enron, Idaho Power Company, KN Energy, Northeast
Missouri Electric Power Cooperative, NIPSCO and Texaco or their affiliates.
Under the terms of the FPM Agreements, the Company typically leases from the
Incumbent an interest in the Incumbent's sites and facilities on which to build
and operate its network. The Company's FPM Agreements typically provide that the
Company will, in consideration of such lease, allocate to the Incumbent, solely
for its own use, a certain portion of the circuits on the upgraded system and
pay the Incumbent a portion of the revenue derived from sales capacity by the
Company of excess telecommunications on such Incumbent's system. The portion of
such revenues and the amount of such circuits typically depends on the relative
contributions of the Company and of the Incumbent to the system upgrade. The
Company expects that this portion will typically be approximately 10% of such
revenue, although the exact portion negotiated with each Incumbent is expected
to vary (possibly significantly) on a case-by-case basis. Under the FPM
Agreements signed to date, the Incumbents share between zero and approximately
50% of the revenue generated from the sale of excess capacity, with such revenue
sharing commencing one to four years after the commissioning of the Initial
System or any capacity expansion, and receive circuits ranging from 672 to 1,200
DS-0s for their internal communications needs. Generally, the Incumbent is also
entitled to purchase a certain amount of capacity in excess of its allocated
amount along its own system. The Company expects that FPM Agreements will
generally permit the Incumbent to purchase this additional capacity at the
Company's lowest market rate for such route. The Incumbent is usually required
to make certain capital investments up to a predetermined amount to upgrade its
system infrastructure to make it suitable for installation of the Company's
network system which, in most cases, includes significant modifications to
structures, towers, battery plants and equipment shelters. Certain Incumbents
who have executed FPM Agreements, however, have elected not to contribute any
capital toward the upgrade of their system and accordingly have agreed not to
participate in the revenue generated by the system. The Company is generally
responsible for capital investments relating to the Incumbent's facilities that
exceed such predetermined amount, as well as the installation cost of certain
other equipment, including new digital radios and antenna systems.
Pursuant to an FPM Agreement, the Incumbent grants to the Company an
exclusive right to market and sell excess telecommunications capacity created by
the Incumbent's system. The Company sets the selling price of such excess
capacity to maximize revenue on Pathnet's entire network rather than that
portion of the network covered by the Incumbent's system. The FPM Agreements
typically prohibit Incumbents from operating parallel microwave
telecommunications facilities for the purpose of selling digital circuits.
Moreover, the FPM Agreements usually provide that Incumbents will refer network
customers to the Company, and, in certain cases, the Incumbent will earn a fee
for a referral that results in a sale of capacity.
The FPM Agreements generally provide for a 25-year term consisting of an
initial term and two extension terms. The initial term generally includes a
design and installation period and an additional five years commencing upon the
commissioning of the system. The FPM Agreements executed to date provide that
the Company will be granted a first extension term for an additional ten years
if it sells 10% or more of the excess capacity available for sale during the
initial term, and a second extension term for an additional ten years if it
sells 10% or more of the excess capacity available for sale during the first
extension term. After commissioning the upgraded system and so long as the
Company satisfies such excess capacity sale requirements, the FPM Agreements are
typically non-terminable by either party. After the 25-year period, the FPM
Agreements typically provide for automatic one-year extensions which may be
terminated at the election of either the Company or the Incumbent. Upon
expiration of an FPM
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Agreement, the Company is typically obligated to transfer the Initial System to
the Incumbent and may remove from the Incumbent's facilities all of its
equipment utilized for capacity expansion above the Initial System.
The FPM Agreements typically require the Company to grant the Incumbent a
security interest in the equipment required to operate the Initial System, which
includes the first radio, the protection radio and the other assets and
equipment required to operate such radios.
In the case of the Company's FPM Agreement with Idaho Power Company, in
addition to granting the Incumbent a security interest in the equipment required
to operate the Initial System, the Company contributed such equipment to a
special purpose subsidiary in which Idaho Power Company holds a majority
interest. The Company has veto rights with regard to the taking of certain
extraordinary actions by the subsidiary. Should it enter into similar FPM
Agreements in the future, the Company expects that it will own all or a majority
of the interests in the related special purpose subsidiary and that (in cases
where such subsidiary is majority owned) the Incumbent will have veto rights
with respect to the taking of certain extraordinary actions.
AMERICAN TOWER TERM SHEET
Under the Binding Term Sheet executed by the Company and ATC, ATC has
granted the Company the right to perform due diligence on approximately 4,200
route miles of linear network comprised of two Incumbent systems in 26 states.
Upon completion of a six-month due diligence process that commenced on May 1,
1998, the Company has the unilateral right to reserve each of the tower assets
on which the Company would like to install its network. The contract then
provides that the Company will have up to 14 months to commence construction of
its digital system. Upon completion of network construction, the Company will
enter into a license agreement with ATC that will grant to the Company a 25-year
license to use the tower assets and other facilities of ATC in exchange for
three to five percent of all revenue collected from the sale of excess capacity.
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NETWORK MAINTENANCE AND PROVISIONING OF CIRCUITS
The Company expects to enter into maintenance and provisioning services
agreements (each, a "Maintenance and Provisioning Agreement") with each
Incumbent with whom it enters into an FPM Agreement. To date, the Company has
entered into agreements with KN Energy, NIPSCO and Northern Border relating to
the maintenance of Pathnet's network. The Incumbent will be required to maintain
the physical assets at each site along its route. The Company anticipates
entering additional Maintenance and Provisioning Agreements as its network is
developed. The Maintenance and Provisioning Agreements generally require an
Incumbent to provide all services necessary for the maintenance and operation of
the Company's network, including regularly scheduled maintenance and inspections
and 24 hours per day, seven days per week emergency repair services. The
Company's Maintenance and Provisioning Agreements also typically provide for
certification of the Incumbent's maintenance employees and establish service
standards that the Incumbent must meet. The Incumbent receives a monthly fee per
site serviced, subject to cost of living adjustments and adjustments for changes
in the scope of the services provided. The Incumbent is also reimbursed for
certain out-of-pocket expenses, subject to certain limitations. Maintenance and
Provisioning Agreements typically have a one-year term and renew automatically
unless either party gives notice of its intention not to renew. A Maintenance
and Provisioning Agreement may be terminated sooner if an Incumbent breaches its
obligations thereunder or if the Company fails to pay charges due thereunder. An
Incumbent's performance is evaluated annually in connection with the renewal of
the related Maintenance and Provisioning Agreement.
The Company intends to expand the scope of the Maintenance and Provisioning
Agreements it has entered into that relate only to maintenance and intends to
execute additional agreements with additional Incumbents relating to the
provisioning of circuits. To the extent the Company requires manpower in the
field to provision circuits or install incremental radios, the Company plans to
utilize the Incumbents' existing maintenance staff to provide such services for
an additional fee. If the Company were unable or unwilling to establish or renew
Maintenance and Provisioning Agreements with Incumbents, or if the Company
should utilize telecommunications assets from entities other than Incumbents,
the Company may be required to hire its own staff or third parties to provide
such services. Although the Company believes that its maintenance and
provisioning support arrangements will ensure the quality and reliability of its
network, there can be no assurance that Incumbents or third-party service
providers will adequately maintain the Company's network. See "Risk
Factors--Dependence on Relationship with Incumbents; Rights of Incumbents to
Certain Assets."
EQUIPMENT SUPPLY AGREEMENTS
Pursuant to a Master Agreement entered into by the Company and NEC on August
8, 1997, the Company agreed to purchase from NEC certain equipment, services and
licensed software to be used by the Company in its network under pricing and
payment terms that the Company believes are favorable. In addition, NEC has
agreed, subject to certain conditions, to warranty equipment purchased by the
Company from NEC for three years, if defective, to repair or replace certain
equipment promptly and to maintain a stock of critical spare parts for up to 15
years. The Company's agreement with NEC provides for fixed prices during the
first three years of its term. In addition, pursuant to a Purchase Agreement
between Andrew and the Company, the Company agreed exclusively to recommend to
the Incumbents certain products manufactured by Andrew and Andrew agreed to sell
such products to Incumbents and the Company for a three-year period, renewable
for two additional one-year periods at the option of the Company. The Company's
agreement with Andrew generally provides for discounted pricing based on
projected order volume.
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RELIABILITY OF NETWORK
Bellcore states that generally accepted industry standards for reliability
are 99.98% error free seconds for overall network reliability, 99.999% for any
individual path in the network, and bit error rate less than 10(-13). Bellcore's
analysis of the Company's system design indicates that the Company's network
consists of available, off-the-shelf components that meet or exceed the
standards listed above.
The Company has constructed a state-of-the-art NOC located in Washington,
D.C. which currently provides real-time end-to-end monitoring of Pathnet's
network operations during business hours. The Company is currently increasing
its NOC staff and expects to monitor its network operations 24 hours per day,
seven days per week in 1999. For the period before the NOC becomes operational
on a 24 hour per day basis, the Company has engaged WTCI to assist in monitoring
its network. The NOC ensures the efficient and reliable performance of the
network by enabling the Company to identify, and often prevent, potential
network disruptions, and to respond immediately to actual disruptions. In
addition, the NOC enables the Company to schedule and conduct maintenance of
Pathnet's network while minimizing interference with the use of the network.
Specific features provided by the NOC include traffic management and
forecasting, line performance reporting and alarm monitoring, remote link
restoration and coordination, and provisioning of network services.
COMPETITION
The telecommunications industry is highly competitive. In particular, price
competition in the 'carrier's carrier' market has generally been intense and is
expected to increase. The Company competes and expects to compete with numerous
competitors who have substantially greater financial and technical resources,
long-standing relationships with their customers and potential to subsidize
competitive services from less competitive service revenues and from federal
universal service subsidies. Such competitors may be operators of existing or
newly deployed wireline or wireless telecommunications networks. The Company
will also face intense competition due to an increased supply of
telecommunications capacity, the effects of deregulation and the development of
new technologies, including technologies that will increase the capacity of
existing networks.
The Company anticipates that prices for its 'carrier's carrier' services
will continue to decline over the next several years. The Company is aware that
certain long distance carriers are expanding their capacity and believes that
other long distance carriers, as well as potential new entrants to the industry,
are constructing new microwave, fiber optic and other long distance transmission
networks in the United States. If industry capacity expansion results in
capacity that exceeds overall demand along the Company's routes, severe
additional pricing pressure could develop. As a result, within a few years, the
Company could face dramatic and substantial price reductions. Such pricing
pressure could have a material adverse effect on the business, financial
condition and results of operations of the Company.
While the Company generally will not compete with Telecom Service Providers
for end-user customers, the Company may compete, on certain routes, as a
'carrier's carrier' with long-distance carriers such as AT&T, MCI, Sprint and
WorldCom and operators of nationwide fiber optic systems such as IXC
Communications, Inc., Qwest and Level 3 Communications, Inc., who would
otherwise be the Company's customers in second and third tier markets. The
Company will also face competition increasingly in the long haul market from
local exchange carriers, regional network providers, resellers and satellite
carriers and may eventually compete with public utilities and cable companies.
In particular, RBOCs are now allowed to provide inter-LATA long distance
services outside their home regions, as well as inter-LATA mobile services
within their regions. RBOCs will be allowed to provide inter-LATA long distance
services within their regions after meeting certain regulatory requirements
intended to foster opportunities for local telephone competition. Certain RBOCs
have requested regulatory approval to provide inter-LATA data services within
their rights. The RBOCs already have extensive fiber optic cable, switching, and
other network facilities in their respective regions that can be used for long
distance services after a waiting
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period. In addition, other new competitors may build additional fiber capacity
in the geographic areas served and to be served by the Company.
The Company may also face competitors seeking to deploy a digital wireless
network in the same manner as the Company by leveraging the assets of Incumbents
or other owners of telecommunications assets or from Incumbents leveraging their
own assets. Although the Company believes its strategy will provide it with a
cost advantage, there can be no assurance that technological developments will
not result in competitors achieving even greater cost efficiency and therefore a
competitive advantage. See "Risk Factors--Risk of Rapid Technological Changes."
A continuing trend toward business combinations and strategic alliances in
the telecommunications industry may create stronger competitors to the Company,
as the resulting firms and alliances are likely to have significant
technological, marketing and financing resources which will, in many cases, be
greater than those available to the Company. See "Risk Factors--Competition;
Pricing Pressures."
REGULATION
OVERVIEW
The Company's current arrangements with its Incumbents contemplate that the
Company's digital network will be largely Part 101 telecommunications services
which are subject to regulation by federal, state and local governmental
agencies. At the federal level, the Communications Act grants the FCC exclusive
jurisdiction to set rules and policies regarding interstate telecommunications
services (I.E., services that originate in one state and terminate in another
state) and use of the electromagnetic spectrum (I.E., wireless services). The
Company or its affiliates, or in certain cases Licensed Incumbents, must obtain
licenses described below from the FCC in order to construct and operate the
communications network necessary to support the Company's business, although the
Company may commence construction of proposed facilities prior to applying for
or obtaining authorization from the FCC, and may, upon satisfaction of certain
basic requirements, begin operations over constructed facilities prior to
obtaining a final license.
The FCC is also responsible for, among other matters, granting renewals of
the Company's Part 101 licenses, granting pro forma authorizations for transfers
of such licenses, imposing regulatory fees in connection with the granting of
such licenses, performing inspections of licensed facilities, adjudicating
disputes between the Company and other telecommunications carriers, and taking
disciplinary actions against the Company for any violation of the FCC's rules or
policies.
State regulatory commissions have jurisdiction over intrastate
communications (I.E., those that originate and terminate in the same state), and
may impose certain regulatory requirements and restrictions on the Company with
respect to such services. As a result of the Company's offerings of intrastate
service to date, the Company has registered with the Montana Public Service
Commission to provide telecommunications services within the State of Montana.
In addition, municipalities and other local jurisdictions may regulate limited
aspects of the Company's business by, for example, imposing zoning and franchise
requirements and requiring installation permits, particularly with respect to
the construction of new or modified towers necessary to the Company's business.
The Company also is subject to varying taxation at the federal, state and local
levels.
The Company expects to obtain Part 101 authorizations and approvals as
necessary and appropriate to conduct its currently planned operations, and
believes that it is in compliance with all laws, rules and regulations
applicable to its business. Nevertheless, changes in existing laws and
regulations, including those relating to the provision of Part 101
telecommunications services in the 6 GHz band and the relocation of Incumbents
from the 2 GHz to the 6 GHz band, could have a material effect on the Company's
business, financial condition and results of operations. See "Risk
Factors--Regulation-- Licensing by the Company and Incumbents."
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As a result of the nature of the Company's business and recent regulatory
streamlining actions taken by the FCC, the Company, as compared to most other
wireless carriers, traditional IXCs and LECs, is subject to a substantially
lesser degree of FCC regulation, and is required to deal with far fewer federal
and state regulatory hurdles in the implementation of its business plan. In
connection with its 1998 biennial regulatory review, the FCC has initiated a
rulemaking proceeding that would further revise and streamline the rules
governing application procedures for the services currently planned to be
offered by the Company and make licensing procedures for such services faster,
less burdensome, and more consistent. The Company expects that these simplified
licensing procedures, if adopted by the FCC, will make it easier to obtain and
maintain the licenses required for its business.
Other regulatory hurdles that are normally encountered by traditional IXCs
and LECs will have no material bearing on the Company's current business. For
example, while IXCs have to pay access charges to LECs in order to access local
networks, the Company will sell capacity to IXCs but will not itself provide
switched traffic, thus eliminating the need to encounter the regulatory issues
surrounding such access. Similarly, while competitive LECs must interconnect
with the facilities of incumbent LECs in order to provide local service, and
must therefore deal with such regulatory issues as interconnection, number
portability, dialing parity, and unbundled network access, the Company does not
now plan to offer local switched service and therefore need not address these
issues. Finally, because the Company's business plan will rely heavily on
existing towers and facilities of Incumbents, the likelihood of encountering
burdensome state or local zoning or tower siting issues is substantially
reduced. The Company expects that its streamlined regulatory status will serve
as an asset and a competitive advantage as it pursues its business plan.
For a discussion of the risks associated with the regulation of the
Company's business, see "Risk Factors--Regulation."
FEDERAL REGULATION
LICENSING BY THE COMPANY. Because of the development and deployment of
emerging technologies such as PCS, many Incumbents operating private
telecommunications systems in the 2 GHz band of the frequency spectrum are or
will be required to relocate their systems and operations to the 6 GHz band or
alternate spectrum. At the same time, technology has made obsolete the analog
microwave systems typically operated by Incumbents. The transition to the 6 GHz
band provides these Incumbents with an opportunity to convert to more advanced,
more spectrum-efficient digital microwave systems. These two developments--one
regulatory, one technological--form the backdrop for the Company's efforts to
aggregate and deploy a digital Part 101 telecommunications network in the 6 GHz
band.
Working closely with relocated Incumbents, the Company expects in most cases
to obtain and aggregate (through wholly owned subsidiaries) Part 101 licenses
from the FCC to conduct operations in the 6 GHz frequency band and from the same
locations as each such relocated Incumbent. Generally, the Company will then
upgrade each relocated Incumbent's telecommunications system from analog to high
capacity digital, provide each Incumbent with the capacity needed by the
Incumbent for its own business, interconnect all of the digital systems to form
an extensive network, and sell excess capacity on the aggregated network to
customers of the Company.
LICENSING BY INCUMBENTS. In a limited number of instances, a relocated
Incumbent may itself obtain authorization from the FCC to operate a Part 101
telecommunications system at the newly occupied 6 GHz location, and may, as part
of its strategic relationship with the Company, construct and operate a digital
system to operate in that band of the frequency spectrum. In those instances,
the Company and the Licensed Incumbent will enter into contractual arrangements
that will allow the Licensed Incumbent to retain a limited amount of capacity on
the relocated network for its own purposes, and will allow the Company to market
and sell the excess capacity on the network and collect the revenue generated
from such sales (a portion of which may be distributed to the Licensed Incumbent
also as part of such
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relationship). The Company intends to establish any such arrangement so as to
ensure that there is no DE FACTO transfer of control of the FCC license from the
Licensed Incumbent to the Company, because such a transfer without FCC consent
would violate the FCC's rules.
MUTUAL EXCLUSIVITY. Pursuant to its arrangements with Incumbents, the
Company will, in most cases, apply to the FCC for new Part 101 licenses to
operate in the 6 GHz band. As each such Part 101 license is granted by the FCC
with respect to the frequencies to be used between two specific points as
designated by specific latitude and longitude coordinates, and as Incumbents
already own the infrastructure and sites that comprise each such licensed point
along the network, the Company expects to be the first and only entity to apply
for these licenses at or near the specific locations and in the frequencies to
be designated by the Company, and hence to have licensing priority under the
FCC's procedures. There can be no assurance that other entities will not seek
licenses to operate in the same portion of the frequency spectrum as the
Company, in locations geographically close to those designated by the Company.
The Company believes, however, that such situations are not likely to create
mutual exclusivity for FCC purposes between the Company and any such other
entity, because (i) the FCC's current licensing is on a "first come, first
served" basis, (ii) it will be difficult for any such other entity to obtain
tower site locations in close enough geographical proximity to the Company's
proposed tower sites (on land typically controlled by the Incumbent) so as to
cause a mutually exclusive situation to arise and (iii) the FCC imposes
construction and channel loading requirements with respect to each frequency so
licensed to prevent warehousing of spectrum which would force any such potential
mutual exclusive licensee to invest significant capital in the form of sites,
equipment and actual traffic using such licensed frequencies in order to
maintain its license.
FREQUENCY COORDINATION. Prior to applying to the FCC for authorization to
use portions of the 6 GHz band, the Company must coordinate its use of the
frequency with any existing licensees, permittees, and applicants in the same
area whose facilities could be subject to interference as a result of the
Company's proposed use of the spectrum; in applying for a license the applicant
must certify that such coordination has taken place. The Company must circulate
coordination notifications and allow 30 days for a response from other potential
applicants or licensees expressing concerns about interference; in the event of
such a response, the parties must take all reasonable steps to resolve the
potential interference. If there are no responses to the notification, the
desired frequency will effectively be "reserved" for the Company's use, and the
Company will be required to file an application for a license to use the
frequency within six months of the notification, or to file a renewal
notification. As a Part 101 licensee, the Company may itself receive
coordination notifications from would-be applicants, and would be required to
take reasonable steps to solve any interference problems.
FCC LICENSE REQUIREMENTS. As part of the requirements of obtaining a Part
101 license, the FCC will require the Company to demonstrate the site owner's
compliance with the FAA reporting and notification requirements with respect to
the construction, installation, location, lighting and painting of transmitter
towers and antennas, such as those to be used by the Company in the operation of
its network. In certain instances, the Company may be required to notify the FAA
of proposed construction of facilities (E.G., more than 200 feet above ground
level), so as to allow the FAA to determine whether the proposed construction
poses a hazard to aviation safety. The FCC requires compliance with the FAA's
notification requirement; where such FAA notification is required, the FCC
requires a "no hazard" determination from the FAA before granting a license with
respect to a particular facility. The FAA has a substantial backlog of requests
for "no hazard" determinations, and this may affect in certain situations the
timing of the FCC's issuance of a license to the Company. If the FAA finds that
a particular structure will pose a hazard, the Company will have to reduce its
size or location, or take other steps to bring the structure into compliance
with the FAA's guidelines.
In addition, in order to obtain the Part 101 licenses necessary for the
operation of its network, the Company, and in some cases Licensed Incumbents,
will have to file applications with the FCC for such licenses and demonstrate
technical and legal qualification to be an FCC licensee. The licensing
procedures
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for Part 101 applicants have recently been streamlined by the FCC. For example,
Part 101 applicants may begin and complete the construction of facilities to be
licensed, at their own risk, even before filing applications. An applicant is
also allowed to operate such facilities at the time of filing an application or
while its formal license application is being processed, provided the applicant
certifies that, among other things: (i) it has successfully completed the
frequency coordination process; (ii) the operations will have no significant
environmental impact; (iii) no rule waiver is being requested; and (iv) no FAA
or FCC notification is required.
The Company or a Licensed Incumbent must obtain prior FCC authorization in
order to make significant modifications to existing microwave facilities
(although certain modifications can be made without prior approval or
notification). Additionally, the Company or a Licensed Incumbent is required to
provide notice to the FCC before transferring control of an FCC license to a
third party.
Under the rules of the FCC, the Company will be required to have each
licensed Part 101 facility constructed and "in operation" (I.E., capable of
providing service), and to complete each authorized modification to an existing
facility, within 18 months of the grant of the necessary license or approval.
Each license also contains a separate deadline for the completion of
construction of the underlying facility. A licensee may obtain a six-month
extension of these periods upon a showing of good cause, and such extensions are
routinely granted. In addition, the FCC has eliminated the requirement that Part
101 licensees certify to the FCC the completion of construction of licensed
facilities. The FCC also requires that a certain portion of the available
channels on Part 101 digital systems be loaded with traffic within 30 months of
licensing.
Failure to meet the FCC's timetable for construction or operation, or to
obtain an extension of said timetable, will automatically cancel the underlying
license or approval, to the detriment of the Company's ability to execute its
business plan. A license or authorization will also lapse if, after construction
and operation, the facility is removed or altered to render it non-operational
for a period of 30 days or more. Any authorized Part 101 station that fails to
transmit operational traffic during any twelve consecutive months after
construction is complete is considered permanently discontinued under the FCC's
files, and its underlying license is forfeited. A Part 101 license may also
lapse for failure to comply with the FCC's channel loading requirements.
There are several additional regulatory requirements with which the Company
will have to comply as a Part 101 licensee. For example, the Company must allow
the FCC, upon its request, to gain access to the licensed facilities in order to
conduct inspections. Additionally, licensees are required to give priority on
their systems to the transmission of public safety messages. Licensees are also
required to notify the FCC of any disruptions in the service offered over the
licensed facilities.
FCC LICENSE RENEWAL. Part 101 licenses obtained by the Company or an
Incumbent will be issued for a term of ten years, after which such licenses will
have to be renewed by the filing of applications with the FCC. Renewals of such
licenses are generally routinely granted for companies that have complied with
all material aspects of the FCC's rules and regulations.
PROVISION OF COMMON AND PRIVATE CARRIER SERVICES. The Company's and
Licensed Incumbents' Part 101 licenses will allow the Company to sell the excess
capacity on its network to the customers targeted under the Company's business
plan. Although the Part 101 licenses that the Company and Licensed Incumbents
will hold are designated for "common carriers," under the FCC's rules, a Part
101 licensee may provide both common carriage and private carriage over Part 101
facilities.
The Company's services will be offered on a private carrier basis, I.E., to
selected companies on an individualized basis, subject to separately negotiated
contracts. For example, the capacity to be provided to Incumbents for their own
use will be provided on a private carrier basis. Similarly, the Company will
offer services to common carriers on an individualized basis as a 'carrier's
carrier.' The Company's private carrier services will be specifically tailored
to meet the unique requirements of each customer, and will not
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subject the Company to common carrier regulation, such as tariff filing
requirements, with respect to those private carriage offerings.
Although the Company does not currently plan on providing services on a
common carrier basis the Company may, in the future, provide services on such
basis, I.E., the services would be offered indiscriminately to the public, thus
making the Company a common carrier with respect to those services. Being a
common carrier with respect to the services would subject the Company to certain
regulatory requirements and restrictions. For example, with respect to the
Company's common carrier offerings, the Company would be required to offer them
to the public indiscriminately, without unreasonable discrimination in its
charges, practices, classifications, regulations, facilities, or services. In
addition, the Company would be required to file tariffs with the FCC with
respect to the rates and terms of its common carrier interexchange offerings;
this tariffing requirement may be modified or eliminated in the future. The
tariffing requirement is non-burdensome; the FCC has adopted streamlined
tariffing procedures for nondominant common carriers, allowing tariffs to become
effective within one day of filing, and presuming such tariffs to be just and
reasonable unless otherwise demonstrated.
FOREIGN OWNERSHIP. As the licensee of facilities designated for common
carriage, the Company will be subject to Section 310(b)(4) of the Communications
Act, which by its terms restricts the holding company of an FCC common carrier
licensee (the Company is such a holding company, because it expects to hold all
FCC licensees indirectly, through subsidiaries) to a maximum of 25% foreign
ownership and/or voting control. In addition, if any Incumbent elects to be an
Incumbent Licensee on the portion of the Company's network relating to its
system, such Incumbent Licensee would also be subject to such foreign ownership
restrictions. The FCC has determined that it will allow a higher level (up to
100%) on a blanket basis with respect to all common carrier licensees, but only
for foreign ownership by citizens of, or companies organized under the laws of,
WTO member countries.
The FCC continues to apply the 25% foreign ownership limitation with respect
to citizens or corporations of non-WTO nations. Although the Company is
presently within the 25% foreign ownership limitation, future financings may
cause the Company to exceed this limitation, in which case the Company would
have to analyze its foreign ownership with respect to the WTO status of the
nations with which the Company's foreign owners are associated. Also, in the
event that a Licensed Incumbent were to choose to hold the relevant Part 101
licenses itself, and not through a holding company, that Licensed Incumbent
would be subject to Section 310(b)(3) of the Communications Act, which limits
direct foreign ownership of FCC licenses to 20%. The FCC does not have
discretion to waive this limitation.
UNIVERSAL SERVICE. The FCC's universal service rules require certain
providers of interstate telecommunications services to make contributions to a
fund based on their telecommunications revenues from end-users. Revenues
received by a provider from carriers that are reasonably expected to make
contributions to the fund based on their own end-user revenues need not be
included in such provider's contribution base. The proceeds in the universal
service fund are to be distributed among eligible schools and libraries, certain
carriers delivering telecommunications services to low-income consumers,
communication carriers in high cost-of-service areas and other entities
designated as eligible by a state commission.
Because the vast majority of the Company's telecommunications services will
be sold to other carriers that will themselves be contributors to the fund, the
Company does not expect to be assessed fund contributions with respect to most
of the telecommunications revenues that it receives. Such contributions will be
assessed solely with respect to revenues received by the Company from its
limited number of actual end-users, such as Incumbents, ISPs and other
non-carrier end-users, and from other carriers that are not required to
contribute to the fund because they fall under one of the contribution
exemptions established by the FCC (E.G., non-profit schools and government
agencies, and carriers whose total annual contribution would be less than
$10,000). The Company expects that, to the extent it is required to contribute
to the fund, it will be able to recover the amounts contributed through
appropriate charges to end-users and others.
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To the extent that the Company provides capacity to carriers and other
entities eligible for universal service fund support, the Company may be able to
obtain, either directly or indirectly, some funding from the universal service
fund. The Company has no present intention to rely on any such funding, and has
not included any such funding in its financial projections.
STATE AND LOCAL REGULATION
State and local governments have regulatory authority over the provision of
intrastate communication services, including the approval of those seeking to
provide certain intrastate services. Such state and local regulatory
requirements may also include registering with regulatory authorities, paying
fees, acquiring permits, filing tariffs and notifying or obtaining approval from
regulatory authorities with respect to certain transfers or issuances of the
Company's capital stock. The Company expects that most of its services will be
provided on an interstate basis; however, in those instances where the Company
will provide intrastate services, it does not expect state regulatory
requirements to be burdensome.
The siting and construction of telecommunications equipment may be subject
to state and local zoning, land use, and other regulations. The types and timing
of approvals required to install transmitter towers, antennae and other
equipment and to conduct other aspects of the Company's business will likely
vary among local governments. Under its arrangements with Incumbents, it will be
the primary responsibility of Incumbents to obtain all necessary state and local
authorizations with respect to towers and other equipment for the Company's
network. Because the Company intends to rely heavily on existing towers and
facilities, however, the Company does not expect that Incumbents or other owners
of telecommunications assets will generally encounter burdensome state zoning or
tower siting issues.
INTELLECTUAL PROPERTY
The Company uses the name "Pathnet" as its primary business name and service
mark and has registered that name with the United States Patent and Trademark
Office. On February 26, 1998, the Company filed an application to register its
service mark "A NETWORK OF OPPORTUNITIES" in the United States Patent and
Trademark Office for communications services, namely establishing and operating
a network through the use of fiber optic and high capacity digital radio
equipment. First action upon the application is expected in the third quarter of
1998. The Company reasonably believes that the application will mature to
registration, but there can be no assurance that such registration will actually
be issued.
The Company relies upon a combination of licenses, confidentiality
agreements and other contractual covenants, to establish and protect its
technology and other intellectual property rights. The Company currently has no
patents or patent applications pending. There can be no assurance that the steps
taken by the Company will be adequate to prevent misappropriation of its
technology or other intellectual property. In addition, the Company depends on
the use of intellectual property of others, including the hardware and software
used to construct, operate and maintain its network. Although the Company
believes that its business as currently conducted does not infringe on the valid
proprietary rights of others, there can be no assurance that third parties will
not assert infringement claims against the Company or that, in the event of an
unfavorable ruling on such claim, a license or similar agreement to utilize
technology relied upon by the Company in the conduct of its business will be
available to the Company on reasonable terms. The Company's equipment supply
contracts with NEC and Andrew provide for indemnification by the supplier to the
Company for intellectual property infringement claims regarding the suppliers'
equipment. In the case of the agreement with Andrew, however, such
indemnification is limited to the purchase price paid for the particular
equipment.
53
<PAGE>
FACILITIES, REAL PROPERTY AND LEASES
As part of its network, the Company holds leasehold interests or licenses in
the land, towers, shelters and other facilities located at each Incumbent's
sites and will have leasehold and other real estate interests pursuant to its
agreements with independent tower companies and other owners of
telecommunications assets. See "--Agreements with Incumbents and Other Owners of
Telecommunications Assets--Fixed Point Microwave Services Agreements" and
"--American Tower Term Sheet." The Company expects to lease additional
facilities from Incumbents and other owners of telecommunications assets in
connection with the planned expansion of its digital network.
The Company leases its corporate headquarters space in Washington, D.C. from
6715 Kenilworth Avenue General Partnership, a general partnership of which David
Schaeffer, Chairman of the Company, is General Partner (the "Kenilworth
Partnership"), pursuant to a Lease Agreement between the Company and the
Kenilworth Partnership, dated as of August 9, 1997 (the "Headquarters Lease").
The Headquarters Lease expires on August 31, 1998 and can be renewed at the
option of the Company for two additional one-year periods on the same terms and
conditions. See "Certain Relationships and Related Transactions--Lease from the
Kenilworth Partnership." The Company also leases office space in Richardson,
Texas; Lewiston, Texas; and Independence, Kansas pursuant to leases that expire
in 2000, 2001 and 2000, respectively.
The Company believes that all of its properties are well maintained.
EMPLOYEES
As of May 4, 1998, the Company had 83 full time employees, none of whom was
represented by a union or covered by a collective bargaining agreement. The
Company believes that its relationship with its employees is good. In connection
with the construction and maintenance of its network and the conduct of its
other operations, the Company uses third party contractors, some of whose
employees may be represented by unions or covered by collective bargaining
agreements.
LEGAL PROCEEDINGS
Other than licensing and other regulatory proceedings described under "Risk
Factors--Regulation" and "--Regulation," the Company is not currently a party to
any legal proceedings, which, individually or in the aggregate, the Company
believes will have a material adverse effect on the Company's financial
condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth certain information concerning the directors and
executive officers of the Company. Directors of the Company are elected at the
annual meeting of stockholders. Executive officers of the Company generally are
appointed at the Board of Directors' first meeting after each annual meeting of
stockholders.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
David Schaeffer (1).................................. 42 Chairman of the Board, Treasurer and Director
Richard A. Jalkut (1)................................ 53 President, Chief Executive Officer and Director
Kevin J. Bennis...................................... 44 Executive Vice President, and President,
Communications Services Division
William R. Smedberg, V............................... 37 Vice President, Finance and Corporate Development
Michael A. Lubin..................................... 49 Vice President, General Counsel and Secretary
Michael L. Brooks.................................... 54 Vice President, Network Development
Peter J. Barris (2).................................. 46 Director
Kevin J. Maroni (2)(3)............................... 35 Director
Patrick J. Kerins (3)................................ 42 Director
Richard K. Prins (2)(3).............................. 40 Director
Stephen A. Reinstadtler.............................. 31 Director
</TABLE>
- ------------------------
(1) Member of Contract Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
Set forth below is the background of each of the Company's executive
officers and directors.
DAVID SCHAEFFER founded the Company in August 1995, has served as Chairman
of the Board, Treasurer and director of the Company since August 1997, and
served as President and Chief Executive Officer of the Company from 1995 until
August 1997. From 1986 to the present, Mr. Schaeffer has also served as
President and Chief Executive Officer of Empire Leasing, Inc., a specialized
mobile radio licensee and operator. In addition, Mr. Schaeffer founded and,
since 1992, has served as President and Chief Executive Officer of Mercury
Message Paging, Inc., a paging company which operates networks in Washington,
D.C., Baltimore and Philadelphia.
RICHARD A. JALKUT has served as President and Chief Executive Officer of the
Company since August 1997. Mr. Jalkut has over 30 years of telecommunications
experience. From 1995 to August 1997, he served as President and Group Executive
of NYNEX Telecommunications Group, where he was responsible for all activities
of the NYNEX Telecommunications Group, an organization with over 60,000
employees. Prior to that, Mr. Jalkut served as President and Chief Executive
Officer of New York Telephone Co. Inc., the predecessor company to NYNEX
Telecommunications Group, from 1991 until 1995. Mr. Jalkut currently serves as a
member of the Board of Directors of Marine Midland Bank, a commercial bank, Ikon
Office Solutions, Inc., a company engaged in wholesale and retail office
equipment, and Home Wireless Networks, a start-up company developing a wireless
product for home and business premises.
KEVIN J. BENNIS has served as Executive Vice President, serving as President
of the Company's Communications Services Division since February 1998. From 1996
until he joined the Company, Mr. Bennis served as President of Frontier
Communications, a long-distance communications company, where he was responsible
for the sales, marketing and customer service activities of 3,500 employees.
Prior
55
<PAGE>
to that, Mr. Bennis served in various positions for 21 years at MCI, including
as President of MCI's Integrated Client Services Division from 1995 to 1996, as
President and Chief Operating Officer of Avantel Telecommunications, MCI's joint
venture with Banamex in Mexico, from 1994 to 1995, and as Senior Vice President
of Marketing from 1992 to 1994.
WILLIAM R. SMEDBERG, V joined the Company initially as a consultant in 1996,
and has assumed the position of Vice President, Finance and Corporate
Development since January 1997. Prior to joining the Company, Mr. Smedberg
served in various financial and planning positions at the James River
Corporation of Virginia, Inc. ("James River") for nine years. In particular, he
served as Director, Strategic Planning and Corporate Development for Jamont, a
European consumer products joint venture among Nokia Oy, Montedison S.p.A. and
James River, from 1991 to 1996, where he was responsible for Jamont's corporate
finance, strategic planning and corporate development. Prior to that, Mr.
Smedberg worked in the defense industry as a consultant and engineer for TRW,
Inc.
MICHAEL A. LUBIN has served as Vice President, General Counsel and Secretary
of the Company since its inception in August 1995. Prior to joining the Company,
Mr. Lubin was an attorney-at-law at Michael A. Lubin, P.C., a law firm which he
founded in 1985. Mr. Lubin has experience in telecommunications matters,
copyright and intellectual property matters, corporate and commercial law,
construction claims adjudication and trial work. Earlier he served as a Federal
prosecutor with the Fraud Section, Criminal Division, United States Department
of Justice.
MICHAEL L. BROOKS has served as Vice President, Network Development of the
Company since June 1996. Mr. Brooks has extensive experience in voice and data
communications. From 1992 through May 1996, Mr. Brooks served as Vice President,
Engineering for Ikelyn, Inc. Ikelyn provided system design and technical support
for telecommunication systems and support facilities. From 1982 to 1992, Mr.
Brooks worked for Qwest Microwave Communications, a predecessor of Qwest, where
he directed the initial construction of a 3,500-mile digital network.
PETER J. BARRIS has been a director of the Company since August 1995. Since
1992, Mr. Barris has been a partner, and, in 1994, was appointed as General
Partner, of New Enterprise Associates Venture Capital, a firm that manages
venture capital investments.
KEVIN J. MARONI has been a director of the Company since August 1995. Since
1994, Mr. Maroni has been a principal, and, in 1995, was appointed as a General
Partner of Spectrum Equity Investors, L.P., which manages private equity funds
focused on growth capital for telecommunications companies. From 1992 to 1994,
he served as Manager, Finance and Development at Time Warner Telecommunications,
where he was involved in corporate development projects. Mr. Maroni also served
as a consultant at Harvard Management Company from 1990 to 1992, where he worked
in the private equity group.
PATRICK J. KERINS has been a director of the Company since July 1997. Mr.
Kerins has served as Managing Director of Grotech Capital Group, which is
engaged in venture capital and other private equity investments, since March
1997. From 1987 to March 1997, he worked in the investment banking division of
Alex. Brown & Sons, Incorporated, including serving as Managing Director
beginning in January 1994. Mr. Kerins is also a member of the Board of Directors
of CDnow, Inc., an online retailer of compact discs and other music-related
products which is quoted on the Nasdaq National Market.
RICHARD K. PRINS has been a director of the Company since 1995. Since 1996,
Mr. Prins has served as Senior Vice President of Ferris Baker Watts
Incorporated, where he heads the technology and communication practice in the
investment banking division. From 1988 to 1996, he was Senior Vice President and
Managing Director in the investment banking division of Crestar Financial
Corporation. Mr. Prins is currently a director of Startec Global Communications
Corporation, a communications company which is quoted on the Nasdaq National
Market.
STEPHEN A. REINSTADTLER has been a director of the Company since October
1997. Mr. Reinstadtler has served as Vice President and Director at Toronto
Dominion Capital (U.S.A.) Inc., where he has been
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<PAGE>
involved in private equity and mezzanine debt investments, since August 1995.
From April 1994 to July 1995, he served as Manager at The Toronto-Dominion Bank,
where he was involved in commercial lending activities to the telecommunications
industry. From August 1992 to April 1994, Mr. Reinstadtler also served as
Associate at Kansallis-Osake-Pankki, where he was involved in commercial lending
activities to the telecommunications industry.
BOARD OF DIRECTORS
The Company's Board of Directors consists of seven directors. Subject to the
restrictions set forth in the Company's Certificate of Incorporation and the
Bylaws, directors and executive officers of the Company are elected to serve
until they resign or are removed, or are otherwise disqualified to serve, or
until their successors are elected and qualified. The Certificate of
Incorporation and the Bylaws provide for the Board of Directors to be divided
into three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year. See
"Description of Capital Stock."
COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors currently has
three committees, the Audit Committee, the Compensation Committee and the
Contract Committee. The Audit Committee has been established to, among other
things, make recommendations to the Board of Directors with respect to the
engagement or discharge of independent auditors, review with the independent
auditors the plan and results of the auditing engagement, and review the
Company's system of internal accounting controls. The current members of the
Audit Committee are Messrs. Maroni, Kerins and Prins.
The Compensation Committee has been established to, among other things,
administer the Company's stock incentive plans, review and make recommendations
to the Board of Directors concerning the compensation of executive officers, and
consider existing and proposed employment agreements between the Company and any
executive officer of the Company. The current members of the Compensation
Committee are Messrs. Maroni, Prins and Barris.
The Contract Committee reviews and evaluates each FPM Agreement that the
Company proposes to enter into and has the authority to authorize the Company to
execute and deliver any FPM Agreement so long as the terms and conditions of
such FPM Agreement do not differ substantially from the FPM Agreements
previously authorized and approved by the full Board of Directors. The current
members of the Contract Committee are Messrs. Schaeffer and Jalkut.
DIRECTOR COMPENSATION. Mr. Prins, a director of the Company, was granted
options to purchase 121,950 shares of Common Stock under the Company's 1995 Plan
(as defined herein) in 1995. See "Security Ownership of Certain Beneficial
Owners and Management." Directors of the Company are currently not reimbursed
for their out-of-pocket expenses incurred in connection with attendance at
meetings of, and other activities relating to serving on, the Board of Directors
and any committees thereof. The Company may consider additional compensation
arrangements for its directors from time to time.
LIMITATION OF LIABILITY AND INDEMNIFICATION. The Restated Certificate of
Incorporation of the Company limits, to the fullest extent permitted by law, the
liability of directors to the Company and its stockholders for monetary damages
for breach of directors' fiduciary duty. This provision is intended to afford
the Company's directors benefit of the Delaware General Corporation Law (the
"DGCL"), which provides that directors of Delaware corporations may be relieved
of monetary liability for breach of their fiduciary duty of care, except under
certain circumstances, including any breach of a director's duty of loyalty,
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, or any transaction from which the director derived any
improper personal benefit. In addition, the Certificate of Incorporation of the
Company provides that the Company will indemnify its directors and officers to
the fullest extent authorized or permitted by law.
57
<PAGE>
COMPENSATION COMMITTEE AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. Maroni, Prins and
Barris, none of whom is currently an employee of the Company. During the fiscal
year ended December 31, 1997, no executive officer of the Company served as a
member of a compensation committee or as a director of any entity of which any
of the Company's directors serves as an executive officer.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the cash and
non-cash compensation during the fiscal year ended December 31, 1997 earned by
or awarded to the Chief Executive Officer and the five other most highly
compensated executive officers of the Company whose combined salary and bonus
exceeded $100,000 during the fiscal year ended December 31, 1997 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------------
--------------------- SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS GRANTED COMPENSATION
- ----------------------------------------------- ---------- --------- ------------------- -------------
<S> <C> <C> <C> <C>
Richard A. Jalkut.............................. $ 166,154(1) $ -- 1,480,610 $ 9,857(2)
President and Chief Executive Officer
David Schaeffer................................ 216,923(3) -- 742,090 --
Chairman of the Board and Treasurer
Michael A. Lubin............................... 136,115 -- -- --
Vice President, General Counsel and Secretary
David J. Daigle................................ 103,077 -- -- --
Vice President, Sales and Marketing
Michael L. Brooks.............................. 103,077 -- -- --
Vice President, Network Operations
William R. Smedberg, V......................... 103,385 -- -- --
Vice President, Finance and Corporate
Development
</TABLE>
- ------------------------
(1) Mr. Jalkut commenced employment with the Company in August 1997, and is
compensated at a rate of $400,000 per annum.
(2) Includes amounts reimbursed by the Company pursuant to the Jalkut Employment
Agreement (as defined herein) for expenses, including certain travel
expenses.
(3) Mr. Schaeffer's salary increased to $300,000 per annum from $150,000 per
annum in August 1997.
58
<PAGE>
OPTION GRANTS AND EXERCISES
The following table sets forth the aggregate number of stock options granted
to each of the Named Executive Officers during the fiscal year ended December
31, 1997. Stock options are exercisable for Common Stock of the Company. As of
December 31, 1997, no stock options had been exercised by any Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATE OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE THE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- -------------------------------------- ----------- --------------- ----------- ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Jalkut (2)................. 1,480,610(3) 66.6% $ 0.66 Aug. 4, 2007 $ -- $ --
David Schaeffer (3)................... 742,090(3) 33.4 2.13 Oct. 31, 2007 -- --
Michael A. Lubin...................... -- -- -- -- -- --
David J. Daigle....................... -- -- -- -- -- --
Michael L. Brooks..................... -- -- -- -- -- --
William R. Smedberg, V................ -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The information disclosed assumes, solely for purposes of demonstrating
potential realizable value of the stock options, that the fair market value
per share of Common Stock was $0.02 per share as of December 31, 1997
(calculated on a book value basis) and increases at the rate indicated,
effective as of December 31 of each subsequent year during the option term.
See Note 6 to the financial statements included elsewhere in this
Prospectus.
(2) On August 4, 1997, the Company granted stock options to purchase an
aggregate of 1,480,610 shares of Common Stock to Mr. Jalkut. Such stock
options will vest and become exercisable upon the consummation of the
Offering.
(3) On October 31, 1997, the Company granted stock options to purchase an
aggregate of 742,090 shares of Common Stock to Mr. Schaeffer. Such stock
options will vest and become exercisable upon the consummation of the
Offering.
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<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
None of the Named Executive Officers have exercised any of their options
during the fiscal year ended December 31, 1997. The following table sets forth
the aggregate number of options held by each of the Named Executive Officers and
the fiscal year-end value of the unexercised options.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY
DECEMBER 31, 1997 OPTIONS AT DECEMBER 31, 1997 (1)
--------------------------- ----------------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------ ------------ ------------- ---------------- ----------------
Richard A. Jalkut......................... -- 1,480,610 $ -- $ --
David Schaeffer........................... -- 742,090 -- --
Michael A. Lubin.......................... 203,250 40,655 -- --
David J. Daigle........................... 304,880 60,975 -- --
Michael L. Brooks......................... -- -- -- --
William R. Smedberg, V.................... -- -- -- --
</TABLE>
- ------------------------
(1) The information disclosed assumes, solely for purposes of demonstrating
potential value of the stock options, that the fair market value per share
of Common Stock was $0.02 per share as of December 31, 1997 (calculated on a
book value basis). See Note 6 to financial statements included elsewhere in
this prospectus. Such fair market value as of December 31, 1997 is
substantially lower than the price to the public in the Offering.
1995 STOCK OPTION PLAN
The Company has adopted the Pathnet, Inc. 1995 Stock Option Plan (the "1995
Plan") which originally authorized the grant of stock options (including
incentive stock options and nonqualified stock options) to participants with
respect to a maximum of 2,100,945 shares of Common Stock ("Shares"). The 1995
Plan has been frozen so that no further awards will be made under the 1995 Plan
in the future. The following is a summary of the material features of the 1995
Plan. As of the date hereof, options to acquire an aggregate of 853,655 Shares
have been authorized and are outstanding under the 1995 Plan, subject to
adjustment as described below.
PURPOSES
The purposes of the 1995 Plan are to encourage and enable employees of the
Company and its subsidiaries to acquire an interest in the Company through the
granting of stock options and to encourage such individuals to acquire or
increase their ownership of Common Stock in order to attract and retain the
services of persons of exceptional competence and to furnish an added incentive
for them to increase their efforts on behalf of the Company.
ADMINISTRATION/ELIGIBLE PARTICIPANTS
The 1995 Plan is administered by the Board of Directors of the Company,
acting through the Compensation Committee; PROVIDED that the Board is empowered
to appoint from its members a committee of two or more persons to exercise the
powers of the Board in granting stock options and taking any other action under
the 1995 Plan (the Board, or such committee, as applicable being referred to as
the "1995 Plan Committee"). Any actions taken by the 1995 Plan Committee are
final and conclusive for purposes of the 1995 Plan.
60
<PAGE>
Stock options may be awarded under the 1995 Plan to any employees of the
Company or its subsidiaries and any non-employee directors of the Company,
consultants to the Company and to such other persons as the Board may select
from time to time.
NUMBER OF SHARES AUTHORIZED UNDER THE 1995 PLAN
As of the date hereof, the 1995 Plan authorizes the grant of awards to
participants with respect to a maximum of 853,655 Shares, subject to adjustment
to avoid dilution or enlargement of intended benefits in the event of certain
significant corporate events, which awards may be made in the form of (i)
nonqualified stock options and (ii) stock options intended to qualify as
incentive stock options under section 422 of the Internal Revenue Code of 1986,
as amended. As described above, the 1995 Plan has been frozen so that no further
awards will be made under the 1995 Plan in the future.
TERMS AND CONDITIONS OF OPTIONS UNDER THE 1995 PLAN
Option grants made under the 1995 Plan are subject to such terms, including
exercise price and conditions and timing of exercise, to the extent applicable,
as may be determined by the 1995 Plan Committee and specified in the applicable
award agreement or thereafter; PROVIDED that stock options intended to qualify
as incentive stock options will be subject to terms and conditions that comply
with such rules as may be prescribed by section 422 of the Code.
TRANSFERABILITY
Options granted under the 1995 Plan will not be transferable by an optionee,
other than by will or laws of descent and distribution, and are exercisable
during the optionee's lifetime only by the optionee.
AMENDMENT TO 1995 PLAN
The Board may discontinue the 1995 Plan or amend the 1995 Plan at any time,
subject to any required regulatory approval and the limitation that no amendment
shall be effective unless approved by the stockholders of the Company. Any such
termination or amendment must be made in accordance with applicable law and
regulations at an annual or special meeting held within twelve months before or
after the date of adoption of such amendment, if such amendment will (i)
increase the number of Shares as to which options may be granted under the 1995
Plan, (ii) change in substance the participants who are eligible to participate
in the 1995 Plan or (iii) otherwise materially increase the benefits accruing to
participants under the 1995 Plan. No option granted under the 1995 Plan may be
altered or impaired by any amendment to the 1995 Plan, except with the consent
of the optionee.
1997 STOCK INCENTIVE PLAN
The Company has adopted the Pathnet, Inc. 1997 Stock Incentive Plan (the
"1997 Plan") which authorizes the grant of awards to participants with respect
to a maximum of 5,768,335 Shares, subject to adjustment as described below. As
of May 4, 1998, options to acquire an aggregate of 3,404,875 Shares have been
granted under the 1997 Plan.
PURPOSES
The purposes of the 1997 Plan are to promote the interests of the Company
and its stockholders by (i) attracting and retaining exceptional officers and
other key employees, consultants and directors of the Company and its
subsidiaries; (ii) motivating such individuals by means of performance-related
incentives to achieve performance goals; and (iii) enabling such individuals to
participate in the long-term growth and financial success of the Company.
61
<PAGE>
ADMINISTRATION/ELIGIBLE PARTICIPANTS
The 1997 Plan is administered by a committee (the "1997 Plan Committee")
which shall either be the Board or a committee of two or more members of the
Board designated by the Board to administer the 1997 Plan. Each such director is
expected, but not required, to be a "Non-Employee Director" (within the meaning
of Rule 16b-3 promulgated under the Exchange Act) and an "outside director"
(within the meaning of Internal Revenue Code section 162(m)) to the extent that
Rule 16b-3 and section 162(m), respectively, are applicable to the Company and
the Plan. If a 1997 Plan Committee member shall fail to qualify as a
Non-Employee Director or outside director, such failure will not invalidate any
otherwise valid award made under the 1997 Plan.
Any officer or other employee, director or consultant to the Company of any
of its subsidiaries shall be eligible to be designated as a participant under
the 1997 Plan.
The 1997 Plan Committee has the authority to determine the participants to
whom awards shall be granted under the 1997 Plan. Such committee may delegate to
one or more officers of the Company the authority to grant awards to
participants who are not officers or directors of the Company subject to section
16 of the Exchange Act or "covered employees" within the meaning of section
162(m) of the Code.
NUMBER OF SHARES AUTHORIZED UNDER THE 1997 PLAN
The 1997 Plan authorizes the grant of awards to participants with respect to
a maximum of 5,768,335 Shares, subject to adjustment to avoid dilution or
enlargement of intended benefits in the event of certain significant corporate
events. Such awards may be made in the form of (i) nonqualified stock options;
(ii) stock options intended to qualify as incentive stock options under section
422 of the Internal Revenue Code of 1986, as amended; (iii) stock appreciation
rights; (iv) restricted stock and/or restricted stock units; (v) performance
awards; and (vi) other stock based awards; PROVIDED that the maximum number of
Shares with respect to which stock options and stock appreciation rights may be
granted to any participant in the 1997 Plan in any calendar year may not exceed
2,000,000 and the maximum number of Shares which may be paid to a participant in
the 1997 Plan in connection with the settlement of any award(s) designated as a
performance compensation award under the 1997 Plan in respect of a single
performance period shall be 2,000,000 or, in the event such performance
compensation award is paid in cash, the equivalent cash value thereof. If, after
the effective date of the 1997 Plan, any Shares covered by an award granted
under the 1997 Plan, or to which such an award relates, are forfeited, or if an
award has expired, terminated or been canceled for any reason whatsoever (other
than by reason of exercise or vesting), then the Shares covered by such award
shall again be, or shall become, Shares with respect to which awards may be
granted under the 1997 Plan.
SUBSTITUTE AWARDS
Awards may be made under the 1997 Plan in assumption of, or in substitution
for, outstanding awards previously granted by the Company or its affiliates or a
company acquired by the Company or with which the Company combines. The number
of Shares underlying any such assumed or substitute awards shall be counted
against the aggregate number of Shares which are available for grant under
awards made under the 1997 Plan.
TERMS AND CONDITIONS OF AWARDS UNDER THE 1997 PLAN
Awards made under the plan shall be subject to such terms, including
exercise price and a conditions and timing of exercise, to the extent
applicable, as may be determined by the 1997 Plan Committee and specified in the
applicable award agreement or thereafter; PROVIDED that stock options that are
intended to qualify as incentive stock options will be subject to terms and
conditions that comply with such rules as may be prescribed by section 422 of
the Code. Payment in respect of the exercise of an option granted under the 1997
Plan may be made in cash, or its equivalent, or (i) by exchanging Shares owned
by the optionee
62
<PAGE>
(which are not the subject of any pledge or other security interest and which
have been owned by such optionee for at least six months) or (ii) subject to
such rules as may be established by the 1997 Plan Committee, through delivery of
irrevocable instructions to a broker to sell the shares being acquired upon
exercise of the option and to deliver promptly to the Company an amount equal to
the aggregate exercise price, or by a combination of the foregoing, PROVIDED
that the combined value of all cash and cash equivalents and the fair market
value of such Shares so tendered to the Company as of the date of such tender is
at least equal to the aggregate exercise price of the option.
In addition to the foregoing, the 1997 Plan Committee shall have the
discretion to designate any award as a performance compensation award. While
awards in the form of stock options and stock appreciation rights are intended
to qualify as "performance-based compensation" under section 162(m) of the Code
provided that the exercise price or grant price, as the case may be, is
established by the Committee to be equal to the fair market value per Share as
of the date of grant, this form of award enables the 1997 Plan Committee to
treat certain other awards under the 1997 Plan as "performance-based
compensation" and thus preserve deductibility by the Company for Federal income
tax purposes of such awards which are made to individuals who are "covered
employees" as defined in section 162(m).
Each performance compensation award shall be payable only upon achievement
over a specified performance period of a duration of at least one year of a
pre-established objective performance goal established by the 1997 Plan
Committee for such period. The 1997 Plan Committee may designate one or more
performance criteria for purposes of establishing a performance goal with
respect to Performance Compensation Awards made under the 1997 Plan. The
performance criteria that will be used to establish such performance goals will
be based on attainment of specific levels of performance of the Company (or
subsidiary, affiliate, division or operational unit of the Company) and will be
limited to the following: Return on net assets, return on stockholders' equity,
return on assets, return on capital, stockholder returns, profit margin,
earnings per Share, net earnings, operating earnings, price per Share and sales
or market share.
With regard to a particular performance period, the 1997 Plan Committee
shall have the discretion, subject to the 1997 Plan's terms, to select the
length of the performance period, the type(s) of performance compensation
award(s) to be issued, the performance goals that will be used to measure
performance for the period and the performance formula that will be used to
determine what portion, if any, of the performance compensation award has been
earned for the period. Such discretion shall be exercised by the 1997 Plan
Committee in writing no later than 90 days after the commencement of the
performance period and performance for the period shall be measured and
certified by the 1997 Plan Committee upon the period's close. In determining
entitlement to payment in respect of a performance compensation award, the 1997
Plan Committee may through use of negative discretion reduce or eliminate such
award, provided such discretion is permitted under section 162(m) of the Code.
TRANSFERABILITY
Each award, and each right under any award, shall be exercisable only by the
participant during the participant's lifetime, or, if permissible under
applicable law, by the participant's guardian or legal representative. Except as
otherwise provided in an applicable award agreement, no award may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
participant otherwise than by will or by the laws of descent and distribution
and any such purported assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and unenforceable against the Company or
any affiliate; PROVIDED that the designation of a beneficiary shall not
constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance. Notwithstanding the foregoing, the 1997 Plan Committee has the
discretion under the 1997 Plan to provide that options granted under the 1997
Plan that are not intended to qualify as incentive stock options may be
transferred without consideration to certain family members or trusts,
partnerships or limited liability companies whose only beneficiaries or partners
are the original grantee and/or such family members.
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CHANGE OF CONTROL
In the event of a "Change of Control" (as defined in the 1997 Plan) and upon
the termination of an optionee's employment thereafter by the Company without
"Cause" or due to the optionee's resignation due to "Constructive Termination"
(each as defined in the 1997 Plan), that portion, if any, of any outstanding
awards then held by a participant which are unexercisable or otherwise unvested
and which would otherwise have become exercisable or vested within one year
following the date of such termination, will be deemed automatically exercisable
or otherwise vested, as the case may be, immediately prior to termination of
such optionee's employment.
AMENDMENT TO 1997 PLAN
The Board may amend the 1997 Plan or any portion thereof at any time;
PROVIDED that no such amendment, alteration, suspension, discontinuation or
termination shall be made without stockholder approval if such approval is
necessary to comply with any tax or regulatory requirement applicable to the
1997 Plan and no such action that would adversely affect the rights of any
participant with respect to awards previously granted under the 1997 Plan shall
not that extent be effective without the participant's consent.
JALKUT EMPLOYMENT AGREEMENT
The Employment Agreement among the Company and Richard Jalkut (the "Jalkut
Employment Agreement") took effect on August 4, 1997 and expires on August 4,
2000. The Jalkut Employment Agreement shall renew automatically for one year
terms unless terminated by either party. Under the Jalkut Employment Agreement,
Mr. Jalkut is entitled to an annual base salary of $400,000, subject to increase
at the discretion of the Company. In addition, Mr. Jalkut is entitled to
participate in the Company's benefit plans on the same basis as other salaried
employees of the Company and on the same basis as other senior executives of the
Company and is entitled to reimbursement up to a total of $50,000 per year for
certain expenses.
In addition, pursuant to the Jalkut Employment Agreement, on August 4, 1997,
Mr. Jalkut received nonqualified stock options on 1,480,610 shares of Common
Stock at an exercise price of $0.66 per share. Such options will vest upon
completion of the Offering. Under the Jalkut Employment Agreement, under certain
circumstances, upon the election of Mr. Jalkut within 10 business days after the
date of termination of Mr. Jalkut's employment with the Company, the Company
will be required to pay, subject to the terms of the Indenture, to Mr. Jalkut
the aggregate Fair Value (as defined in the Jalkut Option Agreement) of the
options then vested or held by Mr. Jalkut on the date of such termination of
employment with the Company.
The Jalkut Employment Agreement (other than certain restrictive covenants of
Mr. Jalkut and certain severance obligations of the Company) may be terminated
(i) by the Company (a) without cause by giving 60 days' prior written notice or
(b) for cause upon the Board of Directors' confirmation that Mr. Jalkut has
failed to cure the grounds for termination within 30 days of notice thereof and
(ii) by Mr. Jalkut (a) without cause by giving 180 days' prior written notice
and (b) immediately upon a Constructive Termination (as defined in the Jalkut
Employment Agreement) without Mr. Jalkut's consent. The Jalkut Employment
Agreement prohibits disclosure by Mr. Jalkut of any of the Company's
confidential information at any time. In addition, while he is employed by the
Company and for two years thereafter, Mr. Jalkut is prohibited from engaging or
significantly investing in competing business activities and from soliciting any
Company employee to be employed elsewhere. The Company has granted Mr. Jalkut
registration rights with respect to the shares he will receive upon exercise of
his options.
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OTHER AGREEMENTS
Messrs. Schaeffer, Lubin, Daigle, Brooks and Smedberg have entered into
Employee Agreements Regarding Non-Disclosure, Assignment of Inventions and
Non-Competition with the Company in which such officers agreed (i) not to
disclose any of the Company's confidential and proprietary information to third
parties, (ii) to assign all work products to the Company as "works for hire,"
and (iii) not to compete against the Company for a two-year period following the
termination of the respective officer's employment with the Company.
In exchange for a non-compete covenant and a restriction on soliciting any
employee of the Company to be employed elsewhere, the Company has agreed to pay
Mr. Bennis a severance payment in the aggregate amount of $275,000 paid over one
year if his employment with the Company is terminated.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERIES A PURCHASE AGREEMENT
Pursuant to an Investment and Stockholders' Agreement, dated as of August
28, 1995 (the "Series A Purchase Agreement"), by and among the Company and
Spectrum Equity Investors, L.P., New Enterprise Associates VI, Limited
Partnership, Onset Enterprise Associates II, L.P., IAI Investment Funds VIII,
Inc., Thomas Domencich, Dennis R. Patrick and the Corman Foundation
Incorporated, (together, the "Series A Purchasers") and David Schaeffer, the
Series A Purchasers made their initial investments in the Company. The Series A
Purchasers (i) agreed, subject to the satisfaction of certain conditions, to
purchase in the aggregate 1,000,000 shares of Series A Preferred Stock for an
aggregate purchase price of $1.0 million, (ii) purchased 500,000 shares of such
1,000,000 shares of Series A Preferred Stock for an aggregate purchase price of
$500,000 and (iii) agreed to make available to the Company, under certain
circumstances, bridge loans in an aggregate principal amount of $500,000.
Pursuant to Amendment No. 1 to the Investment and Stockholders' Agreement, dated
as of February 8, 1996, the Series A Purchasers purchased the remaining 500,000
shares of Series A Preferred Stock for an aggregate purchase price of $500,000.
Pursuant to Amendment No. 2 to the Investment and Stockholders' Agreement dated
as of August 2, 1996, the Series A Purchasers, among other things, increased the
amount of their bridge loan commitments to the Company to an aggregate principal
amount of $700,000 and advanced such amount to the Company, such loans being
evidenced by bridge loan notes (collectively, the "Bridge Loan Notes"). In
addition, the Series A Purchasers agreed to make available to the Company, upon
the occurrence of certain events, additional bridge loans in an aggregate
principal amount of $300,000 (the "Additional Bridge Loan Commitment.")
SERIES B PURCHASE AGREEMENT
The Company, each of the Series A Purchasers and several additional
purchasers (together, the "Series B Purchasers") and Mr. Schaeffer entered into
an Investment and Stockholders' Agreement, dated as of December 23, 1996 (the
"Series B Purchase Agreement"), pursuant to which, among other things, the
Series B Purchasers agreed to acquire in the aggregate 1,651,046 shares of
Series B Preferred Stock for an aggregate purchase price of $5.0 million. As
part of the purchase of such shares of Series B Preferred Stock and pursuant to
the Series B Purchase Agreement, the Series A Purchasers acquired that number of
shares of Series B Preferred Stock equal to the Additional Bridge Loan
Commitment divided by the purchase price of $2.3944 per share of Series B
Preferred Stock. The Series B Purchasers purchased 1,041,290 shares of Series B
Preferred Stock for $3.0 million on December 23, 1996, and purchased 609,756
shares of Series B Preferred Stock for $2.0 million on June 18, 1997.
SERIES C PURCHASE AGREEMENT
The Company, the Series A Purchasers, the Series B Purchasers and one
additional purchaser (together the "Series C Purchasers") and Mr. Schaeffer
entered into the Investment and Stockholders'
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Agreement, dated October 31, 1997, as amended (the "Investment and Stockholders'
Agreement"), pursuant to which, among other things, the Series C Purchasers
agreed to acquire 2,819,549 shares of Series C Preferred Stock for an aggregate
purchase price of $30.0 million. The Series C Purchasers purchased 939,850
shares of Series C Preferred Stock for an aggregate purchase price of $10.0
million on October 31, 1997, and purchased an additional 1,879,699 shares of
Series C Preferred Stock for an aggregate purchase price of $20.0 million
simultaneously with the closing of the Debt Offering. In connection with the
Investment and Stockholders' Agreement, the Company, the holders of Preferred
Stock (the "Investors") and Mr. Schaeffer agreed to amend and restate, in part,
the Series A Purchase Agreement, Amendment No. 1 to the Series A Purchase
Agreement, Amendment No. 2 to the Series A Purchase Agreement, Amendment No. 3
to the Series A Purchase Agreement and the Series B Purchase Agreement. See
"--Investment and Stockholders' Agreement."
INVESTMENT AND STOCKHOLDERS' AGREEMENT
Pursuant to the terms of the Investment and Stockholders' Agreement, the
Investors acquired certain registration rights with respect to securities of the
Company. On any three occasions, the holders of a majority of the Registrable
Securities (as defined in the Investment and Stockholders' Agreement) may
require the Company to effect a registration under the Securities Act of their
Registrable Securities, subject to the Company's right to defer such
registration for a period of up to 60 days. In addition, if the Company proposes
to register securities under the Securities Act (other than a registration
relating either to the sale of securities to employees pursuant to a stock
option, stock purchase or similar plan or a transaction under Rule 145 of the
Securities Act), then any of the Investors have the right (subject to certain
standard cut-back limitations) to request that the Company register such
Investor's Registrable Securities. All registration expenses of the Investors
(exclusive of underwriting discount and commissions) up to $60,000 per offering
will be borne by the Company. The Company has agreed to indemnify the Investors
against certain liabilities in connection with any registration effected
pursuant to the foregoing registration rights agreement, including liabilities
arising under the Securities Act.
LEASE FROM THE KENILWORTH PARTNERSHIP
The Company has entered into the Headquarters Lease for approximately 15,000
square feet of office space from the Kenilworth Partnership, a general
partnership of which David Schaeffer, Chairman of the Company, is General
Partner. The rental rate is approximately $20 per square foot, plus fees to
cover the Company's proportional share of real estate taxes and insurance
premiums relating to the building. The Headquarters Lease expires on August 31,
1998 and may be renewed at the option of the Company for two additional one-year
periods on the same terms and conditions. Management believes that the terms and
conditions of the Headquarters Lease are at least as favorable to the Company as
those which the Company could have received from an unaffiliated third party.
PAYMENT OF ADVISORY FEE
In connection with the placement of the Company's Series A Preferred Stock,
Crestar Securities Corporation, a subsidiary of Crestar Financial Corporation of
which Mr. Prins served as Senior Vice President and Managing Director at the
time, received an advisory fee of $60,000 from the Company in 1995.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning beneficial
ownership of the capital stock of the Company as of May 4, 1998 on a pro forma
basis after giving effect to the Transactions and the Offering, by (i) each
person known by the Company to be the beneficial owner of more than five percent
of the outstanding capital stock of the Company, (ii) each director of the
Company, (iii) the Named Executive Officers and (iv) all directors and executive
officers of the Company as a group. Unless otherwise indicated, each of the
stockholders listed below has sole voting and investment power with respect to
the shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK
AFTER THE TRANSACTIONS
AND AFTER THE OFFERING(1)
-----------------------------
TOTAL SHARES PERCENTAGE(2)
------------ ---------------
<S> <C> <C>
Spectrum Equity Investors, L.P.(3)................................................... 6,506,175 %
Spectrum Equity Investors II, L.P.(3)................................................ 2,350,700
New Enterprise Associates VI, Limited Partnership(4)................................. 4,450,115
Onset Enterprise Associates II, L.P.(5).............................................. 3,109,740
Onset Enterprise Associates III, L.P.(5)............................................. 469,920
Corman Foundation Incorporated(6).................................................... 314,815
IAI Investment Funds VIII, Inc. (IAI Value Fund)(7).................................. 715,765
Thomas Domencich(8).................................................................. 357,885
FBR Technology Venture Partners L.P.(9).............................................. 469,925
Toronto Dominion Capital (U.S.A.) Inc.(10)........................................... 3,259,735
Grotech Partners IV, L.P.(11)........................................................ 3,259,735
Utech Climate Challenge Fund, L.P.(12)............................................... 997,160
Utility Competitive Advantage Fund, L.L.C.(12)....................................... 632,725
David Schaeffer...................................................................... 5,742,090
Richard A. Jalkut.................................................................... 1,480,610
Kevin J. Maroni (13)................................................................. 6,506,175
Peter J. Barris (14)................................................................. 4,450,115
Richard K. Prins..................................................................... 121,950
Patrick J. Kerins (15)............................................................... 3,259,735
Stephen A. Reinstadtler (16)......................................................... 3,259,735
Michael A. Lubin..................................................................... 203,250
David J. Daigle...................................................................... 304,880
Michael L. Brooks.................................................................... 30,490
William R. Smedberg, V............................................................... 36,585
All Directors and Officers as a Group(13)(14)(15)(16)................................ 25,395,615
</TABLE>
FOOTNOTES ON FOLLOWING PAGE
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- ------------------------
(1) Includes shares of Common Stock issuable upon the exercise or conversion of
options, warrants and convertible securities, if exercisable or convertible
within 60 days.
(2) The percentages of beneficial ownership as to each person, entity or group
assume the exercise or conversions of all outstanding options, warrants and
convertible securities held by such person, entity or group which are
exercisable or convertible within 60 days, but not the exercise or
conversion of options, warrants and convertible securities held by others
shown in the table.
(3) The address for Spectrum is One International Place, Boston, MA 02110.
(4) The address for NEA is 1119 Saint Paul Street, Baltimore, MD 21202.
(5) The address for Onset Enterprise Associates II, L.P. and Onset Enterprise
Associates III, L.P. is 8911 Capital of Texas Highway, Austin, TX 78759.
(6) The address for Corman Foundation Incorporated is 100 Brookwood Road,
Atmore, AL 36502.
(7) The address for IAI Investment Funds VIII, Inc. (IAI Value Fund) is 3700
First Bank Place, Minneapolis, MN 55440.
(8) The address for Thomas Domencich is 104 Benevolent Street, Providence, RI
02906.
(9) The address for FBR Technology Venture Partners L.P. is 1001 19th Street
North, Arlington, VA 22209.
(10) The address for Toronto Dominion Capital (U.S.A.) Inc. is 31 West 52nd
Street, New York, NY 10019.
(11) The address for Grotech Partners IV, L.P. is 9690 Deereco Road, Timonium,
MD 21093.
(12) The address for Utech Climate Challenge Fund, L.P. and Utility Competitive
Advantage Fund, L.L.C. is c/o Arete Ventures, Two Wisconsin Circle, Chevy
Chase, MD 20815.
(13) Includes 6,506,175 shares owned by Spectrum Equity Investors, L.P. Mr.
Maroni, who is a limited partner of the general partner of Spectrum and a
general partner of the general partner of Spectrum Equity Investors II,
L.P., disclaims beneficial ownership of the shares owned by Spectrum Equity
Investors, L.P. and Spectrum Equity Investors II, L.P.
(14) Includes 4,450,115 shares owned by New Enterprise Associates VI, Limited
Partnership. Mr. Barris, who is general partner of the general partner of
New Enterprise Associates VI, Limited Partnership, disclaims beneficial
ownership of the shares owned by New Enterprise Associates VI, Limited
Partnership.
(15) Includes 3,259,735 shares owned by Grotech Partners IV, L.P. Mr. Kerins,
Managing Director of the general partner of Grotech Partners IV, L.P.,
disclaims beneficial ownership of the shares owned by Grotech Partners IV,
L.P.
(16) Includes 3,259,735 shares owned by Toronto Dominion Capital (U.S.A.) Inc.
Mr. Reinstadtler, Vice President and Director of Toronto Dominion Capital
(U.S.A.) Inc., disclaims beneficial ownership of the shares owned by Toronto
Dominion Capital (U.S.A.) Inc.
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DESCRIPTION OF CAPITAL STOCK
THE FOLLOWING SUMMARY OF THE OUTSTANDING CAPITAL STOCK OF THE COMPANY DOES
NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED PROVISIONS OF THE FOLLOWING DOCUMENTS: (I) THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION, AS AMENDED (THE "CERTIFICATE OF INCORPORATION"),
AND (II) THE COMPANY'S BYLAWS (THE "BYLAWS"), COPIES OF WHICH HAVE BEEN FILED AS
EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. SEE
"AVAILABLE INFORMATION."
GENERAL
Upon completion of the Transactions and the Offering, the authorized capital
stock of the Company will consist of shares of Common Stock and
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). Of
such authorized shares, (i) shares of Common Stock will be issued and
outstanding, (ii) no shares of Preferred Stock will be issued and outstanding,
(iii) 853,655 shares and 5,768,335 shares of Common Stock will be reserved for
issuance in connection with the 1995 Plan and the 1997 Plan, respectively, and
(iv) stock options to purchase 853,655 shares and 3,404,875 shares of Common
Stock under the 1995 Plan and the 1997 Plan, respectively, will be issued and
outstanding.
Prior to the Offering, there has been no public market for the Common Stock.
See "Risk Factors-- Absence of Prior Public Market; Possible Volatility of Stock
Price."
COMMON STOCK
VOTING RIGHTS. The Company's Certificate of Incorporation provides that
holders of Common Stock are entitled to one vote per share held of record on all
matters submitted to a vote of stockholders. The stockholders are not entitled
to vote cumulatively for the election of directors.
DIVIDENDS. Subject to the preferential rights of holders of Preferred
Stock, if any, the holders of shares of Common Stock will be entitled to
receive, when, as and if declared by the Board of Directors, out of the assets
of the Company which are legally available therefor, dividends payable either in
cash, in property or in shares of capital stock. Under Delaware law, a
corporation may declare and pay dividends out of surplus or, if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding year. No dividends may be declared, however, if
the capital of the corporation has been diminished by depreciation in the value
of its property, losses or otherwise to an amount less than the aggregate amount
of capital represented by any issued and outstanding stock having a preference
on the distribution of assets. See "Dividend Policy."
LIQUIDATION. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, after payment of debts and other
liabilities of the Company and after distribution in full of the preferential
amounts, if any, to be distributed to holders of shares of Preferred Stock,
unless otherwise required by law, holders of shares of Common Stock will be
entitled to receive all of the remaining assets of the Company of whatever kind
available for distribution to stockholders in proportion to the number of shares
of Common Stock held by them.
OTHER RIGHTS. Stockholders of the Company have no preemptive or other
rights to subscribe for additional shares. Subject to any rights of the holders
of any Preferred Stock that may be issued subsequent to the Offering, all
holders of Common Stock are entitled to share equally on a share-for-share basis
in any assets available for distribution to stockholders on liquidation,
dissolution or winding up of the Company. No shares of Common Stock are subject
to conversion, redemption or a sinking fund. All outstanding shares of Common
Stock are, and the Common Stock to be outstanding upon completion of the
Offering will be, fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for the
Common Stock is .
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PREFERRED STOCK
The Company's Board of Directors (or a committee thereof) is authorized to
issue, without further authorization from stockholders, up to shares of
Preferred Stock in one or more series and to determine, at the time of creating
each series, the distinctive designation of, and the number of shares in, the
series, its dividend rate, the number of votes, if any, for each share of such
series, the price and terms on which such shares may be redeemed, the terms of
any applicable sinking fund, the amount payable upon liquidation, dissolution or
winding up, the conversion rights, if any, and such other rights, preferences
and priorities of such series as the Board of Directors (or a committee thereof)
may be permitted to fix under the laws of the State of Delaware as in effect at
the time such series is created. The issuance of Preferred Stock could adversely
affect the voting power of the holders of Common Stock and could have the effect
of delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any shares of Preferred Stock.
WARRANTS
In connection with the Debt Offering, the Company issued 350,000 Warrants,
each entitling the owner thereof to purchase 5.5 shares of Common Stock at an
exercise price of $0.01 per share. The Warrants were issued pursuant to a
Warrant Agreement dated as of April 8, 1998 (the "Warrant Agreement"), between
the Company and The Bank of New York, as Warrant Agent, and are scheduled to
expire on April 15, 2008 (the "Expiration Date"). The Warrants are not tradeable
separately from the Notes until the earliest of (the "Separability Date") (i)
October 5, 1998, (ii) the date on which a registration statement with respect to
an exchange offer for the Notes or covering the sale by holders of the Notes is
declared effective under the Securities Act; (iii) the occurrence of an Exercise
Event (as defined below); (iv) the occurrence of an Event of Default under the
indenture or (v) such earlier date as determined by Merrill Lynch & Co. in its
sole discretion. The Warrants may be exercised on the first day on or after the
Separability Date that any of the following occurs (each, an "Exercise Event"):
(i) a Change of Control (as such term is defined in the Indenture) with respect
to the Company; (ii)(a) the 180th day (or such earlier date as may be determined
by the Company in its sole discretion) following the consummation of the
Offering or (b) upon the consummation of the Offering, but only in respect of
Warrants, if any, required to be exercised to permit the holders thereof to sell
shares issued upon the exercise of the Warrants pursuant to their registration
rights; or (iii) a class of equity securities of the Company is listed on a
national securities exchange or authorized for quotation on the Nasdaq National
Market or is otherwise subject to registration under the Exchange Act; or (iv)
April 8, 2000.
A majority of the holders of the Warrants or other equity securities issued
or issuable with respect to the Warrants (the "Registrable Securities") may
require the Company to effect a demand registration of the Warrants, the shares
of Common Stock issuable upon exercise of the Warrants or the Registrable
Securities (the "Subject Equity") following an Exercise Event and the completion
of the Offering. In addition, holders of Registrable Securities have the right
to include the Registrable Securities in a registration statement under the
Securities Act filed by the Company for its own account or for the account of
any of its security holders, subject to certain customary cut-back limitations.
Under certain circumstances, if certain specified holders of Common Stock
described in the indenture (the "Permitted Holders") or their affiliates
transfer or sell shares of Common Stock or certain other equity securities of
the Company in a transaction resulting in a Change of Control, the holders of
Subject Equity will have the right to require the purchasers thereof to purchase
the Subject Equity. In addition, under certain circumstances, the Permitted
Holders or their affiliates can require holders of Subject Equity to sell such
securities in the event that such Permitted Holders or their affiliates transfer
or sell all of their equity securities of the Company to a non-affiliate in a
transaction resulting in a Change of Control.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of the Certificate of Incorporation and Bylaws of the
Company summarized below may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer to takeover
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attempt that a stockholder might consider in its best interest, including an
attempt that might result in the receipt of a premium over the market price for
the shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS. The Certificate of Incorporation and the
Bylaws provide that the Board of Directors shall be divided into three classes
of directors serving staggered three-year terms. Notwithstanding the foregoing,
the term of any director who is also an officer of the Company shall
automatically end if he or she ceases to be an employee of the Company. As a
result, approximately one-third of the Board of Directors will be elected each
year. Moreover, under DGCL, in the case of a corporation having a classified
board, stockholders may remove a director only for cause. This provision, when
coupled with the provision of the Bylaws authorizing only the Board of Directors
to fill vacant directorships, will preclude a stockholder from removing
incumbent directors without cause and simultaneously gaining control of the
Board of Directors by filling the vacancies created by such removal with its own
nominees.
SPECIAL MEETING OF STOCKHOLDERS. The Certificate of Incorporation and the
Bylaws provide that special meetings of stockholders of the Company may be
called only by the Board of Directors, the Chairman of the Board of Directors or
the President. This provision will make it more difficult for stockholders to
take actions opposed by the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT. The Certificate of Incorporation and
the Bylaws provide that no action required or permitted to be taken at any
annual or special meeting of the stockholders of the Company may be taken
without a meeting, and the power of stockholders of the Company to consent in
writing, without a meeting, to the taking of any action is specifically denied.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to the nominate candidates of
election as directors at an annual or special meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company not less than 30 days nor more than 60 days prior to the meeting;
PROVIDED, HOWEVER, that in the event that less than 40 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received no later than the close
of business on the tenth day following the day on which such notice of the date
of the meeting was mailed or such public discourse was made. The Bylaws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
LIMITATION OF DIRECTORS' LIABILITY
The Company has included in its Certificate of Incorporation provisions to
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages from a
director resulting from breaches of fiduciary duty (including breaches resulting
from grossly negligent behavior). This provision does not eliminate liability
for breaches of the duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, violations
under Section 174 of the DGCL concerning the unlawful payment of dividends or
stock redemptions or repurchases or for any transaction from which the director
derived an improper personal benefit. However, these provisions will not limit
the liability of the Company's Directors under Federal securities laws. The
Company believes that these provisions are necessary to attract and retain
qualified persons as directors and officers.
SECTION 203 OF THE DELAWARE LAW
Section 203 of the DGCL prohibits publicly held Delaware corporations from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the time of the transaction in which the person
or entity became an interested stockholder, unless (i) prior to such time,
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either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the Board of
Directors of the corporation, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the outstanding voting stock of the
corporation (excluding for this purpose certain shares owned by persons who are
directors and also officers of the corporation and by certain employee benefit
plans) or (iii) at or subsequent to such time the business combination is
approved by the Board of Directors of the corporation and by the affirmative
vote (and not by written consent) of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. For the purposes of
Section 203, a "business combination" is broadly defined to include mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or within the immediately preceding three
years did own) 15% or more of the corporation's voting stock.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR NOTES
THE FOLLOWING SUMMARY OF THE MATERIAL TERMS OF THE AGREEMENTS GOVERNING
CERTAIN OF THE COMPANY'S INDEBTEDNESS DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PROVISIONS OF SUCH AGREEMENTS,
COPIES OF WHICH HAVE BEEN FILED AS EXHIBITS TO THE REGISTRATION STATEMENT OF
WHICH THIS PROSPECTUS IS A PART.
On April 8, 1998, the Company issued 350,000 Units consisting of the Notes
and the Warrants. Concurrently with this Offering, the Company will offer to
exchange up to $350.0 million aggregate principal amount of its 12 1/4% Senior
Notes due 2008 (the "New Notes") for a like principal amount of its outstanding
Notes. The New Notes will be issued pursuant to, and entitled to the benefits
of, the Indenture, dated as of April 8, 1998, between the Company and The Bank
of New York, as trustee (the "Trustee"), governing the Notes. The Notes and New
Notes outstanding under the Indenture at any time are referred to collectively
herein as the "Notes."
The Notes will mature on April 15, 2008 and all outstanding principal will
be repayable on maturity. Interest on the Notes accrues at the rate of 12 1/4%
per annum and is payable semiannually in arrears on April 15 and October 15 of
each year, commencing October 15, 1998.
The Company used $81.1 million of the net proceeds of the issuance and sale
of the Existing Notes to purchase the Pledged Securities (in such amount as will
be sufficient to provide for payment in full of the first four interest payments
due on the Notes) which are pledged as security for repayment of the principal
amount of the Notes. Except for the pledge by the Company of the Pledged
Securities, the Notes are general unsecured obligations of the Company and rank
equally in right of payment to all existing and future unsecured debt of the
Company that is not subordinated to the Notes by its express terms. The Notes
rank senior in right of payment to any and all existing and future debt of the
Company subordinated in right of payment to the Notes. The Notes are redeemable
for cash at any time on or after April 15, 2003 at the option of the Company, in
whole or in part, at certain redemption prices set forth in the Indenture. In
addition, upon the occurrence of a "Change of Control" (as defined in the
Indenture) each holder of the Notes may require the Company to repurchase all or
a portion of such holder's Notes at a purchase price in cash equal to 101% of
the principal amount thereof.
The Indenture contains numerous affirmative and negative covenants that
restrict the activities of the Company in many respects. Among other things, the
Indenture includes covenants with respect to the following: (i) a limitation on
debt, (ii) a limitation on restricted payments, (iii) a limitation on issuances
and sales of capital stock of certain subsidiaries, (iv) a limitation on
transactions with affiliates, (v) a limitation on liens, (vi) a limitation on
issuances of certain guarantees by and debt securities of, certain subsidiaries,
(vii) a limitation of sale of assets, and (viii) a limitation on dividend and
other payment restrictions affecting certain subsidiaries.
The rights of the holders of the Notes may be modified or amended by a
supplemental indenture entered into by the Company and the Trustee with the
consent of the holders of a majority in aggregate principal amount of the Notes.
Certain modifications or amendments, however, require the consent of the holder
of each outstanding Note affected thereby.
In addition, the Company is currently exploring several vendor financing
alternatives and other credit facilities. Although the Company has received
commitments (subject to definitive documentation) from certain of its vendors
and prospective lenders in connection with two such proposed vendor financing
facilities, the Company has not, as of the date of this Prospectus, decided to
pursue any one particular proposed facility.
73
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock. Of these shares, the shares sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, except for any shares purchased or acquired by an
"affiliate" of the Company (as that term is defined under the rules and
regulations promulgated the Securities Act), which shares will be subject to the
resale limitations of Rule 144. Substantially all of the remaining
outstanding shares of Common Stock will be "restricted securities," as
that term is defined in Rule 144, that may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemptions contained under Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least one year,
including a person who may be deemed to be an affiliate of the Company, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock of
the Company ( shares immediately after the Offering) or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which a notice of sale is filed with the Commission. A
person (or persons whose shares are aggregated) who is not an "affiliate" at any
time during the 90 days preceding a sale is entitled to sell such shares under
Rule 144, commencing two years after the date such shares were acquired from the
Company or an affiliate of the Company, without regard to the volume limitations
described above. Sales under Rule 144 are subject to certain other restrictions
relating to the manner of sale, notice and the availability of current public
information about the Company.
Subject to the lock-up arrangements described below, shares of Common
Stock owned by the Original Investors will be eligible for sale in the public
market subject to the volume and other limitations described above because the
Original Investors will be deemed to have held such shares for more than one
year. The Company's executive officers and directors and the Original Investors
have agreed, subject to certain exceptions, not to directly or indirectly (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or thereafter acquired by the person executing the agreement
or with respect to which the person executing the agreement has or thereafter
acquires the power of disposition, or file a registration statement under the
Securities Act with respect to the forgoing or (ii) enter into any swap or other
agreement or any transaction that transfers, in whole or in part, the economic
consequence of ownership of the Common Stock whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise, without the prior written consent of Merrill Lynch on behalf
of the Underwriters for a period of 180 days after the date of this Prospectus.
See "Underwriting."
Pursuant to the Investment and Stockholders' Agreement, the Company has
granted certain stockholders, including the Original Investors, demand and
piggy-back registration rights. See "Certain Relationships and Related
Transactions--Investment and Stockholders' Agreement."
In connection with the Debt Offering, the Company issued Warrants to
purchase an aggregate of 1,925,000 shares of Common Stock. The Warrants will
become exercisable upon completion of the Offering and the shares of Common
Stock issued upon exercise of the Warrants (the "Warrant Shares") will be
"restricted securities" under Rule 144. Pursuant to a registration rights
agreement (the "Warrant Registration Rights Agreement"), upon completion of the
Offering the holders of a number of Warrants, Warrant Shares and other
Registrable Securities (as defined in the Warrants Registration Rights
Agreement) equivalent to at least a majority of the Warrant Shares subject to
the Warrants originally issued at the time of the Debt Offering will be entitled
to require the Company to effect one registration under the Securities Act,
subject to certain limitations. Holders of Registrable Securities will also have
the right to
74
<PAGE>
piggyback on registration statements filed by the Company under the Securities
Act, subject to certain limitations.
In addition, an aggregate of 6,621,990 shares of Common Stock have been
reserved for issuance to employees, officers and directors upon exercise of
stock options, of which stock options for 4,258,530 shares of Common Stock are
outstanding as of May 4, 1998. The Company anticipates filing a registration
statement on Form S-8 under the Securities Act to register all of the shares of
Common Stock issuable or reserved for future issuance under the 1995 Plan and
the 1997 Plan. Shares purchased upon exercise of options granted pursuant to the
1995 Plan and the 1997 Plan generally will, therefore, be available for resale
in the public market to the extent the lock-up arrangements with Merrill Lynch &
Co. have expired, except that any such shares issued to affiliates are subject
to the volume limitations and certain other restrictions of Rule 144. See
"Management--1995 Stock Option Plan" and "--1997 Stock Incentive Plan."
Prior to the Offering, there has been no public market for the Common Stock
of the Company and no prediction can be made as to the effect, if any, that the
sale or availability for sales of shares of Common Stock will have on the market
price of the Common Stock. Nevertheless, sales of significant amounts of such
shares in the public market, or the perception that such sales may occur, could
adversely affect the market price of Common Stock and could impair the Company's
future ability to raise capital through an offering of its equity securities.
75
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Morgan
Stanley & Co. Incorporated and Bear, Stearns & Co. Inc. are acting as
representatives (the "U.S. Representatives") of each of the Underwriters named
below (the "U.S. Underwriters"). Subject to the terms and conditions set forth
in a U.S. purchase agreement (the "U.S. Purchase Agreement") among the Company
and the U.S. Underwriters, and concurrently with the sale of shares of Common
Stock to the International Managers (as defined below), the Company has agreed
to sell to the U.S. Underwriters, and each of the U.S. Underwriters severally
and not jointly has agreed to purchase from the Company, the number of shares of
Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
U.S. UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................
Morgan Stanley & Co. Incorporated..........................................
Bear, Stearns & Co. Inc....................................................
-----------------
Total...........................................................
-----------------
-----------------
</TABLE>
The Company has also entered into an international purchase agreement (the
"International Purchase Agreement") with certain underwriters outside the United
States and Canada (the "International Purchase Agreement") with certain
underwriters outside the United States and Canada (the "International Managers")
and, together with the U.S. Underwriters, the "Underwriters") for whom Merrill
Lynch International, Morgan Stanley & Co. International Limited and Bear,
Stearns International Limited are acting as lead managers (the "Lead Managers").
Subject to the terms and conditions set forth in the International Purchase
Agreement, and concurrently with the sale of shares of Common Stock to the
U.S. Underwriters pursuant to the U.S. Purchase Agreement, the Company has
agreed to sell to the International Managers, and the International Managers
severally have agreed to purchase from the Company, an aggregate of shares
of Common Stock. The initial public offering price per share and the total
underwriting discount per share of Common Stock are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers, respectively,
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the shares of Common Stock being sold pursuant to each such agreement if
any of the shares of Common Stock being sold pursuant to such agreement are
purchased. Under certain circumstances, under the U.S. Purchase Agreement and
the International Purchase Agreement, the commitments of non-defaulting
Underwriters may be increased. The closings with respect to the sale of shares
of Common Stock to be purchased by the U.S. Underwriters and the International
Managers are conditioned upon one another.
The U.S. Representatives have advised the Company that the U.S. Underwriters
propose initially to offer the shares of Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $ per
share of Common Stock. The U.S. Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of Common Stock on sales to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The Company has granted options to the U.S. Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the initial public offering price set forth
on the cover page of this Prospectus, less the underwriting discount. The U.S.
Underwriters may exercise these options solely to cover over-allotments, if any,
made on the sale of the Common Stock offered hereby. To the extent that the U.S.
Underwriters exercise these options, each
76
<PAGE>
U.S. Underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares of Common Stock proportionated to such U.S.
Underwriters' initial amount reflected in the foregoing table. The Company also
has granted options to the International Managers, exercisable for 30 days after
the date of this Prospectus, to purchase up to an aggregate of additional
shares of Common Stock to cover over-allotments, if any, on terms similar to
those granted to the U.S. Underwriters.
At Company's request, the U.S. Underwriters have reserved up to shares
for sale at the initial public offering price to certain of the Company's
officers, directors and employees, members of their immediate families and other
individuals who are business associates of the Company (including certain
vendors and consultants), in each case as such parties have expressed an
interest in purchasing such shares. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not orally
confirmed for purchase within one day of the price of the Offerings will be
offered by the Underwriters to the general public on the same terms as the other
shares offered hereby.
The Company and the Company's executive officers and directors and the
Original Investors have agreed, subject to certain exceptions, not to directly
or indirectly (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or otherwise dispose of or transfer any shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock, whether now owned or thereafter acquired by the person
executing the agreement or with respect to which the person executing the
agreement has or thereafter acquires the power of disposition, or file a
registration statement under the Securities Act with respect to the forgoing or
(ii) enter into any swap or other agreement or any transaction that transfers,
in whole or in part, the economic consequence of ownership of the Common Stock
whether any such swap or transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the Underwriters for a period of 180 days
after the date of this Prospectus. See "Shares Eligible for Future Sale."
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell shares of
Common Stock to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the International Managers and any dealer to whom they sell shares of Common
Stock will not offer to sell or sell shares of Common Stock to U.S. persons or
to Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions pursuant to the
Intersyndicate Agreement.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined through negotiations
between the Company and the U.S. Representatives and the Lead Managers. Among
the factors to be considered in such negotiations are an assessment of the
Company's recent results of operations, future prospects of the Company and its
industry in general, market prices of securities of companies engaged in
activities similar to those of the Company and prevailing conditions in the
securities markets. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to the Offerings at or above the initial public offering
price.
Application will be made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "PTNT".
77
<PAGE>
The Underwriters do not expect sales of the Common Stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered hereby.
The Company agreed to indemnify the U.S. Underwriters and the International
Managers against certain liabilities, including certain liabilities under the
Securities Act, or to contribute to payments the U.S. Underwriters and
International Managers may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the U.S. Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, I.E., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in the
open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Stock to the extent that it
discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the U.S.
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York. Certain legal matters relating to the
Offering will be passed upon for the Underwriters by Shearman & Sterling, New
York, New York.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus as of December 31, 1997 and 1996 and for the period from August 25,
1995 (date of inception) to December 31, 1995, the years ended December 31, 1996
and 1997 and the period from August 25, 1995 (date of inception) to December 31,
1997 have been audited by Coopers & Lybrand L.L.P., independent accountants, as
stated in their report appearing elsewhere herein. Such financial statements and
selected financial data are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
78
<PAGE>
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
completion of the Offering, the Company will be subject to the informational
requirements of the Exchange Act, and in accordance with the Exchange Act, will
be required to file periodic reports and other information with the Securities
and Exchange Commission (the "Commission"). Such information can be inspected
without charge at the public reference facilities of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Suite 1400, Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material may also
be obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains an Internet Web Site (http://www.sec.gov) that will contain all
information filed electronically by the Company with the Commission.
This Prospectus, which constitutes a part of a Registration Statement on
Form S-1 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act, does not contain all information set forth in the
Registration Statement, including the exhibits to the Registration Statement.
For further information with respect to the Company and the Common Stock offered
by this Prospectus, reference is made to the Registration Statement and the
exhibits to the Registration Statement. Statements contained in this Prospectus
as to the contents of any contract or other document are summaries of the
material terms of such contract or other document not necessarily complete, and,
with respect to each such contract or document filed as an exhibit to the
Registration Statement, reference is made to the copy of such contract or
document, and each such statement is qualified in all respect by such reference.
A copy of the Registration Statement, including the exhibits thereto, may be
inspected and copies thereof may be obtained as described in the preceding
paragraph with respect to periodic reports and other information to be filed by
the Company under the Exchange Act.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent public accounting firm
and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information for so long as required
by applicable law or regulation or by any securities exchange or other market
upon which the Common Stock is traded.
79
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements," including statements
which can be identified by the use of forward-looking terminology such as
"believes," "anticipates," "expects," "may," "will," or "should" or the negative
of such terminology or other variations on such terminology or comparable
terminology, or by discussions of strategies that involve risks and
uncertainties. All statements other than statements of historical facts included
in this Prospectus including, without limitation, such statements under
"Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" and located elsewhere in this Prospectus,
regarding the Company or any of the transactions described in this Prospectus,
including the timing, financing, strategies and effects of such transaction, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from expectations
are disclosed in this Prospectus, including, without limitation, the amount of
capital needed to deploy the Company's network as described in this Prospectus;
the Company's substantial leverage and its need to service its indebtedness; the
restrictions imposed by the Company's current and possible future financing
arrangements; the ability of the Company to successfully manage the cost
effective and timely completion of its network and its ability to attract and
retain customers for its services; the ability of the Company to retain and
attract relationships with the incumbent owners of the telecommunications assets
with which the Company expects to build its network; the Company's ability to
retain and attract key management and other personnel as well as the Company's
ability to manage the rapid expansion of its business and operations; the
Company's ability to compete in the highly competitive telecommunications
industry in terms of price, service, reliability and technology; the Company's
dependence on the reliability of its network equipment, its reliance on key
suppliers of network equipment and the risk that its technology will become
obsolete or otherwise not economically viable; the Company's ability to conduct
its business in a regulated environment; and the other factors described in
conjunction with the forward-looking statements in this Prospectus and/or under
the caption "Risk Factors." The Company does not intend to update these
forward-looking statements.
80
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets, as of December 31, 1996 and 1997 and March 31, 1998
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for the period August 25, 1995 (date of
inception) to December 31, 1995, the years ended December 31, 1996 and 1997, the
period
August 25, 1995 (date of inception) to December 31, 1997, the three months ended
March 31, 1997 (unaudited) and 1998 (unaudited) and the period August 25, 1995 (date
of inception) to March 31, 1998 (unaudited)......................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the period August 25,
1995 (date of inception) to December 31, 1995, the years ended December 31, 1996 and
1997, the period August 25, 1995 (date of inception) to December 31, 1997 and the
three months ended March 31, 1998 (unaudited)....................................... F-5
Consolidated Statements of Cash Flows for the period August 25, 1995 (date of
inception) to December 31, 1995, the years ended December 31, 1996 and 1997, the
period
August 25, 1995 (date of inception) to December 31, 1997, the three months ended
March 31, 1997 (unaudited) and 1998 (unaudited) and the period August 25, 1995 (date
of inception) to March 31, 1998 (unaudited)......................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Pathnet, Inc.
We have audited the accompanying consolidated balance sheets of Pathnet,
Inc. and its subsidiary (the Company) (A Development Stage Enterprise) as of
December 31, 1996 and 1997, and the related statements of operations, changes in
stockholders' equity (deficit) and cash flows for the period August 25, 1995
(date of inception) to December 31, 1995, the years ended December 31, 1996 and
1997, and for the period August 25, 1995 (date of inception) to December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and 1997, and the results of their operations and their
cash flows for the period August 25, 1995 (date of inception) to December 31,
1995, the years ended December 31, 1996 and 1997, and the period August 25, 1995
(date of inception) to December 31, 1997, in conformity with generally accepted
accounting principles.
McLean, Virginia
February 20, 1998, except for the information in Note 9, for which the dates are
April 8, 1998 and May 4, 1998, respectively.
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed by Coopers & Lybrand
L.L.P., upon consummation of the matters, on or before the effective date of the
Registration Statement of which this Prospectus is a part, as described in Note
9 to the financial statements and assuming that from the date hereof to the
effective date no other events shall have occurred that would affect the
accompanying financial statements.
May 8, 1998
F-2
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
---------
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, DECEMBER 31, 1998
1996 1997 (UNAUDITED)
------------- ------------- -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 2,318,037 $ 7,831,384 $ 4,856,610
Prepaid expenses and other current assets......................... 1,695 48,571 156,716
------------- ------------- -------------
Total current assets.......................................... 2,319,732 7,879,955 5,013,326
Property and equipment, net......................................... 46,180 7,207,094 9,964,580
Deferred financing costs............................................ -- 250,428 --
Restricted cash..................................................... -- 760,211 288,736
------------- ------------- -------------
Total assets.................................................. $ 2,365,912 $ 16,097,688 $ 15,266,642
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................................. $ 114,799 $ 5,592,918 $ 7,280,298
Accrued expenses.................................................. 30,217 -- 257,334
Deferred revenue.................................................. -- 300,000 200,000
------------- ------------- -------------
Total current liabilities..................................... 145,016 5,892,918 7,737,632
------------- ------------- -------------
Series A convertible preferred stock, $0.01 par value 1,000,000
shares authorized, issued and outstanding at December 31, 1996 and
1997, and March 31, 1998, respectively (liquidation preference
$1,000,000)....................................................... 1,000,000 1,000,000 1,000,000
Series B convertible preferred stock, $0.01 par value, 1,651,046
shares authorized; 1,041,290, 1,651,046 and 1,651,046 shares
issued and outstanding at December 31, 1996 and 1997 and March 31,
1998, respectively (liquidation preference $5,033,367)............ 3,008,367 5,008,367 5,008,367
Series C convertible preferred stock, $0.01 par value, 2,819,549
shares authorized; 939,850 shares issued and outstanding at
December 31, 1997 and March 31, 1998, respectively (liquidation
preference $10,000,054)........................................... -- 9,961,274 9,961,274
------------- ------------- -------------
Total convertible preferred stock............................. 4,008,367 15,969,641 15,969,641
------------- ------------- -------------
Commitments and contingencies
Stockholders' equity (deficit):
Voting common stock, $0.01 par value, 7,500,000 shares authorized;
5,000,000 shares issued and outstanding at December 31, 1996 and
1997 and 5,004,065 issued and outstanding at March 31, 1998..... 50,000 50,000 50,041
Common stock subscription receivable.............................. (9,000) (9,000) --
Additional paid-in capital........................................ 381,990 381,990 382,030
Deficit accumulated during the development stage.................. (2,210,461) (6,187,861) (8,872,702)
------------- ------------- -------------
Total stockholders' equity (deficit).......................... (1,787,471) (5,764,871) (8,440,631)
------------- ------------- -------------
Total liabilities and stockholders' equity (deficit).......... $ 2,365,912 $ 16,097,688 $ 15,266,642
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE PERIOD
PERIOD PERIOD AUGUST 25,
AUGUST 25, AUGUST 25, 1995
1995 1995 (DATE OF
(DATE OF (DATE OF FOR THE THREE MONTHS INCEPTION)
INCEPTION) FOR THE YEAR FOR THE YEAR INCEPTION) ENDED MARCH 31, TO
TO ENDED ENDED TO ------------------------ MARCH 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1998 1998
1995 1996 1997 1997 (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue............................ $ -- $ 1,000 $ 162,500 $ 163,500 $ 10,000 $ 100,000 $ 263,500
------------ ------------ ------------ ------------ ----------- ----------- ------------
Expenses:
Cost of revenue.................. -- -- -- -- -- 714,740 714,740
General and administrative....... 290,318 913,646 3,537,926 4,741,890 486,630 1,922,217 6,664,107
Research and development......... 19,038 226,021 -- 245,059 -- -- 245,059
Legal and consulting............. 120,083 202,651 755,817 1,078,551 71,324 225,813 1,304,364
------------ ------------ ------------ ------------ ----------- ----------- ------------
Total expenses................. 429,439 1,342,318 4,293,743 6,065,500 557,954 2,862,770 8,928,270
------------ ------------ ------------ ------------ ----------- ----------- ------------
Net operating loss................. (429,439) (1,341,318) (4,131,243) (5,902,000) (547,954) (2,762,770) (8,664,770)
------------ ------------ ------------ ------------ ----------- ----------- ------------
Interest expense................... -- (415,357) -- (415,357) -- -- (415,357)
Interest and other income, net..... 2,613 13,040 153,843 169,496 17,107 77,929 247,425
------------ ------------ ------------ ------------ ----------- ----------- ------------
Net loss................... $ (426,826) $(1,743,635) $(3,977,400) $(6,147,861) $(530,847) ($2,684,841) $(8,832,702)
------------ ------------ ------------ ------------ ----------- ----------- ------------
------------ ------------ ------------ ------------ ----------- ----------- ------------
Basic and diluted loss per
common share............. $ (0.09) $ (0.35) $ (0.80) $ (1.23) $ (0.11) $ (0.54) $ (1.77)
------------ ------------ ------------ ------------ ----------- ----------- ------------
------------ ------------ ------------ ------------ ----------- ----------- ------------
Weighted average number of
common shares
outstanding.............. 5,000,000 5,000,000 5,000,000 5,000,000 5,000,000 5,001,762 5,000,167
------------ ------------ ------------ ------------ ----------- ----------- ------------
------------ ------------ ------------ ------------ ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
COMMON ACCUMULATED
COMMON STOCK STOCK ADDITIONAL DURING THE
----------------------- SUBSCRIPTION PAID-IN DEVELOPMENT
SHARES AMOUNT RECEIVABLE CAPITAL STAGE TOTAL
----------- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 25, 1995............... -- $ -- $ -- $ -- $ -- $ --
Issuance of voting common stock........ 2,500,000 25,000 (4,500) -- (20,000) 500
Issuance of non-voting common stock.... 2,500,000 25,000 (4,500) -- (20,000) 500
Net loss............................... -- -- -- -- (426,826) (426,826)
----------- ---------- ------------ ------------ ------------- -------------
Balance, December 31, 1995............. 5,000,000 50,000 (9,000) -- (466,826) (425,826)
Cancellation of non-voting common
stock................................ (2,500,000) (25,000) -- -- -- (25,000)
Issuance of voting common stock........ 2,500,000 25,000 -- -- -- 25,000
Interest expense for beneficial
conversion feature of bridge loan.... -- -- -- 381,990 -- 381,990
Net loss............................... -- -- -- -- (1,743,635) (1,743,635)
----------- ---------- ------------ ------------ ------------- -------------
Balance, December 31, 1996............. 5,000,000 50,000 (9,000) 381,990 (2,210,461) (1,787,471)
Net loss............................... -- -- -- -- (3,977,400) (3,977,400)
----------- ---------- ------------ ------------ ------------- -------------
Balance, December 31, 1997............. 5,000,000 50,000 (9,000) 381,990 (6,187,861) (5,764,871)
Exercise of stock options
(unaudited).......................... 4,065 41 -- 40 -- 81
Repayment of stock subscription
receivable (unaudited)............... -- -- 9,000 -- -- 9,000
Net loss (unaudited)................... -- -- -- -- (2,684,841) (2,684,841)
----------- ---------- ------------ ------------ ------------- -------------
Balance, March 31, 1998 (unaudited).... 5,004,065 $ 50,041 $ -- $ 382,030 $ (8,872,702) $ (8,440,631)
----------- ---------- ------------ ------------ ------------- -------------
----------- ---------- ------------ ------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FOR THE
AUGUST 25, PERIOD
1995 AUGUST 25, FOR THE THREE MONTHS
(DATE OF FOR THE YEAR FOR THE YEAR 1995 (DATE OF ENDED MARCH 31,
INCEPTION) TO ENDED ENDED INCEPTION) TO ------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1998
1995 1996 1997 1997 (UNAUDITED) (UNAUDITED)
------------- ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash from operating activities:
Net loss............................ $ (426,826) $(1,743,635) $(3,977,400) $(6,147,861) $(530,847) ($2,684,841)
Adjustment to reconcile net loss to
net cash used in operating
activities:
Depreciation expense.............. 352 9,024 46,642 56,018 6,112 37,223
Loss on disposal of asset......... -- -- 5,500 5,500 -- --
Write-off of deferred financing
costs........................... -- -- -- -- -- 337,910
Interest expense for beneficial
conversion feature of bridge
loan............................ -- 381,990 -- 381,990 -- --
Accrued interest satisfied by
conversion of bridge loan to
Series B preferred stock........ -- 33,367 -- 33,367 -- --
Changes in assets and liabilities:
Prepaid expenses and other
current assets................ -- (1,695) (46,876) (48,571) -- (108,145)
Deferred revenue................ -- -- 300,000 300,000 -- (100,000)
Accounts payable................ 4,705 110,094 386,106 500,905 (63,259) 1,687,380
Accrued expenses................ 12,645 17,572 (30,217) -- (4,125) 257,334
------------- ------------ ------------ ------------- ----------- -----------
Net cash used in operating
activities.................. (409,124) (1,193,283) (3,316,245) (4,918,652) (592,119) (573,139)
------------- ------------ ------------ ------------- ----------- -----------
Cash flows from investing activities:
Expenditures for property and
equipment......................... (8,903) (46,653) (381,261) (436,817) (37,385) (467,661)
Expenditures for network
construction in progress.......... -- -- (1,739,782) (1,739,782) -- (2,327,048)
Restricted cash..................... -- -- (760,211) (760,211) -- 471,475
------------- ------------ ------------ ------------- ----------- -----------
Net cash used in investing
activities.................. (8,903) (46,653) (2,881,254) (2,936,810) (37,385) (2,323,234)
------------- ------------ ------------ ------------- ----------- -----------
Cash flows from financing activities:
Issuance of voting and non-voting
common stock...................... 1,000 -- -- 1,000 -- --
Proceeds from sale of Series A
preferred stock................... 500,000 500,000 -- 1,000,000 -- --
Proceeds from sale of Series B
preferred stock................... -- 2,000,000 2,000,000 4,000,000 -- --
Proceeds from sale of Series B
preferred stock representing the
conversion of committed but
undrawn portion of bridge loan to
Series B preferred stock.......... -- 300,000 -- 300,000 -- --
Proceeds from sale of Series C
preferred stock................... -- -- 10,000,054 10,000,054 -- --
Exercise of stock option............ -- -- -- -- -- 81
Issuance costs...................... -- (25,000) (38,780) (63,780) -- --
Financing costs..................... -- -- (250,428) (250,428) -- (87,482)
Proceeds from bridge loan........... -- 700,000 -- 700,000 -- --
Repayment of stock subscription
receivable........................ -- -- -- -- -- 9,000
------------- ------------ ------------ ------------- ----------- -----------
Net cash provided by (used in)
financing activities........ 501,000 3,475,000 11,710,846 15,686,846 -- (78,401)
------------- ------------ ------------ ------------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents...................... 82,973 2,235,064 5,513,347 7,831,384 (629,504) (2,974,774)
Cash and cash equivalents at the
beginning of period................... -- 82,973 2,318,037 -- 2,318,037 7,831,384
------------- ------------ ------------ ------------- ----------- -----------
Cash and cash equivalents at the end
of period............................. $ 82,973 $2,318,037 $7,831,384 $ 7,831,384 $1,688,533 $4,856,610
------------- ------------ ------------ ------------- ----------- -----------
------------- ------------ ------------ ------------- ----------- -----------
Supplemental disclosure:
Noncash transactions:
Conversion of bridge loan plus
accrued interest to Series B
preferred stock................. $ -- $ 733,367 $ -- $ 733,367 $ -- $ --
------------- ------------ ------------ ------------- ----------- -----------
------------- ------------ ------------ ------------- ----------- -----------
Conversion of non-voting common
stock to voting common stock.... $ -- $ 25,000 $ -- $ 25,000 $ -- $ --
------------- ------------ ------------ ------------- ----------- -----------
------------- ------------ ------------ ------------- ----------- -----------
Issuance of voting and non-voting
common stock.................... 9,000 $ -- $ -- $ 9,000 $ -- $ --
------------- ------------ ------------ ------------- ----------- -----------
------------- ------------ ------------ ------------- ----------- -----------
Acquisition of network equipment
included in accounts payable.... $ -- $ -- $5,092,013 $ 5,092,013 $ -- $ --
------------- ------------ ------------ ------------- ----------- -----------
------------- ------------ ------------ ------------- ----------- -----------
<CAPTION>
FOR THE
PERIOD
AUGUST 25,
1995
(DATE OF
INCEPTION) TO
MARCH 31,
1998
(UNAUDITED)
-------------
<S> <C>
Cash from operating activities:
Net loss............................ $(8,832,702)
Adjustment to reconcile net loss to
net cash used in operating
activities:
Depreciation expense.............. 93,241
Loss on disposal of asset......... 5,500
Write-off of deferred financing
costs........................... 337,910
Interest expense for beneficial
conversion feature of bridge
loan............................ 381,990
Accrued interest satisfied by
conversion of bridge loan to
Series B preferred stock........ 33,367
Changes in assets and liabilities:
Prepaid expenses and other
current assets................ (156,716)
Deferred revenue................ 200,000
Accounts payable................ 2,188,285
Accrued expenses................ 257,334
-------------
Net cash used in operating
activities.................. (5,491,791)
-------------
Cash flows from investing activities:
Expenditures for property and
equipment......................... (904,478)
Expenditures for network
construction in progress.......... (4,066,830)
Restricted cash..................... (288,736)
-------------
Net cash used in investing
activities.................. (5,260,044)
-------------
Cash flows from financing activities:
Issuance of voting and non-voting
common stock...................... 1,000
Proceeds from sale of Series A
preferred stock................... 1,000,000
Proceeds from sale of Series B
preferred stock................... 4,000,000
Proceeds from sale of Series B
preferred stock representing the
conversion of committed but
undrawn portion of bridge loan to
Series B preferred stock.......... 300,000
Proceeds from sale of Series C
preferred stock................... 10,000,054
Exercise of stock option............ 81
Issuance costs...................... (63,780)
Financing costs..................... (337,910)
Proceeds from bridge loan........... 700,000
Repayment of stock subscription
receivable........................ 9,000
-------------
Net cash provided by (used in)
financing activities........ 15,608,445
-------------
Net increase (decrease) in cash and
cash equivalents...................... 4,856,610
Cash and cash equivalents at the
beginning of period................... --
-------------
Cash and cash equivalents at the end
of period............................. $ 4,856,610
-------------
-------------
Supplemental disclosure:
Noncash transactions:
Conversion of bridge loan plus
accrued interest to Series B
preferred stock................. $ 733,367
-------------
-------------
Conversion of non-voting common
stock to voting common stock.... $ 25,000
-------------
-------------
Issuance of voting and non-voting
common stock.................... $ 9,000
-------------
-------------
Acquisition of network equipment
included in accounts payable.... $ 5,092,013
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND FINANCING
Pathnet, Inc. (the Company) was incorporated in the State of Delaware on
August 25, 1995. On August 28, 1995, Path Tel, Inc. (Path Tel), a shell company
with no operations, was merged with and into the Company, with the Company being
the surviving corporation. The sole owner of Path Tel was the founder (Founder)
of the Company. The business of the Company is to aggregate and build a digital
microwave network through strategic alliances with enterprises operating private
microwave networks (Incumbents) not currently connected to the public switched
telephone network.
The Company plans to deploy its digital network by upgrading, integrating
and leveraging existing telecommunications assets, sites and rights of way,
including those utilized by railroads, utilities, state and local governments
and pipelines. By integrating the existing networks of Incumbents, the Company
expects to obtain the equivalent of a nationwide spectrum license at minimal
licensing costs. In return for providing equipment, designing systems and
managing the construction of Incumbent networks, the Company will receive the
exclusive contractual right to market excess capacity created and aggregated on
Incumbent networks. The revenue generated from this activity may be shared with
the Incumbents.
The Company has in place several contracts requiring it to upgrade existing
telecommunication systems. In addition, the Company is currently in the process
of negotiating with several national long distance carriers who will likely be
purchasers of the excess capacity created. Management believes the first network
upgrade has been completed and capacity is available for commercial sale.
However, the outcome is uncertain and depends on a variety of factors, some of
which are beyond the Company's control. The Company is dependent upon the
network upgrades to achieve its objective. Management's plans to fund operations
and the transitioning services will potentially include public and private
sources and strategic corporate alliances.
The Company has incurred an accumulated deficit of $6,147,861 for the period
August 25, 1995 (date of inception) to December 31, 1997. Management believes
that as of December 31, 1997, the Company has received funding from the
preferred stock offerings consummated during 1997 (Note 3) to fund operations
through the first quarter of 1999. The Company will need to achieve positive
operational cash flow or complete additional equity or debt financings to fund
operations beyond the first quarter of 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Company's activities to date principally have been securing contractual
alliances with Incumbents, designing and constructing network segments,
obtaining capital and planning its proposed service. Accordingly, the Company's
financial statements are presented as a development stage enterprise, as
prescribed by Statement of Financial Accounting Standards No. 7, "Accounting and
Reporting by Development Stage Enterprises." As a development stage enterprise,
the Company has been relying on the issuance of preferred stock rather than
recurring revenues, for its primary sources of cash since inception.
CONSOLIDATION
The consolidated financial statements include the accounts of Pathnet, Inc.
and its wholly-owned subsidiary, Pathnet Finance I, LLC. All material
intercompany accounts and transactions have been eliminated in consolidation.
F-7
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited consolidated balance sheet as of March 31, 1998, the unaudited
consolidated statements of operations, changes in stockholders' equity and cash
flows for the three months ended March 31, 1997 and 1998 and the unaudited
consolidated statements of operations and cash flows for the period August 25,
1995 (date of inception) through March 31, 1998, have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of only
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 1998 are
not necessarily indicative of results that may be expected for the year ending
December 31, 1998.
LOSS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128), effective December 31, 1997. Basic earnings
(loss) per share is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding. Diluted earnings (loss)
per share is computed by dividing net income (loss) by the weighted average
common and potentially dilutive common equivalent shares outstanding determined
in the following table. The computation of diluted loss per share was
antidilutive in each of the years presented; therefore, basic and diluted loss
per share are the same.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amount of certain of its financial
instruments, which include cash equivalents and accounts payable, approximate
fair value due to the relatively short maturity of these instruments.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. The estimates involve judgments with
respect to, among other things, various future factors which are difficult to
predict and are beyond the control of the Company. Therefore, actual amounts
could differ from these estimates.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and
restricted cash. The Company has invested its excess cash in a money market
F-8
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
fund with a commercial bank. The money market fund is collateralized by the
underlying assets of the fund. The Company's restricted cash is maintained in an
escrow account (see Note 4) at a major bank. The Company has not experienced any
losses on its cash and cash equivalents and restricted cash.
PROPERTY AND EQUIPMENT
Property and equipment, consisting of office and computer equipment,
furniture and fixtures, leasehold improvements and network construction costs,
is stated at cost. Depreciation of the office and computer equipment and
furniture and fixtures is computed using the straight-line method, generally
over three to five years, based upon estimated useful lives, commencing when the
assets are available for service. Leasehold improvements are amortized over the
lesser of the useful lives of the assets or the lease term. Expenditures for
maintenance and repairs are expensed as incurred. Network construction costs
incurred during development are capitalized. Depreciation of the network
construction costs begins when the network equipment is ready for its intended
use and will be amortized over its estimated useful life. When assets are
retired or disposed, the cost and the related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is recognized in
operations for the period.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically evaluates the recoverability of its long-lived
assets. This evaluation consists of a comparison of the carrying value of the
assets with the assets' expected future cash flows, undiscounted and without
interest costs. Estimates of expected future cash flows represent management's
best estimate based on reasonable and supportable assumptions and projections.
If the expected future cash flow, undiscounted and without interest charges,
exceeds the carrying value of the asset, no impairment is recognized. Impairment
losses are measured as the difference between the carrying value of long-lived
assets and their fair value. No impairment losses were recognized during the
period August 25, 1995 (date of inception) to December 31, 1995 and the years
ended December 31, 1996 and 1997.
DEFERRED INCOME TAXES
Deferred income taxes are recognized for tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end, based on enacted laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
net deferred tax assets to the amount expected to be realized. The provision for
income taxes consists of the Company's current provision for federal and state
income taxes and the change in the Company's net deferred tax assets and
liabilities during the period.
STOCK-BASED COMPENSATION
The Statement of Financial Accounting Standards No. 123, (SFAS 123),
"Accounting for Stock-Based Compensation," allows companies to account for
employee stock-based compensation either under the provisions of SFAS 123 or
under the provisions of Accounting Principles Board Opinion No. 25, (APB 25),
"Accounting for Stock Issued to Employees", but requires pro forma disclosure in
the footnotes to the financial statements as if the measurement provisions of
SFAS 123 had been adopted. The Company has continued to account for its stock
based compensation in accordance with the provisions of APB 25.
F-9
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE
The Company earns revenue for project management and consulting services.
The Company defers revenue when contractual payments are received in advance of
the performance of services. Revenue is recognized over the related project
period as milestones are achieved. All of the Company's revenue to date has been
earned from four customers.
DEFERRED FINANCING COSTS
The Company has incurred costs related to obtaining future debt financing
arrangements. When the financing is obtained, the costs will be amortized over
the term of the financing arrangement. If the financing is not obtained, the
costs will be expensed.
RECENTLY ISSUED ACCOUNTING STANDARDS
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued two new standards that
became effective for reporting periods beginning after December 15, 1997,
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130), and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). Effective March 31, 1998, the Company adopted SFAS 130 and SFAS 131. The
adoption of these standards has no material affect on the Company's consolidated
financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, is comprised of the following at
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Network construction in progress................................. $ -- $6,831,795
Office and computer equipment.................................... 31,006 248,880
Furniture and fixtures........................................... 24,550 120,093
Leasehold improvements........................................... -- 62,344
------------ ------------
55,556 7,263,112
Less accumulated depreciation.................................... (9,376) (56,018)
------------ ------------
Property and equipment, net...................................... $ 46,180 $7,207,094
------------ ------------
------------ ------------
</TABLE>
Network construction costs include all direct material and labor costs
necessary to construct components of a high capacity digital microwave network
which is owned and maintained by the Company. Network construction in progress
includes approximately $5,100,000 of telecommunications equipment obtained from
NEC Industries, Inc. (NEC). As the Company has not yet paid for this equipment,
a corresponding amount is included in accounts payable at December 31, 1997.
F-10
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RESTRICTED CASH
On June 3, 1997, the Company signed the Agreement to Create and Manage a
High Capacity Telecommunications System (the Agreement) with Texaco Pipeline,
Inc. (Texaco). To assure performance of the installation services to be provided
by the Company under the Agreement, Texaco and the Company entered into an
Escrow Agreement which required the Company to make an initial cash deposit of
$750,000 with a financial institution. Interest earned on these funds remains in
the escrow. Upon providing documentation to Texaco showing expenses related to
the installation, the Company obtains approval from Texaco to draw down a
corresponding amount from the escrow balance to fund the network construction in
progress. This balance is wholly restricted and may not be used for any other
purpose.
5. CAPITAL STOCK TRANSACTIONS
COMMON STOCK
The initial capitalization of the Company on August 28, 1995 occurred
through the issuance of 2,500,000 shares of voting common stock and 2,500,000
shares of non-voting common stock. The shares of both the voting and non-voting
common stock are owned by the Founder of the Company. In February 1996, the
Founder returned 2,500,000 shares of non-voting common stock in exchange for
2,500,000 shares of voting common stock.
CONVERTIBLE PREFERRED STOCK
As part of its initial capitalization on August 25, 1995, the Company
initiated a private offering of 1,000,000 shares of Series A convertible
preferred stock for $1,000,000. Pursuant to the terms of the Investment and
Stockholders' Agreement, the offering closed in two phases of $500,000 each. As
of the signing of the Investment and Stockholders' Agreement, the Company
received $500,000, representing the first closing on this offering in 1995. In
addition, the offering provided for a convertible bridge loan in the amount of
$1,000,000. The bridge loan carries an interest rate of 12% per annum and is due
and payable in full on the earlier to occur of the anniversary date of the
bridge loan issuance or the closing date of the Company's next equity financing.
The bridge loan is convertible into Series B preferred stock at 73% of the price
of the preferred stock issued in an equity financing.
In February 1996, the Company issued 500,000 shares of Series A convertible
preferred stock to the original investors in exchange for $500,000, representing
the second closing of the Investment and Stockholders' Agreement. In August
1996, the Company drew $700,000 on a bridge loan with the original investors.
On December 23, 1996, the Company consummated a private offering of 609,756
shares of Series B convertible preferred stock for $2,000,000 less issuance
costs of $25,000. In addition, simultaneously, the $700,000 bridge loan plus
$33,367 of accrued interest was converted into 306,242 shares of Series B
convertible preferred stock. The Company recognized $271,107 of interest expense
to account for the beneficial conversion feature of the bridge loan. In
addition, $300,000 representing the committed but undrawn portion of the bridge
loan, was paid to the Company for the sale of 125,292 shares of Series B
convertible preferred stock at a discounted rate. The Company recognized
$110,883 of interest expense to account for the beneficial conversion feature of
the committed but undrawn bridge loan. On June 18, 1997, the Company received an
additional $2,000,000 in a second closing in exchange for 609,756 shares of
Series B convertible preferred stock. There were no issuance costs associated
with the second closing.
F-11
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL STOCK TRANSACTIONS (CONTINUED)
On October 31, 1997, the Company consummated a private offering of 939,850
shares of Series C convertible preferred stock for $10,000,054 less issuance
costs of $38,780. The Company will receive an additional $19,999,998 in a second
closing in exchange for 1,879,699 shares of Series C convertible preferred stock
upon the occurrence of all of the following: (1)(a) the Company has executed
definitive agreements, having terms and conditions which are approved by a
majority of the directors designated by the holders of the preferred stock, with
NEC or certain financial institutions, relating to credit facilities between the
Company, and NEC or such financial institutions, respectively or (b) the Company
closes a private offering of high yield debt, having terms and conditions which
are approved by a majority of the directors designated by the holders of the
preferred stock, (2) the Company has executed Fixed Point Microwave Services
Agreements or Agreements to Create and Manage a Telecommunications Network with
at least four Incumbents, (3) if neither the Company nor the Founder are then in
breach of any material terms of the Series A, Series B or Series C Investor and
Stockholder Agreements and (4) all conditions of purchase set forth in the
Series C convertible preferred stock Investors and Stockholders' Agreement have
been fulfilled. As of December 31, 1997, the Company had executed Fixed Point
Microwave Services Agreements or Agreements to Create and Manage a
Telecommunications Network with four Incumbents in satisfaction of item (2)
above. None of the other events have occurred.
Each share of Series A, Series B and Series C convertible preferred stock
entitles each holder to a number of votes per share equal to the number of
shares of Common Stock into which each share of Series A, Series B and Series C
convertible preferred stock is convertible.
The holders of the convertible preferred stock are entitled to receive
dividends in preference to and at the same rate as dividends are paid with
respect to the common stock. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, holders of each
share of Series A, Series B and Series C convertible preferred stock outstanding
are entitled to be paid before any payment shall be made to the holders of any
class of common stock or any stock ranking on liquidation junior to the
convertible preferred stock, an amount, in cash, equal to the original purchase
price paid by such holder plus any declared but unpaid dividends.
The liquidation preferences of the outstanding shares of Series A, Series B
and Series C convertible preferred stock are $1,000,000, $5,033,367, and
$10,000,054, respectively, as of December 31, 1997. In the event the assets of
the Company are insufficient to pay liquidation preference amounts, then all of
the assets available for distribution shall be distributed pro rata so that each
holder receives that portion of the assets available for distribution as the
number of shares of convertible preferred stock held by such holder bears to the
total number of shares of convertible preferred stock then outstanding.
Shares of the Series A, Series B, and Series C convertible preferred stock
may be converted at any time, at the option of the holder, into voting common
stock. The number of shares of voting common stock entitled upon conversion is
the quotient obtained by dividing the face value of the Series A, Series B and
Series C convertible preferred stock by the Applicable Conversion Rate, defined
as the Applicable Conversion Value of $0.20, $0.66 or $2.13 per share,
respectively.
Each share of convertible preferred stock shall automatically be converted
into the number of shares of voting common stock which such shares are
convertible upon application of the Applicable Conversion Rate immediately upon
the closing of a qualified underwritten public offering covering the offer and
sale of capital stock which is defined as: (i) the Company is valued on a
pre-money basis at greater than
F-12
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL STOCK TRANSACTIONS (CONTINUED)
$50,000,000, (ii) the gross proceeds received by the Company exceed $20,000,000,
and (iii) the Company uses a nationally recognized underwriter approved by
holders of a majority interest of the convertible preferred stock.
If the Company issues any additional shares of common stock of any class at
a price less than the Applicable Conversion Value, in effect for the Series A,
Series B or Series C convertible preferred stock immediately prior to such
issuance or sale, then the Applicable Conversion Value shall be adjusted
accordingly.
In the event a qualified public offering has not occurred prior to December
23, 2000, the holder of shares of Series A or Series B preferred stock can
require the Company to redeem the shares of Series A and Series B convertible
preferred stock. After receipt from any one holder of an election to have any
shares redeemed, the Company is required to send a notice to the Series A and
Series B preferred stockholders on December 24, 2000 of the redemption price. If
after sending the redemption notice to Series A and Series B preferred
stockholders, the Company receives requests for redemption on or prior to
January 11, 2001, from the holders of at least 67% of the Series A and Series B
convertible preferred stock taken together, the Company must redeem all shares
of Series A and Series B convertible preferred stock. Payment of the redemption
price is due on January 23, 2001, for a cash price equal to the original
purchase price paid by such holders for each share of Series A and Series B
convertible preferred stock as adjusted for any stock split, stock distribution
or stock dividends with respect to such shares. The successful completion of a
qualified public offering is not within the control of the Company. Therefore,
the Company does not present the Series A and Series B preferred stock as a
component of stockholders' equity.
In the event that a qualified public offering has not occurred prior to
November 3, 2001, the holder of shares of Series C preferred stock can require
the Company to redeem the shares of Series C convertible preferred stock. After
receipt from any one holder of an election to have any shares redeemed, the
Company is required to send a notice to the Series C preferred stockholders on
November 4, 2001 of the redemption price. If after sending the redemption notice
to Series C preferred stockholders, the Company receives requests for redemption
on or prior to November 21, 2001, from the holders of at least 67% of the Series
C convertible preferred stock, the Company must redeem all shares of Series C
convertible preferred stock. Payment of the redemption price is due on December
3, 2001 for a cash price equal to the original purchase price paid by such
holders for each share of Series C convertible preferred stock as adjusted for
any stock split, stock distribution or stock dividends with respect to such
shares. The successful completion of a qualified public offering is not within
the control of the Company. Therefore, the Company does not present the Series C
preferred stock as a component of stockholders' equity.
6. STOCK OPTIONS
On August 28, 1995, the Company adopted the 1995 Stock Option Plan (1995
Plan), under which incentive stock options and non-qualified stock options may
be granted to the Company's employees and certain other persons and entities in
accordance with law. The Compensation Committee, which administers the 1995
Plan, determines the number of options granted, the vesting period and the
exercise price. The 1995 Plan will terminate August 28, 2005 unless terminated
earlier by the Board of Directors.
F-13
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS (CONTINUED)
Options granted to date under the 1995 Plan generally vest over a three
period and expire either 30 days after termination of employment or 10 years
after date of grant. As of December 31, 1997, a total of 134,145 non-qualified
stock options and 731,710 incentive stock options were issued at an exercise
price of $0.02 per share, an amount estimated to equal or exceed the per share
fair value of the common stock at the time of any such grant.
On August 1, 1997, the Company adopted the 1997 Stock Incentive Plan (1997
Plan), under which incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, performance awards and certain other
types of awards may be granted to the Company's employees and certain other
persons and entities in accordance with the law. To date, only non-qualified
stock options have been granted. The Compensation Committee, which administers
the 1997 Plan, determines the number of options granted, the vesting period and
the exercise price. The 1997 Plan will terminate July 31, 2007 unless terminated
earlier by the Board of Directors.
Options granted under the 1997 Plan generally vest over a three to seven
year period and expire after: (1) ten years after the date of grant, (2) two
years after the date of the participant's termination without cause, disability
or death, (3) three months after the date of the participant's resignation, (4)
the date of the participant's termination with cause or (5) the date of any
material breach of any confidentiality or non-competition covenant or agreement
entered into between the participant and the Company.
As of December 31, 1997, a total of 2,222,700 non-qualified options were
issued, 1,480,610 at $0.66 and 742,090 at $2.13. Management estimates that the
exercise price of the options issued in 1997 is greater than the estimated per
share value of the common stock. The options issued at $2.13 vest on October 31,
2004 provided, however (i) if the Company has met 80% of its revenue and
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) budget
for the calendar year ending December 31, 1998, which budget is approved by the
Board of Directors of the Company, 50% of the shares covered by the options
shall vest and become exercisable on January 1, 1999, (ii) if the Company has
met 80% of its revenue and EBITDA budget for the calendar year ending December
31, 1999, which budget is approved by the Board of Directors of the Company, the
remaining 50% of the shares covered by the options shall vest and become
exercisable on January 1, 2000, and (iii) in the event that the first 50% of the
shares covered by the options did not vest on January 1, 1999 as set forth in
(i) above and the Company not only meets 80% of its revenue and EBITDA budget
for the year ending December 31, 1999 but exceeds 80% of its revenue and EBITDA
budget for the year ending December 31, 1999, which budget is approved by the
Board of Directors of the Company, in an amount at least equal to the deficiency
that occurred in the year ending December 31, 1998, 100% of the shares covered
by the options shall vest and become exercisable on January 1, 2000.
The options issued at $0.66 vest over three consecutive years subject to
certain acceleration provisions set forth in an employment agreement. Under
certain circumstances, upon the election of the employee upon termination of
employment, the Company will be required to pay the employee the fair value of
the vested options held on the date of such termination.
F-14
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS (CONTINUED)
Stock option activity for the period from the August 25, 1995 (date of
inception) to December 31, 1997 was as follows:
<TABLE>
<CAPTION>
1995 PLAN 1997 PLAN
------------------------------- -------------------------
NON- NON- WEIGHTED
INCENTIVE QUALIFIED QUALIFIED AVERAGE
STOCK STOCK STOCK EXERCISE
OPTIONS OPTIONS PRICE OPTIONS PRICE PRICE
--------- --------- --------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, August 25, 1995......... -- -- -- -- -- --
Granted...................................... 707,320 121,950 $ 0.02 -- -- $ 0.02
Exercised.................................... -- -- -- -- -- --
Canceled..................................... -- -- -- -- -- --
--------- --------- ----------
Options outstanding, December 31, 1995....... 707,320 121,950 $ 0.02 -- -- $ 0.02
Granted...................................... 24,390 12,195 $ 0.02 -- -- $ 0.02
Exercised.................................... -- -- -- -- -- --
Canceled..................................... -- -- -- -- -- --
--------- --------- ----------
Options outstanding, December 31, 1996....... 731,710 134,145 $ 0.02 -- -- $ 0.02
Granted...................................... -- -- -- 2,222,700 $ 0.66-$2.13 $ 1.15
Exercised.................................... -- -- -- -- -- --
Canceled..................................... -- -- -- -- -- --
--------- --------- ----------
Options outstanding, December 31, 1997....... 731,710 134,145 $ 0.02 2,222,700 $ 0.66-$2.13 $ 0.87
--------- --------- ----------
--------- --------- ----------
</TABLE>
At December 31, 1995, 1996 and 1997, 0, 560,975 and 707,315 options,
respectively, were exercisable. The weighted-average fair value of options
granted during the years ended December 3, 1995, 1996 and 1997, was $0.004,
$0.006 and $0.00, respectively.
The Company accounts for the fair value of its grants in accordance with APB
25. No compensation cost has been recognized for the stock options as all
options have been granted at the estimated per share fair value of the stock to
employees or directors of the Company. Had compensation cost for the Company's
stock option plan been determined based on the fair value at the grant date for
awards under the plan consistent with the method of SFAS 123, the Company's net
loss would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net loss as reported................................ $ 426,826 $ 1,743,635 $ 3,977,400
Pro forma net loss.................................. $ 427,793 $ 1,747,570 $ 3,978,164
Basic and diluted net loss per share as reported.... $ (0.09) $ (0.35) $ (0.80)
Pro forma basic and diluted net loss per share...... $ (0.09) $ (0.35) $ (0.80)
</TABLE>
The fair value of each option is estimated on the date of grant using a type
of Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the year ended
F-15
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS (CONTINUED)
December 31, 1995, 1996 and 1997, respectively: dividend yield of 0%, expected
volatility of 0%, risk-free interest rate of 6.0190, 6.35% and 6.55% and
expected terms of 4.6, 5.8 and 5.0 years.
As of December 31, 1997, the weighted average remaining contractual life of
the options is 9.21 years.
As of December 31, 1997 and 1996, the pro forma tax effects would include an
increase to the deferred tax asset and the valuation allowance of $298 and
$1,535, respectively; therefore, there is no pro forma tax effect related to
SFAS 123.
7. COMMITMENTS AND CONTINGENCIES
The Company maintains office space in Washington, D.C., Kansas and Texas.
The most significant lease relates to the Company's headquarters facility in
Washington, D.C. The partnership leasing the space in Washington, D.C. is
controlled by the Founder of the Company. The lease expires on August 31, 1998,
and is renewable by the Company for two additional years. Rent paid to this
related party during the year ended December 31, 1997, was approximately
$60,980. The Company has no amounts due to the related party as of December 31,
1997.
The Company's future minimum rental payments under noncancellable operating
leases are as follows: $215,222 in 1998, $79,491 in 1999, $58,155 in 2000, and
$1,354 in 2001. Rent expense for the years ended December 31, 1997 and 1996, was
$114,673 and $4,399, respectively.
In exchange for a non-compete agreement, the Company will pay an employee a
severance payment of $275,000 if such employee's employment with the Company is
terminated.
8. INCOME TAXES
The tax effect of temporary differences that give rise to significant
portions of the deferred tax asset at December 31, 1996 and 1997, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------- -------------
<S> <C> <C>
Deferred revenue................................................ $ -- $ 117,000
Capitalized start-up costs...................................... 661,000 1,271,227
Capitalized research and development costs...................... -- 79,333
Net operating loss carryforward................................. 14,000 754,458
------------- -------------
675,000 2,222,018
Less valuation allowance.................................. (675,000) (2,222,018)
------------- -------------
Net deferred tax asset.......................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
Capitalized costs represent expenses incurred in the organization and
start-up of the Company. For federal income tax purposes, these costs will be
amortized over sixty months once business operations commence.
F-16
<PAGE>
PATHNET, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company determined that certain
financing agreements being pursued may not be obtained resulting in the
immediate expensing of deferred financing costs recorded as an asset as of
December 31, 1997.
On April 8, 1998, the Company completed the issuance and sale of 350,000
units, each consisting of a $1,000 principal amount of 12 1/4% Senior Notes due
2008 (the "Notes") and a warrant to purchase 5.5 shares of common stock or
1,925,000 shares in total (the "Warrants") at an exercise price of $0.01 per
share for total gross proceeds of $350,000,000. Issuance costs of approximately
$11,200,000 have been paid. Approximately $345,900,000 of the proceeds have been
allocated to the Notes and approximately $4,100,000 have been allocated to the
Warrants based upon estimated fair values. Interest on the Notes will accrue at
an annual rate of 12 1/4% payable semiannually, in arrears, beginning October
15, 1998, with principal due in full on April 15, 2008. The Company used
$81,128,751 of proceeds to purchase U.S. Government debt securities which are
pledged as collateral for repayment of all interest through April 15, 2000 with
the balance deposited in cash accounts. The Notes are redeemable, in whole or
part, at any time on or after April 15, 2003 at the option of the Company, at
the following redemption prices (i) April 15, 2003; 106% of the principal
amount, (ii) April 15, 2004; 104% of the principal amount, (iii) April 15, 2005;
102% of the principal amount and (iv) April 15, 2006; 100% of the principal
amount. In addition, upon a change in control, as defined, each holder of the
Notes may require the Company to repurchase all or a portion of such holder's
Notes at a purchase price of cash equal to 101% of the principal amount.
The Notes contain numerous covenants which restrict the activities of
including limitations of debt, restricted payments, issuances and sales of
capital stock, affiliate transactions, liens, guarantees, sale of assets and
dividends.
The Warrants expire on April 15, 2008 and are not separately transferrable
until the earlier of (i) October 15, 1998, (ii) a registered exchange offer for
the Notes, (iii) the occurrence of an exercise event as defined, (iv) an event
of default as defined, and (v) a date determined by the lead initial purchaser.
On April 8, 1998, the Company completed the sale of 1,879,699 shares of
Series C convertible preferred stock for an aggregate purchase price of
approximately $20,000,000. There were no issuance costs associated with the
sale.
The Company intends to file a Registration Statement with the Securities and
Exchange Commission for an initial public offering (the Offering). On May 4,
1998, the Company's Board of Directors approved a 5-for-1 stock split, subject
to shareholder approval. The stock split will occur upon the effective date of
the aforementioned Registration Statement. All share and per share information
in this report has been changed to give effect to this stock split.
F-17
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
access charges................ The fees paid by long distances carriers for LECs for
originating and terminating long distance calls on the LECs'
local networks.
access tandem................. An interconnection point on an ILEC local network where
calls from central offices are aggregated for transmission
to other central offices and IXC facilities.
Andrew........................ Andrew Corporation.
AT&T.......................... AT&T Corporation.
ATC........................... American Tower Company.
ATM (Asynchronous Transfer
Mode)....................... An information transfer standard that is one of a general
class of packet technologies that relay traffic by way of an
address contained within the first five bytes of a standard
fifty-three-byte-long packet or cell. The ATM format can be
used by many different information systems, including area
networks, to deliver traffic at varying rates, permitting a
mix of voice data and video (multimedia).
bandwidth..................... The width of a communications channel.
Bellcore...................... Bell Communications Research.
bit error rate................ The number of received bits in error compared to the total
number of bits received.
CAD/CAM....................... Software for computer aided design and computer aided
manufacturing.
carrier....................... A provider of communications transmission services.
central office................ The switching center or central switching facility of an
ILEC.
CLEC (Competitive Local
Exchange Carrier)........... A company that competes with ILECs in local services
markets.
digital....................... Describes a method of storing, processing and transmitting
information through the use of distinct electronic or
optical pulses that represent the binary digits 0 and 1.
Digital transmission/ switching technologies employ a
sequence of discrete, distinct pulses to represent
information, as opposed to the continuously variable analog
signal.
DS-0, DS-1, DS-3.............. Standard North American telecommunication industry digital
signal formats, which are distinguishable by bit rate (the
number of binary digits (0 and 1) transmitted per second).
DS-0 service has a bit rate of 64 kilobits per second. DS-1
service has a bit rate of 1.544 megabits per second and DS-3
service has a bit rate of 44.736 megabits per second. A DS-0
can transmit a single uncompressed voice conversation.
DS-0 circuit mile............. Industry measurement of bandwidth capacity. The measurement
equals the product of route miles and the number of DS-0s.
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
extranet...................... The private networks of information service providers which
operate on the same principles and make use of the same
network technologies as the Internet, but are not part of
the Internet.
FAA........................... Federal Aviation Administration.
FCC........................... Federal Communication Commission.
ILEC (Incumbent Local Exchange
Carrier).................... The incumbent carrier providing local exchange services,
typically an RBOC created by the divestiture of AT&T.
Incumbents.................... Railroads, utilities, state and local governments and
pipelines who own existing telecommunications assets.
Initial System................ The initial system with a 1 x 1 configuration which is
comprised of non-protect radio and protect radio and all
radio components, antennae, waveguides, multiplexers,
software and other equipment and parts necessary for the
operation thereof.
interconnect.................. Connection of a telecommunications device or services to the
public switched telephone network ("PSTN").
interconnection............... Connection of a telecommunications device or services to the
public switched telephone network.
ISP (Internet Service
Provider)................... A company that provides businesses and consumers with access
to the Internet.
IXC........................... Inter Exchange Carrier.
LATAs (Local Access and
Transport Areas)............ The approximately 160 geographic areas that define the areas
between which the RBOCs currently are prohibited from
providing long distance services.
LEC (local exchange
carrier).................... A company providing local switched services, including ILECs
and CLECs.
long-haul circuit............. A dedicated telecommunications circuit generally between
locations in different LATAs.
MCI........................... MCI Communications, Inc.
NEA........................... New Enterprises Associates.
NEC........................... NEC Corporation together with its affiliates, including NEC
America, Inc. and NEC Industries, Inc.
NIPSCO........................ Northern Indiana Public Service Company.
NOC........................... Network Operations Center.
OC-24, OC-48.................. OC, or Optical Carrier, is a measure of a SONET transmission
optical carrier level. The number following the OC
designation is equal to the corresponding number of DS-3s
(e.g., OC-48 is equal to 48 DS-3s).
Part 101...................... Part 101 of the FCC's Rules.
path.......................... The physical spatial separation between point-to-point
towers.
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
POPs (Points of Presence)..... Locations where a Telecom Service Provider has installed
transmission equipment in a service area that serves as, or
relays calls to, a network switching center of that long
distance carrier.
PSTN.......................... Public switched telephone network.
Qwest......................... Qwest Communications International Inc.
RBOCs (Regional Bell Operating
Companies).................. The five remaining local telephone companies (formerly part
of AT&T) established as a result of the AT&T Divestiture
Decree.
reseller...................... A carrier that does not own transmission facilities, but
obtains communications services from another carrier for
resale to the public.
RF............................ Radio frequency.
route miles................... The number of miles of the telecommunications path along
which a transmission is directed as it would appear on a
network map.
SONET (Synchronous Optical
Network Technology)......... An electronics and network architecture for
variable-bandwidth products which enables transmission of
voice, data and video (multimedia) at very high speeds.
Sprint........................ Sprint Corporation.
switch........................ A device that selects the paths or circuits to be used for
transmission of information and a connection. Switching is
the process of interconnecting circuits to form a
transmission path between users and it also captures
information for billing purposes.
Telecom Service Providers..... IXCs, LECs, ISPs, RBOCs, other carrier's carriers, cellular
operators and resellers.
WAN........................... Wide area network.
WorldCom...................... WorldCom, Inc.
WTO........................... World Trade Organization.
</TABLE>
A-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
Use of Proceeds................................ 23
Dividend Policy................................ 23
Dilution....................................... 24
Capitalization................................. 25
Selected Financial Data........................ 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 28
Business....................................... 37
Management..................................... 55
Certain Relationships and Related
Transactions................................. 65
Security Ownership of Certain Beneficial Owners
and Management............................... 67
Description of Capital Stock................... 69
Description of Certain Indebtedness............ 73
Shares Available for Future Sale............... 74
Underwriting................................... 76
Legal Matters.................................. 78
Experts........................................ 78
Available Information.......................... 79
Forward-Looking Statements..................... 80
Index to Financial Statements.................. F-1
Glossary....................................... A-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTION.
SHARES
[LOGO]
COMMON STOCK
------------
PROSPECTUS
------------
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained in this Prospectus is subject to completion or amendment.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission. This Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any jurisdiction in which such offer, solicitation or
sale would be unlawful prior to registration, qualification or filing under the
securities law of any such jurisdiction.
<PAGE>
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED , 1998
P_R_O_S_P_E_C_T_U_S
SHARES
[LOGO]
COMMON STOCK
--------------------
All of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by Pathnet, Inc. ("Pathnet" or the
"Company"). Of the shares of Common Stock offered hereby, shares are
being offered for sale initially outside the United States and Canada by the
International Managers (the "International Offering") and shares are being
offered for sale initially in a concurrent offering in the United States and
Canada by the U.S. Underwriters (the "U.S. Offering", and, together with the
International Offering, the "Offering"). The initial public offering price and
the underwriting discount per share will be identical for both the International
Offering and the U.S. Offering. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "PTNT".
At the Company 's request, the U.S. Underwriters have reserved up to
shares for sale at the initial public offering price to certain of the Company's
officers, directors and employees, members of their immediate families and other
individuals who are business associates of the Company (including certain
vendors and consultants). The number of shares available for sale to the general
public will be reduced to the extent these individuals purchase such reserved
shares. Any reserved shares not purchased will be offered by the U.S.
Underwriters to the general public on the same basis as the other shares offered
hereby.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total........................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the International Managers and the U.S. Underwriters
options to purchase up to an additional shares and shares of
Common Stock, respectively, in each case exercisable within 30 days after
the date hereof, solely to cover over-allotments, if any. If such options
are exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
----------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
----------------------
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS INTERNATIONAL LIMITED
----------------------
The date of this Prospectus is , 1998.
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. Federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
"Non-United States Holder." A "Non-United States Holder" is a person or entity
that, for U.S. Federal income tax purposes, is (i) a non-resident alien
individual, (ii) a foreign corporation or partnership, or (iii) a non-resident
fiduciary of a foreign estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), and administrative interpretations as of the date hereof, all of
which may be changed either retroactively or prospectively. This discussion does
not address all aspects of U.S. Federal income and estate taxation that may be
relevant to Non-United States Holders in light of their particular circumstances
and does not address any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
PROSPECTIVE HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES INCOME AND OTHER TAX
CONSEQUENCES TO THEM OF HOLDING AND DISPOSING OF COMMON STOCK.
DIVIDENDS
Subject to the discussion below, dividends paid to a Non-United States
Holder of Common Stock generally will be subject to withholding tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty
unless the dividend is effectively connected with the conduct of a trade or
business within the United States, or, if an income tax treaty applies, is
attributable to a United States permanent establishment of the Non-United States
Holder and the Non-United States Holder provides the payor with proper
documentation (generally, Form 4224). In order to claim the benefit of an
applicable tax treaty rate, a Non-United States Holder may have to file with the
Company or its dividend paying agent an exemption or reduced treaty rate
certificate or letter in accordance with the terms of such treaty. Under United
States Treasury regulations currently in effect, for purposes of determining
whether tax is to be withheld at a 30% rate or at a reduced rate as specified by
an income tax treaty, the Company ordinarily will presume that dividends paid to
the address in a foreign country are paid to a resident of such country absent
knowledge that such presumption is not warranted (the "address rule"). However,
on October 6, 1997, the U.S. Treasury Department issued final regulations on
withholding of income tax payments to foreign persons, effective January 1,
2000, which will abolish the address rule for purposes of claiming a reduced
treaty rate. Effective January 1, 2000, a Non-United States Holder seeking a
reduced rate of withholding under an income tax treaty would generally be
required to provide to the Company a valid Internal Revenue Service Form W-8
certifying that such Non-United States Holder is entitled to benefits under an
income tax treaty. The final regulations also provide special rules for
determining whether, for purposes of assessing the applicability of an income
tax treaty, dividends paid to a Non-United States Holder that is an entity
should be treated as being paid to the entity itself or to the persons holding
an interest in that entity. A Non-United States Holder who is eligible for a
reduced withholding rate may obtain a refund of any excess amounts withheld by
filing an appropriate claim for a refund with the Internal Revenue Service.
In the case of dividends that are effectively connected with the Non-United
States Holder's conduct of a trade or business within the United States or, if
an income tax treaty applies, are attributable to a United States permanent
establishment of the Non-United States Holder, the Non-United States Holder will
generally be subject to regular U.S. income tax in the same manner as if the
Non-United States Holder were a United States resident. A Non-United States
corporation receiving effectively connected dividends also may be subject to an
additional "branch profits tax" which is imposed, under certain circumstances,
at a rate of 30% (or such lower rate as may be specified by an applicable
treaty) of the Non-United States corporation's "effectively connected earnings
and profits," subject to certain adjustments.
75
<PAGE>
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to U.S. Federal
income tax and respect to gain realized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with a trade or business of
such Non-United States Holder in the U.S., (ii) in the case of certain Non-
United States Holders who are non-resident alien individuals and hold the Common
Stock as a capital asset, such individuals are present in the U.S. for 183 or
more days in the taxable year of the disposition and either (a) such individuals
have a "tax home" (as defined for United States Federal income tax purposes) in
the U.S., or (b) the gain is attributable to an office or other fixed place of
business maintained by such individuals in the U.S., (iii) the Non-United States
Holder is subject to tax, pursuant to the provisions of U.S. tax law applicable
to certain U.S. expatriates whose loss of U.S. citizenship had as one of its
principal purposes the avoidance of U.S. taxes, or (iv) the Company is or has
been a "United States real property holding corporation" within the meaning of
section 897(c)(2) of the Code and, assuming that the Common Stock is regularly
traded on an established securities market for tax purposes, the Non-United
States Holder held, directly or indirectly, at any time within the five-year
period preceding such disposition more than 5% of the outstanding Common Stock.
Based upon its current and anticipated assets, the Company believes that it is
not a United States real property holding corporation. However, since the
determination of United States real property holding corporation status in the
future will be based upon the composition of the assets of the Company from time
to time and there are uncertainties in the application of certain relevant
rules, there can be no assurance that the Company will not become a United
States real property holding corporation in the future.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Under United States Treasury regulations, the Company must report annually
to the Internal Revenue Service and to each Non-United States Holder the amount
of dividends paid to such holder and any tax withheld with respect to such
dividends. These information reporting requirements apply even if withholding
was not required because the dividends were effectively connected with a trade
or business in the United States of the Non-United States Holder or withholding
was reduced or eliminated by an applicable income tax treaty. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-United States
Holder is a resident under the provisions of an applicable income tax treaty or
agreement.
United States backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting requirements)
generally will not apply to (i) dividends paid to Non-United States Holders that
are subject to the 30% withholding discussed above (or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding) or
(ii) under current law, dividends paid to a Non-United States Holder at an
address outside of the United States. However, under final United States
Treasury regulations, effective as of January 1, 2000, a Non-United States
Holder generally would be subject to backup withholding at a 31% rate, unless
certain certification procedures (or, in the case of payments made outside the
United States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of Common Stock
to beneficial owners that are not "exempt recipients" and that fail to provide
in the manner required certain identifying information.
The payment of the proceeds of the disposition of Common Stock to or through
the U.S. office of a broker is subject to information reporting unless the
disposing holder, under penalty of perjury, certifies its Non-United States
status or otherwise establishes an exemption. Generally, U.S. information
reporting and backup withholding will not apply to a payment of disposition
proceeds if the payment is made outside the U.S. through a Non-United States
office of a Non-United States broker. However, information
76
<PAGE>
reporting requirements (but probably, prior to January 1, 2000, not backup
withholding) will apply to a payment of disposition proceeds outside the U.S. if
(A) the payment is made through an office outside the U.S. of a broker that is
either (i) a U.S. person, (ii) a foreign person which derives 50% or more of its
gross income for certain periods from the conduct of a trade or business in the
U.S., (iii) a "controlled foreign corporation" for U.S. Federal income tax
purposes, or (iv) effective January 1, 2000, but probably not prior to such
date, a foreign broker that is (1) a foreign partnership, one or more of whose
partners are U.S. persons who, in the aggregate hold more than 50% of the income
or capital interest in the partnership at any time during its tax year, or (2) a
foreign partnership engaged at any time during its tax year in the conduct of a
trade or business in the United States, and (B) the broker fails to maintain
documentary evidence that the holder is a Non-United States Holder and that
certain conditions are met, or that the holder otherwise is entitled to an
exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withhold. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
FEDERAL ESTATE TAX
An individual Non-United States Holder who is treated as the owner of or has
made certain lifetime transfers of an interest in the Common Stock will be
required to include the value thereof in his gross estate for U.S. Federal
estate tax purposes, and may be subject to U.S. Federal estate tax unless an
applicable estate tax treaty provides otherwise. Estates of non-resident aliens
are generally allowed a statutory credit which generally has the effect of
offsetting the U.S. Federal estate tax imposed on the first $60,000 of the
taxable estate.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS TAX ADVISOR WITH
RESPECT TO THE UNITED STATES FEDERAL INCOME TAX AND FEDERAL ESTATE TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF COMMON STOCK, INCLUDING THE
APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN, OR OTHER TAXING
JURISDICTION.
77
<PAGE>
UNDERWRITING
Merrill Lynch International, Morgan Stanley & Co. International Limited and
Bear, Stearns International Limited are acting as lead managers (the "Lead
Managers") for each of the International Managers named below (the
"International Managers"). Subject to the terms and conditions set forth in an
international purchase agreement (the "International Purchase Agreement") among
the Company and the International Managers, and concurrently with the sale of
shares of Common Stock to the U.S. Underwriters (as defined below), the Company
has agreed to sell to the International Managers, and each of the International
Managers severally and not jointly has agreed to purchase from the Company, the
number of shares of Common stock set forth opposite its name below:
<TABLE>
<CAPTION>
INTERNATIONAL MANAGER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Merrill Lynch International................................................
Morgan Stanley & Co. International Limited.................................
Bear, Stearns International Limited........................................
-------
Total..................................................................
-------
-------
</TABLE>
The Company also entered into a U.S. purchase agreement (the "U.S. Purchase
Agreement") with certain underwriters in the United States and Canada (the "U.S.
Underwriters" and, together with the International Managers, the "Underwriters")
for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch")
are acting as representatives (the "U.S. Representatives"). Subject to the terms
and conditions set forth in the U.S. Purchase Agreement, and concurrently with
the sale of shares of Common Stock to the International Managers
pursuant to the International Purchase Agreement, the Company agreed to sell to
the U.S. Underwriters, and the U.S. Underwriters severally have agreed to
purchase from the Company, an aggregate of shares of Common Stock. The
initial public offering price per share and the total underwriting discount per
share of Common Stock are identical under the International Purchase Agreement
and the U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Managers and the several U.S. Underwriters, respectively,
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the shares of Common Stock being sold pursuant to each such agreement, if
any, of the shares of Common Stock being sold pursuant to such agreement are
purchased. Under certain circumstances, under the International Purchase
Agreement and the U.S. Purchase Agreement, the commitments of non-defaulting
Underwriters may be increased. The closings with respect to the sale of shares
of Common Stock to be purchased by the International Managers and the U.S.
Underwriters are conditioned upon one another.
The Lead Managers have advised the Company that the International Managers
propose initially to offer the shares of Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $
per share of Common Stock. The International Managers may allow, and such
dealers may reallow, a discount not in excess of $ per share of Common Stock
on sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The Company has granted options to the International Managers, exercisable
for 30 days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the initial public offering price set
forth on the cover page of this Prospectus, less the underwriting discount. The
International Managers may exercise these options solely to cover
over-allotments, if any, made on the sale of the Common Stock offered hereby. To
the extent that the International Managers exercise these options, each
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of Common Stock proportionated to such
International Managers' initial amount reflected in the foregoing table. The
Company also has granted options to the U.S. Underwriters exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock to cover over-allotments, if any, on
terms similar to those granted to the International Managers.
78
<PAGE>
At the Company's request, the Underwriters have reserved up to shares
for sale at the initial public offering price to certain of the Company's
directors, officers and employees, members of their immediate families and other
individuals who are business associates of the Company (including certain
vendors and consultants). The number of shares of Common Stock available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares which are not orally confirmed for
purchase within one day of the price of the Offerings will be offered by the
Underwriters to the general public on the same terms as the other shares offered
hereby.
The Company and the Company's executive officers and directors and the
Original Investors have agreed, subject to certain exceptions, not to directly
or indirectly (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or otherwise dispose of or transfer any shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock, whether now owned or thereafter acquired by the person
executing the agreement or with respect to which the person executing the
agreement thereafter acquires the power of disposition, or file a registration
statement under the Securities Act with respect to the foregoing or (ii) enter
into any swap or other agreement or any transaction that transfers, in whole or
in part, the economic consequence of ownership of the Common Stock whether any
such swap or transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise, without the prior written consent of Merrill
Lynch on behalf of the Underwriters for a period of 180 days after the date of
this Prospectus. See "Shares Eligible for Future Sale."
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Managers and the U.S. Underwriters are permitted to sell shares of
Common Stock to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are non-U.S. or non-Canadian persons or to persons they
believe intend to resell to persons who are non-U.S. or non-Canadian persons,
and the International Managers and any dealer to whom they sell shares of Common
Stock will not offer to sell or sell shares of Common Stock to U.S. persons or
to Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions pursuant to the
Intersyndicate Agreement.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined through negotiations
between the Company and the Lead Managers and the U.S. Representatives. The
factors considered in such negotiations are an assessment of the Company's
recent results of operations, future prospects of the Company and its industry
in general, market prices of securities of companies engaged in activities
similar to those of the Company and prevailing conditions in the securities
market. There can be no assurance that an active trading market will develop for
the Common Stock or that the Common Stock will trade in the public market
subsequent to the Offerings at or above the initial public offering price.
Application will be made for quotation of the Common Stock on the Nasdaq
National Market System, under the symbol "PTNT".
The Underwriters do not expect sales of the Common Stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered hereby.
The Company agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the International Managers and
U.S. Underwriters may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the U.S. Representatives are permitted to
79
<PAGE>
engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, I.E., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in the
open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Stock to the extent that it
discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the U.S.
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Each International Manager has agreed that (i) it has not offered or sold
and, prior to the expiration of the period of six months from the Closing Date,
will not offer or sell any shares of Common Stock to persons in the United
Kingdom, except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Common Stock in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received by
it in connection with the issuance of Common Stock to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements)(Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or any
other material relating to the Company or shares of Common Stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of Common Stock may not be offered or sold, directly or indirectly, and neither
this Prospectus nor any other offering material or advertisements in connection
with the shares of Common Stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
80
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 10
Use of Proceeds................................ 23
Dividend Policy................................ 23
Dilution....................................... 24
Capitalization................................. 25
Selected Financial Data........................ 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 28
Business....................................... 37
Management..................................... 55
Certain Relationships and Related
Transactions................................. 65
Security Ownership of Certain Beneficial Owners
and Management............................... 67
Description of Capital Stock................... 69
Description of Certain Indebtedness............ 73
Shares Eligible for Future Sale................ 74
Certain United States Federal Tax Consequences
to Non-United States Holders of Common
Stock........................................ 76
Underwriting...................................
Legal Matters..................................
Experts........................................
Available Information..........................
Forward-Looking Statements.....................
Index to Financial Statements.................. F-1
Glossary....................................... A-1
</TABLE>
SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS INTERNATIONAL LIMITED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable in connection
with the offering of the shares being registered hereby, other than underwriting
discounts and commissions. All the amounts shown are estimates, except the
Securities and Exchange Commission registration fee and the NASD filing fee. All
of such expenses are being borne by Pathnet, Inc. (the "Company").
<TABLE>
<S> <C>
SEC registration fee............................................... $ 29,500
NASD filing fee.................................................... 10,500
NASDAQ listing fee................................................. *
Accounting fees and expenses....................................... *
Legal fees and expenses............................................ *
Printing and engraving expenses.................................... *
Registrar and transfer agent's fees................................ *
Miscellaneous fees and expenses.................................... *
---------
Total.............................................................. $ *
---------
---------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a provision in the certificate of incorporation of each corporation
organized thereunder, eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Amended and Restated Certificate of Incorporation of the Company (the "Restated
Certificate of Incorporation") eliminates the personal liability of directors to
the fullest extent permitted by Delaware law.
Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by them
in connection with any suit or proceeding other than by or on behalf of the
corporation, if they acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to a criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
With respect to actions by or on behalf of the corporation, Section 145
permits a corporation to indemnify its officers, directors, employees and agents
against expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit, provided such
person meets the standard of conduct described in the preceding paragraph,
except that no indemnification is permitted in respect of any claim where such
person has been found liable to the corporation, unless the Court of Chancery or
the court in which such action or suit was brought approves such indemnification
and determines that such person is fairly and reasonably entitled to be
indemnified.
The Restated Certificate of Incorporation and the Amended and Restated
Bylaws of the Company (the "Restated Bylaws"), provide for the indemnification
of officers and directors and certain other parties (the "Indemnitees") of the
Company to the fullest extent permitted by law.
The U.S. Purchase Agreement (the "U.S. Purchase Agreement") by and among the
Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley &
Co. Incorporated and Bear, Stearns &
II-1
<PAGE>
Co. Inc. (collectively, the "U.S. Underwriters") will provide for
indemnification by the U.S. Underwriters of the Company, its directors and
officers, and persons who control the Company within the meaning of Section 15
of the Securities Act of 1933 (the "Securities Act") for certain liabilities,
including liabilities under the Securities Act.
The International Purchase Agreement (the "International Purchase
Agreement") by and among the Company, certain underwriters outside the United
States and Canada (the "International Managers"), with Merrill Lynch
International, Morgan Stanley & Co. International Limited and Bear, Stearns
International Limited acting as lead managers (the "Lead Managers") will provide
for indemnification by the International Managers of the Company, its directors
and officers, and persons who control the Company within the meaning of Section
15 of the Securities Act for certain liabilities, including liabilities under
the Securities Act.
The Purchase Agreement by and among Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc., TD Securities and
Salomon Brothers Inc (together, the "Initial Purchasers") and the Company, dated
as of April 1, 1998 (the "Unit Purchase Agreement"), provides for
indemnification of the Company and persons who control the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934 (the "Exchange Act") for certain liabilities, including
liabilities under the Securities Act.
The Notes Registration Rights Agreement by and among the Company and the
Initial Purchasers, dated as of April 8, 1998 (the "Notes Registration Rights
Agreement"), provides for indemnification of the Company, its directors and
officers, and persons who control the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act for certain liabilities,
including liabilities under the Securities Act.
The Warrant Registration Rights Agreement by and among the Company, the
Initial Purchasers and certain other persons, dated as of April 8, 1998 (the
"Warrant Registration Rights Agreement"), provides for indemnification of the
Company, its directors and officers, and persons who control the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act for certain liabilities, including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the last three years, the Company has issued a total of 1,000,000 shares
of Common Stock to David Schaeffer, and has issued and sold in private
offerings: (i) a total of 1,500,000 shares of Series A convertible preferred
stock for an aggregate purchase price of $1,500,000; (ii) a total of 1,651,046
shares of Series B convertible preferred stock for an aggregate purchase price
of $5,000,000; (iii) a total of 2,819,549 shares of Series C convertible
preferred stock for an aggregate purchase price of $50,000,000; and (iv) a total
of 350,000 units, consisting of $350,000,000 aggregate principal amount of
12 1/4% Senior Notes due 2008 and Warrants to purchase shares of Common Stock,
for an aggregate purchase price of $350,000,000 (which includes $10,500,000 of
Initial Purchasers' Discount). For further details of these transactions, see
"Certain Relationships and Related Transactions," "Description of Certain
Indebtedness--Senior Notes" and Note 5 to the Company's financial statements
included in the Prospectus included in this Registration Statement. Also in the
last three years, the Company has issued options to purchase an aggregate of
853,655 shares of Common Stock under the Pathnet, Inc. 1995 Stock Option Plan,
and options to purchase an aggregate of 3,404,875 shares of Common Stock (as of
May 4, 1998) under the Pathnet, Inc. 1997 Stock Incentive Plan, to certain of
its employees. For further details of these options, see "Management--1995 Stock
Option Plan," "Management--1997 Stock Incentive Plan" and Note 6 to the
Company's financial statements included in the Prospectus included in this
Registration Statement. All of these shares, units and options were issued in
reliance upon the exemption from registration contained in Section 4(2) of the
Securities Act.
II-2
<PAGE>
In addition, in connection with the Offering, an aggregate of 27,352,975
shares of Common Stock will be issued to the holders of the Company's Series A,
Series B and Series C convertible preferred stock in connection with the
Preferred Stock Conversion. These securities will be issued in reliance upon the
exemption from registration contained in Section 3(a)(9) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1(1) Form of U.S. Purchase Agreement among the Company, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated and Bear, Stearns & Co. Inc. (collectively, the
"U.S. Underwriters").
1.2(1) Form of International Purchase Agreement among the Company, certain underwriters outside the United
States and Canada (the "International Managers"), with Merrill Lynch & Co., Merrill Lynch
International, Morgan Stanley & Co. International Limited and Bear, Stearns International Limited
acting as lead managers (the "Lead Managers").
3.1(1) Form of Amended and Restated Certificate of Incorporation of the Company.
3.1(1) Form of Amended and Restated Bylaws of the Company.
4.1(1) Form of Common Stock Certificate.
5.1(1) Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding legality of securities.
10.1(2) Fixed Point Microwave Services Agreement by and between the Company and Northern Border Pipeline
Company, dated October 17, 1997.
10.2(2) Fixed Point Microwave Services Agreement by and between the Company and Northern Indiana Public Service
Company, dated January 30, 1998.
10.3(2) Fixed Point Microwave Services Agreement by and between the Company and Northeast Missouri Electric
Power Cooperative, dated December 1, 1997.
10.4(2) Fixed Point Microwave Services Agreement by and between the Company and KN Energy, Inc., dated
September 8, 1997.
10.5(2) Fixed Point Microwave Services Agreement by and between the Company and Pathnet/Idaho Power Equipment,
LLC, dated April 17, 1998.
10.6(2) Agreement to Create and Manage a High Capacity Telecommunications System by and between the Company and
Texaco Pipeline, Inc., dated June 3, 1997.
10.7 Binding Term Sheet, by and between the Company and American Tower Corporation, dated February 17, 1998,
as amended by Amendment No. 1, dated February 25, 1998, and Amendment No. 2, dated April 8, 1998.
10.8 Maintenance Services Agreement by and between the Company and KN Energy, Inc., dated October 11, 1997.
10.9 Maintenance Services Agreement by and between the Company and Northern Indiana Public Service Company,
dated January 30, 1998.
10.10 Maintenance and Provisioning Services Agreement by and between the Company and Northern Border Pipeline
Company, dated April 29, 1998.
10.11 Master Agreement by and between the Company and NEC America, Inc., dated August 8, 1997, as amended by
Amendment No. 1, dated November 9, 1997 and Amendment No. 2, dated April 2, 1998.
10.12 Letter Agreement, by and between the Company and TCI Wireline, Inc., dated December 16, 1997.
10.13(3) Non-Qualified Stock Option Agreement by and between the Company and Richard A. Jalkut, dated August 4,
1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.14(3) Non-Qualified Stock Option Agreement by and between the Company and David Schaeffer, dated October 31,
1997.
10.15 Employment Agreement by and between the Company and Richard A. Jalkut, dated August 4, 1997, as amended
by Amendment to Employment Agreement, dated April 6, 1998.
10.16(3) Non-Disclosure, Assignment of Inventions and Non-Competition Agreement by and between the Company and
Kevin Bennis, dated February 2, 1998.
10.17(3) Pathnet, Inc. 1995 Stock Option Plan.
10.18(3) Pathnet, Inc. 1997 Stock Incentive Plan, as amended by Amendment No. 1 to 1997 Stock Incentive Plan.
10.19 Indenture by and between the Company and The Bank of New York, as trustee, dated April 8, 1998.
10.20 Pledge Agreement by and among the Company, The Bank of New York, as trustee, and The Bank of New York,
as securities intermediary, dated April 8, 1998.
10.21 Notes Registration Rights Agreement by and among the Company and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co., Inc., TD Securities (USA) Inc. and Salomon
Brothers Inc (collectively, the "Initial Purchasers"), dated April 8, 1998.
10.22 Warrant Agreement by and between the Company and The Bank of New York, as warrant agent, dated April 8,
1998.
10.23 Warrant Registration Rights Agreement by and among the Company, Spectrum Equity Investors, L.P., New
Enterprise Associates VI, Limited Partnership, Onset Enterprise Associates II, L.P., FBR Technology
Venture Partners, L.P., Toronto Dominion Capital (U.S.A.) Inc., Grotech Partners IV, L.P., Richard A.
Jalkut, David Schaeffer and the Initial Purchasers, dated April 8, 1998.
10.24(1) Amended and Restated Investment and Stockholders' Agreement by and among the Company and certain
stockholders of the Company set forth on the signature pages.
10.25 Purchase Agreement by and between Andrew Corporation and Path Tel, Inc., dated July 1, 1995, as amended
by Amendment One, dated September 16, 1996, and Amendment Two, dated July 1, 1997.
10.26 Lease Agreement, by and between 6715 Kenilworth Avenue General Partnership and the Company, dated
August 9, 1997, as amended by Amendment to Lease, dated March 5, 1998.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers and Lybrand, L.L.P.
23.2(1) Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature pages).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
(1) To be filed by amendment.
(2) Certain portions of this exhibit have been omitted based on a request for
confidential treatment filed separately with the Securities and Exchange
Commission.
(3) Constitutes management contract or compensatory arrangement.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required, are inapplicable or have been
disclosed in the notes to other financial statements and therefore have been
omitted.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the underwriters at the closing
specified in the underwriting agreements certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the Restated Certificate of Incorporation, the Restated Bylaws, the
U.S. Purchase Agreement, the International Purchase Agreement, the Unit Purchase
Agreement, the Notes Registration Rights Agreement and the Warrant Registration
Rights Agreement or otherwise, the Company has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the District of Columbia on this
eighth day of May, 1998.
<TABLE>
<S> <C> <C>
PATHNET, INC.
By: /s/ RICHARD A. JALKUT
-----------------------------------------
Richard A. Jalkut
CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David Schaeffer, Richard A. Jalkut and Michael A.
Lubin and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities (until revoked in writing), to sign
any and all amendments, including post-effective amendments to this Registration
Statement, and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) and the Securities Act of 1933, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or his or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dated indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ DAVID SCHAEFFER
- ------------------------------ Chairman of the Board and May 8, 1998
David Schaeffer Director
/s/ RICHARD A. JALKUT
- ------------------------------ Chief Executive Officer May 8, 1998
Richard A. Jalkut and Director
/s/ WILLIAM R. SMEDBERG, V Vice-President, Finance
- ------------------------------ (principal accounting May 8, 1998
William R. Smedberg, V and financial officer)
/s/ PETER J. BARRIS
- ------------------------------ Director May 8, 1998
Peter J. Barris
/s/ KEVIN J. MARONI
- ------------------------------ Director May 6, 1998
Kevin J. Maroni
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ PATRICK J. KERINS
- ------------------------------ Director May 8, 1998
Patrick J. Kerins
/s/ RICHARD K. PRINS
- ------------------------------ Director May 7, 1998
Richard K. Prins
/s/ STEPHEN A. REINSTADTLER
- ------------------------------ Director May 6, 1998
Stephen A. Reinstadtler
</TABLE>
II-7
<PAGE>
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED
& FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. SUCH PORTIONS ARE
DESIGNATED "[***]"
Exhibit 10.1
THIS FIXED POINT MICROWAVE SERVICES AGREEMENT is made and entered into
as of the 17th day of October, 1997 (the "EFFECTIVE DATE"), by and between
PathNet, Inc. ("PATHNET"), a Delaware corporation and Northern Border
Pipeline Company ("INCUMBENT"), a Texas partnership (collectively, the
"PARTIES" and each, a "PARTY").
W I T N E S S E T H:
WHEREAS, PathNet is engaged in the business of creating high capacity,
digital, microwave communications systems for purposes of marketing and selling
the excess long distance telecommunications capacity created by such systems;
WHEREAS, Incumbent is the owner and operator of an existing microwave
telecommunications system; and
WHEREAS, Incumbent desires to engage PathNet as, and PathNet desires to act
as, Incumbent's sole representative for the purpose of (i) installing, managing,
and operating a high capacity digital microwave system along Incumbent's
microwave paths and (ii) marketing and selling any Excess Capacity created by
such high capacity digital microwave system.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Parties agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINITIONS: As used in this Agreement, the following terms
shall have the meanings indicated:
1.1.1 1/0 MULTIPLEXER: Any device that multiplexes capacity
between the DS-1 and the DS-0 levels.
1.1.2 1 X 1: A microwave radio configuration consisting of a
primary and a protect radio.
1.1.3 AFFILIATE: With respect to any Person, any other Person
that directly or indirectly controls, is controlled by, or is under common
control with such Person. For the purposes of this definition, "control"
(including the terms "controlled by" and "under common control with"), as
used with respect to any Person, shall mean the possession, directly or
indirectly, the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities, by contract, or otherwise.
1.1.4 AGREEMENT: This Fixed Point Microwave Services Agreement,
including the Schedules and Exhibits attached hereto, as the same may be
amended, supplemented or modified in accordance with the terms hereof.
1.1.5 ALARM AND EVENT REPORT: As defined in SECTION 7.7 of
SCHEDULE A.
<PAGE>
1.1.6 ARBITRATION RULES: As defined in SECTION 16.2.3.
1.1.7 AS-BUILT DRAWING: As defined in SECTION 4.1.4 of SCHEDULE
A.
1.1.8 AVAILABLE EXCESS CAPACITY: The total PathNet Excess
Capacity available (and not allocated) for use or sale on the System at any
given time from Commissioning through the Expiration Date.
1.1.9 AVERAGE SOLD EXCESS CAPACITY: The cumulative daily average
of [(PathNet Excess Capacity -- Available Excess Capacity)/PathNet Excess
Capacity], taken as a percentage.
1.1.10 BIT ERROR RATE: The number of received bits in error
compared to the total number of bits received.
1.1.11 BREACHING PARTY: As defined in SECTION 16.1.2.
1.1.12 BUSINESS DAY: Any day other than a Saturday, a Sunday, or a
day on which the banking institutions in either New York, New York, or the
city and state in which the principal executive offices of PathNet within
the United States are located, are not open for business.
1.1.13 CAPACITY EXPANSION: An increase in telecommunication
channels a System is able to transmit, receive and transport above those
created by the installation of the Initial System, achieved by an addition
to or change in equipment.
1.1.14 CAPACITY EXPANSION SCHEDULE: As defined in SECTION 7.1 of
SCHEDULE A.
1.1.15 CENTER: As defined in SECTION 16.2.3.
1.1.16 CERCLA: Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. SECTION 6901 ET SEQ., as amended.
1.1.17 CHANNEL PLAN: As defined in SECTION 1.1 of SCHEDULE A.
1.1.18 COMMISSIONING: With respect to each path or Segment, the
date on which the circuits of such path or Segment are available for
service after completion of all required site acceptance testing.
1.1.19 CONFIDENTIAL INFORMATION: Any and all technical, business
and financial information, in whatever form, furnished or disclosed by one
Party to the other Party, including but not limited to information on the
System, cost estimates, technical data, information, pricing, and the terms
and conditions of this Agreement.
2
<PAGE>
1.1.20 CUSTOMER AGREEMENTS: As defined in SECTION 9.8.1.
1.1.21 CUTOVER PLAN: As defined in SECTION 4.1.1 of SCHEDULE A.
1.1.22 DEFICIENCY LIST: As defined in SECTION 5.7 of SCHEDULE A.
1.1.23 DISPUTE: As defined in SECTION 16.2.1.
1.1.24 DROP AND INSERT: That process wherein a part of the
information carried in a transmission system is demodulated (dropped) at an
intermediate point and different information is entered (inserted) for
subsequent transmission.
1.1.25 DS-0: 64,000 bits per second; The world-wide standard speed
for digitizing one voice conversation using pulse code modulation, which is
approximately equivalent to a single voice or data channel.
1.1.26 DS-1: 24 DS-0's.
1.1.27 DS-3: 672 DS-0's or 28 DS-1's.
1.1.28 EFFECTIVE DATE: As defined in the introductory paragraph of
this Agreement.
1.1.29 ELECTION PAYMENT: As defined in SECTION 4.3.1 for Segment
A.
1.1.30 ELECTION PERIOD: The eighty-four (84) month period
following Commissioning of the Initial System on Segment A during which
Incumbent shall fund the Initial System up to the Incumbent Payment cap.
1.1.31 ENCUMBRANCES: Any security interests, mortgages, liens,
pledges, charges, claims, easements, reservations, restrictions, clouds,
equities, rights of way, options, rights of first refusal and other
encumbrances whether or not relating to the extension of credit or the
borrowing of money. To "Encumber" shall mean to effect any Encumbrance.
1.1.32 EQUIPMENT: Any and all digital microwave radios, radio
components, cards, antennas, waveguides, multiplexers, software and other
equipment or parts required for the operation of the System provided and
installed by PathNet and its subcontractors, as set forth on EXHIBIT A-1 to
SCHEDULE A.
1.1.33 ERROR FREE SECOND: Any one-second interval that does not
contain a measurable bit error.
1.1.34 ERRORED SECONDS: Any one-second interval during which one
or more bit errors occur.
3
<PAGE>
1.1.35 EXCESS CAPACITY: The PathNet Excess Capacity and the
Incumbent Excess Capacity.
1.1.36 EXISTING SYSTEM INVENTORY: As defined in SECTION 1.1 of
SCHEDULE A.
1.1.37 EXPIRATION DATE: The date on which this Agreement and the
rights and obligations hereunder are terminated or expire in accordance
with SECTION 3.
1.1.38 FAA: The Federal Aviation Administration, or any other
Federal agency at the time administering tower registration requirements
and regulations.
1.1.39 FACILITIES: Incumbent's towers, shelters, sites and all
equipment owned by Incumbent relating to and used in association with such
towers, shelters and sites for the purpose of operating the System.
1.1.40 FAILED SECOND: Any one-second interval that has 1,544 bit
errors at a DS-1 rate.
1.1.41 FCC: The Federal Communications Commission, or any other
Federal agency at the time administering the Communications Act of 1934, as
amended, the Telecommunications Act of 1996, as amended and the rules and
regulations promulgated thereunder.
1.1.42 FCC CODE: The Communications Act of 1934, as amended, the
Telecommunications Act of 1996, as amended and the rules and regulations
promulgated thereunder and related thereto.
1.1.43 FIRST EXTENSION PERIOD: As defined in SECTION 3.2.2.
1.1.44 FORCE MAJEURE EVENT: As defined in SECTION 15.3.
1.1.45 FORM 415: As defined in SECTION 10.1.1.
1.1.46 FREQUENCY AVAILABILITY MODEL: As defined in SECTION 1.1 of
SCHEDULE A.
1.1.47 FREQUENCY DIVERSITY: A method of protecting a radio signal
by providing a second radio signal on a different frequency, which will
assume the radio signal load when the regular channel fails.
1.1.48 GOVERNMENTAL AUTHORITY: Any nation or government, any state
or other political subdivision thereof and any court, panel, judge, board,
bureau, commission, agency or other entity, body or other person exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
4
<PAGE>
1.1.49 HAZARDOUS MATERIAL: Any material amount of any substance,
matter or waste which is or becomes regulated by any Federal, state or
local law, ordinance, order, rule, regulation, code or any government
restrictions or requirement including, but not limited to, asbestos,
petroleum products and "Hazardous Substances" and "Hazardous Wastes" (as
such terms are defined in CERCLA and RCRA.)
1.1.50 INCUMBENT: As defined in the introductory paragraph.
1.1.51 INCUMBENT DESIRED PATH: As defined in SECTION 9.3.
1.1.52 INCUMBENT EXCESS CAPACITY: As defined in SECTION 9.1.2.
1.1.53 INCUMBENT INITIAL ALLOCATION OF CAPACITY: [***]
1.1.54 INCUMBENT ITEMS: As defined in SECTION 4.1.1(A).
1.1.55 INCUMBENT OUT-OF-POCKET PATH FUNDING: [Path Replacement
Costs -- ((i) Path PCS Recovery + (ii) any and all PathNet Funding for a
given Path + (iii) AFUDC + (iv) Overhead)].
1.1.56 INCUMBENT PAYMENT CAP: As defined in SECTION 4.1.1(B).
1.1.57 INCUMBENT REPRESENTATIVE: As defined in SECTION 17.11.
1.1.58 INITIAL PERIOD: As defined in SECTION 3.2.1.
1.1.59 INITIAL SYSTEM: The initial system with a 1 x 1
configuration which is comprised of the first 85 DS-1's (which is
equivalent to 2,040 DS-0's) of the System and the System's 85 DS-1 protect
channels.
1.1.60 INTERCONNECTION: The point at which a private network is
connected to (i) the PSTN, which can include IXC POPs, tandem access
points, the central office, internet service providers, or major industrial
customer points of presence or (ii) another private network.
1.1.61 INTERFERENCE: Any measurable impairment in the performance
of the System or the quality of the signals received or transmitted on the
System.
1.1.62 IXC: An inter-exchange carrier; a telephone company that
provides long-distance telephone service between LATA's but not within any
one LATA.
1.1.63 JUDGMENT: Any order, judgment, writ, decree, award or other
determination, decision or ruling of any court, judge, justice or
magistrate, any other Governmental Authority or any arbitrator.
5
<PAGE>
1.1.64 LATA: Local Access and Transport Area; one of 161 local
geographic areas in the United States within which a local telephone
company may offer telecommunications services.
1.1.65 LOSSES: Any and all losses, claims, shortages, damages,
liabilities, expenses (including reasonable attorneys' and accountants'
fees), assessments, tax deficiencies and taxes (including interest and
penalties thereon) sustained, suffered or incurred by any Person, including
the Parties hereto, arising from any matter which is the subject of
indemnification under SECTION 14.
1.1.66 MAINTENANCE SERVICES AGREEMENT: The Maintenance Services
Agreement, by and between PathNet and Incumbent, as the same may be amended
from time to time in accordance with its terms.
1.1.67 MATERIAL ADVERSE EFFECT: Any event, fact, circumstance or
occurrence, which results or would result in a material adverse change in
or a material adverse effect on any of: (i) the condition (financial or
otherwise), business, performance, operations, properties, or prospects of
such Person; (ii) the legality, validity or enforceability of this
Agreement; or (iii) the ability of such Person to perform its material
obligations under this Agreement.
1.1.68 MODIFICATIONS SOW: As defined in SECTION 2.1 of SCHEDULE A.
1.1.69 NETWORK MANAGEMENT SYSTEM: As defined in SECTION 7.6 of
SCHEDULE A.
1.1.70 NETWORK MONITORING CENTER: As defined in SECTION 7.5 of
SCHEDULE A.
1.1.71 NON-BREACHING PARTY: As defined in SECTION 16.1.2.
1.1.72 NOTICE OF ELECTION: As defined in SECTION 14.3.
1.1.73 OC-3 MULTIPLEXER: Any device that multiplexes capacity
between the OC-3 and the DS-1 levels.
1.1.74 OPERATOR: Northern Plains Natural Gas Company, Operator of
Incumbent.
1.1.75 ORDER WIRE: A service channel consisting of a 64,000 bit
per second circuit between sites.
1.1.76 OSHA: The Occupational Safety and Health Act, as amended.
1.1.77 OUTAGE: When the Bit Error Rate in each second is worse
than 10-3 for a period of ten (10) consecutive seconds.
6
<PAGE>
1.1.78 PART 101: Part 101 of Title 47 of the Code of Federal
Regulations, as amended.
1.1.79 PARTNER: Shall mean partners of Incumbent and the partners
of any Partner.
1.1.80 PARTY: As defined in the introductory paragraph.
1.1.81 PATH: The spatial separation between two microwave tower
facilities in the System.
1.1.82 PATH PCS RECOVERY: The total amounts actually recovered
from PCS bid winners on every Path comprising Segment A, as such amount may
change from time to time.
1.1.83 PATH REPLACEMENT COSTS: Total costs of the Incumbent Items
as defined in SECTION 4.1.1(a)(i) herein for Segment A, as reasonably
documented by PathNet and Incumbent, including Incumbent's Allowance for
Funds Used During Construction ("AFUDC") + Incumbent's Overhead
("Overhead") deferred in accordance with generally accepted accounting
principles per Path, PROVIDED, HOWEVER, that (i) the incremental costs of
providing back-to-back terminals at every site over the cost of a repeater
terminal for those sites planned by PathNet as repeater sites and (ii) any
costs associated with multiplexing from the DS-1 to DS-0 levels are
excluded from the definition of Path Replacement Costs. (Costs for any
tower, shelter, right-of-way and infrastructure currently existing and
owned by Incumbent are also excluded.)
1.1.84 PATH STUDIES: As defined in SECTION 1.1 of SCHEDULE A.
1.1.85 PATHNET: As defined in the introductory paragraph.
1.1.86 PATHNET ALLOCABLE REVENUE PERCENTAGE: [***]
1.1.87 PATHNET EXCESS CAPACITY: At any given time, the
telecommunications channels or DS-0's on a per mile basis that the System
creates, transports and receives, less the capacity allocated to Incumbent
and the protect channels, pursuant to the Channel Plan, as amended from
time to time.
1.1.88 PATHNET FUNDING: Any payment made by PathNet to Incumbent
for (i) Path Replacement Costs, (ii) any payment made by PathNet pursuant
to SECTION 4.1.1(B), and (iii) or the value of any services provided by
PathNet and included in Incumbent Items for Segment A and not paid for by
Incumbent, provided PathNet Funding shall equal [Path Replacement Costs -
(Incumbent Out-of-Pocket Path Funding + Path PCS Recovery + AFUDC +
Overhead)].
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1.1.89 PATHNET SOFTWARE: The software (including applications
software and systems software) owned or licensed from a third party by
PathNet used to provide the services covered in this Agreement.
1.1.90 PCN: A Prior Coordination Notice sent pursuant to Part 101.
1.1.91 PERMITS: Any and all authorizations, approvals, consents,
licenses, permits, easements, certificates and other rights and permissions
necessary to conduct such Person's business and to own, lease and operate
such Person's properties as currently conducted, owned, leased or operated.
1.1.92 PERSON: An individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, or other entity of any kind or any Governmental Authority.
1.193 POP: Point Of Presence - the interconnection between any
two facilities based networks.
1.1.94 PRE-COMMISSIONING TEST EQUIPMENT: All equipment required
for the testing required to be performed on the System pursuant to SECTION
5 of SCHEDULE A, including, but not limited to, all required digital volt
meters, optical power meters, oscilloscopes, RF signal generators, noise
figure meters, noise figure test sets, RF variable attenuators, DADE adjust
cables, receiver card extenders and extension cords.
1.1.95 PRELIMINARY CONSTRUCTION SCHEDULE: As defined in SECTION
1.1 of SCHEDULE A.
1.1.96 PROGRESS REPORT: As defined in SECTION 4.1.2 of SCHEDULE A.
1.1.97 PROJECT DRAWINGS: As defined in SECTION 1.3 of SCHEDULE A.
1.1.98 PROJECT MANAGEMENT PLAN: As defined in SECTION 4.1.1 of
SCHEDULE A.
1.1.99 PROJECT SCHEDULE: As defined in SECTION 4.1.1 of SCHEDULE
A.
1.1.100 PROTECTION CONFIGURATION: An engineering plan under which
channel capacity is protected either on a fully redundant basis or on a 1 x
n protection basis.
1.1.101 PSTN: Publicly Switched Telephone Network.
1.1.102 QUARTERLY REVENUE REPORT: As defined in SECTION 9.10.
1.1.103 RCRA: Resource Conservation and Recovery Act, 42 U.S.C.
SECTION 9601 ET SEQ., as amended.
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1.1.104 REQUIREMENT OF LAW: With respect to any Person, all
Federal, state and local laws, rules, regulations, Judgments, injunctions,
standards, codes, limitations, restrictions, conditions, prohibitions,
notices, demands or other requirements or determinations of a court or
other Governmental Authority or an arbitrator, applicable to or binding
upon such Person, any of its property or any business conducted by it or to
which such Person, any of its assets or any business conducted by it is
subject.
1.1.105 REVENUE: As defined in SECTION 9.12.3.
1.1.106 SECOND EXTENSION PERIOD: As defined in SECTION 3.2.3.
1.1.107 SEGMENT: The portion of a microwave communications network
existing between two geographic points. For purposes of this Agreement,
SEGMENT A is the portion of Incumbent's microwave communications network
between Port of Morgan, Montana and Ventura, Iowa. For purposes of this
Agreement, SEGMENT B is the portion of Incumbent's microwave communications
network between Ventura, Iowa and the terminus of Incumbent's System in
Illinois.
1.1.108 SERVICES: As defined in SECTION 7.1.
1.1.109 SEVERELY ERRORED SECONDS: Any one second interval where the
Bit Error Rate is greater than or equal to 1 x 10-3 at a DS-1 rate
regardless of the cause of degradation affecting the channel error
performance including, but not limited to, unprotected equipment failures
and any other factors that contribute to poor performance.
1.1.110 SONET: Synchronous Optical Network; a family of fiber-optic
transmission rates from 51.84 Mbps to 13.22 Gbps, created to provide the
flexibility needed to transport many digital signals with different
capacities and to provide a standard to which manufacturers may design.
1.1.111 SPACE DIVERSITY: Protection of a radio signal by providing
a separate antenna on the same tower to assume the radio signal load when
the regular transmission path on the primary antenna fades, thereby
ensuring continuous transmission.
1.1.112 SPARE PARTS: The equipment and parts provided by PathNet to
Incumbent pursuant to the performance of Incumbent's obligations under the
Maintenance Services Agreement.
1.1.113 SPECIFICATIONS: As defined in SECTION 7.2.
1.1.114 STATION LOG BOOK: As defined in SECTION 6.2 of SCHEDULE A.
1.1.115 SUBCONTRACTORS: Any firm, corporation, or person working
directly or indirectly for a company that furnishes or performs a portion
of the work, labor or material.
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1.1.116 SWITCHED MOD SECTION: A section of network between two
adjacent back-to-back terminals.
1.1.117 SYSTEM: The high-capacity digital SONET microwave radio
equipment, antenna, waveguide, Facilities, Network Management System, all
other equipment and materials related thereto, and FCC licenses and other
licenses and Permits related thereof, operated for the purpose of
transmitting, receiving and transporting telecommunications signals over
Incumbent's Segments set forth on SCHEDULE B.
1.1.118 SYSTEM BUDGET: As defined in SECTION 1.1 of SCHEDULE A.
1.1.119 SYSTEM DESIGN: As defined in SECTION 1.1 of SCHEDULE A.
1.1.120 SYSTEM PAYMENT: As defined in SECTION 4.3.2(A) for Segment
B.
1.1.121 TECHNOLOGY: Inventions, ideas, processes, formulas, and
know-how.
1.1.122 TOWER ANALYSIS: As defined in SECTION 1.1 of SCHEDULE A.
1.1.123 WAYSIDE CHANNELS: The additional DS-1 of telecommunications
capacity within each radio beyond the base OC-3 capacity.
1.2 TERMS GENERALLY. The definitions in SECTION 1.1 and elsewhere in this
Agreement shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "herein",
"hereof", "hereto" and "hereunder" and words of similar import refer to this
Agreement (including the Schedules and Exhibits) in its entirety and not to any
part hereto unless the context shall otherwise require. All references herein
to Sections, Exhibits and Schedules shall be deemed references to Sections of,
and Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Unless otherwise expressly provided herein or unless the context shall
otherwise require, any references as of any time to the "Certificate of
Incorporation," "Articles of Incorporation," "charter," "organizational or
constituent documents" or "Bylaws" of any Entity, to any agreement (including
this Agreement) or other contract, instrument or document or to any agreement
statute or regulation are to it as amended and supplemented from time to time
(and, in the case of a statute or regulation to any corresponding provisions of
successor statutes or regulations) up to and including the Effective Date. Any
reference in this Agreement to a "day" or number and "days" (without the
explicit qualification of "Business") shall be interpreted as a reference to a
calendar day or number of calendar days. If any action or notice is to be taken
or given on or by a particular calendar day, and such calendar day is not a
Business Day, then such action or notice shall be deferred until, or may be
taken or given on, the next Business Day.
SECTION 2. RELATIONSHIP OF THE PARTIES
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2.1 INDEPENDENT CONTRACTOR, REPRESENTATIVE AND NETWORK MANAGER. Incumbent
shall appoint PathNet and PathNet shall serve in the following capacities during
the term of this Agreement:
2.1.1 INDEPENDENT CONTRACTOR. As an independent contractor,
PathNet will serve as Incumbent's representative in performing analytical
pre-design and design services and installing, testing and ensuring the
performance of the System, except that for any Capacity Expansion, PathNet
shall serve as Incumbent's sole and exclusive representative in accordance
with the terms and conditions set forth in SECTION 6 and in SCHEDULE A.
2.1.2 EXCLUSIVE MARKETING REPRESENTATIVE. As the exclusive
representative for the marketing and sale of Excess Capacity for Incumbent,
PathNet will market and sell the Excess Capacity created by System, as
described in SECTION 9.
2.1.3 NETWORK MANAGER. In the role of a network manager, PathNet
will serve as the point of contact for any Outage or trouble on the System
and shall operate the Network Management System and the Network Monitoring
Center as described in SECTION 7.5 and SECTION 7.6 of SCHEDULE A.
2.2 NO JOINT VENTURE, ETC. The Parties expressly disclaim any intention
to create, and nothing herein shall be construed as creating, a partnership,
joint venture, agency or employment relationship between PathNet and Incumbent.
2.3 RESTRICTIONS ON ACTIONS OF INCUMBENT. For the term of this Agreement,
Incumbent shall not operate parallel microwave telecommunications facilities or
systems to those set forth in SCHEDULE B for the purpose of selling or otherwise
providing any capacity on such parallel facilities or systems.
SECTION 3. TERM AND EXPIRATION
3.1 TERM, EXTENSION PERIODS AND RENEWAL.
3.1.1 TERM. This Agreement shall commence on the Effective Date
and shall be in full force and effect until the later of the expiration of
the Initial Period or any Extension Period of either Segment A or B, as set
forth in this SECTION 3, or until terminated by Incumbent as provided in
SECTION 3.3.
3.2 INITIAL AND EXTENSION PERIODS
3.2.1 INITIAL PERIOD. The initial term (the "INITIAL PERIOD")
shall commence upon the receipt of the FCC common carrier license for
Segment A and shall expire on the fourth (4th) anniversary of the
Commissioning of Segment B.
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3.2.2 FIRST EXTENSION PERIOD. In the event the Average Sold
Excess Capacity is at least ten percent (10%) during the Initial Period,
the term of the Agreement shall be automatically extended for an extension
period (the "FIRST EXTENSION PERIOD") commencing on the day after the
expiration of the Initial Period and expiring on the tenth (10th)
anniversary thereafter; provided PathNet shall notify Incumbent of its
intent to exercise its option to extend the term of the Agreement at least
one hundred and eighty (180) days prior to the end of the preceding term.
3.2.3 SECOND EXTENSION PERIOD. In the event the Average Sold
Excess Capacity is at least twenty percent (20%) during the Initial Period
and the First Extension Period, the term of the Agreement shall be
automatically extended for a second extension period (the "SECOND EXTENSION
PERIOD") commencing on the day after the expiration of the First Extension
Period and expiring on the tenth (10th) anniversary thereafter; provided
PathNet shall notify Incumbent of its intent to exercise its option to
extend the term of the Agreement at least one hundred and eighty (180) days
prior to the end of the preceding term.
3.2.4 SUBSEQUENT EXTENSIONS. Upon expiration of the Second
Extension Period thereof this Agreement shall be automatically renewed for
a one-year term, and at the end of such one-year term for additional
one-year terms for each year thereafter, unless terminated by either Party
upon written notice to the other Party to that effect delivered at least
ninety (90) days before the end of the second extension period or any such
one-year term.
3.3 TERMINATION. To the extent PathNet (a) fails to make payment on the
undisputed portion of any of the following payments: (i) Election Payment
pursuant to the terms of SECTION 4.3.1(A), (ii) Any payment exceeding the amount
of the Incumbent Payment Cap pursuant to SECTION 4.1.1(B), (iii) System Payment
pursuant to SECTION 4.3.2(A), (iv) Payment of Revenue pursuant to SECTION
9.12.4; or (b) fails to meet the Average Sold Excess Capacity threshold as set
forth in SECTION 3.2.2 and SECTION 3.2.3, Incumbent shall have the right to
terminate this Agreement upon written notice to PathNet; provided that PathNet
shall have the right to cure its default caused by the failure to make any
payment pursuant to this SECTION 3.3(A), for a period of fifteen (15) days
following receipt of the written notice of default from Incumbent.
SECTION 4. COSTS
4.1 INCUMBENT COSTS.
4.1.1 INCUMBENT ITEMS AND INCUMBENT PAYMENT CAP
(a) INCUMBENT ITEMS. Incumbent shall pay for the services,
functions, materials and other items listed in (i)
SECTION 1.A and (ii) SECTION 1.B of SCHEDULE C
(collectively, the "INCUMBENT ITEMS") in the manner set
forth in SECTION 4.1.2.
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(b) INCUMBENT PAYMENT CAP. Incumbent shall pay an amount
not to exceed [***]
(the "INCUMBENT PAYMENT CAP") in
the aggregate for the performance and completion of the
Incumbent Items for Segment A. PathNet shall pay for
all amounts incurred over the Incumbent Payment Cap in
the completion and performance of the Incumbent Items
for Segment A provided that such costs will be included
as part of the PathNet Funding. As soon as Incumbent
is aware that the actual costs of Incumbent Items for
Segment A will exceed the Incumbent Payment Cap,
Incumbent shall notify PathNet to that effect.
4.1.2 PAYMENT FOR INCUMBENT ITEMS. Incumbent shall within thirty
(30) days pay for any Incumbent Items upon receipt of an invoice or other
bill from PathNet or from an equipment vendor or service provider (pursuant
to any PathNet requested retention), provided PathNet has approved such
purchase order, invoice or bill before any payment is made by Incumbent.
4.2 INCUMBENT OPERATING AND ADMINISTRATION COSTS. Incumbent shall pay the
operating and administration costs for Segments A and B, as set forth in SECTION
2 of SCHEDULE C as such costs are actually incurred and become due and payable
in the course of the Incumbent's performance of its obligations under this
Agreement.
4.3 PATHNET COSTS.
4.3.1 SEGMENT A.
(a) ELECTION PAYMENT. At any time during the Election
Period and from time to time, PathNet, in its sole
discretion, shall have the right to pay Incumbent any
amount of the Incumbent Out-of-Pocket Path Funding for
the right to additional future Revenue from the sale of
Excess Capacity on the System, provided any such
payment shall be included as part of PathNet Funding
(and the Incumbent Out-of-Pocket Funding shall be
recalculated) and the percentage Revenue paid to
Incumbent shall be adjusted pursuant to SECTION 5.1.1
to reflect an increase in PathNet Allocable Revenue
Percentage. As of the date of completion of the
Election Period or at any time during the Election
Period, PathNet, in its sole discretion, shall pay
Incumbent an amount equal to the current Incumbent
Out-of-Pocket Path Funding for the applicable paths (as
such Funding may be adjusted pursuant to any and all
additional PathNet Funding) on at least ninety (90%)
percent of Incumbent's Paths comprising Segment A of
the System ("Election Payment"), provided the
percentage Revenue paid to Incumbent shall be adjusted
pursuant to SECTION 5.1.1. If PathNet fails to pay the
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Election Payment upon completion of the Election
Period, Incumbent shall have the right to terminate
this Agreement.
4.3.2 SEGMENT B.
(a) SYSTEM PAYMENT. Upon Commissioning of the Initial
System on Segment B, PathNet shall pay Incumbent the
quarterly payments as set forth in EXHIBIT C-2 to
SCHEDULE C ("System Payment").
4.4 PATHNET OPERATING AND ADMINISTRATION COSTS. PathNet shall pay for the
operating and administration costs on Segments A and B, as set forth in SECTION
3 of SCHEDULE C as such costs are actually incurred and become due and payable
in the course of PathNet's performance of its obligations under this Agreement.
4.5 CHANGE ORDERS. This Agreement anticipates (i) future issuance of
change orders for equipment and services beyond the scope of this SECTION 4, and
(ii) PathNet's provision of related equipment and services in accordance with
such orders. To the extent mutually agreed upon by the Parties, all such orders
shall be deemed to be supplements to and governed by the terms of this
Agreement; provided PathNet and Incumbent's Estimated Costs may be modified to
reflect any agreed upon change orders.
SECTION 5. REVENUE SHARING
5.1 SEGMENTS A AND B.
5.1.1 ALLOCATION OF CAPACITY AND REVENUE SHARING - SEGMENT A.
PathNet shall provide Incumbent Initial Allocation of Capacity and pay to
the Incumbent Revenue pursuant to the formulas set forth below: (i) upon
Commissioning of the Initial System, a percentage of Revenue, if any, from
the sale of PathNet Excess Capacity on Segment A of the Initial System
equal to [***]
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5.1.2 REVENUE SHARING - SEGMENT B. PathNet shall pay to Incumbent
the following Revenue pursuant to the formulas set forth below: [***]
5.2 USE OF FACILITIES.
5.2.1 RIGHT TO OPERATE. Incumbent shall provide to PathNet the
exclusive right and PathNet shall have the right to install and operate the
System (including, without limitation, full access to such System) at each
of Incumbent's sites and Facilities, as set forth in SCHEDULE B, as is
required and necessary for the performance of PathNet's rights and
obligations under this Agreement.
5.2.2 PEACEFUL ENJOYMENT, USE AND ACCESS. Incumbent shall grant
to PathNet the right to the peaceful use, enjoyment and possession of the
Facilities during the term of this Agreement as required for the
performance of PathNet's rights and obligations under this Agreement, which
rights shall include, but not be limited to (i) the right to use
Incumbent's Facilities and (ii) upon the reasonable request by PathNet, the
right to full and free access to Incumbent's Facilities and related
equipment; PROVIDED, HOWEVER, any such access granted by Incumbent to
PathNet shall be subject to the security, health and safety and other
regulatory, procedural and policy requirements of Incumbent, as set forth
in SECTION 5.4. PathNet's continuous and uninterrupted non-use of the
Facilities for purposes described in this Agreement for one (1) year shall
be sufficient to demonstrate abandonment unless PathNet shall have notified
Incumbent in writing of its reasons for non-use.
5.2.3 INTERFERENCE. During the term of this Agreement, Incumbent
shall not license or otherwise permit any Person to use its Facilities
(including the transfer of any rights to the Facilities) if the use of such
Facilities by such Person would cause any Interference on the System. In
the event another tenant of Incumbent causes any Interference on the
System, Incumbent shall compel such tenant to immediately take all steps
necessary to correct and eliminate such Interference, including, without
limitation, enforcing provisions in any license or other agreement between
Incumbent and such tenant and compelling such tenant to cease operation of
such tenant's system, to remove such tenant's equipment or materials or to
modify such tenant's equipment or materials. Incumbent acknowledges that
any Interference shall cause irreparable harm to PathNet and the prompt
cessation of Interference is material to PathNet's interest in the
Facilities and PathNet's performance under this Agreement and, as such,
PathNet shall be entitled to injunctive relief in the enforcement of this
section.
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5.3 VISITING AND EXITING FACILITIES. Upon exiting any Facility, PathNet,
on behalf of itself and its employees, agents and Subcontractors, shall ensure
that such Facility is returned to a condition, which existed immediately prior
to such visit.
5.4 INCUMBENT SECURITY PROCEDURES, POLICY ON DRUGS AND ALCOHOL AND SAFETY
REQUIREMENTS.
5.4.1 INCUMBENT SECURITY PROCEDURES. At the request of Incumbent,
PathNet shall require its employees, agents and Subcontractors upon any
site visit to comply with Incumbent's reasonable security procedures in
effect as of the Effective Date, which procedures are attached hereto as
SCHEDULE E. If and to the extent Incumbent requires PathNet employees,
agents or Subcontractors to be escorted to Incumbent facilities, such
requirements shall be explicitly set forth in SCHEDULE E. Notwithstanding
the foregoing, Incumbent shall allow PathNet employees, agents or
Subcontractors to bring any testing equipment, photographic equipment or
both video and audio recording equipment necessary for the performance of
PathNet's obligations under this Agreement.
5.4.2 INCUMBENT POLICY ON DRUGS AND ALCOHOL IN THE WORKPLACE. At
the request of Incumbent, PathNet shall require its employees, agents or
Subcontractors to comply with Incumbent's reasonable substance abuse
policies and procedures in effect as of the Effective Date, which policies
and procedures are attached hereto as SCHEDULE G.
5.4.3 INCUMBENT SAFETY PROCEDURES. At the request of Incumbent,
PathNet shall require its employees, agents and Subcontractors to comply
with Incumbent's reasonable rules and regulations governing the health and
safety of its employees in effect on the Effective Date, which rules and
regulations are attached hereto as SCHEDULE H.
5.4.4 CLEARANCES AND OTHER REQUIREMENTS. At the request of
Incumbent, PathNet shall require its employees, agents or Subcontractors to
(i) apply to Incumbent for any necessary reasonable clearances and (ii)
comply with all other reasonable and applicable requirements, rules,
regulations or ordinances regarding any Person's ability to have access to
Incumbent's sites and Facilities.
5.5 CO-LOCATION. Incumbent shall allow PathNet, at no additional charge,
to co-locate at Incumbent's Facilities all equipment necessary to support the
Interconnections set forth on EXHIBIT A-7 to SCHEDULE A and any additional
interconnections equipment that may be added by PathNet from time to time and at
any time during the term of this Agreement, subject to the limitations set forth
in SECTION 3 of SCHEDULE A.
5.6 REMOVAL OF EQUIPMENT. PathNet shall, at Incumbent's request,
remove any or all Equipment from any Capacity Expansion from Incumbent's
Facilities within sixty (60) days after the Expiration Date. In the event
PathNet fails to perform such requested removal within such sixty (60) day
period, as determined by Incumbent in its sole discretion, Incumbent may restore
each site to its condition as of Commissioning, (reasonable wear and tear and
damage
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from the elements excepted), and PathNet shall promptly pay Incumbent all costs
reasonably incurred by Incumbent for such removal and restoration.
5.7 REMOVAL OF HAZARDOUS MATERIALS. Within ninety (90) days after
the Expiration Date, PathNet shall remove from Incumbent's sites any and all
Hazardous Materials, which were brought to Incumbent's sites by PathNet during
the term of this Agreement.
SECTION 6. PROGRAM MANAGEMENT; PROJECT MANAGEMENT; PROJECT SCHEDULE
6.1 PROGRAM MANAGER. In connection with the Services and other services
performed by PathNet under this Agreement, PathNet shall provide a program
manager whose duties shall include (i) supervising the project through design,
installation and operation, (ii) supervising the project manager, (iii)
overseeing the field manager and the other PathNet personnel, (iv) coordinating
the business operations of the System including the sale of Excess Capacity as
set forth in SECTION 9 and (v) ensuring the performance of PathNet's rights and
obligations under this Agreement.
6.2 PROJECT MANAGEMENT. In connection with the modifications and
installation of the Facilities set forth in SECTION 2 and SECTION 4 of SCHEDULE
A, PathNet shall provide a project manager, a field manager, an applications
engineer and a project engineer, each of whom shall have the duties as set forth
below:
6.2.1 PROJECT MANAGER. PathNet shall provide a project manager
whose duties shall include ensuring the overall functional integrity of the
delivered System, the preparation, amendment and adherence to a
construction schedule, and compliance with PathNet's other obligations
under SCHEDULE A.
6.2.2 FIELD MANAGER. PathNet shall provide a field manager whose
duties shall include the oversight and direction of all on-site activities,
the coordination of all Subcontractors and all required communication with
the project manager.
6.2.3 APPLICATIONS ENGINEER. PathNet shall provide an
applications engineer, whose duties shall include the review and
translation of the System configuration into specific hardware
requirements, precise interface levels, intra and inter-rack cabling and
all other necessary peripheral equipment, rack profiles and required
Interconnection data.
6.2.4 PROJECT ENGINEER. PathNet shall provide a project engineer
whose duties shall include the performance of all planning and support
activities and a detailed site survey to gather data for development of the
installation plan and testing plan.
6.3 PROJECT SCHEDULE. PathNet shall provide all reasonable efforts to
construct Segments A and B within seven (7) months from the time all permits and
approvals have been received; PROVIDED, HOWEVER, PathNet shall complete the
installation and construction of
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Segment A by no later than December 31, 1997 and Segment B by no later than the
date of commencement of pipeline commercial operations.
SECTION 7. SERVICES AND SYSTEMS SPECIFICATIONS
7.1 SERVICES.
7.1.1 SYSTEM DESIGN, MODIFICATION, INSTALLATION, OPERATION AND
PERFORMANCE. PathNet and Incumbent shall perform their respective
functions with respect to the design, modification, installation, operation
and performance of the System as set forth on SCHEDULE A and in this
SECTION 7 (the "SERVICES").
7.1.2 UPGRADE OF SYSTEM. In the event PathNet sells at least
fifty (50%) percent of the Average Sold Excess Capacity of the System
configured at any time or can demonstrate commitments for the sale of such
Average Sold Excess Capacity, PathNet may, at its own expense, upgrade the
System and Equipment, and the System and Equipment operation policies and
procedures, including, but not limited to, (i) replacing Equipment, (ii)
adding newly available improved Equipment, and (iii) modifying policies,
procedures and specifications relating to the System, to conform such
policies, procedures and specifications with new Technology or industry
standards.
7.1.3 INCUMBENT TRAINING. PathNet shall provide to Incumbent the
training as set forth on SCHEDULE J.
7.1.4 PERFORMANCE OF THE SERVICES. PathNet shall have the right,
subject to Incumbent's approval, such approval shall not be unreasonably
withheld, to engage Subcontractors to perform any of the Services.
7.2 SPECIFICATIONS.
7.2.1 GENERAL. PathNet and Incumbent shall perform the Services
in accordance with any and all technical and operational specifications set
forth in SCHEDULE A (the "SPECIFICATIONS").
7.2.2 CHANNEL PLAN.
(a) ORIGINAL CHANNEL PLAN. On the Effective Date, Incumbent shall
deliver to PathNet a proposed T-1 channelization plan, as
detailed in EXHIBIT A-4, setting forth its proposed capacity
needs at each site listed on SCHEDULE B. Such capacity shall in
no event exceed Incumbent Initial Allocation of Capacity and
shall be subject to Drop and Insert capacity at each Switched Mod
Section. PathNet shall incorporate Incumbent's proposed
channelization plan into the Channel Plan subject to the
limitations set forth above.
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(b) AMENDED CHANNEL PLAN. Incumbent shall have the right to modify,
its allocated capacity (as described in the Channel Plan) along
the network any time after Commissioning, provided that
sufficient Drop and Insert capacity exists between each Switched
Mod Section using available Wayside Channels to effect such
modification, by providing written notice to PathNet to such
effect. Within ninety (90) days after receipt of any such
written notice from Incumbent, PathNet shall make such
modification to the configuration of the Channel Plan at no
charge to Incumbent. Incumbent shall not reconfigure the Channel
Plan in any manner other than as set forth in this section.
7.2.3 SPECIFICATIONS, STANDARDS AND INSPECTIONS. In connection with
the Services set forth in SECTION 2 and SECTION 4 of SCHEDULE A, PathNet
shall comply with the following requirements:
(a) REASONABLE EFFORTS. PathNet shall use commercially reasonable
efforts to ensure that the modification of the System set forth
in SECTION 2 of SCHEDULE A and the installation of the System set
forth in SECTION 4 of SCHEDULE A occur as expeditiously as
possible.
(b) INDUSTRY STANDARDS. All Services and materials supplied pursuant
to SCHEDULE A must meet or exceed all applicable Specifications.
Where Specifications are not stated, such work performed and
materials supplied will meet all applicable provisions of the
following standards: (i) EIA RS-195 (latest edition), (ii)
EIA/TIA-222 (latest edition), (iii) American Society of Testing
Materials A 325 and A 572, (iv) the applicable sections of the
National Electric Code, (v) the American National Standards
Institute, (vi) ACI 318-83, (vii) ACI-305, (viii) ACI-306, (ix)
OSHA 29 CFR 1910 and (x) all other applicable Federal, state and
local regulations of all Governmental Authorities with
jurisdiction; PROVIDED, HOWEVER, in the case of a conflicting
requirement of standards, the more stringent standard shall
apply.
(c) SITE INSPECTIONS. During the performance of the Services,
Incumbent shall allow PathNet to perform site inspections at any
hour, on any day subject to the access limitations set forth in
SECTION 5.4.1.
SECTION 8. OWNERSHIP, DEPRECIATION AND ENCUMBRANCE OF SYSTEM
8.1 OWNERSHIP OF EQUIPMENT AND ASSETS.
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8.1.1 EQUIPMENT AND ASSETS OWNED BY INCUMBENT. Incumbent shall
own the equipment and assets relating to Segments A and B of the System as
set forth in SCHEDULE K.
8.1.2 EQUIPMENT AND ASSETS OWNED BY PATHNET. PathNet shall own
the equipment and assets relating to Segments A and B of the System as set
forth in SCHEDULE K.
8.2 DEPRECIATION OF EQUIPMENT.
8.2.1 DEPRECIATION BY INCUMBENT. Incumbent shall have the right
to fully depreciate for federal and state income tax purposes the equipment
and assets currently owned or to be owned by Incumbent as listed in
SCHEDULE K.
8.2.2 DEPRECIATION BY PATHNET. PathNet shall have the right to
fully depreciate for federal and state income tax purposes the equipment
and assets currently owned or to be owned by PathNet as listed in SCHEDULE
K.
8.3 ENCUMBRANCE.
8.3.1 INITIAL SYSTEM. PathNet shall not Encumber the radios,
radio software, antenna or waveguide used in the Initial System on Segments
A and B or any equipment or assets owned by Incumbent pursuant to SCHEDULE
K, or otherwise owned or leased by Incumbent, or any real estate or
infrastructure owned by Incumbent.
8.3.2 OTHER EQUIPMENT, MATERIALS, AGREEMENTS AND ASSETS. PathNet
shall have the right to Encumber (i) the Equipment used in any Capacity
Expansion on Segment A and B or any other equipment owned by PathNet
pursuant to SCHEDULE K, (ii) PathNet's share of Revenue as determined
under SECTION 5 of this Agreement, (iii) any Customer Agreement relating to
the System provided, however, that PathNet shall not encumber any of
Incumbent's rights under said Customer Agreements, (iv) PathNet's rights in
this Agreement and PathNet's rights in any related documents, instruments
and agreements executed and delivered in connection with this Agreement and
any rights and obligations hereunder or thereunder.
8.4 TAXES. The Parties' respective responsibilities for taxes arising
under or in connection with this Agreement shall be as follows: (i) each Party
shall be responsible for any personal or real property taxes on property it owns
or leases, for franchise and privilege taxes on its business and for taxes based
on its net income or gross revenue and (ii) PathNet shall be responsible for any
sales, use, excise, value-added services, consumption and other taxes and duties
payable by Incumbent on any goods and services used or consumed in providing the
services to be performed by PathNet under this Agreement, where the tax is
imposed on Incumbent's acquisition or use of such goods or services and the
amount of the tax is measured by Incumbent's costs in acquiring such goods or
services; PROVIDED, HOWEVER, that PathNet shall not be responsible for any
Federal, state or local income taxes of Incumbent or any franchise taxes of
Incumbent.
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8.5 MAINTENANCE FOR SYSTEMS. Incumbent shall be responsible for the
maintenance of the System pursuant to the terms of a separate written agreement
to be entered into by the parties. The separate maintenance agreement shall
provide for ongoing maintenance of PathNet's microwave facilities.
SECTION 9. EXCESS CAPACITY MARKETING AND SALES
9.1 EXCLUSIVE REPRESENTATIVE.
9.1.1 PATHNET EXCESS CAPACITY. PathNet shall have the exclusive
right to market and sell any and all PathNet Excess Capacity.
9.1.2 INCUMBENT EXCESS CAPACITY. At any time and from time to
time, Incumbent shall have the right to request in writing that PathNet
serve as Incumbent's exclusive representative for the marketing and sale of
all or any portion of the capacity allocated to Incumbent in accordance
with the Channel Plan (the "INCUMBENT EXCESS CAPACITY"). In the event
PathNet sells any Incumbent Excess Capacity, PathNet shall receive a
marketing fee [***] of the revenue generated from the sale
of such Incumbent Excess Capacity actually collected, less any applicable
deduction set forth in SECTION 9.12.1 and SECTION 9.12.2 [***]
Incumbent
Excess Capacity shall be marketed on a pro rata basis with PathNet Excess
Capacity.
9.1.3 MARKETING AND SALE BY INCUMBENT. Incumbent or any
Affiliates of Incumbent shall not market or sell any Incumbent Excess
Capacity or any capacity purchased by Incumbent pursuant to SECTION 9.3 to
any third party without the prior written consent of PathNet; PROVIDED,
HOWEVER, Incumbent may market and sell all or any portion of the Incumbent
Excess Capacity or any capacity purchased by Incumbent pursuant to SECTION
9.3, to Affiliates of Incumbent for and only for such Affiliates' internal
communications needs and not for resale to third parties.
9.2 REFERRALS OF CUSTOMERS BY INCUMBENT. Incumbent shall refer any
potential third party customer of Excess Capacity to PathNet; PROVIDED that if
Incumbent is successful at referring a new (and previously unsolicited by
PathNet) Customer to PathNet, Incumbent shall receive a marketing fee not to
exceed [***] (in addition to other Revenue to be received
by Incumbent) from the sale of Excess Capacity on the System.
9.3 PURCHASE OF AVAILABLE EXCESS CAPACITY BY INCUMBENT. Incumbent
shall have the right to purchase Available Excess Capacity on any path or
Segment of the System (each such path or Segment being referred to herein as an
"INCUMBENT DESIRED PATH"), at a price equal to either (i) the lowest price paid
to PathNet for like capacity and for a similar term by any purchaser during the
one hundred eighty (180) days immediately preceding the purchase by Incumbent of
capacity on such Incumbent Desired Path less twenty-five (25%) percent or (ii)
if no PathNet Excess Capacity has been purchased on such Incumbent Desired Path
during such one hundred eighty (180) day period, the last price paid for such
Incumbent Desired Path less
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twenty-five (25%) percent; PROVIDED, HOWEVER, Incumbent shall in no event
purchase more than twenty percent (20%) of the Available Excess Capacity on any
Segment or path within the System at any given time.
9.4 COMMERCIALLY REASONABLE EFFORTS. PathNet shall use commercially
reasonable efforts to obtain the best available price and terms in the marketing
and sale of any Excess Capacity. PathNet shall not, now or in the future,
guarantee any Revenue disbursements nor does PathNet warrant its ability to sell
the Excess Capacity.
9.5 SELLING PRICES FOR EXCESS CAPACITY. Notwithstanding anything set
forth herein to the contrary, PathNet shall have the right to (i) sell Excess
Capacity at prices determined by PathNet to be appropriate on specific routes,
which prices may be below or above current competitive market pricing, (ii)
package the Excess Capacity in sales increments of DS-1's, DS-3's or OC-3's, or
any other increments and (iii) aggregate the paths sold in various combinations,
each as determined by PathNet in its sole discretion.
9.6 BARTER ARRANGEMENTS. Incumbent shall be permitted to barter Incumbent
Excess Capacity, with PathNet's assistance, for telecommunications capacity of
other incumbents engaged by PathNet; PROVIDED, HOWEVER, PathNet shall have the
right to approve any barter arrangement relating to Incumbent Excess Capacity,
which approval shall not be unreasonably withheld. Neither PathNet nor
Incumbent shall derive any fee from facilitating any such barter arrangements.
9.7 ASSUMED NAME; TRADENAMES AND TRADEMARKS. PathNet shall have the right
to market Excess Capacity under its name or any other assumed name, tradename or
trademark which PathNet is authorized to use for such purpose; PROVIDED,
HOWEVER, PathNet shall not use any trademark or tradename of Incumbent or any
Affiliate of Incumbent in written material for purposes of marketing any Excess
Capacity without the prior written consent of Incumbent.
9.8 CUSTOMER AGREEMENTS.
9.8.1 AUTHORIZATION. PathNet shall negotiate, execute and
deliver, on behalf of itself and Incumbent, all agreements and arrangements
("CUSTOMER AGREEMENTS") for customers of Excess Capacity, which Customer
Agreements shall contain, terms and conditions determined by PathNet.
9.8.2 APPROVAL AND CONSENT BY INCUMBENT. If the terms of any
Customer Agreement require the written approval or consent of Incumbent as
a condition to the execution, delivery or performance, Incumbent shall
promptly provide such written approval or consent.
9.8.3 USE OF INCUMBENT'S NAME IN CUSTOMER AGREEMENTS FORBIDDEN.
In any customer agreements, PathNet shall not use Incumbent's name or name
of Incumbent's Operator or any of its Affiliates or imply in any manner
that Incumbent or its Operator or Affiliates are responsible in any manner
for the services provided in any Customer Agreements. Incumbent shall have
the right to review any Customer Agreements
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executed between PathNet and its customers to verify that the terms
contained herein have not been violated.
9.8.4 MODIFICATIONS TO SYSTEM. In the event that any Customer
Agreement requires that the System be modified in any way, PathNet shall
ensure that any such modifications (i) shall not compromise the integrity
and performance of the System in accordance with the Specifications and
(ii) shall be made at no additional cost to Incumbent.
9.9 MAINTENANCE OF BOOKS AND RECORDS AND AUDIT PROCEDURES.
9.9.1 BOOKS AND RECORDS. PathNet shall maintain and keep detailed
and accurate books and records with regard to sales of Excess Capacity and
the Revenue generated and collected from such sales.
9.9.2 INCUMBENT REVIEW AND AUDIT PROCEDURES. No more than once
during any consecutive twelve (12) month period, Incumbent shall be
entitled to review and audit PathNet's books and records relating to the
sale of Excess Capacity during business hours upon ten (10) days written
notice to PathNet. Incumbent shall not have the right pursuant to this
SECTION 9.9.2, to review or audit PathNet's corporate income statements,
balance sheets or other forms of general corporate reporting. Incumbent
shall not disclose, at any time before or after the Expiration Date, any
information related to PathNet or PathNet's business obtained by Incumbent
pursuant to a review or audit performed under this SECTION 9.9.2 unless
such information has previously come into the public domain (other than
through unauthorized disclosure) or except as required by law.
9.9.3 EXPENSES OF INCUMBENT REVIEWS AND AUDITS. Incumbent shall
pay the cost of any such review or audit performed pursuant to SECTION
9.9.2.
9.9.4. APPROVAL OF AUTHORIZED REPRESENTATIVE. In the event that
Incumbent hires an authorized representative of Incumbent to perform any
such review or audit pursuant to SECTION 9.9.2, PathNet shall have the
right to approve such authorized representative before any access is
granted to such authorized representative to PathNet's books and records,
which approval shall not be unreasonably withheld.
9.10 QUARTERLY REVENUE REPORTS. PathNet shall issue to Incumbent quarterly
Revenue reports substantially in the form of SCHEDULE L (each a "QUARTERLY
REVENUE REPORT") within thirty (30) days after the end of each calendar quarter.
Each such Quarterly Revenue Report shall be an unaudited statement produced by
PathNet.
9.11 ANNUAL CERTIFIED REVENUE REPORTS. PathNet shall provide to Incumbent
on an annual basis an audited annual revenue report from a national accounting
firm.
9.12 COLLECTION AND PAYMENT OF REVENUE.
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9.12.1 COSTS OF COLLECTION. PathNet shall deduct any costs
reasonably incurred by PathNet in connection with the collection of any and
all delinquent Revenue, including, but not limited to, the cost of any
legal actions, collection fees, court proceedings, audits, or other
enforcement actions. PathNet shall deduct such costs from gross revenue
collected prior to the disbursement of such revenue to PathNet and
Incumbent pursuant to SECTION 5.1 and SECTION 9.
9.12.2 TAXES ON GROSS REVENUE. The amount of any taxes on gross
revenue paid by PathNet on behalf of Incumbent shall be deducted from any
revenue to be disbursed to Incumbent prior to disbursement of such revenue
as set forth in this SECTION 9.12.
9.12.3 DEFINITION OF REVENUE. For purposes of this Agreement,
"REVENUE" shall mean the gross revenue generated from the sale of Excess
Capacity actually collected less any deductions set forth in SECTION 9.12.1
and SECTION 9.12.2.
9.12.4 PAYMENTS TO INCUMBENT. PathNet shall pay Incumbent its
allocated portion of Revenue actually received from the sale of Excess
Capacity either monthly or within thirty (30) days after the end of each
calendar quarter in accordance with the payment instructions set forth in
SCHEDULE M. If such payments are to be made quarterly, during the quarter,
until payment, PathNet shall place the Revenue due to Incumbent in an
interest bearing escrow account in the name of the Incumbent.
9.12.5 INTEREST EARNED ON UNDISTRIBUTED REVENUE. Incumbent shall
retain any and all interest earned on any Revenue collected but not yet
distributed to Incumbent in accordance with SECTION 5.1 and SECTION 9.
9.12.6 INCUMBENT'S ASSIGNEES OF REVENUE. Incumbent shall have the
right to designate other entities to receive its disbursements by written
notice to PathNet to such effect; PROVIDED, HOWEVER, any such designation
by Incumbent shall not relieve Incumbent of any tax liability resulting
from its receipt of such disbursements pursuant to SECTION 5.1 and SECTION
9.
SECTION 10. FCC LICENSES AND OTHER REGULATORY APPROVALS AND LICENSES
10.1 FCC RULES AND REGULATIONS.
10.1.1 MICROWAVE RADIO STATION LICENSES.
(a) Segments A and B.
i. PREPARATION AND FILING OF FORMS 415. PathNet shall prepare
and timely file all required Form 415, Applications for
Authorization in the Microwave Services (each a "FORM 415"),
or any successor forms,
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documents or instruments to such Form 415 as the FCC may
prescribe, including but not limited to, the preparation or
ordering of all frequency coordinations required pursuant to
SCHEDULE B and SCHEDULE C of Form 415, in order to own,
operate and sell the Excess Capacity of Segments A and B of
the System in accordance with the terms and conditions of
this Agreement.
ii. IDENTITY OF LICENSEE. All Microwave Radio Station Licenses
issued by the FCC relating to the Initial System of Segments
A and B shall be licensed in the name of Incumbent or a
wholly-owned subsidiary of Incumbent. All Microwave Radio
Station Licenses issued by the FCC relating to any Capacity
Expansion on Segments A and B shall be licensed in the name
of PathNet or a wholly-owned subsidiary of PathNet.
Incumbent shall be permitted to continue to own and be
licensed as a private microwave operator at the stations
licensed to PathNet relating to Segments A and B of the
System, provided that (i) such private licenses are for
different frequency pairs than those assigned to the System
(including, but not limited to, any Capacity Expansion of
the System) and (ii) such private licenses are permitted
under the FCC Code.
iii. MAINTENANCE OF LICENSE. PathNet shall maintain in good
standing each Microwave Radio Station License relating to
the System, including, but not limited to, preparing and
filing any required amendments to the Forms 415 relating to
the System and submitting and filing any supplementary
information as required by the FCC.
10.1.2 COMMON CARRIER REPORTING OBLIGATIONS. Incumbent and PathNet
shall prepare and file all forms, reports, instruments, documents and
agreements required by the FCC and FCC Code relating to Incumbent's status
as a "common carrier" under the FCC Code.
10.1.3 TARIFF FILINGS. PathNet shall prepare and timely file all
tariff applications pursuant to 47 CFR 61, as amended, or any successor
statute, rule or regulation and shall request and file all necessary
waivers of such tariff requirements, as determined by PathNet in its sole
discretion.
10.1.4 FREQUENCY COORDINATION NOTICES. During the term of this
Agreement, PathNet shall prepare and send all required frequency
coordination notices required under 47 CFR 101.103, as amended, or any
successor statute, rule or regulation and shall respond as appropriate to
all PCNs received by PathNet or Incumbent relating to the System.
10.1.5 DELIVERY OF COPIES. PathNet shall provide to Incumbent a
copy of all filings and submissions with the FCC, relating to the System
within thirty (30) days of such filings and submissions.
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10.1.6 ASSISTANCE IN PREPARATION OF LICENSE APPLICATIONS. Upon
request by PathNet and in a timely manner, Incumbent shall provide to
PathNet all information necessary for the completion of all required
filings and submissions with the FCC including, but not limited to
Incumbent's authorized signature on any filings or other submissions to the
FCC or any documents, instruments or agreements completed in connection
with such filings and submissions.
10.1.7 FUTURE CHANGES IN FCC REQUIREMENTS. If FCC requirements
relating to the Form 415, common carriers, frequency coordination or any
other matters relating to the System change or are modified, PathNet shall
be responsible for compliance with such new requirements including, but not
limited to, the payment of any costs or fees associated therewith and
Incumbent shall cooperate with PathNet with respect to such compliance;
PROVIDED, HOWEVER, if the FCC establishes user fees or other such fees
relating to the frequencies used in and the communications business
conducted over the System, the cost of such additional fees shall be
divided between PathNet and Incumbent, as determined by PathNet and
Incumbent at such time. In the event that fees are required for any FCC
mandated Universal Service Support Mechanism or any universal service fund
obligations are required by any federal or state law or regulation, PathNet
shall be solely responsible for such fees or obligations.
10.1.8 SPECTRAL LOADING REQUIREMENTS. PathNet shall (i) ensure
that the System, as licensed, shall comply with all spectral loading
requirements set forth in 47 CFR 101.141, or any successor statute, rule or
regulation or (ii) obtain a waiver of any or all of such requirements;
PROVIDED, HOWEVER, if the System does not meet such spectral loading
requirements and PathNet is unable to obtain a waiver of such requirements,
PathNet shall have the right to modify the System to a hot-standby
Protection Configuration until such time as the spectral loading
requirements can be met.
10.1.9 DEFAULT IN FCC LICENSE. In the event that the FCC
institutes a penalty against or fine imposed on PathNet, Incumbent, or the
System, due to non-compliance with any FCC requirements, PathNet shall
promptly pay such penalty or fine (in the case such penalty or fine is
instituted as the result of an act or omission on the part of PathNet) or
Incumbent shall promptly pay such penalty or fine (in the event such
penalty or fine is instituted as the result of an act or omission on the
part of Incumbent).
10.2 ZONING REQUIREMENTS. Incumbent shall be responsible for compliance
with all zoning requirements applicable to the System and its Facilities,
including, but not limited to, the Facilities. Incumbent shall advise PathNet
of zoning requirements, which, in the reasonable opinion of Incumbent, differ
from those generally applicable to microwave facilities. PathNet shall provide
to Incumbent all required information and shall cooperate with Incumbent in
connection with Incumbent's compliance with all zoning requirements pursuant to
this SECTION 10.2.
10.3 BUREAU OF LAND MANAGEMENT REQUIREMENTS. Incumbent shall be
responsible for compliance with all United States Department of Interior Bureau
of Land Management
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requirements applicable to the System and its Facilities, including, but not
limited to, the Facilities. PathNet shall provide Incumbent with all requested
information and shall cooperate with Incumbent in connection with Incumbent's
compliance with such United States Department of Interior Bureau of Land
Management requirements pursuant to this SECTION 10.3.
10.4 TOWER REGISTRATION. Incumbent shall ensure compliance with all FAA
and FCC tower registration requirements including, but not limited to, the
preparation of any filings with or the obtaining of any waivers or extensions
from the FAA or FCC. Incumbent shall promptly notify PathNet of any deficiency
on non-compliance with any such tower registration requirements, filings,
waivers or extensions.
SECTION 11. INSURANCE
11.1 DELIVERY OF CERTIFICATES OF INSURANCE. Upon Incumbent's request and
prior to the commencement of any Services by PathNet, PathNet shall deliver to
Incumbent Certificates of Insurance relating to PathNet's Commercial General
Liability Insurance Policy, Workers Compensation Insurance Policy, Automobile
Liability Insurance and Excess Liability Insurance Policy.
11.2 PATHNET INSURANCE COVERAGE. During the term of this Agreement,
PathNet shall maintain the types of insurance at the coverage limits set forth
below:
11.2.1 WORKERS COMPENSATION AND EMPLOYER'S LIABILITY INSURANCE.
Workers Compensation Insurance with a limit of not less than $500,000;
11.2.2 COMMERCIAL GENERAL LIABILITY INSURANCE. Commercial General
Liability Insurance with a limit of not less than $1,000,000 per occurrence
and $1,000,000 in the aggregate;
11.2.3 AUTOMOBILE LIABILITY INSURANCE. Automobile Liability
Insurance, which includes coverage for non-owned and hired vehicles with a
limit of not less than $1,000,000; and
11.2.4 EXCESS LIABILITY INSURANCE. Excess Liability Insurance with
a limit of not less than $4,000,000.
11.3 INCUMBENT INSURANCE COVERAGE. Incumbent shall maintain insurance
coverage on the System which coverage shall include general liability and other
forms of insurance covering such risks as are usually insured against by prudent
companies engaged in the business and activities in which the Incumbent is
engaged, in amount which are adequate in relation to the business and properties
of Incumbent, and all premiums to date have been paid in full.
11.4 PROOF OF LICENSED SUBCONTRACTORS. Upon reasonable request of
Incumbent, PathNet shall provide to Incumbent proof of licensing and
certification of insurance for coverage
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in types and amounts as set forth in SECTION 11.2 for any Subcontractors engaged
by PathNet to provide Services, during the term of such engagement.
SECTION 12. SOFTWARE AND PROPRIETARY RIGHTS
12.1 PATHNET SOFTWARE. PathNet retains all right, title and interest in
and to PathNet Software. As of the Effective Date and pursuant to the PathNet
Sublicense Agreement attached hereto as SCHEDULE N, Incumbent is granted a
nonexclusive sublicense to use PathNet Software for the sole purpose of
receiving the services pursuant to this Agreement. PathNet Software will be
made available to Incumbent in such form and on such media as exists on the
Effective Date, together with existing documentation and any other related
materials. Incumbent shall not be permitted to use PathNet Software for the
benefit of any entities other than PathNet without the prior written consent
which may be withheld at PathNet's sole discretion. Except as otherwise
requested or approved by PathNet, Incumbent shall cease all use of PathNet
Software upon expiration of this Agreement.
12.2 PROPRIETARY RIGHTS. Incumbent acknowledges and agrees that all or
portions of the information and materials, including but not limited to the
PathNet Software and related documentation to be supplied by PathNet hereunder
are owned by PathNet and/or others and are proprietary in nature. Incumbent
also acknowledges and agrees that PathNet and/or its suppliers have and will
retain all proprietary rights in such information and materials. Incumbent (i)
shall respect such claim of proprietary right, (ii) shall protect such
information at least to the extent that it protects its own proprietary
information, (iii) shall not use such information except for the purposes for
which its is being made available as set forth in this Agreement and (iv) shall
not reproduce, print, disclose, or otherwise make said information available to
any third party, in whole or in part, in whatever form.
SECTION 13. REPRESENTATIONS AND WARRANTIES
13.1 REPRESENTATIONS AND WARRANTIES OF EACH PARTY. Each Party hereby
represents and warrants the other Party as follows:
13.1.1 DUE INCORPORATION AND FORMATION; AUTHORIZATION OF
AGREEMENTS; BINDING EFFECT. Such Party is a corporation or partnership, as
the case may be, duly formed or organized, and validly existing under the
laws of its state of incorporation or organization, and has the corporate
or partnership authority to own its property and carry on its business as
owned and carried on as of the Effective Date. Such Party is duly licensed
or qualified to do business and is in good standing (if applicable) in each
jurisdiction in which the failure to be so licensed or qualified would have
a Material Adverse Effect on such Party. Such Party has the corporate or
partnership authority to execute and deliver this Agreement, to perform its
obligations hereunder, and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by
such Party and this Agreement constitutes a legal, valid and binding
obligation of such Party enforceable in accordance with its terms,
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subject as to enforceability to limits imposed by bankruptcy, insolvency or
similar laws affecting creditors rights generally and the availability of
equitable remedies.
13.1.2 NO CONFLICT; NO DEFAULT. Neither the execution or delivery
of this Agreement by such Party, nor (except as would not have a Material
Adverse Effect on such Party), the performance of this Agreement by such
Party or the consummation by such Party of the transactions contemplated
hereby in accordance with the terms and conditions hereof: (i) will
conflict with, violate, result in a breach of or constitute a default under
any of the terms, conditions or provisions of the certificate or articles
of incorporation or bylaws (or other governing documents) of such Party or
any material agreement or instrument to which such Party is a party or by
which such Party may be bound, (ii) will conflict with, violate or result
in a breach of, constitute a default under (whether with notice or lapse of
time or both), accelerate or permit the acceleration of the performance
required by, give to others any interests or rights or require any consent,
authorization or approval under any contract to which such Party is a party
or by which such Party is or may be bound or to which any equity interest
held by such Party or any of its material properties or assets is subject
or (iii) will result in the creation or imposition of any Encumbrance upon
any equity interest held by such Party or any of the other material
properties or assets of such Party, other than Permitted Encumbrances.
13.1.3 NO CONSENT. No consent, approval, order or authorization
of, or registration, declaration or filing with any Governmental Authority,
domestic or foreign, is required to be obtained by such Party in connection
with the execution and delivery of this Agreement. If and to the extent
any such consent, approval, order, or communication of registration,
delcaration or filing with any Governmental Authority, domestic or foreign
is required to perform under this Agreement or to consummate the
transaction contemplated hereby, such Party shall use good faith efforts to
obtain such consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Authority, domestic or foreign.
13.1.4 COMPLIANCE WITH LAWS AND REGULATIONS. That such Party is
not and that the performance of its obligations under this Agreement will
not result in a violation in any respect of (i) any applicable Federal,
state, local or foreign laws, ordinances, regulations, rulings and orders
of government agencies applicable to its business in any respect the
violation of which could have a Material Adverse Effect (including
Requirements of Law relating to pollution, protection of the environment,
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic, hazardous or regulated
substances or wastes into the environment or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage disposal,
transport or handling of pollutants or other such hazardous or regulated
substances or wastes) or (ii) any applicable order, Judgment, injunction,
award or decree in any respect which could have a Material Adverse Effect
on such Party.
13.1.5 PERMITS. Such Party has or will obtain all authorizations,
approvals, consents, licenses, Permits and certificates (including, but not
limited to all required approvals from the FCC) necessary to conduct their
respective businesses and to own, lease and operate its properties as
currently or anticipated to be conducted, owned, leased
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or operated, as the case may be, for which the failure to possess would
result in a Material Adverse Effect. No violations are outstanding or
uncured with respect to any such Permits and no proceeding is pending to
revoke or limit any Permit.
13.1.6 LABOR MATTERS. Such Party has complied in all material
respects with all applicable Federal, state and local laws and ordinances
relating to the employment of labor, including the provisions thereof
relating to wages, hours, employee benefit plans and the payment of social
security taxes, and is not liable for any arrears of wages or any tax
related thereto (except for currently accrued and unpaid wages and except
for currently accrued withholding, payroll, unemployment and social
security taxes payment of which is not overdue) or penalties for failure to
comply with any of the foregoing, and neither has received a notice to the
contrary from any Governmental Authority. Such Party has not suffered any
strike, slowdown, picketing or work stoppage by any union or other group or
employees affecting the business of such Party, and no such event or action
is threatened.
13.1.7 NO DISCRIMINATION. Such Party currently subscribes and
offers and will continue to subscribe and offer to all customers,
employees, licensees, and invitees the opportunity to obtain all the goods,
services, accommodations, advantages, facilities and privileges of such
Party without discrimination because of race, creed, color, sex, age,
national origin or ancestry, in accordance with all applicable Federal,
state, and local laws relating to equal opportunity and discrimination.
13.1.8 DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER
PATHNET NOR INCUMBENT MAKES ANY OTHER EXPRESS WARRANTY AND THERE ARE NO
IMPLIED WARRANTIES WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS
OR OTHER SUBJECT MATTER OF THIS AGREEMENT. PATHNET AND INCUMBENT HEREBY
DISCLAIM THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
13.2 REPRESENTATIONS AND WARRANTIES OF PATHNET.
13.2.1 HAZARDOUS MATERIALS. PathNet represents and warrants that
(i) PathNet is and shall remain in compliance with any and all Federal,
state or local laws, regulations or permits in regard to Hazardous
Materials, (ii) PathNet shall report to Incumbent and to applicable
Governmental Authorities any release of reportable quantities of a
hazardous substance as mandated by SECTION 103 (A) of CERCLA and (iii)
PathNet will, within five (5) Business Days of receipt, send to Incumbent a
copy of any notice, order, inspection report or other document issued by
any government authorities relating to PathNet's status with environmental
or health and safety laws.
13.2.2 SERVICES. PathNet warrants (i) that the Services will be
performed in a workmanlike manner and (ii) that it has or will obtain
agreements or arrangements with
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its employees, agents and Subcontractors sufficient to allow it to provide
Incumbent with the Services;
13.2.3 TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.
Except as set forth herein, PathNet has good and marketable title to all
assets necessary for the conduct of PathNet's business and for the
transactions contemplated by this Agreement free and clear of all
Encumbrances of any kind or character, except (i) liens for current taxes
not yet due and payable, (ii) Encumbrances securing taxes, assessments,
governmental charges or levies or the Encumbrances of material, carriers,
landlords and like persons, all of which are not yet due and payable and
(iii) Encumbrances of a character that do not substantially impair the
ability of PathNet to carry out its obligations under this Agreement.
13.3 REPRESENTATIONS AND WARRANTIES OF INCUMBENT.
13.3.1 INDEPENDENT INVESTIGATION. Incumbent represents and
warrants that it has independently investigated the potential for the
success of PathNet's ability to create, aggregate and sell Excess Capacity
and has not relied upon any inducements or representations of PathNet or
its agents, other than those contained in this Agreement.
13.3.2 TITLE TO ASSETS, PROPERTIES AND RELATED MATTERS. Except as
set forth herein, Incumbent represents and warrants that it has good and
marketable title to all the properties, interests in properties and assets,
real, personal or mixed, (or the right to occupy said property by virtue of
easements, leases, permits, licenses or right-of-way grants) as set forth
on SCHEDULE D for Segment A (including, but not limited to, any
rights-of-way, leasehold interests, easements, and rights necessary to
insure vehicular and pedestrian ingress and egress to and from any such
properties or assets), free and clear of all Encumbrances of any kind or
character, except (i) liens for current taxes not yet due and payable, (ii)
Encumbrances securing taxes, assessments, governmental charges or levies or
the Encumbrances of materialman, landlords and like persons, all of which
are not yet due and payable and (iii) Encumbrances of a character that do
not substantially impair the ability of Incumbent to carry out its
obligations under this Agreement.
Incumbent is in the process of acquiring the property rights necessary
for the transactions contemplated by this Agreement on Segment B, but makes
no representations or warranties as to its ability to acquire such property
rights.
SECTION 14. INDEMNIFICATION
14.1 INDEMNIFICATION BY INCUMBENT. Incumbent agrees to indemnify, defend
and hold harmless PathNet and its Affiliates and their respective officers,
directors, employees, agents, successors and assigns from and against any and
all Losses and threatened Losses arising from, in connection with, or based on
allegations of, any of the following:
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14.1.1 Any claims of infringement of any patent, trade secret,
copyright or other proprietary rights alleged to have occurred because of
systems or other resources provided to PathNet by Incumbent.
14.1.2 Any claims arising out of the untruth, inaccuracy or breach
of any representation or warranty of Incumbent set forth in this Agreement.
14.1.3 (i) Any personal injury, disease or death of any Person,
(ii) damage to or loss of any property, money damages or specific
performance owed to any Person (by contract or operation of law) or (iii)
any fines, penalties, taxes, claims, demands, charges, actions, causes of
action, assessments, environmental response costs, environmental penalties,
injunctive obligations caused by, arising out of, or in any way incidental
to, or in connection with, actions or omissions of Incumbent, its
employees, Subcontractors or agents.
14.2 INDEMNIFICATION BY PATHNET. PathNet agrees to indemnify, defend and
hold harmless Incumbent, its Partners, Operator, and Affiliates and their
respective officers, directors, employees, agents, successors and assigns from
and against any and all Losses and threatened Losses arising from, in connection
with, or based on allegations of, any of the following:
14.2.1 Any claims of infringement of any patent, trade secret,
copyright or other proprietary rights alleged to have occurred because of
systems or other resources provided to Incumbent by PathNet.
14.2.2 Any claims arising out of the untruth, inaccuracy or breach
of any representation or warranty of PathNet set forth in this Agreement.
14.2.3 (i) Any personal injury, disease or death of any person,
(ii) damage to or loss of any property, money damages or specific
performance owed to any Person (by contract or operation of law) or (iii)
any fines, penalties, taxes, assessments, environmental response costs,
environmental penalties or injunctive obligations caused by, arising out
of, or in any way incidental to, or in connection with, actions or
omissions of PathNet, its employees, Subcontractors or agents.
14.2.4 Any Losses, causes of action or suits arising out of
Customer Agreements.
14.3 INDEMNIFICATION PROCEDURES. With respect to any claims, the following
procedures shall apply:
14.3.1 NOTICE. Promptly after receipt by an entity entitled to
indemnification under SECTION 14.1 or SECTION 14.2 of notice of the
commencement or threatened commencement of any civil, criminal,
administrative or investigative action or proceeding involving a claim in
respect of which the indemnitee will seek indemnification pursuant to any
such Section, the indemnitee shall notify the indemnitor of such claim in
writing. No failure to so notify an indemnitor shall relieve it of its
obligations under this Agreement except to the extent that it can
demonstrate damages
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attributable to such failure. Within fifteen (15) days following receipt
of written notice from the indemnitee relating to any claim, but no later
than ten (10) days before the date on which any response to a complaint or
summons is due, the indemnitor shall notify the indemnitee in writing if
the indemnitor elects to assume control of the defense and settlement of
that claim (a "NOTICE OF ELECTION").
14.3.2 PROCEDURE FOLLOWING NOTICE OF ELECTION. If the indemnitor
delivers a Notice of Election relating to any claim within the required
notice period, the indemnitor shall be entitled to have sole control over
the defense and settlement of such claim; provided that, (i) the indemnitee
shall be entitled to participate in the defense of such claim and to employ
counsel at its own expense to assist in the handling of such claim, and
(ii) the indemnitor shall obtain the prior written approval of the
indemnitee before entering into any settlement of such claim or ceasing to
defend against such claim. After the indemnitor has delivered a Notice of
Election relating to any claim in accordance with the section (a) above,
the indemnitor shall not be liable to the indemnitee for any legal expenses
incurred by the indemnitee in connection with the defense of that claim.
In addition, the indemnitor shall not be required to indemnify the
indemnitee for any amount paid or payable by the indemnitee in the
settlement of any claim for which the indemnitor has delivered a timely
Notice of Election, if such amount was agreed to without the written
consent of the indemnitor.
14.3.3 PROCEDURE WHERE NO NOTICE OF ELECTION IS DELIVERED. If the
indemnitor does not deliver a Notice of Election relating to any claim
within the required notice period, the indemnitee shall have the right to
defend the claim in such manner as it may deem appropriate, at the cost and
expense of the indemnitor. The indemnitor shall promptly reimburse the
indemnitee for all such costs and expenses.
14.4 SUBROGATION. In the event that an indemnitor shall be obligated to
indemnify an indemnitee pursuant to SECTION 14.1 or SECTION 14.2, the indemnitor
shall, upon payment of such indemnity in full, be subrogated to all rights of
the indemnitee with respect to the claims to which such indemnification relates.
SECTION 15. LIABILITY OF THE PARTIES TO EACH OTHER
15.1 LIABILITY GENERALLY. Subject to the specific provisions of this
SECTION 15, it is the intent of the Parties that each Party shall be liable to
the other Party for any actual damages incurred by the non-breaching Party as a
result of the breaching Party's failure to perform its obligations in the manner
required by this Agreement and failure to cure such nonperformance as set forth
in SECTION 16.1.2.
15.2 LIABILITY RESTRICTIONS.
15.2.1 SUBJECT TO SECTION 15.2.2 BELOW, IN NO EVENT, WHETHER IN
CONTRACT OR IN TORT (INCLUDING BREACH OF WARRANTY, NEGLIGENCE AND STRICT
LIABILITY IN TORT), SHALL A PARTY BE LIABLE
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TO THE OTHER PARTY FOR INDIRECT, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR
SPECIAL DAMAGES EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES IN ADVANCE.
15.2.2 The limitations set forth in SECTION 15.2.1 shall not apply
with respect to: (i) damages occasioned by the willful misconduct or gross
negligence of a Party, (ii) damages occasioned by improper or wrongful
termination of this Agreement or (iii) damages occasioned by a violation of
SECTION 12 of this Agreement.
15.2.3 Each Party shall have a duty to mitigate damages for which
the other Party is responsible.
15.2.4 Each Party shall be liable to the other Party for any actual
damages as set forth in SECTION 15.1 only if, and to the extent that the
aggregate of all losses arising from or in connection with any such failure
to perform obligations in the manner required by this Agreement exceeds ten
thousand dollars ($10,000.00).
15.2.5 PathNet agrees that all claims arising from and out of the
terms of this Agreement shall be limited to the assets of Incumbent and
that all rights or remedies at law or in equity against Incumbent's
Partners by PathNet, its successors, assigns and representatives are hereby
expressly waived.
15.3 FORCE MAJEURE. No Party shall be liable for any breach, default or
delay in the performance of its obligations under this Agreement (i) if and to
the extent such default or delay is caused, directly or indirectly, by: fire,
flood, earthquake, elements of nature or acts of God, riots, civil disorders,
rebellions or revolutions in any country, Requirements of Law relating to the
System or to the sale of Excess Capacity, or any other cause beyond the
reasonable control of such Party (a "FORCE MAJEURE EVENT"), (ii) provided the
non-performing Party is without fault in causing such breach, default or delay,
and such breach, default or delay could not have been prevented by reasonable
precautions and cannot reasonably be circumvented by the non-performing Party
through the use of alternate sources, work around plans or other means.
SECTION 16. INFORMAL DISPUTE RESOLUTION; ARBITRATION
16.1 INFORMAL DISPUTE RESOLUTION.
16.1.1 ROLE OF PROGRAM MANAGER. In the event Incumbent has a
dispute, controversy or other complaint relating to PathNet's performance
of PathNet's rights and obligations under this Agreement, Incumbent shall
have the right to first contact the Program Manager to resolve such
dispute, controversy or other complaint. If Incumbent is not satisfied
with the resolution provided by the Program Manager, Incumbent may resort
to the arbitration procedures set forth in this SECTION 16.
16.1.2 NOTICE OF BREACH, CURE AND REMEDIES. In the event of a
material breach by either PathNet or Incumbent (the "BREACHING PARTY"), the
other Party (the "NON-
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BREACHING PARTY") shall send by certified mail a written notice of such
material breach to the Breaching Party setting forth the specific
allegations of such breach. Upon receipt of the notice of breach, the
Breaching Party shall have thirty (30) days to cure such breach. In the
event the Breaching Party fails to cure such breach, as determined by the
Non-Breaching Party in its sole discretion, or the Breaching Party
determines, in its sole discretion, that it has cured such breach, either
the Breaching Party or the Non-Breaching Party may invoke the arbitration
procedures set forth in SECTION 16.2 to resolve whether such breach has
been cured.
16.1.3 SCOPE OF ARBITRATION AND DISPUTE RESOLUTION. SECTION 16 and
the arbitration and dispute resolution mechanisms provided herein shall not
apply to Incumbent's right to terminate this Agreement as provided in
SECTION 3.3.
16.2 ARBITRATION.
16.2.1 ARBITRATION; RESOLUTION OF DISPUTES. Except as provided in
SECTION 16.1.3, any and all disputes and controversies between Incumbent
and PathNet concerning the negotiation, interpretation, performance,
determination of amounts due either Party, breach or termination of this
Agreement (each a "DISPUTE") shall be subject to resolution as set forth in
this SECTION 16.
16.2.2 SETTLEMENT DISCUSSIONS. Subject to SECTION 16.1, any
Dispute shall be attempted to be resolved first through amicable settlement
discussions and each Party shall bear its own costs of such settlement
discussions. Each Party hereby agrees to use good faith efforts to reach a
settlement through such amicable settlement discussions.
16.2.3 REFERRAL TO BINDING ARBITRATION. In the event the Parties
fail to reach a settlement of the Dispute pursuant to settlement
discussions in accordance with SECTION 16.2.2, each Party shall have the
right, but not the obligation, to refer such Dispute for final resolution
by binding arbitration in accordance with the Center for Public Resources'
(the "CENTER") Rules for Non-Administered Arbitration of Business Disputes
(the "ARBITRATION RULES").
16.2.4 BINDING EFFECT. The Parties acknowledge and agree that (i)
the award in any arbitration shall be final, conclusive and binding on the
Parties and (ii) any such arbitration award be a final resolution of the
Dispute between the Parties to the same extent as a final judgment of a
court of competent jurisdiction.
16.2.5 USE OF COURTS AND OTHER LEGAL REMEDIES. Each Party
covenants and agrees that it shall not resort to any court for legal
remedies concerning any Dispute other than to enforce a final decision by
the arbitrators or for preliminary, interim or provisional equitable relief
in aid of arbitration.
16.2.6 ARBITRATION PROCESS.
(a) NOTICE. If the Parties cannot resolve a Dispute to their
mutual satisfaction pursuant to SECTION 16.2.2, either Party
may deliver to
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the other Party a written notice in accordance with the
Arbitration Rules.
(b) SITE AND ARBITRATION TRIBUNAL. Absent agreement to the
contrary by the Parties, the arbitration will be conducted
in Omaha, Nebraska by a panel of three (3) arbitrators with
expertise in the fields of telecommunications engineering
and construction, PROVIDED, HOWEVER, in the case of
particular witnesses not subject to subpoena at the
designated hearing site, hearings may be held at any place
designated by the arbitrators where such witnesses can be
compelled to attend, and, with the consent of the Parties,
before a single member of the arbitration tribunal. Within
thirty (30) days after the filing of the notice of
arbitration, each Party must select one (1) arbitrator and a
third arbitrator will be selected by agreement of the two
(2) arbitrators selected by the Parties. If either Party
fails to select an arbitrator or there is no agreement on
the selection of the third arbitrator, the Center will
select such arbitrators.
(c) TRANSCRIPTS AND EVIDENCE. Both Parties shall cause a
written transcript of all proceedings and testimony shall be
kept and the cost of such transcript shall be borne equally
by the Parties pending the final award. All documents that
either Party proposes to offer in evidence, except for those
objected to by the other Party, shall be deemed to be
self-authenticating.
(d) APPLICABLE LAW. The arbitrator shall determine the claims
of the Parties and render their final award in accordance
with the governing law of this Agreement as set forth in
SECTION 17.5. Notwithstanding anything set forth in the
Arbitration Rules to the contrary, the provisions of this
SECTION 16 shall govern any arbitration proceeding brought
in relation to this Agreement or the transactions
contemplated thereby.
(e) SANCTIONS. The Parties acknowledge that, in addition to any
other remedy allowed or specified in or under the
Arbitration Rules, the failure of a Party to comply with any
interim, partial or interlocutory order, after due notice
and opportunity to cure such non-compliance, may be treated
by the arbitrators as a default and all or some of the
claims or defenses of the defaulting Party may be stricken
and partial or final award entered against such Party, as
determined by the arbitrators in their sole discretion,
sanctions as such arbitrators deem appropriate.
(f) LIMITATION ON AWARDS. Except as provided in SECTION 15.2.2,
arbitrators may not award (i) incidental, special,
consequential or
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punitive damages in the resolutions of any Dispute and the
Parties hereby waive all rights to and claims for monetary
awards other than compensatory damages, (ii) the right to
terminate this Agreement or any of the rights and
obligations hereunder, or (iii) any other right or remedy
that contravenes the terms and conditions of this Agreement.
(g) PERIOD OF LIMITATIONS. In the event the Party claiming a
Dispute does not institute binding arbitration within one
(1) year after the commencement of settlement discussions
pursuant to SUBSECTION 16.2.2, such Party shall forever be
barred from bringing a claim on the specific subject matter
of such Dispute.
(h) ARBITRATION AWARD. Any arbitration award must be in writing
and must contain findings of fact and conclusions of law
upon which the arbitrators relied in making the decision
relating to such award.
(i) ATTORNEYS' FEES. The arbitrator shall award the reasonable
cost, including attorneys' fees, to the prevailing Party.
SECTION 17. MISCELLANEOUS
17.1 NOTICES. All notices pertaining to disputes arising from this
Agreement shall be directed to a corporate entity or employee designated by the
signatories as having full rights and responsibilities to address such issues.
Notices under this Agreement shall be sufficient only if personally delivered by
a commercial prepaid delivery or courier service or mailed by certified or
registered mail, return receipt requested to a Party at its address set forth
below or as amended by notice pursuant to this SECTION 17.1. If not received
sooner, notice by mail shall be deemed received five (5) business days after
deposit in the U.S. mail. All notices shall be delivered as follows:
If to PathNet:
Michael A. Lubin, Esquire
Vice President and General Counsel
PathNet, Inc.
1015-31st Street, NW
Washington, DC 20007
Tel: 202.625.7284
Fax: 202.625.7369
If to Incumbent:
Mr. Al Behrens
Director, Functional Strategies
Northern Border Pipeline Company
1111 South 103rd Street
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Omaha, NE 68103-0330
Tel: (402) 398-7135
Fax: (402) 398-7874
17.2 BINDING NATURE; ENTIRE AGREEMENT. PathNet and Incumbent acknowledge
that (i) each has read and understands the terms and conditions of this
Agreement and agrees to be bound by such terms and conditions, (ii) this
Agreement shall be binding on each of PathNet and Incumbent and their respective
successors and assigns, (iii) this Agreement is the complete and conclusive
statement of the agreement between the Parties, (iv) this Agreement supersedes
any and all prior agreements and arrangements between the Parties and all
understandings and agreements, oral and written, heretofore made between
Incumbent and PathNet are merged in this Agreement which alone, fully and
completely expresses their agreement on the subject matter of this Agreement and
(v) this Agreement sets forth the entire agreement on the subject matter hereof.
17.3 AMENDMENT. No modifications of, additions to or waiver of this
Agreement shall be binding upon Incumbent or PathNet unless such modification,
addition or waiver is in writing and signed by an authorized representative of
each Party.
17.4 SEVERABILITY. If any term or provision of this Agreement shall to any
extent be held by a court or other tribunal to be invalid, void or
unenforceable, then such term or provision shall be inoperative and void insofar
as it is in conflict with the law, but the remaining terms and provisions of
this Agreement shall nevertheless continue in full force and effect and the
rights and obligations of the Parties shall be deemed to be restated to reflect
as nearly as possible the original intentions of the Parties in accordance with
applicable law.
17.5 GOVERNING LAW. This Agreement, and the rights and obligations of the
Parties hereunder, shall be governed and interpreted in accordance with the laws
of the State of Nebraska (other than the choice of law rules thereof).
17.6 SURVIVAL. Any provision of this Agreement which completes performance
or observance subsequent to any termination or expiration of this Agreement
shall survive such termination of expiration and continue in full force and
effect.
17.7 ASSIGNMENT. At any time and from time to time, PathNet shall have the
right to assign this Agreement or any of PathNet's rights and obligations under
this Agreement; provided, that in no event shall any such assignment relieve
PathNet of its obligations under this Agreement. Incumbent may not or shall not
have the right to assign this Agreement or any of its rights and obligations
hereunder, PROVIDED, HOWEVER, Incumbent may assign its right and obligations, in
whole but not in part, under this Agreement without the approval of PathNet, to
any entity which acquires all or substantially all of the assets of Incumbent or
to any subsidiary, Affiliate or successor in a merger or consolidation of
Incumbent; provided, that in no event shall any such assignment relieve
Incumbent of its obligations under this Agreement.
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17.8 WAIVER. Failure or delay on the part of Incumbent or PathNet to
exercise any right, power or privilege under this Agreement shall not constitute
a waiver of any right power or privilege of this Agreement.
17.9 GOOD FAITH RENEGOTIATION. Notwithstanding anything set forth herein
to the contrary, the Parties hereby agree that in the event a Governmental
Authority issues a decision, order, rule or other rulemaking of any kind, which
necessitates any modification or amendment to this Agreement, the Parties shall
negotiate in good faith to modify or amend this Agreement to comply with such
decision, order, rule or other rulemaking.
17.10 CONFIDENTIALITY. Except as otherwise provided in this section,
the Parties agree that all Confidential Information shall be kept in confidence
and shall not, without the prior written consent of the disclosing Party, be
disclosed by the receiving Party in any manner whatsoever, in whole or in part,
and that they will use the Confidential Information disclosed to them solely for
the purposes of this Agreement unless otherwise specifically authorized in
writing by the disclosing Party, or specifically required by an order of a
regulatory agency or court of competent jurisdiction, in which case the Parties
agree to use their best efforts to limit disclosure through a protective order
or other similar means. Notwithstanding the foregoing,the existence of this
Agreement shall not be Confidential Information and either Party may disclose
Confidential Information to its partners, operator, Affiliates, parent
corporations, investors, investment bankers, creditors, third party contractors,
capacity purchasers and their applicable respective employees, attorneys and
agents, provided that such disclosure is made only to those persons with a
legitimate need to know such Confidential Information for purposes consistent
with this Agreement.
17.11 INCUMBENT'S DESIGNATED REPRESENTATIVE. Incumbent shall on the
Effective Date designate in writing a representative who shall have express
authority to bind Incumbent with respect to all matters requiring Incumbent's
approval or authorization in connection with this Agreement (the "INCUMBENT
REPRESENTATIVE"). Such Incumbent Representative shall have the authority to
make decisions and grant any and all consents required under this Agreement on
behalf of Incumbent and PathNet shall be entitled to rely on any such decision
or consent by the Incumbent Representative.
17.12 OUTSOURCING. In addition to, and not in place of, any rights of
PathNet under this Agreement, PathNet shall have the right to engage third party
Subcontractors to perform any or all of PathNet's rights and obligations under
this Agreement.
17.13 UNION AND LABOR RELATIONS. With respect to any services
performed pursuant to this Agreement, Incumbent shall ensure all such services
comply with all applicable labor or union-related agreements, regulations and
ordinances and shall not require PathNet to join any union or other labor
organization as a condition to performing services contemplated by this
Agreement.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement, as of the
date first written above.
PATHNET, INC.
By: /s/ Dave Schaeffer
---------------------------------
Name: Dave Schaeffer
Title: Chairman
NORTHERN BORDER PIPELINE COMPANY
By: Northern Plains Natural Gas Company, Operator
By: /s/ Larry L. DeRoin
---------------------------------
Name: Larry L. DeRoin
Title: President
<PAGE>
Exhibit 10.2
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. SUCH PORTIONS ARE DESIGNATED "[***]".
THIS FIXED POINT MICROWAVE SERVICES AGREEMENT is made and entered into as
of the 30th day of January, 1998 (the "Effective Date"), by and between Pathnet,
Inc. ("Pathnet"), a Delaware corporation and Northern Indiana Public Service
Company ("Incumbent"), an Indiana corporation (collectively, the "Parties" and
each, a "Party".
WITNESSETH:
WHEREAS, Pathnet is engaged in the business of creating high capacity,
digital, microwave communications systems for purposes of marketing and selling
the excess long distance telecommunications capacity created by such systems;
WHEREAS, Incumbent is the owner and operator of an existing analog and
digital microwave telecommunications system; and
WHEREAS, Incumbent desires to engage Pathnet as, and Pathnet desires to
act as, Incumbent's sole representative for the purpose of (i) installing,
managing, and operating a high capacity digital microwave system along
Incumbent's current microwave paths and (ii) marketing and selling any Excess
Capacity created by such high capacity digital microwave system.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Parties agree as follows:
SECTION 1. DEFINITIONS
1.1 Definitions: As used in this Agreement, the following terms shall have
the meanings indicated:
1.1.1 1/0 Multiplexer: Any device that multiplexes capacity between
the DS-l and the DS-O levels.
1.1.2 1 x 1: A microwave radio configuration consisting of a primary
and a protect radio.
1.1.3 Affiliate: With respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common
control with such Person. For the purposes of this definition, "control"
(including the terms "controlled by" and "under common control with"), as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
voting securities, by contract, or otherwise.
1.1.4 Agreement: This Fixed Point Microwave Services Agreement,
including the Schedules and Exhibits attached hereto, as the same may be
amended, supplemented or modified in accordance with the terms hereof.
1.1.5 Alarm and Event Report: As defined in Section 7.7 of Schedule
A.
1.1.6 Amended Schedule B: As defined in Section 18.15.
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1.1.7 Arbitration Association: As defined in Section 17.2.3.
1.1.8 Arbitration Rules: As defined in Section 17.2.3.
1.1.9 As-Built Drawing: As defined in Section 4.1.4 of Schedule A.
1.1.10 Assignment Documents: As defined in Section 8.6.1.
1.1.11 Available Excess Capacity: The total Pathnet Excess Capacity
available (and not allocated) for use or sale on the System at any given
time from Commissioning through the Expiration Date.
1.1.12 Bit Error Rate: ("BER") shall mean the percentage of received
bits in error compared to the total number of bits received.
1.1.13 Breaching Party: As defined in Section 17.1.2.
1.1.14 Business Day: Any day other than a Saturday, a Sunday, or a
day on which the banking institutions in either New York, New York, or the
city and state in which the principal executive offices of Pathnet within
the United States are located, are not open for business.
1.1.15 Capacity Expansion: An increase in telecommunication channels
a System is able to transmit, receive and transport above those created by
the installation of the Initial System, achieved by an addition to or
change in equipment. Capacity Expansion does not include the expansion to
new Sites or the creation of new Segments.
1.1.16 Capacity Expansion Requirements: As defined in Section 7.1 of
Schedule A.
1.1.17 Capacity Expansion Schedule: As defined in Section 7.1 of
Schedule A.
1.1.18 CERCLA: Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 6901 et seq., as amended.
1.1.19 Channel Plan: As defined in Section 1.1 of Schedule A.
1.1.20 Commissioning: With respect to each Path or Segment, the date
on which the circuits of such Path or Segment are available for service
after completion of all required site acceptance testing on the Initial
System or any Capacity Expansion.
1.1.21 Customer Agreements: As defined in Section 9.5.1.
1.1.22 Cutover Plan: As defined in Section 4.1.1 of Schedule A.
1.1.23 DS-0: 64,000 bits per second; The world-wide standard speed
for digitizing one voice conversation using pulse code modulation, which
is approximately equivalent to a single voice or data channel.
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1.1.24 DS-1: 24 DS-0's.
1.1.25 DS-3: 672 DS-0's or 28 DS-1's.
1.1.26 Deficiency List: As defined in Section 5.7 of Schedule A.
1.1.27 Dispute: As defined in Section 17.2.1.
1.1.28 Drop and Insert: That process wherein a part of the
information carried in a transmission system is demodulated (dropped) at
an intermediate point and different information is entered (inserted) for
subsequent transmission.
1.1.29 Effective Date: As defined in the introductory paragraph of
this Agreement or the date of any Amended Schedule B, as the context
indicates.
1.1.30 Encumbrances: Any security interests, mortgages, liens,
pledges, charges, claims, easements, reservations, restrictions, clouds,
equities, rights of way, options, rights of first refusal and other
encumbrances whether or not relating to the extension of credit or the
borrowing of money. To "Encumber" shall mean to effect any Encumbrance.
1.1.31 Equipment: Any and all digital microwave radios, radio
components, cards, antennas, waveguides, multiplexers, software and other
equipment or parts required for the operation of the System provided and
installed by Pathnet as set forth on Exhibit A-1 to Schedule A.
1.1.32 Error Free Second: ("EFS") Any one-second time interval which
does not contain a measurable bit error. (This term may be expressed as a
percent EFS by taking the ratio of non-errored to total seconds and
multiplying by 100.)
1.1.33 Errored Seconds: ("ES") Any one-second interval during which
one or more bit errors occurs. (For example, at the DS-1 rate, an ES will
contain 1 to 1,544,000 bit errors.)
1.1.34 Escrow Agreement: As defined in Section 4.2.4.
1.1.35 Excess Capacity: At any given time, the telecommunications
channels or DS-0's that the System creates, transports and receives, less
the capacity allocated to Incumbent pursuant to the Channel Plan, as
amended from time to time.
1.1.36 Existing System Inventory: As defined in Section 1.1 of
Schedule A.
1.1.37 Expiration Date: The date on which this Agreement and the
rights and obligations hereunder are terminated or expire in accordance
with Section 3.
1.1.38 FAA: The Federal Aviation Administration, or any other
Federal agency at the time administering tower registration requirements
and regulations.
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1.1.39 Failed Second: Any one-second interval that has 1,544 bit
errors at a DS-l rate.
1.1.40 Facilities: Incumbent's towers, shelters, buildings, sites
and all equipment owned by Incumbent relating to and used in association
with such towers, shelters and sites for the purpose of operating the
System.
1.1.41 FCC: The Federal Communications Commission, or any other
Federal agency at the time administering the Communications Act of 1934,
as amended, the Telecommunications Act of 1996, as amended and the rules
and regulations promulgated thereunder.
1.1.42 FCC Code: The Communications Act of 1934, as amended, the
Telecommunications Act of 1996, as amended and the rules and regulations
promulgated thereunder and related thereto.
1.1.43 Force Majeure Event: As defined in Section 16.3.
1.1.44 Form 415: As defined in Section 10.1.1.
1.1.45 Frequency Availability Model: As defined in Section 1.1 of
Schedule A.
1.1.46 Frequency Diversity: A method of protecting a radio signal by
providing a second radio signal on a different frequency, which will
assume the radio signal load when the regular channel fails.
1.1.47 Governmental Authority: Any nation or government, any state
or other political subdivision thereof and any court, panel, judge, board,
bureau, commission, agency or other entity, body or other person
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
1.1.48 Hazardous Material: Any material amount of any substance,
matter or waste which is or becomes regulated by any Federal, state or
local law, ordinance, order, rule, regulation, code or any government
restrictions or requirement including, but not limited to, asbestos,
petroleum products and "Hazardous Substances" and "Hazardous Wastes" (as
such terms are defined in CERCLA and RCRA.)
1.1.49 Incumbent: As defined in the introductory paragraph.
1.1.50 Incumbent Collateral: As defined in Section 8.5.1.
1.1.51 Incumbent Desired Path: As defined in Section 9.3.
1.1.52 Incumbent Representative: As defined in Section 18.12.
1.1.53 Initial System: The portion of the System constituting the
initial system with a 1 x 1 configuration which is comprised of the first
84 DS-1's (which is equivalent to 2,040 DS-0's) of the System and the
System's 84 DS-1 protect channels.
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1.1.54 Initial System Equipment: The Equipment and other equipment
and materials, and Microwave Radio Station Licenses and other licenses and
Permits related thereto, comprising and necessary for the operation of the
Initial System, including but not limited to, the Incumbent Collateral,
radios, radio software, antennas, waveguides, chargers, generators,
multiplexers, towers, shelters, batteries and racks, end user equipment
for the Network Monitoring Center (including hardware and object form
software) and all replacements thereof and substitutions therefor.
1.1.55 Interconnection: The point at which a private network is
connected to (i) the PSTN, which can include IXC POPs, tandem access
points, the central office, internet service providers, or major
industrial customer points of presence or (ii) another private network.
1.1.56 Interference: Any measurable impairment in the performance of
the System or the quality of the signals received or transmitted on the
System exceeding the technical standards set forth in Section 101.105 of
the FCC Code as such standards may apply to co-channel or adjacent channel
interferences.
1.1.57 IXC: An inter-exchange carrier; a telephone company that
provides long-distance telephone service between LATA's but not within any
one LATA.
1.1.58 Judgment: Any order, judgment, writ, decree, award or other
determination, decision or ruling of any court, judge, justice or
magistrate, any other Governmental Authority or any arbitrator.
1.1.59 LATA: Local Access and Transport Area; one of 161 local
geographic areas in the United States within which a local telephone
company may offer telecommunications services.
1.1.60 Leased Premises: As defined in Section 5.1.
1.1.61 Leased Premises Encumbrance: As defined in Section 5.10.
1.1.62 Losses: Any and all losses, claims, shortages, damages,
liabilities, expenses (including reasonable attorneys' and accountants'
fees), assessments, tax deficiencies and taxes (including interest and
penalties thereon) sustained, suffered or incurred by any third party
arising from any matter which is the subject of indemnification under
Section 15.
1.1.63 Maintenance Services Agreement: The Maintenance Services
Agreement, by and between Pathnet and Incumbent, as the same may be
amended from time to time in accordance with its terms.
1.1.64 Material Adverse Effect: Any event, fact, circumstance or
occurrence, which results or would result in a material adverse change in
or a material adverse effect on any of: (i) the condition (financial or
otherwise), business, performance, operations, properties, or prospects of
such Person; (ii) the legality, validity or enforceability of this
Agreement; or (iii) the ability of such Person to perform its material
obligations under this Agreement.
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1.1.65 Microwave Radio Station Licenses: As defined in Section
10.1.1(b).
1.1.66 Modifications SOW: As defined in Section 2.1 of Schedule A.
1.1.67 Network Monitoring Center: As defined in Section 7.5 of
Schedule A.
1.1.68 Network Management System: As defined in Section 7.6 of
Schedule A.
1.1.69 Non-Breaching Party: As defined in Section 17.1.2.
1.1.70 Notice of Election: As defined in Section 15.3.
1.1.71 OC-3 Multiplexer: Any device that multiplexes capacity
between the OC-3 and the DS-1 levels.
1.1.72 Order Wire: A service channel consisting of a 64,000 bit per
second circuit between sites.
1.1.73 OSHA: The Occupational Safety and Health Act, as amended.
1.1.74 Outage: Any unscheduled interruption in telecommunication
services (usually measured in "Outage Seconds") along a segment that
consists of ten (10) consecutive Severely Errored Seconds (i.e., when the
BER in each second is worse than 10^-3 for a period of ten (10)
consecutive seconds). These ten (10) seconds are considered to be
unavailable. The unavailable time is counted from when the first of ten
(10) Severely Errored Seconds (SESs) occurs, and ends when the first of
ten (10) consecutive non-SESs occurs second in the sequence.
1.1.75 Part 101: Part 101 of Title 47 of the Code of Federal
Regulations, as
1.1.76 Party: As defined in the introductory paragraph.
1.1.77 Path: The physical spatial separation between point-to-point
towers, housing and microwave antenna.
1.1.78 Path Studies: As defined in Section 1.1 of Schedule A.
1.1.79 Pathnet: As defined in the introductory paragraph.
1.1.80 Pathnet Estimated Costs: As defined in Section 4.2.2.
1.1.81 Pathnet Items: As defined in Section 4.2.1.
1.1.82 Pathnet Software: The software (including applications
software and systems software) owned or licensed from a third party by
Pathnet and used to provide the services covered in this Agreement.
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1.1.83 PCN: A Prior Coordination Notice sent pursuant to Part 101.
1.1.84 Permits: Any and all authorizations, approvals, consents,
licenses, permits, easements, certificates and other rights and
permissions necessary to conduct such Person's business and to own, lease
and operate such Person's properties as currently conducted, owned, leased
or operated.
1.1.85 Person: An individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, or other entity of any kind or any Governmental Authority.
1.1.86 POP: Point Of Presence; The interconnection between any two
facilities based networks.
1.1.87 Progress Report: As defined in Section 4.1.2 of Schedule A.
1.1.88 Pre-Commissioning Test Equipment: All equipment required for
the testing required to be performed on the System pursuant to Section 5
of Schedule A, including, but not limited to, all required digital volt
meters, optical power meters, oscilloscopes, RF signal generators, noise
figure meters, noise figure test sets, RF variable attenuators, DADE
adjust cables, receiver card extenders and extension cords.
1.1.89 Preliminary Construction Schedule: As defined in Section 1.1
of Schedule A.
1.1.90 Project Drawings: As defined in Section 1.3 of Schedule A.
1.1.91 Project Management Plan: As defined in Section 4.1.1 of
Schedule A.
1.1.92 Project Schedule: As defined in Section 4.1.1 of Schedule A.
1.1.93 Proprietary Information: Any information of a Party which is
identified as confidential or which is customarily considered
confidential, including the Pathnet Software and related documentation (in
the case of Pathnet) and any trade secrets, business and financial
information, techniques, specifications, inventions, strategies and any
information that is not generally known in the relevant industry or which
affords possessors of the information a commercial or business advantage,
and any corrections, modifications, revisions and copies thereof, whether
in machine readable or visually readable form.
1.1.94 Protection Configuration: An engineering plan under which
channel capacity is protected either on a fully redundant basis or on a 1
x n protection basis.
1.1.95 PSTN: Publicly Switched Telephone Network.
1.1.96 RCRA: Resource Conservation and Recovery Act, 42 U.S.C.
Section 9601 et seq., as amended.
1.1.97 Requirement of Law: With respect to any Person, all Federal,
state and local laws, rules, regulations, Judgments, injunctions,
standards, codes, limitations,
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restrictions, conditions, prohibitions, notices, demands or other
requirements or determinations of a court or other Governmental Authority
or an arbitrator, applicable to or binding upon such Person, any of its
property or any business conducted by it or to which such Person, any of
its assets or any business conducted by it is subject.
1.1.98 Segment: The portion of a microwave communications network
existing between two geographic points. For purposes of this Agreement,
Segment A is the portion of Incumbent's microwave communications network
between Hammond, Indiana and (i) South Bend, Indiana and (ii) and
Monticello, Indiana, as set forth in Schedule B. Segment B is the portion
of Incumbent's microwave communications network between Plymouth, Indiana
and Ft. Wayne, Indiana, as set forth in Schedule B. The additional
Segments added to the System pursuant to an Amended Schedule B are
identified as Segment C, and Segment D, etc.
1.1.99 Services: As defined in Section 7.1.
1.1.100 Severely Errored Seconds: ("SES") shall mean (i) at the DS-I
rate, any one second interval during which the BER is greater than or
equal to 1 x 10E^-3 regardless of the cause of degradation affecting the
channel error performance including, but not limited to, unprotected
equipment failures and any other factors that contribute to poor
performance (at the DS-l rate, this equates to 1,544 or more bit errors
occurring within one second), and (ii) at the DS-3 rate, any one-second
interval during which the BER is equal to or worse than 1 x 10E^-6.
1.1.101 Site: A physical location on which a tower or other
structure is located which houses microwave antenna, radios and other
communications equipment used in the System.
1.1.102 SONET: Synchronous Optical Network; a family of fiber-optic
transmission rates from 51.84 Mbps to 13.22 Gbps, created to provide the
flexibility needed to transport many digital signals with different
capacities and to provide a standard to which manufacturers may design.
1.1.103 Space Diversity: Protection of a radio signal by providing a
separate antenna on the same tower to assume the radio signal load when
the regular transmission path on the primary antenna fades, thereby
ensuring continuous transmission.
1.1.104 Spare Parts: The equipment, modules, and parts provided by
Pathnet to Incumbent pursuant to the performance of Incumbent's
obligations under the Maintenance Services Agreement.
1.1.105 Specifications: As defined in Section 7.2.
1.1.106 Station Log Book: As defined in Section 6.2 of Schedule A.
1.1.107 Subcontractors: Any firm, corporation, or person working
directly or indirectly for a company that furnishes or performs a portion
of the work, labor or material.
1.1.108 Switched Mod Section: A section of network between two
adjacent back to-back terminals.
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1.1.109 System: The high capacity digital SONET microwave radio
equipment (6 GHz/30 MHz), antenna, waveguide, components, Facilities,
Equipment, Network Management System, all other equipment and materials
related thereto, and Microwave Radio Station Licenses and other licenses
and Permits related thereof, operated for the purpose of transmitting,
receiving and transporting telecommunications signals over Segments set
forth on Schedule B.
1.1.110 System Budget: As defined in Section 1.1 of Schedule A.
1.1.111 System Design: As defined in Section 1.1 of Schedule A.
1.1.112 Technology: Inventions, ideas, processes, formulas, and
know-how.
1.1.113 Term: As defined in Section 3.1.1.
1.1.114 Tower Analysis: As defined in Section 1.1 of Schedule A.
1.1.115 Vendor Credit Assurances: As defined in Section 4.2.4(a).
1.1.116 Wayside Channels: The additional DS-1 of telecommunications
capacity within each radio beyond the base OC-3 capacity.
1.2 Terms Generally. The definitions in Section 1.1 and elsewhere in this
Agreement shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "herein",
"hereof", "hereto" and "hereunder" and words of similar import refer to this
Agreement (including the Schedules and Exhibits) in its entirety and not to any
part hereto unless the context shall otherwise require. All references herein to
Sections, Exhibits and Schedules shall be deemed references to Sections of, and
Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Any reference in this Agreement to a "day" or number and "days"
(without the explicit qualification of "Business") shall be interpreted as a
reference to a calendar day or number of calendar days. If any action or notice
is to be taken or given on or by a particular calendar day, and such calendar
day is not a Business Day, then such action or notice shall be deferred until,
or may be taken or given on, the next Business Day.
SECTION 2. RELATIONSHIP OF THE PARTIES
2.1 Lessee, Independent Contractor, Representative and Network Manager.
Incumbent shall appoint Pathnet and Pathnet shall serve in the following
capacities during the term of this Agreement:
(i) In the role of lessee, Pathnet will lease from Incumbent an
interest in Incumbent's sites and Facilities on which to build and operate
the System. As consideration for such leasehold interest, Pathnet will pay
rent to Incumbent as set forth in Section 5.
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(ii) As an independent contractor, Pathnet will serve as Incumbent's
sole and exclusive representative in performing analytical pre-design and
design services and installing, testing and ensuring the performance of
the System, as well as any upgrades to such System in accordance with the
terms and conditions set forth in Section 6 and in Schedule A.
(iii) As the exclusive representative for the marketing and sale of
Excess Capacity for Incumbent, Pathnet will market and sell the Excess
Capacity created by System, as described in Section 9.
(iv) In the role of a network manager, Pathnet will serve as the
point of contact for any Outage or trouble on the System and shall operate
the Network Management System and the Network Monitoring Center as
described in Section 7.6 and Section 7.7 of Schedule A.
2.2 No Joint Venture, etc. The Parties expressly disclaim any intention to
create, and nothing herein shall be construed as creating, a partnership, joint
venture, agency or employment relationship between Pathnet and Incumbent.
2.3 Restrictions on Actions of Incumbent. For the term of this Agreement,
neither Incumbent, nor any Affiliate of Incumbent, shall operate parallel
microwave telecommunications facilities or systems to those set forth in
Schedule B for the purpose of selling or otherwise providing any capacity on
such parallel facilities or systems to third parties for commercial use in
competition with Pathnet. Notwithstanding the foregoing, Incumbent shall be
permitted to continue to operate Incumbent's existing analog or digital
microwave system, as such system may be modified provided no Interference shall
occur on the System, for the intended uses of Incumbent and its Affiliates and
any other use for which such analog or digital system was used as of the
Effective Date.
SECTION 3. TERM AND EXPIRATION
3.1 Term, Extension Periods, and Renewal.
3.1.1 Term. This Agreement shall commence on the Effective Date and
shall expire on the twenty-fifth (25th) anniversary of the Commissioning
of Segment A of the Initial System (the "Term").
3.1.2 Renewal. Upon expiration of the Term, this Agreement shall be
automatically renewed for additional one-year terms thereafter, unless
terminated by either Party upon written notice to the other Party to that
effect delivered within the ninety (90) day period immediately before the
renewal date for any such additional one-year term.
3.2 Limited Right to Terminate. Neither Party shall have the right to
terminate this Agreement or any rights or obligations of either Party pursuant
to this Agreement, except:
(a) incumbent shall have the right to terminate this Agreement by
serving written notice to Pathnet in the event (i) Pathnet is liquidated
or dissolved under Chapter 7 of the Federal bankruptcy laws and (ii)
Incumbent receives written notice from one of Pathnet's equipment vendors
or other lenders stating that such vendor or lender will waive its right
to operate the System for the purpose of generating Revenue from the sale
of Excess Capacity.
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(b) Pathnet shall have the right to terminate this Agreement
pursuant to Section 13.1.5 of this Agreement.
SECTION 4. COSTS
4.1 Incumbent Costs.
4.1.1 Incumbent Operating and Administration Costs. Incumbent shall
pay the operating and administration costs set forth in Section 1 of
Schedule C as such costs are actually incurred and become due and payable
in the course of the Incumbent's performance of its obligations under this
Agreement.
4.2 Pathnet Costs.
4.2.1 Pathnet Items. Pathnet shall pay for services, functions,
materials and other items listed in Section 2 of Schedule C (the "Pathnet
Items") to build and implement the System.
4.2.2 Estimated Cost of Pathnet Items. On the Effective Date, the
total estimated cost of the Pathnet Items is [***]
(the
"Pathnet Estimated Costs").
4.2.3 No Cap on Pathnet Items. Pathnet shall pay for all amounts
incurred in completing the Pathnet Items whether or not the cost of
completing such items is less than, equal to or exceeds the Pathnet
Estimated Costs.
4.2.4 Payment of Pathnet Items. To ensure payment of the Pathnet
Estimated Costs, simultaneously with the execution and delivery of this
Agreement Pathnet shall:
(a) deliver to Incumbent vendor credit assurances (the "Vendor
Credit Assurances"), which Vendor Credit Assurances shall establish
and confirm, among other things, that Pathnet has an adequate credit
facility to acquire the Equipment and Services provided by such
vendor. (As determined by Pathnet in its sole discretion, such
Vendor Credit Assurances may be in the form of a copy of the
applicable vendor's term sheet or excerpts from the vendor's credit
agreement with Pathnet); and
(b) deliver to Incumbent an escrow agreement substantially in
the form attached hereto as Schedule D (the "Escrow Agreement")
pursuant to which, among other things, (i) Pathnet shall place in
escrow funds for each Segment in an amount equal to fifty percent
(50%) of (the Pathnet Estimated Costs less the cost of any equipment
provided by the vendors referred to in the Vendor Credit
Assurances), (ii) the escrow agent named in such Escrow Agreement
shall disburse to Pathnet the funds necessary to pay for the cost of
the Pathnet Items as such Pathnet Items are completed and as Pathnet
receives invoices relating to such Pathnet Items, (iii) in the event
that Pathnet fails to timely meet its payment responsibilities with
respect to the Pathnet Items, the escrow agent named in such Escrow
Agreement shall disburse to
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Incumbent the funds necessary to cure such failure to pay by Pathnet
and (iv) such Escrow Agreement shall terminate upon Commissioning of
the System and upon such termination any funds remaining in escrow,
including any interest accrued on such funds shall be disbursed to
Pathnet.
4.2.5 Pathnet Operating and Administration Costs. Pathnet shall pay
for the operating and administration costs set forth in Section 3 of
Schedule C as such costs are actually incurred and become due and payable
in the course of Pathnet's performance of its obligations under this
Agreement.
4.3 Change Orders.
a) This Agreement anticipates (i) future issuance of change orders
for equipment and services beyond the scope of this Section 4, and (ii)
Pathnet's provision of related equipment and services in accordance with
such orders. To the extent mutually agreed upon by the Parties, all such
orders shall be deemed to be supplements to and governed by the terms of
this Agreement
b) If and to the extent Pathnet and/or Incumbent do not (i) obtain
any permit or license pursuant to Section 10.2, Section 10.3 and Section
13.1.5, (ii) obtain use and enjoyment of the Licensed Premises pursuant to
Section 5.4.1, or (iii) clear any Interference pursuant to Section 5.4.2
at any site, each as required to construct and operate the System, the
Parties shall use commercially reasonable efforts to find an alternate and
equivalent Facility available for the installation and operation of the
System. If and to the extent the Parties cannot find an alternate and
equivalent Facility available for the installation and operation of the
System, the Parties shall mutually amend the Facilities and System listed
on Schedule B and Exhibit A-l to Schedule A and the appropriate schedules
of the Maintenance Services Agreement; provided such amendment shall
include a modified System route that does not substantially differ from
the proposed System. Notwithstanding the foregoing, neither Party shall be
obligated to construct or operate any Facility that cannot be developed as
a result of (i), (ii), or (iii) of this Subsection (b) or cannot be
frequency coordinated, and the System and each Segment thereof as defined
in Schedule B shall be mutually modified by the Parties in order to
resolve any site or frequency availability limitations, including the
deletion of any such Facilities or any portion of a Segment. The Parties
hereby acknowledge that as to Segment B certain Facilities require
finalization of permits and frequency coordination, and the Parties shall
use commercially reasonable efforts to obtain such permits and frequency
availability. In no event shall Incumbent be required by the terms of this
Agreement to purchase or lease and develop additional land or sites
without its consent.
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SECTION 5. LEASEHOLD INTEREST
5.1 Lease. Incumbent shall lease to Pathnet and Pathnet shall lease from
Incumbent an interest in each of Incumbent's Sites and in the Facilities at such
Sites set forth on Schedule B as is necessary for the performance of Pathnet's
rights and obligations under this Agreement (the "Leased Premises"); provided
(i) such performance shall not unreasonably inhibit Incumbent from performing
its current and future operations at the Leased Premises and (ii) Incumbent's
current and future operations shall comply with the Interference provisions set
forth in Section 5.4.2 of this Agreement. Pathnet acknowledges it shall not have
the right through any expansion of the System to use other property or Sites of
Incumbent, including undeveloped property or Sites, without the written
agreement of Incumbent.
5.2 Rent for Leased Premises. Pathnet shall pay to Incumbent, as rent
for the Leased Premises, commencing on Commissioning of the Initial System,
an allocation of up to [***]
of digital capacity, as set forth by the Parties
in the Channel Plan; provided, that Incumbent and Incumbent's Affiliates use
such allocation of [***] only for their own respective internal
communications needs.
5.3 Term of Lease. The term of Pathnet's interest in the Leased Premises
and the Parties obligations under this Section 5, including, but not limited to,
Pathnet's obligation to pay rent as set forth in Section 5.2, shall commence on
the Effective Date and shall end on the Expiration Date.
5.4 Use of Leased Premises.
5.4.1 Peaceful Enjoyment, Use and Access. Incumbent shall grant to
Pathnet the right to the peaceful use, enjoyment and possession of the
Leased Premises during the term of this Agreement as required for the
performance of Pathnet's rights and obligations under this Agreement,
provided (i) such performance shall not unreasonably inhibit Incumbent
from performing its current and future operations at the Leased Premises
and (ii) Incumbent's current and future operations shall comply with the
Interference provisions set forth in Section 5.4.2 of this Agreement. Such
rights shall include, but not be limited to, (i) the right to use
Incumbent's Facilities and (ii) upon the reasonable request by Pathnet,
the right to full and free access to Incumbent's Sites, Facilities and
related equipment; provided, however, any such access granted by Incumbent
to Pathnet (a) shall be subject to the security, health and safety and
other regulatory, procedural and policy requirements of Incumbent, as set
forth in Section 5.6 and (b) shall not unreasonably interfere with the
access rights granted to third party telecommunication providers prior to
the Effective Date as set forth in Schedule I. Pathnet shall not make or
permit any use of the Leased Premises, or any part thereof, which violates
any applicable statute, ordinance, regulation, or other requirement of any
Governmental Authority or which constitutes a nuisance, public or private,
or which may render void or voidable, as a result of Pathnet's negligent
use of such Leased Premises, any of Incumbent's insurance then in place.
5.4.2 Interference. During the Term of this Agreement, Incumbent
shall not license or otherwise permit any Person to use its Facilities if
the use of such Facilities by such Person would cause any Interference on
the System. Notwithstanding the foregoing, in the event any Person causes
any Interference on the System, Incumbent shall use all best efforts to
compel such Person to immediately take any and all steps necessary to
correct and eliminate such Interference, including, without limitation,
enforcing provisions in any license
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or other agreement between Incumbent and such Person and compelling such
Person to cease operation of such Person's system, to remove such Person's
equipment or materials or to modify such Person's equipment or materials.
Incumbent acknowledges that any Interference shall cause irreparable harm
to Pathnet and the prompt cessation of Interference is material to
Pathnet's interest in the Leased Premises and Pathnet's performance under
this Agreement and, as such, Pathnet shall be entitled to injunctive
relief in the enforcement of this Section 5.4.2.
5.5 Visiting and Exiting Facilities. Upon exiting any Facility at the
Leased Premises, Pathnet, on behalf of itself and its employees, agents and
Subcontractors, shall ensure that such Facility is returned to a condition,
which existed immediately prior to such visit.
5.6 Security, Drug Testing, Substance Abuse and Health and Safety.
5.6.1 Security. At the request of Incumbent, Pathnet shall require
its employees, agents and Subcontractors upon any Site visit to comply
with Incumbent's reasonable security procedures in effect as of the
Effective Date, which procedures are attached hereto as Schedule E as may
be updated from time to time. If and to the extent Incumbent requires
Pathnet employees, agents or Subcontractors to be escorted to Incumbent
facilities, such requirements shall be explicitly set forth in Schedule E.
Notwithstanding the foregoing, Incumbent shall allow Pathnet employees,
agents or Subcontractors to bring any reasonable testing equipment,
photographic equipment or both video and audio recording equipment
necessary for the performance of Pathnet's obligations under this
Agreement, except as provided by Incumbent in Schedule E.
5.6.2 Drug Testing. At the request of Incumbent, Pathnet shall
require its employees, agents and Subcontractors to comply with
Incumbent's reasonable drug testing policies and procedures (i) in effect
as of the Effective Date, which policies and procedures, if any, are
attached hereto as Schedule F and (ii) as may be proposed by Incumbent
from time to time. Notwithstanding the foregoing, Pathnet shall take
reasonable measures to ensure that its employees, agents and
Subcontractors comply with commercially reasonable policies and
procedures.
5.6.3 Substance Abuse Policy. At the request of Incumbent, Pathnet
shall require its employees, agents or Subcontractors to comply with
Incumbent's reasonable substance abuse policies and procedures (i) in
effect as of the Effective Date, which additional policies and procedures,
if any, are attached hereto as Schedule G and (ii) as may be proposed by
Incumbent from time to time. Notwithstanding the foregoing, Pathnet shall
take reasonable measures to ensure that its employees, agents and
Subcontractors comply with commercially reasonable policies and
procedures.
5.6.4 Health and Safety. At the request of Incumbent, Pathnet shall
require its employees, agents and Subcontractors to comply with all of the
applicable regulations of the United States and Indiana Occupational
Safety and Health Acts and Incumbent's additional reasonable rules and
regulations governing the health and safety of its employees in effect on
the Effective Date, which additional rules and regulations, if any, are
attached hereto as Schedule H.
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5.6.5 Clearances and Other Requirements. At the request of
Incumbent, Pathnet shall require its employees, agents or Subcontractors
to (i) apply to Incumbent for any necessary reasonable clearances and (ii)
comply with all other reasonable and applicable requirements, rules,
regulations or ordinances regarding any Person's ability to have access to
Incumbent's sites and Facilities, including, but not limited to, the
Leased Premises, which requirements are set forth as Schedule I.
5.7 Subletting. Pathnet shall not sublet its interest in the Leased
Premises, in whole or in part, without the prior written consent of Incumbent;
provided, however, Pathnet shall have the right to transfer and assign its
rights or obligations under this Agreement to any successor or assign in
accordance with Section 18.7.
5.8 Surrender. Upon the expiration or termination of the Agreement in
accordance with Section 3, Pathnet shall peacefully and quietly surrender
occupation of the Leased Premises to Incumbent, or Incumbent's successors and
assigns, without delivery by Incumbent to Pathnet of any notice to quit or
demand for possession in good order, condition and repair, except for reasonable
wear and tear.
5.9 Colocation. Incumbent shall allow Pathnet, at no additional charge, to
colocate at Incumbent's sites all equipment necessary to support the
Interconnections set forth on Exhibit A-7 to Schedule A and any additional
interconnections equipment that may be added by Pathnet from time to time and at
any time during the term of this Agreement, subject to the limitations set forth
in Section 3 of Schedule A.
5.10 Subordination. Pathnet shall subordinate its interest in the Leased
Premises to (i) all deeds of trust, deeds to secure debts, mortgages and other
security instruments now or hereafter Encumbering all or any portion of the real
property described on Schedule B (each, a "Leased Premises Encumbrance") and
(ii) any increases, renewals, modifications, consolidations, replacements and
extensions of any such Leased Premises Encumbrance. In connection with such
subordination of Pathnet's interest in the Leased Premises to all Leased
Premises Encumbrances, Pathnet shall, as requested by Incumbent, within sixty
(60) days after the Effective Date, execute and deliver a commercially
reasonable subordination, non-disturbance and attornment agreement with all
Persons secured by such Leased Premises Encumbrances. Pathnet shall, as
requested by Incumbent, execute and deliver similar subordination,
non-disturbance and attornment agreements with each future Person secured by a
Leased Premises Encumbrance.
5.11 Removal of Equipment. Pathnet shall, at Incumbent's request, remove
any or all Equipment from Incumbent's Facilities within sixty (60) days after
the Expiration Date. In the event Pathnet fails to perform such requested
removal within such sixty (60) day period, as determined by Incumbent in its
sole discretion, Incumbent may restore each Site to its condition as of
Commissioning, (reasonable wear and tear and damage from the elements excepted),
and Pathnet shall promptly pay Incumbent all costs reasonably incurred by
Incumbent for such removal and restoration.
5.12 Removal of Hazardous Materials. Within ninety (90) days after the
Expiration Date, Pathnet shall remove from Incumbent's Sites any and all
Hazardous Materials, which were brought to Incumbent's Sites by Pathnet during
the Term of this Agreement. Pathnet shall bear all liability associated with
such Hazardous Materials physically brought to the Sites by Pathnet or its
Subcontractors during the Term of this Agreement, which liability shall survive
the termination or
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expiration of this Agreement. Pathnet shall immediately notify Incumbent of any
release, discharge or use of any Hazardous Materials on the Leased Premises,
which release, discharge or use is caused by Pathnet or any of its
Subcontractors or which is known by Pathnet.
5.13 Sale of Initial System. Any time after the Expiration Date or the
expiration of the initial twenty-five year Term, Pathnet shall, upon written
request from Incumbent, sell to Incumbent all of the Initial System Equipment
for a purchase price of one dollar ($1.00). Upon exercise of such purchase
option, all of the Initial System Equipment shall become the property of
Incumbent, and Pathnet agrees to execute any documents reasonably requested by
Incumbent to effectuate or evidence such transfer of ownership and to transfer
or cancel the necessary Microwave Station Licenses in accordance with Section
8.5.4.
5.14 Condemnation. If, during the Term of this Agreement, a portion of the
Leased Premises shall be taken as a result of the power of eminent domain, this
Agreement shall terminate with respect to such portion of the Leased Premises.
In the event a portion of the Leased Premises is taken as a result of eminent
domain, Incumbent shall use its best efforts to find alternate Sites to replace
such condemned Sites. Notwithstanding any judicial allocation of any award
resulting from any such condemnation, any award from such condemnation shall be
split by Pathnet and Incumbent in accordance with the value of their respective
estates in the Leased Premises, with Pathnet's estate valued at the fair market
value price of any nonremoveable Equipment that is a fixture of the Leased
premises.
SECTION 6. PROGRAM MANAGEMENT AND PROJECT MANAGEMENT
6.1 Program Manager. In connection with the Services and other services
performed by Pathnet under this Agreement, Pathnet shall provide a Program
Manager whose duties shall include (i) supervising the project through design,
installation and operation, (ii) supervising the Project Manager, (iii)
overseeing the Field Manager and the other Pathnet personnel, (iv) coordinating
the business operations of the System including the sale of Excess Capacity as
set forth in Section 9 and (v) ensuring the performance of Pathnet's rights and
obligations under this Agreement.
6.2 Project Management for Modifications and Installation. In connection
with the modifications of the Facilities set forth in Section 2 and Section 4 of
Schedule A, Pathnet shall provide a Project Manager, a Field Manager, an
Applications Engineer and a Project Engineer, each of whom shall have the duties
as set forth in Section 6.3 with respect to such modifications and installation
at the Facilities.
6.3 Pathnet Project Management Personnel. The Project Managers, Field
Managers, Applications Engineers and Project Engineers shall each have the
duties as set forth below:
(a) Project Manager. Pathnet shall provide a Project Manager whose
duties shall include ensuring the overall functional integrity of the
delivered System, the preparation, amendment and adherence to a
construction schedule, and compliance with Pathnet's other obligations
under Schedule A.
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(b) Field Manager. Pathnet shall provide a Field Manager whose
duties shall include the oversight and direction of all on-site
activities, the coordination of all Subcontractors and all required
communication with the Project Manager.
(c) Applications Engineer. Pathnet shall provide an Applications
Engineer, whose duties shall include the review and translation of the
System configuration into specific hardware requirements, precise
interface levels, intra and inter-rack cabling and all other necessary
peripheral equipment, rack profiles and required Interconnection data.
(d) Project Engineer. Pathnet shall provide a Project Engineer whose
duties shall include the performance of all planning and support
activities and a detailed site survey to gather data for development of
the installation plan and testing plan.
SECTION 7. SERVICES AND SYSTEMS SPECIFICATIONS
7.1 Services.
7.1.1 System Design, Modification. Installation, Operation and
Performance. Pathnet and Incumbent shall perform their respective
functions with respect to the design, modification, installation,
operation and performance of the System as set forth on Schedule A
(including Exhibit A-10) and in this Section 7 (the "Services").
7.1.2 Upgrade of System. In accordance with its performance of the
Services, Pathnet shall, in its sole discretion and, at its own expense,
upgrade the System and Equipment, and the System and Equipment operation
policies and procedures, including, but not limited to, (i) replacing
Equipment, (ii) adding newly available improved Equipment and (iii)
modifying policies, procedures and specifications relating to the System,
to conform such policies, procedures and specifications with new
Technology or industry standards.
7.1.3 Incumbent Training. Pathnet shall provide to Incumbent the
training as set forth on Schedule J.
7.1.4 Performance of the Services. Pathnet shall have the right to
engage Subcontractors to perform any of the Services in accordance with
Section 18.13.
7.2 Specifications.
7.2.1 General. Pathnet and Incumbent shall perform the Services in
accordance with any and all technical and operational specifications set
forth in Schedule A (the "Specifications").
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7.2.2 Channel Plan.
(a) Original Channel Plan. On the Effective Date, Incumbent shall
deliver to Pathnet a proposed T-1 channelization plan setting forth its
proposed capacity needs at each Site listed on Schedule B. Such capacity
shall in no event exceed the capacity granted to Incumbent by Pathnet as
rent as set forth in Section 5.2 and shall be subject to Drop and Insert
capacity at each Switched Mod Section. Pathnet shall incorporate
Incumbent's proposed channelization plan into the Channel Plan subject to
the limitations set forth above.
(b) Amended Channel Plan. Incumbent shall have the right to modify,
its allocated capacity (as described in the Channel Plan) along the
network any time after Commissioning, provided that sufficient Drop and
Insert capacity exists between each Switched Mod Section using available
Wayside Channels to effect such modification, by providing written notice
to Pathnet to such effect. Within ninety (90) days after receipt of any
such written notice from Incumbent, Pathnet shall make such modification
to the configuration of the Channel Plan at no charge to Incumbent.
Incumbent shall not reconfigure the Channel Plan in any manner other than
as set forth in this Section 7.2.2. Any amendments that Pathnet may make
to the Incumbent Channel Plan shall not Interfere with Incumbent's ability
to use the System at any of the Sites and shall be subject to the approval
of Incumbent, which shall not be unreasonably withheld. Pathnet's use of
the Wayside Channels that are part of the Initial System shall be subject
to the approval of Incumbent, which shall not be unreasonably withheld.
7.2.3 Specifications, Standards and Inspections. In connection with the
Services set forth in Section 2 and Section 4 of Schedule A, Pathnet shall
comply with the following requirements:
(a) Reasonable Efforts. Pathnet shall use commercially reasonable
efforts to ensure that the modification of the Facilities and System set
forth in Section 2 of Schedule A and the installation of the System set
forth in Section 4 of Schedule A occur as expeditiously as possible.
(b) Industry Standards. All Services and materials supplied pursuant
to Schedule A must meet or exceed all applicable Specifications. Where
Specifications are not stated, such work performed and materials supplied
will meet all applicable provisions of the following standards: (i) EIA
RS-195 (latest edition), (ii) EIA/TIA-222 (latest edition), (iii) American
Society of Testing Materials A 325 and A 572, (iv) the applicable sections
of the National Electric Code, (v) the American National Standards
Institute, (vi) ACI 318-83, (vii) ACI-305, (viii) ACI-306, (ix) OSHA 29
CFR 1910 and (x) all other applicable Federal, state and local regulations
of all Governmental Authorities with jurisdiction; provided, however, in
the case of a conflicting requirement of standards, the more stringent
standard shall apply.
(c) Site Inspections. During the performance of the Services,
Incumbent shall allow Pathnet to reasonably perform Site inspections at
any hour, on any day subject to the access limitations set forth in
Section 5.6 and provided such inspections
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do not unreasonably interfere with the access rights granted by Incumbent
to others prior to the Effective Date.
SECTION 8. OWNERSHIP, DEPRECIATION AND ENCUMBRANCE OF SYSTEM
8.1 Ownership of Equipment and Assets.
8.1.1 Equipment and Assets Owned by Incumbent. Incumbent shall own
the equipment and assets relating to the System as set forth in Schedule
K. Incumbent shall be responsible for insuring such assets against force
majeure, damage, casualty and theft. Nothing in this Agreement shall be
deemed to transfer ownership of Incumbent's assets existing as of the
Effective Date to Pathnet and Incumbent shall continue to own all of its
equipment and assets at the Sites and Facilities as of the Effective Date
of this Agreement.
8.1.2 Equipment and Assets Owned by Pathnet. Subject of Incumbent's
purchase option in Section 5.13, Pathnet shall own the equipment and
assets relating to the System as set forth in Schedule K. Pathnet shall be
responsible for insuring such assets against force majeure, damage,
casualty and theft.
8.1.3 Pathnet Contributed Towers and Shelters. The Parties hereby
acknowledge that Pathnet shall contribute certain assets or modifications
to assets to Incumbent pursuant to Schedule K of this Agreement. Incumbent
shall reserve space availability in or on such assets for Pathnet
colocated equipment, including without limitation, equipment used for
Interconnections. If and to the extent Incumbent desires to colocate
Incumbent equipment or third party equipment in or on such assets,
Incumbent shall receive Pathnet prior approval; provided that during the
Term the Parties shall divide evenly any revenues or rents received from
the use of such assets by any third parties.
8.2 Depreciation of Equipment.
8.2.1 Depreciation by Incumbent. Incumbent shall have the right to
fully depreciate the equipment and assets currently owned or to be owned
by Incumbent as listed in Schedule K.
8.2.2 Depreciation by Pathnet. Pathnet shall have the right to fully
depreciate the equipment and assets currently owned or to be owned by
Pathnet as listed in Schedule K.
8.3 Encumbrance.
8.3.1 Initial System. Pathnet shall not Encumber the Incumbent
Collateral.
8.3.2 Other Equipment, Materials, Agreements and Assets. Pathnet
shall have the right to Encumber (i) the Equipment used in any Capacity
Expansion, (ii) the revenue from the sale of Excess Capacity in accordance
with Section 8, (iii) any Customer Agreement relating to the System, (iv)
this Agreement and any related documents, instruments and agreements
executed and delivered in connection with this Agreement and any rights
and obligations hereunder or thereunder, (v) its leasehold interest in the
Leased Premises and (vi) the Equipment relating to the Initial System
other than the Incumbent Collateral.
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8.3.3 Vendor Remedies. Incumbent hereby acknowledges that pursuant
to the Encumbrances granted by Pathnet to certain equipment vendors,
service providers or other lenders in accordance with Section 8.3.2, such
vendors, service providers or other lenders shall have the right to assume
and perform Pathnet's rights and obligations under this Agreement and
other documents, instruments and agreements executed in connection
herewith.
8.4 Taxes. The Parties' respective responsibilities for taxes arising
under or in connection with this Agreement shall be as follows: (i) each Party
shall be responsible for any personal or real property taxes on property it owns
or leases, for franchise and privilege taxes on its business and for taxes based
on its net income or gross revenue and (ii) Pathnet shall be responsible for any
sales, use, excise, value-added services, consumption and other taxes and duties
payable by Incumbent on any goods and services used or consumed in providing the
services to be performed by Pathnet under this Agreement, where the tax is
imposed on Incumbent's acquisition or use of such goods or services and the
amount of the tax is measured by Incumbent's costs in acquiring such goods or
services; provided, however, that Pathnet shall not be responsible for any
Federal, state or local income taxes of Incumbent or any franchise taxes of
Incumbent.
8.5 Security Interest in Initial System; Cancellation of Initial System
FCC Licenses.
8.5.1 Collateral. Pathnet shall grant Incumbent a security interest
(the Incumbent Security Interest") in, and lien on, and shall assign and
pledge to Incumbent the Initial System Equipment, both now and hereafter
acquired, together with all replacements thereof and substitutions
therefor (collectively, the "Incumbent Collateral").
8.5.2 Default. The occurrence of any one or more of the following
events shall constitute a default with respect to the Incumbent Security
Interest: (i) the liquidation or dissolution of Pathnet under Chapter 7 of
the Federal bankruptcy laws, (ii) the Expiration Date or (iii) Pathnet
defaulting under its financing arrangement with one of its equipment
vendors or other lenders and receipt by Incumbent of written notice from
such vendor or lender stating its intention to waive its right to operate
the System for the purpose of generating Revenue from the sale of Excess
Capacity.
8.5.3 Rights and Remedies Upon Default. In the event of a default as
set forth in Section 8.5.2 (and in addition to any and all of Incumbent's
rights, powers and remedies under this Agreement), Incumbent shall have
the right to (i) take possession or control of, store, lease, operate,
manage, sell or otherwise dispose of all or any part of the Incumbent
Collateral, (ii) notify all parties under any account or contract forming
all or any part of the Incumbent Collateral to make any payments due to
Pathnet directly to Incumbent, (iii) in the name of Incumbent or in the
name of Pathnet, demand, collect, receive, sure for and give receipts and
releases for, any and all amounts due under such accounts and contract
rights, (iv) endorse as the agent of Pathnet any check, note chattel
paper, documents, or instruments forming all or any part of the Incumbent
Collateral, (v) make formal application for the transfer to Incumbent (or
to any assignee of Incumbent or to any purchaser of the Incumbent
Collateral) of all of Pathnet's Permits, licenses, approvals, and the like
relating to the Incumbent Collateral (other than the Microwave Radio
Station Licenses related to the Initial System) and (vi) take any action
which Incumbent deems necessary or desirable to protect and realize upon
the Incumbent Security Interest.
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8.5.4 Cancellation of FCC Licenses. Upon expiration or termination
of this Agreement pursuant to Section 3 of this Agreement or the
occurrence of an event of default set forth in Section 8.5.2 and at
Incumbent's request, Pathnet shall, if and to the extent permitted by law,
file with the FCC any and all documents necessary to transfer Pathnet's
Microwave Radio Station Licenses and other FCC licenses required to
operate the Initial System, to Incumbent, or if no transfer is possible,
file with the FCC any and all documents necessary to cancel Pathnet's
Microwave Radio Station Licenses and other FCC licenses required to
operate the Initial System after coordinating with Incumbent in order to
permit Incumbent to promptly file for such licenses.
8.6 Escrow of Manufacturer's Warranties.
8.6.1 Escrow of Assignment Documents by Pathnet. On the Effective
Date, Pathnet shall complete, execute and place in escrow certain
documents (the "Assignment Documents") that shall provide Incumbent with
the required tools to unilaterally effect the assignment to Incumbent of
all of the then effective manufacturer's warranties relating to the
Equipment of the Initial System.
8.6.2 Removal of Assignment Documents by Incumbent. Pursuant to the
escrow arrangement described in Section 8.6.1 above, Incumbent shall have
the right to remove the Assignment Documents from escrow upon the
occurrence of an event of default set forth in Section 8.5.2.
SECTION 9. EXCESS CAPACITY MARKETING AND SALES
9.1 Exclusive Representative.
9.1.1 Pathnet Excess Capacity. Pathnet shall have the exclusive
right to market and sell any and all Excess Capacity.
9.1.2 Marketing and Sale by Incumbent. Incumbent or any Affiliates
of Incumbent shall not market or sell any Incumbent excess capacity or any
capacity purchased by Incumbent pursuant to Section 9.3 to any third party
without the prior written consent of Pathnet; provided, however, Incumbent
may market and sell all or any portion of the Incumbent excess capacity or
any capacity purchased by Incumbent pursuant to Section 9.3, to Affiliates
of Incumbent for and only for such Affiliates' internal communications
needs and not for resale to third parties.
9.2 Referrals of Customers by Incumbent. Incumbent shall refer any
potential third party customer of Excess Capacity to Pathnet.
9.3 Purchase of Available Excess Capacity by Incumbent. Incumbent shall
have the right to purchase Available Excess Capacity on any Path or Segment of
the System (each such Path or Segment being referred to herein as an "Incumbent
Desired Path"), at a price equal to either (i) the lowest price paid to Pathnet
for like capacity and for a similar term by any purchaser during the one hundred
eighty (180) days immediately preceding the purchase by Incumbent of capacity on
such Incumbent Desired Path or (ii) if no Pathnet Excess Capacity has been
purchased on such Incumbent
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Desired Path during such one hundred eighty (180) day period, the last price
paid for such Incumbent Desired Path; provided, however, Incumbent shall in no
event purchase more than twenty percent (20%) of the Available Excess Capacity
on any Segment or Path within the System at any given time.
9.4 Assumed Name: Tradenames and Trademarks. Pathnet shall have the right
to market Excess Capacity under its name or any other assumed name, tradename or
trademark which Pathnet is authorized to use for such purpose; provided,
however, Pathnet shall not use any trademark or tradename of Incumbent or any
Affiliate of Incumbent for any purpose, including the marketing of any excess
capacity without the prior written consent of Incumbent.
9.5 Customer Agreements.
9.5.1 Authorization. Pathnet shall negotiate, execute and deliver,
on behalf of itself and Incumbent, all agreements and arrangements
("Customer Agreements") for customers of Excess Capacity, which Customer
Agreements shall contain, terms and conditions determined by Pathnet in
its sole discretion.
9.5.2 Approval and Consent by Incumbent. If the terms of any
Customer Agreement require the written approval or consent of Incumbent as
a condition to the execution, delivery or performance, Incumbent shall
promptly provide such written approval or consent, provided such approval
or consent shall not require Incumbent to incur any extra liabilities or
duties or waive any of its rights set forth in this Agreement through
consent to the terms of a Customer Agreement.
9.5.3 Modifications to System. In the event that any Customer
Agreement requires that the System be modified in any way, Pathnet shall
ensure that any such modifications (i) shall not compromise the integrity
and performance of the System in accordance with the Specifications, (ii)
shall be made at no additional cost to Incumbent, and (iii) shall not
unreasonably interfere with the access rights to the Sites and Facilities
granted to others as set forth in Schedule I.
SECTION 10. FCC LICENSES AND OTHER REGULATORY APPROVALS AND LICENSES
10.1 FCC Rules and Regulations.
10.1.1 Microwave Radio Station Licenses.
(a) Preparation and Filing of Forms 415. Pathnet shall prepare
and timely file all required Form 415, Applications for
Authorization in the Microwave Services (each a "Form 415"), or any
successor forms, documents or instruments to such Form 415 as the
FCC may prescribe, including but not limited to, the preparation or
ordering of all frequency coordinations required pursuant to
Schedule B and Schedule C of Form 415, in order to own, operate and
sell the Excess Capacity of the System in accordance with the terms
and conditions of this Agreement.
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(b) Identity of Licensee. All Microwave Radio Station Licenses
issued by the FCC relating to the System ("Microwave Radio Station
Licenses") shall be licensed in the name of Pathnet or a
wholly-owned subsidiary of Pathnet. Incumbent shall be permitted to
continue to own and be licensed as a private microwave operator at
the stations licensed to Pathnet relating to the System, provided
that (i) such private licenses are for different frequency pairs
than those assigned to the System (including, but not limited to,
any Capacity Expansion of the System) and (ii) such private licenses
are permitted under the FCC Code.
(c) Maintenance of License. Pathnet shall maintain in good
standing each Microwave Radio Station License relating to the
System, including, but not limited to, preparing and filing any
required amendments to the Forms 415 relating to the System and
submitting and filing any supplementary information as required by
the FCC.
10.1.2 Common Carrier Reporting Obligations. Pathnet shall prepare
and file all forms, reports, instruments, documents and agreements
required by the FCC and FCC Code relating to the operation of the System,
use and sale of Excess Capacity, and Pathnet's status as a "common
carrier" under the FCC Code and bear all expenses related thereto. In no
event shall Incumbent be responsible for any expense, cost, tax, charge or
fee related to Pathnet's status as a "common carrier" and Pathnet shall
reimburse Incumbent for any such expense, cost, tax, charge or fee. In no
event shall Pathnet cause Incumbent to become regulated by the FCC or the
Indiana Utility Regulatory Commission ("IURC") or be designated a "common
carrier" without Incumbent's consent; provided, however, in no case shall
Pathnet be responsible for any future changes in Requirements of Law that
may cause Incumbent to be regulated by the FCC or IURC or to be designated
as a "common carrier."
10.1.3 Tariff Filings. Pathnet shall prepare and timely file all
tariff applications pursuant to 47 CFR 61, as amended, or any successor
statute, rule or regulation and shall request and file all necessary
waivers of such tariff requirements, as determined by Pathnet in its sole
discretion.
10.1.4 Frequency Coordination Notices. During the term of this
Agreement, Pathnet shall prepare and send all required frequency
coordination notices required under 47 CFR 101.103, as amended, or any
successor statute, rule or regulation and shall respond as appropriate to
all PCNs received by Pathnet or Incumbent relating to the System.
10.1.5 Delivery of Copies. Upon Incumbent's request, Pathnet shall
provide to Incumbent a copy of all filings and submissions with the FCC,
relating to the System within thirty (30) days of such request by
Incumbent.
10.1.6 Assistance in Preparation of License Applications. Upon
request by Pathnet and in a timely manner, Incumbent shall provide to
Pathnet all information necessary for the completion of all required
filings and submissions with the FCC including, but not limited to
Incumbent's authorized signature on any filings or other submissions to
the FCC or any documents, instruments or agreements completed in
connection with such filings and submissions.
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10.1.7 Future Changes in FCC Requirements. If FCC requirements
relating to the Form 415, common carriers, frequency coordination or any
other matters relating to the System change or are modified, Pathnet shall
be responsible for compliance with such new requirements including, but
not limited to, the payment of any costs or fees associated therewith and
Incumbent shall reasonably cooperate with Pathnet with respect to such
compliance.
10.1.8 Spectral Loading Requirements. Pathnet shall (i) ensure that
the System, as licensed, shall comply with all spectral loading
requirements set forth in 47 CFR 101.141, or any successor statute, rule
or regulation or (ii) obtain a waiver of any or all of such requirements;
provided, however, if the System does not meet such spectral loading
requirements and Pathnet is unable to obtain a waiver of such
requirements, Pathnet shall have the right to modify the System to a
hot-standby Protection Configuration until such time as the spectral
loading requirements can be met.
10.1.9 Default in FCC License. In the event that the FCC institutes
a penalty against or fine imposed on Pathnet, Incumbent, or the System,
due to non-compliance with any FCC requirements, Pathnet shall promptly
pay such penalty or fine (in the case such penalty or fine is instituted
as the result of an act or omission on the part of Pathnet) or Incumbent
shall promptly pay such penalty or fine (in the event such penalty or fine
is instituted as the result of an act or omission on the part of
Incumbent).
10.2 Zoning Requirements. Incumbent shall be responsible for compliance
with all zoning requirements applicable to the System and its Facilities,
including, but not limited to, the Leased Premises. Incumbent shall advise
Pathnet of zoning requirements, which, in the reasonable opinion of Incumbent,
differ from those generally applicable to microwave facilities. Pathnet shall
provide to Incumbent all required information and shall reasonably cooperate
with Incumbent in connection with Incumbent's compliance with all zoning
requirements pursuant to this Section 10.2.
10.3 Tower Registration. Incumbent shall ensure compliance with all FAA
and FCC tower registration requirements including, but not limited to, the
preparation of any filings with or the obtaining of any waivers or extensions
from the FAA or FCC. Incumbent shall promptly notify Pathnet of any deficiency
on non-compliance with any such tower registration requirements, filings,
waivers or extensions.
SECTION 11. INSURANCE
11.1 Delivery of Certificates of Insurance. Upon Incumbent's request and
prior to the commencement of any Services by Pathnet, Pathnet shall deliver to
Incumbent Certificates of Insurance relating to Pathnet's Commercial General
Liability Insurance Policy, Workers Compensation Insurance Policy, Automobile
Liability Insurance and Excess Liability Insurance Policy.
11.2 Pathnet Insurance Coverage. During the term of this Agreement,
Pathnet shall maintain the types of insurance at the coverage limits set forth
below:
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(a) Worker's Compensation Insurance. Workers Compensation Insurance
as required by laws and regulations applicable to and covering Persons
performing the Services, including, but not limited to, disability and
unemployment insurance;
(b) Commercial General Liability Insurance. Commercial General
Liability Insurance with a limit of not less than $1,000,000 per
occurrence and $1,000,000 in the aggregate;
(c) Automobile Liability Insurance. Automobile Liability Insurance,
which includes coverage for non-owned and hired vehicles with a limit of
not less than $1,000,000;
(d) Excess Liability Insurance. Excess Liability Insurance with a
limit of not less than $4,000,000; and
(e) Other Insurance. Such other insurance and in such levels of
coverage as provided in Section 8.1.2.
11.3 Incumbent Insurance Coverage. Incumbent shall maintain insurance
coverage on properties and operations of Incumbent which coverage shall include
general liability and other forms of insurance covering such risks as are
usually insured against by prudent companies engaged in the business and
activities in which the Incumbent is engaged, in amount which are adequate in
relation to the business and properties of Incumbent, and all premiums to date
have been paid in full. Pathnet hereby acknowledges that Incumbent maintains
self insured reserves as part of its general liability insurance.
11.4 Proof of Licensed Subcontractors. Upon reasonable request of
Incumbent, Pathnet shall provide to Incumbent proof of licensing and
certification of insurance for any Subcontractors engaged by Pathnet to provide
Services, during the term of such engagement.
SECTION 12. SOFTWARE AND PROPRIETARY RIGHTS
12.1 Pathnet Software. Pathnet or Pathnet's licensors retains all right,
title and interest in and to Pathnet Software. As of the Effective Date and
pursuant to the Pathnet Sublicense Agreement attached hereto as Schedule N,
Incumbent is granted a nonexclusive sublicense to use Pathnet Software for the
sole purpose of receiving the services pursuant to this Agreement. Pathnet
Software will be made available to Incumbent in such form and on such media as
exists on the Effective Date, together with existing documentation and any other
related materials. Incumbent shall not be permitted to use Pathnet Software for
the benefit of any entities other than Pathnet, Incumbent or their affiliates
exclusively for the purposes intended in this Agreement without the prior
written consent of Pathnet which may be withheld at Pathnet's sole discretion.
Except as otherwise requested or approved by Pathnet, Incumbent shall cease all
use of Pathnet Software upon the Expiration Date.
12.2 Proprietary Rights. Each Party acknowledges and agrees that the other
Party and/or its suppliers have and will retain all proprietary rights in such
other Party's Proprietary Information. A Party receiving Proprietary Information
(the "Receiving Party") (i) shall respect the claim of the other Party (the
"Disclosing Party") of a proprietary right in such Information, (ii) shall
protect the Disclosing Party's Proprietary Information at least to the extent
that the Receiving Party protects its
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own Proprietary Information (and in no event less than commercially reasonable
measures), (iii) shall not use the Disclosing Party's Proprietary Information
except for the purposes for which its is being made available as set forth in
this Agreement and (iv) shall not reproduce, print, disclose, or otherwise make
the Disclosing Party's Proprietary Information available to any third party, in
whole or in part, in whatever form.
SECTION 13. REPRESENTATIONS AND WARRANTIES
13.1 Representations and Warranties of Each Party. Each Party hereby
represents and warrants the other Party as follows:
13.1.1 Due Incorporation and Formation; Authorization of Agreements;
Binding Effect. Such Party is a corporation or partnership, as the case
may be, duly formed or organized, and validly existing under the laws of
its state of incorporation or organization, and has the corporate or
partnership authority to own its property and carry on its business as
owned and carried on as of the Effective Date. Such Party is duly licensed
or qualified to do business and is in good standing (if applicable) in
each jurisdiction in which the failure to be so licensed or qualified
would have a Material Adverse Effect on such Party. Such Party has the
corporate or partnership authority to execute and deliver this Agreement,
to perform its obligations hereunder, and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by such Party and this Agreement constitutes a legal, valid and
binding obligation of such Party enforceable in accordance with its terms,
subject as to enforceability to limits imposed by bankruptcy, insolvency
or similar laws affecting creditors rights generally and the availability
of equitable remedies.
13.1.2 No Conflict; No Default. Neither the execution or delivery of
this Agreement by such Party, nor (except as would not have a Material
Adverse Effect on such Party), the performance of this Agreement by such
Party or the consummation by such Party of the transactions contemplated
hereby in accordance with the terms and conditions hereof: (i) will
conflict with, violate, result in a breach of or constitute a default
under any of the terms, conditions or provisions of the certificate or
articles of incorporation or bylaws (or other governing documents) of such
Party or any material agreement or instrument to which such Party is a
party or by which such Party may be bound, (ii) will conflict with,
violate or result in a breach of, constitute a default under (whether with
notice or lapse of time or both), accelerate or permit the acceleration of
the performance required by, give to others any interests or rights or
require any consent, authorization or approval under any contract to which
such Party is a party or by which such Party is or may be bound or to
which any equity interest held by such Party or any of its material
properties or assets is subject or (iii) will result in the creation or
imposition of any Encumbrance upon any equity interest held by such Party
or any of the other material properties or assets of such Party, other
than Permitted Encumbrances.
13.1.3 No Consent. No consent, approval, order or authorization of,
or registration, declaration or filing with any Governmental Authority,
domestic or foreign, is required to be obtained by such Party in
connection with the execution, delivery and performance of this Agreement
or the consummation of the transactions contemplated hereby.
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13.1.4 Compliance with Laws and Regulations. That such Party is not
and that the performance of its obligations under this Agreement will not
result in a violation in any respect of (i) any applicable Federal, state,
local or foreign laws, ordinances, regulations, rulings and orders of
government agencies applicable to its business in any respect the
violation of which could have a Material Adverse Effect (including
Requirements of Law relating to pollution, protection of the environment,
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic, hazardous or regulated
substances or wastes into the environment or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage disposal,
transport or handling of pollutants or other such hazardous or regulated
substances or wastes) or (ii) any applicable order, Judgment, injunction,
award or decree in any respect which could have a Material Adverse Effect
on such Party.
13.1.5 Permits. Such Party has or will take all commercially
reasonable measures to obtain all authorizations, approvals, consents,
licenses, Permits and certificates (including, but not limited to all
required approvals from the FCC) necessary to conduct their respective
businesses and to own, lease and operate its properties as currently or
anticipated to be conducted, owned, leased or operated, as the case may
be, for which the failure to possess would result in a Material Adverse
Effect. No violations are outstanding or uncured with respect to any such
Permits and no proceeding is pending to revoke or limit any Permit.
Neither Party shall be liable for the decision of any Governmental
Authority to deny any Permit, including building permits or FCC licenses,
provided such Party shall use all commercially reasonable efforts to
provide an alternate Site in the event a Facility listed in Schedule B is
not available as a result of such Party's inability to obtain required
authorization, approvals, consents, Permits or certificates. Pathnet shall
have the right to terminate this Agreement in the event (i) Incumbent
cannot obtain the requisite authorization, approvals, consents, licenses,
Permits or certificates required to install and operate the Initial System
at a Facility listed on Schedule B and (ii) Incumbent does not timely
provide a reasonable alternate Site to such Facility.
13.1.6 Title to Assets, Properties and Rights and Related Matters.
Except as set forth on Schedule O, such Party has good and marketable
title to all the properties, interests in properties and assets, real,
personal or mixed, necessary for the conduct of such Party's business and
for the transactions contemplated by this Agreement (including, but not
limited to, any rights of way, leasehold interests, easements, proofs of
dedication and rights necessary for Pathnet to perform its obligations
hereunder without any Interference, provided that prevention of such
Interference is within the reasonable control of Incumbent) free and clear
of all Encumbrances of any kind or character, except (i) liens for current
taxes not yet due and payable, (ii) Encumbrances securing taxes,
assessments, governmental charges or levies or the Encumbrances of
materialmen, carriers, landlords and like persons, all of which are not
yet due and payable and (iii) minor Encumbrances of a character that do
not substantially impair the assets or properties of such Party or which
will not have a Material Adverse Effect on such Party.
13.1.7 Labor Matters. Such Party has complied in all material
respects with all applicable Federal, state and local laws and ordinances
relating to the employment of labor, including the provisions thereof
relating to wages, hours, employee benefit plans and the payment of social
security taxes, and is not liable for any arrears of wages or any tax
related thereto (except for currently accrued and unpaid wages and except
for currently accrued
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withholding, payroll, unemployment and social security taxes payment of
which is not overdue) or penalties for failure to comply with any of the
foregoing, and neither has received a notice to the contrary from any
Governmental Authority.
13.1.8 No Discrimination. Such Party currently subscribes and offers
and will continue to subscribe and offer to all customers, employees,
licensees, and invitees the opportunity to obtain all the goods, services,
accommodations, advantages, facilities and privileges of such Party
without discrimination because of race, creed, color, sex, age, national
origin or ancestry, in accordance with all applicable Federal, state, and
local laws relating to equal opportunity and discrimination.
13.1.9 Disclaimer. EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER
PATHNET NOR INCUMBENT MAKES ANY OTHER EXPRESS WARRANTY AND THERE ARE NO
IMPLIED WARRANTIES WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS
OR OTHER SUBJECT MATTER OF THIS AGREEMENT. PATHNET AND INCUMBENT HEREBY
DISCLAIM THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
13.2 Representations and Warranties of Pathnet.
13.2.1 Services. Pathnet warrants (i) that the Services will be
performed in a workmanlike manner and (ii) that it has or will obtain
agreements or arrangements with its employees, agents and Subcontractors
sufficient to allow it to provide Incumbent with the Services;
13.2.2 Licenses. During the Term, Pathnet warrants that it shall
maintain in good standing, to the extent permitted by law and required to
operate the Initial System, all Microwave Radio Station Licenses in
accordance with Section 10.1.1(c).
13.2.3 Century Compliancy. Pathnet warrants that the Pathnet
Software provided by Pathnet shall be century compliant meaning that the
introduction of the Year 2000 as data to the Pathnet Software shall not
cause the Pathnet Software to fail or function incorrectly.
13.3 Representations and Warranties of Incumbent.
13.3.1 Independent Investigation. Incumbent represents and warrants
that it has independently investigated the potential for the success of
Pathnet's ability to create, aggregate and sell Excess Capacity and has
not relied upon any inducements or representations of Pathnet or its
agents, other than those contained in this Agreement.
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SECTION 14. DELIVERIES
14.1 Deliveries by Incumbent. Incumbent shall provide to Pathnet the items
as set forth in Schedule P.
14.2 Deliveries by Pathnet. Pathnet shall provide to Incumbent the items
as set forth in Schedule Q.
SECTION 15. INDEMNIFICATION
15.1 Indemnification by Incumbent. Incumbent agrees to indemnify, defend
and hold harmless Pathnet and its Affiliates and their respective officers,
directors, employees, agents, successors and assigns from and against any and
all Losses and threatened Losses arising from, in connection with, or based on
allegations of, any of the following:
(a) any claims resulting from the infringement by Incumbent, its
Affiliates or Subcontractors of any patent, trade secret, copyright or
other proprietary rights alleged to have occurred as a result of the use
of systems, software, or other resources provided by Pathnet to Incumbent
in violation of any applicable licenses or the terms of this Agreement.
(b) any claims arising out of the untruth, inaccuracy or breach of
any representation or warranty of Incumbent set forth in this Agreement.
(c) the liability of Pathnet for (i) any personal injury, disease or
death of any person, (ii) damage to or loss of any property, money damages
or specific performance owed to any third party (by contract or operation
of law) or (iii) any fines, penalties, taxes, claims, demands, charges,
actions, causes of action, assessments, environmental response costs,
environmental penalties, injunctive obligations to the extent caused by,
arising out of, or in any way incidental to, or in connection with,
actions or omissions or willful misconduct of Incumbent, its employees,
Subcontractors or agents.
15.2 Indemnification by Pathnet. Pathnet agrees to indemnify, defend and
hold harmless Incumbent and its Affiliates and their respective officers,
directors, employees, agents, successors and assigns from and against any and
all Losses and threatened Losses arising from, in connection with, or based on
allegations of, any of the following:
(a) except as set forth in Section 15.1(a), any claims of
infringement of any patent, trade secret, copyright or other proprietary
rights alleged to have occurred because of systems, software or other
resources provided by Pathnet to Incumbent.
(b) any claims arising out of the untruth, inaccuracy or breach of
any representation or warranty of Pathnet set forth in this Agreement.
(c) the liability of Incumbent for (i) any personal injury, disease
or death of any person, (ii) damage to or loss of any property, money
damages or specific performance owed to any third party (by contract or
operation of law) or (iii) any fines, penalties, taxes, assessments,
environmental response costs, environmental penalties or injunctive
obligations
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to the extent caused by, arising out of, or in connection with, actions or
omissions or willful misconduct of Pathnet, its employees, Subcontractors
or agents.
(d) the liability of Incumbent arising out of any or all obligations
to or contracts with customers to purchase Excess Capacity.
(e) any claims (including, but not limited to, claims for personal
injury, property damage and fines, environmental response costs, and
environmental penalties) relating to or arising out of any Hazardous
Material physically brought, kept, used, discharged or emitted on any of
Incumbent's Sites or Facilities by Pathnet, to the extent caused by,
arising out of, or in connection with, any actions or omissions of
Pathnet, its employees, Subcontractors or agents; in such event Pathnet
shall bear the expense of and cause to be performed any cleanup or other
remedial action to return the Leased Premises to their prior state and to
comply with any environmental laws and regulations.
15.3 Indemnification Procedures. With respect to any third party claims
the following procedures shall apply:
(a) Notice. Promptly after receipt by an entity entitled to
indemnification under Section 15.1 or Section 15.2 of notice of the
commencement or threatened commencement of any civil, criminal,
administrative or investigative action or proceeding involving a claim in
respect of which the indemnitee will seek indemnification pursuant to any
such Section, the indemnitee shall notify the indemnitor of such claim in
writing. No failure to so notify an indemnitor shall relieve it of its
obligations under this Agreement except to the extent that it can
demonstrate damages attributable to such failure. Within fifteen (15) days
following receipt of written notice from the indemnitee relating to any
claim, but no later than ten (10) days before the date on which any
response to a complaint or summons is due, the indemnitor shall notify the
indemnitee in writing if the indemnitor elects to assume control of the
defense and settlement of that claim (a "Notice of Election").
(b) Procedure Following Notice of Election. If the indemnitor
delivers a Notice of Election relating to any claim within the required
notice period, the indemnitor shall be entitled to have sole control over
the defense and settlement of such claim; provided that, (i) the
indemnitee shall be entitled to participate in the defense of such claim
and to employ counsel at its own expense to assist in the handling of such
claim, and (ii) the indemnitor shall obtain the prior written approval of
the indemnitee before entering into any settlement of such claim or
ceasing to defend against such claim. After the indemnitor has delivered a
Notice of Election relating to any claim in accordance with the subsection
(a) above, the indemnitor shall not be liable to the indemnitee for any
legal expenses incurred by the indemnitee in connection with the defense
of that claim. In addition, the indemnitor shall not be required to
indemnify the indemnitee for any amount paid or payable by the indemnitee
in the settlement of any claim for which the indemnitor has delivered a
timely Notice of Election, if such amount was agreed to without the
written consent of the indemnitor.
(c) Procedure Where No Notice of Election Is Delivered. If the
indemnitor does not deliver a Notice of Election relating to any claim
within the required notice period, the indemnitee shall have the right to
defend the claim in such manner as it may deem appropriate, at the cost
and expense of the indemnitor. The indemnitor shall promptly reimburse the
indemnitee for all such costs and expenses.
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15.4 Subrogation. In the event that an indemnitor shall be obligated to
indemnify an indemnitee pursuant to Section 15.1 or Section 15.2, the indemnitor
shall, upon payment of such indemnity in full, be subrogated to all rights of
the indemnitee with respect to the claims to which such indemnification relates.
SECTION 16. LIABILITY
16.1 Liability Generally. Subject to the specific provisions of this
Section 15, it is the intent of the Parties that each Party shall be liable to
the other Party for any actual damages incurred by the Non-Breaching Party as a
result of the Breaching Party's failure to perform its obligations in the manner
required by this Agreement and failure to cure such nonperformance as set forth
in Section 17.1.2.
16.2 Liability Restrictions.
(a) SUBJECT TO SUBSECTION (b) BELOW, IN NO EVENT, WHETHER IN
CONTRACT OR IN TORT (INCLUDING BREACH OF WARRANTY, NEGLIGENCE AND STRICT
LIABILITY IN TORT), SHALL A PARTY BE LIABLE TO THE OTHER PARTY FOR
INDIRECT OR CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN ADVANCE.
(b) The limitations set forth in subsection (a) shall not apply with
respect to: (i) damages occasioned by the willful misconduct or gross
negligence of a Party, (ii) damages occasioned as a result of the
indemnification obligations set forth in Section 15 to the extent any
third party shall be awarded such damages explicitly excluded in Section
16.2(a), (iii) damages occasioned by improper or wrongful termination of
this Agreement or (iv) damages occasioned by a violation of Section 12.1
of this Agreement.
(c) Each Party shall have a duty to mitigate damages for which the
other Party is responsible.
(d) Each Party shall be liable to the other Party for any actual
damages as set forth in Section 16.1 only if, and to the extent that the
aggregate of all losses arising from or in connection with any such
failure to perform obligations in the manner required by this Agreement
exceeds one thousand dollars ($1,000).
16.3 Force Majeure. No Party shall be liable for any breach, default or
delay in the performance of its obligations under this Agreement (i) if and to
the extent such default or delay is caused, directly or indirectly, by: fire,
flood, earthquake, elements of nature or acts of God, riots, civil disorders,
rebellions or revolutions in any country, changes in Requirements of Law
relating to the System or to the sale of Excess Capacity, or any other cause
beyond the reasonable control of such Party (a "Force Majeure Event"), (ii)
provided the non-performing Party is without fault in causing such breach,
default or delay, and such breach, default or delay could not have been
prevented by reasonable precautions and cannot reasonably be circumvented by the
non-performing Party through the use of alternate sources, work around plans or
other means.
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SECTION 17. INFORMAL DISPUTE RESOLUTION; ARBITRATION
17.1 Informal Dispute Resolution.
17.1.1 Role of Program Manager. In the event Incumbent has a
dispute, controversy or other complaint relating to Pathnet's performance
of Pathnet's rights and obligations under this Agreement, Incumbent shall
have the right to first contact the Program Manager to resolve such
dispute, controversy or other complaint. If Incumbent is not satisfied
with the resolution provided by the Program Manager, Incumbent may resort
to the arbitration procedures set forth in this Section 17.
17.1.2 Notice of Breach, Cure and Remedies. In the event of a
material breach by either Pathnet or Incumbent (the "Breaching Party"),
the other Party (the "Non-Breaching Party") shall send by certified mail a
written notice of such material breach to the Breaching Party setting
forth the specific allegations of such breach. Upon receipt of the notice
of breach, the Breaching Party shall have thirty (30) days to cure such
breach. In the event the Breaching Party fails to cure such breach, as
determined by the Non-Breaching Party in its sole discretion, or the
Breaching Party determines, in its sole discretion, that it has cured such
breach, either the Breaching Party or the Non-Breaching Party may invoke
the arbitration procedures set forth in Section 17.2 to resolve whether
such breach has been cured.
17.2 Arbitration.
17.2.1 Arbitration; Resolution of Disputes. Subject to Section 17.1,
any and all disputes and controversies between Incumbent and Pathnet
concerning the negotiation, interpretation, performance, breach or
termination of this Agreement (each a "Dispute") shall be subject to
resolution as set forth in this Section 17.
17.2.2 Settlement Discussions. Subject to Section 17.1, the Parties
shall first attempt to resolve any Dispute through amicable settlement
discussions and each Party shall bear its own costs of such settlement
discussions. Each Party hereby agrees to use good faith efforts to reach a
settlement through such amicable settlement discussions. Any Dispute shall
first be referred to the appropriate project managers of both parties for
settlement discussions. Should such managers be unable to agree upon a
solution, the Dispute shall be submitted successively to the next higher
level of management at each company for resolution. If the persons at the
highest appropriate level of each company cannot agree on a resolution or
if the informal resolution process lasts for more than ninety (90) days,
either Party shall be entitled to pursue any of its available remedies
through Arbitration in accordance with Section 17.2.3.
17.2.3 Referral to Binding Arbitration. In the event the Parties
fail to reach a settlement of the Dispute pursuant to settlement
discussions in accordance with Section 17.2.2, each Party shall have the
right, but not the obligation, to refer such Dispute for final resolution
by binding arbitration in accordance with the commercial arbitration rules
(the "Arbitration Rules") of the American Arbitration Association (the
"Arbitration Association").
17.2.4 Binding Effect. The Parties acknowledge and agree that (i)
the award in any arbitration shall be final, conclusive and binding on the
Parties and (ii) any such arbitration
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award be a final resolution of the Dispute between the Parties to the same
extent as a final judgment of a court of competent jurisdiction.
17.2.5 Use of Courts and Other Legal Remedies. Each Party covenants
and agrees that it shall not resort to any court for legal remedies
concerning any Dispute other than to enforce a final decision by the
arbitrators or for preliminary, interim or provisional equitable relief in
aid of arbitration.
17.2.6 Arbitration Process.
(a) Notice. If the Parties cannot resolve a Dispute to their mutual
satisfaction pursuant to Section 17.2.2, either Party may deliver to the
other Party a written notice in accordance with the Arbitration Rules.
(b) Site and Arbitration Tribunal. Absent agreement to the contrary
by the Parties, the arbitration will be conducted in Chicago, Illinois, by
a panel of three (3) arbitrators with expertise in the fields of
telecommunications engineering and construction, provided, however, in the
case of particular witnesses not subject to subpoena at the designated
hearing site, hearings may be held at any place designated by the
arbitrators where such witnesses can be compelled to attend, and, with the
consent of the Parties, before a single member of the arbitration
tribunal. Within thirty (30) days after the filing of the notice of
arbitration, each Party must select one (1) arbitrator and a third
arbitrator will be selected by agreement of the two (2) arbitrators
selected by the Parties. If either Party fails to select an arbitrator or
there is no agreement on the selection of the third arbitrator, the
Arbitration Association will select such arbitrators in accordance with
Arbitration Rules.
(c) Transcripts and Evidence. Both Parties shall cause a written
transcript of all proceedings and testimony shall be kept and the cost of
such transcript shall be borne equally by the Parties pending the final
award. All documents that either Party proposes to offer in evidence,
except for those objected to by the other Party, shall be deemed to be
self-authenticating.
(d) Applicable Law. The arbitrator shall determine the claims of the
Parties and render their final award in accordance with the governing law
of this Agreement as set forth in Section 18.5. Notwithstanding anything
set forth in the Arbitration Rules to the contrary, the provisions of this
Section 17 shall govern any arbitration proceeding brought in relation to
this Agreement or the transactions contemplated thereby.
(e) Sanctions. The Parties acknowledge that, in addition to any
other remedy allowed or specified in or under the Arbitration Rules, the
failure of a Party to comply with any interim, partial or interlocutory
order, after due notice and opportunity to cure such non-compliance, may
be treated by the arbitrators as a default and all or some of the claims
or defenses of the defaulting Party may be stricken and partial or final
award entered against such Party, as determined by the arbitrators in
their sole discretion, sanctions as such arbitrators deem appropriate.
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(f) Limitation on Awards. Except as provided in Section 16.2(b),
Arbitrators may not award (i) incidental, consequential or punitive
damages in the resolutions of any Dispute and the Parties hereby waive all
rights to and claims for monetary awards other than compensatory damages,
(ii) the right to terminate this Agreement or any of the rights and
obligations hereunder, or (iii) any other right or remedy that contravenes
the terms and conditions of this Agreement.
(g) Period of Limitations. In the event the Party claiming a Dispute
does not institute binding arbitration within four (4) years after the
commencement of settlement discussions pursuant to Section 17.2.2, such
Party shall forever be barred from bringing a claim on the specific
subject matter of such Dispute.
(h) Arbitration Award. Any arbitration award must be in writing and
must contain findings of fact and conclusions of law upon which the
arbitrators relied in making the decision relating to such award.
(i) Attorneys' Fees. The arbitrator shall award the reasonable cost,
including attorneys' fees, to the prevailing Party.
SECTION 18. MISCELLANEOUS
18.1 Notices. All notices pertaining to disputes arising from this
Agreement shall be directed to a corporate entity or employee designated by the
signatories as having full rights and responsibilities to address such issues.
Notices under this Agreement shall be sufficient only if personally delivered by
a commercial prepaid delivery or courier service or mailed by certified or
registered mail, return receipt requested to a Party at its address set forth
below or as amended by notice pursuant to this Section 18.1. If not received
sooner, notice by mail shall be deemed received five (5) Business Days after
deposit in the U.S. mail. All notices shall be delivered as follows:
If to Pathnet:
Michael A. Lubin, Esquire
Vice President and General Counsel
Pathnet, Inc.
1015 31st Street, NW
Washington, DC 20007
Tel: 202.625.7284
Fax: 202.625.7369
If to Incumbent:
Alan P. Severance
Manager, Network Services
Northern Indiana Public Service Co.
5265 Hohman Avenue
Hammond, Indiana 46320-1775
Tel: (219) 647-4300
Fax: (219) 647-4010
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18.2 Binding Nature; Entire Agreement. Pathnet and Incumbent acknowledge
that (i) each has read and understands the terms and conditions of this
Agreement and agrees to be bound by such terms and conditions, (ii) this
Agreement shall be binding on each of Pathnet and Incumbent and their respective
successors and assigns, (iii) this Agreement is the complete and conclusive
statement of the agreement between the Parties, (iv) this Agreement supersedes
any and all prior agreements and arrangements between the Parties and all
understandings and agreements, oral and written, heretofore made between
Incumbent and Pathnet are merged in this Agreement which alone, fully and
completely expresses their agreement on the subject matter of this Agreement and
(v) this Agreement sets forth the entire agreement on the subject matter hereof.
18.3 Amendment. No modifications of, additions to or waiver of this
Agreement shall be binding upon Incumbent or Pathnet unless such modification,
addition or waiver is in writing and signed by an authorized representative of
each Party.
18.4 Severability. If any term or provision of this Agreement shall to any
extent be held by a court or other tribunal to be invalid, void or
unenforceable, then such term or provision shall be inoperative and void insofar
as it is in conflict with the law, but the remaining terms and provisions of
this Agreement shall nevertheless continue in full force and effect and the
rights and obligations of the Parties shall be deemed to be restated to reflect
as nearly as possible the original intentions of the Parties in accordance with
applicable law.
18.5 Governing Law. This Agreement, and the rights and obligations of the
Parties hereunder, shall be governed and interpreted in accordance with the laws
of the State of Indiana (other than the choice of law rules thereof).
18.6 Survival. Any provision of this Agreement which completes performance
or observance subsequent to any termination or expiration of this Agreement
shall survive such termination of expiration and continue in full force and
effect.
18.7 Assignment. At any time and from time to time, Pathnet shall have the
right to assign this Agreement or any of Pathnet's rights and obligations under
this Agreement; provided that in no event shall any such assignment relieve
Pathnet of its obligations under this Agreement. Incumbent may not or shall not
have the right to assign this Agreement or any of its rights and obligations
hereunder without the prior written consent of Pathnet, which consent shall not
be unreasonably withheld; provided, however, Incumbent may assign its right and
obligations, in whole but not in part, under this Agreement without the approval
of Pathnet, to any entity which acquires all or substantially all of the assets
of Incumbent or to any subsidiary, Affiliate or successor in a merger or
consolidation of Incumbent; provided, that in no event shall any such assignment
relieve Incumbent of its obligations under this Agreement.
18.8 Waiver. Failure or delay on the part of Incumbent or Pathnet to
exercise any right, power or privilege under this Agreement shall not constitute
a waiver of any right power or privilege of this Agreement.
18.9 Recordation. Each Party hereby acknowledges that this Agreement may
be subject to recordation and the costs, fees or expenses associated with any
such recordation shall be borne by the recording Party.
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18.10 Good Faith Renegotiation. Notwithstanding anything set forth herein
to the contrary, the Parties hereby agree that in the event a Governmental
Authority issues a decision, order, rule or other rulemaking of any kind, which
necessitates any modification or amendment to this Agreement, the Parties shall
negotiate in good faith to modify or amend this Agreement to comply with such
decision, order, rule or other rulemaking.
18.11 Confidential Terms and Conditions. Neither Party shall disclose,
except as required by law, the terms and conditions of this Agreement to any
third party without the prior written consent of the other Party; provided
Pathnet shall have the right to (i) disclose the terms of this Agreement to any
equity owner, debt provider, lender, or other creditor, any potential purchaser
or customer of excess capacity, any potential party to a merger or acquisition,
any third party service provider under this Agreement or any of their attorneys,
consultants or financial advisors and (ii) disclose the existence of this
Agreement without disclosing the terms thereof.
18.12 Incumbent's Designated Representative. Incumbent shall on the
Effective Date designate in writing a representative who shall have express
authority to bind Incumbent with respect to all matters requiring Incumbent's
approval or authorization in connection with this Agreement (the "Incumbent
Representative"). Such Incumbent Representative shall have the authority to make
decisions and grant any and all consents required under this Agreement on behalf
of Incumbent and Pathnet shall be entitled to rely on any such decision or
consent by the Incumbent Representative.
18.13 Outsourcing. In addition to, and not in place of, any rights of
Pathnet under this Agreement, Pathnet shall have the right, with prior notice to
Incumbent, to engage third party Subcontractors to perform any or all of the
Services or Pathnet's rights and obligations under this Agreement. Incumbent
shall have the limited right to prevent Pathnet from engaging such Subcontractor
to provide any or all of the Services in the event such Subcontractor: (i) has
demonstrated financial instability to Incumbent in the past or (ii) has been or
is currently in litigation with Incumbent. In the event that Pathnet hires
Subcontractors to carry out any of its responsibilities hereunder, Pathnet shall
advise each Subcontractor of the confidentiality obligations for Proprietary
Information under Section 12.2 and use commercially reasonable efforts to cause,
prior to performance, each such Subcontractor to agree to maintain the
confidentiality of the Proprietary Information on terms substantially similar to
the terms applicable to Pathnet.
18.14 Union and Labor Relations. With respect to any services performed
pursuant to this Agreement, Incumbent shall ensure all such services comply with
all applicable labor or union-related agreements, regulations and ordinances and
shall not require Pathnet to join any union or other labor organization as a
condition to performing services contemplated by this Agreement.
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18.15 Execution of an Amended Schedule B. In the event that both Incumbent
and Pathnet elect to add additional Segments to the System, each of Incumbent
and Pathnet shall execute and deliver an "Amended Schedule B" setting forth (i)
the additional paths, sites and specific location information of the additional
Segment or Segments and (ii) the rent Pathnet shall pay to Incumbent for such
additional Segment (thereby amending Section 5.2 with respect to such additional
Segment; provided, however, Section 5.2 shall remain in full force and effect
with respect to Segments A and B or any other existing Segment). Pathnet's and
Incumbent's rights and obligations under this Agreement will commence with
respect to such additional Segment or Segments on the date of execution of such
Amended Schedule B by both Parties which date shall be deemed the "Effective
Date" with respect to such Segment for purposes of this Agreement and each
reference to Schedule B in this Agreement shall be deemed to refer to such
Amended Schedule B.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement, as of
the date first written above.
PATHNET, INC.
By: /s/ Dave Schueffi
-----------------------------
Name: Dave Schueffi
Title: Chairman
NORTHERN INDIANA PUBLIC SERVICE
COMPANY
By: /s/ Robert J. Schacht
-----------------------------
Name: Robert J. Schacht
Title: VP, Energy Distribution Operations
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Exhibit 10.3
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. SUCH PORTIONS ARE DESIGNATED "[***]".
THIS FIXED POINT MICROWAVE SERVICES AGREEMENT is made and entered into as
of the 1st day of December, 1997 (the "EFFECTIVE DATE"), by and between PathNet,
Inc. ("PATHNET"), a Delaware corporation and Northeast Missouri Electric Power
Cooperative ("INCUMBENT"), a Missouri corporation (collectively, the "PARTIES"
and each, a "PARTY".
W I T N E S S E T H:
WHEREAS, PathNet is engaged in the business of creating high capacity,
digital, microwave communications systems for purposes of marketing and selling
the excess long distance telecommunications capacity created by such systems;
WHEREAS, Incumbent is the owner and operator of an existing microwave
telecommunications system that is used for critical communications in
Incumbent's business;
WHEREAS, Incumbent desires to engage PathNet as, and PathNet desires to act
as, Incumbent's sole representative for the purpose of (i) installing, managing
and operating a high capacity digital microwave system along Incumbent's current
microwave paths, and (ii) marketing and selling any Excess Capacity (as defined
below) created by such high capacity digital microwave system;
WHEREAS, following the installation of the high-capacity, digital
communications system described herein, Incumbent will be allocated capacity on
channels from the Initial System (as defined below) for the necessary expansion
and enhancement of Incumbent's internal communications and operational needs;
WHEREAS, given the critical nature of the operational communications
contemplated to be conducted by Incumbent through the high capacity digital
microwave system to be installed by PathNet, the parties recognize that any
interruption in Incumbent's communications service, other than as may be
provided by the terms hereof, would be materially adverse to the public interest
and could involve adverse public safety consequences;
WHEREAS, the intentions of the parties hereto are to provide Incumbent with
a reliable long-term communications capability;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Parties agree as follows:
SECTION 1. DEFINITIONS.
<PAGE>
1.1 DEFINITIONS As used in this Agreement, the following terms shall have
the meanings indicated:
1.1.1 1/0 MULTIPLEXER: Any device that multiplexes capacity
between the DS-1 and the DS-0 levels.
1.1.2 1 X 1: A microwave radio configuration consisting of a
primary and a protect radio.
1.1.3 AFFILIATE: With respect to any Person, any other Person
that directly or indirectly controls, is controlled by, or is under common
control with such Person. For the purposes of this definition, "control"
(including the terms "controlled by" and "under common control with"), as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities, by contract, or otherwise.
1.1.4 AGREEMENT: This Fixed Point Microwave Services Agreement,
including the Schedules and Exhibits attached hereto, as the same may be
amended, supplemented or modified in accordance with the terms hereof.
1.1.5 ALARM AND EVENT REPORT: As defined in SECTION 7.7 of
SCHEDULE A.
1.1.6 AMENDED SCHEDULE B: As defined in SECTION 19.15.
1.1.7 AS-BUILT DRAWING: As defined in SECTION 4.1.4 of
SCHEDULE A.
1.1.8 AVAILABLE EXCESS CAPACITY: The total PathNet Excess
Capacity available for use or sale on the System at any given time from
Commissioning through the Expiration Date.
1.1.9 AVERAGE SOLD EXCESS CAPACITY: The cumulative average of
[(PathNet Excess Capacity - Available Excess Capacity)/PathNet Excess
Capacity] taken as a percentage.
1.1.10 BIT ERROR RATE: The number of received bits in error
compared to the total number of bits received.
1.1.11 BREACHING PARTY: As defined in SECTION 18.2.3.
1.1.12 BUSINESS DAY: Any day other than a Saturday, a Sunday, or a
day on which the banking institutions in either New York, New York, or the
city and state in which the principal executive offices of PathNet within
the United States are located, are not open for business.
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1.1.13 CAPACITY EXPANSION: An increase in telecommunication
channels a System is able to transmit, receive and transport above those
created by the installation of the Initial System, achieved by an addition
to or change in equipment.
1.1.14 CAPACITY EXPANSION SCHEDULE: As defined in SECTION 7.1 of
SCHEDULE A.
1.1.15 CERCLA: Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 6901 ET SEQ., as amended.
1.1.16 CHANNEL PLAN: As defined in SECTION 1.1 of SCHEDULE A.
1.1.17 COMMISSIONING: With respect to each path or Segment, the
date on which the circuits of such path or Segment are available for
service after completion of all required site acceptance testing on the
Initial System or any Capacity Expansion.
1.1.18 CUSTOMER AGREEMENTS: As defined in SECTION 10.8.1.
1.1.19 CUTOVER PLAN: As defined in SECTION 4.1.1 of SCHEDULE A.
1.1.20 DEFICIENCY LIST: As defined in SECTION 5.7 of SCHEDULE A.
1.1.21 DISPUTE: As defined in SECTION 18.2.1.
1.1.22 DROP AND INSERT: That process wherein a part of the
information carried in a transmission system is demodulated (dropped) at an
intermediate point and different information is entered (inserted) for
subsequent transmission.
1.1.23 DS-0: 64,000 bits per second; The world-wide standard speed
for digitizing one voice conversation using pulse code modulation, which is
approximately equivalent to a single voice or data channel.
1.1.24 DS-1: 24 DS-0's.
1.1.25 DS-3: 672 DS-0's or 28 DS-1's.
1.1.26 EFFECTIVE DATE: As defined in the introductory paragraph of
this Agreement or the date of any AMENDED SCHEDULE B, as the context
indicates.
1.1.27 ERROR FREE SECOND: Any one-second interval that does not
contain a measurable bit error.
1.1.28 ENCUMBRANCES: Any security interests, mortgages, liens,
pledges, charges, claims, easements, reservations, restrictions, clouds,
equities, rights of way, options, rights of first refusal and other
encumbrances whether or not relating to the
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extension of credit or the borrowing of money. To "Encumber" shall mean to
effect any Encumbrance.
1.1.29 EQUIPMENT: Any and all digital microwave radios, radio
components, cards, antennas, waveguides, multiplexers, software and other
equipment or parts required for the operation of the System provided and
installed by PathNet as set forth on EXHIBIT A-1 to SCHEDULE A.
1.1.30 ERRORED SECONDS: Any one-second interval during which one
or more bit errors occur.
1.1.31 ESCROW AGREEMENT: As defined in SECTION 5 .
1.1.32 EXCESS CAPACITY: The PathNet Excess Capacity and the
Incumbent Excess Capacity.
1.1.33 EXISTING SYSTEM INVENTORY: As defined in SECTION 1.1 of
SCHEDULE A.
1.1.34 EXPIRATION DATE: The date on which this Agreement and the
rights and obligations hereunder are terminated or expire in accordance
with SECTION 3.
1.1.35 FAA: The Federal Aviation Administration, or any other
Federal agency at the time administering tower registration requirements
and regulations.
1.1.36 FACILITIES: Incumbent's towers, shelters, sites and all
equipment owned by Incumbent relating to and used in association with such
towers, shelters and sites for the purpose of operating the System.
1.1.37 FAILED SECOND: Any one-second interval that has 1,544 bit
errors at a DS-1 rate.
1.1.38 FCC: The Federal Communications Commission, or any other
Federal agency at the time administering the Communications Act of 1934, as
amended, the Telecommunications Act of 1996, as amended and the rules and
regulations promulgated thereunder.
1.1.39 FCC CODE: The Communications Act of 1934, as amended, the
Telecommunications Act of 1996, as amended and the rules, regulations and
policies promulgated thereunder and related thereto.
1.1.40 FIRST EXTENSION PERIOD: As defined in SECTION 3.1.3.
1.1.41 FORCE MAJEURE EVENT: As defined in SECTION 17.3.
1.1.42 FORM 415: As defined in SECTION 11.1.1.
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1.1.43 FREQUENCY AVAILABILITY MODEL: As defined in SECTION 1.1 of
SCHEDULE A.
1.1.44 FREQUENCY DIVERSITY: A method of protecting a radio signal
by providing a second radio signal on a different frequency, which will
assume the radio signal load when the regular channel fails.
1.1.45 GOVERNMENTAL AUTHORITY: Any nation or government, any state
or other political subdivision thereof and any court, panel, judge, board,
bureau, commission, agency or other entity, body or other person exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
1.1.46 INCUMBENT: As defined in the introductory paragraph.
1.1.47 INCUMBENT DESIRED PATH: As defined in SECTION 10.3.
1.1.48 INCUMBENT ESTIMATED COSTS: As defined in SECTION 4.1.2.
1.1.49 INCUMBENT EXCESS CAPACITY: As defined in SECTION 10.1.2.
1.1.50 INCUMBENT ITEMS: As defined in SECTION 4.1.1.
1.1.51 INCUMBENT PAYMENT CAP: As defined in SECTION 4.1.3.
1.1.52 INCUMBENT REPRESENTATIVE: As defined in SECTION 19.12.
1.1.53 INITIAL PERIOD: As defined in SECTION 3.1.2.
1.1.54 INITIAL SYSTEM: The initial system with a 1 x 1
configuration which is comprised of the first 84 DS-1's (which is
equivalent to 2,040 DS-0's) of the System and the System's 84 DS-1 protect
channels.
1.1.55 INTERCONNECTION: The point at which a private network is
connected to (i) the PSTN, which can include IXC POPs, tandem access
points, the central office, internet service providers, or major industrial
customer points of presence or (ii) another private network.
1.1.56 INTERFERENCE: Any measurable impairment in the performance
of the System or the quality of the signals received or transmitted on the
System.
1.1.57 IXC: An inter-exchange carrier; a telephone company that
provides long-distance telephone service between LATA's but not within any
one LATA.
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1.1.58 JUDGMENT: Any order, judgment, writ, decree, award or other
determination, decision or ruling of any court, judge, justice or
magistrate, any other Governmental Authority or any arbitrator.
1.1.59 LATA: Local Access and Transport Area; one of 161 local
geographic areas in the United States within which a local telephone
company may offer telecommunications services.
1.1.60 LEASED PREMISES: As defined in SECTION 6.1.
1.1.61 LEASED PREMISES ENCUMBRANCE: As defined in SECTION 6.10.
1.1.62 LOSSES: Any and all losses, claims, shortages, damages,
liabilities, expenses (including reasonable attorneys' and accountants'
fees), assessments, tax deficiencies and taxes (including interest and
penalties thereon) sustained, suffered or incurred by any third party
arising from any matter which is the subject of indemnification under
SECTION 15.
1.1.63 MAINTENANCE SERVICES AGREEMENT: The Maintenance Services
Agreement, by and between PathNet and Incumbent, as the same may be amended
from time to time in accordance with its terms.
1.1.64 MATERIAL ADVERSE EFFECT: Any event, fact, circumstance or
occurrence, which results or would result in a material adverse change in
or a material adverse effect on any of: (i) the condition (financial or
otherwise), business, performance, operations, properties, or prospects of
such Person; (ii) the legality, validity or enforceability of this
Agreement; or (iii) the ability of such Person to perform its material
obligations under this Agreement.
1.1.65 MODIFICATIONS SOW: As defined in SECTION 2.1 of SCHEDULE A.
1.1.66 NETWORK MANAGEMENT SYSTEM: As defined in SECTION 7.6 of
SCHEDULE A.
1.1.67 NETWORK MONITORING CENTER: As defined in SECTION 7.5 of
SCHEDULE A.
1.1.68 NON-BREACHING PARTY: As defined in SECTION 18.1.2.
1.1.69 NOTICE OF ELECTION: As defined in SECTION 16.3.
1.1.70 OC-3 MULTIPLEXER: Any device that multiplexes capacity
between the OC-3 and the DS-1 levels.
1.1.71 ORDER WIRE: A service channel consisting of a 64,000 bit
per second circuit between sites.
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1.1.72 OSHA: The Occupational Safety and Health Act, as amended.
1.1.73 OTHER AGREEMENTS. As defined in SECTION 19.4.
1.1.74 OUTAGE: When the Bit Error Rate in each second is worse
than 10-3 for a period of ten (10) consecutive seconds.
1.1.75 PART 101: Part 101 of Title 47 of the Code of Federal
Regulations, as amended.
1.1.76 PARTY: As defined in the introductory paragraph.
1.1.77 PATH STUDIES: As defined in SECTION 1.1 of SCHEDULE A.
1.1.78 PATHNET: As defined in the introductory paragraph.
1.1.79 PATHNET ESTIMATED COSTS: As defined in SECTION 4.3.2.
1.1.80 PATHNET EXCESS CAPACITY: At any given time, the
telecommunications channels or DS-0's that the System creates, transports
and receives, less the capacity allocated to Incumbent and to the protect
channels pursuant to the Channel Plan, as amended from time to time.
1.1.81 PATHNET ITEMS: As defined in SECTION 4.3.1.
1.1.82 PATHNET SOFTWARE: The software (including applications
software and systems software) owned or licensed from a third party by
PathNet or owned or developed by PathNet used to provide the services
covered in this Agreement.
1.1.83 PCN: A Prior Coordination Notice sent pursuant to Part 101.
1.1.84 PERMITS: Any and all authorizations, approvals, consents,
licenses, permits, easements, certificates and other rights and permissions
necessary to conduct such Person's business and to own, lease and operate
such Person's properties as currently or as anticipated to be conducted,
owned, leased or operated.
1.1.85 PERSON: An individual or a corporation, partnership,
limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, or other entity of any
kind or any Governmental Authority.
1.1.86 POP: Point Of Presence; The interconnection between any two
facilities based networks.
1.1.87 PROGRESS REPORT: As defined in SECTION 4.1.2 of SCHEDULE A.
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1.1.88 PRE-COMMISSIONING TEST EQUIPMENT: All equipment required
for the testing required to be performed on the System pursuant to SECTION
5 of SCHEDULE A, including, but not limited to, all required digital volt
meters, optical power meters, oscilloscopes, RF signal generators, noise
figure meters, noise figure test sets, RF variable attenuators, DADE adjust
cables, receiver card extenders and extension cords.
1.1.89 PRELIMINARY CONSTRUCTION SCHEDULE: As defined in SECTION
1.1 of SCHEDULE A.
1.1.90 PROJECT DRAWINGS: As defined in SECTION 1.3 of SCHEDULE A.
1.1.91 PROJECT MANAGEMENT PLAN: As defined in SECTION 4.1.1 of
SCHEDULE A.
1.1.92 PROJECT SCHEDULE: As defined in SECTION 4.1.1 of
SCHEDULE A.
1.1.93 PROTECTION CONFIGURATION: An engineering plan under which
channel capacity is protected either on a fully redundant basis or on a 1 x
n protection basis.
1.1.94 PSTN: Public Switched Telephone Network.
1.1.95 QUARTERLY REVENUE REPORT: As defined in SECTION 10.10.
1.1.96 RCRA: Resource Conservation and Recovery Act, 42 U.S.C.
Section 9601 ET SEQ., as amended.
1.1.97 REQUIREMENT OF LAW: With respect to any Person, all
Federal, state and local laws, rules, regulations, Judgments, injunctions,
standards, codes, limitations, restrictions, conditions, prohibitions,
notices, demands or other requirements or determinations of a court or
other Governmental Authority or an arbitrator, applicable to or binding
upon such Person, any of its property or any business conducted by it or to
which such Person, any of its assets or any business conducted by it is
subject.
1.1.98 REVENUE: As defined in SECTION 10.11.4 .
1.1.99 SECOND EXTENSION PERIOD: As defined in SECTION 3.1.4.
1.1.100 SEGMENT: The portion of a microwave communications network
existing between two geographic points. For purposes of this Agreement,
Segment A is the portion of Incumbent's microwave communications network
between Sawyer and Thomas Hill, Missouri, as set forth in SCHEDULE B and
any additional Segments added to the System pursuant to an AMENDED SCHEDULE
B are identified as Segment B, Segment C, and Segment D, etc.
1.1.101 SERVICES: As defined in SECTION 8.1 .
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1.1.102 SEVERELY ERRORED SECONDS: Any one second interval where the
Bit Error Rate is greater than or equal to 1 x 10-3 at a DS-1 rate
regardless of the cause of degradation affecting the channel error
performance including, but not limited to, unprotected equipment failures
and any other factors that contribute to poor performance.
1.1.103 SONET: Synchronous Optical Network; a family of fiber-optic
transmission rates from 51.84 Mbps to 13.22 Gbps, created to provide the
flexibility needed to transport many digital signals with different
capacities and to provide a standard to which manufacturers may design.
1.1.104 SPACE DIVERSITY: Protection of a radio signal by providing
a separate antenna on the same tower to assume the radio signal load when
the regular transmission path on the primary antenna fades, thereby
ensuring continuous transmission.
1.1.105 SPARE PARTS: The equipment and parts provided by PathNet to
Incumbent pursuant to the performance of Incumbent's obligations under the
Maintenance Services Agreement.
1.1.106 SPECIFICATIONS: As defined in SECTION 8.2.
1.1.107 STATION LOG BOOK: As defined in SECTION 6.2 of SCHEDULE A.
1.1.108 SUBCONTRACTORS: Any firm, corporation, or person working
directly or indirectly for a company that furnishes or performs a portion
of the work, labor or material.
1.1.109 SWITCHED MOD SECTION: A section of network between two
adjacent back-to-back terminals.
1.1.110 SYSTEM: The high capacity digital SONET microwave radio
equipment, antenna, waveguide, Facilities, Network Management System, all
other equipment and materials related thereto, and FCC licenses and other
licenses and Permits related thereof, operated for the purpose of
transmitting, receiving and transporting telecommunications signals over
Incumbent's Segments set forth on SCHEDULE B.
1.1.111 SYSTEM BUDGET: As defined in SECTION 1.1 of SCHEDULE A.
1.1.112 SYSTEM DESIGN: As defined in SECTION 1.1 of SCHEDULE A.
1.1.113 TECHNOLOGY: Inventions, ideas, processes, formulas, and
know-how.
1.1.114 TOWER ANALYSIS: As defined in SECTION 1.1 of SCHEDULE A.
1.1.115 VENDOR CREDIT ASSURANCES: As defined in SECTION 4.5.1.
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1.1.116 WAYSIDE CHANNELS: The additional DS-1 of telecommunications
capacity within each radio beyond the base OC-3 capacity.
1.2 TERMS GENERALLY The definitions in SECTION 1.1 and elsewhere in this
Agreement shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "herein,"
"hereof," "hereto" and "hereunder" and words of similar import refer to this
Agreement (including the Schedules and Exhibits) in its entirety and not to any
part hereto unless the context shall otherwise require. All references herein
to Sections, Exhibits and Schedules shall be deemed references to Sections of,
and Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Unless otherwise expressly provided herein or unless the context shall
otherwise require, any references as of any time to the "certificate of
incorporation," "articles of incorporation," "charter," "organizational or
constituent documents", "operating agreement" or "bylaws" of any Entity, to any
agreement (including this Agreement) or other contract, instrument or document
or to any agreement statute or regulation are to it as amended and supplemented
from time to time (and, in the case of a statute or regulation to any
corresponding provisions of successor statutes or regulations). Any reference
in this Agreement to a "day" or number and "days" (without the explicit
qualification of "Business") shall be interpreted as a reference to a calendar
day or number of calendar days. If any action or notice is to be taken or given
on or by a particular calendar day, and such calendar day is not a Business Day,
then such action or notice shall be deferred until, or may be taken or given on,
the next Business Day.
SECTION 2. RELATIONSHIP OF THE PARTIES.
2.1 LESSEE, INDEPENDENT CONTRACTOR, REPRESENTATIVE AND NETWORK MANAGER
Incumbent shall appoint PathNet and PathNet shall serve in the following
capacities during the term of this Agreement:
(i) In the role of lessee, PathNet will lease from Incumbent an
interest in Incumbent's sites and Facilities on which to build and operate
the System. As consideration for such leasehold interest and the other
rights and obligations set forth in this Agreement, PathNet will pay the
consideration to Incumbent as set forth in SECTION 5.
(ii) As an independent contractor, PathNet will serve as Incumbent's
sole and exclusive representative in performing analytical pre-design and
design services and installing, testing and ensuring the performance of the
System, as well as any upgrades to such System in accordance with the terms
and conditions set forth in SECTION 7 and in SCHEDULE A.
(iii) As the exclusive representative for the marketing and sale of
Excess Capacity for Incumbent, PathNet will market and sell the Excess
Capacity created by System, as described in SECTION 10.
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(iv) In the role of a network manager, PathNet will serve as the
point of contact for any Outage or trouble on the System and shall operate
the Network Management System and the Network Monitoring Center as
described in SECTION 8.6 and SECTION 7.7 of SCHEDULE A.
2.2 NO JOINT VENTURE, ETC The Parties expressly disclaim any intention to
create, and nothing herein shall be construed as creating, a partnership, joint
venture, agency or employment relationship between PathNet and Incumbent.
2.3 RESTRICTIONS ON ACTIONS OF INCUMBENT
2.3.1 NO PARALLEL SYSTEM For the term of this Agreement, neither
Incumbent, nor any Affiliate of Incumbent, shall operate parallel microwave
telecommunications facilities or systems to those set forth in SCHEDULE B
for the purpose of selling or otherwise providing any capacity on such
parallel facilities or systems.
2.3.2 NOTIFICATION AND RIGHT OF FIRST REFUSAL In the event any
time after the Effective Date, Incumbent elects to construct or build a
fiber path or paths anywhere along Incumbent's then existing system,
Incumbent shall notify PathNet in writing of such intention to construct or
build such fiber path or paths and PathNet shall have a right of first
refusal to construct or build such fiber path or paths on behalf of
Incumbent and to act as Incumbent's exclusive representative for the sale
of excess capacity from such fiber path or paths, exercisable by PathNet by
written notice to Incumbent to such effect within ninety (90) days of
receipt of such notice by Incumbent. In the event Incumbent does not
receive such notice from PathNet stating PathNet's intention to exercise
such right of first refusal or any part thereof during such ninety (90) day
period, Incumbent may engage any person to construct or build such fiber
path or paths and to market and sell the excess capacity from such fiber
path or paths; PROVIDED, HOWEVER, if Incumbent elects to construct or build
any other fiber path or paths not described in the original notification to
PathNet, Incumbent may not so construct or build such additional path or
paths without first complying with the provisions of this SECTION 2.3.2.
SECTION 3. TERM AND EXPIRATION.
3.1 TERM, EXTENSION PERIODS, AND RENEWAL.
3.1.1 TERM This Agreement shall commence on the Effective Date
and shall be in full force and effect for the term as set forth in this
SECTION 3.
3.1.2 INITIAL PERIOD The initial period (the "INITIAL PERIOD")
shall commence upon Commissioning and shall expire on the fifth (5th)
anniversary of the Commissioning.
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3.1.3 FIRST EXTENSION PERIOD In the event the Average Sold Excess
Capacity is at least ten percent (10%) during the Initial Period, the term
of the Agreement shall be automatically extended for an extension period
(the "FIRST EXTENSION PERIOD") commencing on the day after the expiration
of the Initial Period and expiring on the tenth (10th) anniversary
thereafter.
3.1.4 SECOND EXTENSION PERIOD In the event the Average Sold
Excess Capacity is at least ten percent (10%) during the Initial Period and
the First Extension Period, the term of the Agreement shall be
automatically extended for a second extension period (the "SECOND EXTENSION
PERIOD") commencing on the day after the expiration of the First Extension
Period and expiring on the tenth (10th) anniversary thereafter.
3.1.5 RENEWAL Upon expiration of the Initial Period or any
Extension Period thereof, this Agreement shall be automatically renewed for
a one-year term, and at the end of such one-year term for additional
one-year terms for each year thereafter, unless terminated by either Party
upon written notice to the other Party delivered within the ninety (90) day
period immediately before the end of the Second Extension Period or any
such one-year term.
3.2 NO UNILATERAL RIGHT TO TERMINATE Neither Party shall have the right
to terminate this Agreement or any rights or obligations of either Party
pursuant to this Agreement.
SECTION 4. COSTS.
4.1 INCUMBENT COSTS.
4.1.1 INCUMBENT ITEMS Incumbent shall pay for the services,
functions, materials and other items listed in SECTION 1 of SCHEDULE C
(collectively, the "INCUMBENT ITEMS") in the manner set forth in SECTION
4.1.5.
4.1.2 ESTIMATED COST OF INCUMBENT ITEMS On the Effective Date,
the total estimated cost of the Incumbent Items is [***]
(the "INCUMBENT
ESTIMATED COSTS"). Subject to the Incumbent Payment Cap, the costs of such
Incumbent Items and such Incumbent Estimated Costs are estimates and may be
subject to increases or decreases.
4.1.3 INCUMBENT PAYMENT CAP Incumbent shall pay an amount not to
exceed [***]
(the "INCUMBENT PAYMENT CAP") in the aggregate for the
performance and completion of the Incumbent Items. The cost of Incumbent
Items shall be accrued in accordance with generally accepted accounting
principles. PathNet shall pay for all amounts incurred over the Incumbent
Payment Cap in the completion and performance of the Incumbent Items. As
soon as Incumbent is aware that Incumbent will pay an amount in excess of
the Incumbent Payment Cap, Incumbent shall notify PathNet to that effect.
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4.1.4 EXPANSION OF SYSTEM. To allow for the expansion of the
System beyond a 1x1 configuration, in addition to the Incumbent Items and
the Incumbent Estimated Costs, Incumbent shall pay for any additional new
shelters to be installed to replace existing shelters, even if such
payments exceed the Incumbent Payment Cap. Incumbent also shall be
responsible for payment of all costs relating directly or indirectly to the
replacement of such shelters, in the event that PathNet expands the System
beyond a 1x1 configuration and Incumbent shelters are insufficient to
accommodate the expansion equipment.
4.1.5 PAYMENT OF INCUMBENT ITEMS. Pursuant to the Escrow Agreement
by and between PathNet and Incumbent substantially in form attached hereto
as SCHEDULE D (the "Escrow Agreement"), on the Effective Date, Incumbent
shall deposit in an escrow account, an amount equal to the Incumbent
Estimated Costs which funds shall be disbursed to equipment vendors or
service providers by PathNet, with Incumbent's approval, upon completion
and performance of the Incumbents Items and PathNet receiving an invoice
for such Incumbent Items. In the event at any time prior to completion of
the Incumbent Items, the escrowed funds are depleted below ten percent
(10%) of the Incumbent Estimated Costs, upon PathNet's request Incumbent
shall place in escrow an additional amount equal to twenty percent (20%) of
the Incumbent Estimated Costs which additional funds shall be disbursed to
PathNet as of the cost of the completed of the Incumbent Items are actually
incurred. In the event that any funds remain in escrow upon Commissioning
of the Initial System such funds shall be returned to Incumbent.
4.2 INCUMBENT OPERATING AND ADMINISTRATION COSTS Incumbent shall pay the
operating and administration costs set forth in SECTION 2 of SCHEDULE C as such
costs are actually incurred and become due and payable in the course of the
Incumbent's performance of its obligations under this Agreement.
4.3 PATHNET COSTS.
4.3.1 PATHNET ITEMS PathNet shall pay for services, functions,
materials and other items listed in SECTION 3 of SCHEDULE C (the "PATHNET
ITEMS").
4.3.2 ESTIMATED COST OF PATHNET ITEMS On the Effective Date, the
total estimated cost of the PathNet Items is [***]
(the "PATHNET ESTIMATED COSTS").
4.3.3 NO CAP ON PATHNET ITEMS PathNet shall pay for all amounts
incurred in completing the PathNet Items whether or not the cost of
completing such items is less than, equal to or exceeds the PathNet
Estimated Costs.
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4.3.4 PAYMENT OF PATHNET ITEMS To ensure payment of the PathNet
Estimated Costs PathNet shall:
(a) deliver to Incumbent vendor credit assurances (the "VENDOR
CREDIT ASSURANCES"), which Vendor Credit Assurances shall establish
and confirm, among other things, that PathNet has an adequate credit
facility to acquire the Equipment and Services provided by such
vendor; and
(b) deliver to Incumbent the Escrow Agreement pursuant to which,
among other things, (i) PathNet shall place in escrow funds in an
amount equal to fifty percent (50%) the PathNet Estimated Costs less
the cost of any equipment provided by the vendors referred to in the
Vendor Credit Assurances, (ii) the escrow agent named in such Escrow
Agreement shall disburse to PathNet the funds necessary to pay for the
cost of the PathNet Items as such PathNet Items are completed and as
PathNet receives invoices relating to such PathNet Items, (iii) in the
event that PathNet fails to timely meet its payment responsibilities
with respect to the PathNet Items, the escrow agent named in such
Escrow Agreement shall disburse to Incumbent the funds necessary to
cure such failure to pay by PathNet and (iv) such Escrow Agreement
shall terminate upon Commissioning of the System and upon such
termination any funds remaining in escrow, including any interest
accrued on such funds shall be disbursed to PathNet.
4.4 PATHNET OPERATING AND ADMINISTRATION COSTS PathNet shall pay for the
operating and administration costs set forth in SECTION 4 of SCHEDULE C as such
costs are actually incurred and become due and payable in the course of
PathNet's performance of its obligations under this Agreement.
4.5 CHANGE ORDERS This Agreement anticipates (i) future issuance of
change orders for equipment and services beyond the scope of the Services and
the items set forth on SCHEDULE C, and (ii) PathNet's provision of additional
equipment and services in accordance with such orders. To the extent mutually
agreed upon by the Parties, all such orders shall be deemed to be supplements to
and governed by the terms of this Agreement; provided PathNet and Incumbent's
Estimated Costs may be modified to reflect any agreed upon change orders.
SECTION 5. CONSIDERATION
5.1 CONSIDERATION PAID BY PATHNET. PathNet shall pay to Incumbent, as
consideration for all the rights and Incumbent obligations set forth in this
Agreement (including use of the Leased Premises):
(i) commencing on Commissioning, an allocation of up to [***]
of digital capacity, as set forth by the Parties in the Channel
Plan; PROVIDED, that Incumbent and Incumbent's Affiliates use such
allocation of DS-1's only for their own respective internal communications
needs;
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(ii) commencing on the [***]
;
and
(iii) commencing on the [***]
.
SECTION 6. LEASEHOLD INTEREST.
6.1 LEASE Incumbent shall lease to PathNet and PathNet shall lease from
Incumbent an interest in each of Incumbent's sites and in the Facilities at such
sites set forth on SCHEDULE B as is necessary for the performance of PathNet's
rights and obligations under this Agreement (the "LEASED PREMISES").
6.2 TERM OF LEASE The term of PathNet's interest in the Leased Premises
and the Parties obligations under this SECTION 6, shall commence on the
Effective Date and shall end on the Expiration Date.
6.3 USE OF LEASED PREMISES.
6.3.1 PEACEFUL ENJOYMENT, USE AND ACCESS Incumbent shall grant to
PathNet the right to the peaceful use, enjoyment and possession of the
Leased Premises during the term of this Agreement as required for the
performance of PathNet's rights and obligations under this Agreement, which
rights shall include, but not be limited to (i) the right to use
Incumbent's Facilities and (ii) upon the reasonable request by PathNet, the
right to full and free access to Incumbent's sites, Facilities and related
equipment; PROVIDED, HOWEVER, any such access granted by Incumbent to
PathNet shall be subject to the security, health and safety and other
regulatory, procedural and policy requirements of Incumbent, as set forth
in SECTION 6.5.
6.3.2 INTERFERENCE During the term of this Agreement, Incumbent
shall not license or otherwise permit any Person to use its Facilities if
the use of such Facilities by such Person would cause any Interference on
the System. As of the Effective Date, Incumbent shall not permit any
Person to use its Facilities which use would in any way cause any
Interference on the System. Notwithstanding the foregoing in the event any
Person causes any Interference on the System, Incumbent shall use all best
efforts to compel such Person to immediately take any and all steps
necessary to correct and eliminate such Interference, including, without
limitation, enforcing provisions in any license or other agreement between
Incumbent and such Person and compelling such Person to cease operation of
such Person's system, to remove such Person's equipment or materials or to
modify such Person's equipment or materials. Incumbent acknowledges that
any Interference shall cause irreparable harm to PathNet and the prompt
cessation of
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Interference is material to PathNet's interest in the Leased Premises and
PathNet's performance under this Agreement and, as such, PathNet shall be
entitled to injunctive relief in the enforcement of this SECTION 6.3.2.
6.4 VISITING AND EXITING FACILITIES Upon exiting any Facility at the
Leased Premises, PathNet, on behalf of itself and its employees, agents and
Subcontractors, shall ensure that such Facility is returned to the condition
which existed immediately prior to such visit except for such maintenance and
improvements performed during such visit.
6.5 SECURITY, DRUG TESTING, SUBSTANCE ABUSE AND HEALTH AND SAFETY.
6.5.1 SECURITY At the request of Incumbent, PathNet shall require
its employees, agents and Subcontractors upon any site visit to comply with
Incumbent's reasonable security procedures in effect as of the Effective
Date, which procedures are attached hereto as SCHEDULE E. If and to the
extent Incumbent requires PathNet employees, agents or Subcontractors to be
escorted to Incumbent facilities, such requirements shall be explicitly set
forth in SCHEDULE E. Notwithstanding the foregoing, Incumbent shall allow
PathNet employees, agents or Subcontractors to bring any testing equipment,
photographic equipment or both video and audio recording equipment
necessary for the performance of PathNet's obligations under this
Agreement.
6.5.2 DRUG TESTING At the request of Incumbent, PathNet shall
require its employees, agents and Subcontractors to submit to reasonable
drug testing in accordance with Incumbent's drug testing policies and
procedures in effect as of the Effective Date, which policies and
procedures are attached hereto as SCHEDULE F.
6.5.3 SUBSTANCE ABUSE POLICY At the request of Incumbent, PathNet
shall require its employees, agents or Subcontractors to comply with
Incumbent's reasonable substance abuse policies and procedures in effect as
of the Effective Date, which policies and procedures are attached hereto as
SCHEDULE G.
6.5.4 HEALTH AND SAFETY At the request of Incumbent, PathNet
shall require its employees, agents and Subcontractors to comply with
Incumbent's reasonable rules and regulations governing the health and
safety of its employees in effect on the Effective Date, which rules and
regulations are attached hereto as SCHEDULE H.
6.5.5 CLEARANCES AND OTHER REQUIREMENTS At the request of
Incumbent, PathNet shall require its employees, agents or Subcontractors to
(i) apply to Incumbent for any necessary reasonable clearances and (ii)
comply with all other reasonable and applicable requirements, rules,
regulations or ordinances regarding any Person's ability to have access to
Incumbent's sites and Facilities, including, but not limited to, the Leased
Premises, which requirements are set forth as SCHEDULE I.
6.6. SUBLETTING PathNet shall not sublet its interest in the Leased
Premises, in whole or in part, without the prior written consent of Incumbent;
PROVIDED, HOWEVER, PathNet shall have
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the right to transfer and assign its rights or obligations under this Agreement
to any successor or assign in accordance with SECTION 19.7.
6.7 SURRENDER Upon the expiration of the Agreement in accordance with
SECTION 3, PathNet shall peacefully and quietly surrender occupation of the
Leased Premises to Incumbent, or Incumbent's successors and assigns, without
delivery by Incumbent to PathNet of any notice to quit or demand for possession.
6.8 COLOCATION Incumbent shall allow PathNet, at no additional charge, to
colocate at Incumbent's sites all equipment necessary to support the
Interconnections set forth on EXHIBIT A-6 to SCHEDULE A and any additional
interconnections equipment that may be added by PathNet from time to time and at
any time during the term of this Agreement, subject to the limitations set forth
in SECTION 3 of SCHEDULE A.
6.9 SUBORDINATION PathNet shall subordinate its interest in the Leased
Premises to (i) all deeds of trust, deeds to secure debts, mortgages and other
security instruments now or hereafter Encumbering all or any portion of the real
property described on SCHEDULE B (each, a "LEASED PREMISES ENCUMBRANCE") and
(ii) any increases, renewals, modifications, consolidations, replacements and
extensions of any such Leased Premises Encumbrance. In connection with such
subordination of PathNet's interest in the Leased Premises to all Leased
Premises Encumbrances, PathNet shall, as requested by Incumbent, within sixty
(60) days after the Effective Date, execute and deliver a commercially
reasonable subordination, non-disturbance and attornment agreement with all
Persons secured by such Leased Premises Encumbrances. PathNet shall, as
requested by Incumbent, execute and deliver similar subordination,
non-disturbance and attornment agreements with each future Person secured by a
Leased Premises Encumbrance.
6.10 REMOVAL OF EQUIPMENT PathNet shall, at Incumbent's request, remove
any or all Equipment from Incumbent's Facilities within sixty (60) days after
the Expiration Date. In the event PathNet fails to perform such requested
removal within such sixty (60) day period, as determined by Incumbent in its
sole discretion, Incumbent may restore each site to its condition as of
Commissioning, (reasonable wear and tear and damage from the elements excepted),
and PathNet shall promptly pay Incumbent all costs reasonably incurred by
Incumbent for such removal and restoration.
6.11 REMOVAL OF HAZARDOUS MATERIALS Within ninety (90) days after the
Expiration Date, PathNet shall remove from Incumbent's sites any and all
Hazardous Materials, which were brought to Incumbent's sites by PathNet during
the term of this Agreement.
6.12 SALE OF INITIAL SYSTEM Within ten (10) days after the expiration of
the Second Extension Period, if any, PathNet shall, upon request by Incumbent,
sell to Incumbent the radios and radio software relating to the Initial System
for a purchase price of one dollar ($1.00).
SECTION 7. PROGRAM MANAGEMENT AND PROJECT MANAGEMENT.
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7.1 PROGRAM MANAGER In connection with the Services and other services
performed by PathNet under this Agreement, PathNet shall provide a Program
Manager whose duties shall include (i) supervising the project through design,
installation and operation, (ii) supervising the Project Manager, (iii)
overseeing the Field Manager and the other PathNet personnel, (iv) coordinating
the business operations of the System including the sale of Excess Capacity as
set forth in SECTION 10, (v) ensuring the performance of PathNet's rights and
obligations under this Agreement and (vi) coordinating with Incumbent to ensure
the integrity of Incumbent's existing system through cutover.
7.2 PROJECT MANAGEMENT FOR MODIFICATIONS In connection with the
modifications of the Facilities set forth in SECTION 2 of SCHEDULE A, PathNet
shall provide a Project Manager, a Field Manager, an Applications Engineer and a
Project Engineer, each of whom shall have the duties as set forth in SECTION 7.4
with respect to such modifications of the Facilities.
7.3 PROJECT MANAGEMENT FOR INSTALLATION In connection with the
installation of the System set forth in SECTION 4 of SCHEDULE A, PathNet shall
provide a Project Manager, a Field Manager, an Applications Engineer and a
Project Engineer, each of whom shall have the duties as set forth in SECTION 7.4
with respect to such installation of the System.
7.4 PATHNET PROJECT MANAGEMENT PERSONNEL The Project Managers, Field
Managers, Applications Engineers and Project Engineers shall each have the
duties as set forth below:
(a) PROJECT MANAGER. Duties shall include ensuring the overall
functional integrity of the delivered System, the preparation, amendment
and adherence to a construction schedule, and compliance with PathNet's
other obligations under SCHEDULE A.
(b) FIELD MANAGER. Duties shall include the oversight and direction
of all on-site activities, the coordination of all Subcontractors and all
required communication with the Project Manager.
(c) APPLICATIONS ENGINEER. Duties shall include the review and
translation of the System configuration into specific hardware
requirements, precise interface levels, intra and inter-rack cabling and
all other necessary peripheral equipment, rack profiles and required
Interconnection data.
(d) PROJECT ENGINEER. Duties shall include the performance of all
planning and support activities and a detailed site survey to gather data
for development of the installation plan and testing plan.
SECTION 8. SERVICES AND SYSTEMS SPECIFICATIONS.
8.1 SERVICES.
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8.1.1 SYSTEM DESIGN, MODIFICATION, INSTALLATION, OPERATION AND
PERFORMANCE PathNet and Incumbent shall perform their respective functions
with respect to the design, modification, installation, operation and
performance of the System as set forth on SCHEDULE A and in this SECTION 8
(the "SERVICES").
8.1.2 UPGRADE OF SYSTEM In accordance with its performance of the
Services, PathNet shall have the right to, at its own expense, upgrade the
System and Equipment, and the System and Equipment operation policies and
procedures, including, but not limited to, (i) replacing Equipment, (ii)
adding newly available improved Equipment and (iii) modifying policies,
procedures and specifications relating to the System, to conform such
policies, procedures and specifications with new Technology or industry
standards.
8.1.3 INCUMBENT TRAINING PathNet shall provide to Incumbent the
training as set forth on SCHEDULE J.
8.1.4 PERFORMANCE OF THE SERVICES PathNet shall have the right to
engage Subcontractors to perform any of the Services.
8.2 SPECIFICATIONS.
8.2.1 GENERAL PathNet and Incumbent shall perform the Services in
accordance with any and all technical and operational specifications set
forth in SCHEDULE A (the "SPECIFICATIONS").
8.2.2 CHANNEL PLAN.
(a) ORIGINAL CHANNEL PLAN. On the Effective Date, Incumbent
shall deliver to PathNet a proposed T-1 channelization plan setting
forth its proposed capacity needs at each site listed on SCHEDULE B.
Such capacity shall in no event exceed the capacity granted to
Incumbent by PathNet as consideration as set forth in SECTION 5 and
shall be subject to Drop and Insert capacity at each Switched Mod
Section. PathNet shall incorporate Incumbent's proposed
channelization plan into the Channel Plan subject to the limitations
set forth in this SECTION 8.2.2.
(b) AMENDED CHANNEL PLAN. Incumbent shall have the right to
modify its allocated capacity (as described in the Channel Plan) along
the network any time after Commissioning, provided that sufficient
Drop and Insert capacity exists between each Switched Mod Section
using available Wayside Channels to effect such modification, by
providing written notice to PathNet to such effect. Within ninety
(90) days after receipt of any such written notice from Incumbent,
PathNet shall make such modification to the configuration of the
Channel Plan at no charge to Incumbent. Incumbent shall not
reconfigure the Channel Plan in any manner other than as set forth in
this SECTION 8.2.2..
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8.2.3 SPECIFICATIONS, STANDARDS AND INSPECTIONS In connection
with the Services set forth in SECTION 2 and SECTION 4 of SCHEDULE A,
PathNet shall comply with the following requirements:
(a) REASONABLE EFFORTS. PathNet shall use commercially
reasonable efforts to ensure that the modification of the System set
forth in SECTION 2 of SCHEDULE A and the installation of the System
set forth in SECTION 4 of SCHEDULE A occur as expeditiously as
possible.
(b) INDUSTRY STANDARDS. All Services and materials supplied
pursuant to SCHEDULE A must meet or exceed all applicable
Specifications. Where Specifications are not stated, such work
performed and materials supplied will meet all applicable provisions
of the following standards: (i) EIA RS-195 (latest edition), (ii)
EIA/TIA-222 (latest edition), (iii) American Society of Testing
Materials A 325 and A 572, (iv) the applicable sections of the
National Electric Code, (v) the American National Standards Institute,
(vi) ACI 318-83, (vii) ACI-305, (viii) ACI-306, (ix) OSHA 29 CFR 1910
and (x) all other applicable Federal, state and local regulations of
all Governmental Authorities with jurisdiction; PROVIDED, HOWEVER, in
the case of a conflicting requirement of standards, the more stringent
standard shall apply.
(c) SITE INSPECTIONS. During the performance of the Services,
Incumbent shall allow PathNet to perform site inspections at any hour,
on any day subject to the access limitations set forth in SECTION
6.5.1.
8.3 MAINTENANCE OF THE SYSTEM. Within sixty (60) days after the Effective
Date, Incumbent and PathNet shall execute and deliver the Maintenance Services
Agreement. PathNet shall have the right to supplement at its own expense at any
time, and from time to time, any maintenance performed on the System as
determined by PathNet.
SECTION 9. OWNERSHIP, DEPRECIATION AND ENCUMBRANCE OF SYSTEM.
9.1 OWNERSHIP OF EQUIPMENT AND ASSETS.
9.1.1 EQUIPMENT AND ASSETS OWNED BY INCUMBENT Incumbent shall own
the equipment and assets relating to the System as set forth in SCHEDULE K.
9.1.2 EQUIPMENT AND ASSETS OWNED BY PATHNET PathNet shall own the
equipment and assets relating to the System as set forth in SCHEDULE K.
9.2 DEPRECIATION OF EQUIPMENT.
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9.2.1 DEPRECIATION BY INCUMBENT Incumbent shall have the right to
fully depreciate the equipment and assets currently owned or to be owned by
Incumbent as listed in SCHEDULE K.
9.2.2 DEPRECIATION BY PATHNET PathNet shall have the right to
fully depreciate the equipment and assets currently owned or to be owned by
PathNet as listed in SCHEDULE K.
9.3 ENCUMBRANCE.
9.3.1 INITIAL SYSTEM PathNet shall not Encumber the radios, radio
software, antenna, waveguide multiplexers or any other equipment required
to operate the Initial System in accordance with the Specifications.
9.3.2 OTHER EQUIPMENT, MATERIALS, AGREEMENTS AND ASSETS PathNet
shall have the right to Encumber (i) the Equipment used in any Capacity
Expansion, (ii) the Revenue generated from the sale of Excess Capacity in
accordance with SECTION 9, (iii) any Customer Agreement relating to the
System, (iv) this Agreement and any related documents, instruments and
agreements executed and delivered in connection with this Agreement and any
rights or obligations hereunder or thereunder and (v) its leasehold
interest in the Leased Premises.
9.3.3 VENDOR REMEDIES Incumbent hereby acknowledges that pursuant
to the Encumbrances granted by PathNet to certain equipment vendors or
service providers or other lenders in accordance with SECTION 9.3.2, such
vendors or providers shall have the right to assume and perform PathNet's
rights and obligations under this Agreement and the other documents,
instruments and agreements executed in connection hereto.
9.4 TAXES The Parties' respective responsibilities for taxes arising
under or in connection with this Agreement shall be as follows: (i) each Party
shall be responsible for any personal or real property taxes on property it owns
or leases, for franchise and privilege taxes on its business and for taxes based
on its net income or gross revenue and (ii) PathNet shall be responsible for any
sales, use, excise, value-added services, consumption and other taxes and duties
payable by Incumbent on any goods and services used or consumed in providing the
services to be performed by PathNet under this Agreement, where the tax is
imposed on Incumbent's acquisition or use of such goods or services and the
amount of the tax is measured by Incumbent's costs in acquiring such goods or
services; PROVIDED, HOWEVER, that PathNet shall not be responsible for any
Federal, state or local income taxes of Incumbent or any franchise taxes of
Incumbent.
9.5 SECURITY INTEREST IN INITIAL SYSTEM On the Effective Date, PathNet
and Incumbent shall execute and deliver the Security Agreement substantially on
the form attached hereto as SCHEDULE O, pursuant to which, among other things,
PathNet shall grant Incumbent a
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security interest in the radio, radio software, antenna, waveguide, multiplexers
and any other Equipment required to operate the Initial System.
SECTION 10. EXCESS CAPACITY MARKETING AND SALES.
10.1 EXCLUSIVE REPRESENTATIVE.
10.1.1 PATHNET EXCESS CAPACITY PathNet shall have the exclusive
right to market and sell any and all PathNet Excess Capacity.
10.1.2 INCUMBENT EXCESS CAPACITY At any time and from time to
time, Incumbent shall have the right to request in writing that PathNet
serve as Incumbent's exclusive representative for the marketing and sale of
all or any portion of the capacity allocated to Incumbent in accordance
with the Channel Plan (the "INCUMBENT EXCESS CAPACITY"). Such written
notice shall set forth, (i) that portion of the Incumbent Excess Capacity
to be marketed and sold by PathNet, (ii) the length of time that such
portion of the Incumbent Excess Capacity will be available to be marketed
and sold, and (iii) that Incumbent acknowledges that such Incumbent Excess
Capacity shall not be available for Incumbent's use during the time
specified in such written notice. Upon receipt of such written notice
PathNet shall serve as Incumbent's exclusive representative for the
marketing and sale of such Incumbent Excess Capacity; PROVIDED, HOWEVER,
that PathNet shall have the right, as determined by PathNet in its sole
discretion, to sell the PathNet Excess Capacity on any path or Segment
before selling the Incumbent Excess Capacity on such path or Segment.
10.1.3 MARKETING FEE FOR SALE OF INCUMBENT EXCESS CAPACITY In the
event PathNet sells any Incumbent Excess Capacity, PathNet shall receive a
marketing fee in the amount of [***]
of such Revenue).
10.1.4 MARKETING AND SALE BY INCUMBENT Incumbent or any Affiliates
of Incumbent shall not market or sell any Incumbent Excess Capacity or any
capacity purchased by Incumbent pursuant to SECTION 10.3 to any third party
without the prior written consent of PathNet; PROVIDED, HOWEVER, Incumbent
may market and sell all or any portion of the Incumbent Excess Capacity or
any capacity purchased by Incumbent pursuant to SECTION 10.3, to Affiliates
of Incumbent for and only for such Affiliates' internal communications
needs and not for resale to third parties.
10.2 REFERRALS OF CUSTOMERS BY INCUMBENT Incumbent shall refer any
potential third party customer of Excess Capacity to PathNet.
10.3 PURCHASE OF AVAILABLE EXCESS CAPACITY BY INCUMBENT Incumbent shall
have the right to purchase Available Excess Capacity on any path or Segment of
the System (each
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such path or Segment being referred to herein as an "INCUMBENT DESIRED PATH"),
at a price equal to either (i) the lowest price paid to PathNet for like
capacity and for a similar term by any purchaser during the one hundred eighty
(180) days immediately preceding the purchase by Incumbent of capacity on such
Incumbent Desired Path or (ii) if no PathNet Excess Capacity has been purchased
on such Incumbent Desired Path during such one hundred eighty (180) day period,
the last price paid for such Incumbent Desired Path; PROVIDED, HOWEVER,
Incumbent shall in no event under clause (i) or clause (ii) above purchase more
than twenty percent (20%) of the Available Excess Capacity on any Segment or
path within the System at any given time.
10.4 COMMERCIALLY REASONABLE EFFORTS PathNet shall use commercially
reasonable efforts to obtain the best available price and terms in the marketing
and sale of any Excess Capacity. PathNet shall not, now or in the future,
guarantee any Revenue disbursements nor does PathNet warrant as to its ability
to sell the Excess Capacity.
10.5 SELLING PRICES FOR EXCESS CAPACITY Notwithstanding anything set forth
herein to the contrary, PathNet shall have the right to (i) sell Excess Capacity
at prices determined by PathNet to be appropriate on specific routes, which
prices may be below or above current competitive market pricing, (ii) package
the Excess Capacity in sales increments of DS-1's, DS-3's or OC-3's, or any
other increments and (iii) aggregate the paths sold in various combinations,
each as determined by PathNet in its sole discretion.
10.6 BARTER ARRANGEMENTS Incumbent shall be permitted to barter Incumbent
Excess Capacity for telecommunications capacity of other incumbents engaged by
PathNet; PROVIDED, HOWEVER, PathNet shall have the right to approve any barter
arrangement relating to Incumbent Excess Capacity, which approval shall not be
unreasonably withheld. Neither PathNet nor Incumbent shall derive any fee from
facilitating any such barter arrangements.
10.7 ASSUMED NAME; TRADENAMES AND TRADEMARKS PathNet shall have the right
to market Excess Capacity under its name or any other assumed name, tradename or
trademark which PathNet is authorized to use for such purpose; PROVIDED,
HOWEVER, PathNet shall not use any trademark or tradename of Incumbent or any
Affiliate of Incumbent in written material for purposes of marketing any Excess
Capacity without the prior written consent of Incumbent.
10.8 CUSTOMER AGREEMENTS.
10.8.1 AUTHORIZATION PathNet shall negotiate, execute and deliver,
on behalf of itself and Incumbent, all agreements and arrangements
("CUSTOMER AGREEMENTS") for customers of Excess Capacity, which Customer
Agreements shall contain, terms and conditions determined by PathNet in its
sole discretion.
10.8.2 APPROVAL AND CONSENT BY INCUMBENT If the terms of any
Customer Agreement require the written approval or consent of Incumbent as
a condition to the execution, delivery or performance, Incumbent shall
promptly provide such written approval or consent.
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10.8.3 MODIFICATIONS TO SYSTEM In the event that any Customer
Agreement requires that the System be modified in any way, PathNet shall
ensure that any such modifications (i) shall not compromise the integrity
and performance of the System in accordance with the Specifications and
(ii) shall be made at no additional cost to Incumbent.
10.9 MAINTENANCE OF BOOKS AND RECORDS AND AUDIT PROCEDURES.
10.9.1 BOOKS AND RECORDS PathNet shall maintain and keep detailed
and accurate books and records with regard to sales of Excess Capacity and
the Revenue from such sales.
10.9.2 INCUMBENT REVIEW AND AUDIT PROCEDURES No more than once
during any consecutive twelve (12) month period, Incumbent shall be
entitled to review and audit PathNet's books and records relating to the
sale of Excess Capacity during business hours upon ten (10) days written
notice to PathNet. Incumbent shall not have the right pursuant to this
SECTION 10.9.2, to review or audit PathNet's corporate income statements,
balance sheets or other forms of general corporate reporting, except that
Incumbent shall receive a copy of an excerpt from PathNet's annual audit
report that relates to the sale of excess capacity from its System.
Incumbent shall not disclose, at any time before or after the Expiration
Date, any information related to PathNet or PathNet's business obtained by
Incumbent pursuant to a review or audit performed under this SECTION 10.9.2
unless such information has previously come into the public domain (other
than through unauthorized disclosure) or except as required by law.
10.9.3 EXPENSES OF INCUMBENT REVIEWS AND AUDITS Incumbent shall
pay the cost of any such review or audit performed pursuant to SECTION
10.9.2.
10.9.4 APPROVAL OF AUTHORIZED REPRESENTATIVE In the event that
Incumbent hires an authorized representative of Incumbent to perform any
such review or audit pursuant to SECTION 9.9.2, PathNet shall have the
right to approve such authorized representative before any access is
granted to such authorized representative to PathNet's books and records,
which approval shall not be unreasonably withheld.
10.10 QUARTERLY REVENUE REPORTS PathNet shall issue to Incumbent
quarterly revenue reports substantially in the form of SCHEDULE L (each a
"QUARTERLY REVENUE REPORT") within thirty (30) days after the end of each
calendar quarter. Each such Quarterly Revenue Report shall be an unaudited
statement produced by PathNet.
10.11 COLLECTION AND PAYMENT OF REVENUE.
10.11.1 COSTS OF COLLECTION PathNet shall deduct any costs
reasonably incurred by PathNet in connection with the collection of any and
all revenue generated from the sale of Excess Capacity, including, but not
limited to, the cost of any legal actions, collection fees, court
proceedings, audits, or other enforcement actions. PathNet
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shall deduct such costs from gross revenue collected prior to the
disbursement of such revenue to PathNet and Incumbent pursuant to SECTION 5
and SECTION 10.
10.11.2 MAINTENANCE MONTHLY SERVICE CHARGES The amount of any
Maintenance Monthly Service Charges (as such term is defined in the
Maintenance Services Agreement) paid by PathNet to Incumbent pursuant to
the Maintenance Services Agreement, shall be deducted from gross revenue
collected prior to disbursement of such revenue to PathNet and Incumbent
pursuant to SECTION 5 and SECTION 10.
10.11.3 TAXES ON GROSS REVENUES The amount of any taxes on gross
revenue paid by PathNet on behalf of Incumbent shall be deducted from any
revenue to be disbursed to Incumbent prior to disbursement of such revenue
as set forth in this SECTION 10.11.
10.11.4 DEFINITION OF REVENUE For purposes of this Agreement,
"REVENUE" shall mean the gross revenue generated from the sale of Excess
Capacity actually collected less any deductions set forth in SECTION
10.11.1, SECTION 10.9.2 and SECTION 10.11.3.
10.11.5 PAYMENTS TO INCUMBENT PathNet shall pay Incumbent its
allocated portion of Revenue actually received from the sale of Excess
Capacity within thirty (30) days after the end of each calendar quarter in
accordance with the payment instructions set forth in SCHEDULE M.
10.11.6 INTEREST EARNED ON UNDISTRIBUTED REVENUE PathNet shall
retain any and all interest earned by PathNet on any Revenue collected but
not yet distributed to Incumbent in accordance with SECTION 5 and SECTION
10.
10.11.7 INCUMBENT'S ASSIGNEES OF REVENUES Incumbent shall have the
right to designate other entities to receive its disbursements by written
notice to PathNet to such effect; PROVIDED, HOWEVER, any such designation
by Incumbent shall not relieve Incumbent of any tax liability resulting
from its receipt of such disbursements pursuant to SECTION 5 and SECTION
10.
SECTION 11. FCC LICENSES AND OTHER REGULATORY APPROVALS AND LICENSES.
11.1 FCC RULES AND REGULATIONS.
11.1.1 MICROWAVE RADIO STATION LICENSES.
(a) PREPARATION AND FILING OF FORMS 415. PathNet shall
prepare and timely file all required Form 415, Applications for
Authorization in the Microwave Services (each a "FORM 415"), or
any successor forms, documents or instruments to such Form 415 as
the FCC may prescribe, including but not limited
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to, the preparation or ordering of all frequency coordinations
required pursuant to Schedule B and Schedule C of Form 415, in
order to own, operate and sell the Excess Capacity of the System
in accordance with the terms and conditions of this Agreement.
(b) IDENTITY OF LICENSEE. All Microwave Radio Station
Licenses issued by the FCC relating to the System shall be
licensed in the name of PathNet or a wholly-owned subsidiary of
PathNet. Incumbent shall be permitted to continue to own and be
licensed as a private microwave operator at the stations licensed
to PathNet relating to the System, provided that (i) such private
licenses are for different frequency pairs than those assigned to
the System (including, but not limited to, any Capacity Expansion
of the System) and (ii) such private licenses are permitted under
the FCC Code.
(c) MAINTENANCE OF LICENSE. PathNet shall maintain in good
standing each Microwave Radio Station License relating to the
System, including, but not limited to, preparing and filing any
required amendments to the Forms 415 relating to the System and
submitting and filing any supplementary information as required
by the FCC.
11.1.2 COMMON CARRIER REPORTING OBLIGATIONS PathNet shall prepare
and file all forms, reports, instruments, documents and agreements required
by the FCC and FCC Code relating to PathNet's status as a "common carrier"
under the FCC Code.
11.1.3 TARIFF FILINGS PathNet shall prepare and timely file all
tariff applications pursuant to 47 CFR 61.1, as amended, or any successor
statute, rule or regulation and shall request and file all necessary
waivers of such tariff requirements, as determined by PathNet in its sole
discretion.
11.1.4 FREQUENCY COORDINATION NOTICES During the term of this
Agreement, PathNet shall prepare and send all required frequency
coordination notices required under 47 CFR 101.103, as amended, or any
successor statute, rule or regulation and shall respond as appropriate to
all PCNs received by PathNet or Incumbent relating to the System.
11.1.5 DELIVERY OF COPIES Upon Incumbent's request, PathNet shall
provide to Incumbent a copy of all filings and submissions with the FCC,
relating to the System within thirty (30) days of such request by
Incumbent.
11.1.6 ASSISTANCE IN PREPARATION OF LICENSE APPLICATIONS Upon
request by PathNet and in a timely manner, Incumbent shall provide to
PathNet all information necessary for the completion of all required
filings and submissions with the FCC including, but not limited to
Incumbent's authorized signature on any filings or other submissions to the
FCC or any documents, instruments or agreements completed in connection
with such filings and submissions.
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11.1.7 FUTURE CHANGES IN FCC REQUIREMENTS If FCC requirements
relating to the Form 415, common carriers, frequency coordination or any
other matters relating to the System change or are modified, PathNet shall
be responsible for compliance with such new requirements including, but not
limited to, the payment of any costs or fees associated therewith and
Incumbent shall cooperate with PathNet with respect to such compliance;
PROVIDED, HOWEVER, if the FCC establishes user fees regulatory fees,
universal service fees, forfeitures or other such fees relating to the
frequencies used in and the communications business conducted over the
System, the cost of such additional fees shall be divided between PathNet
and Incumbent, as determined by PathNet and Incumbent at such time.
11.1.8 SPECTRAL LOADING REQUIREMENTS PathNet shall (i) ensure that
the System, as licensed, shall comply with all spectral loading
requirements set forth in 47 CFR 101.141, or any successor statute, rule or
regulation or (ii) obtain a waiver of any or all of such requirements;
PROVIDED, HOWEVER, if the System does not meet such spectral loading
requirements and PathNet is unable to obtain a waiver of such requirements,
PathNet shall have the right to modify the System to a hot-standby
Protection Configuration until such time as the spectral loading
requirements can be met.
11.1.9 DEFAULT IN FCC LICENSE In the event that the FCC institutes
a penalty against or fine imposed on PathNet, Incumbent, or the System, by
a final, non-appealable order, due to non-compliance with any FCC
requirements, PathNet shall promptly pay such penalty or fine (in the case
such penalty or fine is instituted as the result of an act or omission on
the part of PathNet) or Incumbent shall promptly pay such penalty or fine
(in the event such penalty or fine is instituted as the result of an act or
omission on the part of Incumbent).
11.2 ZONING REQUIREMENTS Incumbent shall be responsible for compliance
with all zoning requirements applicable to the System and its Facilities,
including, but not limited to, the Leased Premises. Incumbent shall advise
PathNet of zoning requirements, which, in the reasonable opinion of Incumbent,
differ from those generally applicable to microwave facilities. PathNet shall
provide to Incumbent all required information and shall cooperate with Incumbent
in connection with Incumbent's compliance with all zoning requirements pursuant
to this SECTION 11.2.
11.3 BUREAU OF LAND MANAGEMENT REQUIREMENTS Incumbent shall be responsible
for compliance with all United States Department of Interior Bureau of Land
Management requirements applicable to the System and its Facilities, including,
but not limited to, the Leased Premises. PathNet shall provide Incumbent with
all requested information and shall cooperate with Incumbent in connection with
Incumbent's compliance with such United States Department of Interior Bureau of
Land Management requirements pursuant to this SECTION 11.3.
11.4 TOWER REGISTRATION Incumbent shall ensure compliance with all FAA and
FCC tower registration requirements including, but not limited to, the
preparation of any filings with or the obtaining of any waivers or extensions
from the FAA or FCC. Incumbent shall promptly
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notify PathNet of any deficiency on non-compliance with any such tower
registration requirements, filings, waivers or extensions.
SECTION 12. INSURANCE.
12.1 DELIVERY OF CERTIFICATES OF INSURANCE Prior to the commencement of
any Services by PathNet, PathNet shall deliver to Incumbent Certificates of
Insurance relating to PathNet's Commercial General Liability Insurance Policy,
Workers Compensation Insurance Policy, Automobile Liability Insurance and Excess
Liability Insurance Policy.
12.2 PATHNET INSURANCE COVERAGE During the term of this Agreement, PathNet
shall maintain the types of insurance at the coverage limits set forth below:
(a) WORKER'S COMPENSATION INSURANCE. Workers Compensation Insurance
as required by laws and regulations applicable to and covering Persons
performing the Services;
(b) COMMERCIAL GENERAL LIABILITY INSURANCE. Commercial General
Liability Insurance with a limit of not less than $3,000,000 per occurrence
and $ 5,000,000 in the aggregate;
(c) AUTOMOBILE LIABILITY INSURANCE. Automobile Liability Insurance,
which includes coverage for non-owned and hired vehicles with a limit of
not less than $1,000,000; and
(d) EXCESS LIABILITY INSURANCE. Excess Liability Insurance with a
limit of not less than $4,000,000.
12.3 INCUMBENT INSURANCE COVERAGE Incumbent shall maintain insurance
coverage on properties and operations of Incumbent to the extent necessary to
permit PathNet to operate the System and perform its obligations in event of any
property or operations damages or losses which coverage shall include general
liability and other forms of insurance covering such risks as are usually
insured against by prudent companies engaged in the business and activities in
which the Incumbent is engaged, in amount which are adequate in relation to the
business and properties of Incumbent, and all premiums to date have been paid in
full.
12.4 PROOF OF LICENSED SUBCONTRACTORS PathNet shall provide to Incumbent
proof of licensing and certification of insurance for any Subcontractors engaged
by PathNet to provide Services, during the term of such engagement.
SECTION 13. SOFTWARE AND PROPRIETARY RIGHTS.
13.1 PATHNET SOFTWARE PathNet retains all right, title and interest in and
to PathNet Software. As of the Effective Date and pursuant to the PathNet
Sublicense Agreement attached
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hereto as SCHEDULE N, Incumbent is granted a nonexclusive sublicense to use
PathNet Software for the sole purpose of receiving the services pursuant to this
Agreement. PathNet Software will be made available to Incumbent in such form
and on such media as exists on the Effective Date, together with existing
documentation and any other related materials. Incumbent shall not be permitted
to use PathNet Software for the benefit of any entities other than PathNet
without the prior written consent which may be withheld at PathNet's sole
discretion. Except as otherwise requested or approved by PathNet, Incumbent
shall cease all use of PathNet Software upon expiration of this Agreement.
13.2 PROPRIETARY RIGHTS Incumbent acknowledges and agrees that all or
portions of the information and materials, including but not limited to the
PathNet Software and related documentation to be supplied by PathNet hereunder
are owned by PathNet and/or others and are proprietary in nature. Incumbent
also acknowledges and agrees that PathNet and/or its suppliers have and will
retain all proprietary rights in such information and materials. Incumbent (i)
shall respect such claim of proprietary right, (ii) shall protect such
information at least to the extent that it protects its own proprietary
information, (iii) shall not use such information except for the purposes for
which its is being made available as set forth in this Agreement and (iv) shall
not reproduce, print, disclose, or otherwise make said information available to
any third party, in whole or in part, in whatever form.
SECTION 14. REPRESENTATIONS AND WARRANTIES.
14.1 REPRESENTATIONS AND WARRANTIES OF EACH PARTY Each Party hereby
represents and warrants as follows:
14.1.1 DUE INCORPORATION AND FORMATION; AUTHORIZATION OF
AGREEMENTS; BINDING EFFECT Such Party is a corporation or partnership, as
the case may be, duly formed or organized, and validly existing under the
laws of its state of incorporation or organization, and has the corporate
or partnership authority to own its property and carry on its business as
owned and carried on as of the Effective Date. Such Party is duly licensed
or qualified to do business and is in good standing (if applicable) in each
jurisdiction in which the failure to be so licensed or qualified would have
a Material Adverse Effect on such Party. Such Party has the corporate or
partnership authority to execute and deliver this Agreement, to perform its
obligations hereunder, and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by
such Party and this Agreement constitutes a legal, valid and binding
obligation of such Party enforceable in accordance with its terms, subject
as to enforceability to limits imposed by bankruptcy, insolvency or similar
laws affecting creditors rights generally and the availability of equitable
remedies.
14.1.2 NO CONFLICT; NO DEFAULT Neither the execution or delivery
of this Agreement by such Party, nor the performance of this Agreement by
such Party or the consummation by such Party of the transactions
contemplated hereby in accordance with the terms and conditions hereof:
(i) will conflict with, violate, result in a breach of or constitute a
default under any of the terms, conditions or provisions of the certificate
or
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articles of incorporation or bylaws (or other governing documents) of such
Party or any material agreement or instrument to which such Party is a
party or by which such Party may be bound, (ii) will conflict with, violate
or result in a breach of, constitute a default under (whether with notice
or lapse of time or both), accelerate or permit the acceleration of the
performance required by, give to others any interests or rights or require
any consent, authorization or approval under any contract to which such
Party is a party or by which such Party is or may be bound or to which any
equity interest held by such Party or any of its material properties or
assets is subject or (iii) will result in the creation or imposition of any
Encumbrance upon any equity interest held by such Party or any of the other
material properties or assets of such Party, other than Permitted
Encumbrances.
14.1.3 NO CONSENT No consent, approval, order or authorization of,
or registration, declaration or filing with any Governmental Authority,
domestic or foreign, is required to be obtained by such Party in connection
with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, except those that
have been obtained and are in full force and effect pursuant to Section
14.1.5, except that the approval of Rural Utilities Service, United States
Department of Agriculture, is required on behalf of Incumbent.
14.1.4 COMPLIANCE WITH LAWS AND REGULATIONS That the performance
of such Party's obligations under this Agreement will not result in a
violation in any respect of (i) any applicable Federal, state, local or
foreign laws, ordinances, regulations, rulings and orders of government
agencies applicable to its business in any respect the violation of which
could have a Material Adverse Effect (including Requirements of Law
relating to pollution, protection of the environment, releases or
threatened releases of pollutants, contaminants, hazardous or regulated
substances or wastes into the environment or (ii) any applicable order,
Judgment, injunction, award or decree in any respect which could have a
Material Adverse Effect on such Party.
14.1.5 PERMITS Such Party has or will obtain all authorizations,
approvals, consents, licenses, Permits and certificates (including, but not
limited to all required approvals from the FCC) necessary to conduct their
respective businesses and to own, lease and operate its properties as
currently or anticipated to be conducted, owned, leased or operated, as the
case may be, for which the failure to possess would result in a Material
Adverse Effect. No violations are outstanding or uncured with respect to
any such Permits and no proceeding is pending to revoke or limit any
Permit.
14.1.6 TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS
Except as set forth on SCHEDULE K, such Party has, and will continue to
have for the term of this Agreement as set forth in SECTION 3, good and
marketable title to all the properties, interests in properties and assets,
real, personal or mixed, necessary for the conduct of such Party's business
and for the transactions contemplated by this Agreement (including, but not
limited to, any rights of way, leasehold interests, easements, proofs of
dedication and rights necessary for PathNet to perform its obligations
hereunder without any Interference, provided that prevention of such
Interference is within the reasonable control of Incumbent) free and clear
of all Encumbrances of any kind or character, except
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(i) liens for current taxes not yet due and payable, (ii) Encumbrances
securing taxes, assessments, governmental charges or levies or the
Encumbrances of materialmen, carriers, landlords and like persons, all of
which are not yet due and payable, (iii) minor Encumbrances of a character
that do not substantially impair the assets or properties of such Party or
which will not have a Material Adverse Effect on such Party and (iv) first
mortgage of Rural Utilities Service, United States Department of
Agriculture on all assets of Incumbent.
14.1.7 LABOR MATTERS Such Party has complied in all material
respects with all applicable Federal, state and local laws and ordinances
relating to the employment of labor, including the provisions thereof
relating to wages, hours, employee benefit plans and the payment of social
security taxes, and is not liable for any arrears of wages or any tax
related thereto (except for currently accrued and unpaid wages and except
for currently accrued withholding, payroll, unemployment and social
security taxes payment of which is not overdue) or penalties for failure to
comply with any of the foregoing, and neither has received a notice to the
contrary from any Governmental Authority. Such Party has not suffered any
strike, slowdown, picketing or work stoppage by any union or other group or
employees affecting the business of such Party, and no such event or action
is threatened.
14.1.8 NO DISCRIMINATION Such Party currently subscribes and
offers and will continue to subscribe and offer to all customers,
employees, licensees, and invitees the opportunity to obtain all the goods,
services, accommodations, advantages, facilities and privileges of such
Party without discrimination because of race, creed, color, sex, age,
national origin or ancestry, in accordance with all applicable Federal,
state, and local laws relating to equal opportunity and discrimination.
14.1.9 DISCLAIMER EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER
PATHNET NOR INCUMBENT MAKES ANY OTHER EXPRESS WARRANTY AND THERE ARE NO
IMPLIED WARRANTIES WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS
OR OTHER SUBJECT MATTER OF THIS AGREEMENT. PATHNET AND INCUMBENT HEREBY
DISCLAIM THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
14.2 REPRESENTATIONS AND WARRANTIES OF PATHNET.
14.2.1 SERVICES PathNet warrants (i) that the Services will be
performed in a workmanlike manner and (ii) that it has or will obtain
agreements or arrangements with its employees, agents and Subcontractors
sufficient to allow it to provide Incumbent with the Services;
SECTION 15. DELIVERIES.
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15.1 DELIVERIES BY INCUMBENT On or before the Effective Date, Incumbent
shall provide to PathNet (i) evidence of ownership by Incumbent of the sites set
forth on SCHEDULE B or, in the event Incumbent leases such sites, evidence of
Incumbent's leasehold interest in such sites and (ii) copies of all
environmental reports, title reports, surveys, specified or legal access, and
zoning Permits and licenses relating to the sites set forth on SCHEDULE B.
SECTION 16. INDEMNIFICATION AS A RESULT OF THIRD PARTY CLAIMS.
16.1 INDEMNIFICATION BY INCUMBENT Incumbent agrees to indemnify, defend
and hold harmless PathNet and its Affiliates and their respective officers,
directors, employees, agents, successors and assigns from and against any and
all Losses and threatened Losses arising from, in connection with, or based on
allegations of, any of the following:
(a) any claims of infringement of any patent, trade secret,
copyright or other proprietary rights alleged to have occurred because of
systems or other resources provided to PathNet by Incumbent.
(b) any claims arising out of the untruth, inaccuracy or breach
of any representation or warranty of Incumbent set forth in this Agreement.
(c) the liability of PathNet for (i) any personal injury,
disease or death of any person, (ii) damage to or loss of any property,
money damages or specific performance owed to any third party (by contract
or operation of law) or (iii) any fines, penalties, taxes, claims, demands,
charges, actions, causes of action, assessments, environmental response
costs, environmental penalties or injunctive obligations caused by, arising
out of, or in any way incidental to, or in connection with, actions or
omissions of Incumbent, its officers, directors, employees, Subcontractors
or agents.
16.2 INDEMNIFICATION BY PATHNET
. PathNet agrees to indemnify, defend and hold harmless Incumbent and its
Affiliates and their respective officers, directors, employees, agents,
successors and assigns from and against any and all Losses and threatened Losses
arising from, in connection with, or based on allegations of, any of the
following:
(a) Any claims of infringement of any patent, trade secret,
copyright or other proprietary rights alleged to have occurred because of
systems or other resources provided by Incumbent to PathNet.
(b) Any claims arising out of the untruth, inaccuracy or breach
of any representation or warranty of PathNet set forth in this Agreement.
(c) The liability of Incumbent for (i) any personal injury,
disease or death of any person, (ii) damage to or loss of any property,
money damages or specific performance owed to any third party (by contract
or operation of law) or (iii) any fines, penalties, taxes, claims, demand
charges, actions, causes of action assessments, environmental response
costs, environmental penalties or injunctive obligations caused
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by, arising out of, or in any way incidental to, or in connection with,
actions or omissions of PathNet, its officers, directors, employees,
Subcontractors or agents.
(d) The liability of Incumbent arising out of any or all
obligations to or contracts with customers to purchase Excess Capacity.
16.3 INDEMNIFICATION PROCEDURES With respect to any third party claims,
the following procedures shall apply:
(a) NOTICE. Promptly after receipt by an entity entitled to
indemnification under SECTION 16.1 or SECTION 16.2 of notice of the
commencement or threatened commencement of any civil, criminal,
administrative or investigative action or proceeding involving a claim in
respect of which the indemnitee will seek indemnification pursuant to any
such Section, the indemnitee shall notify the indemnitor of such claim in
writing. No failure to so notify an indemnitor shall relieve it of its
obligations under this Agreement except to the extent that it can
demonstrate damages attributable to such failure. Within fifteen (15) days
following receipt of written notice from the indemnitee relating to any
claim, but no later than ten (10) days before the date on which any
response to a complaint or summons is due, the indemnitor shall notify the
indemnitee in writing if the indemnitor elects to assume control of the
defense and settlement of that claim (a "NOTICE OF ELECTION").
(b) PROCEDURE FOLLOWING NOTICE OF ELECTION. If the indemnitor
delivers a Notice of Election relating to any claim within the required
notice period, the indemnitor shall be entitled to have sole control over
the defense and settlement of such claim; provided that, (i) the indemnitee
shall be entitled to participate in the defense of such claim and to employ
counsel at its own expense to assist in the handling of such claim, and
(ii) the indemnitor shall obtain the prior written approval of the
indemnitee before entering into any settlement of such claim or ceasing to
defend against such claim. After the indemnitor has delivered a Notice of
Election relating to any claim in accordance with the subsection (a) above,
the indemnitor shall not be liable to the indemnitee for any legal expenses
incurred by the indemnitee in connection with the defense of that claim.
In addition, the indemnitor shall not be required to indemnify the
indemnitee for any amount paid or payable by the indemnitee in the
settlement of any claim for which the indemnitor has delivered a timely
Notice of Election, if such amount was agreed to without the written
consent of the indemnitor.
(c) PROCEDURE WHERE NO NOTICE OF ELECTION IS DELIVERED. If the
indemnitor does not deliver a Notice of Election relating to any claim
within the required notice period, the indemnitee shall have the right to
defend the claim in such manner as it may deem appropriate, at the cost and
expense of the indemnitor. The indemnitor shall promptly reimburse the
indemnitee for all such costs and expenses.
16.4 SUBROGATION In the event that an indemnitor shall be obligated to
indemnify an indemnitee pursuant to SECTION 16.1 or SECTION 16.2, the indemnitor
shall, upon payment of such
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indemnity in full, be subrogated to all rights of the indemnitee with respect to
the claims to which such indemnification relates.
SECTION 17. LIABILITY OF THE PARTIES TO EACH OTHER.
17.1 LIABILITY GENERALLY Subject to the specific provisions of this
SECTION 16, it is the intent of the Parties that each Party shall be liable to
the other Party for any actual damages incurred by the Non-Breaching Party as a
result of the Breaching Party's failure to perform its obligations in the manner
required by this Agreement and failure to cure such nonperformance as set forth
in SECTION 18.1.2.
17.2 LIABILITY RESTRICTIONS.
(a) SUBJECT TO SUBSECTION (b) BELOW, IN NO EVENT, WHETHER IN
CONTRACT OR IN TORT (INCLUDING BREACH OF WARRANTY, NEGLIGENCE AND STRICT
LIABILITY IN TORT), SHALL A PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT
OR CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN ADVANCE.
(b) The limitations set forth in subsection (a) shall not apply
with respect to: (i) damages occasioned by the willful misconduct or gross
negligence of a Party, (ii) damages occasioned by a non-compliance with any
Requirements of Law by either Party, (iii) damages occasioned by improper
or wrongful termination of this Agreement or (iv) damages occasioned by a
violation of SECTION 12 of this Agreement.
(c) Each Party shall have a duty to mitigate damages for which
the other Party is responsible.
(d) Each Party shall be liable to the other Party for any actual
damages as set forth in SECTION 16.1 only if, and to the extent that the
aggregate of all losses arising from or in connection with any such failure
to perform obligations in the manner required by this Agreement exceeds ten
thousand dollars ($10,000.00), except with respect to any payment
obligations set forth in SECTION 4.
17.3 FORCE MAJEURE
(a) No Party shall be liable for any breach, default or delay in the
performance of its obligations under this Agreement (i) if and to the
extent such default or delay is caused, directly or indirectly, by: fire,
flood, earthquake, elements of nature or acts of God, riots, civil
disorders, rebellions or revolutions in any country, changes in
Requirements of Law relating to the System or to the sale of Excess
Capacity, or any other cause beyond the reasonable control of such Party (a
"FORCE MAJEURE EVENT"), (ii) provided the non-performing Party is without
fault in causing such breach, default or delay, and such breach, default or
delay could not have been prevented by reasonable
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precautions and cannot reasonably be circumvented by the non-performing
Party through the use of alternate sources, work around plans or other
means.
(b) In such event the non-performing Party shall be excused from
further performance or observance of the obligation(s) so affected for as
long as such circumstances prevail and such Party continues to use its best
efforts to recommence performance or observance whenever and to whatever
extent possible without delay. Any Party so delayed in its performance
shall immediately notify the Party to whom performance is due by telephone
(to be confirmed in writing within two (2) days of the inception of such
delay) and describe at a reasonable level of detail the circumstances
causing such delay.
SECTION 18. INFORMAL DISPUTE RESOLUTION; ARBITRATION.
18.1 INFORMAL DISPUTE RESOLUTION.
18.1.1 ROLE OF PROGRAM MANAGER. In the event Incumbent has a
dispute, controversy or other complaint relating to PathNet's performance
of PathNet's rights and obligations under this Agreement, Incumbent shall
have the right to first contact the Program Manager to resolve such
dispute, controversy or other complaint. If Incumbent is not satisfied
with the resolution provided by the Program Manager, Incumbent may resort
to the arbitration procedures set forth in this SECTION 18.
18.1.2 NOTICE OF BREACH, CURE AND REMEDIES. In the event of a
breach by either PathNet or Incumbent (the "BREACHING PARTY"), the other
Party (the "NON-BREACHING PARTY") shall send by certified mail a written
notice of such breach to the Breaching Party setting forth the specific
allegations of such breach. Upon receipt of the notice of breach, the
Breaching Party shall have thirty (30) days to cure such breach. In the
event the Breaching Party fails to cure such breach, as determined by the
Non-Breaching Party in its sole discretion, or the Breaching Party
determines, in its sole discretion, that it has cured such breach, either
the Breaching Party or the Non-Breaching Party may invoke the arbitration
procedures set forth in SECTION 18.2 to resolve whether such breach has
been cured.
18.2 ARBITRATION.
18.2.1 ARBITRATION; RESOLUTION OF DISPUTES. Subject to SECTION
18.1, any and all disputes and controversies between Incumbent and PathNet
concerning the negotiation, interpretation, performance, breach or
termination of this Agreement (each a "DISPUTE") shall be subject to
resolution as set forth in this SECTION 18.
18.2.2 SETTLEMENT DISCUSSIONS. Subject to SECTION 18.1, any
Dispute shall be attempted to be resolved first through amicable settlement
discussions and each Party
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shall bear its own costs of such settlement discussions. Each Party hereby
agrees to use good faith efforts to reach a settlement through such
amicable settlement discussions.
18.2.3 REFERRAL TO BINDING ARBITRATION. In the event the Parties
fail to reach a settlement of the Dispute pursuant to settlement
discussions in accordance with SECTION 18.2.2, each Party shall have the
right, but not the obligation, to refer such Dispute for final resolution
by binding arbitration conducted in St. Louis, MO in accordance with the
rules and procedures of the American Arbitration Association. Either Party
may elect to require that the arbitration be administered by a panel of
three (3) arbitrators and/or that any such arbitrators have expertise in
the fields of telecommunications engineering or construction. Judgement
upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. Cost of the arbitration, including,
reasonable attorney's fees of both Parties, shall be borne by the Party as
determined by such arbitrators.
18.2.4 BINDING EFFECT. The Parties acknowledge and agree that (i)
the award in any arbitration shall be final, conclusive and binding on the
Parties and (ii) any such arbitration award be a final resolution of the
Dispute between the Parties to the same extent as a final judgment of a
court of competent jurisdiction.
18.2.5 USE OF COURTS AND OTHER LEGAL REMEDIES. Each Party
covenants and agrees that it shall not resort to any court for legal
remedies concerning any Dispute other than to enforce a final decision by
the arbitrators or for preliminary, interim or provisional equitable relief
in aid of arbitration.
18.2.6 APPLICABLE LAW. The arbitrator shall determine the claims
of the Parties and render their final award in accordance with the
governing law of this Agreement as set forth in SECTION 19.5.
18.2.7 LIMITATION ON AWARDS. Arbitrators may not award (i)
incidental, consequential or punitive damages in the resolutions of any
Dispute and the Parties hereby waive all rights to and claims for monetary
awards other than compensatory damages, except as provided in Section
16.2(d) of this Agreement, (ii) the right to terminate this Agreement or
any of the rights and obligations hereunder except pursuant to SECTION 3.3,
or (iii) any other right or remedy that contravenes the terms and
conditions of this Agreement.
18.2.8 PERIOD OF LIMITATIONS. In the event the Party claiming a
Dispute does not institute binding arbitration within four (4) years after
the commencement of settlement discussions pursuant to SECTION 18.2.2, such
Party shall forever be barred from bringing a claim on the specific subject
matter of such Dispute.
SECTION 19. MISCELLANEOUS.
19.1 NOTICES All notices pertaining to disputes arising from this
Agreement shall be directed to a corporate entity or employee designated by the
signatories as having full rights and
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responsibilities to address such issues. Notices under this Agreement shall be
sufficient only if personally delivered by a commercial prepaid delivery or
courier service or mailed by certified or registered mail, return receipt
requested to a Party at its address set forth below or as amended by notice
pursuant to this SECTION 19.1. All notices shall be delivered as follows:
If to PathNet:
Michael A. Lubin, Esquire
Vice President and General Counsel
PathNet, Inc.
1015-31st Street. NW
Washington, DC 20007
Tel: (202) 625-7284
Fax: (202) 625-7369
If to Incumbent:
Ralph Shaw, General Manager
Northeast Missouri Electric Power
Cooperative
P.O. Box 191
Palmyra, MO 63461
Tel: (573) 769-2107
Fax: (573) 769-4358
19.2 BINDING NATURE; ENTIRE AGREEMENT PathNet and Incumbent acknowledge
that (i) each has read and understands the terms and conditions of this
Agreement and agrees to be bound by such terms and conditions, (ii) this
Agreement shall be binding on each of PathNet and Incumbent and their respective
successors and assigns, (iii) this Agreement is the complete and conclusive
statement of the agreement between the Parties, (iv) this Agreement supercedes
any and all prior agreements and arrangements between the Parties and all
understandings and agreements, oral and written, heretofore made between
Incumbent and PathNet are merged in this Agreement which alone, fully and
completely expresses their agreement on the subject matter of this Agreement and
(v) this Agreement sets forth the entire agreement on the subject matter hereof.
19.3 AMENDMENT No modifications of, additions to or waiver of this
Agreement shall be binding upon Incumbent or PathNet unless such modification,
addition or waiver is in writing and signed by an authorized representative of
each Party.
19.4 SEVERABILITY Contemporaneously herewith, the Parties have entered
into this Agreement (collectively, the "Other Agreement"). The Parties
acknowledge and agree that (i) the terms and provisions of this Agreement are
mutually interdependent, (ii) this Agreement and the Other Agreements are
mutually interdependent, (iii) the consideration for entering into each
provision of this Agreement and any or all of the foregoing agreements is
indivisible, (iv) neither of the Parties would have entered into any of the
foregoing agreements unless the other Party agreed to execute and deliver all of
the foregoing agreements, (v) it would be contrary to the intention and bargain
of the parties if, in the event of the bankruptcy of one of the Parties, such
Party sought to assume some but not all of the provisions of this Agreement or
some but not all of the foregoing agreements, (vi) it would be contrary to the
intention and bargain of the Parties if, in the event of the bankruptcy of one
of the Parties, such
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Party sought to reject some but not all of the provisions of the Agreement or
some but no all of the foregoing agreements, (vii) it would be contrary to the
intention and bargain of the Parties if a court for any reason were to enforce
some but not all of the provisions of this Agreement or were to hold some but
not all of the provisions of this Agreement or were to hold some but not all of
the provisions of this Agreement to be unenforceable, and (viii) it would be
contrary to the intention and bargain of the Parties if a court for any reason
were to enforce some but not all of the foregoing agreements or were to hold
some but not all of the foregoing agreements to be unenforceable.
19.5 GOVERNING LAW This Agreement, and the rights and obligations of the
Parties hereunder, shall be governed and interpreted in accordance with the laws
of the State of Missouri (other than the choice of law rules thereof).
19.6 SURVIVAL Any provision of this Agreement which contemplates
performance or observance subsequent to any termination or expiration of this
Agreement shall survive such termination or expiration and continue in full
force and effect.
19.7 ASSIGNMENT At any time and from time to time, PathNet shall have the
right to assign this Agreement or any of PathNet's rights and obligations under
this Agreement; provided, that in no event shall any such assignment relieve
PathNet of its obligations under this Agreement. Incumbent shall not have the
right to assign this Agreement or any of its rights and obligations hereunder
without the prior written consent of PathNet, which consent shall not be
unreasonably withheld; PROVIDED, HOWEVER, Incumbent may assign its rights and
obligations, in whole but not in part, under this Agreement without the approval
of PathNet, to any entity which acquires all or substantially all of the assets
of Incumbent or to any subsidiary, Affiliate or successor in a merger or
consolidation of Incumbent; provided, that in no event shall any such assignment
relieve Incumbent of its obligations under this Agreement.
19.8 WAIVER
. Failure or delay on the part of Incumbent or PathNet to exercise any right,
power or privilege under this Agreement shall not constitute a waiver of any
right power or privilege of this Agreement.
19.9 RECORDATION Each Party hereby acknowledges that this Agreement may be
subject to recordation and the costs, fees or expenses associated with any such
recordation shall be borne by the recording Party.
19.10 GOOD FAITH RENEGOTIATION Notwithstanding anything set forth
herein to the contrary, the Parties hereby agree that in the event a
Governmental Authority issues a decision, order, rule or other rulemaking of any
kind, which necessitates any modification or amendment to this Agreement, the
Parties shall negotiate in good faith to modify or amend this Agreement to
comply with such decision, order, rule or other rulemaking.
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19.11 CONFIDENTIAL TERMS AND CONDITIONS Incumbent shall not disclose,
except as required by law or as set forth in SECTION 19.9, the terms and
conditions of this Agreement to any third party.
19.12 INCUMBENT'S DESIGNATED REPRESENTATIVE Incumbent shall on the
Effective Date designate in writing a representative who shall have express
authority to bind Incumbent with respect to all matters requiring Incumbent's
approval or authorization in connection with this Agreement (the "INCUMBENT
REPRESENTATIVE"). Such Incumbent Representative shall have the authority to
make decisions and grant any and all consents required under this Agreement on
behalf of Incumbent and PathNet shall be entitled to rely on any such decision
or consent by the Incumbent Representative.
19.13 PATHNET'S DESIGNATED REPRESENTATIVE PathNet shall on the Effective
Date designate in writing a representative who shall have express authority to
bind PathNet with respect to all matters requiring PathNet's approval or
authorization in connection with this Agreement (the "PATHNET REPRESENTATIVE").
Such PathNet Representative shall have the authority to make decisions and grant
any and all consents required under this Agreement on behalf of PathNet and
Incumbent shall be entitled to rely on any such decision or consent by the
PathNet Representative.
19.14 OUTSOURCING In addition to, and not in place of, any rights of
PathNet under this Agreement, PathNet shall have the right to engage third party
Subcontractors to perform any or all of PathNet's rights and obligations under
this Agreement, provided that PathNet requires all subcontractors to provide
evidence of the same insurance coverages required herein of PathNet.
19.15 UNION AND LABOR RELATIONS Incumbent is a non-union employer and
with respect to any services performed by PathNet pursuant to this Agreement,
Incumbent will not require PathNet to comply with all applicable labor or
union-related agreements, regulations and ordinances and shall not require
PathNet to join any union or other labor organization as a condition to
performing services contemplated by this Agreement.
19.16 EXECUTION OF AN AMENDED SCHEDULE B In the event that both
Incumbent and PathNet elect to add additional Segments to the System, each of
Incumbent and PathNet shall execute and deliver an "AMENDED SCHEDULE B" setting
forth (i) the additional paths, sites and specific location information of the
additional Segment or Segments, (ii) the consideration PathNet shall pay to
Incumbent for such additional Segment (thereby amending SECTION 5.2 with respect
to such additional Segment; PROVIDED, HOWEVER, SECTION 5 shall remain in full
force and effect with respect to Segment 1 or any other existing Segment) and
(iii) the Incumbent Items, the amount of the Incumbent Estimated Costs and the
method of payment of the cost of the Incumbent Items with respect to such
additional Segment (thereby amending SECTION 4.1 and SECTION 1 of SCHEDULE C
with respect to such additional Segment; PROVIDED, HOWEVER, SECTION 4.1 and
SECTION 1 of SCHEDULE C shall in any event remain in full force and effect with
respect to Segment 1 or any other existing Segment.) PathNet's and Incumbent's
rights and obligations under this Agreement will commence with respect to such
additional Segment or Segments on the date of execution of such AMENDED SCHEDULE
B by both Parties which date shall be deemed
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the "EFFECTIVE DATE" with respect to such Segment for purposes of this Agreement
and each reference to SCHEDULE B in this Agreement shall be deemed to refer to
such AMENDED SCHEDULE B.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement, as of
the date first written above.
PATHNET, INC.
By: /s/ Dave Schaeffer
-------------------------------
Name: Dave Schaeffer
Title: Chairman
NORTHEAST MISSOURI ELECTRIC
POWER COOPERATIVE
By: /s/ Ralph E. Shaw
-------------------------------
Name: Ralph E. Shaw
Title: General Manager
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PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. SUCH PORTIONS ARE
DESIGNATED "[***]"
Exhibit 10.4
THIS FIXED POINT MICROWAVE SERVICES AGREEMENT is made and entered into as
of the 17th day of September, 1997 (the "EFFECTIVE DATE"), by and between
PathNet, Inc. ("PATHNET"), a Delaware corporation and KN Energy, Inc.
("INCUMBENT"), a Kansas corporation (collectively, the "PARTIES" and each, a
"PARTY".
W I T N E S S E T H:
WHEREAS, PathNet is engaged in the business of creating high capacity,
digital, microwave communications systems for purposes of marketing and selling
the excess long distance telecommunications capacity created by such systems;
WHEREAS, Incumbent is the owner and operator of an existing microwave
telecommunications system; and
WHEREAS, Incumbent desires to engage PathNet as, and PathNet desires to (i)
install, manage, and operate a high capacity digital microwave system along
Incumbent's current microwave paths and (ii) act as Incumbent's sole
representative for the purpose of marketing and selling any Excess Capacity
created by such high capacity digital microwave system.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Parties agree as follows:
SECTION 1. DEFINITIONS.
1.1 DEFINITIONS: As used in this Agreement, the following terms shall
have the meanings indicated:
1.1.1 1/0 MULTIPLEXER: Any device that multiplexes capacity
between the DS-1 and the DS-0 levels.
1.1.2 1 X 1: A microwave radio configuration consisting of a
primary and a protect radio.
1.1.3 AFFILIATE: With respect to any Person, any other Person
that directly or indirectly controls, is controlled by, or is under common
control with such Person. For the purposes of this definition, "control"
(including the terms "controlled by" and "under common control with"), as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities, by contract, or otherwise.
1.1.4 AGREEMENT: This Fixed Point Microwave Services Agreement,
including the Schedules and Exhibits attached hereto, as the same may be
amended, supplemented or modified in accordance with the terms hereof.
1.1.5 ALARM AND EVENT REPORT: As defined in SECTION 7.7 of
SCHEDULE A.
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1.1.6 AMENDED SCHEDULE B: As defined in SECTION 18.15.
1.1.7 ARBITRATION RULES: As defined in SECTION 17.2.2.
1.1.8 AS-BUILT DRAWING: As defined in SECTION 4.1.4 of
SCHEDULE A.
1.1.9 ASSOCIATION: As defined in SECTION 17.2.2.
1.1.10 ASSIGNMENT DOCUMENTS: As defined in SECTION 8.6.1.
1.1.11 AVAILABLE EXCESS CAPACITY: The total PathNet Excess
Capacity available (and not allocated) for use or sale on the System at any
given time from Commissioning through the Expiration Date.
1.1.12 AVERAGE SOLD EXCESS CAPACITY: The cumulative average of
[(PathNet Excess Capacity - Available Excess Capacity)/PathNet Excess
Capacity] taken as a percentage.
1.1.13 BIT ERROR RATE: The number of received bits in error
compared to the total number of bits received.
1.1.14 BREACHING PARTY: As defined in SECTION 17.1.2.
1.1.15 BUSINESS DAY: Any day other than a Saturday, a Sunday, or a
day on which the banking institutions in either New York, New York, or the
city and state in which the principal executive offices of PathNet within
the United States are located, are not open for business.
1.1.16 CAPACITY EXPANSION: An increase in telecommunication
channels a System is able to transmit, receive and transport above those
created by the installation of the Initial System, achieved by an addition
to or change in equipment.
1.1.17 CAPACITY EXPANSION SCHEDULE: As defined in SECTION 7.1 of
SCHEDULE A.
1.1.18 CERCLA: Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 6901 ET SEQ., as amended.
1.1.19 CHANNEL PLAN: As defined in SECTION 1.1 of SCHEDULE A.
1.1.20 COMMISSIONING: With respect to each path or Segment, the
date on which the circuits of such path or Segment are available for
service after completion of all required site acceptance testing on the
Initial System or any Capacity Expansion.
1.1.21 CUSTOMER AGREEMENTS: As defined in SECTION 9.8.1.
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1.1.22 CUTOVER PLAN: As defined in SECTION 4.1.1 of SCHEDULE A.
1.1.23 DS-0: 64,000 bits per second; The world-wide standard speed
for digitizing one voice conversation using pulse code modulation, which is
approximately equivalent to a single voice or data channel.
1.1.24 DS-1: 24 DS-0's.
1.1.25 DS-3: 672 DS-0's or 28 DS-1's.
1.1.26 DEFICIENCY LIST: As defined in SECTION 5.7 of SCHEDULE A.
1.1.27 DISPUTE: As defined in SECTION 17.2.1.
1.1.28 DROP AND INSERT: That process wherein a part of the
information carried in a transmission system is demodulated (dropped) at an
intermediate point and different information is entered (inserted) for
subsequent transmission.
1.1.29 EFFECTIVE DATE: As defined in the introductory paragraph of
this Agreement or the date of any AMENDED SCHEDULE B, as the context
indicates.
1.1.30 ERROR FREE SECOND: Any one-second interval that does not
contain a measurable bit error.
1.1.31 ENCUMBRANCES: Any security interests, mortgages,
restrictions, liens, pledges, options, rights of first refusal and other
encumbrances, as applicable, whether or not relating to the extension of
credit or the borrowing of money. To "Encumber" shall mean to effect any
Encumbrance.
1.1.32 EQUIPMENT: Any and all digital microwave radios, radio
components, cards, antennas, waveguides, multiplexers, software and other
equipment or parts required for the operation of the System provided and
installed by PathNet as set forth on EXHIBIT A-1 to SCHEDULE A.
1.1.33 ERRORED SECONDS: Any one-second interval during which one
or more bit errors occur.
1.1.34 ESCROW AGREEMENT: As defined in SECTION 4.1.5.
1.1.35 EXCESS CAPACITY: The PathNet Excess Capacity and the
Incumbent Excess Capacity.
1.1.36 EXISTING SYSTEM INVENTORY: As defined in SECTION 1.1 of
SCHEDULE A.
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1.1.37 EXPIRATION DATE: The date on which this Agreement and the
rights and obligations hereunder are terminated or expire in accordance
with SECTION 3.
1.1.38 FAA: The Federal Aviation Administration, or any other
Federal agency at the time administering tower registration requirements
and regulations.
1.1.39 FAILED SECOND: Any one-second interval that has 1,544 bit
errors at a DS-1 rate.
1.1.40 FACILITIES: Incumbent's towers, shelters, sites and all
equipment owned by Incumbent relating to and used in association with such
towers, shelters and sites for the purpose of operating the System.
1.1.41 FCC: The Federal Communications Commission, or any other
Federal agency at the time administering the Communications Act of 1934, as
amended, the Telecommunications Act of 1996, as amended and the rules and
regulations promulgated thereunder.
1.1.42 FCC CODE: The Communications Act of 1934, as amended, the
Telecommunications Act of 1996, as amended and the rules and regulations
promulgated thereunder and related thereto.
1.1.43 FIRST EXTENSION PERIOD: As defined in SECTION 3.1.3.
1.1.44 FORCE MAJEURE EVENT: As defined in SECTION 16.3.
1.1.45 FORM 415: As defined in SECTION 10.1.1.
1.1.46 FREQUENCY AVAILABILITY MODEL: As defined in SECTION 1.1 of
SCHEDULE A.
1.1.47 FREQUENCY DIVERSITY: A method of protecting a radio signal
by providing a second radio signal on a different frequency, which will
assume the radio signal load when the regular channel fails.
1.1.48 GOVERNMENTAL AUTHORITY: Any nation or government, any state
or other political subdivision thereof and any court, panel, judge, board,
bureau, commission, agency or other entity, body or other person exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
1.1.49 HAZARDOUS MATERIAL: Any material amount of any substance,
matter or waste which is or becomes regulated by any Federal, state or
local law, ordinance, order, rule, regulation, code or any government
restrictions or requirement including, but not limited to, asbestos,
petroleum products and "Hazardous Substances" and "Hazardous Wastes" (as
such terms are defined in CERCLA and RCRA).
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1.1.50 INCUMBENT: As defined in the introductory paragraph.
1.1.51 INCUMBENT ESTIMATED COSTS: As defined in SECTION 4.1.2.
1.1.52 INCUMBENT ITEMS: As defined in SECTION 4.1.1.
1.1.53 INCUMBENT PAYMENT CAP: As defined in SECTION 4.1.3.
1.1.54 INCUMBENT DESIRED PATH: As defined in SECTION 9.3.
1.1.55 INCUMBENT EXCESS CAPACITY: As defined in SECTION 9.1.2.
1.1.56 INCUMBENT PROJECT FEE: The fee paid by Incumbent to PathNet
for project development and management, as defined in SECTION 4.3.
1.1.57 INCUMBENT REPRESENTATIVE: As defined in SECTION 18.12.
1.1.58 INITIAL SYSTEM: The initial system with a 1 x 1
configuration which is comprised of the first 84 DS-1's (which is
equivalent to 2,040 DS-0's) of the System and the System's 84 DS-1 protect
channels.
1.1.59 INITIAL PERIOD: As defined in SECTION 3.1.2.
1.1.60 INTERCONNECTION: The point at which a private network is
connected to (i) the PSTN, which can include IXC POPs, tandem access
points, the central office, internet service providers, or major industrial
customer points of presence or (ii) another private network.
1.1.61 INTERFERENCE: Any measurable impairment in the performance
of the System or the quality of the signals received or transmitted on the
System.
1.1.62 IXC: An inter-exchange carrier; a telephone company that
provides long-distance telephone service between LATA's but not within any
one LATA.
1.1.63 JUDGMENT: Any order, judgment, writ, decree, award or other
determination, decision or ruling of any court, judge, justice or
magistrate, any other Governmental Authority or any arbitrator.
1.1.64 LATA: Local Access and Transport Area; one of 161 local
geographic areas in the United States within which a local telephone
company may offer telecommunications services.
1.1.65 LEASED PREMISES: As defined in SECTION 5.1.
1.1.66 LEASED PREMISES ENCUMBRANCE: As defined in SECTION 5.10.
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1.1.67 LOSSES: Any and all losses, claims, fines, penalties,
causes of action, judgments, assessments, damages, liabilities, expenses
(including reasonable attorneys' and accountants' fees), assessments
sustained, suffered or incurred arising from any matter.
1.1.68 MAINTENANCE SERVICES AGREEMENT: The Maintenance Services
Agreement, by and between PathNet and Incumbent, as the same may be amended
from time to time in accordance with its terms.
1.1.69 MATERIAL ADVERSE EFFECT: Any event, fact, circumstance or
occurrence, which results or would result in a material adverse change in
or a material adverse effect on any of: (i) the condition (financial or
otherwise), business, performance, operations, properties, or prospects of
such Person; (ii) the legality, validity or enforceability of this
Agreement; or (iii) the ability of such Person to perform its material
obligations under this Agreement.
1.1.70 MODIFICATIONS SOW: As defined in SECTION 2.1 of SCHEDULE A.
1.1.71 NETWORK MONITORING CENTER: As defined in SECTION 7.5 of
SCHEDULE A.
1.1.72 NETWORK MANAGEMENT SYSTEM: As defined in SECTION 7.6 of
SCHEDULE A.
1.1.73 NON-BREACHING PARTY: As defined in SECTION 17.1.2.
1.1.74 OC-3 MULTIPLEXER: Any device that multiplexes capacity
between the OC-3 and the DS-1 levels.
1.1.75 ORDER WIRE: A service channel consisting of a 64,000 bit
per second circuit between sites.
1.1.76 OSHA: The Occupational Safety and Health Act, as amended.
1.1.77 OUTAGE: When the Bit Error Rate in each second is worse
than 10-3 for a period of ten (10) consecutive seconds.
1.1.78 PART 101: Part 101 of Title 47 of the Code of Federal
Regulations, as amended.
1.1.79 PARTY: As defined in the introductory paragraph.
1.1.80 PATH STUDIES: As defined in SECTION 1.1 of SCHEDULE A.
1.1.81 PATHNET: As defined in the introductory paragraph.
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1.1.82 PATHNET ESTIMATED COSTS: As defined in SECTION 4.4.2.
1.1.83 PATHNET EXCESS CAPACITY: At any given time, the
telecommunications channels or DS-0's that the System creates, transports
and receives, less the capacity allocated to Incumbent and to the protect
channels pursuant to the Channel Plan, as amended from time to time.
1.1.84 PATHNET ITEMS: As defined in SECTION 4.4.1.
1.1.85 PATHNET SOFTWARE: The software (including applications
software and systems software) owned or licensed from a third party by
PathNet or owned and developed by PathNet used to provide the services
covered in this Agreement.
1.1.86 PCN: A Prior Coordination Notice sent pursuant to Part 101.
1.1.87 PERMITS: Any and all authorizations, approvals, consents,
licenses, permits, easements, certificates and other rights and permissions
necessary to conduct such Person's business and to own, lease and operate
such Person's properties as currently conducted, owned, leased or operated.
1.1.88 PERSON: An individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, or other entity of any kind or any Governmental Authority.
1.1.89 POP: Point Of Presence; The interconnection between any two
facilities based networks.
1.1.90 PROGRESS REPORT: As defined in SECTION 4.1.2 of SCHEDULE A.
1.1.91 PRE-COMMISSIONING TEST EQUIPMENT: All equipment required
for the testing required to be performed on the System pursuant to SECTION
5 of SCHEDULE A, including, but not limited to, all required digital volt
meters, optical power meters, oscilloscopes, RF signal generators, noise
figure meters, noise figure test sets, RF variable attenuators, DADE adjust
cables, receiver card extenders and extension cords.
1.1.92 PRELIMINARY CONSTRUCTION SCHEDULE: As defined in SECTION
1.1 of SCHEDULE A.
1.1.93 PROJECT DRAWINGS: As defined in SECTION 1.3 of SCHEDULE A.
1.1.94 PROJECT MANAGEMENT PLAN: As defined in SECTION 4.1.1 of
SCHEDULE A.
1.1.95 PROJECT SCHEDULE: As defined in SECTION 4.1.1 of
SCHEDULE A.
1.1.96 PROTECTION CONFIGURATION: An engineering plan under which
channel capacity is protected either on a fully redundant basis or on a 1 x
n protection basis.
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1.1.97 PSTN: Publicly Switched Telephone Network.
1.1.98 QUARTERLY REVENUE REPORT: As defined in SECTION 9.10.
1.1.99 RCRA: Resource Conservation and Recovery Act, 42 U.S.C.
Section 9601 ET SEQ., as amended.
1.1.100 REQUIREMENT OF LAW: With respect to any Person, all
Federal, state and local laws, rules, regulations, Judgments, injunctions,
standards, codes, limitations, restrictions, conditions, prohibitions,
notices, demands or other requirements or determinations of a court or
other Governmental Authority or an arbitrator, applicable to or binding
upon such Person, any of its property or any business conducted by it or to
which such Person, any of its assets or any business conducted by it is
subject.
1.1.101 REVENUE: As defined in SECTION 9.11.4.
1.1.102 SECOND EXTENSION PERIOD: As defined in SECTION 3.1.4.
1.1.103 SEGMENT: The portion of a microwave communications network
existing between two geographic points. For purposes of this Agreement,
Segment A is the portion of Incumbent's microwave communications network
between Casper, Wyoming and Minden, Nebraska, as set forth in SCHEDULE B.
Segment B is the portion of Incumbent's microwave communications network
between Lisco, Nebraska and Lakewood, Colorado. The additional Segments
added to the System pursuant to an AMENDED SCHEDULE B are identified as
Segment C, Segment D, and Segment E, etc.
1.1.104 SERVICES: As defined in SECTION 7.1.
1.1.105 SEVERELY ERRORED SECONDS: Any one second interval where the
Bit Error Rate is greater than or equal to 1 x 10-3 at a DS-1 rate
regardless of the cause of degradation affecting the channel error
performance including, but not limited to, unprotected equipment failures
and any other factors that contribute to poor performance.
1.1.106 SONET: Synchronous Optical Network; a family of fiber-optic
transmission rates from 51.84 Mbps to 13.22 Gbps, created to provide the
flexibility needed to transport many digital signals with different
capacities and to provide a standard to which manufacturers may design.
1.1.107 SPACE DIVERSITY: Protection of a radio signal by providing
a separate antenna on the same tower to assume the radio signal load when
the regular transmission path on the primary antenna fades, thereby
ensuring continuous transmission.
1.1.108 SPARE PARTS: The equipment and parts provided by PathNet to
Incumbent pursuant to the performance of Incumbent's obligations under the
Maintenance Services Agreement.
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1.1.109 SPECIFICATIONS: As defined in SECTION 7.2.
1.1.110 STATION LOG BOOK: As defined in SECTION 6.2 of SCHEDULE A.
1.1.111 SUBCONTRACTORS: Any firm, corporation, or person working
directly or indirectly for a company that furnishes or performs a portion
of the work, labor or material.
1.1.112 SWITCHED MOD SECTION: A section of network between two
adjacent back-to-back terminals.
1.1.113 SYSTEM: The high capacity digital SONET microwave radio
equipment, antenna, waveguide, Facilities, Network Management System, all
other equipment and materials related thereto, and FCC licenses and other
licenses and Permits related thereof, operated for the purpose of
transmitting, receiving and transporting telecommunications signals over
Incumbent's Segments set forth on SCHEDULE B.
1.1.114 SYSTEM BUDGET: As defined in SECTION 1.1 of SCHEDULE A.
1.1.115 SYSTEM DESIGN: As defined in SECTION 1.1 of SCHEDULE A.
1.1.116 TECHNOLOGY: Inventions, ideas, processes, formulas, and
know-how.
1.1.117 TOWER ANALYSIS: As defined in SECTION 1.1 of SCHEDULE A.
1.1.118 VENDOR CREDIT ASSURANCES: As defined in SECTION 4.4.4.
1.1.119 WAYSIDE CHANNELS: The additional DS-1 of telecommunications
capacity within each radio beyond the base OC-3 capacity.
1.2 TERMS GENERALLY. The definitions in SECTION 1.1 and elsewhere in this
Agreement shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "herein,"
"hereof," "hereto" and "hereunder" and words of similar import refer to this
Agreement (including the Schedules and Exhibits) in its entirety and not to any
part hereto unless the context shall otherwise require. All references herein
to Sections, Exhibits and Schedules shall be deemed references to Sections of,
and Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Unless otherwise expressly provided herein or unless the context shall
otherwise require, any references as of any time to the "Certificate of
Incorporation," "Articles of Incorporation," "charter," "organizational or
constituent documents" or "Bylaws" of any Entity, to any agreement (including
this Agreement) or other contract, instrument or document or to any agreement
statute or
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regulation are to it as amended and supplemented from time to time (and, in the
case of a statute or regulation to any corresponding provisions of successor
statutes or regulations). Any reference in this Agreement to a "day" or number
and "days" (without the explicit qualification of "Business") shall be
interpreted as a reference to a calendar day or number of calendar days. If any
action or notice is to be taken or given on or by a particular calendar day, and
such calendar day is not a Business Day, then such action or notice shall be
deferred until, or may be taken or given on, the next Business Day.
SECTION 2. RELATIONSHIP OF THE PARTIES.
2.1 LESSEE, CONTRACTOR, REPRESENTATIVE AND NETWORK MANAGER. Incumbent
shall appoint PathNet and PathNet shall serve in the following capacities during
the term of this Agreement:
(i) In the role of lessee, PathNet will lease space from Incumbent
at Incumbent's sites and Facilities on which to build and operate the
System. As consideration for such lease, PathNet will pay rent to
Incumbent as set forth in SECTION 5.
(ii) As an independent contractor, PathNet will perform analytical
pre-design and design services, and install, test and ensure the
performance of the System, as well as any upgrades to such System in
accordance with the terms and conditions set forth in SECTION 7 and in
SCHEDULE A.
(iii) As the exclusive representative for the marketing and sale of
Excess Capacity for Incumbent, PathNet will market and sell the Excess
Capacity created by System, as described in SECTION 9.
(iv) Also, as an independent contractor, in the role of a network
manager, PathNet will serve as the point of contact for any Outage or
trouble on the System and shall operate the Network Management System and
the Network Monitoring Center as described in SECTION 7.5 and SECTION 7.6
of SCHEDULE A.
2.2 NO JOINT VENTURE, ETC. The Parties expressly disclaim any intention
to create, and nothing herein shall be construed as creating, a partnership,
joint venture, agency or employment relationship between PathNet and Incumbent.
2.3 RESTRICTIONS ON ACTIONS OF INCUMBENT. For the term of this Agreement,
neither Incumbent, nor any Affiliate of Incumbent, shall operate from the
Facilities any parallel microwave telecommunications systems at those sites
listed in SCHEDULE B for the purpose of selling or otherwise providing any
capacity on such parallel facilities or systems.
2.4 RIGHT TO NOTIFICATION AND BID. If and to the extent Incumbent
requests proposals from third parties to develop fiber along Incumbent
right-of-ways, Incumbent shall provide PathNet notice of such fiber build and
grant to PathNet a right to bid on such fiber build on like terms.
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SECTION 3. TERM AND EXPIRATION.
3.1 TERM, EXTENSION PERIODS, AND RENEWAL.
3.1.1 TERM. This Agreement shall commence on the Effective Date
and shall be in full force and effect for the term as set forth in this
SECTION 3.
3.1.2 INITIAL PERIOD. The initial period (the "INITIAL PERIOD")
shall commence upon Commissioning and shall expire on the fifth (5th)
anniversary of the Commissioning.
3.1.3 FIRST EXTENSION PERIOD. In the event the Average Sold
Excess Capacity is at least ten percent (10%) or greater during the Initial
Period, the term of the Agreement shall be automatically extended for an
extension period (the "FIRST EXTENSION PERIOD") commencing on the day after
the expiration of the Initial Period and expiring on the tenth (10th)
anniversary thereafter.
3.1.4 SECOND EXTENSION PERIOD. In the event the Average Sold
Excess Capacity is at least ten percent (10%) or greater during the Initial
Period and the First Extension Period, the term of the Agreement shall be
automatically extended for a second extension period (the "SECOND EXTENSION
PERIOD") commencing on the day after the expiration of the First Extension
Period and expiring on the tenth (10th) anniversary thereafter.
3.1.5 RENEWAL. Upon expiration of the Initial Period or any
Extension Period thereof, this Agreement shall be automatically renewed for
a one-year term, and at the end of such one-year term for additional
one-year terms for each year thereafter, unless terminated by either Party
upon written notice to the other Party to that effect delivered within the
ninety (90) day period immediately before the end of the Second Extension
Period or any such one-year term.
3.2 NO UNILATERAL RIGHT TO TERMINATE. Neither Party shall have the right
to terminate this Agreement or any rights or obligations of either Party
pursuant to this Agreement.
SECTION 4. COSTS.
4.1 INCUMBENT COSTS.
4.1.1 INCUMBENT ITEMS. Incumbent shall pay for the services,
functions, materials and other items listed in SECTION 1 of SCHEDULE C
(collectively, the "INCUMBENT ITEMS") in the manner set forth in SECTION
4.1.5.
4.1.2 ESTIMATED COST OF INCUMBENT ITEMS. Subject to SECTION
4.1.3, , the total estimated cost of the Incumbent Items is [***]
(the
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"INCUMBENT ESTIMATED COSTS") and Incumbent Project Fee is
[***] (the "Incumbent Project Fee").
Subject to the Incumbent Payment Cap, the costs of such Incumbent Items and
such Incumbent Estimated Costs are estimates and may be subject to
increases or decreases.
4.1.3 INCUMBENT PAYMENT CAP. Subject to SECTION 4.6.2, Incumbent
shall pay an amount not to exceed [***]
(the "INCUMBENT PAYMENT CAP") for the performance and
completion of the Incumbent Items. The cost of Incumbent Items shall be
accrued in accordance with generally accepted accounting principles.
PathNet shall pay for all amounts incurred over the Incumbent Payment Cap
in the completion and performance of the Incumbent Items. As soon as
Incumbent is aware that Incumbent will pay an amount in excess of the
Incumbent Payment Cap, Incumbent shall notify PathNet to that effect.
4.1.4 DIVISION OF COSTS SAVINGS. In the event the costs of
completion of the Incumbent Items is less than the Incumbent Estimated
Costs, PathNet shall deliver to Incumbent an invoice setting forth the
differential between the total costs to complete and perform the Incumbent
Items and the Incumbent Estimated Costs. Within thirty (30) days of
receipt of such invoice from PathNet, Incumbent shall pay or disburse to
PathNet thirty percent (30%) of such differential.
4.1.5 PAYMENT OF INCUMBENT ITEMS.
(a) Incumbent shall promptly pay for the Incumbent Items upon receipt
of a purchase order, invoice or other bill from PathNet or from an
equipment vendor or service provider (pursuant to any PathNet requested
retention of payment of any invoice), provided PathNet has approved such
purchase order, invoice or bill before any payment is made by Incumbent.
(b) Pursuant to the Escrow Agreement by and between PathNet and
Incumbent substantially in the form attached hereto as SCHEDULE D (the
"Escrow Agreement") and on the Effective Date, Incumbent shall deposit in
an escrow account an amount equal to ten percent (10%) of the Incumbent
Estimated Costs which escrowed funds shall be either (i) provided to
PathNet upon Incumbent's failure to pay any purchase order, invoice or bill
under Section 4.1.5(a) or (ii) returned to Incumbent upon Commissioning of
the Initial System, whichever event occurs earlier.
4.2 INCUMBENT OPERATING AND ADMINISTRATION COSTS. Incumbent shall pay the
operating and administration costs set forth in SECTION 2 of SCHEDULE C as such
costs are actually incurred and become due and payable in the course of the
Incumbent's performance of its obligations under this Agreement.
4.3 INCUMBENT PROJECT FEE. Incumbent shall pay PathNet
[*** ******* **** ******* ********* ******* ************] defined
as the Project Fee. Such Project Fee shall be paid as follows: [***]
to be paid within thirty days of the
Effective Date and [***] to be paid no later
than March 1, 1998.
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4.4 PATHNET COSTS.
4.4.1 PATHNET ITEMS. PathNet shall pay for services, functions,
materials and other items listed in SECTION 3 of SCHEDULE C (the "PATHNET
ITEMS").
4.4.2 ESTIMATED COST OF PATHNET ITEMS. On the Effective Date, the
total estimated cost of the PathNet Items is [***]
(the
"PATHNET ESTIMATED COSTS").
4.4.3 NO CAP ON PATHNET ITEMS. PathNet shall pay for all amounts
incurred in completing the PathNet Items whether or not the cost of
completing such items is less than, equal to or exceeds the PathNet
Estimated Costs.
4.4.4 PAYMENT OF PATHNET ITEMS. To ensure payment of the PathNet
Estimated Costs, simultaneously with the execution and delivery of this
Agreement PathNet shall:
(a) deliver to Incumbent vendor credit assurances (the "VENDOR CREDIT
ASSURANCES"), which shall establish and confirm, among other things, that
PathNet has an adequate credit facility to acquire the Equipment and
Services provided by such vendor; or
(b) deliver to Incumbent the Escrow Agreement pursuant to which,
among other things, (i) PathNet shall place in escrow funds in an amount
equal to one hundred percent (100%) of the PathNet Estimated Costs less the
cost of any equipment provided by the vendors referred to in the Vendor
Credit Assurances (fifty percent (50%) of such costs to be delivered
within sixty (60) days of delivery by PathNet of the System Design and
fifty percent (50%) to be delivered within one hundred and twenty (120)
days of delivery of the first escrow payment), (ii) the escrow agent named
in such Escrow Agreement shall disburse to PathNet the funds necessary to
pay for the cost of the PathNet Items as such PathNet Items are completed
and as PathNet receives invoices relating to such PathNet Items, (iii) in
the event that PathNet fails to timely meet its payment responsibilities
with respect to the PathNet Items or fails to complete the System in
accordance with SECTION 13.2.1 (ix), the escrow agent named in such Escrow
Agreement shall disburse to Incumbent the funds necessary to cure such
failure to pay by PathNet and/or complete the work (iv) such Escrow
Agreement shall terminate upon Commissioning of the System and upon such
termination any funds remaining in escrow, including any interest accrued
on such funds shall be disbursed to PathNet.
4.5 PATHNET OPERATING AND ADMINISTRATION COSTS. PathNet shall pay for the
operating and administration costs set forth in SECTION 4 of SCHEDULE C as such
costs are actually incurred and become due and payable in the course of
PathNet's performance of its obligations under this Agreement.
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4.6 CHANGE ORDERS.
4.6.1 GENERAL. This Agreement anticipates (i) future issuance of
change orders for equipment and services beyond the scope of the Services
and this SECTION 4, and (ii) PathNet's provision of additional equipment
and services in accordance with such orders. To the extent mutually agreed
upon by the Parties, all such orders shall be deemed to be supplements to
and governed by the terms of this Agreement; provided PathNet and
Incumbent's Estimated Costs may be modified to reflect any agreed upon
change orders.
4.6.2 FACILITY CHANGE ORDERS. PathNet and Incumbent acknowledge
that certain Facilities may require alternate site locations in order to
frequency coordinate the System to a 1X7 configuration. If and to the
extent any Facility requires an alternative site, such alternative site
shall (i) be an amendment to Schedule B and Schedule C and (ii) the costs
associated with acquiring the land and the costs of placing a new
foundation on such land shall not apply to the Incumbent Payment Cap.
SECTION 5. LEASEHOLD INTEREST.
5.1 LEASE. Incumbent shall lease to PathNet and PathNet shall lease from
Incumbent space at each of Incumbent's sites and in the Facilities at such sites
set forth on SCHEDULE B as is necessary for the performance of PathNet's rights
and obligations under this Agreement (the "LEASED PREMISES").
5.2 RENT FOR LEASED PREMISES. PathNet shall pay to Incumbent, as
consideration for the Leased Premises, (i) commencing on Commissioning, an
allocation of up to [***]
as set forth by the Parties in the Channel Plan; PROVIDED,
that Incumbent and Incumbent's Affiliates use such allocation of DS-1's only for
their own respective internal communications needs, (ii) commencing on the
[***] after Commissioning of the Initial System, [***]
and (iii)
commencing on the [***] after Commissioning of a Capacity
Expansion, if any, [***]
.
5.3 TERM OF LEASE. The term of PathNet's lease and the Parties
obligations under this SECTION 5, including, but not limited to, PathNet's
obligation to pay rent as set forth in SECTION 5.2, shall commence on the
Effective Date and shall end on the Expiration Date.
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5.4 USE OF LEASED PREMISES.
5.4.1 PEACEFUL ENJOYMENT, USE AND ACCESS. Incumbent shall grant
to PathNet the right to the peaceful use, enjoyment and possession of the
Leased Premises during the term of this Agreement as required for the
performance of PathNet's rights and obligations under this Agreement, which
rights shall include, but not be limited to (i) the right to use
Incumbent's Facilities for the purposes set forth in this Agreement and
(ii) upon the reasonable request by PathNet, the right to full and free
access to Incumbent's sites, Facilities and related equipment; PROVIDED,
HOWEVER, any such access granted by Incumbent to PathNet shall be subject
to the security, health and safety and other regulatory, procedural and
policy requirements of Incumbent, as set forth in SECTION 5.6 and further
provided that PathNet shall have the right to access the sites to
supplement Incumbent's performance under the Maintenance Services
Agreement.
5.4.2 INTERFERENCE. During the term of this Agreement, Incumbent
shall not license or otherwise permit any Person to use its Facilities if
the use of such Facilities by such Person would cause any Interference on
the System. As of the Effective Date, Incumbent shall not knowingly permit
any Person to use its Facilities which use would in any way cause any
Interference on the System. Notwithstanding the foregoing in the event any
Person causes any Interference on the System, Incumbent shall use all best
efforts to compel such Person to immediately take any and all steps
necessary to correct and eliminate such Interference, including, without
limitation, enforcing provisions in any license or other agreement between
Incumbent and such Person and compelling such Person to cease operation of
such Person's system, to remove such Person's equipment or materials or to
modify such Person's equipment or materials. Incumbent acknowledges that
any Interference shall cause irreparable harm to PathNet and the prompt
cessation of Interference is material to PathNet's interest in the Leased
Premises and PathNet's performance under this Agreement and, as such,
PathNet shall be entitled to injunctive relief in the enforcement of this
SECTION 5.4.2.
5.5 VISITING AND EXITING FACILITIES. Upon exiting any Facility at the
Leased Premises, PathNet, on behalf of itself and its employees, agents and
Subcontractors, shall ensure that such Facility is returned to a condition,
which existed immediately prior to such visit.
5.6 SECURITY, DRUG TESTING, SUBSTANCE ABUSE AND HEALTH AND SAFETY.
5.6.1 SECURITY. PathNet shall require its employees, agents and
Subcontractors upon any site visit to comply with Incumbent's security
procedures in effect as of the Effective Date, which procedures are
attached hereto as SCHEDULE E. If and to the extent Incumbent requires
PathNet employees, agents or Subcontractors to be escorted to Incumbent
facilities, such requirements shall be explicitly set forth in SCHEDULE E.
Notwithstanding the foregoing, Incumbent shall allow PathNet employees,
agents or Subcontractors to bring any testing equipment, photographic
equipment or both video and audio recording equipment necessary for the
performance of PathNet's obligations under this Agreement.
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5.6.2 DRUG TESTING. PathNet shall require its employees, agents
and Subcontractors to submit to drug testing in accordance with Incumbent's
drug testing policies and procedures in effect as of the Effective Date,
which policies and procedures are attached hereto as SCHEDULE F.
5.6.3 SUBSTANCE ABUSE POLICY. PathNet shall require its
employees, agents or Subcontractors to comply with Incumbent's substance
abuse policies and procedures in effect as of the Effective Date, which
policies and procedures are attached hereto as SCHEDULE F.
5.6.4 HEALTH AND SAFETY. PathNet shall require its employees,
agents and Subcontractors to comply with Incumbent's rules and regulations
governing the health and safety of its employees in effect on the Effective
Date, which rules and regulations are attached hereto as SCHEDULE H.
5.6.5 CLEARANCES AND OTHER REQUIREMENTS. PathNet shall require
its employees, agents or Subcontractors to (i) apply to Incumbent for any
necessary clearances and (ii) comply with all other applicable
requirements, rules, regulations or ordinances regarding any Person's
ability to have access to Incumbent's sites and Facilities, including, but
not limited to, the Leased Premises, which requirements are set forth as
SCHEDULE I.
5.6.6 INCUMBENT RIGHT TO RESTRICT ACCESS. Notwithstanding
PathNet's right to visit the Facilities in connection with performance of
its duties under this Agreement, in the event the requirements, rules or
regulations pertaining to facility visitation set forth on SCHEDULE E,
SCHEDULE F, SCHEDULE G, SCHEDULE H and SCHEDULE I have been violated or
when the exercise of such right would pose a bona fide serious risk of
bodily harm or injury to any Person as determined by the Parties, Incumbent
reserves the right to reasonably restrict or deny PathNet or its
Subcontractors access to the sites. In the event in Incumbent's reasonable
judgment any Subcontractor should be denied access from Incumbent's
premises, Incumbent shall have the right to remove such person and deny
such person access to Incumbent's Facilities.
5.7 SUBLETTING. PathNet shall not sublet its interest in the Leased
Premises, in whole or in part, without the prior written consent of Incumbent;
PROVIDED, HOWEVER, PathNet shall have the right to transfer and assign its
rights or obligations under this Agreement to any successor or assign in
accordance with SECTION 18.7.
5.8 SURRENDER. Upon the expiration of the Agreement in accordance with
SECTION 3, PathNet shall peacefully and quietly surrender occupation of the
Leased Premises to Incumbent, or Incumbent's successors and assigns, without
delivery by Incumbent to PathNet of any notice to quit or demand for possession.
5.9 COLOCATION. Incumbent shall allow PathNet, at no additional charge,
to collocate at Incumbent's sites all equipment necessary to support the
Interconnections set forth on EXHIBIT A-7 to SCHEDULE A and, upon written
notice, any additional interconnections equipment that may
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be added by PathNet from time to time and at any time during the term of this
Agreement, subject to the limitations set forth in SECTION 3 of SCHEDULE A.
5.10 SUBORDINATION. PathNet shall subordinate its interest in the Leased
Premises to (i) all deeds of trust, deeds to secure debts, mortgages and other
security instruments now or hereafter Encumbering all or any portion of the real
property described on SCHEDULE B (each, a "LEASED PREMISES ENCUMBRANCE") and
(ii) any increases, renewals, modifications, consolidations, replacements and
extensions of any such Leased Premises Encumbrance. In connection with such
subordination of PathNet's interest in the Leased Premises to all Leased
Premises Encumbrances, PathNet shall, as requested by Incumbent, within sixty
(60) days after the Effective Date, execute and deliver a commercially
reasonable subordination, non-disturbance and attornment agreement with all
Persons secured by such Leased Premises Encumbrances. PathNet shall, as
requested by Incumbent, execute and deliver similar subordination,
non-disturbance and attornment agreements with each future Person secured by a
Leased Premises Encumbrance.
5.11 REMOVAL OF EQUIPMENT. PathNet shall, at Incumbent's request, remove
any or all Equipment from Incumbent's Facilities within sixty (60) days after
the Expiration Date. In the event PathNet fails to perform such requested
removal within such sixty (60) day period, as determined by Incumbent in its
sole discretion, Incumbent may restore each site to its condition as of
Commissioning, (reasonable wear and tear and damage from the elements excepted),
and PathNet shall promptly pay Incumbent all costs reasonably incurred by
Incumbent for such removal and restoration.
5.12 REMOVAL OF HAZARDOUS MATERIALS. PathNet shall expeditiously remove
from Incumbent's sites any and all Hazardous Materials, which were brought to
Incumbent's sites by PathNet during the term of this Agreement and shall be
legally responsible for the safe disposal of any hazardous materials.
5.13 SALE OF INITIAL SYSTEM. Within ten (10) days after the expiration of
the Second Extension Period, if any, PathNet shall, upon request by Incumbent,
sell to Incumbent the radios and radio software relating to the Initial System
for a purchase price of one dollar ($1.00).
SECTION 6. PROGRAM MANAGEMENT AND PROJECT MANAGEMENT.
6.1 PROGRAM MANAGER. In connection with the Services and other services
performed by PathNet under this Agreement, PathNet shall provide a Program
Manager whose duties shall include (i) supervising the project through design,
installation and operation, (ii) supervising the Project Manager, (iii)
overseeing the Field Manager and the other PathNet personnel, (iv) coordinating
the business operations of the System including the sale of Excess Capacity as
set forth in SECTION 9 and (v) ensuring the performance of PathNet's rights and
obligations under this Agreement.
6.2 PROJECT MANAGEMENT FOR MODIFICATIONS. In connection with the
modifications of the Facilities set forth in SECTION 2 of SCHEDULE A, PathNet
shall provide a Project Manager, a
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Field Manager, an Applications Engineer and a Project Engineer, each of whom
shall have the duties as set forth in SECTION 6.4 with respect to such
modifications of the Facilities.
6.3 PROJECT MANAGEMENT FOR INSTALLATION. In connection with the
installation of the System set forth in SECTION 4 of SCHEDULE A, PathNet shall
provide a Project Manager, a Field Manager, an Applications Engineer and a
Project Engineer, each of whom shall have the duties as set forth in SECTION 6.4
with respect to such installation of the System.
6.4 PATHNET PROJECT MANAGEMENT PERSONNEL. The Project Managers, Field
Managers, Applications Engineers and Project Engineers shall each have the
duties as set forth below:
(a) PROJECT MANAGER. PathNet shall provide a Project Manager whose
duties shall include ensuring the overall functional integrity of the
delivered System, the preparation, amendment and adherence to a
construction schedule, and compliance with PathNet's other obligations
under SCHEDULE A.
(b) FIELD MANAGER. PathNet shall provide a Field Manager whose
duties shall include the oversight and direction of all on-site activities,
the coordination of all Subcontractors and all required communication with
the Project Manager.
(c) APPLICATIONS ENGINEER. PathNet shall provide an Applications
Engineer, whose duties shall include the review and translation of the
System configuration into specific hardware requirements, precise interface
levels, intra and inter-rack cabling and all other necessary peripheral
equipment, rack profiles and required Interconnection data.
(d) PROJECT ENGINEER. PathNet shall provide a Project Engineer whose
duties shall include the performance of all planning and support activities
and a detailed site survey to gather data for development of the
installation plan and testing plan.
SECTION 7. SERVICES AND SYSTEMS SPECIFICATIONS.
7.1 SERVICES.
7.1.1 SYSTEM DESIGN, MODIFICATION, INSTALLATION, OPERATION AND
PERFORMANCE. PathNet and Incumbent shall perform their respective
functions with respect to the design, modification, installation, operation
and performance of the System as set forth on SCHEDULE A and in this
SECTION 7 (the "SERVICES").
7.1.2 UPGRADE OF SYSTEM. PathNet shall, upon written notice to
Incumbent, in its sole discretion, and at its own expense, and not as a
change order, upgrade the System and Equipment, and the System and
Equipment operation policies and procedures, including, but not limited to,
(i) replacing Equipment, (ii) adding newly available improved Equipment and
(iii) modifying policies, procedures and specifications relating to the
System, to conform such policies, procedures and specifications with new
Technology or industry standards.
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7.1.3 INCUMBENT TRAINING. PathNet shall provide to Incumbent the
training as set forth on SCHEDULE J.
7.1.4 PERFORMANCE OF THE SERVICES. PathNet shall have the right
to engage Subcontractors to perform any of the Services.
7.2 SPECIFICATIONS.
7.2.1 GENERAL. PathNet and Incumbent shall perform the Services
in accordance with any and all technical and operational specifications set
forth in SCHEDULE A (the "SPECIFICATIONS").
7.2.2 CHANNEL PLAN.
(a) ORIGINAL CHANNEL PLAN. On the Effective Date, Incumbent shall
deliver to PathNet a proposed T-1 channelization plan setting forth its
proposed capacity needs at each site listed on SCHEDULE B. Such capacity
shall in no event exceed the capacity granted to Incumbent by PathNet as
rent as set forth in SECTION 5.2 and shall be subject to Drop and Insert
capacity at each Switched Mod Section. PathNet shall incorporate
Incumbent's proposed channelization plan into the Channel Plan subject to
the limitations set forth in this SECTION 7.2.2.
(b) AMENDED CHANNEL PLAN. Incumbent shall have the right to modify,
its allocated capacity (as described in the Channel Plan) along the network
any time after Commissioning, provided that sufficient Drop and Insert
capacity exists between each Switched Mod Section using available Wayside
Channels to effect such modification, by providing written notice to
PathNet to such effect. Within ninety (90) days after receipt of any such
written notice from Incumbent, PathNet shall make such modification to the
configuration of the Channel Plan at no charge to Incumbent. Incumbent
shall not reconfigure the Channel Plan in any manner other than as set
forth in this SECTION 7.2.2. Any amended channel plans shall be attached
as an exhibit to this Agreement.
7.2.3 SPECIFICATIONS, STANDARDS AND INSPECTIONS. In connection
with the Services set forth in SECTION 2 and SECTION 4 of SCHEDULE A,
PathNet shall comply with the following requirements:
(a) REASONABLE EFFORTS. PathNet shall use all commercially
reasonable efforts to ensure that the modification of the System set forth
in SECTION 2 of SCHEDULE A and the installation of the System set forth in
SECTION 4 of SCHEDULE A occur as expeditiously as possible.
(b) INDUSTRY STANDARDS. All Services and materials supplied pursuant
to SCHEDULE A must meet or exceed the following standards: (i) EIA RS-195
(latest edition), (ii) EIA/TIA-222 (latest edition), (iii) American Society
of Testing Materials A 325 and A 572, (iv) the applicable sections of the
National Electric Code, (v) the
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American National Standards Institute, (vi) ACI 318-83, (vii) ACI-305,
(viii) ACI-306, (ix) OSHA 29 CFR 1910 and (x) all other applicable Federal,
state and local regulations of all Governmental Authorities with
jurisdiction; PROVIDED, HOWEVER, in the case of a conflicting requirement
of standards, the more stringent standard shall apply.
(c) SITE INSPECTIONS. During the performance of the Services,
Incumbent shall allow PathNet to perform Facilities inspections at any
hour, on any day subject to the access limitations set forth in SECTION
5.6.
SECTION 8. OWNERSHIP, DEPRECIATION AND ENCUMBRANCE OF SYSTEM.
8.1 OWNERSHIP OF EQUIPMENT AND ASSETS.
8.1.1 EQUIPMENT AND ASSETS OWNED BY INCUMBENT. Incumbent shall
own the equipment and assets relating to the System as set forth in
SCHEDULE K.
8.1.2 EQUIPMENT AND ASSETS OWNED BY PATHNET. PathNet shall own
the equipment and assets relating to the System as set forth in SCHEDULE K.
8.2 DEPRECIATION OF EQUIPMENT.
8.2.1 DEPRECIATION BY INCUMBENT. Incumbent shall have the right
to fully depreciate the equipment and assets currently owned or to be owned
by Incumbent as listed in SCHEDULE K.
8.2.2 DEPRECIATION BY PATHNET. PathNet shall have the right to
fully depreciate the equipment and assets currently owned or to be owned by
PathNet as listed in SCHEDULE K.
8.3 ENCUMBRANCE.
8.3.1 INITIAL SYSTEM. PathNet shall not Encumber the channels of
telecommunications capacity allocated to the Incumbent as rent in
accordance with SECTION 5.2 of this Agreement produced by such Equipment
and, the radios, radio software, antenna, waveguide, multiplexers or any
other Equipment required to operate the Initial System in accordance with
the Specifications.
8.3.2 OTHER EQUIPMENT, MATERIALS, AGREEMENTS AND ASSETS. PathNet
shall have the right to Encumber (i) the Equipment used in any Capacity
Expansion, (ii) PathNet's allocated portion of the Revenue generated from
the sale of Excess Capacity in accordance with SECTION 9, (iii) any
Customer Agreement relating to the System, (iv) this Agreement and any
related documents, instruments and agreements executed and delivered in
connection with this Agreement and any rights and obligations hereunder or
thereunder and (v) its leasehold interest in the leased space.
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8.3.3 VENDOR REMEDIES. Incumbent hereby acknowledges that
pursuant to the Encumbrances granted by PathNet to certain equipment
vendors or service providers in accordance with SECTION 8.3.2, such vendors
or providers shall have the right to assume and perform PathNet's rights
and obligations under this Agreement and the other documents, instruments
and agreements executed in connection hereto; provided that in no event
shall PathNet be relieved of its obligations under this Agreement
8.4 TAXES. The Parties' respective responsibilities for taxes arising
under or in connection with this Agreement shall be as follows: (i) each Party
shall be responsible for any personal or real property taxes on property it owns
or leases, for franchise and privilege taxes on its business and for taxes based
on its net income or gross revenue and (ii) PathNet shall be responsible for any
sales, use, excise, value-added services, consumption and other taxes and duties
payable by Incumbent on any goods and services used or consumed in providing the
services to be performed by PathNet under this Agreement, where the tax is
imposed on Incumbent's acquisition or use of such goods or services and the
amount of the tax is measured by Incumbent's costs in acquiring such goods or
services; PROVIDED, HOWEVER, that PathNet shall not be responsible for any
Federal, state or local income taxes of Incumbent or any franchise taxes of
Incumbent.
8.5 SECURITY INTEREST IN INITIAL SYSTEM. On the Effective Date and in
consideration for the Project Fee, Incumbent shall execute and deliver the
Security Agreement substantially in the form attached hereto as Schedule R,
pursuant to which, among other things, PathNet shall grant Incumbent a security
interest in the radio, radio software, antenna, waveguide, multiplexors and any
other Equipment required to operate the Initial System.
8.6 ESCROW OF MANUFACTURER'S WARRANTIES.
8.6.1 ESCROW OF ASSIGNMENT DOCUMENTS BY PATHNET. On the Effective
Date, PathNet shall complete, execute and place in escrow certain documents
(the "ASSIGNMENT DOCUMENTS") that shall provide Incumbent with the required
tools to unilaterally effect the assignment to Incumbent of all of the then
effective manufacturer's warranties relating to the Equipment on the
Initial System.
8.6.2 REMOVAL OF ASSIGNMENT DOCUMENTS BY INCUMBENT. Pursuant to
the escrow arrangement described in SECTION 8.6.1 above, Incumbent shall
have the right to remove the Assignment Documents from escrow upon the
first to occur of the following events: (i) in the event PathNet becomes
insolvent, is unable to pay its debts as they mature, makes assignment for
the benefit of its creditors and/or in the event any case or proceeding is
commenced by or against PathNet under Title 11 of the Unites States Code,
as amended, or under any other state or federal statute for the relief of
debtors, (ii) the Expiration Date or (iii) PathNet defaulting under its
financing arrangement with its vendor and receipt by Incumbent of written
notice from vendor stating its intention to waive its right to operate the
System for the purpose of generating Revenue from the sale of Excess
Capacity.
8.7 FCC LICENSES. PathNet shall relinquish the right to own and transfer
the FCC licenses required to operate the Initial System in the event of (i) the
liquidation or dissolution of
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PathNet under Chapter 7 of the Federal bankruptcy laws, (ii) the Expiration Date
or (iii) PathNet defaulting under its financing arrangement with its vendor and
receipt by Incumbent of written notice from vendor stating its intention to
waive its right to operate the System for the purpose of generating Revenue from
the sale of Excess Capacity.
SECTION 9. EXCESS CAPACITY MARKETING AND SALES.
9.1 EXCLUSIVE REPRESENTATIVE.
9.1.1 PATHNET EXCESS CAPACITY. PathNet shall have the exclusive
right to market and sell any and all PathNet Excess Capacity.
9.1.2 INCUMBENT EXCESS CAPACITY. At any time and from time to
time, Incumbent shall have the right to request in writing that PathNet
serve as Incumbent's exclusive representative for the marketing and sale of
all or any portion of the capacity allocated to Incumbent in accordance
with the Channel Plan (the "INCUMBENT EXCESS CAPACITY"). Such written
notice shall set forth, (i) that portion of the Incumbent Excess Capacity
to be marketed and sold by PathNet, (ii) the length of time that such
portion of the Incumbent Excess Capacity will be available to be marketed
and sold, and (iii) that Incumbent acknowledges that such Incumbent Excess
Capacity shall not be available for Incumbent's use during the time
specified in such written notice. Upon receipt of such written notice
PathNet shall serve as Incumbent's exclusive representative for the
marketing and sale of such Incumbent Excess Capacity; PROVIDED, HOWEVER,
that PathNet shall have the right, as determined by PathNet in its sole
discretion, to sell the PathNet Excess Capacity on any path or Segment
before selling the Incumbent Excess Capacity on such path or Segment.
9.1.3 MARKETING FEE FOR SALE OF INCUMBENT EXCESS CAPACITY. In the
event PathNet sells any Incumbent Excess Capacity, PathNet shall receive a
marketing fee in the amount of [***] of the Revenue from the
sale of such Incumbent Excess Capacity (Incumbent shall receive the
remaining [***] of such Revenue).
9.1.4 MARKETING AND SALE BY INCUMBENT. Incumbent or any
Affiliates of Incumbent shall not market or sell any Incumbent Excess
Capacity or any capacity purchased by Incumbent pursuant to SECTION 9.3 to
any third party without the prior written consent of PathNet; PROVIDED,
HOWEVER, Incumbent may market and sell all or any portion of the Incumbent
Excess Capacity or any capacity purchased by Incumbent pursuant to SECTION
9.3, to Affiliates of Incumbent for and only for such Affiliates' internal
communications needs and not for resale to third parties. Notwithstanding
anything set forth herein to the contrary, Incumbent shall have the right
to provide, market or sell any Incumbent Excess Capacity to KN Field
Services, Inc. which may provide, market, sell or lease circuits to its
customers for the limited purpose of monitoring data from oil and/or gas
wells.
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9.2 REFERRALS.
9.2.1 REFERRALS OF CUSTOMERS BY INCUMBENT. Incumbent shall refer
any potential third party customer of Excess Capacity to PathNet.
9.2.2 REFERRAL FEES. If Incumbent is successful in locating a new
customer for the PathNet Excess Capacity created at Incumbent's Facilities,
provided that such customer is not an IXC, PathNet shall pay Incumbent a
[***] actually received from
the sale of capacity to such customer during the initial five (5) years of
continuous sales to such customer payable on a quarterly basis, with all
other payments to Incumbent that may be due and payable, as provided by
SECTION 9.11.
9.3 PURCHASE OF AVAILABLE EXCESS CAPACITY BY INCUMBENT. Incumbent shall
have the right to purchase Available Excess Capacity on any path or Segment of
the System (each such path or Segment being referred to herein as an "INCUMBENT
DESIRED PATH"), at a price equal to either (i) the lowest price paid to PathNet
for like capacity and for a similar term by any purchaser during the one hundred
eighty (180) days immediately preceding the purchase by Incumbent of capacity on
such Incumbent Desired Path or (ii) if no PathNet Excess Capacity has been
purchased on such Incumbent Desired Path during such one hundred eighty (180)
day period, the last price paid for such Incumbent Desired Path; PROVIDED,
HOWEVER, Incumbent shall in no event under clause (i) or clause (ii) above
purchase more than twenty percent (20%) of the Available Excess Capacity on any
Segment or path within the System at any given time.
9.4 COMMERCIALLY REASONABLE EFFORTS. PathNet shall use all commercially
reasonable efforts to obtain the best available price and terms in the marketing
and sale of any Excess Capacity. PathNet shall not, now or in the future,
guarantee any Revenue disbursements nor does PathNet warrant as to its ability
to sell the Excess Capacity.
9.5 SELLING PRICES FOR EXCESS CAPACITY. Notwithstanding anything set
forth herein to the contrary, PathNet shall have the right to (i) sell Excess
Capacity at prices determined by PathNet to be appropriate on specific routes,
which prices may be below or above current competitive market pricing, (ii)
package the Excess Capacity in sales increments of DS-1's, DS-3's or OC-3's, or
any other increments and (iii) aggregate the paths sold in various combinations,
each as determined by PathNet in its sole discretion.
9.6 BARTER ARRANGEMENTS. Incumbent shall be permitted to barter Incumbent
Excess Capacity for telecommunications capacity of other incumbents engaged by
PathNet; PROVIDED, HOWEVER, PathNet shall have the right to approve any barter
arrangement relating to Incumbent Excess Capacity, which approval shall not be
unreasonably withheld. Neither PathNet nor Incumbent shall derive any fee from
facilitating any such barter arrangements.
9.7 ASSUMED NAME; TRADENAMES AND TRADEMARKS. PathNet shall have the right
to market Excess Capacity under its name or any other assumed name, tradename or
trademark which PathNet is authorized to use for such purpose; PROVIDED,
HOWEVER, PathNet shall not use
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any trademark or tradename of Incumbent or any Affiliate of Incumbent in written
material for purposes of marketing any Excess Capacity without the prior written
consent of Incumbent.
9.8 CUSTOMER AGREEMENTS.
9.8.1 AUTHORIZATION. PathNet shall negotiate, execute and deliver
all agreements and arrangements ("CUSTOMER AGREEMENTS") for customers of
Excess Capacity, which Customer Agreements shall contain, terms and
conditions determined by PathNet in its sole discretion.
9.8.2 APPROVAL AND CONSENT BY INCUMBENT. If the terms of any
Customer Agreement require the written approval or consent of Incumbent as
a condition to the execution, delivery or performance, Incumbent shall
promptly provide such written approval or consent.
9.8.3 MODIFICATIONS TO SYSTEM. In the event that any Customer
Agreement requires that the System be modified in any way, PathNet shall
ensure that any such modifications (i) shall not compromise the integrity
and performance of the System in accordance with the Specifications and
(ii) shall be made at no additional cost to Incumbent.
9.9 MAINTENANCE OF BOOKS AND RECORDS AND AUDIT PROCEDURES.
9.9.1 BOOKS AND RECORDS. PathNet shall maintain and keep detailed
and accurate books and records with regard to sales of Excess Capacity and
the Revenue from such sales.
9.9.2 INCUMBENT REVIEW AND AUDIT PROCEDURES. No more than once
during any consecutive twelve (12) month period, Incumbent shall be
entitled to review and audit PathNet's books and records relating to the
sale of Excess Capacity during business hours upon ten (10) days written
notice to PathNet. Incumbent shall not have the right pursuant to this
SECTION 9.9.2, to review or audit PathNet's corporate income statements,
balance sheets or other forms of general corporate reporting. Incumbent
shall not disclose, at any time before or after the Expiration Date, any
information related to PathNet or PathNet's business obtained by Incumbent
pursuant to a review or audit performed under this SECTION 9.9.2 unless
such information has previously come into the public domain (other than
through unauthorized disclosure) or except as required by law.
9.9.3 EXPENSES OF INCUMBENT REVIEWS AND AUDITS. Incumbent shall
pay the cost of any such review or audit performed pursuant to SECTION
9.9.2.
9.9.4. APPROVAL OF AUTHORIZED REPRESENTATIVE. In the event that
Incumbent hires an authorized representative of Incumbent to perform any
such review or audit pursuant to SECTION 9.9.2, PathNet shall have the
right to approve such authorized
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representative before any access is granted to such authorized
representative to PathNet's books and records, which approval shall not be
unreasonably withheld.
9.10 QUARTERLY REVENUE REPORTS. PathNet shall issue to Incumbent quarterly
revenue reports substantially in the form of SCHEDULE L (each a "QUARTERLY
REVENUE REPORT") within thirty (30) days after the end of each calendar quarter.
Each such Quarterly Revenue Report shall be an unaudited statement produced by
PathNet.
9.11 COLLECTION AND PAYMENT OF REVENUE.
9.11.1 COSTS OF COLLECTION. PathNet shall deduct any documented
costs reasonably incurred by PathNet in connection with the collection of
any and all revenue generated from the sale of Excess Capacity, including,
but not limited to, the cost of any legal actions, collection fees, court
proceedings, audits, or other enforcement actions. PathNet shall deduct
such costs from gross revenue collected prior to the disbursement of such
revenue to PathNet and Incumbent pursuant to SECTION 5.2 and SECTION 9 and
provide Incumbent with documentation evidencing any such deductions.
9.11.2 MAINTENANCE MONTHLY SERVICE CHARGES. The amount of any
Maintenance Monthly Service Charges (as such term is defined in the
Maintenance Services Agreement) paid by PathNet to Incumbent pursuant to
the Maintenance Services Agreement, shall be deducted from gross revenue
collected prior to disbursement of such revenue to PathNet and Incumbent
pursuant to SECTION 5.2 and SECTION 9.
9.11.3 TAXES ON GROSS REVENUES. The amount of any taxes on gross
revenue paid by PathNet on behalf of Incumbent shall be deducted from any
revenue to be disbursed to Incumbent prior to disbursement of such revenue
as set forth in this SECTION 9.11.
9.11.4 DEFINITION OF REVENUE. For purposes of this Agreement,
"REVENUE" shall mean the gross revenue generated from the sale of Excess
Capacity actually collected less any deductions set forth in SECTION
9.11.1, SECTION 9.11.2 and SECTION 9.11.3.
9.11.5 PAYMENTS TO INCUMBENT. PathNet shall pay Incumbent its
allocated portion of Revenue actually received from the sale of Excess
Capacity within thirty (30) days after the end of each calendar quarter in
accordance with the payment instructions set forth in SCHEDULE M.
9.11.6 INTEREST EARNED ON UNDISTRIBUTED REVENUE. PathNet shall
retain any and all interest earned by PathNet on any Revenue collected but
not yet distributed to Incumbent in accordance with SECTION 5.2 and SECTION
9.
9.11.7 INCUMBENT'S ASSIGNEES OF REVENUES. Incumbent shall have the
right to designate other entities to receive its disbursements by written
notice to PathNet to such effect; PROVIDED, HOWEVER, any such designation
by Incumbent shall not relieve Incumbent of any tax liability resulting
from its receipt of such disbursements pursuant to SECTION 5.2 and SECTION
9.
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SECTION 10. FCC LICENSES AND OTHER REGULATORY APPROVALS AND LICENSES.
10.1 FCC RULES AND REGULATIONS.
10.1.1 MICROWAVE RADIO STATION LICENSES.
(a) PREPARATION AND FILING OF FORMS 415. PathNet shall prepare and
timely file all required Form 415, Applications for Authorization in the
Microwave Services (each a "FORM 415"), or any successor forms, documents
or instruments to such Form 415 as the FCC may prescribe, including but not
limited to, the preparation or ordering of all frequency coordinations
required pursuant to Schedule B and Schedule C of Form 415, in order to
own, operate and sell the Excess Capacity of the System in accordance with
the terms and conditions of this Agreement.
(b) IDENTITY OF LICENSEE. All Microwave Radio Station Licenses
issued by the FCC relating to the System shall be licensed in the name of
PathNet or a wholly-owned subsidiary of PathNet. Incumbent shall be
permitted to continue to own and be licensed as a private microwave
operator at the stations licensed to PathNet relating to the System,
provided that (i) such private licenses are for different frequency pairs
than those assigned to the System (including, but not limited to, any
Capacity Expansion of the System) and (ii) such private licenses are
permitted under the FCC Code.
(c) MAINTENANCE OF LICENSE. PathNet shall maintain in good standing
each Microwave Radio Station License relating to the System, including, but
not limited to, preparing and filing any required amendments to the Forms
415 relating to the System and submitting and filing any supplementary
information as required by the FCC.
10.1.2 COMMON CARRIER REPORTING OBLIGATIONS. PathNet shall prepare
and file all forms, reports, instruments, documents and agreements required
by the FCC and FCC Code relating to PathNet's status as a "common carrier"
under the FCC Code.
10.1.3 TARIFF FILINGS. PathNet shall prepare and timely file all
tariff applications pursuant to 47 CFR 61, as amended, or any successor
statute, rule or regulation and shall request and file all necessary
waivers of such tariff requirements, as determined by PathNet in its sole
discretion.
10.1.4 FREQUENCY COORDINATION NOTICES. During the term of this
Agreement, PathNet shall prepare and send all required frequency
coordination notices required under 47 CFR 101.103, as amended, or any
successor statute, rule or regulation and shall respond as appropriate to
all PCNs received by PathNet or Incumbent relating to the System.
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10.1.5 DELIVERY OF COPIES. Upon Incumbent's request, PathNet shall
provide to Incumbent a copy of all filings and submissions with the FCC,
relating to the System within thirty (30) days of such request by
Incumbent.
10.1.6 ASSISTANCE IN PREPARATION OF LICENSE APPLICATIONS. Upon
request by PathNet and in a timely manner, Incumbent shall provide to
PathNet all information necessary for the completion of all required
filings and submissions with the FCC including, but not limited to
Incumbent's authorized signature on any filings or other submissions to the
FCC or any documents, instruments or agreements completed in connection
with such filings and submissions.
10.1.7 FUTURE CHANGES IN FCC REQUIREMENTS. If FCC requirements
relating to the Form 415, common carriers, frequency coordination or any
other matters relating to the System change or are modified, PathNet shall
be responsible for compliance with such new requirements including, but not
limited to, the payment of any costs or fees associated therewith and
Incumbent shall cooperate with PathNet with respect to such compliance;
PROVIDED, HOWEVER, if the FCC establishes user fees or other such fees
relating to the frequencies used in and the communications business
conducted over the System, the cost of such additional fees shall be
divided between PathNet and Incumbent, as determined by PathNet and
Incumbent at such time.
10.1.8 SPECTRAL LOADING REQUIREMENTS. PathNet shall (i) ensure
that the System, as licensed, shall comply with all spectral loading
requirements set forth in 47 CFR 101.141, or any successor statute, rule or
regulation or (ii) obtain a waiver of any or all of such requirements;
PROVIDED, HOWEVER, if the System does not meet such spectral loading
requirements and PathNet is unable to obtain a waiver of such requirements,
PathNet shall have the right to modify the System to a hot-standby
Protection Configuration until such time as the spectral loading
requirements can be met.
10.1.9 DEFAULT IN FCC LICENSE. In the event that the FCC
institutes a penalty against or fine imposed on PathNet, Incumbent, or the
System, due to non-compliance with any FCC requirements, PathNet shall
promptly pay such penalty or fine (in the case such penalty or fine is
instituted as the result of an act or omission on the part of PathNet) or
Incumbent shall promptly pay such penalty or fine (in the event such
penalty or fine is instituted as the result of an act or omission on the
part of Incumbent).
10.2 ZONING REQUIREMENTS. Incumbent shall be responsible for compliance
with all zoning requirements applicable to the System and its Facilities,
including, but not limited to, the Leased Premises. Incumbent shall advise
PathNet of zoning requirements, which, in the reasonable opinion of Incumbent,
differ from those generally applicable to microwave facilities. PathNet shall
provide to Incumbent all required information and shall cooperate with Incumbent
in connection with Incumbent's compliance with all zoning requirements pursuant
to this SECTION 10.2.
10.3 BUREAU OF LAND MANAGEMENT REQUIREMENTS. Incumbent shall be
responsible for compliance with all United States Department of Interior Bureau
of Land Management
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requirements applicable to the System and its Facilities, including, but not
limited to, the Leased Premises. PathNet shall provide Incumbent with all
requested information and shall cooperate with Incumbent in connection with
Incumbent's compliance with such United States Department of Interior Bureau of
Land Management requirements pursuant to this SECTION 10.3.
10.4 TOWER REGISTRATION. Incumbent shall ensure compliance with all FAA
and FCC tower registration requirements including, but not limited to, the
preparation of any filings with or the obtaining of any waivers or extensions
from the FAA or FCC. Incumbent shall promptly notify PathNet of any deficiency
on non-compliance with any such tower registration requirements, filings,
waivers or extensions.
SECTION 11. INSURANCE.
11.1 DELIVERY OF CERTIFICATES OF INSURANCE. Upon Incumbent's request and
prior to the commencement of any Services by PathNet, PathNet shall deliver to
Incumbent Certificates of Insurance relating to PathNet's Commercial General
Liability Insurance Policy, Workers Compensation Insurance Policy, Automobile
Liability Insurance and Excess Liability Insurance Policy. Incumbent shall be
named as an additional insured on all policies required under this contract.
All policies shall include a waiver of subrogation against Incumbent, its
Affiliates and its insurance carriers. Until Commissioning, PathNet Insurer's
shall provide Incumbent with thirty (30) days prior written notice of
cancellation or of any material change in PathNet's insurance during the term of
this Agreement. Any deductibles or SIR's on the policies of insurance required
under this Agreement are the sole responsibility of PathNet, and not Incumbent
its Affiliates, shareholders or employees.
11.2 PATHNET INSURANCE COVERAGE. During the term of this Agreement,
PathNet shall maintain the types of insurance at the coverage limits set forth
below:
(a) WORKER'S COMPENSATION INSURANCE. Workers Compensation Insurance
as required by laws and regulations applicable to and covering Persons
performing the Services in an amount of $500,000 for employer's liability
coverage;
(b) COMMERCIAL GENERAL LIABILITY INSURANCE. Commercial General
Liability Insurance with a limit of not less than $1,000,000 per occurrence
and $2,000,000 in the aggregate including products, completed operations,
and contractual liability;
(c) AUTOMOBILE LIABILITY INSURANCE. Automobile Liability Insurance,
which includes coverage for non-owned and hired vehicles with a limit of
not less than $1,000,000; and
(d) EXCESS LIABILITY INSURANCE. Excess Liability Insurance with a
limit of not less than $4,000,000.
11.3 INCUMBENT INSURANCE COVERAGE. Incumbent shall maintain insurance
coverage on properties and operations of Incumbent which coverage shall include
general liability and
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other forms of insurance covering such risks as are usually insured against by
prudent companies engaged in the business and activities in which the Incumbent
is engaged, in amounts which are adequate in relation to the business and
properties of Incumbent, and all premiums to date have been paid in full.
11.4 PROOF OF LICENSED SUBCONTRACTORS. Upon reasonable request of
Incumbent, PathNet shall provide to Incumbent proof of licensing and
certification of insurance for any Subcontractors engaged by PathNet to provide
Services, during the term of such engagement. Incumbent shall be added as an
additional insured on the policies of the Subcontractors.
SECTION 12. SOFTWARE AND PROPRIETARY RIGHTS.
12.1 PATHNET SOFTWARE. PathNet retains all right, title and interest in
and to PathNet Software. As of the Effective Date and pursuant to the PathNet
Sublicense Agreement attached hereto as SCHEDULE N, Incumbent is granted a
royalty free, non-transferable nonexclusive sublicense to use PathNet Software
subject to the terms of any PathNet licenses obtained from third party providers
for the sole purpose of receiving services pursuant to this Agreement. In the
event PathNet develops any PathNet Software, PathNet shall amend to this
Agreement a license agreement for such PathNet Software. PathNet Software will
be made available to Incumbent in such form and on such media as exists on the
Effective Date, together with existing documentation and any other related
materials. Incumbent shall not be permitted to use PathNet Software for the
benefit of any entities other than PathNet or Incumbent affiliates without the
prior written consent which may be withheld at PathNet's sole discretion.
Except as otherwise requested or approved by PathNet, Incumbent shall cease all
use of PathNet Software upon expiration of this Agreement.
12.2 PROPRIETARY RIGHTS. Incumbent acknowledges and agrees that all or
portions of the information and materials, including but not limited to the
PathNet Software and related documentation to be supplied by PathNet hereunder
are owned by PathNet and/or others and are proprietary in nature. Incumbent
also acknowledges and agrees that PathNet and/or its suppliers have and will
retain all proprietary rights in such information and materials. Incumbent (i)
shall respect such claim of proprietary right, (ii) shall protect such
information at least to the extent that it protects its own proprietary
information, (iii) shall not use such information except for the purposes for
which its is being made available as set forth in this Agreement and (iv) shall
not reproduce, print, disclose, or otherwise make said information available to
any third party, in whole or in part, in whatever form.
SECTION 13. REPRESENTATIONS AND WARRANTIES.
13.1 REPRESENTATIONS AND WARRANTIES OF EACH PARTY. Each Party hereby
represents and warrants the other Party as follows:
13.1.1 DUE INCORPORATION AND FORMATION; AUTHORIZATION OF
AGREEMENTS; BINDING EFFECT. Such Party is a corporation or partnership, as
the case may be, duly
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formed or organized, and validly existing under the laws of its state of
incorporation or organization, and has the corporate or partnership
authority to own its property and carry on its business as owned and
carried on as of the Effective Date. Such Party is duly licensed or
qualified to do business and is in good standing (if applicable) in each
jurisdiction in which the failure to be so licensed or qualified would have
a Material Adverse Effect on such Party. Such Party has the corporate or
partnership authority to execute and deliver this Agreement, to perform its
obligations hereunder, and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by
such Party and this Agreement constitutes a legal, valid and binding
obligation of such Party enforceable in accordance with its terms, subject
as to enforceability to limits imposed by bankruptcy, insolvency or similar
laws affecting creditors rights generally and the availability of equitable
remedies. Attached hereto as SCHEDULE O are the (i) Articles and Bylaws of
PathNet and (ii) a copy of a certificate of good standing of PathNet.
13.1.2 NO CONFLICT; NO DEFAULT. Neither the execution or delivery
of this Agreement by such Party, nor (except as would not have a Material
Adverse Effect on such Party), the performance of this Agreement by such
Party or the consummation by such Party of the transactions contemplated
hereby in accordance with the terms and conditions hereof: (i) will
conflict with, violate, result in a breach of or constitute a default under
any of the terms, conditions or provisions of the certificate or articles
of incorporation or bylaws (or other governing documents) of such Party or
any material agreement or instrument to which such Party is a party or by
which such Party may be bound, (ii) will conflict with, violate or result
in a breach of, constitute a default under (whether with notice or lapse of
time or both), accelerate or permit the acceleration of the performance
required by, give to others any interests or rights or require any consent,
authorization or approval under any contract to which such Party is a party
or by which such Party is or may be bound or to which any equity interest
held by such Party or any of its material properties or assets is subject
or (iii) will result in the creation or imposition of any Encumbrance upon
any equity interest held by such Party or any of the other material
properties or assets of such Party.
13.1.3 NO CONSENT. No consent, approval, order or authorization
of, or registration, declaration or filing with any Governmental Authority,
domestic or foreign, is required to be obtained by such Party in connection
with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
13.1.4 COMPLIANCE WITH LAWS AND REGULATIONS. That the performance
of such Party's obligations under this Agreement will not result in a
violation in any respect of (i) any applicable Federal, state, local or
foreign laws, ordinances, regulations, rulings and orders of government
agencies applicable to its business in any respect the violation of which
could have a Material Adverse Effect (including Requirements of Law
relating to pollution, protection of the environment, emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic, hazardous or regulated substances or
wastes into the environment or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage disposal, transport or
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handling of pollutants or other such hazardous or regulated substances or
wastes) or (ii) any applicable order, Judgment, injunction, award or decree
in any respect which could have a Material Adverse Effect on such Party.
13.1.5 PERMITS. Such Party has or will obtain all authorizations,
approvals, consents, licenses, Permits and certificates (including, but not
limited to all required approvals from the FCC) necessary to conduct their
respective businesses and to own, lease and operate its properties as
currently or anticipated to be conducted, owned, leased or operated, as the
case may be, for which the failure to possess would result in a Material
Adverse Effect. No violations are outstanding or uncured with respect to
any such Permits and no proceeding is pending to revoke or limit any
Permit.
13.1.6 TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.
Such Party has, and will continue to have for the term of this Agreement as
set forth in SECTION 3, good and marketable title to all the properties,
interests in properties and assets, real, personal or mixed, necessary for
the conduct of such Party's business and for the transactions contemplated
by this Agreement (including, but not limited to, any rights of way,
leasehold interests, easements, proofs of dedication and rights necessary
to perform the obligations hereunder) free and clear of all Encumbrances of
any kind or character, except (i) liens for current taxes not yet due and
payable, (ii) Encumbrances securing taxes, assessments, governmental
charges or levies or the Encumbrances of materialmen, carriers, landlords
and like persons, all of which are not yet due and payable and (iii) minor
Encumbrances of a character that do not substantially impair the assets or
properties of such Party or which will not have a Material Adverse Effect
on such Party.
13.1.7 LABOR MATTERS. Such Party has complied in all material
respects with all applicable Federal, state and local laws and ordinances
relating to the employment of labor, including the provisions thereof
relating to wages, hours, employee benefit plans and the payment of social
security taxes, and is not liable for any arrears of wages or any tax
related thereto (except for currently accrued and unpaid wages and except
for currently accrued withholding, payroll, unemployment and social
security taxes payment of which is not overdue) or penalties for failure to
comply with any of the foregoing, and neither has received a notice to the
contrary from any Governmental Authority. Such Party has not suffered any
strike, slowdown, picketing or work stoppage by any union or other group or
employees affecting the business of such Party, and no such event or action
is threatened.
13.1.8 NO DISCRIMINATION. Such Party warrants that it is an equal
opportunity employer and will not discriminate against any employee or
applicant for employment because of race, color, religion, sex, national
origin, handicap or status as Vietnam Era Veteran. Each Party shall comply
with Executive Orders 11,246 and 11,625, the Vietnam Era Veterans
Readjustment Assistance Act of 1974, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, and all amendments, orders, rules
and regulations issued thereunder or in connection therewith. Such Party
certifies that is does not and will not maintain or provide for its
employees any facilities which are segregated by race, color, religion or
national origin or permit its employees to perform any services
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at any location, under its control, where segregated facilities are
maintained; and such Party will obtain a similar certification for all
non-exempt subcontracts in accordance with the provisions of 41 C.F.R.
Section60-1.8.
13.1.9 DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT,
NEITHER PATHNET NOR INCUMBENT MAKES ANY OTHER EXPRESS WARRANTY AND THERE
ARE NO IMPLIED WARRANTIES WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES,
RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT. PATHNET AND INCUMBENT
HEREBY DISCLAIM THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
13.2 REPRESENTATIONS AND WARRANTIES OF PATHNET.
13.2.1 SERVICES. PathNet warrants (i) that the Services will be
performed in a safe, good and workmanlike manner; (ii) that all components,
supplies and materials incorporated in or consumed in the rendering of
PathNet Services shall be new (except those components, supplies and
materials designated to be upgraded or enhanced pursuant to the
modifications SOW) and shall conform in all material respects to the
requirements of this Agreement, provided that PathNet shall pursue all
applicable rights and remedies granted from third party vendor warranties;
(iii) that PathNet shall promptly correct without additional compensation
any portion of the PathNet Services that proves to be improper or defective
in workmanship or not in conformance with the standards and specifications
set forth in this Agreement; (iv) that it owns or has the legal right to
use all of the PathNet Software for all purposes intended hereunder; (v)
that on Effective Date, PathNet has no litigation or contingent liabilities
which could impact this Agreement; (vi) that all Equipment is in good
working order and condition; (vii) all Services shall be free from faults
or defects and improper workmanship; (viii) that any and all change orders
requested or issued under SECTION 4.6 shall reflect additional work to be
done by PathNet rather than corrections to the work already contemplated
hereunder; and (ix) that the System shall be fully operational without
Space Diversity within eighteen (18) months of the grant of any permit or
approval, listed in Exhibit A-10 and required for PathNet to install and
complete the System.
13.3 REPRESENTATIONS AND WARRANTIES OF INCUMBENT.
13.3.1 UNION AND LABOR RELATIONS. Incumbent represents and
warrants that with respect to any services performed pursuant to this
Agreement, Incumbent has complied with any applicable labor or
union-related agreements, regulations and ordinances.
SECTION 14. DELIVERIES.
14.1 DELIVERIES BY INCUMBENT. Incumbent shall provide to PathNet the items
as set forth in SCHEDULE P.
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14.2 DELIVERIES BY PATHNET. PathNet shall provide to Incumbent the items
as set forth in Schedule Q.
SECTION 15. INDEMNIFICATION.
15.1 INDEMNIFICATION BY PATHNET. To the maximum extent permitted by law,
PathNet shall release, protect, defend and hold harmless Incumbent and its
Affiliates and its and their respective officers, directors, employees and
agents from and against any and all Losses arising from (i) personal injury,
disease, death, property damage, pollution and environmental damage (including
clean-up and all fines and penalties of any nature) to the extent directly or
indirectly caused by or related to the negligence (whether simple or gross;
active or passive), strict or absolute liability or fault of PathNet, its
Affiliates or its or their officers, directors, employees, agents or
contractors; (ii) the breach of any representation or warranty set forth in this
Agreement by PathNet; and (iii) any claims of any violation of the antitrust
laws of the United States or of any state in which the System operates, based
upon terms of this Agreement.
15.2 INDEMNIFICATION BY INCUMBENT. To the maximum extent permitted by law,
Incumbent shall release, protect, defend and hold harmless PathNet and its
Affiliates and its and their respective officers, directors, employees and
agents from and against any and all Losses arising from (i) personal injury,
disease, death, property damage, pollution and environmental damage (including
clean-up and all fines and penalties of any nature) to the extent directly or
indirectly caused by or related to the negligence (whether simple or gross;
active or passive), strict or absolute liability or fault of Incumbent, its
Affiliates or its or their officers, directors, employees, agents or contractors
and (ii) the breach of any representation or warranty set forth in this
Agreement by Incumbent.
15.3 INTELLECTUAL PROPERTY INDEMNIFICATION - PATHNET. PathNet hereby
agrees to protect, defend, indemnify and hold harmless Incumbent, its
Affiliates, and its and their respective officers, directors, employees and
agents from and against all Losses relating to (i) an alleged infringement of
any third-party patent rights, patent or application for patent or any invention
covered hereby or any proprietary rights of any kind; and (ii) any alleged
infringement of copyright or trademark arising from PathNet's Services
hereunder. In the event that PathNet's Services or the use or sale of any
articles, materials or equipment to be furnished hereunder by PathNet are
enjoined, PathNet at its sole expense shall at Incumbent's election either
procure for Incumbent the right to continue to use or sell same or replace same
with non-infringing materials and/or services of a grade and quality to meet all
specifications for their required use.
15.4 INTELLECTUAL PROPERTY INDEMNIFICATION - INCUMBENT. Incumbent hereby
agrees to protect, defend, indemnify and hold harmless PathNet, its Affiliates,
and its and their respective officers, directors, employees and agents from and
against all Losses relating to (i) an alleged infringement of any third-party
patent rights, patent or application for patent or any invention covered hereby
or any proprietary rights of any kind; and (ii) any alleged infringement of
copyright or trademark arising from Incumbent's Services hereunder. In the
event that Incumbent's Services or the use or sale of any articles, materials or
equipment to be furnished hereunder by Incumbent are enjoined, Incumbent at its
sole expense shall at PathNet's election either procure for PathNet the right to
continue to use or sell same or replace same with non-
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infringing materials and/or services of a grade and quality to meet all
specifications for their required use.
SECTION 16. LIABILITY OF THE PARTIES TO EACH OTHER.
16.1 LIABILITY GENERALLY. Subject to the specific provisions of this
SECTION 16, it is the intent of the Parties that each Party shall be liable to
the other Party for damages incurred as a result of the breach of this Agreement
by the other Party and failure to cure such breach as set forth in SECTION
17.1.2.
16.2 LIABILITY RESTRICTIONS.
(a) SUBJECT TO SUBSECTION (b) BELOW, IN NO EVENT, WHETHER IN CONTRACT
OR IN TORT (INCLUDING BREACH OF WARRANTY, NEGLIGENCE AND STRICT LIABILITY
IN TORT), SHALL A PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT OR
CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN ADVANCE.
(b) The limitations set forth in subsection shall not apply to the
indemnification obligations set forth in SECTION 15.3 and SECTION 15.4.
(c) Each Party shall have a duty to mitigate damages for which the
other Party is responsible.
(d) Each Party shall be liable to the other Party for any actual
damages as set forth in SECTION 16.1 only if, and to the extent that the
aggregate of all losses arising from or in connection with any such failure
to perform obligations in the manner required by this Agreement exceeds ten
thousand dollars ($10,000.00), except for claims of payment from
Subcontractors or vendors
16.3 FORCE MAJEURE. Neither party shall be liable to the other for any
delays or damages or failure to act, except for the obligation to make payment
when due, owing to, occasioned by or caused by reason of strikes, lockouts,
fire, flood, the elements, Acts of God, wars, blockades, insurrections, riots,
landslides, earthquakes, lightning, storms and civil disturbances beyond the
control of the Party affected thereby, and delays due to any of the above causes
shall not be deemed to be a breach or failure to perform under this Agreement (
collectively a "Force Majeure Event"); provided, however, that the Party delayed
by such event shall provide notice thereof to the other Party as soon as
reasonably possible specifying all facts relating thereto, the anticipated
consequences thereof, and any proposed actions to be taken in mitigation of
adverse consequences. Neither Party shall, however, be relieved of liability
for failure of performance due to a claimed Force Majeure Event hereunder if
such failure is due to causes arising out of its own negligence or to removable
causes that it fails to remove or remedy with reasonable dispatch.
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SECTION 17. INFORMAL DISPUTE RESOLUTION; ARBITRATION.
17.1 INFORMAL DISPUTE RESOLUTION.
17.1.1 ROLE OF PROGRAM MANAGER. In the event Incumbent has a
dispute, controversy or other complaint relating to PathNet's performance
of PathNet's rights and obligations under this Agreement, Incumbent shall
have the right to first contact the Program Manager to resolve such
dispute, controversy or other complaint. If Incumbent is not satisfied
with the resolution provided by the Program Manager, Incumbent may resort
to the arbitration procedures set forth in this SECTION 17.
17.1.2 NOTICE OF BREACH, CURE AND REMEDIES. In the event of a
material breach by either PathNet or Incumbent (the "BREACHING PARTY"), the
other Party (the "NON-BREACHING PARTY") shall send by certified mail a
written notice of such material breach to the Breaching Party setting forth
the specific allegations of such breach. Upon receipt of the notice of
breach, the Breaching Party shall have thirty (30) days to cure such
breach. In the event the Breaching Party fails to cure such breach, as
determined by the Non-Breaching Party in its sole discretion, and the
Breaching Party determines, in its sole discretion, that it has cured such
breach, either the Breaching Party or the Non-Breaching Party may invoke
the arbitration procedures set forth in SECTION 17.2 to resolve whether
such breach has been cured.
17.2 ARBITRATION.
17.2.1 ARBITRATION; RESOLUTION OF DISPUTES. Subject to SECTION
17.1, any and all disputes and controversies between Incumbent and PathNet
concerning this Agreement (each a "DISPUTE") shall be subject to
resolution as set forth in this SECTION 17.
17.2.2 REFERRAL TO BINDING ARBITRATION. Each Party shall have the
right, but not the obligation, to refer any Dispute for final resolution by
binding arbitration in accordance with the American Arbitration Association
(the "Association") Rules for Arbitration of business disputes (the
"ARBITRATION RULES").
17.2.3 BINDING EFFECT. The Parties acknowledge and agree that (i)
the award in any arbitration shall be final, conclusive and binding on the
Parties and (ii) any such arbitration award be a final resolution of the
Dispute between the Parties to the same extent as a final judgment of a
court of competent jurisdiction.
17.2.4 USE OF COURTS AND OTHER LEGAL REMEDIES. Each Party
covenants and agrees that it shall not resort to any court for legal
remedies concerning any Dispute other than to enforce a final decision by
the arbitrators or for preliminary, interim or provisional equitable relief
in aid of arbitration.
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17.2.5 ARBITRATION PROCESS.
(a) SITE AND ARBITRATION TRIBUNAL. Absent agreement to the contrary
by the Parties, the arbitration will be conducted in New York, New York, by
a panel of three (3) arbitrators with expertise in the fields of
telecommunications engineering and construction.
(b) LIMITATION ON AWARDS. Arbitrators may not award (i) the right to
terminate this Agreement or any of the rights and obligations hereunder, or
(ii) any other right or remedy that contravenes the terms and conditions of
this Agreement.
(c) PERIOD OF LIMITATIONS. In the event the Party claiming a Dispute
under SECTION 17.1.2 does not institute binding arbitration within four (4)
years after notice of breach, such Party shall forever be barred from
bringing a claim on the specific subject matter of such Dispute.
(d) ATTORNEYS' FEES. The arbitrator shall award the reasonable cost,
including attorneys' fees, to the prevailing Party.
SECTION 18. MISCELLANEOUS.
18.1 NOTICES. All notices pertaining to disputes arising from this
Agreement shall be directed to a corporate entity or employee designated by the
signatories as having full rights and responsibilities to address such issues.
Notices under this Agreement shall be sufficient only if personally delivered by
a commercial prepaid delivery or courier service or mailed by certified or
registered mail, return receipt requested to a Party at its address set forth
below or as amended by notice pursuant to this SECTION 18.1. If not received
sooner, notice by mail shall be deemed received five (5) Business Days after
deposit in the U.S. mail. All notices shall be delivered as follows:
If to PathNet:
Michael A. Lubin, Esquire
Vice President and General Counsel
PathNet, Inc.
1015-31st, N.W.
Washington, D.C. 20007
Tel: (202) 625-7284
Fax: (202) 625-7369
If to Incumbent:
Mr. Tom Bruscino
Director, Telecommunications
KN Energy
370 Van Gordon Street
Lakewood, CO 80228-8304
Tel: (303) 763-3299
Fax: (303) 763-3510
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18.2 BINDING NATURE; ENTIRE AGREEMENT. PathNet and Incumbent acknowledge
that (i) each has read and understands the terms and conditions of this
Agreement and agrees to be bound by such terms and conditions, (ii) this
Agreement shall be binding on each of PathNet and Incumbent and their respective
successors and assigns, (iii) this Agreement is the complete and conclusive
statement of the agreement between the Parties, (iv) this Agreement supercedes
any and all prior agreements and arrangements between the Parties and all
understandings and agreements, oral and written, heretofore made between
Incumbent and PathNet are merged in this Agreement which alone, fully and
completely expresses their agreement on the subject matter of this Agreement and
(v) this Agreement sets forth the entire agreement on the subject matter hereof.
18.3 AMENDMENT. No modifications of, additions to or waiver of this
Agreement shall be binding upon Incumbent or PathNet unless such modification,
addition or waiver is in writing and signed by an authorized representative of
each Party.
18.4 SEVERABILITY. If any term or provision of this Agreement shall to any
extent be held by a court or other tribunal to be invalid, void or
unenforceable, then such term or provision shall be inoperative and void insofar
as it is in conflict with the law, but the remaining terms and provisions of
this Agreement shall nevertheless continue in full force and effect and the
rights and obligations of the Parties shall be deemed to be restated to reflect
as nearly as possible the original intentions of the Parties in accordance with
applicable law.
18.5 GOVERNING LAW. This Agreement, and the rights and obligations of the
Parties hereunder, shall be governed and interpreted in accordance with the laws
of the State of New York (other than the choice of law rules thereof).
18.6 SURVIVAL. Any provision of this Agreement which completes performance
or observance subsequent to any termination or expiration of this Agreement
shall survive such termination of expiration and continue in full force and
effect.
18.7 ASSIGNMENT. At any time and from time to time, PathNet shall have the
right to assign this Agreement or any of PathNet's rights and obligations under
this Agreement; provided, that in no event shall any such assignment relieve
PathNet of its obligations under this Agreement. Incumbent may not or shall not
have the right to assign this Agreement or any of its rights and obligations
hereunder without the prior written consent of PathNet, which consent shall not
be unreasonably withheld; PROVIDED, HOWEVER, Incumbent may assign its right and
obligations, in whole but not in part, under this Agreement without the approval
of PathNet, to any entity which acquires all or substantially all of the assets
of Incumbent or to any subsidiary, Affiliate or successor in a merger or
consolidation of Incumbent; provided, that in no event shall any such assignment
relieve Incumbent of its obligations under this Agreement.
18.8 WAIVER. Failure or delay on the part of Incumbent or PathNet to
exercise any right, power or privilege under this Agreement shall not constitute
a waiver of any right power or privilege of this Agreement.
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18.9 RECORDATION. Each Party hereby acknowledges that this Agreement may
be subject to recordation and the costs, fees or expenses associated with any
such recordation shall be borne by the recording Party.
18.10 GOOD FAITH RENEGOTIATION. Notwithstanding anything set forth
herein to the contrary, the Parties hereby agree that in the event a
Governmental Authority issues a decision, order, rule or other rulemaking of any
kind, which necessitates any modification or amendment to this Agreement, the
Parties shall negotiate in good faith to modify or amend this Agreement to
comply with such decision, order, rule or other rulemaking.
18.11 CONFIDENTIAL TERMS AND CONDITIONS. Incumbent shall not disclose,
except as required by law or as set forth in SECTION 18.9, the terms and
conditions of this Agreement to any third party.
18.12 INCUMBENT'S DESIGNATED REPRESENTATIVE. Incumbent shall on the
Effective Date designate in writing a representative who shall have express
authority to bind Incumbent with respect to all matters requiring Incumbent's
approval or authorization in connection with this Agreement (the "INCUMBENT
REPRESENTATIVE"). Such Incumbent Representative shall have the authority to
make decisions and grant any and all consents required under this Agreement on
behalf of Incumbent and PathNet shall be entitled to rely on any such decision
or consent by the Incumbent Representative.
18.13 OUTSOURCING. In addition to, and not in place of, any rights of
PathNet under this Agreement, PathNet shall have the right to engage third party
Subcontractors to perform any or all of PathNet's rights and obligations under
this Agreement.
18.14 EMPLOYMENT SOLICITATION. During the term of this Agreement,
neither PathNet nor any PathNet Affiliate shall solicit employment from, offer
employment to or hire, in any manner whether as an employee or a Subcontractor,
any Incumbent employee; provided that PathNet may hire any former Incumbent
employee if such employee has not worked for Incumbent for a period of at least
eighteen (18) months.
18.15 EXECUTION OF AN AMENDED SCHEDULE B. In the event that both
Incumbent and PathNet elect to add additional Segments to the System, each of
Incumbent and PathNet shall execute and deliver an "AMENDED SCHEDULE B" setting
forth (i) the additional paths, sites and specific location information of the
additional Segment or Segments, (ii) the rent PathNet shall pay to Incumbent for
such additional Segment (thereby amending SECTION 5.2 with respect to such
additional Segment; PROVIDED, HOWEVER, SECTION 5.2 shall remain in full force
and effect with respect to Segment 1 or any other existing Segment) and (iii)
the Incumbent Items, the amount of the Incumbent Estimated Costs, the amount of
the Incumbent Payment Cap and the method of payment of the cost of the Incumbent
Items with respect to such additional Segment (thereby amending SECTION 4.1 and
SECTION 1 of SCHEDULE C with respect to such additional Segment; PROVIDED,
HOWEVER, SECTION 4.1 and SECTION 1 of SCHEDULE C shall in any event remain in
full force and effect with respect to Segment 1 or any other existing Segment.)
PathNet's and Incumbent's rights and obligations under this Agreement will
commence with respect to such additional Segment or Segments on the date of
execution of such AMENDED SCHEDULE B by both
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Parties which date shall be deemed the "EFFECTIVE DATE" with respect to such
Segment for purposes of this Agreement and each reference to SCHEDULE B in this
Agreement shall be deemed to refer to such AMENDED SCHEDULE B.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement, as of the
date first written above.
PATHNET, INC.
By: /s/ Dave Shaeffer
--------------------------------
Name: Dave Shaeffer
Title: President
KN ENERGY, INC.
By: /s/ Rickey Wells
--------------------------------
Name: Rickey Wells
Title: V.P. Operations
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PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. SUCH PORTIONS ARE
DESIGNATED "[***]"
Exhibit 10.5
THIS FIXED POINT MICROWAVE SERVICES AGREEMENT is made and entered into as
of the 17th day of April, 1998 (the "Effective Date"), by and between Pathnet,
Inc. a Delaware corporation and Pathnet/Idaho Power Equipment, LLC ("LLC"), a
Delaware limited liability company (collectively, the "Parties" and each, a
"Party").
WITNESSETH:
WHEREAS, Pathnet is engaged in the business of creating high capacity,
digital, microwave communications systems for purposes of marketing and selling
the excess long distance telecommunications capacity created by such systems;
WHEREAS, the LLC owns a license to use certain towers, shelters, sites and
equipment owned or leased by Idaho Power Company, an Idaho corporation
("Incumbent") for the purpose of operating an analog microwave
telecommunications system of limited capacity;
WHEREAS, the LLC desires to upgrade such system in the near future to a
higher capacity digital microwave system; and
WHEREAS, the LLC desires to engage Pathnet as, and Pathnet desires to act
as, LLC's sole representative for the purpose of installing, managing, and
operating a high capacity digital microwave system along Incumbent's current
microwave paths.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Parties agree as follows:
SECTION 1. DEFINITIONS.
1.1 Definitions: As used in this Agreement, the following terms shall have
the meanings indicated:
1.1.1 1/0 Multiplexer: Any device that multiplexes capacity between
the DS-l and the DS-O levels.
1.1.2 1 x 1: A microwave radio configuration consisting of a primary
and a protect radio.
1.1.3 Affiliate: With respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common
control with such Person. For the purposes of this definition, "control"
(including the terms "controlled by" and "under common control with"), as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
voting securities, by contract, or otherwise.
1.1.4 Agreement: This Fixed Point Microwave Services Agreement,
including the Schedules and Exhibits attached hereto, as the same may be
amended, supplemented or modified in accordance with the terms hereof.
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1.1.5 Alarm and Event Report: As defined in Section 7.7 of Schedule
A.
1.1.6 As-Built Drawing: As defined in Section 4.1.4 of Schedule A.
1.1.7 Available Excess Capacity: The total Pathnet Excess Capacity
available (and not allocated) for use or sale on the System at any given
time from Commissioning through the Expiration Date.
1.1.8 Average Sold Excess Capacity: The cumulative average of the
quotient of (i) Pathnet Excess Capacity less Available Excess Capacity,
divided by (ii) Pathnet Excess Capacity, taken as a percentage.
1.1.9 Bit Error Rate: The number of received bits in error compared
to the total number of bits received.
1.1.10 Breaching Party: As defined in Section 17.1.1.
1.1.11 Business Day: Any day other than a Saturday, a Sunday, or a
day on which the banking institutions in either New York, New York, or the
city and state in which the principal executive offices of Pathnet within
the United States are located, are not open for business.
1.1.12 Capacity Expansion: An increase in telecommunication channels
a System is able to transmit, receive and transport above those created by
the installation of the Initial System, achieved by an addition to or
change in equipment.
1.1.13 Capacity Expansion Schedule: As defined in Section 7.1 of
Schedule A.
1.1.14 CERCLA: Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 6901 et. seq., as amended.
1.1.15 Channel Plan: As defined in Section 1.1 of Schedule A.
1.1.16 Commissioning: With respect to each path or Segment, the date
on which the circuits of such path or Segment are available for service
after completion of all site acceptance testing on the Initial System or
any Capacity Expansion required hereunder.
1.1.17 Contingent Radio Revenue Agreement: That certain Contingent
Radio Revenue Agreement by and between Incumbent, LLC and Pathnet, dated
as of the date hereof.
1.1.18 Customer Agreements: As defined in Section 10.1.1.
1.1.19 Cutover Plan: As defined in Section 4.1.1 of Schedule A.
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1.1.20 DS-0: 64,000 bits per second; The world-wide standard speed
for digitizing one voice conversation using pulse code modulation, which
is approximately equivalent to a single voice or data channel.
1.1.21 DS-1: 24 DS-0's.
1.1.22 DS-3: 672 DS-0's or 28 DS-l's.
1.1.23 Deficiency List: As defined in Section 5.7 of Schedule A.
1.1.24 Dispute: As defined in Section 17.1.3.
1.1.25 Drop and Insert: That process wherein a part of the
information carried in a transmission system is demodulated (dropped) at
an intermediate point and different information is entered (inserted) for
subsequent transmission.
1.1.26 Effective Date: As defined in the introductory paragraph of
this Agreement, as the context indicates.
1.1.27 Error Free Second: Any one-second interval that does not
contain a measurable bit error.
1.1.28 Encumbrance. Any security interests, mortgages, liens,
pledges, charges, claims, easements, reservations, restrictions, clouds,
equities, rights of way, options, rights of first refusal and other
encumbrances whether or not relating to the extension of credit or the
borrowing of money. To "Encumber" shall mean to effect any Encumbrance.
1.1.29 Equipment: Any and all digital microwave radios, radio
components, cards, antennas, waveguides, multiplexers, software and other
equipment or parts required for the operation of the System provided and
installed by Pathnet as set forth on Exhibit A-1 to Schedule A.
1.1.30 Errored Second: Any one-second interval during which one or
more bit errors occur.
1.1.31 Excess Capacity: The Pathnet Excess Capacity and the
Incumbent Excess Capacity (as such term is defined in the Contingent Radio
Revenue Agreement).
1.1.32 Existing System Inventory: As defined in Section 1.1 of
Schedule A.
1.1.33 Expiration Date: The date on which this Agreement and the
rights and obligations hereunder are terminated or expire in accordance
with Section 3.
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1.1.34 FAA: The Federal Aviation Administration, or any other
Federal agency at the time administering tower registration requirements
and regulations.
1.1.35 Failed Second: Any one-second interval that has 1,544 bit
errors at a DS-l rate.
1.1.36 Facilities: Incumbent's and the LLC's towers shelters, sites
and all equipment used by Incumbent, the LLC or Pathnet relating to and
used in association with such towers, shelters and sites for the purpose
of operating the System. The Facilities are as set forth in Schedule B as
amended from time to time.
1.1.37 Facility Encumbrance: As defined in Section 6.9.
1.138 FCC: The Federal Communications Commission, or any other
Federal agency at the time administering the FCC Code.
1.1.39 FCC Code: The Communications Act of 1934, as amended, the
Telecommunications Act of 1996, as amended, and the rules and regulations
promulgated thereunder and related thereto.
1.1.40 First Extension Period: As defined in Section 3.1.3.
1.1.41 Force Majeure Event: As defined in Section 16.3.
1.1.42 Form 415: As defined in Section 11.1.1.
1.1.43 Frequency Availability Model: As defined in Section 1.1 of
Schedule A.
1.1.44 Frequency Diversity: A method of protecting a radio signal by
providing a second radio signal on a different frequency, which will
assume the radio signal load when the regular channel fails.
1.1.45 Governmental Authority: Any nation or government, any state
or other political subdivision thereof and any court, panel, judge, board,
bureau, commission, agency or other entity, body or other person
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
1.1.46 Hazardous Material: Any substance, material, matter or waste
which is or becomes regulated by any Federal, state or local law,
ordinance, order, rule, regulation, code or any government restrictions or
requirement including, but not limited to, asbestos, petroleum products
and "Hazardous Substances" and "Hazardous Wastes" (as such terms are
defined in CERCLA and RCRA.)
1.1.47 Incumbent: Idaho Power Company, an Idaho corporation.
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1.1.48 Incumbent Capacity: As defined in Section 8.2.2.
1.1.49 Incumbent IRU Agreement: The Indefeasible Right to Use
Agreement by and between the LLC and Incumbent dated as of the date
hereof, as it may be amended, extended or modified from time to time.
1.1.50 Initial System: The initial system with a 1 x 1 configuration
which is comprised of the first 84 DS-l channels (which is equivalent to
2,040 DS-0's) of the System (the "Non-Protect Radio") and the System's 84
DS-l protect channels (the "Protect Radio") and all radio components,
antennas, waveguides, multiplexers, software and other equipment and parts
necessary for the operation thereof.
1.1.51 Initial Term: As defined in Section 3.1.2.
1.1.52 Interconnection: The point at which a private network is
connected to (i) the PSTN, which can include IXC POPs, tandem access
points, the central office, Internet service providers, or major
industrial customer points of presence or (ii) a private network
1.1.53 Interference: Any measurable impairment in the performance of
the System or the quality of the signals received or transmitted on the
System.
1.1.54 IXC: An inter-exchange carrier; a telephone company that
provides long-distance telephone service between LATA's but not within any
one LATA.
1.1.55 Judgment: Any order, judgment, writ, decree, award or other
determination, decision or ruling of any court, judge, justice or
magistrate, any other Governmental Authority or any arbitrator.
1.1.56 LATA: Local Access and Transport Area; one of 161 local
geographic areas in the United States within which a local telephone
company may offer telecommunications services.
1.1.57 LLC: As defined in the introductory paragraph.
1.1.58 LLC Agreement: The Limited Liability Company Agreement of
Pathnet/Idaho Power Equipment, LLC dated as of the date hereof.
1.1.59 LLC Items: As defined in Section 5.1.1.
1.1.60 LLC Payment Cap: As defined in Section 5.1.3.
1.1.61 Losses: Any and all losses, claims, shortages, damages,
liabilities, expenses (including reasonable attorneys' and accountants'
fees), assessments, tax deficiencies and taxes (including interest and
penalties thereon) sustained, suffered or incurred by any party.
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1.1.62 Maintenance Services Agreement: The Maintenance and
Provisioning Services Agreement, by and between Pathnet, Incumbent and LLC
and to be executed within thirty (30) days hereof, as the same may be
amended from time to time in accordance with its terms.
1.1.63 Material Adverse Effect: Any event, fact, circumstance or
occurrence, which results or would with the passage of time result in a
material adverse change in or a material adverse effect on any of: (i) the
condition (financial or otherwise), business, performance, operations,
properties, or prospects of such Person; (ii) the legality, validity or
enforceability of this Agreement; or (iii) the ability of such Person to
perform its material obligations under this Agreement.
1.1.64 Modifications SOW: As defined in Section 2.1 of Schedule A.
1.1.65 Network Management System: As defined in Section 7.6 of
Schedule A.
1.1.66 Network Monitoring Center: As defined in Section 7.5 of
Schedule A.
1.1.67 Non-Breaching Party: As defined in Section 17.1.1.
1.1.68 Notice of Election: As defined in Section 15.3.
1.1.69 OC-3 Multiplexer: Any device that multiplexes capacity
between the OC-3 and the DS-l levels.
1.1.70 Order Wire: A service channel consisting of a 64,000 bit per
second circuit between sites.
1.1.71 OSHA: The Occupational Safety and Health Act, as amended.
1.1.72 Outage: When the Bit Error Rate in each second is worse than
l0^-3 for a period of ten (10) consecutive seconds.
1.1.73 Part 101: Part 101 of Title 47 of the Code of Federal
Regulations, as amended.
1.1.74 Party: As defined in the introductory paragraph.
1.1.75 Path Studies: As defined in 1.1 of Schedule A.
1.1.76 Pathnet: As defined in the introductory paragraph.
1.1.77 Pathnet Excess Capacity: At any given time, the
telecommunications channels or DS-0's that the System creates, transports
and receives which are granted to
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Pathnet under the Pathnet IRU Agreement and any capacity owned by Pathnet
and created pursuant to a Capacity Expansion.
1.1.78 Pathnet/ Idaho Power License LLC: As defined in Section 9.5.
1.1.79 Pathnet IRU Agreement: The Pathnet Indefeasible Right To Use
Agreement by and between the LLC and Pathnet, in the form attached
hereto as Schedule J, as it may be modified, amended or altered from
time to time.
1.1.80 Pathnet Software: The software (including applications
software and systems software) owned or licensed from a third party by
Pathnet used to provide the services covered in this Agreement.
1.1.81 PCN: A Prior Coordination Notice sent pursuant to Part 101.
1.1.82 Permits: Any and all authorizations, approvals, consents,
licenses, permits, easements, certificates and other rights and
permissions necessary to conduct such Person's business and to own, lease
and operate such Person's properties as currently conducted, owned, leased
or operated.
1.1.83 Person: An individual or a corporation, partnership, limited
liability corporation, trust, incorporated or unincorporated association,
joint venture, joint stock company, or other entity of any kind or any
Governmental Authority.
1.1.84 POP: Point Of Presence; the interconnection between any two
facilities based on networks.
1.1.85 Pre-Commissioning Test Equipment: All equipment required for
the testing required to be performed on the System pursuant to Section 5
of Schedule A, including, but not limited to, all required digital volt
meters, optical power meters, oscilloscopes, RF signal generators, RF
variable attenuators, DADE adjust cables, receiver card extenders and
extension cords.
1.1.86 Preliminary Construction Schedule: As defined in Section 1.1
of Schedule A.
1.1.87 Progress Report: As defined in Section 4.1.2 of Schedule A.
1.1.88 Project Drawings: As defined in Section 1.3 of Schedule A.
1.1.89 Project Management Plan: As defined in Section 4.1.1 of
Schedule A.
1.1.90 Project Schedule: As defined in Section 4.1.1 of Schedule A.
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1.1.91 Protection Configuration: An engineering plant under which
channel capacity is protected either on a fully redundant basis or on a 1
x n protection basis.
1.1.92 PSTN: Publicly Switched Telephone Network.
1.1.93 RCBA: Resource Conservation and Recovery Act, 42 U.S.C.
sections.9601 et seq., as amended.
1.1.94 Requirement of Law: With respect to any Person, all Federal,
state and local laws, rules, regulations, Judgments, injunctions,
standards, codes, limitations, restrictions, conditions, prohibitions,
notices, demands or other requirements or determinations of a court or
other Governmental Authority or an arbitrator, applicable to or binding
upon such Person, any of its property or any business conducted by it or
to which such Person, any of its assets or any business conducted by it is
subject.
1.1.95 Revenue: As defined in Section 6.3 of the Contingent Radio
Revenue Agreement.
1.1.96 Second Extension Period: As defined in Section 3.1.4.
1.1.97 Segment: The portion of a microwave communications network
existing between two geographic points. For purposes of this Agreement,
Segment A is the portion of the microwave communications network between
LaGrande, Oregon and Twin Falls, Idaho, including Hansen Butte, Idaho and
Boise, Idaho, as set forth in Schedule B. Segment B is the portion of the
microwave communications network between Hansen Butte, Idaho and
Pocatello, Idaho, as set forth in Schedule B.
1.1.98 Segment A LLC Estimated Costs: As defined in Section 5.1.2.
1.1.99 Segment A Pathnet Estimated Costs: As defined in Section
5.2.2.
1.1.100 Segment B LLC Estimated Costs: As defined in Section 5.1.2.
1.1.101 Segment B Pathnet Estimated Costs: As defined in Section
5.2.2.
1.1.102 Services: As defined in Section 8.1.
1.1.103 Severely Errored Seconds: Any one second interval where the
Bit Error Rate is greater than or equal to 1 x l0^-3 errors per second at
a DS-l rate regardless of the cause of degradation affecting the channel
error performance including, but not limited to, unprotected equipment
failures and any other factors that contribute to poor performance.
1.1.104 SONET: Synchronous Optical Network; a family of fiber-optic
(or microwave) transmission rates from 51.84 Mbps to 13.22 Gbps, created
to provide the
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flexibility needed to transport many digital signals with different
capacities and to provide a standard to which manufacturers may design.
1.1.105 Space Diversity: Protection of a radio signal by providing a
separate antenna on the same tower to assume the radio signal load when
the regular transmission path on the primary antenna fades, thereby
ensuring continuous transmission.
1.1.106 Spare Parts: The equipment and parts provided by Pathnet to
Incumbent in connection with the performance of Incumbent's obligations
under the Maintenance Services Agreement.
1.1.107 Specifications: As defined in Section 8.2.
1.1.108 Station Log Book: As defined in Section 6.2 of Schedule A.
1.1.109 Subcontractors: Any firm, corporation, or person working
directly or indirectly for a company that furnishes or performs a portion
of the work, labor or material.
1.1.110 Switched Mod Section: A section of network between two
adjacent back-to-back terminals.
1.1.111 System: The high capacity digital SONET Equipment,
Facilities, Network Management System, all other equipment and materials
related thereto, and FCC licenses and other licenses and Permits related
thereto, installed up to a maximum of a 1x7 configuration operated for the
purpose of transmitting, receiving and transporting telecommunications
signals over the Segments set forth on Schedule B and any Capacity
Expansions. As used in this Agreement, 1 x 7 shall mean one protect radio
and seven non-protect radios.
1.1.112 System Budget: As defined in Section 1.1 of Schedule A.
1.1.113 System Budget: As defined in Section 1.1 of Schedule A.
1.1.114 Technology: Inventions, ideas, processes, formulas, and
know-how.
1.1.115 Tower Analysis: As defined in Section 1.1 of Schedule A.
1.1.116 Wayside Channels: The additional DS-l of telecommunications
capacity within each radio beyond the base OC-3 capacity.
1.2 Terms Generally. The definitions in Section 1.1 and elsewhere in this
Agreement shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "herein",
"hereof", "hereto" and "hereunder" and words of similar import refer to this
Agreement (including the Schedules and Exhibits) in its entirety and not to any
part hereto unless the context shall otherwise require. All references herein to
Sections, Exhibits and Schedules shall
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be deemed references to Sections of, and Exhibits and Schedules to, this
Agreement unless the context shall otherwise require. Unless otherwise expressly
provided herein or unless the context shall otherwise require, any references as
of any time to the "Certificate of Incorporation," "Articles of Incorporation,"
"charter," "organizational or constituent documents" or "Bylaws" of any Entity,
to any agreement (including this Agreement) or other contract, instrument or
document or to any agreement statute or regulation are to it as amended and
supplemented from time to time (and, in the case of a statute or regulation to
any corresponding provisions of successor statutes or regulations). Any
reference in this Agreement to a "day" or number and "days" (without the
explicit qualification of "Business") shall be interpreted as a reference to a
calendar day or number of calendar days. If any action or notice is to be taken
or given on or by a particular calendar day, and such calendar day is not a
Business Day, then such action or notice shall be deferred until, or may be
taken or given on, the next Business Day.
SECTION 2. RELATIONSHIP OF THE PARTIES.
2.1 Independent Contractor and Network Manager. The LLC hereby appoints
Pathnet and Pathnet hereby agrees to serve in the following capacities during
the term of this Agreement:
(i) As an independent contractor, Pathnet will serve as the LLC's
sole and exclusive representative in performing analytical pre-design and
design services and installing, testing and ensuring the performance of
the System, as well as any upgrades to such System in accordance with the
terms and conditions set forth in Section 7 and in Schedule A.
(ii) In the role of a network manager, Pathnet will serve as the
point of contact for any Outage or trouble on the System and shall operate
the Network Management System and the Network Monitoring Center as
described in Section 7.6 and Section 7.7 of Schedule A.
(iii) In the role of licensee, Pathnet will license from the LLC a
right to use the Facilities on which to build and operate the system.
SECTION 3. TERM AND EXPIRATION.
3.1 Term. Extension Periods, and Renewal.
3.1.1 Term. This Agreement shall commence on the Effective Date and
shall be in full force and effect as to each Segment upon the commencement
of the Initial Term for such Segment and continuing until the expiration
of the term applicable to such Segment as set forth in this Section 3.
3.1.2 Initial Term. The initial term of a Segment (each an "Initial
Term") shall commence upon Commissioning of such Segment and shall expire
on the fifth (5th) anniversary of the Commissioning of any such Segment.
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3.1.3 First Extension Period. With respect to each Segment, in the
event the Average Sold Excess Capacity of such Segment is equal to or
greater than ten percent (10%) during the Initial Term, the term of the
Agreement shall be automatically extended as to such Segment for an
extension period (each a "First Extension Period") commencing on the day
after the expiration of the Initial Term and expiring on the tenth (l0th)
anniversary thereafter.
3.1.4 Second Extension Period. With respect to each Segment, in the
event the Average Sold Excess Capacity of such Segment is equal to or
greater than ten percent (10%) during the Initial Term and the First
Extension Period (calculated as a single measurement on a cumulative
basis), the term of the Agreement shall be automatically extended as to
such Segment for a second extension period (each a "Second Extension
Period") commencing on the day after the expiration of the First Extension
Period and expiring on the later of the tenth (l0th) anniversary
thereafter of the Second Extension Period of either Segment A or Segment
B.
3.1.5 Segment B. If (i) Incumbent and/or the LLC have not acquired
the sites for the Facilities as set forth in Schedule B, which sites shall
be approved in writing by the LLC and Pathnet for inclusion in the
development of Segment B, within twelve (12) months after the Effective
Date (such approval by Pathnet not to be unreasonably withheld, provided
that if the economic cost to Pathnet materially outweighs the economic
benefit to Pathnet as the result of the use of such site, such
circumstance shall be deemed a reasonable basis for withholding such
consent), or (ii) Incumbent, the LLC and/or Pathnet fall to obtain the
permits, approvals and licences (including frequency coordination)
necessary to begin construction on Segment B within fifteen (15) months
after the Effective Date, the Parties shall not develop Segment B pursuant
to this Agreement and all of the terms and conditions contained herein as
to Segment B shall be deemed terminated and of no further force or effect.
Termination of this Agreement as to Segment B pursuant to the terms of
this Section 3.1.5 shall have no effect as to Segment A, as to which this
Agreement shall remain in full force and effect unless otherwise
terminated pursuant to the terms hereof.
3.1.6 Renewal. Upon expiration as to each Segment of the Initial
Term or the First Extension Period, if not automatically extended pursuant
to Section 3.1.3 and 3.1.4 hereof, respectively, or upon the expiration of
the Second Extension Period as to each Segment, this Agreement shall be
automatically renewed as to such Segment for a one-year term, and at the
end of such one-year term for additional one-year terms for each year
thereafter, unless terminated by either Party upon written notice to the
other Party to that effect delivered no less than ninety (90) days prior
to the end of the Initial Term, the First Extension Period, the Second
Extension Period or any such one-year term, as applicable.
3.2 No Unilateral Right to Terminate.
3.2.1 General. Except as provided in Sections 3.1.5, 3.1.6, 3.2.2,
6.2.1, 11.2 and 11.3, neither Party shall have the right to terminate this
Agreement or any rights or obligations of either Party pursuant to this
Agreement as to any Segment.
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3.2.2 Non Performance. If Pathnet does not deliver any Segment of
the System in accordance with the Specifications within eighteen (18)
months after Incumbent and/or the LLC delivers (i) the requisite permits,
approvals and licenses required to develop the sites of the Facilities on
such Segment or (ii) sites of the Facilities in suitable form (including
delivering electric service to the sites) to construct the System for such
Segment, whichever is later, unless such failure of Pathnet to deliver any
Segment of the System in accordance with the Specifications results from
Incumbent unreasonably withholding any approvals required of Incumbent
with respect to installation of the System, then the LLC shall have the
right to terminate this Agreement only as to such Segment.
SECTION 4. CONSIDERATION
4.1 Consideration Paid to Pathnet. In consideration for the services to be
performed and the obligations assumed by Pathnet pursuant to this Agreement, the
LLC shall grant to Pathnet (i) the right to use the Facilities, pursuant to
Section 6, and the Equipment, and (ii) [***]
as set forth in the Channel Plan
pursuant to the terms of the Pathnet IRU Agreement.
SECTION 5. ALLOCATION OF COSTS
5.1 LLC Costs.
5.1.1 LLC Items. Subject to the LLC Payment Cap set forth in Section
5.1.3, LLC shall pay for the services, functions, materials and other
items listed in Section 1 of Schedule C and Exhibit C-1 of Schedule C
(collectively, the "LLC Items") in the manner set forth in Section 5.1.5
and as set forth in the LLC Agreement.
5.1.2 Estimated Cost of LLC Items. On the Effective Date, the total
estimated cost of the LLC Items with respect to Segment A
[***]
(the "Segment A LLC Estimated Costs") and with respect to
Segment B is [***]
(the "Segment B LLC Estimated Costs"). Subject to the
LLC Payment Cap, the costs of such items and the LLC Estimated Costs are
estimates and may be subject to increases or decreases, provided that the
cost of Pathnet engineering and project management shall be no more than
the estimated cost for these items as shown in Schedule C.
5.1.3 LLC Payment Cap. Subject to Section 8.3, LLC shall pay an
amount not to exceed [***] (the "LLC Payment
Cap") in the aggregate for the performance and completion of the LLC Items
on Segments A and B. Payment of any LLC Item shall be approved by Pathnet
prior to the payment thereof if and to the extent such payment is subject
to the LLC Payment Cap. The cost of LLC Items shall be accrued in
accordance with generally accepted accounting principles. Pathnet shall
pay for all amounts incurred over the LLC Payment Cap in the completion
and performance of the LLC Items. As soon as LLC is aware that LLC will
pay an amount in excess of the LLC Payment Cap,
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LLC shall notify Pathnet to that effect. In the event the Parties elect
not to construct Segment B pursuant to Section 3.1.5, the LLC Payment Cap
shall be adjusted to be twenty percent (20%) over the Segment A LLC
Estimated Costs.
5.1.4 Division of Costs Savings. In the event the costs of
completion of the LLC Items for Segment A and Segment B are less than the
LLC Estimated Costs, Pathnet shall deliver to the LLC an invoice setting
forth the differential between the total costs to complete and perform the
LLC Items and the LLC Estimated Costs. Within thirty (30) days of receipt
of such invoice from Pathnet, the LLC shall pay or disburse to Pathnet
thirty-five percent (35%) of such differential. Pathnet shall be liable
for any invoices received after distribution of the costs savings is made
pursuant to this Section 5.1.4.
5.1.5 Payment by LLC. Subject to the LLC Payment Cap set forth in
Section 5.1.3, the LLC shall promptly pay, or the LLC shall cause
Incumbent to promptly pay pursuant to the LLC Agreement, for the LLC Items
for which it is liable upon receipt of a purchase order, invoice or other
bill from Pathnet or from an equipment vendor or service provider
(pursuant to any Pathnet requested retention), provided Pathnet has
approved (which approval shall not be unreasonably withheld) such purchase
order, invoice or bill before any payment is made by the LLC.
5.2 Pathnet Costs.
5.2.1 Pathnet Items. Pathnet shall pay for services, functions,
materials and other items listed in Section 2 of Schedule C, and Exhibit
C-2 of Schedule C (the "Pathnet Items").
5.2.2 Estimated Cost of Pathnet Items. On the Effective Date, the
total estimated cost of the Pathnet Items with respect to Segment A is
[***]
(the "Segment A Pathnet Estimated Costs"), and with respect to
Segment B is [***] (the
"Segment B Pathnet Estimated Costs").
5.2.3 No Cap on Pathnet Items. Subject to Section 3.1.5 regarding
Segment B, Pathnet shall pay for all amounts incurred in completing the
Pathnet Items whether or not the cost of completing such items is less
than, equal to or exceeds the Segment A and Segment B Pathnet Estimated
Costs.
SECTION 6. INDEFEASIBLE RIGHT TO USE.
6.1 Indefeasible Right to Use. The LLC hereby grants to Pathnet for the
term of this Agreement a non-exclusive and indefeasible right to use each of the
Facilities at such sites set forth on Schedule B, and Equipment, including,
without limitation, the Initial System, in each case to the extent necessary for
the performance of Pathnet's rights and obligations under this Agreement
including the right to create and sell capacity on the System including any
Capacity Expansion on the System.
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6.2 Use of Facilities.
6.2.1 Peaceful Enjoyment, Use and Access. Subject to the terms of
Incumbent's site leases Pathnet shall have the right to the non-exclusive
peaceful use and enjoyment of the Facilities during the term of this
Agreement as required for the performance of Pathnet's rights and
obligations under this Agreement, which rights shall include, but not be
limited to (i) the right to use the Facilities and Equipment and (ii) upon
the reasonable request by Pathnet, the right to full and free access to
the Facilities and related equipment; provided, however, any such access
granted by the LLC to Pathnet shall be subject to the reasonable security,
health and safety and other regulatory, procedural and policy requirements
implemented by Incumbent, and provided to Pathnet from time to time,
provided Pathnet shall have twenty (20) days after receipt of any such
policy or procedure to comply therewith. In the event the terms of
Incumbent's site leases materially and adversely affect Pathnet's ability
to perform its obligations under this Agreement, the LLC shall, or the LLC
shall cause Incumbent to, (x) use best efforts to amend any such lease or
otherwise renegotiate any limitations thereto or (y) use commercially
reasonable efforts to lease or acquire an alternative Facility location in
order that Pathnet may perform hereunder. If and to the extent the LLC is
not able, or the LLC is not able to cause Incumbent to (i) amend or
otherwise re-negotiate the site leases or (ii) provide an alternative
Facility available for the installation and operation of the System,
Pathnet shall have, as its sole and exclusive remedy, the unilateral right
but no obligation to terminate this Agreement as to any Segment without
any further recourse against LLC or Incumbent hereunder.
6.2.2 Interference. During the term of this Agreement and subject to
existing customer uses of the Facilities authorized and disclosed to
Pathnet in writing within thirty (30) days of the Effective Date, the LLC
shall not license or otherwise permit any Person to use the Facilities or
any Incumbent controlled facility if the use of such facilities by such
Person would cause any Interference on the System. As of the Effective
Date, the LLC shall not grant any Person a new or expanded right to use
the Facilities or any Incumbent controlled facility which use would in any
way cause Interference on the System. Notwithstanding the foregoing, in
the event another Person causes any Interference on the System through any
use of the Facilities or any Incumbent controlled facility which was not
authorized prior to the Effective Date, the LLC shall, or the LLC shall
cause Incumbent to, use best efforts to compel such Person using such
facilities to immediately take all steps necessary to correct and
eliminate such Interference, including, without limitation, enforcing
provisions in any license or other agreement between Incumbent and/or the
LLC and such Person using the facilities which allow Incumbent and/or the
LLC to compel such Person to cease operation of such Person's system, to
remove such Person's equipment or materials or to modify such Person's
equipment or materials. The LLC acknowledges that any Interference shall
cause irreparable harm to Pathnet and the prompt cessation of Interference
is material to Pathnet's interest in the Facilities and Pathnet's
performance under this Agreement and, as such, Pathnet shall be entitled
to injunctive relief in the enforcement of this Section 6.2.2.
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6.3 Visiting and Exiting Facilities. Upon exiting any Facility, Pathnet,
on behalf of itself and its employees, agents and Subcontractors, shall ensure
that such Facility is returned to a condition, which existed immediately prior
to such visit except for improvements made thereto and reasonable wear and tear.
6.4 Clearances and Other Requirements. At the reasonable request of the
LLC, Pathnet shall require its employees, agents or Subcontractors to (i) apply
to the LLC for any necessary reasonable clearances and (ii) comply with all
other reasonable and applicable requirements, rules, regulations or ordinances
regarding any Person's ability to have access to the Facilities.
6.5 Pathnet's Responsibility. Subject to LLC's payment obligations under
Section 5.1.5, Pathnet shall remain solely responsible for all actions of its
employees, agents, and Subcontractors in connection with the provision of
services to the LLC under this Agreement. Before allowing any Subcontractor to
commence work, Pathnet shall secure from such Subcontractor evidence of
insurance coverage covering such risks as are usually insured against by prudent
companies engaged in the business and activities in which such Subcontractor is
engaged.
6.6 Subletting. Pathnet shall not grant any interest in the Facilities, in
whole or in part, to any Person without the prior written consent of the LLC and
Incumbent; provided, however, Pathnet shall have the right to transfer and
assign its rights or obligations under this Agreement to any successor or assign
in accordance with Section 18.7.
6.7 Surrender. Upon the expiration of the Agreement in accordance with
Section 3, Pathnet shall peacefully and quietly surrender occupation of the
Facilities, without delivery by the LLC or Incumbent to Pathnet of any notice to
quit or demand for possession.
6.8 Colocation. Subject to space availability at the Facilities at the
time of a Pathnet request, including LLC's or Incumbent's reasonably foreseeable
future space needs on the Facilities, the LLC shall or shall cause Incumbent to
allow Pathnet, at no additional charge to colocate at the Facilities all
equipment necessary to support the interconnections set forth on Exhibit A-6 to
Schedule A and any additional interconnections equipment that may be added by
Pathnet from time to time and at any time during the term of this Agreement,
subject to the limitations set forth in Schedule 3 of Schedule A.
6.9 Subordination. Pathnet shall subordinate its interest in the
Facilities to (i) all deeds of trust, deeds to secure debts, mortgages and other
security instruments now or hereafter Encumbering all or any portion of the real
property relating to the Facilities described on Schedule G (each, a "Facility
Encumbrance") and (ii) any increases, renewals, modifications, consolidations,
replacements and extensions of any such Facility Encumbrance. In connection with
such subordination of Pathnet's interest in the Facility to all Facility
Encumbrances, Pathnet shall, as requested by the LLC, within fifteen (15) days
after any request by Incumbent, execute and deliver a commercially reasonable
subordination, non-disturbance and attornment agreement with all Persons secured
by such Facility Encumbrances. Pathnet shall, as requested by the LLC, execute
and
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deliver similar subordination, non-disturbance and attornment agreements with
each future Person secured by a Facility Encumbrance.
6.10 Removal of Equipment. Upon the Expiration Date, the LLC shall have
the option of purchasing any and all of the Pathnet owned Equipment located on
the Facilities at its then fair market value. Pathnet shall, at the LLC's
request and direction, remove any or all Pathnet owned Equipment not so
purchased by the LLC from the LLC's Facilities and restore each site to its
condition as of Commissioning (reasonable wear and tear, and damage from the
elements, excepted) within sixty (60) days after the Expiration Date and at
Pathnet's sole expense. In the event Pathnet fails to perform such requested
removal within such sixty (60) day period, as determined by the LLC in its sole
discretion, the LLC may remove such Equipment and restore each site to its
condition as of Commissioning, (reasonable wear and tear, and damage from the
elements, excepted), and Pathnet shall promptly pay the LLC all costs reasonably
incurred by the LLC for such removal and restoration. The LLC shall have no
liability to Pathnet in connection with any damage to the Pathnet owned
Equipment resulting from its removal by the LLC.
6.11 Removal of Hazardous Materials. Within ninety (90) days after the
written request of Incumbent, or in any event, within ninety (90) days after the
Expiration Date, Pathnet shall remove from the Facilities any and all Hazardous
Materials, that were brought to the Facilities by Pathnet during the term of
this Agreement in violation of Requirements of Law.
SECTION 7. PROGRAM MANAGEMENT AND PROJECT MANAGEMENT.
7.1 Program Manager. In connection with the Services and other services
performed by Pathnet under this Agreement, Pathnet shall provide a Program
Manager whose duties shall include (i) supervising the project through design,
installation and operation, (ii) supervising the Project Manager, (iii)
overseeing the Field Manager and the other Pathnet personnel, and (iv) ensuring
the performance of Pathnet's rights and obligations under this Agreement.
7.2 Project Management for Modifications. In connection with the
modifications of the Facilities set forth in Section 2 of Schedule A, Pathnet
shall provide a Project Manager, a Field Manager, an Applications Engineer and a
Project Engineer, each of whom shall have the duties as set forth in Section 7.4
with respect to such modifications of the Facilities.
7.3 Project Management for Installation. In connection with the
installation of the System set forth in Section 4 of Schedule A, Pathnet shall
provide a Project Manager, a Field Manager, an Applications Engineer and a
Project Engineer, each of whom shall have the duties as set forth in Section 7.4
with respect to such installation of the System.
7.4 Pathnet Project Management Personnel. The Project Managers, Field
Managers, Applications Engineers and Project Engineers shall each have the
duties as set forth below:
(a) Project Manager. Pathnet shall provide a Project Manager whose
duties shall include ensuring the overall functional integrity of the
System, the preparation, amendment
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and adherence to a construction schedule, and compliance with Pathnet's
other obligations under Schedule A.
(b) Field Manager. Pathnet shall provide a Field Manager whose
duties shall include the oversight and direction of all on-site
activities, the coordination of all Subcontractors and all required
communication with the Project Manager.
(c) Applications Engineer. Pathnet shall provide an Applications
Engineer, whose duties shall include the review and translation of the
System configuration into specific hardware requirements, precise
interface levels, intra and inter-rack cabling and all other necessary
peripheral equipment, rack profiles and required Interconnection data.
(d) Project Manager. Pathnet shall provide a Project Engineer whose
duties shall include the performance of all planning and support
activities and a detailed site survey to gather data for development of
the installation plan and testing plan.
SECTION 8. SERVICES AND SYSTEMS SPECIFICATIONS.
8.1 Services
8.1.1 System Design, Modification, Installation, Operation and
Performance. Pathnet and the LLC shall perform their respective functions
with respect to the design, modification, installation, operation and
performance of the System as set forth on Schedule A and in this Section 8
(the "Services"); provided, that in the event such performance requires
Incumbent's performance, the LLC shall cause Incumbent to so perform.
8.1.2 Upgrade of System. In accordance with its performance of the
Services, Pathnet shall have the right, at its own expense and with the
LLC's prior approval, which approval shall not be unreasonably withheld or
delayed, to upgrade the System and Equipment, and the System and Equipment
operation policies and procedures, including, but not limited to, (i)
replacing Equipment, (ii) adding newly available improved Equipment, and
(iii) modifying policies, procedures and specifications relating to the
System, to conform such policies, procedures and specifications with new
Technology or industry standards; provided, however, nothing contained in
this Section 8.1.2 shall limit Pathnet's rights to perform any Capacity
Expansion pursuant to this Agreement.
8.1.3 Incumbent Training. Pathnet shall provide to Incumbent the
training as set forth on Schedule D.
8.1.4 Maintenance. Pathnet shall enter into the Maintenance Services
Agreement with Incumbent and shall perform all of its obligations
thereunder, including the provision of Spare Parts. The LLC shall
cooperate with Incumbent and Pathnet to permit the performance of the
services or other activities called for or required under the Maintenance
Services Agreement.
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8.1.5 Performance of the Services. Pathnet shall have the right to
engage Subcontractors to perform any of the Services subject to the LLC's
prior approval, which approval shall not be unreasonably withheld or
delayed.
(A) Subcontractors. Nothing contained herein shall create or
imply privity of contract between the LLC and any Subcontractor,
notwithstanding the LLC's consent to any Subcontractor. Pathnet
acknowledges and agrees that the LLC shall have no obligation to (i)
supervise any Pathnet Subcontractor or its employees or (ii) pay any
Pathnet Subcontractor or its employees other than to the extent
required pursuant to Section 5 or as otherwise agreed in writing by
the Parties. No dealings of any kind between the LLC and any
Subcontractor shall be deemed a waiver of the foregoing by the LLC
unless the LLC (at the LLC's election) specifically agrees otherwise
in writing.
(B) Except for any liens arising from LLC's or Incumbent's
failure to pay for the LLC Items for which they are responsible
under Section 5.1.5, if any Subcontractor or any other Person
claiming to have been employed (directly or indirectly) by or
through Pathnet files a lien, Pathnet shall satisfy, remove or
discharge such lien at Pathnet's expense by bonding, payment or
otherwise within thirty (30) days after notice to Pathnet of the
filing thereof. If Pathnet fails to do so, the LLC may satisfy,
remove or discharge such lien, and Pathnet shall pay the same to the
LLC upon demand.
8.2 Specifications.
8.2.1 General. Pathnet and the LLC shall perform the Services in
accordance with any and all technical and operational specifications set
forth in Schedule A (the "Specifications"); provided that in the event
such performance requires Incumbent's performance, the LLC shall cause
Incumbent to so perform.
8.2.2 Channel Plan.
(A) Original Channel Plan. On the Effective Date, the LLC
shall deliver to Pathnet a proposed T-l channelization plan setting
forth the proposed capacity needs of Incumbent at each Facility (the
"Incumbent Capacity"). Such capacity shall be sold to Incumbent by
the LLC pursuant to Incumbent IRU Agreement. Such capacity (i) shall
in no event exceed [***]
and (ii) shall be subject to Drop and
Insert capacity at each Switched Mod Section. Pathnet shall
incorporate the LLC's proposed channelization plan into the Channel
Plan subject to the limitations set forth in this Section 8.2.2.
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(B) Amended Channel Plan. Upon written notice to Pathnet and
subject to the capacity granted under the Incumbent IRU Agreement,
the LLC shall have the right to modify Incumbent Capacity (as
described in the Channel Plan) along the network any time after
Commissioning, provided that sufficient Drop and Insert capacity
exists at each Facility not designated as a repeater terminal
between each Switched Mod Section using available Wayside Channels
to effect such modification. Within ninety (90) days after receipt
of any such written notice from the LLC, Pathnet shall make such
modification to the configuration of the Channel Plan at no charge
to the LLC.
8.2.3 Specifications. Standards and Inspections. In connection with
the Services set forth in Section 2 and Section 4 of Schedule A, Pathnet
shall comply with the following requirements:
(A) Obligation to Construct. Pathnet shall use commercially
reasonable efforts to ensure that the modification of the System set
forth in Section 2 of Schedule A and the installation of the System
set forth in Section 4 of Schedule A occur as expeditiously as
possible and in no event later than the 18 month period set forth in
Section 3.2.2.
(B) Industry Standards. All Services and materials supplied
pursuant to Schedule A must meet or exceed all applicable
Specifications. Where Specifications are not stated, such work
performed and materials supplied will meet all applicable provisions
of the following standards: (i) EIA RS-l95 (latest edition), (ii)
EIA/TIA-222 (latest edition), (iii) American Society of Testing
Materials A 325 and A 572, (iv) the applicable sections of the
National Electric Code, (v) the American National Standards
Institute, (vi) ACI 318-83, (vii) ACI-305, (viii) ACI-306, (ix) OSHA
29 CFR 1910 and (x) all other applicable Federal, state and local
regulations of all Governmental Authorities with jurisdiction;
provided, however, in the case of a conflicting requirement of
standards, the more stringent standard shall apply.
(C) Site Inspections. During the performance of the Services,
Incumbent shall allow Pathnet to perform site inspections during
normal business hours, or in the case of an emergency, at any time,
subject to the access limitations set forth herein.
8.2.4 Plans, drawings, etc. All plans, specifications, drawings,
presentations, schedules, budgets, analyses, and other documents of any
kind prepared by Pathnet or any Subcontractor in connection with the
System (the "Project Documents"), and all rights therein, shall be and
remain the joint property of both Pathnet and the LLC. Submission or
description of any document described in the foregoing sentence to any
Person or Governmental Authority for purposes of, or in connection with,
the System shall not be construed as publication in derogation of the
LLC's rights under this Agreement. The term "Project Documents" shall not
include non-technical, non-drawing type documents, memos, analyses, and
other writings used solely for the internal purposes of Pathnet or any
Subcontractor.
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8.3 Change Orders. To the extent requested by the LLC and agreed to by
Pathnet, this Agreement shall incorporate (i) future issuance of change orders
for equipment and services beyond the scope of the Services and this Section 8
of the Agreement, and (ii) Pathnet's provision of additional equipment and
services in accordance with such orders. To the extent mutually agreed upon by
the Parties, all such orders shall be deemed to be supplements to and governed
by the terms of this Agreement. The Segment A and Segment B LLC Estimated Costs
and the LLC Payment Cap may be modified to reflect any agreed upon change
orders. In the event the LLC provides an alternative facility to the Facilities
set forth in Schedule B, pursuant to Sections 6.2.1, 11.2 and 11.3 for
installation of the System, Pathnet and the LLC shall adjust the Segment A and
Segment B LLC Estimated Costs, the Segment A and Segment B Pathnet Estimated
Costs and the LLC Payment Cap as applicable to incorporate the inclusion or
exclusion of any such facility.
SECTION 9. OWNERSHIP, DEPRECIATION AND ENCUMBRANCE OF SYSTEM.
9.1 Ownership of Equipment and Assets.
9.1.1 Equipment and Assets Owned by the LLC. The LLC shall own or
license the equipment and assets relating to the System as set forth in
Schedule E.
9.1.2 Equipment and Assets Owned by Pathnet. Pathnet shall own the
equipment and assets relating to the System as set forth in Schedule E.
9.2 Depreciation of Equipment.
9.2.1 Depreciation by the LLC. The LLC shall have the right to fully
depreciate the equipment and assets currently owned or to be owned by the
LLC as listed in Schedule E.
9.2.2 Depreciation by Pathnet. Pathnet shall have the right to fully
depreciate the equipment and assets currently owned or to be owned by
Pathnet as listed in Schedule E.
9.3 Encumbrance.
9.3.1 Initial System. Pathnet shall not Encumber the radios (other
than the protect radio), radio software, antenna, waveguide, multiplexers
or any other Equipment required to operate the Initial System in
accordance with Specifications hereunder.
9.3.2 Other Equipment, Materials, Agreements and Assets. Pathnet
shall have the right, unless it otherwise agrees in writing, to Encumber
(i) the Equipment used in any Capacity Expansion, (ii) the Revenue
generated from the sale of the Excess Capacity, (iii) any Customer
Agreement entered into by Pathnet with respect to the sale of Excess
Capacity, (iv) this Agreement and any related documents, instruments and
agreements executed and delivered in connection with this Agreement and
any rights and obligations hereunder, and (v) the Equipment relating to
the Initial System other than the radios, radio
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software, antenna, waveguide, multiplexers and any other
Equipment required to operate the Initial System in accordance with the
Specifications hereunder.
9.3.3 Vendor Remedies. The LLC hereby acknowledges that pursuant to
the Encumbrances granted by Pathnet to certain equipment vendors, service
providers or other lenders, in accordance with Section 9.3.2, such
vendors, providers or lenders shall have the right to assume and perform
Pathnet's rights and obligations under this Agreement and the other
documents, instruments and agreements executed in connection herewith and
will be bound by the terms hereof and thereof.
9.4 Taxes. The Parties' respective responsibilities for taxes arising
under or in connection with this Agreement shall be as follows: (i) each Party
shall be responsible for any personal or real property taxes on property it owns
or leases, for franchise and privilege taxes on its business and for taxes based
on its net income or gross revenue and (ii) Pathnet shall be responsible for any
sales, use, excise, value-added services, consumption and other taxes and duties
payable by the LLC or Incumbent on any goods and services used or consumed in
providing the services to be performed by Pathnet under this Agreement, where
the tax is imposed on the LLC's acquisition or use of such goods or services and
the amount of the tax is measured by the LLC's costs in acquiring such goods or
services; provided, however, that Pathnet shall not be responsible for any
Federal, state or local income taxes of Incumbent or the LLC or any franchise
taxes of Incumbent or the LLC.
9.5 Special Purpose Subsidiary Relating to Initial System Licenses.
(a) Pathnet shall contribute to Pathnet/Idaho Power License, LLC, a
Delaware limited liability company ("Pathnet/Idaho Power License LLC") and
cause Pathnet/Idaho Power License LLC to hold, the FCC licenses relating
to the Initial System.
(b) On the Effective Date, Pathnet and the LLC shall execute and
deliver the Pledge Agreement relating to the Pathnet/Idaho Power License
LLC substantially in the form attached hereto as Schedule H.
9.6 Security Interest in Initial System Protect Radio. On the Effective
Date, Pathnet and the LLC shall execute and deliver the Security Agreement
substantially in the form attached hereto as Schedule I, pursuant to which
Pathnet shall grant the LLC a security interest in the Initial System Protect
Radio.
9.7 Agreement Regarding Bankruptcy. Pathnet agrees and shall cause each
subsidiary of Pathnet contracting with the Pathnet/Idaho Power License LLC to
agree, that neither Pathnet, nor any such subsidiary of Pathnet shall take any
actions that would cause the involuntary bankruptcy of the Pathnet/Idaho Power
License LLC.
9.8 Spectrum License Agreement. On the Effective Date, the LLC and
Pathnet/Idaho Power License LLC shall execute a Spectrum License Agreement
substantially in the form set forth in Schedule K.
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SECTION 10. EXCESS CAPACITY MARKETING AND SALES.
10.1 Customer Agreements.
10.1.1 Authorization. Pathnet shall negotiate, execute and deliver
any and all agreements and arrangements ("Customer Agreements") for
customers of the Excess Capacity, which Customer Agreements shall contain
terms and conditions determined by Pathnet in its sole discretion.
10.1.2 Approval and Consent by the LLC. If the terms of any Customer
Agreement require the written approval or consent of the LLC as a
condition to the execution, delivery or performance, the LLC shall
promptly provide such written approval or consent, subject to the
indemnification rights set forth in Section 16.2(d); provided such
approval or consent shall not increase the LLC's liability or obligations
under this Agreement or otherwise.
10.1.3 Modifications to System. In the event that any Customer
Agreement requires that the System be modified in any way, Pathnet shall
ensure that any such modifications (i) shall not compromise the integrity
and performance of the System in accordance with the Specifications and
(ii) shall be made at no additional cost to the LLC.
SECTION 11. FCC LICENSES AND OTHER REGULATORY APPROVALS AND LICENSES.
11.1 FCC Rules and Regulations.
11.1.1 Microwave Radio Station Licenses.
(A) Preparation and Filing of Forms 415. Subject to Section
11.4, Pathnet shall be responsible for all regulatory filings
required to obtain FCC approvals to own and operate the System and
to sell telecommunications capacity to other common carriers,
including but not limited to the initial application(s) for licenses
and any amendments or modifications to the licenses. If necessary,
Pathnet shall be responsible for any filings relating to
cancellation of a license. Pathnet shall be solely responsible for
any expenses incurred with respect to these filings and Pathnet
shall be solely responsible for fees associated with such
applications, including the initial application fees. Pathnet shall
prepare and timely file all required Form 415, Applications for
Authorization in the Microwave Services (each a "Form 415"), or any
successor forms, documents or instruments to such Form 415 as the
FCC may prescribe, including but not limited to, the preparation or
ordering of all frequency coordinations required pursuant to
Schedule B and Schedule C of Form 415, in order to own, operate and
sell the Excess Capacity of the System in accordance with the terms
and conditions of this Agreement. To the extent reasonably
necessary, the LLC and Incumbent shall cooperate with Pathnet in
obtaining FCC approvals.
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(B) Identity of License. All Microwave Radio Station Licenses
issued by the FCC relating to the System shall be licensed in
Pathnet's or Pathnet/Idaho Power License LLC's name. To the extent
permitted by law, Pathnet shall remain licensed under the FCC Code
until such time as its licenses may be terminated. The LLC and
Incumbent shall be permitted to continue to own and be licensed as
private microwave operators at the stations licensed to Pathnet
relating to the system, provided that (i) that frequency assignments
of such private licenses do not interfere with the System
(including, but not limited to, any Capacity Expansion of the
System) and (ii) such private licenses are permitted under the FCC
Code.
(C) Maintenance of License. Pathnet shall maintain in good
standing each Microwave Radio Station License relating to the
System, including, but not limited to, fees, preparing and filing
any required amendments to the Forms 415 relating to the System and
submitting and filing any supplementary information as required by
the FCC.
11.1.2 Common Carrier Reporting Obligations. Pathnet shall prepare
and file all forms, reports, instruments, documents and agreements
required by the FCC and FCC Code relating to Pathnet's status as a "common
carrier" under the FCC Code.
11.1.3 Tariff Filings. Pathnet shall prepare and timely file all
tariff applications pursuant to 47 CFR 61, as amended, or any successor
statute, rule or regulation and shall request and file all necessary
waivers of such tariff requirements, as determined by Pathnet in its sole
discretion.
11.1.4 Frequency Coordination Notices. During the term of this
Agreement, Pathnet shall prepare and send all required frequency
coordination notices required under 47 CFR 101.103, as amended, or any
successor statute, rule or regulation and shall respond, as appropriate,
to all PCNs received by Pathnet, the LLC or Incumbent relating to the
System.
11.1.5 Delivery of Copies. Pathnet shall provide to the LLC a copy
of all filings and submissions with the FCC, relating to the System,
within (10) days after request by the LLC.
11.1.6 Assistance in Preparation of License Applications. Upon
request by Pathnet, and in a timely manner, the LLC shall provide to
Pathnet all information necessary for the completion of all required
filings and submissions with the FCC including, but not limited to the
LLC's authorized signature on any filings or other submissions to the FCC
or any documents, instruments or agreements completed in connection with
such filings and submissions.
11.1.7 Spectral Loading Requirements. Pathnet shall (i) ensure that
the System, as licensed, shall comply with all spectral loading
requirements set forth in 47 CFR 101.141, or any successor statute, rule
or regulation or (ii) obtain a waiver of any or all of such requirements;
provided, however, if the System does not meet such spectral loading
requirements and Pathnet is unable to obtain a waiver of such
requirements, Pathnet shall
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have the right, at its sole cost and expense, to modify the System to a
hot-standby Protection Configuration until such time as the spectral
loading requirements can be met; provided such configuration meets the
System's performance requirements.
11.1.8 Default in FCC License. In the event that the FCC institutes
a penalty against or fine imposed on Pathnet, the LLC, or the System, due
to non-compliance with any FCC requirements by Pathnet, Pathnet shall
promptly pay such penalty or fine (in the case such penalty or fine is
instituted as the result of an act or omission on the part of Pathnet) or
the LLC shall promptly pay such penalty or fine (in the event such penalty
or fine is instituted as the result of an act or omission on the part of
the LLC).
11.2 Zoning Requirements. The LLC shall be responsible for obtaining
appropriately zoned sites and maintaining zoning and land use compliance of the
Facilities throughout the term of the Agreement. Pathnet shall be responsible
for complying with all zoning requirements as provided by the LLC as applicable
to the installation and operation of the System and its Facilities. The LLC
shall advise Pathnet of zoning requirements, which, in the reasonable opinion of
the LLC, differ from those generally applicable to microwave facilities. The LLC
shall provide to Pathnet all required information and shall cooperate with
Pathnet in connection with Pathnet's compliance with all zoning requirements
pursuant to this Section 11.2. Notwithstanding the foregoing, the LLC and
Incumbent shall, or shall cause Incumbent to, implement either (i) best efforts
to obtain all necessary zoning and permits for each Facility or (ii) in the
event Incumbent and/or the LLC are unable to obtain such necessary zoning and
permits, commercially reasonable efforts to obtain an alternative facility
available for installation and operation of the System in order for Pathnet to
perform its obligations under this Agreement. If and to the extent the LLC
and/or Incumbent cannot obtain the required zoning and permits for any Segment,
Pathnet shall have, as its sole and exclusive remedy, the unilateral right but
not obligation to terminate this Agreement, as to any Segment, without any
further recourse against LLC or Incumbent hereunder.
11.3 Lessor Requirements. Where Incumbent leases sites for the location of
its Facilities, the LLC shall be responsible for obtaining all consents or
approvals of the site lessor necessary for construction and operation of the
System. Pathnet and the LLC shall comply with all site lessor requirements.
Pathnet and the LLC shall each cooperate with the other in connection with the
other's compliance with all site lessor approvals pursuant to this Section 11.3.
Notwithstanding the foregoing, the LLC shall, or shall cause Incumbent to,
implement (i) best efforts to obtain all necessary site lessor consents and
approvals for each Facility or (ii) commercially reasonable efforts to obtain an
alternative facility available for installation and operation of the System in
order for Pathnet to perform its obligations under this Agreement. If and to the
extent the LLC and/or Incumbent cannot obtain the required site lessor approval,
Pathnet shall have, as its sole exclusive remedy, the unilateral right but not
obligation to terminate this Agreement, as to any Segment, without any further
recourse against LLC or Incumbent hereunder.
11.4 Tower Registration. Incumbent and the LLC shall ensure timely
compliance with all FAA and FCC tower registration requirements including, but
not limited to, the preparation of any filings with or the obtaining of any
waivers or extensions from the FAA or FCC. The LLC
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and/or Incumbent shall promptly notify Pathnet of any deficiency or
non-compliance with any such tower registration requirements, filings, waivers
or extensions.
SECTION 12. INSURANCE.
12.1 Delivery of Certificates of Insurance. Upon the LLC's request and
prior to the commencement of any Services by Pathnet, Pathnet shall deliver to
the LLC Certificates of Insurance relating to Pathnet's Commercial General
Liability Insurance Policy, Workers Compensation Insurance Policy, Automobile
Liability Insurance, Excess Liability Insurance Policy and Professional
Liability Insurance.
12.2 Pathnet Insurance Coverage. During the term of this Agreement,
Pathnet shall maintain the types of insurance at the coverage limits set forth
below each naming Incumbent and the LLC as an additional insured and providing
for thirty (30) days' prior notification to the LLC and Incumbent and the right
of Incumbent and/or the LLC to cure any default prior to cancellation:
(a) Worker's Compensation Insurance. Workers Compensation Insurance
as required by laws and regulations applicable to and covering Persons
performing the Services;
(b) Commercial General Liability Insurance. Commercial General
Liability Insurance with a limit of not less than $1,000,000 per
occurrence and $ 1,000,000 in the aggregate;
(c) Automobile Liability Insurance. Automobile Liability Insurance,
which includes coverage for non-owned and hired vehicles with a limit of
not less than $1,000,000;
(d) Excess Liability Insurance. Excess Liability Insurance with a
limit of not less than $4,000,000; and
(e) Professional Liability Insurance. Professional Liability
Insurance with a limit of not less than $10,000,000.
12.3 LLC Insurance Coverage Incumbent or the LLC shall maintain insurance
coverage on the Facilities properties and operations of Incumbent and the LLC to
the extent necessary to permit Pathnet to operate the System and perform its
obligations in the event of any property or operations damages or losses which
coverage shall include general liability and other forms of insurance covering
such risks as are usually insured against by prudent companies engaged in the
business and activities in which the LLC is engaged, in amounts which are
adequate in relation to the business and properties of the LLC, and all premiums
to date have been and will continue to be paid in full.
12.4 Proof of Licensed Subcontractors. Upon request of the LLC, Pathnet
shall provide to the LLC proof of licensing and certification of insurance for
any Subcontractors engaged by Pathnet to provide Services, during the term of
such engagement.
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SECTION 13. SOFTWARE AND PROPRIETARY RIGHTS.
13.1 Pathnet Software. Pathnet retains all right, title and interest in
and to Pathnet Software. As of the Effective Date and pursuant to the Pathnet
Sublicense Agreement attached hereto as Schedule F, the LLC is granted a
nonexclusive sublicense to use Pathnet Software for the sole purpose of
receiving the services pursuant to this Agreement. Pathnet Software will be made
available to the LLC in such form and on such media as exists on the Effective
Date, together with existing documentation and any other related materials. The
LLC shall not be permitted to use Pathnet Software for the benefit of any
entities for any use other than performance of the LLC's rights under this
Agreement or any agreement executed in connection therewith, without the prior
written consent of Pathnet which may be withheld at Pathnet's sole discretion.
Except as otherwise requested or approved by Pathnet, the LLC shall cease all
use of Pathnet Software upon expiration of this Agreement. Notwithstanding the
foregoing, the LLC shall have the right to purchase or license the Pathnet
Software from Pathnet to the extent Pathnet owns or otherwise has the ability to
sell or license such software on terms that shall be agreed upon by the Parties
negotiating in good faith.
13.2 Proprietary Rights. The LLC acknowledges and agrees that all or
portions of the information and materials, including but not limited to the
Pathnet Software and related documentation to be supplied by Pathnet hereunder
are owned by Pathnet and/or others and are proprietary in nature. The LLC also
acknowledges and agrees that Pathnet and/or its suppliers have and will retain
all proprietary rights in such information and materials. The LLC (i) shall
respect such claim of proprietary right, (ii) shall protect such information at
least to the extent that it protects its own proprietary information, (iii)
shall not use such information except for the purposes for which its is being
made available as set forth in this Agreement and (iv) shall not reproduce,
print, disclose, or otherwise make said information available to any third
party, in whole or in part, in whatever form.
SECTION 14. REPRESENTATIONS AND WARRANTIES.
14.1 Representations and Warranties of Each Party. Each Party hereby
represents and warrants the other Party as follows:
14.1.1 Due Incorporation and Formation; Authorization of Agreements;
Binding Effect. Such Party is a corporation or limited liability company,
as the case may be, duly formed or organized, and validly existing under
the laws of its state of incorporation or organization, and has the
corporate or limited liability company authority to own its property and
carry on its business as owned and carried on as of the Effective Date.
Such Party is duly licensed or qualified to do business and is in good
standing (if applicable) in each jurisdiction in which the failure to be
so licensed or qualified would have a Material Adverse Effect on such
Party. Such Party has the corporate or limited liability company authority
to execute and deliver this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by such Party
and this Agreement constitutes a legal, valid and binding obligation of
such Party enforceable in accordance with its terms, subject
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as to enforceability to limits imposed by bankruptcy, insolvency or
similar laws affecting creditors rights generally and the availability of
equitable remedies.
14.1.2 No Conflict; No Default. Neither the execution or delivery of
this Agreement by such Party, nor (except as would not have a Material
Adverse Effect on such Party), the performance of this Agreement by such
Party or the consummation by such Party of the transactions contemplated
hereby in accordance with the terms and conditions hereof: (i) will
conflict with, violate, result in a breach of or constitute a default
under any of the terms, conditions or provisions of the certificate or
articles of incorporation or bylaws or LLC operating agreement (or other
governing documents) of such Party or any material agreement or instrument
to which such Party is a party or by which such Party may be bound, (ii)
will conflict with, violate or result in a breach of, constitute a default
under (whether with notice or lapse of time or both), accelerate or permit
the acceleration of the performance required by, give to others any
interests or rights or require any consent, authorization or approval
under any contract to which such Party is a party or by which such Party
is or may be bound or to which any equity interest held by such Party or
any of its material properties or assets is subject or (iii) will result
in the creation or imposition of any Encumbrance upon any equity interest
held by such Party in the LLC or any of the other material properties or
assets of such Party, other than Facility Encumbrances.
14.1.3 No Consent. Other than consents and approvals contemplated by
Section 10.1, no consent, approval, order or authorization of, or
registration, declaration or filing with any Governmental Authority,
domestic or foreign, is required to be obtained by such Party in
connection with the execution, delivery and performance of this Agreement
or the consummation of the transactions contemplated hereby, except those
that have been obtained and are in full force and effect pursuant to
Section 14.1.5.
14.1.4 Compliance with Laws and Regulations. The performance of its
obligations under this Agreement will not result in a violation in any
respect of (i) any applicable Federal, state, local or foreign laws,
ordinances, regulations, rulings and orders of government agencies
applicable to its business in any respect the violation of which could
have a Material Adverse Effect (including Requirements of Law relating to
pollution, protection of the environment, emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals, or
industrial, toxic, hazardous or regulated substances or wastes into the
environment or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage disposal, transport or handling of
pollutants or other such hazardous or regulated substances or wastes) or
(ii) any applicable order, Judgment, injunction, award or decree in any
respect which could have a Material Adverse Effect on such Party.
14.1.5 Permits. Such Party has or will obtain all authorizations,
approvals, consents, licenses, Permits and certificates (including, but
not limited to all required approvals from the FCC) necessary to perform
its respective obligations under this Agreement and to own, lease and
operate its properties as currently or anticipated to be conducted, owned,
leased or operated, as the case may be, for which the failure to possess
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would result in a Material Adverse Effect. No violations are outstanding or
uncured with respect to any such Permits and no proceeding is pending to revoke
or limit any Permit.
14.1.6 Title to Assets, Properties and Rights and Related Matters.
Except as set forth in Section 6.2.1, 11.2 and 11.3 and on Schedule G,
such Party has and will continue to have for the term of this Agreement
good and marketable title to all the properties, interests in properties
and assets, real, personal or mixed, necessary for the conduct of such
Party's business and for the transactions contemplated by this Agreement
(including, but not limited to, any rights of way, leasehold interests,
easements, proofs of dedication and rights necessary to ensure vehicular
and pedestrian ingress and egress to and from any such properties or
assets), free and clear of all Encumbrances of any kind or character,
except (i) liens for current taxes not yet due and payable, (ii)
Encumbrances securing taxes, assessments, governmental charges or levies
or the Encumbrances of materialmen, carriers, landlords and like persons,
all of which are not yet due and payable and (iii) minor Encumbrances of a
character that do not substantially impair the assets or properties of
such Party or which will not have a Material Adverse Effect on such Party.
The LLC will cause Incumbent to use best efforts to keep in full force and
effect any leases of or affecting the Facilities and will cause Incumbent
to use best efforts to renew or enter into new leases for the Facilities
as necessary to ensure that Incumbent has sufficient right, title and
interest in and to the Facilities throughout the term of this Agreement
and to permit the LLC and Pathnet to perform their respective obligations
and rights hereunder.
14.1.7 Labor Matters. Such Party has complied in all material
respects with all applicable Federal, state and local laws and ordinances
relating to the employment of labor, including the provisions thereof
relating to wages, hours, employee benefit plans and the payment of social
security taxes, and is not liable for any arrears of wages or any tax
related thereto (except for currently accrued and unpaid wages and except
for currently accrued withholding, payroll, unemployment and social
security taxes payment of which is not overdue) or penalties for failure
to comply with any of the foregoing, and neither has received a notice to
the contrary from any Governmental Authority. Such Party has not suffered
any strike, slowdown, picketing or work stoppage by any union or other
group or employees affecting the business of such Party, and no such event
or action is threatened.
14.1.8 Contract or Restriction. Such Party is not a Party to or
bound by any contract or agreement nor is subject to any corporate
restrictions that could materially and adversely affect the business,
properties or condition, financial or otherwise, of such Party (other than
adverse effects resulting from vendor creditors exercising their rights
against collateral pledged by such Party pursuant to applicable vendor
credit documents) or adversely affect or call into question the power or
authority of such Party to enter into or perform this Agreement or any of
the agreements or instruments executed by such Party in connection
herewith, or that otherwise adversely affect or call into question the
validity or enforceability of this Agreement or any of the agreements or
instruments executed by such Party in connection herewith.
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14.1.9 Litigation. There are no pending or, to the best of each
Party's knowledge, threatened actions or proceedings before any court,
arbitrator or governmental or administrative body or agency that could in
any way adversely affect or call into question the power or authority of
such Party to enter into or perform this Agreement or any of the
agreements or instruments executed in connection herewith, or that in any
way adversely affect or call into question the validity or enforceability
of this Agreement or any of the agreements or instruments executed in
connection herewith.
14.1.10 Disclaimer. EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER
PATHNET NOR THE LLC MAKES ANY OTHER EXPRESS WARRANTY AND THERE ARE NO
IMPLIED WARRANTIES WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS
OR OTHER SUBJECT MATTER OF THIS AGREEMENT. PATHNET AND THE LLC HEREBY
DISCLAIM THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
14.2 Representations and Warranties of Pathnet.
14.2.1 Hazardous Materials. Pathnet represents and warrants that (i)
Pathnet is and shall remain in compliance with any and all Federal, state
or local permits in regard to Hazardous Materials, (ii) Pathnet shall
report to applicable Governmental Authorities any release of reportable
quantities of Hazardous Materials as mandated by Section 103 (a) of CERCLA
and (iii) Pathnet will, within five (5) Business Days of receipt, send to
the LLC a copy of any notice, order, inspection report or other document
issued by any government authorities relating to Pathnet's status with
environmental or health and safety laws.
14.2.2 Services. Pathnet warrants (i) that the Services will be
performed in a workmanlike manner and (ii) that it has or will obtain
agreements or arrangements with its employees, agents and Subcontractors
sufficient to allow it to provide the LLC with the Services.
SECTION 15. INDEMNIFICATION AS A RESULT OF THIRD PARTY CLAIMS.
15.1 Indemnification by the LLC. The LLC agrees to indemnify, defend and
hold harmless Pathnet and its Affiliates and their respective officers,
directors, employees, agents, successors and assigns from and against any and
all Losses and threatened Losses arising from, in connection with, or based on
allegations of, any of the following:
(a) any claims of infringement of any patent, trade secret,
copyright or other proprietary rights alleged to have occurred in
connection with systems or other resources provided by Pathnet to the LLC
and arising out of the actions of the LLC, its employees, officers or
agents.
(b) any claims arising out of the untruth, inaccuracy or breach of
any representation or warranty of the LLC set forth in this Agreement.
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(c) subject to Section 16.2 (d) below, the liability of Pathnet for
(i) any personal injury, disease or death of any person, (ii) damage to or
loss of any property, money damages or specific performance owed to any
third party (by contract or operation of law) or (iii) any fines,
penalties, taxes, claims, demands, charges, actions, causes of action,
assessments, environmental response costs, environmental penalties,
injunctive obligations any of which items (i), (ii) or (iii) are caused
by, arise out of, or are in any way incidental to, or are connected with,
actions or omissions of the LLC, its employees, officers or agents.
15.2 Indemnification by Pathnet. Pathnet agrees to indemnify, defend and
hold harmless the LLC and its Affiliates and their respective officers,
directors, employees, agents, successors and assigns from and against any and
all Losses and threatened Losses arising from, in connection with, or based on
allegations of, any of the following:
(a) any claims of infringement of any patent, trade secret,
copyright or other proprietary rights alleged to have occurred in
connection with systems or other resources provided by Pathnet to the LLC
either as a contribution to the LLC, pursuant to this Agreement or the
Pathnet Sublicense Agreement, dated as of the date hereof, or otherwise
and arising out of the actions of Pathnet.
(b) any claims arising out of the untruth, inaccuracy or breach of
any representation or warranty of Pathnet set forth in this Agreement.
(c) the liability of the LLC for (i) any personal injury, disease or
death of any person, (ii) damage to or loss of any property, money damages
or specific performance owed to any third party (by contract or operation
of law) or (iii) any fines, penalties, taxes, assessments, environmental
response costs, environmental penalties or injunctive obligations any of
which items (i), (ii) or (iii) are caused by, arise out of, or are in any
way incidental to, or are connected with, actions or omissions of Pathnet,
its employees, officers, directors or agents.
(d) the liability of the LLC to Pathnet's customers arising out of
any or all obligations to or contracts with customers or Pathnet to
purchase Pathnet Excess Capacity for alleged loss of profits or revenue by
said customers (or the customers of said customers) resulting from a loss
of service over the System.
15.3 Indemnification Procedures. With respect to any third party claims,
the following procedures shall apply:
(a) Notice. Promptly after receipt by an entity entitled to
indemnification under Section 15.1 or Section 15.2 of notice of the
commencement or threatened commencement of any civil, criminal,
administrative or investigative action or proceeding involving a claim in
respect of which the indemnitee will seek indemnification pursuant to any
such section, the indemnitee shall notify the indemnitor of such claim in
writing. No failure to so notify an indemnitor shall relieve it of its
obligations under this Agreement except to the extent that it can
demonstrate damages attributable to such failure. Within fifteen (15) days
following
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receipt of written notice from the indemnitee relating to any claim, bill
no later than ten (10) days before the date on which any response to a
complaint or summons is due, the indenmitor shall notify the indemnitee in
writing if the indenmitor elects to assume control of the defense and
settlement of that claim (a "Notice of Election").
(b) Procedure Following Notice of Election. If the indemnitor
delivers a Notice of Election relating to any claim within the required
notice period, the indemnitor shall be entitled to have sole control over
the defense and settlement of such claim; provided that, (i) the
indemnitee shall be entitled to participate in the defense of such claim
and to employ counsel at its own expense to assist in the handling of such
claim, and (ii) the indemnitor shall provide prior written notice to the
indemnitee before entering into any settlement of such claim or ceasing to
defend against such claim. After the indemnitor has delivered a Notice of
Election relating to any claim in accordance with the subsection (a)
above, the indemnitor shall not be liable to the indemnitee for any legal
expenses incurred by the indemnitee in connection with the defense of that
claim. In addition, the indemnitor shall not be required to indemnify the
indemnitee for any amount paid or payable by the indemnitee in the
settlement of any claim for which the indemnitor has delivered a timely
Notice of Election, if such amount was agreed to without the written
consent of the indemnitor.
(c) Procedure Where No Notice of Election Is Delivered. If the
indemnitor does not deliver a Notice of Election relating to any claim
within the required notice period, the indemnitee shall have the right to
defend or settle the claim in such manner as it may deem appropriate, at
the cost and expense of the indemnitor. The indemnitor shall promptly
reimburse the indemnitee for all such costs and expenses.
15.4 Subrogation. In the event that an indemnitor shall be obligated to
indemnify an indemnitee pursuant to Section 15.1 or Section 15.2, the indemnitor
shall, upon payment of such indemnity in full, be subrogated to all rights of
the indemnitee with respect to the claims to which such indemnification relates.
SECTION 16. LIABILITY OF THE PARTIES TO EACH OTHER.
16.1 Liability Generally. Subject to the specific provisions of this
Section 16, it is the intent of the Parties that each Party shall be liable to
the other Party for any actual damages incurred by the Non-Breaching Party as a
result of the Breaching Party's failure to perform its obligations in the manner
required by this Agreement and failure to cure such nonperformance as set forth
in Section 17.1.1.
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16.2 Liability Restrictions.
(a) SUBJECT TO SUBSECTION (b) BELOW, IN NO EVENT, WHETHER IN
CONTRACT OR IN TORT (INCLUDING BREACH OF WARRANTY, NEGLIGENCE AND STRICT
LIABILITY IN TORT), SHALL A PARTY BE LIABLE TO THE OTHER PARTY FOR
INDIRECT OR CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN ADVANCE.
(b) The limitations set forth in subsection 16.2 shall not apply
with respect to damages occasioned by a violation of Section 13 of this
Agreement.
(c) Each Party shall have a duty to mitigate damages for which the
other Party is responsible.
(d) Each Party shall be liable to the other Party for any actual
damages as set forth in Section 16.1 only if, and to the extent that the
aggregate of all losses arising from or in connection with any failure to
perform obligations in the manner required by this Agreement exceeds ten
thousand dollars ($10,000.00), except with respect to any payment
obligations set forth in Section 5.
16.3 Force Majeure. No Party shall be liable for any breach, default or
delay in the performance of its obligations under this Agreement (i) if and to
the extent such default or delay is caused, directly or indirectly, by: fire,
flood, earthquake, elements of nature or acts of God, riots, civil disorders,
rebellions or revolutions in any country, changes in Requirements of Law
relating to the System or to the sale of Excess Capacity, or any other cause
beyond the reasonable control of such Party (a "Force Majeure Event"), (ii)
provided the non-performing Party is without fault in causing such breach,
default or delay, and such breach, default or delay could not have been
prevented by reasonable precautions and cannot reasonably be circumvented by the
non-performing Party through the use of alternate sources, work around plans or
other means.
SECTION 17. INFORMAL DISPUTE RESOLUTION; ARBITRATION.
17.1 Informal Dispute Resolution.
17.1.1 Notice of Breach, Cure and Remedies. In the event of a
material breach by either Pathnet or the LLC (the "Breaching Party") the
other Party (the "Non-Breaching Party") shall send by certified mail a
written notice of such material breach to the Breaching Party setting
forth the specific allegations of such breach. Upon receipt of the notice
of breach, the Breaching Party shall have thirty (30) days to cure such
breach. In the event the Breaching Party fails to cure such breach, as
determined by the Non-Breaching Party in its sole discretion, or the
Breaching Party determines, in its sole discretion, that it has cured such
breach, either the Breaching Party or the Non-Breaching Party may invoke
the settlement procedures set forth in Section 17 to resolve whether such
breach has been cured.
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17.1.2 Role of Program Manager. In the event the LLC has a dispute,
controversy or other complaint relating to Pathnet's performance of
Pathnet's rights and obligations under this Agreement, the LLC shall have
the right to first contact the Program Manager to resolve such dispute,
controversy or other complaint. If the LLC is not satisfied with the
resolution provided by the Program Manager, the LLC may resort to the
arbitration procedures set forth in this Section 17.
17.1.3 Resolution of Disputes. Any and all disputes and
controversies between the LLC and Pathnet concerning the negotiation,
interpretation, performance, breach or termination of this Agreement (each
a "Dispute") shall be subject to resolution as set forth in this Section
17.
17.1.4 Settlement Discussions. Any Dispute shall be attempted to be
resolved first through amicable settlement discussions and each Party
shall bear its own costs and attorney's fees of such settlement
discussions. Each Party hereby agrees to use good faith efforts to reach a
settlement through such amicable settlement discussions, provided,
however, that, nothing herein shall prevent a Non-Breaching Party from
immediately exercising any and all rights such Party may have, other than
submission of such Dispute to arbitration or institution of legal
proceedings, either of which remedies may only be invoked pursuant to the
terms hereof and after failure of the settlement discussions required
hereby.
17.1.5 Referral to Binding Arbitration or Litigation. In the event
the Parties fail to reach a settlement of the Dispute pursuant to
settlement discussions in accordance with Section 17.1.4, each Party (the
"Complaining Party") shall have the right, to file suit in a court of
competent jurisdiction in a neutral forum or upon mutual consent of the
parties, to refer such Dispute for final resolution by binding arbitration
in accordance with the rules of the American Association of Arbitration
(the "AAA"); provided, however, that the non-Complaining Party shall only
have the right to institute suit regarding the Dispute in a court of
competent jurisdiction prior to the commencement of the initial
arbitration hearing, and upon filing such suit, the arbitration
proceedings shall be deemed terminated.
17.1.6 Binding Effect. The Parties acknowledge and agree that (i)
the award in any arbitration shall be final, conclusive and binding on the
Parties and (ii) any such arbitration award be a final resolution of the
Dispute between the Parties to the same extent as a final judgment of a
court of competent jurisdiction.
17.1.7 Arbitration Process.
(A) Notice. To commence the arbitration process, the
Complaining Party shall deliver to the other Party a written notice
in accordance with the AAA rules.
(B) Site and Arbitration Tribunal. Absent agreement to the
contrary by the Parties, the arbitration will be conducted in
Washington, D.C., by a panel of three (3) arbitrators with expertise
in the fields of telecommunications engineering and construction,
provided, however, in the case of particular witnesses not subject
to
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subpoena at the designated hearing site, hearings may be held at any
place designated by the arbitrators where such witnesses can be
compelled to attend, and, with the consent of the Parties, before a
single member of the arbitration tribunal. Within thirty (30) days
after the deliverance of the notice of arbitration, each Party must
select one (1) arbitrator and a third arbitrator will be selected by
agreement of the two (2) arbitrators selected by the Parties. If
either Party fails to select an arbitrator or there is no agreement
on the selection of the third arbitrator, AAA will select such
arbitrators.
(C) Transcripts and Evidence. Both Parties shall cause a
written transcript of all proceedings and testimony to be kept and
the cost of such transcript shall be borne equally by the Parties
pending the final award. All documents that either Party proposes to
offer in evidence, except for those objected to by the other Party,
shall be deemed to be self-authenticating.
(D) Applicable Law. The arbitrators shall determine the claims
and defenses of the Parties and render their final award in
accordance with the governing law of this Agreement as set forth in
Section 18.5. Notwithstanding anything set forth in the Arbitration
Rules to the contrary, the provisions of this Section 17 shall
govern any arbitration proceeding brought in relation to this
Agreement or the transactions contemplated thereby.
(E) Sanctions. The Parties acknowledge that, in addition to
any other remedy allowed or specified in or under the AAA rules, the
failure of a Party to comply with any interim, partial or
interlocutory order, after due notice and opportunity to cure such
non-compliance, may be treated by the arbitrators as a default and
all or some of the claims or defenses of the defaulting Party may be
stricken and partial or final award entered against such Party, as
determined by the arbitrators in their sole discretion.
(F) Limitation on Awards. Arbitrators may not award (i)
incidental, consequential or punitive damages in the resolutions of
any Dispute and the Parties hereby waive all rights to and claims
for monetary awards other than compensatory damages, (ii) any other
right or remedy that contravenes the terms and conditions of this
Agreement, or (iii) except as provided in Section 3.2, termination
of this Agreement.
(G) Period of Limitations. In the event the Party claiming a
Dispute does not either file suit or institute binding arbitration
within four (4) years after the commencement of settlement
discussions pursuant to Section 17.1.4, such Party shall forever be
barred from bringing a claim on the specific subject matter of such
Dispute.
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(H) Arbitration Award. Any arbitration award must be in
writing and must contain findings of fact and conclusions of law
upon which the arbitrators relied in making the decision relating to
such award.
(I) Attorney's Fees. The arbitrators shall award the
reasonable cost, including attorneys' fees, to the prevailing Party.
SECTION 18. MISCELLANEOUS.
18.1 Notices. All notices pertaining to disputes arising from this
Agreement shall be directed to a corporate entity or employee designated by the
signatories as having full rights and responsibilities to address such issues.
Notices under this Agreement shall be sufficient only if personally delivered by
a commercial prepaid delivery or courier service or mailed by Certified or
registered mail, return receipt requested to a Party at its address set forth
below or as amended by notice pursuant to this Section 18.1 If not received
sooner, notice by mail shall be deemed received five (5) Business Days after
deposit in the U.S. mail. All notices shall be delivered as follows:
If to Pathnet:
Michael A. Lubin, Esquire
Vice President and General Counsel
Pathnet, Inc.
1015 3lst Street, NW
Washington, D.C. 20007
Tel:202.625.7284
Fax:202.625.7369
If to the LLC:
Dave Angell
Pathnet/Idaho Power Equipment, LLC
c/o Idaho Power Company
1221 West Idaho Street
P.O. Box 70
Boise, ID 83702-5627
Tel:208.388.2701
Fax:208.388.6902
18.2 Binding Nature: Entire Agreement. Pathnet and the LLC acknowledge
that (i) each has read and understands the terms and conditions of this
Agreement and agrees to be bound by such terms and conditions, (ii) this
Agreement shall be binding on each of Pathnet and the LLC and their respective
successors and assigns, (iii) this Agreement together with any agreements or
documents executed in connection and contemporaneously herewith is the complete
and conclusive statement of the agreement between the Parties, (iv) this
Agreement together with any agreements or documents executed in connection and
contemporaneously herewith supersedes any and all prior agreements and
arrangements between the Parties and all understandings and agreements, oral and
written, heretofore made between the LLC and Pathnet are merged in this
Agreement which together
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with any agreements or documents executed in connection and contemporaneously
herewith, fully and completely expresses their agreement on the subject matter
of this Agreement and (v) this Agreement together with any agreements or
documents executed in connection and contemporaneously herewith sets forth the
entire agreement on the subject matter hereof.
18.3 Amendment. No modifications of, additions to or waiver of this
Agreement shall be binding upon the LLC or Pathnet unless such modification,
addition or waiver is in writing and signed by an authorized representative of
each Party.
18.4 Severability. If any provision, sentence, phrase or word of this
Agreement or the application thereof to any Person or circumstance shall be held
invalid, the remainder of this Agreement, or the application of such provision,
sentence, phrase or word to Persons or circumstances other than those as to
which it is held invalid, shall not be affected thereby.
18.5 Governing Law. This Agreement, and the rights and obligations of the
Parties hereunder, shall be governed and interpreted in accordance with the laws
of the State of Idaho (other than the choice of law rules thereof).
18.6 Survival. Any provision of this Agreement which contemplates
performance or observance subsequent to any termination or expiration of this
Agreement shall survive such termination or expiration and continue in full
force and effect.
18.7 Assignment. At any time and from time to time, Pathnet shall have the
right to assign this Agreement or any of Pathnet's rights and obligations under
this Agreement to an assignee, which assignee shall be bound by the terms and
conditions of this Agreement; provided, that in no event shall any such
assignment relieve Pathnet of its obligations under this Agreement. The LLC may
not or shall not have the right to assign this Agreement or any of its rights
and obligations hereunder without the prior written consent of Pathnet, which
consent shall not be unreasonably withheld; provided, however, the LLC may
assign its right and obligations, in whole but not in part, under this Agreement
without the approval of Pathnet, to any entity which acquires all or
substantially all of the assets of the LLC or to any subsidiary, Affiliate or
successor in a merger or consolidation of the LLC; provided, that in no event
shall any such assignment relieve the LLC of its obligations under this
Agreement.
18.8 Waiver. Failure or delay on the part of the LLC or Pathnet to
exercise any right, power or privilege under this Agreement shall not constitute
a waiver of any right power or privilege of this Agreement.
18.9 Recordation. Each Party hereby acknowledges that this Agreement may
be subject to recordation and the costs, fees or expenses associated with any
such recordation shall be borne by the recording Party.
18.10 Good Faith Renegotiation. Notwithstanding anything set forth herein
to the contrary, the Parties hereby agree that in the event a Governmental
Authority issues a decision, order, rule or other rulemaking of any kind, which
necessitates any modification or amendment to this
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Agreement, the Parties shall negotiate in good faith to modify or amend this
Agreement to comply with such decision, order, rule or other rulemaking.
18.11 Confidential Terms and Conditions. The LLC shall not disclose,
except as required by law or as set forth in Section 18.9, the terms and
conditions of this Agreement to any third party.
18.12 LLC's Designated Representative. The LLC shall on the Effective Date
designate in writing a representative who shall have express authority to bind
the LLC with respect to all matters requiring the LLC's approval or
authorization in connection with this Agreement (the "LLC Representative"). Such
LLC Representative shall have the authority to make decisions and grant any and
all consents required under this Agreement on behalf of the LLC and Pathnet
shall be entitled to rely on any such decision or consent by the LLC
Representative.
18.13 Outsourcing. In addition to, and not in place of, any rights of
Pathnet under this Agreement, Pathnet shall have the right to engage third party
Subcontractors to perform any or all of Pathnet's rights and obligations under
this Agreement, subject to the LLC's prior approval, which approval shall not be
unreasonably withheld; provided that such approval shall not be required for
third-party operation of the Network Monitoring Center.
18.14 Schedule B. In the event the Parties mutually agree to include any
additional or alternative sites in the development of the System, as set forth
herein, such additional or alternative sites shall be amended on Schedule B and
shall be deemed included in Schedule B for all purposes herein.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement, as of
the date first written above.
PATHNET, INC.
By: /s/ Dave Schaeffer
-------------------------
Name: Dave Schaeffer
-------------------------
Title: Chairman
-------------------------
PATHNET/IDAHO POWER EQUIPMENT, LLC
By: /s/ Kip W. Runyan
-------------------------
Name: Kip W. Runyan
-------------------------
Title: President
-------------------------
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PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. SUCH PORTIONS ARE
DESIGNATED "[***]"
Exhibit 10.6
THIS AGREEMENT ("Agreement") is made and entered into as of the ____ day of
____________, 1997 by and between PATHNET, INC. (hereinafter "PathNet"), a
Delaware corporation, having its principal place of business at 6715 Kenilworth
Avenue, Suite 200, Riverdale, Maryland, 20737, and TEXACO PIPELINE INC.
(hereinafter "Texaco"), a Delaware corporation, of 1670 Broadway, Denver,
Colorado, 80202.
W I T N E S S E T H:
WHEREAS, PathNet is engaged in the business of creating high-capacity,
digital, microwave communications systems for purposes of marketing the long
distance telecommunications capacity created by such systems;
WHEREAS, PathNet currently seeks microwave tower locations in Louisiana and
Texas to implement its microwave communications network;
WHEREAS, Texaco owns and operates the Texana Microwave System which is
currently in need of modernization, capacity additions, and upgrading for which
Texaco has committed certain funds;
WHEREAS, Texaco, owner and operator of the existing Texana Microwave
System, desires to engage PathNet for the purpose of designing, installing and
enhancing its microwave communications system;
WHEREAS, if the Texana Microwave System were suitably modernized and
upgraded, it would extend PathNet's Texas - Louisiana microwave communications
network; and
WHEREAS, PathNet desires to lease Texaco's microwave Facilities for the
purpose of installing digital radios and related equipment and exclusively
marketing the long distance telecommunications Excess Capacity created by the
enhanced system it will install and operate;
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. RELATIONSHIP, ROLES AND RESPONSIBILITIES
1.1 DEFINITIONS
The attached SCHEDULE A -- GLOSSARY, contains selected definitions of terms
used in this Agreement. These defined terms are capitalized throughout this
Agreement.
1.2 RELATIONSHIP OF THE PARTIES
1.2.1 APPOINTMENT OF PATHNET. Texaco hereby appoints PathNet for the
term of this Agreement, and PathNet hereby agrees to act for Texaco as Texaco's
sole and exclusive representative for the purpose of providing digital 6 GHz
microwave equipment at Texaco's Facilities, further identified on SCHEDULE B --
THE TEXACO SYSTEM, and creating and managing a high-capacity, digital, microwave
communications system. PathNet's radio communications equipment shall operate
on transmit and receive frequencies as set forth in SCHEDULE K -- ANTENNA
SPECIFICATIONS, POSITIONS AND FREQUENCIES, attached hereto, which describes each
path and the frequencies to be used on each path. PathNet shall use such
equipment and market the telecommunications "Excess Capacity" created by such
system at Texaco's Facilities, subject to all of the terms and conditions of
this Agreement. PathNet shall be Texaco's only representative authorized to
create a 6 GHz system on towers or at Facilities identified in Schedule B of
this Agreement.
1.2.2 INDEPENDENT CONTRACTOR/LESSOR/LESSEE. PathNet's relationship to
Texaco is, at various times, that of an independent contractor and lessee. As
an independent contractor, PathNet, among other services, will perform
analytical pre-design and design services and be responsible for the
installation and testing of the replacement microwave radio system, as well as
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any upgrades to that system. In the role of Lessee, PathNet will be leasing the
space at the Facilities from Texaco on which to build and operate a
high-capacity, digital microwave system as set forth in Section 2 of this
Agreement. The relationship of PathNet to Texaco is that of an independent
contractor and lessee, and does not represent a partnership or joint venture
with Texaco or any other relationship. PathNet will have exclusive marketing
rights for any and all capacity created on the proposed microwave system in
excess of the capacity allocated to Texaco under this Agreement.
1.3 PROJECT RESPONSIBILITIES
1.3.1 GOALS AND PROJECT ASPECTS. PathNet shall analyze the existing
Facilities, design and install a replacement digital microwave network which
will enable Texaco to operate its existing analog microwave network until such
time as Texaco transfers its circuits to the digital network. Texaco and
PathNet will develop a detailed cutover plan to be set forth in SCHEDULE F --
PROJECT MANAGEMENT PLAN AND PRELIMINARY SCHEDULES, to this Agreement, attached
hereto, to be approved by PathNet and Texaco. PathNet shall actively create at
Texaco's Facilities a 6 GHz/30 MHz digital microwave telecommunications system.
The system will be configured initially in a 1 x 1 protection format. The
system may be expanded during the term, pursuant to the provisions of
PARAGRAPHS 1.3.7 and 2.1.2 of this Agreement, by adding and/or replacing the
radio components (hereinafter referred to as the "Capacity Expansion").
1.1.2 EXISTING SYSTEM EVALUATION. PathNet will complete a detailed
analysis of the existing analog microwave system operated by Texaco on the
Segment. The analysis shall include:
a. an inventory and survey of Texaco's existing microwave sites and
supporting Facilities;
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b. microwave path studies and reliability analysis to provide performance
data to serve as the engineering basis for the design of a replacement
system;
c. a frequency availability model;
d. a determination of whether structural analysis of towers and loading
factors, for metal towers only, is required;
e. a business case model for the deployment of each high-capacity,
digital system;
f. a design for the new system;
g. a detailed line item budget for the new system;
h. a T-1 plan for channelization; and
i. a preliminary construction management schedule for each replacement
system.
In performing these tasks, PathNet will require the cooperation of Texaco.
PathNet will complete a detailed system evaluation and survey of the existing
analog microwave system operated by Texaco along the Segment attached hereto,
based on information and documents provided by Texaco. The results of this
analysis will be made available to PathNet and Texaco jointly.
1.3.3 SYSTEM DESIGN. PathNet has in conjunction with Texaco specified
a system design that will result in a comprehensive 6 GHz/30 MHz digital system
meeting capacity requirements as well as geographic requirements for points of
transmission on a segment by segment basis. This digital system will have Drop
and Insert capabilities as defined in SCHEDULE D -- T-1 CHANNEL PLAN, and
SCHEDULE G -- MULTIPLEXING CONCEPT, attached hereto. Completion of the system
design shall follow execution of this Agreement. Texaco shall approve all
aspects of system design and such approval(s) shall be reflected in writing.
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1.3.4 SYSTEM INTEGRATION. PathNet will provide for the integration of
the resulting 6 GHz/30 MHz digital telecommunications system into the total
PathNet telecommunications network with prior coordination with Texaco.
1.3.5 CAPACITY. The system to be installed by PathNet shall have the
initial capacity of 6 DS-3 and two DS-1 Wayside Channels, or approximately 4,080
DS-0's, of which 2,040 DS-0's shall be available for service and the remaining
2,040 DS-0's will be utilized for protection. This capacity shall be delivered
in DS-1 increments with appropriate Drop and Insert characteristics as defined
under the T-1 channelization plan which has been prepared as part of PathNet's
initial evaluation of Texaco's system, and is appended hereto as Schedule D.
Texaco has the ability to move, add or change, its capacity as required along
the network provided sufficient circuit Drop and Insert capacity exists at each
Facility. There will be no fee for Texaco's reconfiguration of its network to
meet its changing capacity requirements. The capacity created by PathNet at the
Facilities by the 6 GHz/30 MHz digital microwave system will be relicensed in a
form capable of being marketed under Part 21/101 of the FCC regulations. This
Excess Capacity then will be aggregated into PathNet's network, which is
expected to have enhanced value.
1.3.6 MAINTENANCE FOR SYSTEMS. Texaco shall be responsible for the
maintenance of the 6 GHz/30 MHz system pursuant to the terms of a separate
written agreement to be entered into by the parties. The separate maintenance
agreement shall provide for ongoing maintenance of PathNet's microwave
facilities for a period of up to twenty-five (25) years. Upon execution of the
Maintenance Agreement, Texaco and PathNet will be required to perform routine
site maintenance on the System, in accordance with the list of routine
maintenance items set forth on SCHEDULE T -- ROUTINE SITE MAINTENANCE
REQUIREMENTS, attached hereto, consistent with their
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respective ownership interests, as set forth on Schedule E. Texaco's approval
shall be required in advance of any routine maintenance procedures performed by
PathNet at the Facilities, and shall not be unreasonably withheld.
1.3.7 INCREASES IN CAPACITY. PathNet has the authority to periodically
increase the capacity beyond the Initial System. However, each increase in
capacity must meet the upgrade threshold in PARA 2.1.2. PathNet will fund these
increases, which will occur in OC-3 increments. PathNet will own all licenses
and equipment associated with the increases in capacity. If it is technically
possible to increase the capacity beyond the 1 x 7 system specifications,
PathNet shall have the right to do so, provided the increase in capacity does
not: (1) impair system performance by the reduction in system gain, (2)
increase the utilization of power, (3) increase space requirements, (4) increase
tower loading beyond those specifications which are established in the initial
design, or (5) result in a material reduction in Texaco's system performance.
PathNet agrees to provide Texaco with reasonable notice of its intent to
increase the spectral efficiency at its Facilities. PathNet shall have the
right to install additional microwave dishes or devices on towers, as approved
by Texaco. In the event that additional antennas will exceed tower wind loading
requirements, PathNet shall pay for any tower analysis and strengthening that
might be required before such antennas and/or other devices are installed.
1.3.8 TEXACO'S CAPITAL INVESTMENT. As an inducement to PathNet to
enter into a lease arrangement for space at the Facilities, Texaco agrees to
invest capital necessary to upgrade the Facilities to make them suitable for the
installation of PathNet's leasehold improvements. The Facilities' upgrades are
presently estimated to cost approximately [***]
. This capital to be invested by Texaco shall pay for leasehold
improvements including pressurizing equipment, tower strengthening, battery
plants, equipment shelters,
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shelter freight costs and miscellaneous site work to prepare the Facilities for
installation of PathNet's radio equipment. A description of Texaco's proposed
upgrades and an estimate of its costs are set forth in detail on SCHEDULE C --
VALUATION SCHEDULE OF CAPITAL INVESTMENT TO BE MADE BY TEXACO, attached hereto.
Any capital spent by Texaco for Facility improvements shall be disbursed
directly to vendors of Texaco's choice, provided that the equipment meets the
System specifications and design documentation necessary to prepare the
Facilities for PathNet's leasehold improvements, as set forth on Schedule E,
attached hereto. PathNet will provide the system design documentation to Texaco
and/or maintenance contractor at Commissioning. If additional capital
investment is required by Texaco for the above-described equipment and services
because of unforeseen, pre-existing Facility conditions unknown to PathNet or
Texaco, Texaco shall be required to increase its capital investment to meet the
demands of the Facility upgrades and preparation for the installation of the
digital microwave system, but Texaco's costs for these assets or services to
accommodate installation of the high-capacity digital equipment [***]
as set forth on Schedule C, attached hereto. The [***]
difference between [***] and the Texaco Budgeted Funds shall be known as
the "Texaco Contingency Funds."
1.3.9 TEXACO'S PROJECT MANAGEMENT RESPONSIBILITIES. Texaco shall serve
as project manager for the required improved infrastructure associated with the
Initial Build-Out, including installation of battery plants, towers,
pressurizing equipment and other equipment and property which it will provide.
In order to be certain the Facilities will be suitable for PathNet's leasehold
improvements, Texaco shall schedule all work to be performed in connection with
the Initial Build-Out, subject to the written approval of PathNet, which shall
not be unreasonably withheld. All contractors shall be hired by Texaco for the
Initial Build-Out, and all equipment approved for
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purchase by both PathNet and Texaco shall be ordered by Texaco. Copies of all
purchase orders issued by Texaco or PathNet shall be transmitted to PathNet
within five (5) business days of issuance.
1.3.10 PATHNET'S CAPITAL INVESTMENT. PathNet shall commit the capital
required to install its leasehold improvements at the Facilities and to complete
the System in accordance with Texaco's approval of the initial design criteria.
However, PathNet shall not be responsible for capital investments required for
the Facilities' preparation or upgrading, as set forth in Schedule B, attached
hereto, (i.e., the building of roads, modifications of towers or construction of
sheds) unless the costs exceed Texaco's capital investment of [***] as set
forth in Schedule C. PathNet shall be responsible for paying for leasehold
Facility improvements along Segment spurs which PathNet wishes to build-out for
its own network purposes and for any such sites which are separately identified
in SCHEDULE S -- NETWORK INTERCONNECTIONS SCHEDULE, attached hereto.
1.3.11 COSTS OF COMPLIANCE WITH LAWS. Any upgrades required to conform
to local building code provisions and any site costs (including fees) incurred
in connection with compliance with regulatory laws, particularly those related
to health and safety, will be borne solely by Texaco. Texaco shall register and
pay F.C.C. registration fees for the Facilities. If a cost differential shall
exist between the site fees Texaco incurs because of PathNet's status as a
common carrier and the site fees Texaco would have incurred as a private
microwave licensee operating its own microwave system along those same paths,
PathNet shall pay such differential. PathNet shall be responsible for payment
of all existing and future regulatory fees, fees for telecom relay services, pay
telephone assessments, access surcharges, universal service changes, and fees
incurred in the event of unusual occurrences and site registration fees.
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1.3.12 ENCUMBERING EQUIPMENT AND REVENUES. PathNet shall have the right
to encumber the equipment acquired to create Capacity Expansion and PathNet's
portion of the revenues to be received pursuant to the terms of this Agreement.
PathNet shall have no right to encumber the equipment for the Initial System.
However, any revenues PathNet may be due from the marketing of channels created
by the 1 x 1 Initial System may be encumbered by PathNet. This Agreement and
the rights contained herein may serve as collateral for vendors or others who
may provide financing for the equipment of services PathNet shall provide during
the System Build-Out Period. In addition, for financing purposes, PathNet may
encumber and use its portion of the revenues that may be due under the terms of
this Agreement to cross-collateralize the financing of other build-outs of
systems that will be linked to PathNet's network. Any encumbrances placed on
equipment are subject to the review and approval by Texaco, and such approval
shall not be unreasonably withheld. However, any security interest given in the
equipment used for creation of the Initial System shall reflect that the
lienholder is prohibited from removing the equipment from, or disabling,
modifying or adjusting the equipment at the Facilities. In addition, all
encumbrances or security agreements shall reflect that, in the event of default
by PathNet, lienholder's only remedy to recover monies is to proceed against
PathNet's portion of revenues which it may receive and to bring in the services
of a third party to manage and administer the marketable Excess Capacity.
PathNet shall include in its financing agreements a provision that would grant
to Texaco a right of first refusal to purchase the equipment in the event of
PathNet's default under such Financing Agreements.
1.3.13 INFORMATION AND SERVICES. To enable PathNet to make the
leasehold improvements at the Facilities, Texaco shall provide to PathNet, in a
timely manner, relevant existing tower drawings and specifications, inventory
lists, and other documents regarding its
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relevant paths, equipment, and Facility conditions within thirty (30) days of
execution of this Agreement. Texaco will provide to PathNet evidence of
ownership of the affected sites. For those sites which Texaco leases from
others, Texaco will provide PathNet with copies of such leases. Pursuant to the
terms of this Agreement, PathNet shall provide and pay for radio terminals,
space diversity repeaters, network management systems, antennas, replacement
feedhorns, waveguide, muxing from the DS-3 to DS-1 level, installation and
performance testing, path installation, spare radios, training and such
miscellaneous items required in support of providing the above-listed equipment
and services. Texaco (from the Texaco Budgeted Funds and, if necessary, from
the Texaco Contingency Funds) shall provide and pay for shelter pressurizing
equipment, shelters, shelter freight costs, structural tower analyses, tower
strengthening, tower replacement, miscellaneous site work and battery plants,
pursuant to the terms of this Agreement. Costs for the equipment and services
in excess of Texaco's Budgeted and Contingency Funds shall be borne by PathNet.
1.3.14 STRUCTURAL AND ENVIRONMENTAL TESTS, SURVEYS AND REPORTS. Texaco
shall provide PathNet with all existing current tower drawings and
specifications, if they are in Texaco's possession, custody or control. These
drawings shall include structural details, civil conditions, foundation
drawings, bonding and grounding plans, inventory of all equipment located on the
tower structure, all cabling and feedline locations and placement of all
auxiliary structures within the Facilities. Texaco agrees to provide any and
all of the following documentary information, if such information exists, and is
required to be completed by statute or, if necessary, for completion of the
project:
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a.reports, surveys, drawings and tests concerning the conditions and
microwave facilities at the Facility, and conformity of the existing system and
Facility conditions with federal, state and local law; and,
b.structural, mechanical, electrical inspections and reports which
have been required by law;
c.such additional documents which may include consultant reports that
contain descriptions of existing equipment and determinations of capabilities,
interference, evaluations of hazardous materials, tower conditions, including
necessary operations for anticipating existing conditions and appropriate
professional recommendations, when such information is reasonably related to the
scope of the Project and is requested by PathNet.
1.3.15 PHYSICAL STRUCTURES. Pursuant to the terms of this Agreement,
Texaco is to provide the appropriate physical structures necessary for PathNet
to deploy a high-capacity, digital microwave network capable of, at minimum,
16,700 DS-0's along the Segment. This infrastructure shall include real estate,
towers, shelters, power systems and miscellaneous items essential to support the
proposed system as further defined in SCHEDULE E -- OWNERSHIP OF RADIOS,
SHELTERS, SYSTEM COMPONENTS AND RELATED EQUIPMENT, attached hereto.
1.3.16 TEXACO'S DESIGNATED REPRESENTATIVE Texaco's Designated
Representative. Texaco shall designate in writing a representative who shall
have express authority to bind Texaco with respect to all matters requiring
Texaco's approval or authorization in connection with this Agreement. This
representative shall have the authority to make decisions on behalf of Texaco
concerning estimates and schedules, engineering capabilities, construction
concerns, and changes in the work, and shall render such decisions promptly and
furnish information expeditiously so as to avoid unreasonable delay in the
services or work of PathNet and/or its subcontractors.
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1.3.17 TEXACO'S RESPONSIBILITIES - FACILITY USE AND CONDITIONS Texaco's
Responsibilities - Facility Use and Conditions. Texaco hereby warrants and
represents to PathNet that the PathNet program goals as further identified
and set forth in PARA 1.2.1 of this Agreement are consistent with Texaco's
use of all owned or leased Facilities. PathNet will be provided access to all
sites set forth on Schedule B. Texaco, in conjunction with PathNet, will
determine which, if any, Facilities require structural analysis for the
placement of new antenna systems. For those structures identified as
requiring such analysis, Texaco, working closely with PathNet, will engage
and pay for a structural engineer licensed in the state in which the affected
tower resides. Texaco shall pay for the structural analysis from the Texaco
Budgeted Funds. The results of these analyses will be made available to
PathNet.
1.3.18 PATHNET'S RESPONSIBILITIES - FACILITY CONDITIONS
PathNet's Responsibilities - Facility Conditions. PathNet will analyze the
data provided by Texaco and construct a preliminary electronic inventory of
the existing Facility conditions at the time of execution of this Agreement.
PathNet will provide the requirements and specifications for the proposed
digital microwave systems site requirements at each Facility. PathNet will
inspect each Facility which does not have sufficient information provided by
Texaco to complete this analysis. PathNet will provide Texaco with detailed
antenna system requirements, which will include appropriate antenna sizes,
site elevations and azimuths. PathNet will additionally provide Texaco with
the vendor data specifying the wind loading and weight requirements for the
proposed antenna systems, as well as any associated feedlines necessary to
support the proposed system.
1.3.19 LEGAL REQUIREMENTS
Legal Requirements. Texaco shall determine and advise PathNet of any
special regulatory or zoning requirements known to it relating specifically
to the Initial System in the locality of the Facilities which differ from
those generally applicable to microwave facilities.
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PathNet shall fulfill such legal requirements, in connection with the services
it is to provide under this Agreement.
1.3.20 MAINTENANCE OF TOWERS AND FACILITIES
Maintenance of Towers and Facilities. Texaco shall be responsible for
providing Facility access towers, tower restoration, equipment access,
electricity, compliance with environmental requirements, painting,
lighting, payment of real estate taxes, compliance with FAA requirements,
maintenance of the Facility's building(s), the power systems and common
elements necessary for the continued operation of the telecommunications
asset throughout the duration of this Agreement. Texaco shall also be
responsible for FCC registration and payment of registration fees related
to the Facilities.
1.3.21 USE OF TEXACO'S TOWERS AND OTHER EQUIPMENT
Use of Texaco's Towers and Other Equipment. Texaco shall permit PathNet
to use its towers, antenna, waveguides and equipment shelters at the Facilities.
In order to expand system capacity, if necessary, PathNet shall have the right,
at its own expense, to make leasehold improvements to Facilities beyond the
Initial System. PathNet's leasehold improvements may be removed at PathNet's
expense and option, providing that no structural damage to Texaco's Facility
will result from such removal. All proposed modifications or additions to
Texaco's towers, waveguides, antennas and equipment shelters set forth on
Schedule E, shall be reviewed and approved or disapproved by Texaco within
thirty (30) business days of its submission to Texaco, and such approval shall
not be unreasonably withheld. In the event Texaco does not grant approval, the
parties shall make commercially reasonable efforts to resolve the situation.
PathNet shall pay for capacity expansion and shall not pay for Facility
improvements, except as provided for in PARA 1.3.10 of this Agreement, or unless
agreed to in writing signed by the parties hereto.
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1.3.22 TOWER APPROVALS AND STRUCTURAL CHANGES. Texaco shall fully
evaluate the tower structures and, if necessary, provide additional
stiffening or strengthening to existing structures. For all towers, Texaco
will obtain all necessary local zoning approvals, FCC approvals, site
licenses and FAA approvals (except FCC licenses provided for in PARA 3.2)
before work related to the project, or any part thereof, is commenced. Any
federal, state or local governmental or regulatory fees associated with
obtaining such tower approvals shall be paid by Texaco. Modifications to
tower structures shall be in full compliance with then current EIA/222F
specifications for loading. All costs associated with tower modifications or
requirements to support the interconnections to PSTN or the other elements of
the PathNet network shall be borne by PathNet. Any costs associated with the
interconnection to other parts of Texaco's network, which are not part of
PathNet's network, shall be paid for by Texaco. Any deficiencies or notices
of violations shall be fully disclosed to PathNet. Any tower or system
modifications that affect the tower lighting or tower alarm monitoring are
subject to the prior written approval of Texaco and shall be paid for by
PathNet.
1.3.23 PARKING AT THE FACILITIES. If required, Texaco will provide
for vehicular parking at each of the affected Facilities at no charge to
PathNet or its agents for use during the term of this Agreement. In the
event affected Facilities are in urban areas where vehicles are parked in
privately operated lots or garages, PathNet shall be responsible for any and all
parking charges it or its agents and employees may incur.
1.1.24 EXITING FACILITIES. Upon leaving Facilities, PathNet, its
employees, agents and contractors shall ensure that the Facility is returned
to a condition which existed immediately prior to their visit with the
exception of any installation, construction, maintenance or other work performed
during such visit.
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1.3.25 SECURITY SEARCHES. Any PathNet employee or agent, if required,
will be subject to a complete security search prior to entering any Texaco
facility where this may be required. PathNet employees or agents will be
allowed to bring necessary testing equipment, photographic equipment and both
video and audio recording equipment to any Facility where general security
requirements permit, subject to the prior written approval of Texaco, which
shall not be unreasonably withheld. PathNet will maintain a diary or log of its
site visits and a copy of such log will be available to Texaco during normal
business hours, provided a minimum of seventy-two (72) hours advance notice is
given to PathNet by Texaco.
1.3.26 USE OF TELECOMMUNICATIONS DEVICES. If necessary, while visiting
the Texaco Facilities, PathNet's employees or agents shall be allowed to
utilize existing telephone lines, or Order Wire to facilitate their
evaluation.
1.3.27 REAL ESTATE AND OTHER PROPERTY TAXES. For all state and local,
real and personal property taxes on equipment installed at Texaco Facilities, as
listed on Schedule E, and real estate supporting the operation of digital
microwave communications system at those sites, each party shall be responsible
for the payment of taxes for property which they separately own, as reflected in
Schedule E, attached hereto.
1.1.28 PATHNET'S OTHER RESPONSIBILITIES. PathNet will design the radio
network to be installed and specify the equipment to be used at the Texaco
Facilities. The design and specifications are subject to the written approval
of Texaco, which shall not be unreasonably withheld. PathNet shall hire any and
all subcontractors for the installation of the radio equipment and shall
coordinate system cutover and testing with Texaco. PathNet shall stage and
schedule delivery of radio, antenna and waveguide equipment and manage the
installation and cutover of the initial 1 x 1 communications system on the
microwave paths comprising the
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Texaco System, as further described in Schedule B, attached hereto. PathNet
shall also be responsible for the marketing and sale of Excess Capacity created
in accordance with the terms of this Agreement.
2. LEASEHOLD INTEREST
2.1 PREMISES; EQUIPMENT; LOCATION
2.1.1 LEASE OF FACILITIES. Texaco hereby agrees to lease to PathNet
space on Texaco's towers and space in Texaco's equipment buildings at each site
for the purpose of housing the equipment for the installation and operation of
the PathNet communications equipment set forth on Schedule E, at the Facilities,
subject to the terms and conditions set forth in this Agreement. From time to
time, Schedule B may be amended to include additional Facilities of Texaco by
the preparation of an "Amended Schedule B" to the Agreement, dated and signed by
both parties, reflecting additional paths and Facilities and specific location
information. The building layout to be used at each leased Facility is to be
set forth in the mutually agreed upon design drawings. Texaco grants PathNet,
unless PathNet defaults hereunder, the non-exclusive peaceful use, enjoyment and
possession of the Facilities during the term, as herein contemplated.
2.1.2 TERM, RENEWAL AND OPTION PERIODS. The term of the business and
leasehold relationship between Texaco and PathNet shall be up to twenty-six (26)
years for the Segment. This Agreement will become effective on the date of its
execution. The Initial Term includes the Buildout Period and extends for Five
(5) years after the Commissioning of the Initial System. The Build-out Period
of up to one year for design and installation shall commence immediately
following execution of this Agreement and shall end upon Commissioning. An
automatic option accrues to PathNet to extend the Initial Term of this agreement
for an additional ten (10) years, if
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PathNet sells at least 10% of the Excess Capacity on the Initial System. A
second automatic option period of ten (10) years accrues with the sale of at
least 20% of the Excess Capacity on the Segment during the first option period.
To exercise either of these options, PathNet must notify Texaco in writing at
least 180 days prior to the end of the preceding term. Upon expiration of the
Initial Term and any optional terms PathNet has exercised, the term of the
Agreement shall continue year to year, cancelable by either party upon ninety
(90) days' written notice to the other party. If either PathNet or Texaco
elects to not extend the Agreement after expiration of the Initial Term, or any
option period, PathNet shall sell the Initial System to Texaco for the total sum
of $1.00 and PathNet shall promptly file whatever forms may be necessary to
facilitate the transfer of the license for the initial 1 x 1 system from PathNet
to Texaco. Upon the expiration of this Agreement, PathNet shall, at Texaco's
request, also remove all of its owned equipment within sixty (60) days from
Texaco's Facilities. Should PathNet fail to perform such requested removal
within a timely manner, Texaco may restore the leased premises to its condition
as of the date the System is commissioned, reasonable wear and tear and damage
from the elements excepted, and PathNet shall promptly pay Texaco all costs
reasonably incurred for such removal.
2.1.3 ANTENNAS. PathNet shall furnish all antennas and antenna
mounting hardware for securing the antennas to the towers. The antennas will be
installed on the towers by PathNet and PathNet has the right to install the
antennas with space diversity. PathNet's antennas are to be mounted at
positions on Texaco-owned towers to be noted in the agreed-upon system design
documents. The antenna positions, loading and frequencies are set forth on
Schedule K.
2.1.4 TRANSMISSION LINES. One (1) transmission line will be connected
to each antenna initially. All line(s) will be anchored firmly to the tower in
accordance with the manufacturer's recommendation and as directed by Texaco. If
the System is expanded beyond the 1 x 1 Initial
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System, PathNet may elect to install a second transmission feed line. PathNet
shall furnish all transmission line(s), connectors and mounting hardware for
securing and grounding to the towers. PathNet, or its contractor, shall install
the transmission line(s) on the tower and route said transmission line(s) to its
equipment rack in Texaco's buildings, connecting both ends of the transmission
line(s). PathNet shall interface the transmission line(s) to its radio
equipment.
2.1.5 EQUIPMENT BUILDINGS. PathNet shall place its equipment inside
the Texaco buildings. Texaco shall allow PathNet access to PathNet's equipment
inside buildings at the Facilities, provided that Texaco shall have the right to
escort PathNet personnel. PathNet shall firmly anchor its equipment racks to
the floor, using a method and location mutually agreed upon by PathNet and
Texaco.
2.2 WARRANTIES REGARDING THE LEASEHOLD INTEREST
2.2.1 TEXACO'S AUTHORITY TO LEASE. Texaco represents and warrants that
it: (i) solely owns (or controls by lease or easement) the Facilities, set
forth in Schedule B, unencumbered by any liens, restrictions, mortgages,
covenants, conditions, easements, agreements, proffers, commitments, agreements
of record, or not of record, which would adversely affect Tenant's use and
enjoyment of the leased premises under this Agreement; (ii) is duly
organized/formed, validly existing and in good standing, and has all rights,
power and authority to make this agreement and bind itself thereto through the
party set forth as signatory as set forth below; (iii) has not dealt with, nor
is any brokerage commission due to any broker in connection with this Agreement;
and, (iv) the Property and its uses and operations, the making of this
Agreement, and Texaco's performance of this Agreement, to the best of Texaco's
knowledge, complies and will comply with all laws and not violate the provision
of any agreement or encumbrance of any
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kind under which Texaco is a party or is bound or which restricts in any way the
dispositions or use of the Property.
2.2.2 PATHNET'S AUTHORITY TO LEASE.'S AUTHORITY TO LEASE PathNet
represents and warrants that it (i) is authorized to lease the Facilities set
forth in Schedule B, unencumbered by any liens, restrictions, mortgages,
covenants, conditions, easements, agreements, proffers, commitments, agreements
of record, or not of record, which would adversely affect PathNet's use and
enjoyment of the leased premises for the purposes contemplated under this
Agreement; (ii) is duly organized/formed, validly existing and in good standing,
and has all rights, power and authority to make this Agreement and bind itself
thereto through the party set forth as signatory, as set forth below; and,
(iii) has not dealt with, nor is any brokerage commission due to any broker in
connection with this Agreement.
2.3 RENT AND OTHER LEASEHOLD PAYMENT RESPONSIBILITIES
2.3.1 RENT TO TEXACORENT TO TEXACO. PathNet covenants and agrees to
pay to Texaco as rent for the use of the Facilities during each year of the
Initial Term, following the Build-out Period, an allocation of [***] .
PathNet will provide [***] to Texaco with a maximum cross sectional density
of [***] with Drop and Insert capability at the DS-1 level, at the
appropriate Facilities, as represented by the agreed upon channel plan set forth
in Schedule D for Texaco's own internal use and/or sale. The performance of
these DS-1's will meet or exceed the standards set forth in Schedule O.
Commencing in the [***] after Commissioning, PathNet shall
pay to Texaco, as additional rent, [***] of the revenue resulting
from the sale of the Excess Capacity installed at the Facilities, consistent
with the
- -------------------------
(1) [***]
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provisions and terms of Section 2.3.2 of this Agreement. Texaco shall have
access on interconnections as set forth on Schedule S, attached hereto, with a
maximum cross section density of [***] channels.
2.3.2 SALE OF EXCESS CAPACITY. PathNet shall market all Excess
Capacity created. Texaco shall receive additional rent from PathNet based on
PathNet's sales of Excess Capacity according to the following terms:
a. INITIAL SYSTEM. For the four (4) years following
Commissioning of the Initial System, PathNet shall receive and retain all
revenue from the sale of Excess Capacity created by the Initial System for
the purpose of paying for the Initial System equipment and components. After
the [***] following Commissioning, PathNet shall begin to receive [***]
of the gross revenue and Texaco shall begin to receive, as additional rent,
[***] of the gross revenue on the sale of Excess Capacity created from the
Initial System.
b. SYSTEM CAPACITY EXPANSION. For a period of [***]
immediately following Commissioning of a Capacity Expansion beyond the
Initial System, the entire revenue stream shall be dedicated to servicing the
incurred debt on the cost of the radio and related equipment associated with
such Capacity Expansion. Each Capacity Expansion shall have its own
[***] . Each Capacity Expansion will be assigned an "Expansion" name
(i.e., Expansion 1, Expansion Phase 1...). PathNet will provide Texaco a
schedule that will set forth: (1) the amount of capacity to be included in the
expansion; (2) specific paths to be expanded; (3) the expansion name (including
each Path that is affected); (4) commissioning date; (5) [***] ;
and (6) the date Texaco will begin to receive additional rent from the gross
revenues derived from the expansion. Increases in capacity will be paid for
solely by PathNet and may come from the additional revenue stream which is
generated
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from the sale of this additional capacity. If payments for radio and related
equipment associated with capacity upgrades or to service debt on such equipment
are needed, PathNet shall advance and make such payments. The determination to
increase telecommunications capacity along any segment of the digital network
will be made solely by PathNet. However, the precondition to any increase in
capacity is that at least [***] the existing capacity shall have been already
sold to PathNet customers for at least one quarterly period. After the
[***] , PathNet shall receive [***] of the revenues produced by
the Capacity Expansion and Texaco shall receive, as additional rent, [***] such
gross revenues. For PathNet's sale of Excess Capacity, as set forth on SCHEDULE
J -- EXCESS TELECOMMUNICATIONS CAPACITY SOLD AND PAID FOR, attached hereto,
which includes facilities controlled by several participants, the revenue to be
received by Texaco will be based upon the ratio of the number of miles Texaco's
network contributes to the Marketable Route, times the price per circuit mile on
the Marketable Route, [***] .
2.3.3 OPTION TO PURCHASE ADDITIONAL CAPACITY. Texaco may purchase
additional capacity from PathNet at a 25% discount to the prevailing lowest
rates as sold to IXC's at the time by PathNet. Texaco shall have the right to
purchase up to 20% of the Excess Capacity available at any time. This
specifically includes the option to purchase, as part of this capacity, any
wayside channels resulting from the addition of radios to create Capacity
Expansion. Texaco may only purchase capacity for its own use in connection with
its core business needs and not for purposes of resale.
2.3.4 TEXACO'S LABOR TO PERFORM SERVICES. PathNet agrees to compensate
Texaco for special services provided by Texaco's employees at the hourly rate of
$60.00 for regular working hours on a business day; $80.00 for a non-business
day; and $100.00 for a Texaco holiday. This
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requirement to use and pay for Texaco's services (at the indicated rates) shall
apply to the removal of PathNet's equipment or antennas, should PathNet fail to
remove them in accordance with the terms of this Agreement, and to any other
special services agreed upon by the parties and confirmed in writing by PathNet
before such costs are incurred. Alternatively, Texaco may elect for PathNet to
engage and pay for the services of an independent, third-party contractor, to be
selected by PathNet and approved by Texaco, to remove such equipment or perform
other special services. PathNet agrees to reimburse Texaco for any
consequential expenditures, for the benefit of PathNet for the services
described above, at Texaco's cost, plus twenty percent (20%) to cover
administrative handling. PathNet may elect for Texaco to engage and pay for the
services of an independent, third-party contractor, to be selected by Texaco and
approved by PathNet, to remove such equipment. In addition, PathNet agrees to
separately compensate Texaco for maintenance services to be provided by Texaco's
employees, pursuant to the terms of a separate maintenance services agreement
that will be executed by the parties.
2.4 INSTALLATION AND OPERATION
2.4.1 INSTALLATION AND LOCATION. PathNet shall install, operate,
repair and remove its radio equipment in accordance with the terms of the
Agreement as defined in Schedule B. PathNet or PathNet's contractor shall
install PathNet's electronic equipment in PathNet's equipment racks at the
Facilities. PathNet shall not at any time change the location of the equipment
racks or of the antennas on Texaco's microwave tower or install additional
equipment without the written permission of Texaco. PathNet shall not make any
changes in the use of its equipment without written permission of Texaco, which
permission shall not be unreasonably withheld. PathNet may make changes which
increase tower loading at its sole cost.
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2.5 INTERFERENCE
2.5.1 DETERMINATION OF INTERFERENCE. For purposes of this Agreement,
interference will be deemed to exist if there is a measurable material
impairment in the quality of the frequency or signals received and/or
transmitted which results in harmful interference, as defined by the Federal
Communications Commission.
2.5.2 INTERFERENCE ASSUMPTIONS. At all times during the term of this
Agreement and any extension thereof, PathNet and Texaco agree to use equipment
that is FCC type accepted, FCC licensed or approved, installed, operated and
maintained in accordance with FCC and Vendor specifications. Interference
problems due to improper installation, design and/or maintenance shall not be
sufficient cause for termination of this Agreement. PathNet shall provide
assistance to Texaco while trying to isolate and eliminate interference problems
which involve equipment owned and/or operated by a tenant of Texaco. PathNet
agrees to make no changes in or to its equipment or frequency without the prior
approval of Texaco, which approval will not be withheld or delayed, so long as
such changes do not cause interference to a then present Texaco tenant on the
Facilities.
2.5.3 EXISTING TENANT INTERFERENCE COORDINATION. Before entering into
this Agreement, PathNet and Texaco have performed a preliminary frequency
analysis to determine if any obvious harmful interference would result from
Texaco's present tenants and the deployment of the System along the Segment.
Texaco has provided PathNet with an existing frequency inventory for each
Facility. After the Agreement has been approved, a more detailed frequency
analysis will be completed as a part of the formal design process. Design
approval by Texaco and PathNet will imply that the design calculations reveal no
obvious interference between existing tenants and planned Facility
modifications.
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2.5.4 NEW TENANT INTERFERENCE COORDINATION. During the term of this
Agreement, Texaco shall not license or permit other persons or entities to use
its Facilities if PathNet's then-in-use signal or frequency or physical location
of equipment would cause interference with such new tenant. Texaco and PathNet
agree that PathNet's signal has a paramount priority with respect to any other
communications signals or facilities installed on the leased premises subsequent
to Texaco's cutover. Texaco further agrees that during the term of this
Agreement, it will not license or permit other persons or entities to use its
communications facilities on the Premises if such persons or entities will cause
interference with PathNet's then-in-use frequency or signal, or with equipment
or antennas. Texaco, upon receiving notice from PathNet of such interference,
shall take all steps necessary to correct and eliminate such interference,
including, without limitation, enforcing provisions in any license or other
agreement between Texaco and the persons or entities causing such interference,
pursuant to which Texaco may compel such persons or entities to cease operation,
modify their equipment and/or antennas, or remove their equipment and/or
antennas from any facilities or towers owned by Texaco. If PathNet or Texaco
breach their obligations under this Section 2.5, the party receiving notice of
such breach from the other will take all steps necessary to correct and
eliminate such interference. If such interference cannot be eliminated within a
reasonable length of time, but not to exceed thirty (30) days after notice
thereof, Texaco or PathNet, as the case may be, shall cause the interference to
cease, except for brief tests necessary for the elimination of the interference.
Texaco acknowledges that: (i) PathNet will operate under a federal license,
(ii) continuing interference with PathNet's operation may cause irreparable harm
to PathNet, (iii) the prompt cessation of interference is material to PathNet's
leasehold interest, and (iv) therefore, PathNet shall have, as one of its
rights,
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the power to enjoin such interference, as reflected in SCHEDULE L-- DISPUTE
RESOLUTION/ARBITRATION PROVISIONS.
2.6 OTHER PROVISIONS
2.6.1 SUBLETTING. PathNet shall not sublet the Premises, in whole or
in part, without the written consent of Texaco. However, PathNet shall have the
right to transfer and assign its rights under this Agreement to a successor or
assign, pursuant to Section 5.1.4 of this Agreement.
2.6.2 SURRENDER. Upon the expiration or termination of the Agreement
or abandonment of the Premises by PathNet, PathNet shall peacefully and quietly
surrender occupation of the Premises to Texaco, or Texaco's successors and
assigns, without Texaco giving any notice to quit or demand for possession.
PathNet's non-use of the Premises, for the purposes described in this Agreement,
continuing for one (1) year shall be sufficient and conclusive evidence of such
abandonment, unless PathNet shall have notified Texaco in writing of its reasons
for such non-use, and shall continue to provide the [***] to Texaco.
2.6.3 SITE EXCAVATION. PathNet, its employees, agents and contractors
shall perform no site excavation at the Facilities without the prior written
approval of Texaco. PathNet shall have the right to conduct soil borings upon
notification to and approval by Texaco. All Texaco approvals of site excavation
requests shall not be unreasonably delayed or withheld.
2.6.4 SUBORDINATION. PathNet agrees to subordinate its rights under
this Agreement to all deeds of trust, deeds to secure debts, mortgages and other
security instruments (a "Mortgage") now or hereafter encumbering all or any
portion of the real property described on Schedule B to this Agreement (as such
schedule may be amended by PathNet and Texaco from time to time), and to any
increases, renewals, modifications, consolidations, replacements and extensions
thereof, provided that PathNet has received a commercially reasonable
subordination, non-
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disturbance and attornment agreement from the party(ies) secured by such
Mortgage(s). Any subordination shall not impair, jeopardize or disturb
PathNet's ability to operate its network or operate as a common carrier at the
Facilities.
2.6.5 HAZARDOUS MATERIALS. The parties agree to follow the Hazardous
Materials policy provisions set forth on SCHEDULE M -- HAZARDOUS MATERIALS
PROVISIONS, attached hereto.
2.6.6 ACCESS TO FACILITIES. Access to the Facilities for
installation, evaluation and testing of the replacement telecommunications
system shall not be unreasonably withheld from PathNet or its agents. Any
employee, agent or contractor of PathNet who is granted access to Texaco
Facilities shall provide proof of insurance to Texaco sufficient to
satisfy its minimum corporate requirements, but not to be less than $5 million
in general liability coverage, as set forth more completely in SCHEDULE N --
INSURANCE, attached hereto. If Texaco requires any security clearances, safety
training or drug testing for any non-Texaco personnel, PathNet will require that
its employees, agents or contractors apply to Texaco for such necessary
clearances, obtain the required safety training and submit to the required drug
testing. If required, Facility visits will be escorted by Texaco. PathNet
shall not be responsible for payment of any costs to Texaco associated with
Facility visits required during the installation, design and cutover period, or
for regularly scheduled visits thereafter. In the event of any special services
or emergency visits when Texaco is required to deploy personnel to a Facility,
Texaco shall invoice PathNet and PathNet shall pay the costs of such services at
the rates set forth in Section 2.3.3 of this Agreement. Texaco shall maintain
access to all Facilities in a reasonable manner in accordance with regulations
in their local jurisdictions.
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3. DESIGN, INSTALLATION, ACCEPTANCE AND OWNERSHIP
3.1 DESIGN, INSTALLATION AND CUTOVER
3.1.1 PATHNET'S DESIGN OBLIGATIONSPathNet's Design Obligations.
PathNet shall design the high-capacity, 6 GHz/30 MHz system in a manner that
will allow the unimpaired, continuous operation of Texaco's low-capacity, 6
GHz/10 MHz system until cutover of all operational circuits and testing of the
System has occurred. After cutover, the System operation standards shall be
controlled by the Minimum Network Performance Standards as set forth in SCHEDULE
O -- MINIMUM NETWORK PERFORMANCE STANDARDS, attached hereto and made a part of
this Agreement. PathNet shall, in installing the System, utilize towers,
antennas, waveguides, and the system components of the existing system wherever
possible. PathNet shall submit all systems and site designs to Texaco for its
review, analysis and approval, which shall not be unreasonably withheld, and
which approval (or disapproval) shall be rendered within (30) thirty days of
submission. Any design modifications shall be discussed and agreed upon in
writing by both Texaco's and PathNet's engineers.
3.1.2 RADIO SYSTEM. The active radio components of the System will be
digital. The specified System will be approved by Texaco and will be engineered
to availability specifications set forth in Schedule O. The System will comply
with the performance criteria set forth in Schedule O. The typical engineering
availability criteria which will be established for the Initial System and the
Capacity Expansion will be for a digital microwave Segment (defined in Schedule
B) which has less than two (2) minutes per annum of outage time, coupled with a
continuous bit error rate not to exceed 10-13.
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3.1.3 ANTENNASANTENNAS. In any selected frequency range, PathNet shall
ensure that all newly installed antenna reflectors will conform to Category A
standards as defined by the FCC and the antennas must meet the specifications
issued on any prior coordination notices (PCN).
3.1.4 WAVEGUIDE. Any waveguide specified for transmission line shall
be of a premium grade ensuring minimum transmission loss and Andrew part EWP-63
or equivalent.
3.1.5 D.C. POWER REQUIREMENTS. PathNet shall ensure that the active
radio components: (a) will operate in accordance with the manufacturer
specifications set forth in Schedule D, attached hereto; and (b) will be powered
by an uninterruptable power supply operating at 48 volts DC, with at least eight
hours of back-up capability. Texaco shall also ensure that the equipment
shelters are environmentally controlled to mutually agreed upon standards.
3.1.6 DIAGNOSTIC CIRCUITDIAGNOSTIC CIRCUIT. PathNet shall equip each
Facility with a single telephone line for System diagnostic purposes. PathNet
shall carry this circuit, order wire, or DS-0, as part of the System payload,
and it will be PathNet's responsibility to provide this circuit from the
circuits set aside for PathNet or through the order wire. PathNet shall have
the right to install additional order wires at the Facilities.
3.1.7 GROUNDING AND STANDARDS. Texaco shall be responsible for the
costs of delivering the Facilities in compliance with grounding and bonding
standards. The System and all associated electrical components will be grounded
and bonded to current IEEE standards, and shall be approved in writing by
PathNet, which approvals shall not be unreasonably withheld.
3.1.8 MULTIPLEXING FROM OC-3 TO DS-1 LEVEL. PathNet shall provide, at
its cost, the multiplexing of the OC-3 to the DS-1 level at each affected
Facility using OC-3 multiplexing, according to the design specifications set
forth in Schedules D and G. PathNet shall have the right to use Wayside
Channels that are not set forth in Schedules D and G, attached hereto, that
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result from Capacity Expansion. PathNet's use of the Wayside Channels that are
part of the Initial System must be coordinated with and approved by Texaco.
3.1.9 MULTIPLEXING FROM DS-1 TO DS-0 LEVEL. The multiplexing of the
DS-1 to the DS-0 level at each affected Facility will be Texaco's sole
responsibility. Texaco and PathNet shall jointly determine how Texaco's needs
will be met, as set forth in Schedules D and G, attached hereto.
3.1.10 AC ELECTRICAL POWER. With Texaco Budgeted Funds, Texaco shall
provide AC electrical power consistent with local requirements and the usage at
each of the affected Facilities. If power currently exists at the Facilities
but is inadequate to handle the Expanded Capacity, the cost of such power
enhancements will be borne by Texaco, which shall make payment to the
appropriate utility companies.
3.1.11 MINIMUM SYSTEM DESIGN REQUIREMENTS. PathNet shall ensure that
the proposed System, upon completion, will meet the then current FCC
requirements of spectrum efficiency outlined in the FCC regulations, 47 C.F.R.
Section 21.122. The System will be comprised of, at a minimum, 3 DS-3
capability and will have a 1 x n protection switch allowing for upward migration
to a minimum of 1 x 7 protection, unless Texaco approves in writing of expansion
to a 1 x 15 protection level, utilizing additional spectrum or the use of
crossband filters.
3.1.12 SONET RADIOSONET RADIO. The digital microwave radios will
operate under a SONET format.
3.1.13 PRIOR COORDINATION NOTICES. PathNet will monitor and protest any
proposed PCN which may affect the System by interference, either real or
potential. PathNet will issue
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any PCN's required or necessary for the construction of the 1 x 1 Initial System
or the Capacity Expansion.
3.1.14 DESIGN DOCUMENTATION. PathNet will propose specific equipment
for each component of the System at each Facility, as well as for the services
involved in System implementation. This proposal will be fully set forth in
writing prior to the parties' design approval or disapproval. PathNet shall
transmit to Texaco the approval specifications for all proposed equipment and
any related FCC-type compliance certificates or waivers.
3.1.15 COMPLIANCE WITH GOVERNMENT REQUIREMENTS. If FCC requirements
change between the design and final construction of the Initial System at the
Facilities, PathNet will be solely responsible for such costs of compliance.
PathNet will also install the System in full compliance with any state and local
regulations in effect at the time of installation which will affect the given
service areas.
3.1.16 FACTORY ACCEPTANCE TESTING. Equipment shall be assembled in
system configuration for factory acceptance testing. Rack, simulated Path,
Switch Section placement and testing shall be performed to verify that the
equipment exceeds the published manufacturer's specification. PathNet shall
provide the manufacturer's published testing procedures to Texaco at least two
(2) weeks before the scheduled factory acceptance testing is to occur. Texaco
shall have the right to review these testing procedures and request procedural
modifications if the procedures deviate from industry standards. The results of
the factory acceptance tests shall be provided to Texaco.
3.1.17 PRE-COMMISSIONING. PathNet shall install an Initial System in
such a way that it can be operated and tested without interfering with Texaco's
existing system performance. PathNet shall have all equipment in place to allow
for a cutover by Texaco of its existing
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channels. Texaco and PathNet shall mutually agree upon a pre-commission plan
and approve it in writing. This System is deemed Pre-Commissioned when fully
operational.
3.1.18 FACILITY ACCEPTANCE TESTING. After the equipment is delivered
and installed at the Facilities, retesting of Rack and Path and testing shall be
performed to verify proper operation of the equipment. Texaco and PathNet each
shall have the right to observe all site acceptance tests. The procedures to be
utilized in these tests are to be mutually agreed upon between PathNet and
Texaco. The results of the site acceptance tests shall be provided to PathNet
and Texaco. PathNet shall select the contractor that will perform all site
acceptance testing. All site acceptance tests shall be conducted in compliance
with manufacturers' specifications listed in Schedule O, attached hereto.
3.1.19 CUTOVER. A cutover coordination plan will be developed as part
of the joint design and approval process. At the time of design stage approval,
PathNet shall provide a detailed cutover schedule to Texaco. Testing shall
occur in a manner and on dates acceptable to Texaco. Texaco shall participate
in and manage the cutover process for its allocated channels. PathNet shall
allow Texaco a ninety (90) day cutover period during which both the existing
analog and new digital systems will be fully functional. The channel cutover
period shall end either ninety (90) days after it is commenced or upon written
notice from Texaco, whichever may occur first.
3.1.20 COMMISSIONING, INSTALLATION AND COMPLETION. Following the
channel cutover period, PathNet shall modify the System into its final
operational configuration. The completion of the installation shall be marked
by the satisfactory completion of the necessary performance tests, which shall
be paid for by PathNet. Satisfactory testing and evaluation of the System shall
occur immediately following the completion of cutover. Upon completion of the
performance
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testing by an independent third-party in accordance with the performance testing
specifications set forth in Schedule O, the installation shall be complete.
After successful completion of these tests, PathNet and Texaco will declare in
writing that the Initial System has been Commissioned. This same process shall
be used for each Capacity Expansion.
3.2 FCC LICENSING FCC LICENSING
3.2.1 COMMON CARRIER LICENSE FILING. PathNet shall be the operator of
all System licenses held in its name. PathNet will be responsible for all
filings with regard to common carrier status both at the federal and local
levels. PathNet shall maintain any and all licenses issued by the FCC in good
standing. The FCC licenses issued in connection with the System shall be issued
in the name of PathNet and the licenses and radio equipment shall be owned and
operated by PathNet. PathNet shall prepare and submit all necessary frequency
coordination, licensing and/or relicensing applications and other related
filings on its behalf, as a Part 21 Common Carrier, seeking that it be able to
sell its telecommunications capacity created from the System to other common
carriers. The System designed and installed by PathNet will meet FCC loading
requirements and have capacity which can be resold to common carriers. Copies
of all filings with the FCC, including PathNet's licensing as a common carrier,
shall be provided to Texaco, and Texaco shall not unreasonably withhold its
signature required for such filings. Texaco shall provide assistance to PathNet
in supplying any and all available documentation, as may be required by
regulating agencies. Any expenses incurred with regard to these filings will be
the sole responsibility of PathNet.
3.2.2 IDENTITY OF LICENSEES. The System will be licensed in the name
of the PathNet, under Parts 21 /101 of the FCC Code. Texaco will remain
licensed for the operation of the existing 6 GHz/10 MHz system under Part 94 of
the FCC Code, until such time as its licenses
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may be terminated. While the responsibility to complete the licensing forms for
filing with the FCC will be PathNet's, upon request and in a timely manner,
Texaco shall provide to PathNet all information necessary for the completion of
these forms which is not proprietary and is readily available to Texaco.
3.2.3 FORMS AND FEES. Licensing forms completed by PathNet, like all
other licensee applications, will become a matter of public record. Currently,
the proposed frequencies to be utilized for creation of microwave facilities
have initial application fees, and such fees will be borne by PathNet. However,
in the future, the FCC may establish user fees for this spectrum. If common
carrier system user fees exceed those of a comparable private microwave system,
PathNet and Texaco shall be responsible for sharing payment of such additional
fees in the same proportion as the revenue split between PathNet and Texaco.
3.2.4 DEPRECIATION OF EQUIPMENT. Texaco will have the right to fully
depreciate any remaining asset value of the pre-existing equipment as well as
for any equipment which it owns. PathNet shall have the right to depreciate the
equipment it pays for on the appropriate depreciation schedules in proportion to
its respective ownership, as permitted by the United States Internal Revenue
Service.
3.2.5 ACCESS TO LOGS AND REPORTS. Texaco and PathNet shall make
available to each other, to its maintenance vendor(s) and/or to the equipment
manufacturers of the affected component(s), all compiled reports, logs,
registers and diaries prepared during installation, cutover and System operation
related to System operation and performance.
3.2.6 FCC LOADING REQUIREMENTSFCC LOADING REQUIREMENTS. The
configuration of the typical microwave replacement path which PathNet will
integrate into its network will be in the form of a 1 x n protection scheme.
The mandated FCC loading requirement for spectral efficiency and traffic
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volume will be the responsibility of PathNet. Any waivers or extensions
requested by PathNet of the FCC will be initiated and handled by PathNet or its
agents. PathNet will comply with applicable FCC requirements for spectral
efficiency and channel loading. PathNet reserves the right to modify the System
to a hot standby system ensuring for adequate redundancy while meeting the FCC's
criteria for spectral efficiency, if PathNet is unable to secure sufficient
telecommunications and is also unable to have the FCC grant a waiver or
extension to Texaco. The costs of any such reconfiguration, if necessary, will
be borne solely by PathNet. Such a reconfiguration will cause no interruption
to the telecommunications service.
3.3 RESPONSIBILITIES DURING SYSTEM CREATION AND INSTALLATION
3.3.1 REASONABLE EFFORTS AND TIMINGREASONABLE EFFORTS AND TIMING.
PathNet shall utilize commercially reasonable efforts to ensure that System
creation through final acceptance occurs as expeditiously as possible. It is
PathNet's goal that the construction of the System shall occur within eighteen
(18) months of the time all permits and approvals have been secured.
3.3.2 PROJECT MANAGEMENTPROJECT MANAGEMENT. Project Management shall
be the responsibility of Texaco for physical sites and PathNet for the radio
installation. Each party shall issue preliminary project schedules to frame
construction and start-up expectations in connection with their respective
responsibilities. The details of the preliminary schedules and any preliminary
project management plan will be agreed upon by PathNet and Texaco before
contract signing. A final schedule and project management plan shall be agreed
upon by PathNet and Texaco within forty-five (45) days of execution of this
Agreement, and shall be attached hereto as Schedule F.
3.3.3 INSTALLATION REPORTSINSTALLATION REPORTS. After installation has
begun and through final acceptance, Texaco and PathNet shall provide to each
other a bi-weekly progress report relating to the progress of the construction.
This report will be in writing and delivered to PathNet and Texaco
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the 1st and 15th day of each month until project completion. Each progress
report shall include a description of the work performed during the immediately
preceding period, and the relationship of the work completed to the entire scope
of work necessary for the implementation of the System. This report shall also
include any deviations from the proposed schedule of work and an analysis of
such deviations with respect to their impact upon the timely deployment of the
System.
3.3.4 COOPERATION DURING INSTALLATION. During installation, Texaco
shall continually post at the Facilities any permits or licenses for building or
tower work related to the construction. Texaco agrees to not impede
construction by denying access to its Facilities or failing to perform other
duties or contract requirements. During the period of construction, it may
become necessary for PathNet or various vendors to store equipment and materials
at the Facilities. Texaco shall assist by storing and staging materials, and it
may not impose any fees related to such storage. PathNet shall provide detailed
ship and delivery schedules at least two (2) weeks prior to receipt of equipment
and materials.
3.3.5 SECURITY. PathNet and Texaco shall be responsible for security
during the construction period. The standards for security shall be those that
Texaco regularly employs at its Facilities.
3.3.6 SITE INSPECTORS AND DELAY. During System installation, PathNet,
its employees, agents and vendors, may perform site inspection services at any
hour on any day, with reasonable assistance to be provided by Texaco to gain
access. If installation becomes disrupted due to labor unrest or strike,
PathNet reserves the right to replace its contractor and employees.
3.3.7 PROOF OF LICENSED CONTRACTORS. During installation, PathNet or
Texaco may require, from time to time, proof of licensing and certification of
insurance and compliance with
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federal, state or local health and safety requirements for contractors
performing construction related services, as set forth on SCHEDULE N --
INSURANCE, SCHEDULE P -- EQUAL EMPLOYMENT OPPORTUNITY POLICY, SCHEDULE Q --
PATHNET SAFETY MANAGEMENT, and SCHEDULE R -- SUBSTANCE ABUSE POLICY, attached
hereto.
3.3.8 SYSTEM OUTAGES. The parties agree to make their best
efforts to avoid unscheduled outages.
3.4 OWNERSHIP OF REPLACEMENT MICROWAVE FACILITIES
3.4.1 RADIO EQUIPMENT AND OTHER ITEMS. Ownership of radios, shelters,
components and related equipment shall be as in accordance with Schedule E,
which separately lists the microwave assets of Texaco and PathNet. All the
related equipment previously owned and/or paid for by Texaco for use in the
System shall be owned by Texaco. All radio equipment and antennas to be
purchased and installed by PathNet shall initially be owned by PathNet and later
transferred to Texaco, in accordance with the terms of this Agreement. With
respect to the System to be installed, PathNet shall pay for and own all newly
purchased radio equipment and multiplexing equipment to the DS-1 level,
antennas, waveguides and other System components. Once equipment necessary to
create and/or increase the System has been installed, this equipment will be
titled to and owned by PathNet. For maintenance and ownership purposes, a list
of equipment at each Facility in the form set forth in Schedule E, attached
hereto, shall be maintained by PathNet and by Texaco, with one copy maintained
at the Facility. The Schedule shall be counter-signed by both parties to this
Agreement and periodically updated as new equipment is added. PathNet will take
title to all upgraded equipment added to the System. All existing common
equipment shall remain the property of Texaco. All newly installed common
equipment paid for by PathNet, such as waveguides and antennas, initially shall
be owned by
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PathNet, until such time as the antennas and waveguides are fully depreciated in
accordance with generally accepted principles of accounting. Once installed and
cutover, the Initial System shall be transferred to Texaco at its election,
after a period of five (5) years for a sum not to exceed one dollar.
3.4.2 CAPACITY AGGREGATION. During the construction of PathNet's
network, it will be necessary to aggregate the Excess Capacity of each party
into a network. PathNet shall own all equipment necessary for the aggregation
and/or integration of Texaco's capacity to (a) PathNet's network comprised of
telecommunications Excess Capacity supplied by other participants in the PathNet
program, and (b) to the PSTN.
3.4.3 ADDITIONAL EQUIPMENT INSTALLATION, APPROVAL AND NETWORK LINKING.
Any proposed modification and/or installation of additional telecommunications
equipment not appearing on Schedule E shall be subject to the prior approval of
Texaco, which shall not be unreasonably withheld. The direct and indirect costs
of installing any additional equipment shall be borne solely by PathNet.
PathNet shall retain ownership of the linking facilities.
3.4.4 INTERCONNECTIONS. PathNet may create up to four (4)
interconnections per LATA. Two of such interconnections shall be to other
segments of the PathNet network created from facilities of other parties. The
two additional interconnections shall be to publicly switched telephone networks
(PSTN). At each interconnection Facility, PathNet may place up to two (2)
additional antennas at PathNet's cost, but solely for such interconnection
purposes. Those interconnections may be by microwave or other media. PathNet's
interconnection rights shall not be construed as a grant of rights-of-way to
PathNet along any pipeline and PathNet must obtain its own rights-of-way to
reach any Facility. PathNet has the right to co-locate the equipment necessary
to support such interconnections, pursuant to Schedule E, attached hereto.
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If spurs are developed by PathNet, the interconnections at such spurs shall be
specified on Schedule S, approved by Texaco, and paid for by PathNet.
Conversely, if spurs are to be developed by Texaco at its own costs for its own
connectivity purposes, interconnections at such spurs shall be specified on
Schedule S, and paid for by Texaco. Coordination with PathNet will be as
specified in Section 1.3.9.
3.4.5 INTERCONNECTION PLACEMENT AND REVENUE. PathNet shall determine
the placement of and install connecting facilities from the System to the
existing PSTN at locations to be determined by PathNet's potential customers.
PathNet will connect the System to existing POP's to be determined by PathNet's
potential carrier customers or by PathNet. PathNet or its customers will be
responsible for the facilities necessary to connect the designated POP's to the
network. The ownership of these other facilities and the revenues they may
generate will be the sole property of PathNet or its customers. PathNet will
provide Texaco up to [***] at such Facilities without charge to
Texaco and those channels, which include DS-1 level access, will be allowed to
pass along PathNet's section of the network. PathNet may transfer its authority
to construct additional facilities for links between its system created at the
Facilities and POP's to PathNet's customers. Any fees or charges related to the
interconnection of the PathNet network or capacity created on the System to the
PSTN shall be the sole responsibility of PathNet or its customers. PathNet may
charge its customers fees, tariffs or costs for the connection to the PSTN.
Texaco shall not be responsible for payments of any fees or costs related to the
interconnection to the PSTN.
3.4.6 SELLING PRICES FOR EXCESS CAPACITY. In establishing its selling
price for Excess Capacity, PathNet's goal shall be to maximize revenue on
PathNet's entire network, not to maximize revenue merely on a specific microwave
segment or path. Accordingly, PathNet
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reserves the exclusive right to sell Excess Capacity at prices it shall
determine appropriate on specific routes for sale to its customers, which prices
may be below or above current competitive market pricing. Selling prices
proposed as part of this aggregation, if required, will be submitted and filed
by PathNet with the appropriate regulatory authority. The price for Excess
Capacity that is charged on Texaco's portion of the sold route will be identical
to that of other participants who are sharing in the proceeds from the
particular sale of a marketable route. Texaco agrees to participate in the path
aggregations for which PathNet has determined, in its sole discretion, the per
circuit mile selling price. PathNet reserves the right to package the Excess
Capacity in sales increments of DS-1's, DS-3's or OC-3's. The price schedule
for various capacities that PathNet will charge its IXC customers from the
Segment will be fully disclosed to Texaco. PathNet will reserve the right to
modify its offerings as far as bandwidth allocation and channelization, if
market conditions indicate that different segmentation will result in higher
aggregate revenues for Excess Capacity on the PathNet network.
3.4.7 SALES TO OTHER TEXACO ENTITIES AND END USERS. Texaco may market
excess digital telecommunications capacity, from its allocated channels on the
Initial System installed by PathNet to other Texaco affiliated companies,
divisions, pipelines and operating units and other oil and gas or energy related
service companies for their own use. Texaco shall not operate parallel
microwave telecommunications facilities to those set forth in Schedule B,
attached hereto, for the purpose of selling digital circuits. PathNet shall
exclusively market all other capacity to entities unaffiliated with Texaco. Any
contact between a prospective PathNet customer and Texaco shall be promptly
referred by Texaco to PathNet's marketing department. If Texaco is successful
in locating such a new customer for PathNet's portion of the Excess Capacity
created at Texaco Facilities, and PathNet concludes a sale to that buyer, Texaco
shall
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receive [***] to be negotiated by PathNet and Texaco, which shall
not exceed [***] of the revenue received from the sale of this
capacity, in addition to the other revenues outlined in this Agreement.
PathNet or Texaco may also facilitate the barter of Excess Capacity between
parties participating in the PathNet program. In addition, PathNet may
facilitate the creation of network loops or rings to enhance network
reliability. PathNet will not charge Texaco for providing any such network
arrangements. PathNet will not and cannot require any Participant in its
program to enter into any barter arrangement for its internally allocated
telecommunications capacity. Barter agreements will be entered into only if
agreeable to Texaco. PathNet and/or Texaco shall derive no fee from
facilitating such barter arrangements.
3.4.8 INTEGRITY AND SEGREGATION OF CAPACITY. PathNet shall ensure that
PathNet's and Texaco's telecommunications capacities shall be segregated from
the common carrier traffic that will pass through PathNet's network. PathNet
shall provide security for data or voice transmissions via TDMA standard
multiplexing and shall maintain Stratum One Clocking via signals provided by the
PSTN or shall maintain internal Stratum Three Clocking VIA oscillator standards
provided internally by the System or GPS signal. PathNet, at any time, will
have the right to perform frame slippage studies on its entire microwave network
to ensure data and voice integrity. The data and voice transmissions which
PathNet and Texaco will send through the new microwave facilities shall comply
with all FCC regulations and will not jeopardize the ability to continue to
operate as a Part 21 Common Carrier.
3.4.9 INTERCONNECTION TO NETWORK. PathNet shall provide the
interconnection capacity for the System to various networks no more than
twenty-four (24) months after completion of the installation of the System on
paths that have marketable value. These interconnections shall be
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owned and funded by PathNet. PathNet will be responsible for all filings,
licenses, fees and taxes related to these interconnections.
3.4.10 RECOMMENDED EQUIPMENT. Subject to consultation with Texaco and
its approval, which shall not be unreasonably withheld, PathNet, at its own
cost, or its agents shall be permitted to modify its equipment from time to time
as new versions may become available from manufacturers or software providers.
4. NETWORK MANAGEMENT AND ADMINISTRATION
4.1 NETWORK MANAGEMENT NETWORK MANAGEMENT
4.1.1 NETWORK MANAGEMENT RESPONSIBILITIES. PathNet shall have the sole
responsibility for performing total network management. PathNet shall provide
at its expense, for Texaco's use, a regional network management system. PathNet
shall maintain a national network management center. Notwithstanding what
network management strategies shall be employed, PathNet shall provide the tools
(i.e., remote units and computers) to enable Texaco to collect data and observe
its operating network. PathNet shall provide the people and procedures to
identify any network or System problems and direct maintenance activities to
promptly correct network or System problems. The minimal level of network
management acceptable to and provided by PathNet and Texaco, in connection with
their respective networks, is set forth on SCHEDULE U -- MINIMAL LEVEL OF
ACCEPTABLE NETWORK MANAGEMENT, attached hereto.
4.1.2 CONTRACTING FOR NETWORK MANAGEMENT. PathNet reserves the right
to out-source or contract its network management duties to an independent
third-party contractor. PathNet reserves the right to allow its customers to
contract independently for network management services over the portions of
PathNet's network which these customers have under contract. Texaco may not
unreasonably withhold the consent for PathNet or its agents to access
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PathNet's and Texaco's equipment for purposes of operating or maintaining the
PathNet network. Texaco may not charge additional site fees or rentals for any
network monitoring equipment that PathNet deems necessary. The adequacy of the
network management systems shall be measured in relation to the minimum network
performance standards as set forth on Schedule O. PathNet shall ensure that
these systems, at a minimum, comply with the published equipment vendors'
specifications. PathNet's network monitoring capabilities shall provide the
ability for Texaco to: 1) monitor its own portion of the network separately
from the overall PathNet Network, and 2) maintain tower lights, Facility power,
environmental conditions and other network connected devices.
4.1.3 NETWORK MANAGEMENT DEVICES. For the purposes of network
management, PathNet retains the right to add to Texaco's existing facilities,
software or mechanisms that it deems necessary to allow it to perform network
management services. The network management system shall provide for site alarm
monitoring for a maximum number of external inputs and controls, as defined in
Schedule U. These devices will be defined during the design phase and provided
to Texaco in writing. At all times, such devices, with the exception of the
common network interface card, shall remain the exclusive property of PathNet.
4.1.4 COMPLIANCE WITH LAWS. PathNet's network monitoring will comply
with all state, local and federal regulations concerning network security.
4.2 MARKETING
4.2.1 MARKETING RIGHTS AND ASSIGNABLE CONTRACT RESPONSIBILITIES. In
its marketing efforts, PathNet reserves the right to market under its name, or
any other trade name which it owns, except as set forth in Section 4.2.2,
herein. The assignment of its rights of exclusive marketing of excess
long-distance capacity shall be allowed under this Agreement and shall only be
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prohibited if the transference of these rights violates FCC or other Federal or
state laws and regulations. If PathNet transfers or assigns its right(s) to
sell Excess Capacity, all other terms and conditions stated in this contract
shall remain binding on PathNet, its successors and assigns. In the
establishment of its sales effort, PathNet reserves its rights to market and
advertise its services in any and all media it deems fit. The choice of
publications in which to advertise shall solely be that of PathNet.
4.2.2 MARKETING AND ADVERTISING RESTRICTIONS. PathNet shall not use
any trademark or trade name of Texaco, its parents, affiliates or subsidiaries
for purposes of marketing the Excess Capacity created.
4.2.3 CUSTOMER AGREEMENTS. The terms of the agreements between PathNet
and its various customers shall be disclosed by PathNet to Texaco as they relate
to traffic on the System. The term of these agreements will inevitably vary and
will have no fixed minimum time commitments. If the agreements with PathNet's
customers require modifications to PathNet's network or specific installation
requirements, at PathNet's sole discretion, these costs may be passed on to the
customers and will be made at no cost to Texaco. The reimbursement for these
fixed one-time costs shall be direct, and any revenues, other than compensation
for direct and indirect costs related to these network modifications,
installation requirements or connection fees, shall be the property of PathNet.
All costs involved in marketing bandwidth shall be borne by PathNet.
4.2.4 IXC AND CUSTOMER SALES AGREEMENTS. The sales agreements between
PathNet and its interexchange carrier and other customers will clearly identify
the paths or the segments of the affected participants along which the capacity
being sold travels. If IXC and customer
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sales agreements and supporting documents require the written approval of Texaco
as a condition of sale, Texaco's approval shall not be unreasonably withheld.
4.2.5 METERING AND LIABILITY TO IXC'SMETERING AND LIABILITY TO IXC'S.
PathNet's long-distance communications sales contracts shall be based on flat
monthly rates and shall not be usage sensitive. Any usage-sensitive agreement
which PathNet enters into shall require the inter-exchange carrier to provide
for the necessary metering and a mechanism to ensure that this metering is both
fair and accurate. Any costs related to the verification of metered readings
will be incurred by PathNet and transferred to the affected inter-exchange
customer. Performance criteria related to network design shall be integrated
into PathNet's marketing efforts and contractual relationships with
inter-exchange customers.
4.2.6 REASONABLE EFFORTS - MARKETING. PathNet will use commercially
reasonable efforts to produce, market and sell any excess long-distance capacity
created under the PathNet program. PathNet shall seek the sale of aggregated
long-distance capacity under the best terms commercially obtainable at the time.
As part of such efforts, but without limitation, PathNet will dedicate its
resources and perform the promotional and marketing tasks necessary to obtain
the best available price at the time for the sale of such long-distance capacity
consistent with the goals of PathNet and Texaco, as set forth in this Agreement.
4.3 REVENUE COLLECTION AND DISBURSEMENT
4.3.1 BOOKS AND RECORDS. PathNet shall maintain and keep detailed and
accurate books and records with regard to sales and revenues and the calculation
thereof. Texaco, or its representatives (who shall be reasonably acceptable to
PathNet), shall be entitled to review and audit such books and records, from
time to time, during normal business hours, upon reasonable notice to PathNet,
and at Texaco's expense, provided that PathNet will bear any such expense if
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the review or audit reveals an underpayment of more than five percent (5%) for
the applicable period has occurred.
4.3.2 QUARTERLY STATEMENTS OF ACCOUNT. PathNet shall issue quarterly
Statements of Account to Texaco within thirty (30) days of the end of each
calendar quarter. The reports shall set forth the revenues computed pursuant to
SCHEDULE H - PAYMENT SCHEDULE and the method of allocating revenues to Texaco
during that quarter.
4.3.3 STATEMENT OF ACCOUNT. PathNet shall make payments due and
payable thirty (30) days from the date PathNet's Statement of Account is issued
to Texaco. The Quarterly Statement of Account, which shall accompany
disbursements, is an unaudited statement produced by PathNet. It shall reflect
the number of path miles of the System built out by PathNet and the excess
long-distance capacity marketed and sold in the aggregate resale market during
each quarterly period, for which payment has been received by PathNet, as
calculated based upon the number of path miles furnished by Texaco in
relationship to the total PathNet network.
4.3.4 PAYMENTS TO TEXACO. PathNet will invoice each of its IXC
customers prior to the commencement of their lease periods for
telecommunications facilities on the PathNet network. These agreements may
typically be monthly, but under certain conditions, may either be quarterly,
semi-annual, annual, or for multi-year periods. PathNet shall make payment to
Texaco for its portion of revenue actually received from the sale of PathNet's
long-distance capacity along paths that use the System. Payments shall be made
in accordance with the other terms of this Agreement and shall be based upon
rates charged for the path miles of the Segment, divided by the network path
miles assembled by PathNet. PathNet's disbursements to Texaco will be
transmitted electronically or by wire transfer, as to be determined and
specified in writing by Texaco, with all account information necessary to
complete payment, as set forth in SCHEDULE V --
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TEXACO PAYMENT INSTRUCTIONS, attached hereto, which may, from time to time, be
freely amended by Texaco without the approval of PathNet. Upon receipt of
payment from an inter-exchange carrier, PathNet shall disburse revenues no later
than fifteen (15) days following the close of business of the month in which
these revenues were received. Interest, if earned on collected but
undistributed revenues, will be the property of Texaco, and shall be distributed
to Texaco at the time of the next payment. Distribution of revenues for the
portion of PathNet's network that is owned entirely by PathNet shall occur at
the same time that PathNet distributes revenue to Texaco.
4.3.5 ANNUAL AUDIT. All billings and revenue collections will be
subject to an annual certified audit by an independent, nationally recognized
accounting firm selected by PathNet, admitted to practice in all fifty states.
This audit shall be conducted in accordance with generally accepted auditing
standards. The results of this audit will be made available to Texaco no later
than 30 days from the conclusion of the audit findings. PathNet shall not be
responsible for any material breaches or misrepresentations that may occur
through the negligence of outside auditors. PathNet will make its own records
available at its principal business office for inspection by Texaco, upon
written request, received at least after ten (10) business days before such
planned inspection, provided the inspection of these records does not violate
any agreements of confidentiality between PathNet and other participants.
4.3.6 PATHNET'S CORPORATE STATEMENTS.
PathNet's corporate income statements, balance sheets and other forms of general
corporate reporting shall be the sole property of PathNet and shall not be
subject to examination by Texaco. Texaco shall have the right to examine during
an annual audit all other documents which contain information related to the
revenue due to Texaco under the terms of this Agreement. Any disclosure of
PathNet's revenue
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collections and its disbursements to Texaco shall be strictly confidential and
subject to the terms of the Non-Disclosure Agreement attached hereto as SCHEDULE
W -- NON-DISCLOSURE AGREEMENT.
4.3.7 TEXACO'S ASSIGNEES OF REVENUES. Texaco will have the right to
designate other entities to receive its disbursements. The disbursements issued
by PathNet shall not relieve Texaco of any tax liability resulting from its
receipt of these revenues.
4.3.8 REVENUE NOT GUARANTEED. PathNet does not guarantee any revenue
disbursements. PathNet does not promise or warrant its ability to sell
telecommunications capacity. In the event a dispute arises between PathNet and
Texaco, any disbursements affected by this dispute will be placed in escrow in a
segregated, interest-bearing bank account to be held by PathNet and Texaco. The
signatures of an authorized representative of Texaco and PathNet shall both be
required for disbursement of the escrow monies until such time as the dispute is
resolved pursuant to the terms of Schedule L of this Agreement. Upon resolution
of dispute, the escrow amounts shall promptly be disbursed.
4.3.9 PATHNET COSTS. Any costs PathNet incurs as a result of this
Agreement shall be the sole responsibility of PathNet. It shall not be implied
that Texaco is responsible for such costs.
5. MISCELLANEOUS PROVISIONS
5.1 GENERAL PROVISIONS
5.1.1 RESOLUTION OF DISPUTES. Any dispute arising under this Agreement
pertaining to revenue collection and/or disbursement, shall be subject to
resolution under Schedule L.
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5.1.2 NO RIGHT TO TERMINATE. Disputes arising under this article of
the Agreement do not give either party the right to terminate this Agreement.
This Agreement is fully binding upon the parties, their heirs and assigns for
the duration of this Agreement as set forth herein.
5.1.3 RECORDATION. This Agreement may be subject to recordation in any
of the affected localities by either party. The costs, fees or expenses
associated with this recordation shall be the sole expense of the recording
party and recordation does not obligate the other party to this Agreement to pay
a portion of recordation of such expenses.
5.1.4 SUCCESSORS AND ASSIGNSSUCCESSORS AND ASSIGNS. Texaco and PathNet
respectively bind themselves, their partners, successors, assigns and legal
representatives to the other party hereto and to partners, successors, assigns
and legal representatives of such other party in respect to covenants,
agreements and obligations contained in this Agreement and attachments thereto.
Neither party to this Agreement shall assign the Agreement in whole or in part
(except as set forth below) without written consent of the other, which shall
not be unreasonably withheld. If either party attempts to make such an
assignment without such consent, that party shall nevertheless remain legally
responsible for all obligations under this Agreement. The rights and
obligations of the parties under this Agreement may not be assigned or
transferred except: (i) the right to payment of money may be assigned, (ii)
PathNet or Texaco may subcontract work, and (iii) this Agreement and the rights
and obligations hereunder may be assigned to an acquirer of all or substantially
all the assets, business or stock of a party. If PathNet sells or assigns the
radio equipment that it has assembled into a network which it owns, the proceeds
from such sale or assignment shall be the sole property of PathNet and Texaco
shall have no claim to a portion of the proceeds. If Texaco sells or in any way
assigns the asset(s) owned by Texaco, the proceeds from such sale or assignment
shall be the sole property of Texaco and PathNet shall have no
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claim to a portion of such proceeds. If Texaco sells, leases, or assigns the
underlying Texaco asset(s) which support the microwave paths that are a basis of
this Agreement, this Agreement shall survive such transfer or assignment.
5.1.5 FINANCING AGREEMENTS. PathNet shall ensure that the provision
set forth in Section 1.3.12 will be included in the financing agreement and
credit term sheet for the Initial System. Texaco shall have review rights and
receive a copy of each credit term sheet and financing agreement entered into
between PathNet and any other entity as it relates to the financing of the
1 x 1 Initial System, as set forth in Schedule E, attached hereto. A copy of
any vendor credit term sheets shall be submitted to Texaco within sixty (60)
days after execution of this Agreement. A copy of any vendor financing
agreement shall be provided to Texaco within ten (10) days of its execution.
5.2 ASSURANCES OF PATHNET'S PERFORMANCE
5.2.1 ASSURANCES AND ESCROW. Pursuant to the terms of this Agreement,
PathNet, during the Build-Out Period, has responsibility for the payment of
certain equipment and services. Specifically, PathNet shall pay for the
equipment, (OC-3 multiplexing, the digital high-capacity radios, the antennas
and waveguide, ancillary miscellaneous equipment and material), and for the
installation to be performed at the Facilities. To assure performance of
PathNet's payment responsibilities, within sixty (60) days of execution of this
Agreement, PathNet shall provide a combination of vendor credit assurances, an
escrow agreement acceptable to Texaco, to be executed by Texaco and PathNet, and
at PathNet's sole option, a letter of credit. The assurances, escrow agreement,
and/or letter of credit shall establish and confirm that:
a. For radios, multiplexing equipment, antennas, waveguide and
miscellaneous equipment to be provided pursuant to the terms of this Agreement,
this equipment shall be
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delivered free and clear of liens and encumbrances to the Texaco Facilities and
shall remain free and clear of all liens and encumbrances for the life of this
Agreement. PathNet may secure payment to the manufacturer for the radios from
revenues PathNet may receive pursuant to the terms of this Agreement. This
Agreement itself will become the radio manufacturer's collateral. In the event
any cash deposits are required for equipment to be ordered, PathNet shall either
furnish proof of payment of such deposit or, pursuant to the terms of the escrow
agreement, place in an interest bearing escrow account the amount of any deposit
required by a manufacturer as a precondition to the manufacturer's acceptance of
a purchase order from PathNet. In accordance with the terms of the escrow
agreement and in the absence of default by PathNet of its payment
responsibilities, any interest earned on funds placed in an escrow account shall
be PathNet's property.
b. To assure performance of the installation services to be provided
by PathNet, pursuant to the terms of an escrow agreement to be entered into
between Texaco and PathNet, PathNet shall deposit funds in an interest-bearing
escrow account within sixty (60) days of execution of this Agreement. The
amount deposited shall be equal to the cost of design and installation work, as
estimated by PathNet and agreed to by Texaco.
5.2.2 DEFAULT BY PATHNET. In the event that PathNet defaults on or
fails to timely meet its payment responsibilities in connection with the
equipment or installation of the Initial System within sixty (60) days of such
default event, the assurances, escrow agreement, and/or letter of credit shall
provide that Texaco would be disbursed funds in appropriate amounts, and any
interest earned on such funds.
5.2.3 TERMINATION OF ASSURANCES. The requirement for the assurances,
escrow, and/or letter of credit shall end with the formal commissioning of the
Initial System.
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5.2.4 INSURANCE. During all phases of the Project, PathNet shall
purchase and maintain adequate insurance against loss or theft during the
installation period and PathNet shall bear the risk of such loss or theft and
such other insurance, as set forth on Schedule N.
5.2.5 INSURANCE REQUIRED OF TEXACO. Texaco hereby represents that it
is self-insured and does not currently purchase and maintain liability insurance
and property insurance, except for stop-loss coverage.
5.2.6 PAYMENT SCHEDULE. The payment schedule for all radio and other
equipment to be purchased in connection with the Initial Build-Out or for any
and all Capacity Expansion is set forth on SCHEDULE H -- PAYMENT SCHEDULE,
attached hereto. This schedule includes commercial terms for payment of net
thirty (30) days and interest at 1% per month on outstanding balances. Any
departures from the payment schedule made by either party must be promptly
brought to the attention of the other party.
5.3 JOINT AND MUTUAL CONFIDENTIALITY PROVISION
PathNet and Texaco have entered into a Non-Disclosure Agreement, attached
hereto as Schedule W, which permits for joint and mutual confidentiality, in
connection with the program and project to be undertaken. This Non-Disclosure
Agreement, which shall govern the responsibilities of the parties to each other
in connection with the disclosure of information, is made a part of this
Agreement. Texaco shall be permitted to distribute the results of any
performance tests to other Texaco units. PathNet, in its sole discretion, may
elect to distribute these results to other companies who allow PathNet to use
their microwave infrastructure to create and market Expansion Capacity from
their systems and the System at Texaco's Facilities. The results of any
performance tests may be made available by PathNet to its customers.
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5.4 REMEDIES FOR BREACH
5.4.1 NOTICE OF BREACH. All events of breach or disputes by either
PathNet or Texaco shall necessitate a written notice of breach to be delivered
by certified mail to the principal office of the other party. Each notice of
breach shall include specific allegations of breach.
5.4.2 CURE OF BREACH BY PATHNET OR TEXACO. The party receiving a
notice of breach shall have thirty (30) days to cure the breach. In the event
the breach is not cured, the dispute resolution procedures of this Agreement may
be invoked.
5.4.3 NO TERMINATION RIGHTS. Neither Texaco nor PathNet unilaterally
has the right to terminate this Agreement or otherwise alter the relationship of
the parties hereto, except as noted in Section 2.1.2. The only remedies
available to a party for breach are those set forth in Schedule L of this
Agreement.
5.4.4 SURVIVAL. All representations, warranties, covenants, conditions
and agreements contained herein which either are expressed as surviving the
expiration or termination of this contract or, by their nature, are to be
performed or observed, in whole or in part, after the termination or expiration
of this contract, including (without limitation) the warranty and indemnity
provisions, shall survive the termination or expiration of this contract. Any
accrued rights to payment and any remedies for breach of this Agreement shall
survive termination.
5.5 USAGE
The usage herein of singular terms shall include the plural and use of the
masculine, feminine or neuter genders shall include all others.
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5.6 WAIVER
PathNet or Texaco's failure to object to any statement, invoice, billing or
distribution by any party within a period of four (4) years after receipt
thereof shall constitute that party's acquiescence with respect thereto and
shall render such statement, invoice, billing or distribution and deemed
accepted. Any other waivers to any term or condition of this Agreement must be
executed by the parties in writing.
5.7 FORCE MAJEURE EVENT
Neither party hereto shall be responsible for any failure to perform its
obligations (other than an obligation to pay money) under this Agreement if such
failure is caused by acts of God, war, strikes, revolutions, lack or failure of
transportation facilities, laws or governmental regulations or other causes
which are beyond the reasonable control of such party ("Force Majeure Event").
Obligations hereunder, however, shall in no event be excused, but shall be
suspended only until the cessation of any cause of such Force Majeure Event. If
such Force Majeure Event should obstruct performance of this Agreement for more
than six (6) months, the parties hereto shall consult with each other to
determine whether this Agreement should be modified. The party facing a Force
Majeure Event shall use its best endeavors in order to remedy that situation, as
well as to minimize its effects. A party suspending performance due to a Force
Majeure event shall notify the other party in writing within five (5) days after
such suspension commences. If either party hereto shall be delayed or hindered
in, or prevented from the performance of any act required hereunder by Force
Majeure Event, then the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay.
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5.8 EXTENT AND MODIFICATION OF AGREEMENT EXTENT AND MODIFICATION OF AGREEMENT
This Agreement, the Schedules A through X and other documents incorporated
herein by reference, represent the entire agreement between Texaco and PathNet
and supersede all prior negotiations, representations or agreements, either
written or oral. This Agreement may be amended only by written instrument
signed by both Texaco and PathNet. Unless otherwise specified, any
inconsistency between the contents of a document incorporated by reference and
made a part of this Agreement and the terms of this Agreement shall be resolved
in favor of the terms of this Agreement.
5.9 INDEPENDENT INVESTIGATION
The parties acknowledge that they have independently investigated the
potential for the success of PathNet's ability to create, aggregate and sell
Excess Capacity and have not relied upon any inducements or representations of
the other party or its agents, other than those contained in this Agreement.
5.10 NO DISCRIMINATION
It is intended that both parties intend to subscribe or offer to all
customers, employees, licensees, and invitees the opportunity to obtain all the
goods, services, accommodations, advantages, facilities and privileges without
discrimination because of race, creed, color, sex, age, national origin or
ancestry, in accordance with the EEO Statement attached hereto as Schedule P,
and all federal, state, and local laws.
5.11 NOTICES
All notices pertaining to disputes arising from this Agreement shall be
directed to a corporate entity or employee designated by the signators as having
full rights and responsibilities to address such issues. Notices under this
Agreement shall be sufficient only if personally
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delivered by a commercial prepaid delivery or courier service, or mailed by
certified or registered mail, return receipt requested, to a party at its
address set forth in the signature block below, or as amended by notice,
pursuant to this subsection. If not received sooner, notice by mail shall be
deemed received five (5) days after deposit with the courier or in the U.S.
mail. All notices shall be delivered as follows:
If to PathNet:
Michael A. Lubin, Esquire
Vice President and General Counsel
PathNet, Inc.
6715 Kenilworth Avenue, Suite 200
Riverdale, Maryland 20737
If to Texaco:
Mr. H. Dave Hunt
Manager of Telecommunications
Texaco Pipeline Inc.
1670 Broadway
Denver, Colorado 80202-4899
5.12 UNENFORCEABILITY
In the event that any provision of this Agreement shall be determined to be
illegal or unenforceable, that provision will be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable.
5.13 COST AND FEES
In any action or proceeding to enforce rights under this Agreement, the
prevailing party shall be entitled to recover reasonable costs and reasonable
attorney's fees.
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5.14 HEADINGS
Headings herein are for convenience or reference only and shall in no way
affect interpretation of the Agreement.
5.15 INCIDENTAL AND CONSEQUENTIAL DAMAGES
NEITHER PARTY WILL BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH
RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT.
5.16 WARRANTY AND DISCLAIMER
PathNet warrants: (i) that the work under this Agreement will be performed
in a workmanlike manner, and (ii) that it has and will obtain agreements with
and promptly pay its employees and contractors sufficiently to allow it to
provide Texaco with the services contemplated by this Agreement. OTHERWISE,
EXCEPT AS EXPRESSLY PROVIDED HEREIN, PATHNET AND TEXACO MAKE NO WARRANTY WITH
RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF
THIS AGREEMENT AND HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
5.17 INDEMNITY AND LIMITATIONS OF OBLIGATIONS AND LIABILITY
The parties agree to limit their respective obligations and
liabilities as set forth in SCHEDULE X -- INDEMNITY AND LIMITATIONS OF
OBLIGATIONS AND LIABILITY, which like any other Schedule attached hereto is an
integral part of this Agreement.
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5.18 AMENDMENT AND WAIVER
Except as otherwise expressly provided herein, any provision of this
Agreement may be waived (either generally or in any particular instance, and
either retroactively or prospectively) only with the written consent of the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
caused this Agreement to be executed by a duly authorized officer, as of the
date first written above.
WITNESS: PATHNET, INC.
/s/ Richard A. Jalkut 6/2/97 By: /s/ Dave Schaeffer
- ----------------------------- -----------------------------
Name: Dave Schaeffer
Title: President
WITNESS: TEXACO PIPELINE INC.
/s/ H D Hunt 5/21/97 By: A. A. Nicoletti
- ------------------------------ -----------------------------
Name:_______________________
Title: President
/s/ H D Hunt
FORM APPROVED
BLM
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Exhibit 10.7
Pathnet
BINDING TERM SHEET
By and Between Pathnet, Inc. and American Tower Corporation
This BINDING TERM SHEET is made and entered into as of the 17th day of
February, 1998, by and between PATHNET, INC. ("Pathnet"), a Delaware corporation
having its principal place of business at 1015 31st Street, N.W., Washington,
D.C. 20007 and AMERICAN TOWER CORPORATION ("ATC"), a Delaware corporation having
its principal place of business at 3411 Richmond Avenue, Houston, Texas
77046-0501.
W I T N E S S E T H:
WHEREAS, Pathnet is engaged in the business of creating high capacity,
digital microwave communications systems for purposes of marketing and selling
the excess long distance telecommunications capacity created by such systems;
WHEREAS, ATC is the owner of existing and future tower assets as
identified in Exhibit A;
WHEREAS, Pathnet is seeking a potential strategic alliance with ATC to act
as ATC's sole representative for the purpose of (i) installing a high capacity
digital microwave system along ATC's tower assets and sites, as identified in
Exhibit A, and (ii) creating capacity to be marketed and sold by Pathnet which,
under the Pathnet program, will generate revenue for both Pathnet and ATC.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. Preliminary Services and Proposal. Upon execution of this Binding Term
Sheet (referred to herein as "BTS"), Pathnet will conduct preliminary
engineering studies and undertake an analysis of ATC's tower assets which will
be delivered to ATC in the form of a proposal book (referred to herein as the
"Pathnet Proposal"). Pathnet's preliminary studies and analysis will assist ATC
and Pathnet in determining whether to install a high capacity digital microwave
system constructed with SONET architecture (the "System") along certain ATC's
tower paths using ATC tower assets and sites. Pathnet will (i) within sixty (60)
days from the date of this BTS, commence performance of the preliminary site
inspection services listed below and (ii) thereafter, issue its findings upon
completion of such preliminary services in the form of the Pathnet Proposal.
A. Inventory and survey ATC's existing microwave sites and supporting
facilities based on information provided by ATC;
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B. Conduct microwave path studies and reliability analyses that will
provide performance data and serve as the engineering basis for design of
the System;
C. Conduct a preliminary evaluation of the probability of successfully
coordinating frequencies on the System;
D. Determine whether a structural analysis of ATC's towers and loading
factors (for metal towers only) is required;
E. Determine potential paths to develop and site locations for new towers,
if any;
F. Develop a preliminary business case model for the deployment of a
Pathnet/ATC System; and
F. Preliminarily design the System.
Provided, however, Pathnet's obligation to provide such preliminary services and
issue the Pathnet Proposal is contingent upon ATC providing to Pathnet all
information necessary to perform such preliminary services and issue the Pathnet
Proposal.
2. Terms of a Potential Relationship. Upon completion of the preliminary
studies and analysis and at the end of the Reservation Period (as defined
below), Pathnet and ATC shall agree as to such tower assets and sites that are
economically and technologically feasible to develop the System, which assets
and sites shall be listed in Exhibit B, as follows:
A. System development responsibilities will be as follow: (i) Pathnet will
pay for and provide the radios, radio software, antenna, waveguide, and
multiplexers required to develop and operate the System, and (ii) ATC will
provide the towers, shelters (subject to existing equipment colocation
agreements with CSX), real property, power supply (as exists), and related
physical assets and infrastructure, as such assets currently exist at the
site; provided (X) Pathnet or ATC (at ATC's discretion) will have the
right to upgrade such assets as required to develop and operate the
System; (Y) ATC will provide intermediate sites required to complete
certain paths or segments in order to create a linear point-to-point
network; and (Z) ATC will provide Pathnet interconnection sites to other
networks, as requested by Pathnet and as available for Pathnet's use.
B. ATC will provide six (6) months of free access to all tower sites owned
by ATC and as required by Pathnet. Such six (6) month term to begin on May
1, 1998 (the "Reservation Period"). After expiration of the reservation
period, a fee to reserve each site selected by Pathnet will be applicable
("Reservation Fee"). The Reservation Fee will be in the amount of three
hundred dollars ($300) per month per site, and shall continue until the
Pathnet system becomes operational and available for commercial traffic,
as mutually determined by the parties. Upon completion of the Reservation
Period, the parties shall attach hereto in the form of Exhibit B a list
of such tower assets and sites which shall be subject to the Reservation
Fee, which exhibit may be amended from time
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to time upon mutual agreement of the parties. All revenue sharing as
outlined in paragraph 2.c will become effective once the System is
operational and available for commercial service; provided the parties
shall execute a lease agreement in the form of Exhibit C setting forth the
rights and obligations of each party as to the tower assets and sites on
such System (the "Lease Agreement").
C. Upon execution of the Lease Agreement, revenue sharing will commence
under the following terms: (i) ATC will receive between three and five (3
and 5%) percent of the collected revenue and (ii) Pathnet will receive
between ninety-seven and ninety-five (97 and 95%) percent of collected
revenue; provided such revenue sharing allocation will be based on the
capital contribution made by Pathnet to the development of the System.
Such contribution and revenue allocation will be set on a sliding
percentage based on the following outside parameters: (i) Pathnet will
receive ninety-seven (97%) percent (and ATC will receive 3%) if it
contributes an amount equal to or greater than one hundred thousand
dollars ($100,000) for site development and (ii) Pathnet will receive
ninety-five (95%) percent (and ATC will receive 5%) if Pathnet does not
contribute capital to the site development. Such revenue sharing terms
shall be specified in the Lease Agreement.
D. Subject to paragraph 2.b. above, Pathnet will have the right to reserve
capacity on certain towers and paths; provided Pathnet commences
construction on such towers and paths within fourteen (14) months after
the end of the Reservation Period.
3. Ownership of Pathnet Work Product. Any and all documents and
preliminary reports created as a result of providing the preliminary services
and the Pathnet Proposal will remain the property of Pathnet. Pathnet agrees to
allow ATC access to the data and the information contained in such documents and
reports. ATC agrees that it will not retain and that it will return to Pathnet,
any copies of such reports or other documents provided by Pathnet, unless and
until such time as the parties enter into the Lease Agreement.
4. No Discussions with Other Parties. ATC agrees that for a period of six
(6) months from the execution date of this BTS, ATC will not negotiate or enter
into any other agreement with any other party concerning the use of its tower
assets for developing a System; provided nothing herein shall prevent ATC from
meeting its obligations to CSX under existing agreements between ATC and CSX.
5. Access to Sites and Information. On a segment by segment basis, ATC
will use its best efforts to provide Pathnet (i) access to all sites and (ii)
all the relevant information and data in ATC's possession, custody and control
that would be of assistance to Pathnet in the performance of Pathnet's
inspection and review of ATC's tower network, including the evaluation of ATC's
existing tower assets, sites (whether containing a tower or not), equipment,
specifications, equipment sheds, and rights-of-ways.
6. Maintenance. ATC will provide maintenance services for the towers,
shelters and sites. Maintenance of Pathnet equipment will be the responsibility
of Pathnet; provided ATC shall assist Pathnet in identifying service providers
for Pathnet equipment.
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7. Certificates of Insurance. Upon the request of ATC, Pathnet will
furnish ATC with current certificates of the insurance evidencing the coverage
in both type and amount which shall be in form reasonably satisfactory to ATC.
8. Indemnification by Pathnet. Pathnet and its agents agree to abide by
all applicable laws, regulations, and specific safety regulations during tower
site visits. In addition, Pathnet agrees to indemnify, defend and hold harmless
ATC from and against any liability directly resulting from Pathnet's access to
ATC's facilities during the period of this BTS.
9. Term and Cancelation of BTS. This BTS is valid until (i) the end of the
Reservation Period, if and only if Pathnet elects not to pay any Reservation Fee
for any tower assets and sites, (ii) upon execution of a Lease Agreement in the
form of Exhibit C for those tower assets and sites upon which Pathnet will
develop the System or (iii) in the event the parties do not execute a Lease
Agreement, fourteen (14) months after the end of the Reservation Period. Except
for as provided herein, this BTS may not be terminated without the written
mutual consent of the parties.
AMERICAN TOWER CORPORATION
By: /s/ D. G. Norman
-------------------
Name: D. G. Norman
-----------------
Title: Vice President
-----------------
Date: 2/17/98
-----------------
PATHNET, INC.
By: /s/ Dave Schaeffer
-------------------
Name: Dave Schaeffer
-----------------
Title: Chairman
-----------------
Date: 2/16/98
-----------------
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[PATHNET LETTERHEAD]
AMENDMENT TO BINDING TERM SHEET
By and Between
Pathnet, Inc. and American Tower Corporation
Dated February 17, 1998
In further consideration of the mutual promises contained in the Binding Term
Sheet, dated February 17, 1998, by and between Pathnet, Inc. and American Tower
Corporation, the parties hereby agree to amend EXHIBIT A to include the
additional sites and tower assets as set forth in the attachment hereto.
Agreed to and accepted as of
the date written below:
AMERICAN TOWER CORPORATION
By: /s/ D. G. Norman
------------------------
Name: D. G. Norman
Title: Vice President
Date: February 25, 1998
PATHNET, INC.
By: Richard A Jalkut
------------------------
Name: Richard A. Jalkut
Title: President & CEO
<PAGE>
[Pathnet Letterhead]
AMENDMENT NO. 2 TO BINDING TERM SHEET
By and Between
Pathnet, Inc. and American Tower Corporation
Dated February 17, 1998
In further consideration of the mutual promises contained in the Binding Term
Sheet, dated February 17, 1998, by and between Pathnet, Inc. and American Tower
Corporation (the "BTS"), the parties hereby agree to amend EXHIBIT A to include
the additional sites and tower assets as set forth in the attachment hereto, as
such sites and tower assets may modify, supplement or duplicate the sites and
tower assets set forth in EXHIBIT A to the Binding Term Sheet and the Amendment
to Binding Term Sheet, dated February 25, 1998.
Agreed to and accepted as of
the date written below:
AMERICAN TOWER CORPORATION
By: /s/ D. Norman
----------------------
Name: Dudley Norman
Title: Vice President
Date: April 8, 1998
PATHNET, INC.
By: /s/ Richard A. Jalkut
----------------------
Name: Richard A. Jalkut
Title: President & CEO
<PAGE>
Exhibit 10.8
MAINTENANCE SERVICES AGREEMENT
This MAINTENANCE SERVICES AGREEMENT (the "Maintenance Agreement" or
"Agreement") is made and entered into as of the 11th day of October, 1997 (the
"Effective Date"), by and between PATHNET, INC. (hereinafter "PathNet"), a
Delaware corporation, and KN ENERGY, INC. (hereinafter, "Incumbent"), a Kansas
corporation, (collectively, the "Parties" and each, a "Party").
WITNESSETH:
WHEREAS, PathNet is engaged in the business of creating high-capacity,
digital microwave communications systems for purposes of marketing the long
distance telecommunications capacity created by such systems;
WHEREAS, Incumbent and PathNet have entered into a Fixed Point Microwave
Services Agreement pursuant to which, among other things, PathNet has agreed to
construct and install a high-capacity digital microwave system utilizing
Incumbent's microwave telecommunications assets;
WHEREAS, PathNet wishes to engage the services of Incumbent to provide
routine and corrective maintenance on Incumbent's Equipment and System and to
maintain Incumbent's Segment of the PathNet network at a minimal level of
acceptability to ensure overall effective operations;
WHEREAS, Incumbent wishes to maintain such System for PathNet,
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. DEFINITIONS
1.1 Certain Definitions
1.1.1 "1 x 1" shall mean microwave radio configuration consisting of
a primary and a standby protect radio.
1.1.2 "Affiliate" shall mean with respect to any Person, any other
Person that directly or indirectly controls, is controlled by, or is
under common control with such Person. For the purposes of this
definition, "control" (including the terms "controlled by" and
"under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by
contract or otherwise.
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1.1.3 "Build-Out Period" shall mean the period of time between final
design approval and final testing and acceptance during which the
Initial System is installed.
1.1.4 "Capacity Expansion" shall mean the increase in
telecommunication channels that the System is able to transmit,
receive and transport above those created by the installation of the
Initial System, achieved by an addition to or change in Equipment.
1.1.5 "Commissioning/Commissioned" shall mean, with respect to each
Path or Segment, the date on which such Path or Segment is fully
operational, has undergone site acceptance testing and circuits are
available for operations.
1.1.6 "Critical Service Levels" shall mean the service levels and
standards of operations set forth in Schedule B that are essential
for PathNet to provide reliable, error free traffic to IXCs or other
customers for capacity.
1.1.7 "Drop and Insert" shall mean that process wherein a part of
the information carried in a transmission system is demodulated
(dropped) at an intermediate point and different information is
entered (inserted) for subsequent transmission.
1.1.8 "Equipment" shall mean any and all digital microwave radios,
radio components, cards, antennas, waveguides, multiplexers (OC-3 to
DS-1) and other equipment or parts as required for the operation of
the System provided and installed by PathNet and subject to
Incumbent's Maintenance obligations under this Maintenance
Agreement, as listed on Schedule D attached hereto.
1.1.9 "FAA" shall mean the Federal Aviation Administration or any
other federal agency at the time administering tower registration
requirements and regulations.
1.1.10 "Facilities" shall mean the Incumbent's towers, buildings and
sites used for the purpose of operating the microwave communications
System described in Schedule F to this Maintenance Agreement.
1.1.11 "FCC" shall mean the Federal Communications Commission or any
other federal agency at the time administering the
Telecommunications Act of 1934, as amended; the Telecommunications
Act of 1996, as amended; and the rules and regulations promulgated
thereunder.
1.1.12 "Field Technician" shall mean Incumbent's employees, agents
or subcontractors certified by PathNet to provide Maintenance,
pursuant to Schedule G of this Maintenance Agreement, as they may
change and be recertified from time to time.
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1.1.13 "Force Majeure Event" shall mean an event as defined in
Section 14.3 of this Maintenance Agreement.
1.1.14 "FPM Agreement" shall mean the Fixed Point Microwave Services
Agreement by and between PathNet and Incumbent, dated September 17,
1997.
1.1.15 "Initial System" shall mean the initial system with a 1 x 1
configuration which is comprised of the first 84 DS-1's (which is
equivalent to 2,040 DS-0's) of the System and the System's 84 DS-1
protect channels.
1.1.16 "Interconnection" shall mean the point at which a private
network is connected to the publicly switched telephone network
("PSTN"). It can include IXC points of presence, tandem access
points, the central office, internet service providers or major
industrial customer points of presence. Interconnection can be
microwave or other media.
1.1.17 "IXC" shall mean an inter-exchange carrier; a telephone
company that provides long-distance telephone service between LATA's
but not within any one LATA.
1.1.18 "Losses" shall mean all losses, liabilities, damages and
claims, and all related costs and expenses, including reasonable
legal fees and disbursements and costs of investigation, litigation,
settlement, judgment, interest and penalties.
1.1.19 "Maintenance" shall mean the ongoing and scheduled
inspections, ongoing and scheduled repair, ongoing and scheduled
prevention of repair, and unscheduled, on-call corrective action or
maintenance of any and all Equipment necessary for the System to
operate in accordance with the Performance Standards as set forth in
this Maintenance Agreement and its Schedules.
1.1.20 "Maintenance Test Equipment" shall mean used or owned
equipment (including methods and tools) required to test and
maintain the Equipment and System in accordance with the Performance
Standards of this Maintenance Agreement and its Schedules.
1.1.21 "Monthly Services Charge" shall be as set forth in Section 5
and Schedule C of this Maintenance Agreement.
1.1.22 "Network Monitoring Center" shall mean the center established
by PathNet to monitor Incumbent's System and other Systems
comprising the PathNet network.
1.1.23 "Order Wire" shall mean a service channel consisting of a 64
kb/sec circuit between sites.
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1.1.24 "Outage" shall mean any unscheduled interruption in
telecommunication services along the Segment that occurs after ten
(10) consecutive severely errored seconds have occurred. (Outage is
usually measured in outage seconds.)
1.1.25 "Pass-Through Expenses" shall mean Incumbent's reasonable and
actual out-of-pocket expenses to be paid and reimbursed by PathNet
that are outside (i) of the Services obligations and costs of
Incumbent pursuant to this Maintenance Agreement or (ii) the scope
of this Maintenance Agreement.
1.1.26 "Path" shall mean the physical spatial separation between
point-to-point towers, housing and microwave antenna.
1.1.27 "Person" shall mean any individual or a corporation,
partnership, trust, incorporated or unincorporated association,
joint venture, joint stock company or other entity of any kind or
any governmental authority.
1.1.28 "Performance Standards" shall mean individually and
collectively the quantitative and qualitative performance standards
and commitments for the services contained in this Maintenance
Agreement, including, but not limited to, the Critical Service
Levels.
1.1.29 "Preventive Maintenance" shall mean the ongoing and scheduled
Maintenance required for the normal operations of the Equipment and
System, as more fully described in Schedule A.
1.1.30 "Remedial Maintenance" shall mean unscheduled, on-call
Maintenance (i) to correct an Outage, (ii) to restore operations to
above Critical Service Levels, or (iii) to restore the Equipment and
the System to good operating condition, as more fully described in
Schedule A.
1.1.31 "Segment" shall me an the portion of a microwave
communications network existing between two geographic points. For
purposes of this Maintenance Agreement, Segment A is the portion of
Incumbent's microwave communications network between Casper, Wyoming
and Minden, Nebraska. Segment B is the portion of Incumbent's
microwave communications network between Lisco, Nebraska and
Lakewood, Colorado.
1.1.32 "Services" shall be as defined in Section 3 and Schedule A of
this Maintenance Agreement.
1.1.33 "Site" shall mean a physical location on which a tower or
other structure is located which houses such microwave antenna,
radios and other communications equipment.
1.1.34 "SONET" shall mean Synchronous Optical Network.
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1.1.35 "Spare Parts" shall mean equipment and parts provided by
PathNet to Incumbent pursuant to the performance of Incumbent's
maintenance obligations hereunder, as set forth in Schedule E-1.
1.1.36 "Stocking Depot" shall mean an enclosed and reasonably
protected storage facility required for housing the Spare Parts
inventory.
1.1.37 "Subcontractor" shall mean without limitation, any firm,
corporation, or person working directly or indirectly for a company
that furnishes or performs a portion of the work, labor or material.
1.1.38 "System" shall mean the high-capacity digital SONET microwave
radio equipment (6 Hz/30 MHz) antenna, waveguides, components,
Facilities and FCC licenses, installed and assembled capable of
transmitting, receiving and transporting telecommunications signals
over the segment, as set forth in Schedule F.
1.2 Other Terms
Other Terms used in this Maintenance Agreement are defined in the context
in which they are used and shall have the meaning, there indicated.
2. TERM
2.1 Term
The term of this Maintenance Agreement shall be one (1) year from the
Effective Date (the "Term"). The Services and charges for the Services
shall commence upon the Commissioning of the Initial System on any
Segment. The Commissioning shall occur as agreed upon by PathNet and
Incumbent pursuant to the acceptance procedures of the FPM Agreement and
shall be set forth in Schedule H, attached hereto.
2.2 Extension
This Maintenance Agreement shall be renewed automatically for successive,
one-year renewal terms and shall terminate upon expiration of the FPM
Agreement; provided that (i) Incumbent does not give PathNet notice at
least ninety (90) days before expiration of the term indicating that
Incumbent will terminate this Agreement for convenience, pursuant to
Section 9.2 hereof; (ii) PathNet does not provide notice to Incumbent that
PathNet will not renew the contract due to Incumbent's failure to perform
the Services pursuant to Section 7.2 hereof; or (iii) either Party does
not terminate this Agreement for cause pursuant to Section 9.1 hereof.
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3. SERVICES
3.1 Provision of Services
3.1.1 General. Upon Commissioning, Incumbent shall provide the
following Maintenance services, functions and responsibilities on
the Equipment identified in Schedule D and at the Facilities
identified in Schedule F, as such Equipment may evolve or be
supplemented, enhanced, modified or replaced during the Term (the
"Services"):
(a) the services, functions and responsibilities described
in this Maintenance Agreement and its Schedules; and
(b) the services, functions and responsibilities performed
by Incumbent's personnel and Subcontractors during the
twelve (12) months preceding the Effective Date who were
responsible for maintaining the existing
telecommunications system, even if the service, function
or responsibility is not specifically described in this
Maintenance Agreement.
(c) Upon execution of this Maintenance Agreement and prior
to the Commissioning, Incumbent shall continue to
perform the maintenance duties on the Facilities during
the Build-out Period, as performed during the twelve
(12) months preceding the Effective Date.
3.1.2 Implied Services. If any services, functions or
responsibilities not specifically described in this Maintenance
Agreement are required for the proper performance and provision of
the Services, they shall be deemed to be implied by and included
within the scope of the Services to the same extent and in the same
manner as if specifically described in this Agreement. Except as
otherwise expressly provided in this Maintenance Agreement,
Incumbent shall be responsible for providing the facilities,
personnel and other resources required to perform the Services.
3.2 Services Requirements
3.2.1 Timing of Service.
(a) General. Incumbent shall perform all Services in at
least the intervals and time periods set forth in
Schedule A.
(b) Outage Critical Service Levels, Other Adverse Impacts.
In the event of an (i) Outage, (ii) degradation of the
System's operation
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below Critical Service Levels, or (iii) any other
problem that threatens to adversely impact the System or
the integrity of the System, Incumbent shall be on-site
at any Incumbent Facility as required to provide
Remedial Maintenance within two (2) hours of receipt of
a Trouble Ticket and shall repair the System to normal
operations within a cumulative mean time of four (4)
hours after the receipt of a Trouble Ticket.
Notwithstanding the foregoing, Incumbent shall make
reasonable efforts to ensure that all capacity is
restored to service as promptly as practical in order to
restore service after an Outage.
3.2.2 Dispatch and Notification.
(a) Dispatch. Incumbent shall make Field Technicians
available to provide Services twenty-four (24) hours a
day, seven (7) days a week. PathNet shall provide System
monitoring from the Network Monitoring Center
twenty-four (24) hours a day, seven (7) days a week for
reporting of System failures. Incumbent must include in
Exhibit A-1 to Schedule A procedures and personnel
involved, including an escalation list of individuals
responsible for repairing the System to normal
operations, in the event of a Field Technician dispatch
which procedures shall be approved by PathNet.
(b) Notification. Notification shall be deemed to be
received by Incumbent upon initiation and notification
of a Trouble Ticket. The Network Monitoring Center shall
initiate a Trouble Ticket pursuant to the procedures set
forth in Section 3.2.6 of Schedule B.
3.3 Services Exclusions
3.3.1 Towers and Shelters. Except as provided in the Section 2 of Schedule
A, this Maintenance Agreement does not include maintenance obligations for
any tower, tower lighting, FCC or FAA tower regulatory requirement or
equipment shelter which shall be owned and maintained by Incumbent outside
of the scope of this Agreement; provided, however, that Incumbent shall
maintain such towers and shelters as required to support the continuous
and reliable operation of the System and network without material
degradation to either the Equipment or System.
3.3.2 Other Exclusions. In the event that telephone lines, equipment or
interconnections provided by or required by third parties is used in
conjunction with PathNet's Equipment, Incumbent shall have no maintenance
obligation or responsibility for such telephone lines or third-party
equipment. Incumbent shall, upon request by PathNet, assist in repairing
those lines so all equipment and
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systems are operational; provided that PathNet shall adjust the Monthly
Service Charge pursuant to Section 5.4 of this Maintenance Agreement.
4. EQUIPMENT; FACILITIES
4.1 Equipment
The Equipment that Incumbent shall be responsible for maintaining in the
performance of the Maintenance Services are set forth in Schedule D, and
may be amended from time to time as such Equipment may change or may be
replaced, modified, or enhanced over time as a result of new technology;
provided that PathNet shall provide written notice to Incumbent of any
such Amendment. In the event of a Capacity Expansion under the FPM
Agreement, PathNet shall supplement and modify the Equipment set forth in
Schedule D to include any additional Equipment required for such Capacity
Expansion.
4.2 Spare Parts; Replacement Equipment
4.2.1 Spare Parts. PathNet shall provide and Incumbent shall store
Spare Parts to the Equipment at the Storage Depot in the type and
quantity as agreed upon and as set forth in Schedule E; provided
that Incumbent may supplement the Spare Parts beyond Incumbent's
designated allocation of Spare Parts at its sole discretion.
Incumbent shall store such Spare Parts at appropriate depots to
allow for a reasonable response within the time parameters set forth
in Section 3.2 and Schedule A of this Maintenance Agreement.
PathNet, through the Network Management Center, shall assist
Incumbent in identifying modules or Spare Parts necessary to
expedite any required repairs. Incumbent shall utilize the modular
exchange program that PathNet has established in order to maintain
an adequate inventory of Spare Parts. Incumbent shall be responsible
for notifying PathNet of any shortages in type or quantities of
Spare Parts required to meet Incumbent's obligations to provide
Services under this Maintenance Agreement; provided that PathNet
shall ship any such requested Spare Parts in accordance with the
Spare Parts shipping procedures set forth in Schedule G.
4.2.2 Replacement Equipment. At its sole discretion, PathNet may
replace any Equipment, provided that such Equipment does not
materially degrade the Initial System and PathNet provides
reasonable notice of such replacement to Incumbent. Upon reasonable
notice to Incumbent that any such Equipment requires replacing,
Incumbent shall be responsible for providing the labor and other
associated costs of installing any such Equipment, pursuant to any
Monthly Services Charge adjustment set forth in Section 5.4 of this
Maintenance Agreement.
4.3 Facilities
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Incumbent shall be responsible for performing the Services at the
Facilities as set forth in Schedule F. Pursuant to the FPM Agreement, the
Facilities shall be maintained at the environmental conditions necessary
to support the Equipment, in accordance with the manufacturers'
specifications set forth in the FPM Agreement.
5. CHARGES
5.1 General
All Monthly Services Charges to be paid by PathNet to Incumbent, upon
Commissioning of any Segment, are set forth in this Section 5 or in
Section 2.1 of Schedule C. PathNet shall not be required to pay Incumbent
any amounts for the Services in addition to those payable to Incumbent
under this Section 5 or Schedule C, except as provided for in Section 2.2
of Schedule C.
5.2 Pass-Through Expenses
Pass-Through Expenses shall be paid directly by PathNet or through
Incumbent upon PathNet's prior approval and acceptance of such
Pass-Through Expenses. If the Parties agree that a particular Pass-Through
Expense is to be paid by PathNet directly, Incumbent shall promptly
provide PathNet with the original invoice for such expense.
5.3 Taxes
The Parties' respective responsibilities for taxes arising under or in
connection with this Maintenance Agreement shall be as follows:
5.3.1 Each Party shall be responsible for any personal or real
property taxes on property it owns or leases, for franchise and
privilege taxes on its business, and for taxes based on its net
income or gross receipts.
5.3.2 PathNet shall be responsible for any sales, use, excise,
value-added services, consumption, and other taxes and duties
payable by Incumbent on any goods or services used or consumed in
providing the Services, where the tax is imposed on Incumbent's
acquisition or use of such goods or services and the amount of tax
is measured by Incumbent's costs in acquiring such goods or
services; provided, however, that PathNet shall not be responsible
for any Federal, state or local income taxes of Incumbent or
franchise taxes.
5.4 New Services
PathNet shall pay Incumbent for the performance of any new Services
requested by PathNet and accepted by Incumbent outside of the core
Services for maintenance. PathNet shall pay for such new Services as
agreed upon by the Parties based on the
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procedures set forth in Section 2.2 of Schedule C. Such new Services may
include, without limitation: (i) performance of services at the
interconnection facilities between PathNet's network and the System, (ii)
cost of Equipment removal upon PathNet's termination of this Maintenance
Agreement, or (iii) any other services not included in the Services as
defined in this Maintenance Agreement.
6. INVOICING AND PAYMENT
As calculated from the Monthly Services Charges and any and all charges for New
Services and Pass-Through Expenses, pursuant to Schedule C, Incumbent shall send
PathNet a quarterly invoice covering the fees and charges for the last quarter
for the prior three months' Services. PathNet shall pay the amount of each
quarterly invoice within thirty (30) days of receipt by PathNet. Such Monthly
Service Charges shall be due and payable whether or not the Equipment is
operating. Any and all disputes with regard to charges payable under this
Maintenance Agreement shall be settled in accordance with Section 15 of this
Agreement.
7. PERFORMANCE STANDARDS
7.1 General
Incumbent shall perform the Services at least to the level and degree of
accuracy, quality, completeness, timeliness, responsiveness and efficiency
as set forth in the Critical Service Levels in Schedule B. At all times,
Incumbent's level of performance shall meet Performance Standards as
identified in this Maintenance Agreement and its Schedules and shall be
consistent with industry standards.
7.2 Failure to Perform
7.2.1 Incumbent recognizes that its failure (i) to meet any Critical
Service Level, (ii) correct any Outage, or (iii) remedy any other
problem that threatens to adversely impact the operation of the
System may have a material adverse impact on the business and
operations of PathNet. Accordingly, in the event that Incumbent
repeatedly (i) fails to meet any Critical Service Level, (ii)
correct any Outage, or (iii) remedy any other problem that threatens
to adversely impact the operation of the System for reasons other
than the wrongful actions of PathNet or circumstances that
constitute Force Majeure under this Maintenance Agreement, PathNet,
at its sole discretion, may elect (i) to not renew this Maintenance
Agreement or (ii) to supplement the provision of Services as
provided by Incumbent by appointing a new Maintenance provider.
7.2.2 In the event of any problem affecting the operation of the
System (including, without limitation, the events listed in Section
7.2.1), Incumbent shall (i) investigate and report to PathNet the
causes of such problem or in the event of
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an Outage; (ii) advise PathNet of the status of remedial efforts
being undertaken with respect to such problems; (iii) correct the
problem as soon as practical and restore the System's operation to
the Critical Service Levels; and (iv) take appropriate preventive
measures so that the problem does not recur.
7.2.3 PathNet or its designee shall have the right to free, full and
immediate access to any and all affected Facilities to repair the
Equipment or System and to supplement the Services if operations
fall below the Performance Standards; provided such supplemental
Maintenance will not degrade the operation of the Initial System.
Upon PathNet's prior notification, Incumbent shall reasonably
cooperate with PathNet or its designee, including providing any
escorts necessary for PathNet to supplement the Services.
7.2.4 In the event PathNet either (i) does not renew this Agreement
or (ii) supplements the Services, Incumbent shall have the right to
continue to maintain the Initial System at Incumbent's sole expense,
so long as such maintenance shall not impact PathNet's ability to
maintain the System.
8. PERIODIC REVIEWS; AUDIT RIGHTS; SAVINGS CLAUSE
8.1 Reviews
8.1.1 Annual Review. As part of the annual renewal of this
Maintenance Agreement, PathNet and Incumbent shall review the
Critical Service Levels and the Monthly Service Charges paid to
Incumbent. PathNet and Incumbent shall make adjustments to the
Critical Service Levels, as appropriate, to reflect (i) improved
performance capabilities associated with advances in technology and
methods to perform the Services and (ii) modifications in the
performance requirements of PathNet's Customer. The Parties expect
and understand that the Critical Service Levels may improve over
time. PathNet and Incumbent shall make adjustments pursuant to
Schedule C to the Monthly Service Charges to reflect the material
changes in the performance of the Services in accordance with any
such revised Critical Service Levels.
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8.1.2 Maintenance Test Equipment. Incumbent shall utilize the
necessary measurement and monitoring tools and procedures,
including, but not limited to, the Maintenance Test Equipment as set
forth in Exhibit E-2 to Schedule E and other equipment necessary to
measure and to report operational performance of the System against
the applicable Critical Service Levels. Such measurement and
monitoring tools and equipment shall permit reporting at a level of
detail sufficient to verify compliance with Critical Service Levels
and shall be reviewable by PathNet upon reasonable notice. Upon
request by PathNet, Incumbent shall provide PathNet with information
and access to such tools and procedures for purposes of
verification.
8.2 Audit and Inspection Rights
8.2.1 Incumbent shall maintain accurate logs and dispatch reports,
recording any reported Outages or operations below Critical Service
Levels and the appropriate actions taken to restore service. PathNet
shall have the right to audit any and all reports maintained by
Incumbent. These reports shall be available to PathNet for its
inspection at Incumbent's Facilities and a copy of the compilation
of these reports is to be forwarded to PathNet on a quarterly basis.
8.2.2 PathNet shall have the right to inspect the Facilities and
Equipment Maintenance at any time upon reasonable notice to
Incumbent and to supplement such Maintenance during PathNet's
inspection; provided PathNet complies with any and all Incumbent
security procedures.
8.3 Savings Clause
PathNet's failure to perform any of its responsibilities set forth in this
Agreement (other than as provided in Section 9.1.2) shall not be deemed to
be grounds for non-performance by Incumbent; provided, however, that
Incumbent's non-performance of its obligations under this Agreement shall
be excused if, and to the extent, (i) such Incumbent non-performance
results from PathNet's failure to perform its responsibilities, and (ii)
Incumbent provides PathNet with reasonable notice of such non-performance
and uses commercially reasonable efforts to perform, notwithstanding
PathNet's failure to perform (with PathNet reimbursing Incumbent for its
additional Pass-Through Expenses for such efforts).
9. TERMINATION
9.1 Termination for Cause
9.1.1 In the event that Incumbent: (i) commits a material breach of
this Maintenance Agreement, which breach is not cured within thirty
(30) days after notice of breach from PathNet to Incumbent or (ii)
commits numerous breaches of
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its duties or obligations which collectively constitute a material
breach of this Maintenance Agreement, PathNet may, by giving
reasonable written notice to Incumbent, terminate this Maintenance
Agreement, in whole or in part, as of the date specified in the
notice of termination. If PathNet chooses to terminate this
Maintenance Agreement in part, the charges payable to Incumbent
under this Maintenance Agreement will be equitably adjusted to
reflect those services that are terminated.
9.1.2 In the event that PathNet fails: (i) to pay Incumbent
undisputed charges due under this Agreement totaling at least Five
Thousand ($5,000) Dollars and fails to make such payment within
thirty (30) days of notice from Incumbent of the failure to make
such payment or (ii) upon thirty (30) days' prior written notice
from Incumbent to PathNet, otherwise fails to fulfill its
obligations, Incumbent may, by giving written reasonable notice to
PathNet, terminate this Maintenance Agreement as of the date
specified in the notice of termination.
9.2 Termination for Convenience
Incumbent may terminate this Maintenance Agreement for convenience and
without cause at any time by giving PathNet at least on-hundred and twenty
(120) days' prior written notice before the end of the Term of this
Maintenance Agreement indicating that Incumbent will not renew this
Maintenance Agreement; provided, however, that PathNet, its Affiliates,
agents or Subcontractors may, at PathNet's sole discretion, supplement or
perform the Services set forth in this Maintenance Agreement.
9.3 Termination or Expiration Assistance
In the event (i) Incumbent terminates this Maintenance Agreement for
convenience; (ii) PathNet does not renew this Maintenance Agreement
because of Incumbent's failure to perform, or (iii) this Maintenance
Agreement expires, PathNet shall propose and Incumbent shall approve,
which approval shall not be unreasonably withheld, a third-party,
independent Maintenance provider, at least forty-five (45) days before
termination or expiration of this Agreement to provide the Services at
Incumbent's Facilities. Such independent Maintenance provider shall assume
the obligation of Incumbent for any successive terms coterminous with the
remaining term of the FPM Agreement, unless such provider is replaced by
PathNet before the expiration of the term of this Maintenance Agreement or
any extension thereof. In the event either Party terminates this Agreement
for cause, PathNet shall provide a third-party Maintenance provider to
perform the Services, and Incumbent shall reasonably cooperate with such
provider. Upon termination for any reason or expiration of this
Maintenance Agreement, PathNet shall have the right to full and free
access to all Facilities to supplement or perform the Services in accord
with the Performance Standards.
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10. RELATIONSHIP OF THE PARTIES
Nothing in this Maintenance Agreement will imply a joint venture, partnership,
or principal-agent relationship between the Parties. Neither Party will have any
right, power or authority to act or create any obligation, express or implied,
on behalf of the other Party, pursuant to this Maintenance Agreement.
11. PROPRIETARY RIGHTS AND COPYRIGHTS
11.1 Maintenance software, training materials, manuals or other
proprietary information furnished by PathNet ("Maintenance Aids") for
Incumbent's use are either PathNet's property or property of third parties
and are proprietary. Incumbent agrees to keep such Maintenance Aids
confidential and to use its best efforts to prevent the unauthorized
disclosure and use of such Maintenance Aids.
11.2 Incumbent agrees to use its best efforts not to allow copies of any
Maintenance Aids furnished by PathNet to be made without the prior written
consent. Incumbent may make necessary copies of Maintenance Aids installed
as part of its providing the Services subject to Incumbent's obligations
under this Agreement.
12. REPRESENTATIONS AND WARRANTIES
12.1 Work Standards
Incumbent represents and warrants that the Services shall be rendered with
promptness and diligence and shall be executed in a workmanlike manner, in
accordance with the practices and high professional standards used in
well-managed commercial telecommunications operations performing services
similar to the Services. Incumbent represents and warrants that it shall
use adequate numbers of qualified individuals with suitable training,
education, experience, and skill to perform the Services.
12.2 Maintenance
Incumbent represents and warrants that it shall maintain the Equipment so
that it operates in accordance with its specifications, including (i)
maintaining equipment in good operating condition, subject to normal wear
and tear, and (ii) undertaking repairs and preventive maintenance on
Equipment in accordance with the applicable Equipment manufacturers'
recommendations.
12.3 Efficiency and Cost Effectiveness
(a) Incumbent represents and warrants that it shall use its best
efforts to use efficiently the resources or services necessary
to
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provide the Services. Incumbent represents and warrants that
it shall use its best efforts to perform the Services in the
most cost-effective manner consistent with the required level
of quality and performance as set forth in this Agreement.
(b) Each Party represents and warrants to the other that:
(i) It has the requisite corporate or partnership power and
authority to enter into this Maintenance Agreement and
to carry out the transactions contemplated by this
Maintenance Agreement; and
(ii) The execution, delivery and performance of this
Maintenance Agreement and the consummation of the
transactions contemplated by this Maintenance Agreement
have been duly authorized by the requisite corporate or
partnership action on the part of such Party.
12.4 Insurance
Incumbent warrants and represents that during the term of this Agreement
and any extension thereof, Incumbent shall maintain at Incumbent's expense
all of the necessary insurance for all Incumbent's employees, agents or
affiliates required to perform the Services, including, but not limited
to, Worker's Compensation, disability, and unemployment insurance, and to
provide PathNet with certification thereof upon request.
12.5 Security and Safety Procedures
In the event PathNet is required to supplement the Services, PathNet shall
comply with all reasonable Incumbent security and safety procedures as
provided by the Incumbent in fulfilling its obligations.
12.6 Disclaimer
EXCEPT AS PROVIDED IN THIS MAINTENANCE AGREEMENT, THERE ARE NO OTHER
EXPRESS WARRANTIES AND THERE ARE NO IMPLIED WARRANTIES, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
ON THE PART OF EITHER PARTY.
13. INDEMNITIES
13.1 Indemnification by PathNet.
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To the maximum extent permitted by law, PathNet shall release, protect,
defend and hold harmless Incumbent and its Affiliates and its and their
respective officers, directors, employees and agents from and against any
and all Losses arising from (i) personal injury, disease, death, property
damage, pollution and environmental damage (including clean-up and all
fines and penalties of any nature) to the extent directly or indirectly
caused by or related to the negligence (whether simple or gross; active or
passive), strict or absolute liability or fault of PathNet, its Affiliates
or its or their officers, directors, employees, agents or contractors and
(ii) the breach of any representation or warranty set forth in this
Maintenance Agreement by PathNet.
13.2 Indemnification by Incumbent.
To the maximum extent permitted by law, Incumbent shall release, protect,
defend and hold harmless PathNet and its Affiliates and its and their
respective officers, directors, employees and agents from and against any
and all Losses arising from (i) personal injury, disease, death, property
damage, pollution and environmental damage (including clean-up and all
fines and penalties of any nature) to the extent directly or indirectly
caused by or related to the negligence (whether simple or gross; active or
passive), strict or absolute liability or fault of Incumbent, its
Affiliates or its or their officers, directors, employees, agents or
contractors and (ii) the breach of any representation or warranty set
forth in this Maintenance Agreement by Incumbent.
14. LIABILITY
14.1 General Intent
Subject to the specific provisions of this Article 14, it is the intent of
the Parties that each Party shall be liable to the other Party for any
actual damages incurred by the non-breaching Party as a result of the
breaching Party's failure to perform its obligations in the manner
required by this Maintenance Agreement.
14.2 Liability Restrictions
14.2.1 SUBJECT TO SUBSECTION 14.2.2 BELOW, IN NO EVENT, WHETHER IN
CONTRACT OR IN TORT (INCLUDING BREACH OF WARRANTY, NEGLIGENCE AND STRICT
LIABILITY IN TORT), SHALL A PARTY BE LIABLE TO THE OTHER PARTY FOR
INDIRECT OR CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN ADVANCE.
14.2.2 The limitations set forth in subsection shall not apply to
the indemnification obligations set forth in Section 11.
14.2.3 Each Party shall have a duty to mitigate damages for which
the other Party
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is responsible.
14.3 Force Majeure
Neither Party shall be liable to the other for any delays or damages
or failure to act, except for the obligation to make payment when
due, owing to, occasioned by or caused by reason of strikes,
lockouts, fire, flood, the elements, Acts of God, wars, blockades,
insurrections, riots, landslides, earthquakes, lightning, storms and
civil disturbances beyond the control of the Party affected thereby,
and delays due to any of the above causes shall not be deemed to be
a breach or failure to perform under this Agreement (collectively a
"Force Majeure Event"); provided, however, that the Party delayed by
such event shall provide notice thereof to the other Party as soon
as reasonably possible specifying all facts relating thereto, the
anticipated consequences thereof, and any proposed actions to be
taken in mitigation of adverse consequences. Neither Party shall,
however, be relieved of liability for failure of performance due to
a claimed Force Majeure Event hereunder if such failure is due to
causes arising out of its own negligence or to removable causes that
it fails to remove or remedy with reasonable dispatch.
15. DISPUTE RESOLUTION
15.1 Informal Dispute Resolution.
15.1.1 Role of Program Manager. In the event Incumbent has a
dispute, controversy or other complaint relating to PathNet's performance
of PathNet's rights and obligations under this Agreement, Incumbent shall
have the right to first contact the Program Manager to resolve such
dispute, controversy or other complaint. If Incumbent is not satisfied
with the resolution provided by the Program Manager, Incumbent may resort
to the arbitration procedures set forth in this Section 15.
15.1.2 Notice of Breach, Cure and Remedies. In the event of a
material breach by either PathNet or Incumbent (the "Breaching Party"),
the other Party (the "Non-Breaching Party") shall send by certified mail a
written notice of such material breach to the Breaching Party setting
forth the specific allegations of such breach. Upon receipt of the notice
of breach, the Breaching Party shall have thirty (30) days to cure such
breach. In the event the Breaching Party fails to cure such breach, as
determined by the Non-Breaching Party in its sole discretion, and the
Breaching Party determines, in its sole discretion, that it has cured such
breach, either the Breaching Party or the Non-Breaching Party may invoke
the arbitration procedures set forth in Section 15.2 to resolve whether
such breach has been cured.
15.2 Arbitration.
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15.2.1 Arbitration; Resolution of Disputes. Subject to Section 15.1,
any and all disputes and controversies between Incumbent and PathNet
concerning this Agreement (each a "Dispute") shall be subject to
resolution as set forth in this Section 15.
15.2.2 Referral to Binding Arbitration. Each Party shall have the
right, but not the obligation, to refer any Dispute for final resolution
by binding arbitration in accordance with the American Arbitration
Association (the "Association") Rules for Arbitration of business disputes
(the "Arbitration Rules").
15.2.3 Binding Effect. The Parties acknowledge and agree that (i)
the award in any arbitration shall be final, conclusive and binding on the
Parties and (ii) any such arbitration award be a final resolution of the
Dispute between the Parties to the same extent as a final judgment of a
court of competent jurisdiction.
15.2.4 Use of Courts and Other Legal Remedies. Each Party covenants
and agrees that it shall not resort to any court for legal remedies
concerning any Dispute other than to enforce a final decision by the
arbitrators or for preliminary, interim or provisional equitable relief in
aid of arbitration.
15.2.5 Arbitration Process.
(a) Site and Arbitration Tribunal. Absent agreement to the contrary
by the Parties, the arbitration will be conducted in New York, New York,
by a panel of three (3) arbitrators with expertise in the fields of
telecommunications engineering and construction.
(b) Limitation on Awards. Arbitrators may not award (i) the right to
terminate this Agreement or any of the rights and obligations hereunder,
or (ii) any other right or remedy that contravenes the terms and
conditions of this Agreement.
(c) Period of Limitations. In the event the Party claiming a Dispute
under Section 17.1.2 does not institute binding arbitration within four
(4) years after notice of breach, such Party shall forever be barred from
bringing a claim on the specific subject matter of such Dispute.
(d) Attorneys' Fees. The arbitrator shall award the reasonable cost,
including attorneys' fees, to the prevailing Party.
16. MISCELLANEOUS
16.1 Notice Provision
All notices pertaining to disputes arising from this Maintenance Agreement
shall be directed to a corporate or partnership entity or employee
designated by the signators as having full rights and responsibilities to
address such issues. Notices under this
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Maintenance Agreement shall be sufficient only if personally delivered by
a commercial prepaid delivery or courier service or mailed by certified or
registered mail, return receipt requested to a party at its address set
forth in the signature block below or as amended by notice pursuant to
this subsection. If not received sooner, notice by mail shall be deemed
received five (5) business days after deposit in the U.S. mail. All
notices shall be delivered as follows:
If to PathNet:
Michael A. Lubin, Esquire
Vice President and General Counsel
PathNet, Inc.
6715 Kenilworth Avenue, Suite 200
Riverdale, Maryland 20737
If to Incumbent:
Mr. Tom Bruscino
Director, Telecommunications
KN Energy
370 Van Gordon Street
Lakewood, CO 80228-8304
16.2 Binding Nature: Entire Agreement
PathNet and Incumbent acknowledges (i) that each has read and understands
the terms and conditions of this Maintenance Agreement and agrees to be
bound by such terms and conditions, (ii) that this Maintenance Agreement
is the complete and conclusive statement of the agreement between the
Parties, and (iii) that this Maintenance Agreement sets forth the entire
agreement and understanding between the Parties relating to the subject
matter hereof. All understandings and agreements, oral and written,
heretofore made between Incumbent and PathNet relating to the subject
matter hereof are merged in this Maintenance Agreement which alone, fully
and completely expresses their agreement on the subject matter of
maintenance service to be provided by Incumbent. The provisions of this
Maintenance Agreement are separate and apart from the provisions of the
FPM Agreement and may not in any way affect either Party's obligations
with regard to the FPM Agreement.
16.3 Amendment
No modification of, additions to or waiver of this Maintenance Agreement
shall be binding upon Incumbent and PathNet unless such modification is in
writing and signed by an authorized representative of each Party.
16.4 Severability
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If any term or provision of this Maintenance Agreement shall to any extent
be held by a court or other tribunal to be invalid, void or unenforceable,
then that term or provision shall be inoperative and void insofar as it is
in conflict with law, but the remaining terms and provisions of this
Maintenance Agreement shall nevertheless continue in full force and effect
and the rights and obligations of the Parties shall be deemed to be
restated to reflect newly as possible the original intentions of the
Parties in accordance with applicable law.
16.5 Headings
Section and paragraph headings used in this Maintenance Agreement are for
reference and convenience only and are not to be deemed or construed to be
part of this Maintenance Agreement.
16.6 Consents and Approval
Except where expressly provided as being in the discretion of a Party,
where agreement, approval, acceptance, consent, or similar action by
either Party is required under this Maintenance Agreement, such action
shall not be unreasonably delayed or withheld. An approval or consent
given by a Party under this Maintenance Agreement shall not relieve the
other Party from responsibility for complying with the requirements of
this Maintenance Agreement, nor shall it be construed as a waiver of any
rights under this Maintenance Agreement, except as and to the extent
otherwise expressly provided in such approval or consent.
16.7 Compliance with Laws and Regulations
Each Party shall perform its obligations in a manner that complies with
the applicable Federal, state and local laws, regulations, ordinances and
codes (including identifying and procuring required permits, certificates,
approvals and inspections). If a charge of noncompliance by either Party
with any such laws, regulations, ordinances or codes occurs, the Party
charged with such non-compliance shall promptly notify the other Party of
such charges in writing.
16.8 Governing Law
This Maintenance Agreement and the rights and duties of the parties shall
be governed and interpreted in accordance with the laws of the State of
New York, other than the choice of law rules thereof.
16.9 Binding Nature and Assignment
This Maintenance Agreement shall be binding on the Parties hereto and
their respective successors and assigns. Neither Party may or shall have
the power to assign this
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Maintenance Agreement without the prior written consent of the other,
except that either Party may assign its rights and obligations under this
Maintenance Agreement without the approval of the other Party to an entity
which acquires all or substantially all of the assets of that Party to any
subsidiary or Affiliate or successor in a merger or acquisition of that
Party; provided that in no event shall any such assignment relieve that
Party of its obligations under this Maintenance Agreement.
16.10 Waiver
Failure or delay on the part of Incumbent or PathNet to exercise any
right, power or privilege under this Maintenance Agreement shall not
constitute a waiver of any right power or privilege of this Maintenance
Agreement.
16.11 Time To Sue
No action shall be brought for any breach of this Maintenance Agreement
more than two (2) years after the accrual of such cause of action, except
where applicable law provides for a shorter limitation period, in which
event that period should apply.
16.12 Relationship of Parties
Incumbent, in furnishing the services hereunder, is acting as an
independent contractor, and Incumbent has the sole right and obligation to
supervise, manage, contract, direct, procure, perform or cause to be
performed all work to be performed by Incumbent under this Maintenance
Agreement. Incumbent is not an agent of PathNet and has no authority to
represent PathNet as to any matters, except as expressly authorized in
this Maintenance Agreement.
16.13 Survival
Any provision of this Maintenance Agreement which contemplates performance
or observance subsequent to any termination or expiration of this
Maintenance Agreement shall survive any termination or expiration of this
Maintenance Agreement and continue in full force and effect.
16.14 Covenant of Good Faith
Each Party agrees that in its respective dealings with the other Party
under or in connection with this Maintenance Agreement, it shall act in
good faith.
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IN WITNESS WHEREOF, the parties hereto have executed this Maintenance
Service Agreement, or caused it to be executed by a duly authorized officer, as
of the date first written above.
PATHNET, INC. KN ENERGY, INC.
By: /s/ Dave Schaeffer By: /s/ Thomas Bruscino
------------------------------- -------------------------------
Name: DAVE Schaeffer Name: Thomas Bruscino
----------------------------- -----------------------------
Title: Chairman Title: Director Telecommunications
---------------------------- ----------------------------
Date: 10/13/97 Date: 10/10/97
----------------------------- ----------------------------
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Exhibit 10.9
MAINTENANCE SERVICES AGREEMENT
This MAINTENANCE SERVICES AGREEMENT (the "Maintenance Agreement") is made
and entered into as of the 30th day of January, 1998 (the "Effective Date"), by
and between PATHNET, INC. (hereinafter "Pathnet"), a Delaware corporation, and
NORTHERN INDIANA PUBLIC SERVICE COMPANY (hereinafter, "Incumbent"), an Indiana
corporation, (collectively, the "Parties" and each, a "Party").
W I T N E S S E T H:
WHEREAS, Pathnet is engaged in the business of creating high-capacity,
digital microwave communications systems for purposes of marketing the long
distance telecommunications capacity created by such systems;
WHEREAS, Incumbent and Pathnet have entered into a Fixed Point Microwave
Services Agreement pursuant to which, among other things, Pathnet has agreed to
construct and install a high-capacity digital microwave system utilizing
Incumbent's microwave telecommunications assets;
WHEREAS, Pathnet wishes to engage the services of Incumbent to provide
routine and corrective maintenance on Incumbent's Equipment and System and to
maintain Incumbent's Segment of the Pathnet network at a minimal level of
acceptability to ensure overall effective operations;
WHEREAS, Incumbent wishes to maintain such System for Pathnet; and
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Parties agree as follows:
1. DEFINITIONS
1.1 CERTAIN DEFINITIONS
1.1.1 "FPM AGREEMENT" shall mean the Fixed Point Microwave
Services Agreement by and between Pathnet and Incumbent, dated
January 30, 1998.
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1.1.2 "BUILD-OUT PERIOD" shall mean the period of time between
final design approval and final testing and acceptance during which
the Initial System is installed.
1.1.3 "CRITICAL SERVICE LEVELS" shall mean the service levels and
standards of operations set forth in Schedule B that are essential for
Pathnet to provide reliable, error free traffic to IXCs or other
customers for capacity.
1.1.4 "EQUIPMENT" shall mean any and all digital microwave radios,
radio components, cards, antennas, waveguides, multiplexers (OC-3 to
DS-1) and other equipment or parts as required for the operation of
the System provided and installed by Pathnet and subject to
Incumbent's Maintenance obligations under this Maintenance Agreement,
as listed on Schedule D attached hereto.
1.1.5 "EXTRAORDINARY CIRCUMSTANCES" shall mean (i) circumstances
of nature (for instance, those caused by weather yet not escalated to
a Force Majeure event); (ii) an incomplete or inaccurate Trouble
Ticket as to the identification and location of a problem (for
example, identifying a problem at a wrong Facility); or (iii) pursuant
to the provisions of Section 4.2.3, Pathnet's failure to provide
replacement Equipment or Spare Parts, as required under this
Agreement, that are beyond Incumbent's reasonable control and prevent
Incumbent from performing the Services hereunder, which
non-performance Incumbent cannot reasonably correct.
1.1.6 "FACILITIES" shall mean the Incumbent's towers, shelters,
buildings and sites used for the purpose of operating the microwave
communications System described in Schedule F to this Maintenance
Agreement.
1.1.7 "FIELD TECHNICIAN" shall mean Incumbent's employees, agents
or subcontractors qualified to provide Maintenance, pursuant to this
Maintenance Agreement, as they may change from time to time.
1.1.8 "MAINTENANCE" shall mean the ongoing and scheduled
inspections, ongoing and scheduled repair, ongoing and scheduled
prevention of repair, and unscheduled, on-call corrective action of
any and all Equipment necessary for the System to operate in
accordance with the Performance Standards as set forth in this
Maintenance Agreement and its Schedules.
1.1.9 "MAINTENANCE TEST EQUIPMENT" shall mean used or owned
equipment (including methods and tools) required to test and maintain
the Equipment and
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System in accordance with the Performance Standards of this
Maintenance Agreement and its Schedules.
1.1.10 "MONTHLY SERVICES CHARGE" shall be as set forth in Section 5
and Schedule C of this Maintenance Agreement.
1.1.11 "NEW SERVICES" shall be as defined in Section 2.3.1 of
Schedule C of this Maintenance Agreement.
1.1.12 "PASS-THROUGH EXPENSES" shall mean Incumbent's reasonable
and actual out-of-pocket expenses to be paid and reimbursed by
Pathnet, pursuant to Section 2.3.2 of Schedule C, that are outside of
the Services obligations and the costs incurred by Incumbent pursuant
to this Maintenance Agreement. Without limiting the foregoing,
Pass-Through Expenses shall include expenses for providing materials
for maintaining the Equipment pursuant to this Maintenance Agreement
including replacement units, replacement parts, spare parts, hardware
items and other miscellaneous repair and replacement expenses and any
extraordinary expenses related to the emergency ordering and
acquisition of parts; provided Pathnet has not otherwise provided such
material and such material is required under this Maintenance
Agreement.
1.1.13 "PERFORMANCE STANDARDS" shall mean individually and
collectively the quantitative and qualitative performance standards
and commitments for the services contained in this Maintenance
Agreement, including, but not limited to, the Critical Service Levels.
1.1.14 "PREVENTIVE MAINTENANCE" shall mean the ongoing and
scheduled Maintenance required for the normal operations of the
Equipment and System, as more fully described in Schedule A.
1.1.15 "REMEDIAL MAINTENANCE" shall mean unscheduled, on-call
Maintenance (i) to correct an Outage, (ii) to restore operations to
above Critical Service Levels, or (iii) to restore the Equipment and
the System to good operating condition, as more fully described in
Schedule A.
1.1.16 "SERVICES" shall be as defined in Section 3 and Schedule A
of this Maintenance Agreement.
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1.1.17 "STOCKING DEPOT" shall mean an enclosed and reasonably
protected storage facility required for housing the Spare Parts
inventory.
1.1.18 "SYSTEM" shall mean the high-capacity digital SONET
microwave radio equipment (6 Hz/30 MHZ) antenna, waveguides,
components, Facilities and FCC licenses, installed and assembled
capable of transmitting, receiving and transporting telecommunications
signals over the Segment set forth in Schedule F.
1.1.19 "TROUBLE TICKET" shall have the meaning set forth in Section
3.2.2 of Schedule A.
1.2 OTHER TERMS
Capitalized terms used in this Maintenance Agreement but not defined herein
shall have the definitions set forth in the FPM Agreement unless the
context dictates otherwise. References herein to Schedules are to the
Schedules attached to this Maintenance Agreement unless otherwise
specified. Other terms used in this Maintenance Agreement are defined in
the context in which they are used and shall have the meaning, there
indicated.
2. TERM
2.1 TERM
The term of this Maintenance Agreement shall be one (1) year from the
Effective Date (the "Term"). The Services and charges for the Services
shall commence upon the Commissioning of the Initial System on Segment A.
The Commissioning shall occur as agreed upon by Pathnet and Incumbent
pursuant to the acceptance procedures of the FPM Agreement and shall be
evidenced by the certificate to be attached hereto as Schedule H.
2.2 EXTENSION
The Term of this Maintenance Agreement shall be renewed automatically for
successive, one-year renewal terms until terminated. This Maintenance
Agreement may be terminated (i) by Incumbent if Incumbent gives Pathnet
notice at least ninety (90) days before expiration of the Term or a renewal
term indicating that Incumbent will terminate this Maintenance Agreement
for convenience, pursuant to Section 9.2 hereof; (ii) by Pathnet if Pathnet
provides notice to Incumbent that Pathnet will not renew this Maintenance
Agreement due to Incumbent's failure to perform the Services pursuant to
Section 7.2
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hereof; and (iii) by either Party for cause pursuant to Section 9.1 hereof.
This Maintenance Agreement shall automatically terminate upon expiration or
termination of the FPM Agreement.
3. SERVICES
3.1 PROVISION OF SERVICES
3.1.1 GENERAL. Upon Commissioning of the Initial System,
Incumbent shall provide the following Maintenance services, functions
and responsibilities on the Equipment identified in Schedule D and at
the Facilities identified in Schedule F, as such Equipment may evolve
or be supplemented, enhanced, modified or replaced during the Term
(the "Services"):
(a) the services, functions and responsibilities described in
this Maintenance Agreement and its Schedules;
(b) the services, functions and responsibilities performed by
Incumbent's personnel and Subcontractors during the twelve
(12) months preceding the Effective Date who were
responsible for maintaining Incumbent's existing analog and
digital telecommunications system, even if the service,
function or responsibility is not specifically described in
this Maintenance Agreement; and
(c) upon execution of this Maintenance Agreement and prior to
the Commissioning of the Initial System, Incumbent shall
continue to perform the maintenance duties on the Facilities
during the Build-out Period, as performed during the twelve
(12) months preceding the Effective Date.
3.1.2 IMPLIED SERVICES. If any services, functions or
responsibilities not specifically described in this Maintenance
Agreement are reasonably required for the proper performance and
provision of the Services, they shall be deemed to be implied by and
included within the scope of the Services to the same extent and in
the same manner as if specifically described in this Maintenance
Agreement. Except as otherwise expressly provided in this Maintenance
Agreement, Incumbent shall be responsible for providing the
facilities, personnel and other resources required to perform the
Services.
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3.2 SERVICES REQUIREMENTS
3.2.1 TIMING OF SERVICE.
(a) GENERAL. Incumbent shall perform all Services in at least
the intervals and time periods set forth in Schedule A.
(b) OUTAGE, CRITICAL SERVICE LEVELS, OTHER ADVERSE IMPACTS. In
the event of an (i) Outage, (ii) degradation of the System's
operation below Critical Service Levels, or (iii) any other
problem that threatens to adversely impact the System or the
integrity of the System, and except under Extraordinary
Circumstances, Incumbent shall be on-site at any Incumbent
Facility as required to provide Remedial Maintenance within
two (2) hours of receipt of a Trouble Ticket and to repair
the System to normal operations within a cumulative mean
time of four (4) hours after the receipt of a Trouble
Ticket; provided, however, that under Extraordinary
Circumstance, Incumbent Field Technicians shall use
commercially reasonable efforts to be on site as soon as
practical. Notwithstanding the foregoing, Incumbent shall
make reasonable efforts to ensure that all capacity is
restored to service as promptly as practical in order to
restore service after an Outage.
3.2.2 DISPATCH AND NOTIFICATION.
(a) DISPATCH. Incumbent shall make Field Technicians available
to provide Services twenty-four (24) hours a day, seven (7)
days a week. Pathnet shall provide System monitoring from
the Network Monitoring Center twenty-four (24) hours a day,
seven (7) days a week for reporting of System failures.
Incumbent shall include in Exhibit A-1 to Schedule A a list
of procedures and personnel involved in providing
maintenance Services, including an escalation list of
individuals who will be available and who will be
responsible for repairing the System to normal operations,
in the event of a Field Technician dispatch. Such
procedures shall be subject to approval by Pathnet which
shall not be unreasonably withheld.
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(b) NOTIFICATION. Notification of a Trouble Ticket shall be
deemed to be received by Incumbent upon initiation by
Pathnet or Incumbent and electronic receipt by Incumbent.
The Network Monitoring Center shall initiate a Trouble
Ticket pursuant to the procedures set forth in Section 3.2.6
of Schedule A.
3.3 SERVICES EXCLUSIONS
3.3.1 TOWERS AND SHELTERS. Except as provided in Section 2 of
Schedule A, this Maintenance Agreement does not include maintenance
obligations for any tower, tower lighting, FCC or FAA tower regulatory
requirement or equipment shelter which shall be owned and maintained
by Incumbent outside of the scope of this Maintenance Agreement;
provided, however, that Incumbent shall maintain such towers and
shelters as reasonably required to support the continuous and reliable
operation of the System and network without material degradation to
either the Equipment or System.
3.3.2 OTHER EXCLUSIONS. In the event that telephone lines,
equipment or interconnections provided by or required by third parties
are used in conjunction with the Equipment, Incumbent shall have no
maintenance obligation or responsibility for such telephone lines
equipment, or interconnections or interfaces with such items.
Incumbent shall, upon reasonable request by Pathnet, make commercially
reasonable attempts to assist in repairing those lines so all
equipment and systems are operational; provided that Pathnet shall
adjust the Monthly Service Charge pursuant to Section 5.4 of this
Maintenance Agreement to reflect such additional services.
3.4 OUTSOURCING.
In addition to, and not in place of, any rights of Incumbent under this
Maintenance Agreement, Incumbent shall, with the consent of Pathnet which
consent shall not be unreasonably withheld, have the right to engage third
party Subcontractors to perform any or all of the Services or Incumbent's
rights and obligations under this Agreement; provided such third party
Subcontractors are trained and certified, pursuant to the terms of this
Maintenance Services Agreement, to maintain the System at Incumbent's cost.
In the event Incumbent hires Subcontractors to carry out its
responsibilities hereunder, Incumbent shall advise each Subcontractor of
the confidentiality obligations for Proprietary Information under SECTION
12.2 of the FPM Agreement and cause, prior to performance, each such
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Subcontractor to agree to maintain the confidentiality of the Proprietary
Information on terms substantially similar to the terms applicable to
Incumbent.
4. EQUIPMENT; FACILITIES
4.1 EQUIPMENT
The Equipment that Incumbent shall be responsible for maintaining in the
performance of the Maintenance Services is set forth in Schedule D, and may
be amended from time to time as such Equipment may change or may be
replaced, modified, or enhanced over time as a result of new technology;
provided that Pathnet shall provide written notice to Incumbent of any such
amendment. In the event of a Capacity Expansion under the FPM Agreement,
Pathnet shall supplement and modify the Equipment set forth in Schedule D
to include any additional Equipment required for such Capacity Expansion.
4.2 SPARE PARTS; REPLACEMENT EQUIPMENT
4.2.1 SPARE PARTS. Pathnet shall provide at its expense and
Incumbent shall store Spare Parts for the Equipment at the Stocking
Depot in the type and quantity as mutually agreed upon and set forth
in Schedule E. Incumbent shall store Spare Parts at appropriate depots
to allow for a reasonable response within the time parameters set
forth in Section 3.2 and Schedule A of this Maintenance Agreement.
Pathnet, through the Network Management Center, shall assist Incumbent
in identifying modules or Spare Parts necessary to expedite any
required repairs. Incumbent shall utilize the modular exchange
program that Pathnet has established in order to maintain an adequate
inventory of Spare Parts. Incumbent shall be responsible for
notifying Pathnet of any shortages in type or quantities of Spare
Parts required to meet Incumbent's obligations to provide Services
under this Maintenance Agreement; provided that Pathnet shall ship any
such requested Spare Parts in accordance with the Spare Parts shipping
procedures set forth in Schedule G. Pathnet shall also provide the
equipment repair assistance set forth in Schedule G.
4.2.2 REPLACEMENT EQUIPMENT. At its sole discretion and in
accordance with the terms of the FPM Agreement, Pathnet may replace
any Equipment, provided that such Equipment does not materially
interfere with or degrade the Initial System and Pathnet provides
reasonable notice of such replacement to Incumbent. Upon reasonable
notice to Incumbent that any such Equipment requires replacing,
Incumbent shall be responsible for providing reasonable labor and
installation services in connection with installing any such
Equipment, with the cost of such
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labor and installation services eligible for a Monthly Services Charge
adjustment as set forth in Section 5.4 of this Maintenance Agreement.
4.2.3 Pathnet's failure to perform its obligations under this
Section 4 shall be deemed to be grounds for non-performance by
Incumbent; provided that Incumbent's non-performance of its
obligations under this Maintenance Agreement shall be excused if, and
to the extent, (i) such Incumbent's non-performance results from
Pathnet's failure to perform its responsibilities and (ii) Incumbent
provides Pathnet with reasonable notice of such non-performance and
uses commercially reasonable efforts to perform.
4.3 FACILITIES
Incumbent shall be responsible for performing the Services at the
Facilities set forth in Schedule F. Pursuant to the FPM Agreement, the
Facilities shall be maintained at the environmental conditions necessary to
support the Equipment, in accordance with the manufacturers' specifications
set forth in the FPM Agreement.
5. CHARGES
5.1 GENERAL
All Monthly Services Charges to be paid by Pathnet to Incumbent are set
forth in this Section 5 or in Section 2.1 of Schedule C. Pathnet shall not
be required to pay Incumbent any amounts for the Services in addition to
those payable to Incumbent under this Section 5 or Schedule C, except as
provided for in Section 2.2 of Schedule C.
5.2 PASS-THROUGH EXPENSES
Pass-Through Expenses shall be paid directly by Pathnet or through
Incumbent upon Pathnet's prior approval and acceptance of such Pass-Through
Expenses. If the Parties agree that a particular Pass-Through Expense is
to be paid by Pathnet directly, Incumbent shall promptly provide Pathnet
with the original invoice for such expense. Pathnet shall pay for
Pass-Though Expenses as agreed upon by the Parties based on the procedures
set forth in Section 2.3 of Schedule C.
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5.3 TAXES
The Parties' respective responsibilities for taxes arising under or in
connection with this Maintenance Agreement shall be as follows:
5.3.1 Each Party shall be responsible for any personal or real
property taxes on property it owns or leases, for franchise and
privilege taxes on its business, and for taxes based on its net income
or gross receipts.
5.3.2 Pathnet shall be responsible for any sales, use, excise,
value-added services, consumption, and other taxes and duties payable
by Incumbent on any goods or services used or consumed in providing
the Services, where the tax is imposed on Incumbent's acquisition or
use of such goods or services and the amount of tax is measured by
Incumbent's costs in acquiring such goods or services; provided,
however, that Pathnet shall not be responsible for any Federal, state
or local income taxes or franchise taxes of Incumbent.
5.4 NEW SERVICES
Pathnet shall pay Incumbent for the performance of any New Services
requested by Pathnet and accepted by Incumbent outside of the core Services
for maintenance. Pathnet shall pay for such New Services as agreed upon by
the Parties based on the procedures set forth in Section 2.3 of Schedule C.
Such New Services may include, without limitation: (i) performance of
services at the interconnection facilities between Pathnet's network and
the System, (ii) cost of Equipment removal upon Pathnet's termination of
this Maintenance Agreement, (iii) performance of installation services for
replacement equipment, or (iv) any other services not included in the
Services as defined in this Maintenance Agreement.
6. INVOICING AND PAYMENT
As calculated from the Monthly Services Charges and any and all charges for New
Services and Pass-Through Expenses, pursuant to Schedule C, Incumbent shall send
Pathnet a quarterly invoice covering the fees and charges for the last calendar
quarter for the prior three months' Services. Pathnet shall pay the amount of
each quarterly invoice within thirty (30) days of receipt by Pathnet. Such
Monthly Service Charges shall be due and payable whether or not the Equipment is
operating. Any and all disputes with regard to charges payable under this
Maintenance Agreement shall be settled in accordance with Section 15 of this
Maintenance Agreement.
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7. PERFORMANCE STANDARDS
7.1 GENERAL
Incumbent shall perform the Services at least to the level and degree of
accuracy, quality, completeness, timeliness, responsiveness and efficiency
as set forth in the Critical Service Levels in Schedule B. At all times,
Incumbent's level of performance shall meet Performance Standards as
identified in this Maintenance Agreement and its Schedules and shall be
consistent with industry standards.
7.2 FAILURE TO PERFORM
7.2.1 Incumbent recognizes that its failure (i) to meet any
Critical Service Level, (ii) correct any Outage, or (iii) remedy any
other problem that threatens to adversely impact the operation of the
System may have a material adverse impact on the business and
operations of Pathnet. Accordingly, in the event that Incumbent
repeatedly (i) fails to meet any Critical Service Level, (ii) correct
any Outage, or (iii) remedy any other problem that threatens to
adversely impact the operation of the System, for reasons other than
the wrongful actions of Pathnet or circumstances that constitute Force
Majeure under this Maintenance Agreement, Pathnet, at its sole
discretion, may elect (i) to not renew this Maintenance Agreement or
(ii) to supplement the provision of Services by Incumbent by
appointing a new Maintenance provider in accordance with Section 9.3.
7.2.2 In the event of any problem affecting the operation of the
System (including, without limitation, the events listed in Section
7.2.1), Incumbent shall (i) investigate and report to Pathnet the
causes of such problem or Outage; (ii) advise Pathnet of the status of
remedial efforts being undertaken with respect to such problems; (iii)
correct the problem as soon as practical and restore the System's
operation to the Critical Service Levels; and (iv) take appropriate
preventive measures so that the problem does not recur.
7.2.3 Pathnet or its designee shall have the right, subject to the
terms of this Maintenance Agreement and the FPM Agreement, to
reasonable, full and immediate access to any and all affected
Facilities to repair the Equipment or System and to supplement the
Services if operations fall below the Performance Standards; provided
such supplemental Maintenance will not degrade or interfere with the
operation of the Initial System or Incumbent's use of its Facilities
for its current or future operations, provided also that such future
operations do not interfere with the
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System pursuant to Section 5.4.2 of the FPM Agreement. Upon Pathnet's
prior notification, Incumbent shall reasonably cooperate with Pathnet or
its designee, including providing any escorts necessary for Pathnet to
supplement the Services.
7.2.4 In the event Pathnet either (i) does not renew this
Maintenance Agreement or (ii) supplements the Services, Pathnet will
arrange for an independent Maintenance provider to provide any or all
of the Services hereunder, including any or all of the Services
relating to maintenance of the Initial System; provided Incumbent
shall also have the right to continue to maintain the Initial System
at Incumbent's sole expense, so long as such maintenance shall not
impact Pathnet's ability to maintain the System.
8. PERIODIC REVIEWS; AUDIT RIGHTS
8.1 REVIEWS
8.1.1 ANNUAL REVIEW. As part of the annual renewal of this
Maintenance Agreement, Pathnet and Incumbent shall review the Critical
Service Levels and the Monthly Service Charges paid to Incumbent.
Pathnet and Incumbent shall mutually agree to make adjustments to the
Critical Service Levels, as appropriate, to reflect (i) improved
performance capabilities associated with advances in technology and
methods to perform the Services and (ii) modifications in the
performance requirements of Pathnet's customers. The Parties expect
and understand that the Critical Service Levels may improve over time.
Pathnet and Incumbent shall mutually agree to make adjustments
pursuant to Schedule C to the Monthly Service Charges to reflect the
material changes in the performance of the Services in accordance with
any such revised Critical Service Levels.
8.1.2 MAINTENANCE TEST EQUIPMENT. Incumbent shall utilize the
necessary measurement and monitoring tools and procedures, including,
but not limited to, the Maintenance Test Equipment as set forth in
Exhibit E-2 to Schedule E and other additional equipment reasonably
necessary to measure and to report operational performance of the
System against the applicable Critical Service Levels. Such
measurement and monitoring tools and equipment shall permit reporting
at a level of detail sufficient to verify compliance with Critical
Service Levels and shall be reviewable by Pathnet upon reasonable
notice. Upon reasonable request by Pathnet, Incumbent shall provide
Pathnet with information and access to such tools and procedures for
purposes of verification.
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8.2 AUDIT AND INSPECTION RIGHTS
8.2.1 Incumbent shall maintain accurate logs and dispatch reports
that record any reported Outages or operations below Critical Service
Levels and the appropriate actions taken to restore service. Pathnet
shall have the right to reasonably audit any and all such reports
maintained by Incumbent. These reports shall be available to Pathnet
for its reasonable inspection at Incumbent's Facilities and a copy of
the compilation of these reports is to be forwarded to Pathnet on a
quarterly basis. Such reports shall be considered Proprietary
Information of Incumbent and protected in accordance with Section 12.2
of the FPM Agreement; provided Pathnet shall have the right to
disclose such reports to any equity owner, debt provider, lender, or
other creditor; any potential customer or purchaser of capacity, any
potential party to a merger or acquisition, any service provider under
this Maintenance Agreement; or any other attorneys, consultants or
financial advisors.
8.2.2 Pathnet shall have the right to reasonably inspect the
Facilities and Equipment at any time upon reasonable notice to
Incumbent and to supplement the Maintenance Services during Pathnet's
inspection; provided Pathnet complies with any and all Incumbent
security procedures and the provisions of the FPM Agreement.
9. TERMINATION
9.1 TERMINATION FOR CAUSE
9.1.1 In the event that Incumbent: (i) commits a material breach
of this Maintenance Agreement, which breach is not cured within thirty
(30) days after notice of breach from Pathnet to Incumbent or (ii)
commits numerous breaches of its duties or obligations which
collectively constitute a material breach of this Maintenance
Agreement (and Incumbent has been previously notified of such
breaches), Pathnet may, by giving reasonable written notice to
Incumbent, terminate this Maintenance Agreement, in whole or in part,
as of the date specified in the notice of termination. If Pathnet
chooses to terminate this Maintenance Agreement in part, the charges
payable to Incumbent under this Maintenance Agreement will be
equitably adjusted to reflect those services that are terminated.
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9.1.2 In the event that Pathnet fails: (i) to pay Incumbent
undisputed charges due under the Maintenance Agreement totaling at
least Two Thousand Dollars ($2,000) (excluding any reimbursement of
Pass-Through Expenses) and fails to make such payment within thirty
(30) days of notice from Incumbent of the failure to make such payment
or (ii) otherwise fails to fulfill its obligations, Incumbent may, by
giving written reasonable notice to Pathnet, terminate this
Maintenance Agreement as of the date specified in the notice of
termination.
9.2 TERMINATION FOR CONVENIENCE
Incumbent may terminate this Maintenance Agreement for convenience and
without cause at any time by giving Pathnet at least ninety (90) days'
prior written notice before the end of the Term of this Maintenance
Agreement indicating that Incumbent will not renew this Maintenance
Agreement; provided, however, that Pathnet, its Affiliates, agents or
Subcontractors may, at Pathnet's sole discretion, supplement or perform the
Services set forth in this Maintenance Agreement.
9.3 TERMINATION OR EXPIRATION ASSISTANCE
In the event (i) Incumbent terminates this Maintenance Agreement for
convenience; (ii) Pathnet does not renew this Maintenance Agreement because
of Incumbent's failure to perform, or (iii) the FPM Agreement expires,
Pathnet shall propose and Incumbent shall approve, which approval shall not
be unreasonably withheld, a third-party, independent Maintenance provider,
at least forty-five (45) days before termination or expiration of the FPM
Agreement to provide the Services at Incumbent's Facilities. Such
independent Maintenance provider shall provide the Services and assume the
obligations of Incumbent hereunder for any successive terms coterminous
with the remaining term of the FPM Agreement, unless such provider is
replaced by Pathnet before the expiration of the term of this Maintenance
Agreement or any extension thereof. In the event either Party terminates
this Maintenance Agreement for cause, Pathnet shall provide a third-party
Maintenance provider to perform the Services, and Incumbent shall
reasonably cooperate with such provider. Upon expiration or termination of
this Maintenance Agreement, Pathnet shall, for the remaining term of the
FPM Agreement, perform or cause to be performed the services required to
meet Pathnet's operational requirements (including Spare Parts and
equipment repair assistance on the Initial System) and shall have the right
to full and reasonable access to all Facilities in accordance with the
terms of the FPM Agreement in order to supplement or perform the Services
in accordance with the Performance Standards.
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10. RELATIONSHIP OF THE PARTIES
Nothing in this Maintenance Agreement will imply a joint venture, partnership,
or principal-agent relationship between the Parties. Neither Party will have
any right, power or authority to act or create any obligation, express or
implied, on behalf of the other Party, pursuant to this Maintenance Agreement.
Incumbent, in furnishing the Services hereunder, is acting as an independent
contractor, and Incumbent has the sole right and obligation to supervise,
manage, contract, direct, procure, perform or cause to be performed all work to
be performed by Incumbent under this Maintenance Agreement.
11. PROPRIETARY RIGHTS AND COPYRIGHTS
11.1 Maintenance software, training materials, manuals or other
proprietary information furnished by Pathnet ("Maintenance Aids") for
Incumbent's use are either Pathnet's property or property of third parties
and are proprietary. The Maintenance Aids shall be considered to be
Proprietary Information of Pathnet and shall be protected in accordance
with Section 12.2 of the FPM Agreement.
11.2 Incumbent may make necessary copies of Maintenance Aids installed
as part of its providing the Services subject to Incumbent's obligations
under this Maintenance Agreement.
12. REPRESENTATIONS AND WARRANTIES
12.1 WORK STANDARDS
Incumbent represents and warrants that the Services shall be rendered with
promptness and diligence and shall be executed in a workmanlike manner, in
accordance with the practices and high professional standards used in
well-managed commercial telecommunications operations performing services
similar to the Services. Incumbent represents and warrants that it shall
use adequate numbers of qualified individuals with suitable training,
education, experience, and skill to perform the Services.
12.2 MAINTENANCE
Incumbent represents and warrants that it shall maintain the Equipment so
that it operates in accordance with its specifications, including (i)
maintaining equipment in good operating
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condition, subject to normal wear and tear, and (ii) undertaking repairs
and preventive maintenance on Equipment in accordance with the applicable
Equipment manufacturers' recommendations.
12.3 EFFICIENCY AND COST EFFECTIVENESS
Incumbent represents and warrants that it shall use commercially reasonable
efforts to use efficiently the resources or services necessary to provide
the Services. Incumbent represents and warrants that it shall use its
commercially reasonable efforts to perform the Services in the most
cost-effective manner consistent with the required level of quality and
performance as set forth in this FPM Agreement.
12.4 WARRANTIES OF EACH PARTY
Each Party to this Maintenance Agreement hereby warrants that:
(a) It has the requisite corporate or partnership power and authority
to enter into this Maintenance Agreement and to carry out the
transactions contemplated by this Maintenance Agreement; and
(b) The execution, delivery and performance of this Maintenance
Agreement and the consummation of the transactions contemplated
by this Maintenance Agreement have been duly authorized by the
requisite corporate or partnership action on the part of such
Party.
12.5 INSURANCE
Incumbent warrants and represents that during the Term of this Maintenance
Agreement, Incumbent shall maintain at Incumbent's expense and pursuant to
its self-insured reserves the necessary insurance coverage for all
Incumbent's employees, agents or affiliates required to perform the
Services, including, but not limited to, Worker's Compensation, disability,
and unemployment insurance, and to provide Pathnet with certification
thereof upon reasonable request.
12.6 SECURITY AND SAFETY PROCEDURES
In the event Pathnet is required to supplement the Services, Pathnet shall
comply with the provisions of this Maintenance Agreement relating to access
to the Facilities, shall comply
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with all reasonable Incumbent security and safety procedures as provided by
the Incumbent, and shall comply with all provisions of the FPM Agreement
relating to access.
12.7 DISCLAIMER
EXCEPT AS PROVIDED IN THIS MAINTENANCE AGREEMENT, NEITHER PATHNET NOR
INCUMBENT MAKES ANY OTHER EXPRESS WARRANTIES AND THERE ARE NO IMPLIED
WARRANTIES WITH RESPECT TO THE SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF
THIS MAINTENANCE AGREEMENT. PATHNET AND INCUMBENT HEREBY DISCLAIM THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT TO ANY AND ALL OF THE FOREGOING. EXCEPT FOR AS SET FORTH IN THIS
MAINTENANCE AGREEMENT AND ITS SCHEDULES, INCUMBENT DISCLAIMS ALL WARRANTIES
REGARDING THE SERVICES AS TO AVAILABILITY, OPERATION, CORRECTNESS,
AVAILABLE BANDWIDTH, ACCURACY, OR RELIABILITY OF THE SYSTEM.
13. INDEMNITIES
13.1 INDEMNIFICATION BY INCUMBENT
Incumbent agrees to indemnify, defend and hold harmless Pathnet and its
Affiliates and their respective officers, directors, employees, agents,
successors and assigns from and against any and all Losses and threatened
Losses arising from, in connection with, or based on allegations of, any of
the following:
(a) any claims resulting from the infringement by Incumbent, its
Affiliates or Subcontractors of any patent, trade secret,
copyright or other proprietary rights alleged to have occurred as
a result of the use of systems or other resources provided by
Pathnet to Incumbent in violation of any applicable licenses or
the terms of this Agreement.
(b) the untruth, inaccuracy or breach of any representation or
warranty of Incumbent set forth in this Maintenance Agreement.
(c) the liability of Pathnet for (i) any personal injury, disease or
death of any person, (ii) damage to or loss of any property,
money damages or specific performance owed to any third party (by
contract or operation of law), or (iii) any fines, penalties,
taxes, claims, demands, charges, actions, causes of
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action, assessments, environmental response costs, environmental
penalties, injunctive obligations, to the extent caused by,
arising out of, or in connection with, negligent actions or
omissions or willful misconduct of Incumbent, its employees,
Subcontractors or agents.
13.2 INDEMNIFICATION BY PATHNET
Pathnet agrees to indemnify, defend and hold harmless Incumbent and its
Affiliates and their respective officers, directors, employees, agents,
successors and assigns from and against any and all Losses and threatened
Losses arising from, in connection with, or based on allegations of, any of
the following:
(a) except as set forth in SECTION 13.1(a), any claims of
infringement of any patent, trade secret, copyright or other
proprietary rights alleged to have occurred because of systems or
other resources provided by Pathnet to Incumbent.
(b) the untruth, inaccuracy or breach of any representation or
warranty of Pathnet set forth in this Maintenance Agreement.
(c) the liability of Incumbent for any (i) personal injury, disease
or death of any person, (ii) damage to or loss of any property,
money damages or specific performance owed to any third party (by
contract or operation of law), or (iii) any fines, penalties,
taxes, assessments, environmental response costs, environmental
penalties or injunctive obligations to the extent caused by,
arising out of; or in connection with, negligent actions or
omissions or willful misconduct of Pathnet, its employees,
Subcontractors or agents.
(d) the liability of Incumbent arising out of any or all obligations
to or contracts with customers to purchase Excess Capacity or
Incumbent Excess Capacity.
13.3 INDEMNIFICATION PROCEDURES
With respect to any third party claims, the following procedures shall
apply:
13.3.1 NOTICE. Promptly after receipt by an entity entitled to
indemnification under Section 13.1 or Section 13.2 of notice of
the commencement or threatened commencement of any civil,
criminal, administrative or investigative action or proceeding
involving a claim in respect of which the indemnitee will seek
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indemnification pursuant to any such Section, the indemnitee
shall notify the indemnitor of such claim in writing. No failure
to so notify an indemnitor shall relieve it of its obligations
under this Maintenance Agreement except to the extent that it can
demonstrate damages attributable to such failure. Within fifteen
(15) days following receipt of written notice from the indemnitee
relating to any claim, but no later than ten (10) days before the
date on which any response to a complaint or summons is due, the
indemnitor shall notify the indemnitee in writing if the
indemnitor elects to assume control of the defense and settlement
of that claim (a "NOTICE OF ELECTION").
13.3.2 PROCEDURE FOLLOWING NOTICE OF ELECTION. If the indemnitor
delivers a Notice of Election relating to any claim within the
required notice period, the indemnitor shall be entitled to have
sole control over the defense and settlement of such claim;
provided that, (i) the indemnitee shall be entitled to
participate in the defense of such claim and to employ counsel at
its own expense to assist in the handling of such claim, and (ii)
the indemnitor shall obtain the prior written approval of the
indemnitee before entering into any settlement of such claim or
ceasing to defend against such claim. After the indemnitor has
delivered a Notice of Election relating to any claim in
accordance with Section 13.3.1 above, the indemnitor shall not be
liable to the indemnitee for any legal expenses incurred by the
indemnitee in connection with the defense of that claim. In
addition, the indemnitor shall not be required to indemnify the
indemnitee for any amount paid or payable by the indemnitee in
the settlement of any claim for which the indemnitor has
delivered a timely Notice of Election if such amount was agreed
to without the written consent of the indemnitor.
13.3.3 PROCEDURE WHERE NO NOTICE OF ELECTION IS DELIVERED. If the
indemnitor does not deliver a Notice of Election relating to any
claim within the required notice period, the indemnitee shall
have the right to defend the claim in such manner as it may deem
appropriate, at the cost and expense of the indemnitor. The
indemnitor shall promptly reimburse the indemnitee for all such
costs and expenses.
13.4 SUBROGATION
In the event that an indemnitor shall be obligated to indemnify an
indemnitee pursuant to Section 13.1 or Section 13.2, the indemnitor shall,
upon payment of such indemnity in full,
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be subrogated to all rights of the indemnitee with respect to the claims to
which such indemnification relates.
14. LIABILITY
14.1 GENERAL INTENT
Subject to the specific provisions of this Article 14, it is the intent of
the Parties that each Party shall be liable to the other Party for any
actual damages incurred by the non-breaching Party as a result of the
breaching Party's failure to perform its obligations in the manner required
by this Maintenance Agreement.
14.2 LIABILITY RESTRICTIONS
14.2.1 SUBJECT TO SECTION 14.2.2 BELOW, IN NO EVENT, WHETHER IN
CONTRACT OR IN TORT (INCLUDING BREACH OF WARRANTY,
NEGLIGENCE AND STRICT LIABILITY IN TORT), SHALL A PARTY BE
LIABLE TO THE OTHER PARTY FOR LOST PROFITS, INDIRECT OR
CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES,
ARISING OUT OF OR IN CONJUNCTION WITH THIS MAINTENANCE
AGREEMENT EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES IN ADVANCE.
14.2.2 The limitations set forth in Section 14.2.1 shall not apply
with respect to (i) damages occasioned by the willful
misconduct or gross negligence of a Party and (ii) damages
occasioned as a result of the indemnification obligations
set forth in Section 13 if and to the extent any third party
shall be awarded such damages explicitly excluded in Section
14.2.1.
14.3 FORCE MAJEURE
14.3.1 No Party shall be liable for any default or delay in the
performance of its obligations under this Maintenance
Agreement (i) if and to the extent such default or delay is
caused, directly or indirectly, by a Force Majeure event,
(ii) provided the non-performing Party is without fault in
causing such default or delay, and such default or delay
could not have been prevented by reasonable precautions and
can not reasonably be circumvented by the non-
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performing Party through the use of alternate sources, work
around plans or other means.
14.3.2 In such event, the non-performing Party shall be excused
from further performance or observance of the obligation(s)
so affected for as long as such circumstances prevail and
such Party continues to use its best efforts to recommence
performance or observance whenever and to whatever extent
possible without delay. Any Party so delayed in its
performance shall immediately notify the Party to whom
performance is due by telephone (to be confirmed in writing
within two (2) days of the inception of such delay) and
describe at a reasonable level of detail the circumstances
causing such delay.
15. DISPUTE RESOLUTION
15.1 ARBITRATION; RESOLUTION OF DISPUTES
Any and all disputes and controversies between Incumbent and Pathnet
concerning the negotiation, interpretation, performance, breach or
termination of this Maintenance Agreement (each a "Dispute") shall be
subject to resolution by the procedure set forth in Section 17.2 of the FPM
Agreement which is hereby incorporated herein.
16. MISCELLANEOUS
16.1 NOTICE PROVISION
Notice shall be served and deemed received in accordance with the
provisions of Section 18.1 of the FPM Agreement which is hereby
incorporated herein.
16.2 BINDING NATURE; ENTIRE AGREEMENT
Pathnet and Incumbent acknowledge (i) that each has read and understands
the terms and conditions of this Maintenance Agreement and agrees to be
bound by such terms and conditions, (ii) that this Maintenance Agreement is
the complete and conclusive statement of the agreement between the Parties,
and (iii) that this Maintenance Agreement sets forth the entire agreement
and understanding between the Parties relating to the subject matter
hereof. All understandings and agreements, oral and written, heretofore
made between Incumbent and Pathnet relating to the subject matter hereof
are merged in this Maintenance
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Agreement which alone, fully and completely expresses their agreement on
the subject matter of maintenance service to be provided by Incumbent. The
provisions of this Maintenance Agreement are separate and apart from the
provisions of the FPM Agreement and may not in any way affect either
Party's obligations with regard to the FPM Agreement.
16.3 AMENDMENT
No modification of, additions to or waiver of this Maintenance Agreement
shall be binding upon Incumbent and Pathnet unless such modification is in
writing and signed by an authorized representative of each Party.
16.4 SEVERABILITY
If any term or provision of this Maintenance Agreement shall to any extent
be held by a court or other tribunal to be invalid, void or unenforceable,
then that term or provision shall be inoperative and void insofar as it is
in conflict with law, but the remaining terms and provisions of this
Maintenance Agreement shall nevertheless continue in full force and effect
and the rights and obligations of the Parties shall be deemed to be
restated to reflect newly as possible the original intentions of the
Parties in accordance with applicable law.
16.5 HEADINGS
Section and paragraph headings used in this Maintenance Agreement are for
reference and convenience only and are not to be deemed or construed to be
part of this Maintenance Agreement.
16.6 CONSENTS AND APPROVAL
Except where expressly provided as being in the sole discretion of a Party,
where agreement, approval, acceptance, consent, or similar action by either
Party is required under this Maintenance Agreement, such action shall not
be unreasonably delayed or withheld. An approval or consent given by a
Party under this Maintenance Agreement shall not relieve the other Party
from responsibility for complying with the requirements of this Maintenance
Agreement, nor shall it be construed as a waiver of any rights under this
Maintenance Agreement, except as and to the extent otherwise expressly
provided in such approval or consent.
16.7 COMPLIANCE WITH LAWS AND REGULATIONS
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Each Party shall perform its obligations in a manner that complies with the
applicable Federal, state and local laws, regulations, ordinances and codes
(including identifying and procuring required permits, certificates,
approvals and inspections). If a charge of non-compliance by either Party
with any such laws, regulations, ordinances or codes occurs, the Party
charged with such non-compliance shall promptly notify the other Party of
such charges in writing.
16.8 GOVERNING LAW
This Maintenance Agreement and the rights and duties of the Parties shall
be governed and interpreted in accordance with the laws of the State of
Indiana, other than the choice of law rules thereof.
16.9 BINDING NATURE AND ASSIGNMENT
This Maintenance Agreement shall be binding on the Parties hereto and their
respective successors and assigns. Neither Party may or shall have the
power to assign this Maintenance Agreement without the prior written
consent of the other, except that either Party may assign its rights and
obligations under this Maintenance Agreement without the approval of the
other Party to an entity which acquires all or substantially all of the
assets of that Party to any subsidiary or Affiliate or successor in a
merger or acquisition of that Party; provided that in no event shall any
such assignment relieve that Party of its obligations under this
Maintenance Agreement.
16.10 WAIVER
Failure or delay on the part of Incumbent or Pathnet to exercise any right,
power or privilege under this Maintenance Agreement shall not constitute a
waiver of any right power or privilege of this Maintenance Agreement.
16.11 TIME TO SUE
No action shall be brought for any breach of this Maintenance Agreement
more than two (2) years after the accrual of such cause of action, except
where applicable law provides for a shorter limitation period, in which
event that period should apply.
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16.12 SURVIVAL
Any provision of this Maintenance Agreement which contemplates performance
or observance subsequent to any termination or expiration of this
Maintenance Agreement shall survive any termination or expiration of this
Maintenance Agreement and continue in full force and effect.
16.13 COVENANT OF GOOD FAITH
Each Party agrees that in its respective dealings with the other Party
under or in connection with this Maintenance Agreement, it shall act in
good faith.
IN WITNESS WHEREOF, the Parties hereto have executed this Maintenance
Agreement, or caused it to be executed by a duly authorized officer, as of the
date first written above.
PATHNET, INC. NORTHERN INDIANA PUBLIC
SERVICE COMPANY
By: /s/ Dave Schaeffer By: /s/ Robert J. Schacht
------------------------------ ------------------------------
Name: Dave Schaeffer Name: Robert J. Schacht
Title: Chairman Title: VP, Energy Distribution
Operations
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Exhibit 10.10
MAINTENANCE AND PROVISIONING SERVICES AGREEMENT
This MAINTENANCE AND PROVISIONING SERVICES AGREEMENT (the "Maintenance
Agreement") is made and entered into as of the 29th day of April, 1998
(the "Effective Date"), by and between PATHNET, INC. (hereinafter "Pathnet"), a
Delaware corporation, having its principal place of business at 1015 31st
Street, NW, Washington, DC 20007 and NORTHERN BORDER PIPELINE COMPANY
(hereinafter, "Incumbent"), a Texas general partnership of 1111 South 103rd
Street, Omaha, Nebraska, 68124 (collectively, the "Parties" and each, a
"Party").
W I T N E S S E T H:
WHEREAS, Pathnet is engaged in the business of creating high-capacity,
digital microwave communications systems for purposes of marketing the long
distance telecommunications capacity created by such systems;
WHEREAS, Incumbent and Pathnet have entered into a Fixed Point Microwave
Services Agreement pursuant to which, among other things, Pathnet has agreed to
construct and install a high-capacity digital microwave system utilizing
Incumbent's microwave telecommunications assets;
WHEREAS, Pathnet wishes to engage the services of Incumbent to provide
routine and corrective maintenance and provisioning services on Incumbent's
Equipment and System and to maintain Incumbent's Segment of the Pathnet network
at a minimal level of acceptability to ensure overall effective operations;
WHEREAS, Incumbent wishes to perform Maintenance and Circuit Provisioning
for such System for Pathnet,
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. DEFINITIONS
1.1 CERTAIN DEFINITIONS
1.1.1 "BUILD-OUT PERIOD" shall mean the period of time between
final design approval and final testing and acceptance during which
the Initial System is installed.
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1.1.2 "CIRCUIT PROVISIONING" shall mean the wiring, circuit pack
placement and coordinated testing to ensure that DS-1 and/or DS-3
service requests meet technical operating services standards.
1.1.3 "CRITICAL SERVICE LEVELS" shall mean the service levels and
standards of operations set forth in Schedule B that are essential for
Pathnet to provide reliable, error free traffic to IXCs or other
customers for capacity.
1.1.4 "DISPATCH CHARGE" shall mean the per Circuit Provisioning
dispatch fee paid by Pathnet to Incumbent upon successful completion
of a Circuit Provisioning dispatch.
1.1.5 "EQUIPMENT" shall mean any and all digital microwave radios,
radio components, cards, antennas, waveguides, multiplexers (OC-3 to
DS-1) and other equipment or parts as required for the operation of
the System provided and installed by Pathnet and subject to
Incumbent's Maintenance obligations under this Maintenance Agreement.
1.1.6 "FACILITIES" shall mean the Incumbent's towers, buildings
and sites used for the purpose of operating the microwave
communications System described in Schedule F to this Maintenance
Agreement.
1.1.7 "FIELD TECHNICIAN" shall mean Incumbent's operator's
employees, agents or subcontractors certified by Pathnet to provide
Maintenance, pursuant to this Maintenance Agreement, as they may
change and be recertified from time to time.
1.1.8 "FORCE MAJEURE" shall mean an event as defined in Section
14.3 of this Maintenance Agreement.
1.1.1 "FPM AGREEMENT" shall mean the Fixed Point Microwave
Services Agreement by and between Pathnet and Incumbent, dated October
17, 1997.
1.1.9 "INITIAL SYSTEM" shall mean the initial system with a 1 x 1
configuration which is comprised of the first 85 DS-1's (which is
equivalent to 2,040 DS-0's) of the System and the System's 85 DS-1
protect channels.
1.1.10 "MAINTENANCE" shall mean the ongoing and scheduled
inspections, ongoing and scheduled repair, ongoing and scheduled
prevention of repair, and unscheduled, on-call corrective action of
any and all Equipment necessary for the System to operate in
accordance with the Performance Standards as set forth in this
Agreement and its Schedules.
1.1.11 "MAINTENANCE AND PROVISIONING TEST EQUIPMENT" shall mean
used or owned equipment (including methods and tools) required to test
and maintain the
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Equipment and System in accordance with the Performance Standards of
this Agreement and its Schedules.
1.1.12 "MONTHLY SERVICES CHARGE" shall be as set forth in Section 6
and Schedule C of this Maintenance Agreement.
1.1.13 "NETWORK MONITORING CENTER" shall mean the center
established by Pathnet to monitor Incumbent's System and other Systems
comprising the Pathnet network.
1.1.14 "NON-INCUMBENT SITE" shall mean sites not owned or leased by
Incumbent and not part of the Incumbent System.
1.1.15 "OUTAGE" shall mean any unscheduled interruption in
telecommunication services along the Segment that occurs after ten
(10) consecutive severely errored seconds have occurred. (Outage is
usually measured in outage seconds.)
1.1.16 "PASS-THROUGH EXPENSES" shall mean Incumbent's reasonable
and actual out-of-pocket expenses required to operate the System to be
paid and reimbursed by Pathnet that are outside of (i) the Services
obligations and costs paid to Incumbent pursuant to this Maintenance
Agreement or (ii) the scope of the services to be provided pursuant to
this Maintenance Agreement.
1.1.17 "PATH" shall mean the physical spatial separation between
point-to-point towers, housing and microwave antenna.
1.1.18 "PERFORMANCE STANDARDS" shall mean individually and
collectively the quantitative and qualitative performance standards
and commitments for the services contained in this Maintenance
Agreement, including, but not limited to, the Critical Service
Levels.
1.1.19 "PREVENTIVE MAINTENANCE" shall mean the ongoing and
scheduled Maintenance required for the normal operations of the
Equipment and System, as more fully described in Schedule A.
1.1.20 "REMEDIAL MAINTENANCE" shall mean unscheduled, on-call
Maintenance (i) to correct an Outage, (ii) to restore operations to
above Critical Service Levels, or (iii) to restore the Equipment and
the System to good operating condition, as more fully described in
Schedule A.
1.1.21 "SERVICES" shall be as defined in Section 3 and Schedule A
of this Maintenance Agreement.
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1.1.22 "SITE" shall mean a physical location on which a tower or
other structure is located which houses such microwave antenna, radios
and other communications equipment.
1.1.23 "SPARE PARTS" shall mean equipment and parts provided by
Pathnet to Incumbent pursuant to the performance of Incumbent's
maintenance obligations hereunder.
1.1.24 "STOCKING DEPOT" shall mean an enclosed and reasonably
protected storage facility required for housing the Spare Parts
inventory.
1.1.25 "SYSTEM" shall mean the high-capacity digital SONET
microwave radio equipment (6 GHz/30 MHz) antenna, waveguides,
components, Facilities and FCC licenses, installed and assembled
capable of transmitting, receiving and transporting telecommunications
signals over the segment, as set forth in Schedule F.
1.1.26 "WORK ORDER" shall mean an order for Circuit Provisioning
sent electronically or by facsimile by Pathnet to Incumbent.
1.2 OTHER TERMS
Capitalized terms used in this Maintenance Agreement but not defined herein
shall have the definitions set forth in the FPM Agreement unless the
context dictates otherwise. References herein to Schedules are to the
Schedules attached to this Maintenance Agreement unless otherwise
specified. Other Terms used in this Maintenance Agreement are defined in
the context in which they are used and shall have the meaning, there
indicated.
2. TERM
2.1 TERM
The term of this Maintenance Agreement shall be one (1) year from the
Effective Date (the "Term"). The Services and charges for the Services
shall commence upon the receipt of common carrier licenses for the Initial
System on any Segment. Commissioning of the Initial System shall occur as
agreed upon by Pathnet and Incumbent pursuant to the acceptance procedures
of the FPM Agreement.
2.2 EXTENSION
This Maintenance Agreement shall be renewed automatically for successive,
one-year renewal terms and shall terminate upon expiration of the
Agreement; provided that (i) Incumbent does not give Pathnet notice at
least ninety (90) days before expiration of the
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term indicating that Incumbent will terminate this Maintenance Agreement
for convenience, pursuant to Section 9.2 hereof; (ii) Pathnet does not
provide notice to Incumbent that Pathnet will not renew the contract due to
Incumbent's failure to perform the Services pursuant to Section 7.2 hereof;
or (iii) either Party does not terminate this Maintenance Agreement for
cause pursuant to Section 9.1 hereof.
3. SERVICES
3.1 PROVISION OF SERVICES
3.1.1 GENERAL. Upon receipt of the common carrier licenses for
the Initial System, Incumbent shall provide the following Maintenance
and Circuit Provisioning services, functions and responsibilities on
the Equipment and at the Facilities, as such Equipment may evolve or
be supplemented, enhanced, modified or replaced during the Term (the
"Services"):
the services, functions and responsibilities described in this
Maintenance Agreement and its Schedules; and
the services, functions and responsibilities performed by
Incumbent's personnel and Subcontractors during the twelve (12)
months preceding the Effective Date who were responsible for
maintaining the Incumbent's existing telecommunications system,
even if the service, function or responsibility is not
specifically described in this Maintenance Agreement.
upon execution of this Maintenance Agreement and prior to the
Commissioning of the Initial System, Incumbent shall continue to
perform the maintenance duties on the Facilities during the
Build-out Period, as performed during the twelve (12) months
preceding the Effective Date.
3.1.2 IMPLIED SERVICES. If any services, functions or
responsibilities not specifically described in this Maintenance
Agreement are mutually agreed to be required for the proper
performance and provision of the Services, they shall be deemed to be
implied by and included within the scope of the Services to the same
extent and in the same manner as if specifically described in this
Maintenance Agreement. Except as otherwise expressly provided in this
Maintenance Agreement, Incumbent shall be responsible for providing
the facilities, personnel and other resources required to perform the
Services.
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3.2 SERVICES REQUIREMENTS
3.2.1 TIMING OF SERVICE.
GENERAL. Incumbent shall perform all Services in at least the
intervals and time periods set forth in Schedule A.
OUTAGE, CRITICAL SERVICE LEVELS, OTHER ADVERSE IMPACTS. In the
event of an (i) Outage, (ii) degradation of the System's
operation below Critical Service Levels, or (iii) any other
problem that threatens to adversely impact the System or the
integrity of the System, Incumbent shall be on-site at any
Incumbent Facility as required to provide Remedial Maintenance
within two (2) hours of receipt of a Trouble Ticket and shall
repair the System to normal operations within a cumulative mean
time of four (4) hours after the receipt of a Trouble Ticket.
Notwithstanding the foregoing, Incumbent shall make reasonable
efforts to ensure that all capacity is restored to service as
promptly as practical in order to restore service after an
Outage.
CIRCUIT PROVISIONING. Upon receipt of a Work Order, Incumbent
shall dispatch a Field Technician to perform the work function by
the required date designated in the Work Order.
3.2.2 DISPATCH AND NOTIFICATION.
DISPATCH. Incumbent shall make Field Technicians available to
provide Services twenty-four (24) hours a day, seven (7) days a
week. Pathnet shall provide System monitoring from the Network
Monitoring Center twenty-four (24) hours a day, seven (7) days a
week for reporting of System failures. Incumbent must include in
Exhibit A-1 to Schedule A procedures and personnel involved,
including an escalation list of individuals responsible for
repairing the System to normal operations, in the event of a
Field Technician dispatch which procedures shall be approved by
Pathnet.
NOTIFICATION. Notification of a Trouble Ticket shall be deemed
to be received by Incumbent upon initiation by Pathnet through
the Network Monitoring Center and electronic or facsimile receipt
by Incumbent. The Network Monitoring Center shall initiate a
Trouble Ticket pursuant to the procedures set forth in Section
3.2.7 of Schedule A.
3.3 SERVICES EXCLUSIONS
3.3.1 TOWERS AND SHELTERS. Except as provided in the Section 2 of
Schedule A, this Maintenance Agreement does not include maintenance
obligations for any tower, tower lighting, FCC or FAA tower regulatory
requirement or equipment
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shelter which shall be owned and maintained by Incumbent outside of
the scope of this Maintenance Agreement; provided, however, that
Incumbent shall maintain such towers and shelters as required to
support the continuous and reliable operation of the System and
network without material degradation to either the Equipment or
System.
3.3.2 OTHER EXCLUSIONS. In the event that telephone lines,
equipment or interconnections provided by or required by third parties
are used in conjunction with Pathnet's Equipment, Incumbent shall have
no maintenance obligation or responsibility for such telephone lines
or third-party equipment. Incumbent shall, upon request by Pathnet,
assist in repairing those lines so all equipment and systems are
operational; provided that Pathnet shall adjust the Monthly Service
Charge pursuant to Section 5.4 of this Maintenance Agreement to
reflect such additional Services.
4. EQUIPMENT; FACILITIES
4.1 EQUIPMENT
The Equipment may change or may be replaced, modified, or enhanced over
time as a result of new technology; provided that Pathnet shall provide
written notice to Incumbent of any such change or replacement. In the
event of a Capacity Expansion under the Agreement, the Equipment shall
include any additional Equipment required for such Capacity Expansion.
4.2 SPARE PARTS; REPLACEMENT EQUIPMENT
4.2.1 SPARE PARTS. Pathnet shall provide and Incumbent shall
store Spare Parts to the Equipment at the Stocking Depot in the type
and quantity as agreed upon and as set forth in Schedule E; provided
that Incumbent may supplement the Spare Parts beyond Incumbent's
designated allocation of Spare Parts at its sole discretion. Such
supplemental spare parts shall be provided by Pathnet. Incumbent
shall store such Spare Parts beyond Pathnet's designated allocation of
Spare Parts at appropriate depots to allow for a reasonable response
within the time parameters set forth in Section 3.2 and Schedule A of
this Maintenance Agreement. Pathnet, through the Network Management
Center, shall assist Incumbent in identifying modules or Spare Parts
necessary to expedite any required repairs. Incumbent shall utilize
the modular exchange program that Pathnet has established in order to
maintain an adequate inventory of Spare Parts. Incumbent shall be
responsible for notifying Pathnet of any shortages in type or
quantities of Spare Parts required to meet Incumbent's obligations to
provide Services under this Maintenance Agreement; provided that
Pathnet shall ship any such requested Spare Parts in accordance with
the Spare Parts shipping procedures set forth in Schedule G.
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4.2.2 REPLACEMENT EQUIPMENT. At its sole discretion, Pathnet may
replace any Equipment, provided that such Equipment does not
materially degrade the Initial System and Pathnet provides reasonable
notice of such replacement to Incumbent. Upon reasonable notice to
Incumbent that any such Equipment requires replacing, Incumbent shall
be responsible for providing the labor and other associated costs of
installing any such Equipment, pursuant to any Monthly Services Charge
adjustment set forth in Section 5.4 of this Maintenance Agreement.
4.3 FACILITIES
Incumbent shall be responsible for performing the Services at the
Facilities as set forth in Schedule F, as such Facilities may be amended
from time to time. Pursuant to the Agreement, the Facilities shall be
maintained at the environmental conditions necessary to support the
Equipment, in accordance with the manufacturers' specifications set forth
in the Agreement.
5. CHARGES
5.1 GENERAL
All Monthly Services Charges to be paid by Pathnet to Incumbent upon
receipt of FCC common carrier licenses on any Segment are set forth in this
Section 5 or in Section 2.1 of Schedule C. Pathnet shall not be required
to pay Incumbent any amounts for the Services in addition to those payable
to Incumbent under this Section 5 or Schedule C, except as provided for in
Section 2.2 of Schedule C.
5.2 PASS-THROUGH EXPENSES
Pass-Through Expenses shall be paid directly by Pathnet or through
Incumbent upon Pathnet's prior approval and acceptance of such Pass-Through
Expenses. If the Parties agree that a particular Pass-Through Expense is
to be paid by Pathnet directly, Incumbent shall promptly provide Pathnet
with the original invoice for such expense.
5.3 TAXES
The Parties' respective responsibilities for taxes arising under or in
connection with this Maintenance Agreement shall be as follows:
5.3.1 Each Party shall be responsible for any personal or real
property taxes on property it owns or leases, for franchise and
privilege taxes on its business, and for taxes based on its net income
or gross receipts.
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5.3.2 Pathnet shall be responsible for any sales, use, excise,
value-added services, consumption, and other taxes and duties payable
by Incumbent on any goods or services used or consumed in providing
the Services, where the tax is imposed on Incumbent's acquisition or
use of such goods or services and the amount of tax is measured by
Incumbent's costs in acquiring such goods or services; provided,
however, that Pathnet shall not be responsible for any Federal, state
or local income taxes of Incumbent or franchise taxes. Pathnet will
pay the applicable taxes levied directly on fees paid to Incumbent for
the Services as defined in Section 5 or in Section 2.1 of Schedule C.
5.4 NEW SERVICES
Pathnet shall pay Incumbent for the performance of any new Services
requested by Pathnet and accepted by Incumbent outside of the core Services
for maintenance or provisioning. Pathnet shall pay for such new Services
as agreed upon by the Parties based on the procedures set forth in Section
2.4 of Schedule C. Such new Services may include, without limitation: (i)
performance of Maintenance services at the interconnection facilities
between Pathnet's network and the System, (ii) cost of Equipment removal
upon Pathnet's termination of this Maintenance Agreement, or (iii) any
other services not included in the Services as defined in this Agreement.
6. INVOICING AND PAYMENT
For all charges pursuant to Schedule C, Incumbent shall send Pathnet a monthly
invoice covering the fees and charges for the prior months' Services. Subject
to Section 7.2.1, Pathnet shall pay the amount of each monthly invoice within
thirty-five (35) days of date of invoice. Such amount shall be due and payable
whether or not the Equipment is operating. Any and all disputes with regard to
charges payable under this Maintenance Agreement shall be settled in accordance
with the Section 15 of this Agreement.
7. PERFORMANCE STANDARDS
7.1 GENERAL
Incumbent shall perform the Services at least to the level and degree of
accuracy, quality, completeness, timeliness, responsiveness and efficiency
as set forth in the Critical Service Levels in Schedule B. At all times,
Incumbent's level of performance shall meet Performance Standards as
identified in this Maintenance Agreement and its Schedules and shall be
consistent with industry standards.
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7.2 FAILURE TO PERFORM
7.2.1 Incumbent recognizes that its failure (i) to meet any
Critical Service Level, (ii) correct any Outage, (iii) remedy any
other problem that threatens to adversely impact the operation of the
System or (iv) perform Circuit Provisioning in a timely manner may
have a material adverse impact on the business and operations of
Pathnet. Accordingly, in the event that Incumbent on more than one
occasion during the term of this Agreement (i) fails to meet any
Critical Service Level, (ii) correct any Outage, (iii) remedy any
other problem that threatens to adversely impact the operation of the
System or (iv) perform Circuit Provisioning in a timely manner for
reasons other than the wrongful actions of Pathnet or circumstances
that constitute Force Majeure under this Maintenance Agreement,
Pathnet, at its sole discretion, may elect (i) to not renew this
Maintenance Agreement or (ii) to supplement the provision of Services
as provided by Incumbent by appointing a new Maintenance provider, or
(iii) to suspend payment of the Monthly Services Charges.
7.2.2 In the event of any problem affecting the operation of the
System (including, without limitation, the events listed in Section
7.2.1), Incumbent shall (i) investigate and report to Pathnet the
causes of such problem or in the event of an Outage; (ii) advise
Pathnet of the status of remedial efforts being undertaken with
respect to such problems; (iii) correct the problem as soon as
practical and restore the System's operation to the Critical Service
Levels; and (iv) take appropriate preventive measures so that the
problem does not recur.
7.2.3 Subject to the provisions of Section 5.4 of the Fixed Point
Microwave Service Agreement, Pathnet or its designee shall have the
right to free, full and immediate access to any and all affected
Facilities to repair, replace, update, or otherwise modify the
Equipment or System and to supplement the Services (including
provisioning or other Services required to operate the Pathnet
network); provided such supplemental Maintenance will not degrade the
operation of the Initial System. Upon Pathnet's prior notification,
Incumbent shall reasonably cooperate with Pathnet or its designee,
including providing any escorts necessary for Pathnet to supplement
the Services.
7.2.4 In the event Pathnet either (i) does not renew this
Agreement or (ii) supplements the Services, Incumbent shall have the
right to continue to maintain the Initial System at Incumbent's sole
expense, so long as such maintenance shall not impact Pathnet's
ability to maintain the System.
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8. PERIODIC REVIEWS; AUDIT RIGHTS; SAVINGS CLAUSE
8.1 REVIEWS
8.1.l ANNUAL REVIEW. As part of the annual renewal of this
Maintenance Agreement, Pathnet and Incumbent may review the Critical
Service Levels and the Monthly Service Charges paid to Incumbent.
Pathnet and Incumbent shall mutually agree to make adjustments to the
Critical Service Levels, as appropriate, to reflect (i) improved
performance capabilities associated with advances in technology and
methods to perform the Services and (ii) modifications in the
performance requirements of Pathnet's Customer. The Parties expect
and understand that the Critical Service Levels may improve over time.
Pathnet and Incumbent shall make adjustments pursuant to Schedule C to
the Monthly Service Charges to reflect the material changes in the
performance of the Services in accordance with any such revised
Critical Service Levels.
8.1.2 MAINTENANCE AND PROVISIONING TEST EQUIPMENT. Incumbent
shall obtain and utilize the necessary measurement and monitoring
tools and procedures, including, but not limited to, the Maintenance
and Provisioning Test Equipment as set forth in Exhibit E-1 to
Schedule E and other equipment necessary to measure and to report
operational performance of the System against the applicable Critical
Service Levels. Such measurement and monitoring tools and equipment
shall permit reporting at a level of detail sufficient to verify
compliance with Critical Service Levels and shall be reviewable by
Pathnet upon reasonable notice. Upon request by Pathnet, Incumbent
shall provide Pathnet with information and access to such tools and
procedures for purposes of verification.
8.2 AUDIT AND INSPECTION RIGHTS
8.2.1 Incumbent shall maintain accurate log and dispatch reports,
recording any reported Outages or operations below Critical Service
Levels and the appropriate actions taken to restore service. Pathnet
shall have the right to audit any and all log and dispatch reports
related to the maintenance and provisioning of the System. These
reports shall be available to Pathnet for its inspection at
Incumbent's Facilities and a copy of the compilation of these reports
is to be forwarded to Pathnet on a quarterly basis.
8.2.2 Subject to Section 7.2.3 of this Maintenance Agreement and
no more than once each annual period, Pathnet shall have the right to
inspect the Facilities and Equipment Maintenance and Circuit
Provisioning at any time upon reasonable notice to Incumbent and to
supplement such Services during Pathnet's inspection; provided Pathnet
complies with any and all Incumbent security procedures.
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8.3 SAVINGS CLAUSE
Pathnet's failure to perform any of its responsibilities set forth in this
Agreement (other than as provided in Section 9.1.2) shall not be deemed to
be grounds for non-performance by Incumbent; provided, however, that
Incumbent's non-performance of its obligations under this Agreement shall
be excused if, and to the extent, (i) such Incumbent non-performance
results from Pathnet's failure to perform its responsibilities, and (ii)
Incumbent provides Pathnet with reasonable notice of such non-performance
and uses commercially reasonable efforts to perform, notwithstanding
Pathnet's failure to perform (with Pathnet reimbursing Incumbent for its
additional Pass-Through Expenses for such efforts).
9. TERMINATION
9.1 TERMINATION FOR CAUSE
9.1.1 In the event that Incumbent: (i) commits a material breach
of this Maintenance Agreement, which breach is not cured within thirty
(30) days after notice of breach from Pathnet to Incumbent or (ii)
commits numerous breaches of its duties or obligations which
collectively constitute a material breach of this Maintenance
Agreement, Pathnet may, by giving reasonable written notice to
Incumbent, terminate this Maintenance Agreement, in whole or in part,
as of the date specified in the notice of termination. If Pathnet
chooses to terminate this Maintenance Agreement in part, the charges
payable to Incumbent under this Maintenance Agreement will be
equitably adjusted to reflect those services that are terminated.
9.1.2 In the event that Pathnet fails: (i) to pay Incumbent
undisputed charges due under this Agreement totaling at least Five
Thousand ($5,000) Dollars and fails to make such payment within thirty
(30) days of notice from Incumbent of the failure to make such payment
or (ii) upon thirty (30) days prior written notice from Incumbent to
Pathnet otherwise fails to fulfill its obligations, Incumbent may, by
giving written reasonable notice to Pathnet, terminate this
Maintenance Agreement as of the date specified in the notice of
termination.
9.2 TERMINATION FOR CONVENIENCE
Incumbent may terminate this Maintenance Agreement for convenience and
without cause at any time by giving Pathnet at least one hundred and twenty
(120) days' prior written notice before the end of the Term of this
Maintenance Agreement indicating that Incumbent will not renew this
Maintenance Agreement; provided, however, that Pathnet, its Affiliates,
agents or Subcontractors may, at Pathnet's sole discretion, supplement or
perform the Services set forth in this Maintenance Agreement. Pathnet, its
Affiliates, agents or
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Subcontractors shall comply with all Incumbent security and site access
procedures and meet Incumbents insurance requirements.
9.3 TERMINATION OR EXPIRATION ASSISTANCE
In the event (i) Incumbent terminates this Maintenance Agreement for
convenience; (ii) Pathnet does not renew this Maintenance Agreement because
of Incumbent's failure to perform, or (iii) the Maintenance Agreement
expires, Pathnet shall propose and Incumbent shall approve, which approval
shall not be unreasonably withheld, a third-party, independent Maintenance
and Circuit Provisioning provider, at least forty-five (45) days before
termination or expiration of the Agreement to provide the Services at
Incumbent's Facilities. Such independent Maintenance and Circuit
Provisioning provider shall assume the obligation of Incumbent for any
successive terms coterminous with the remaining term of the Agreement,
unless such provider is replaced by Pathnet before the expiration of the
term of this Maintenance Agreement or any extension thereof. In the event
either Party terminates this Agreement for cause, Pathnet shall provide a
third-party Maintenance and Circuit Provisioning provider to perform the
Services, and Incumbent shall reasonably cooperate with such provider.
Upon termination for any reason or expiration of this Maintenance
Agreement, Pathnet shall have the right to full and free access to all
Facilities, provided it complies with Incumbent security procedures, to
supplement or perform the Services in accord with the Performance
Standards.
10. RELATIONSHIP OF THE PARTIES
Nothing in this Maintenance Agreement will imply a joint venture, partnership,
or principal-agent relationship between the Parties. Neither Party will have
any right, power or authority to act or create any obligation, express or
implied, on behalf of the other Party, pursuant to this Maintenance Agreement.
11. PROPRIETARY RIGHTS AND COPYRIGHTS
11.1 Maintenance software, training materials, manuals or other proprietary
information furnished by Pathnet ("Maintenance Aids") for Incumbent's use
are either Pathnet's property or property of third parties and are
proprietary. Incumbent agrees to keep such Maintenance Aids confidential
and to use its best efforts to prevent the unauthorized disclosure and use
of such Maintenance Aids.
11.2 Incumbent agrees to use its best efforts not to allow copies of any
Maintenance Aids furnished by Pathnet to be made without the prior written
consent. Incumbent may make necessary copies of Maintenance Aids installed
as part of its providing the Services subject to Incumbent's obligations
under this Agreement.
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12. REPRESENTATIONS AND WARRANTIES
12.1 WORK STANDARDS
Incumbent represents and warrants that the Services shall be rendered with
promptness and diligence and shall be executed in a workmanlike manner, in
accordance with the practices and high professional standards used in
well-managed commercial telecommunications operations performing services
similar to the Services. Incumbent represents and warrants that it shall
use adequate numbers of qualified individuals with suitable training,
education, experience, and skill to perform the Services.
12.2 MAINTENANCE
Incumbent represents and warrants that it shall perform Maintenance and
Circuit Provisioning on the Equipment so that it operates in accordance
with the specifications included in Schedule B, such as (i) maintaining
equipment in good operating condition, subject to normal wear and tear,
(ii) undertaking repairs and preventive maintenance on Equipment, and (iii)
performing Circuit Provisioning in accordance with the applicable Equipment
manufacturers' recommendations.
12.3 EFFICIENCY AND COST EFFECTIVENESS
Incumbent represents and warrants that it shall use its best efforts to use
efficiently the resources or services necessary to provide the Services.
Incumbent represents and warrants that it shall use its best efforts to
perform the Services in the most cost-effective manner consistent with the
required level of quality and performance as set forth in this Agreement.
It has the requisite corporate or partnership power and authority to enter
into this Maintenance Agreement and to carry out the transactions
contemplated by this Maintenance Agreement; and
The execution, delivery and performance of this Maintenance Agreement and
the consummation of the transactions contemplated by this Maintenance
Agreement have been duly authorized by the requisite corporate or
partnership action on the part of such Party.
12.5 INSURANCE
Incumbent and Pathnet and any subcontractors engaged by Pathnet will comply
with all of the provisions of Section 11 of the FPM Agreement, except that
with respect to the Workman's Compensation insurance, Northern Border shall
be an additional insured on Pathnet's coverage.
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12.6 SECURITY AND SAFETY PROCEDURES
In the event Pathnet is required to supplement the Services, Pathnet shall
comply with all reasonable Incumbent security and safety procedures as
provided by the Incumbent in fulfilling its obligations.
12.7 DISCLAIMER
EXCEPT AS PROVIDED IN THIS MAINTENANCE AGREEMENT, THERE ARE NO OTHER
EXPRESS WARRANTIES AND THERE ARE NO IMPLIED WARRANTIES, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
ON THE PART OF EITHER PARTY.
13. INDEMNITIES
13.1 INDEMNIFICATION BY INCUMBENT
Incumbent agrees to indemnify, defend and hold harmless Pathnet and its
Affiliates and their respective officers, directors, employees, agents,
successors and assigns from and against any and all Losses and threatened
Losses arising from, in connection with, or based on allegations of, any of
the following:
(a) Any claims of infringement of any patent, trade secret, copyright
or other proprietary rights alleged to have occurred because of
systems or other resources provided to Pathnet by Incumbent.
(b) The untruth, inaccuracy or breach of any representation or
warranty of Incumbent set forth in this Agreement.
(c) The liability of Pathnet for (i) any personal injury, disease or
death of any Person, (ii) damage to or loss of any property,
money damages or specific performance owed to any Person (by
contract or operation of law), or (iii) any fines, penalties,
taxes, claims, demands, charges, actions, causes of action,
assessments, environmental response costs, environmental
penalties, injunctive obligations caused by, arising out of, or
in any way incidental to, or in connection with, actions or
omissions of Incumbent, its employees, Subcontractors or agents.
13.2 INDEMNIFICATION BY PATHNET
Pathnet agrees to indemnify, defend and hold harmless Incumbent, its
Partners, Operator and Affiliates and their respective officers, directors,
employees, agents, successors and
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assigns from and against any and all Losses and threatened Losses arising
from, in connection with, or based on allegations of, any of the following:
(a) Any claims of infringement of any patent, trade secret, copyright
or other proprietary rights alleged to have occurred because of
systems or other resources provided by Incumbent to Pathnet.
(b) The untruth, inaccuracy or breach of any representation or
warranty of Pathnet set forth in this Agreement.
(c) The liability of Incumbent for any (i) personal injury, disease
or death of any Person, (ii) damage to or loss of any property,
money damages or specific performance owed to any Person (by
contract or operation of law), or (iii) any fines, penalties,
taxes, assessments, environmental response costs, environmental
penalties or injunctive obligations caused by, arising out of, or
in any way incidental to, or in connection with, actions or
omissions of Pathnet, its employees, Subcontractors or agents.
(d) Any Losses, causes of action or suits arising out of Customer
Agreements.
13.3 INDEMNIFICATION PROCEDURES
With respect to any claims for which the obligation to indemnify shall
apply, the following procedures shall apply:
13.3.1 NOTICE. Promptly after receipt by an entity entitled to
indemnification under Section 13.1 or Section 13.2 of notice of the
commencement or threatened commencement of any civil, criminal,
administrative or investigative action or proceeding involving a claim
in respect of which the indemnitee will seek indemnification pursuant
to any such Section, the indemnitee shall notify the indemnitor of
such claim in writing. No failure to so notify an indemnitor shall
relieve it of its obligations under this Agreement except to the
extent that it can demonstrate damages attributable to such failure.
Within fifteen (15) days following receipt of written notice from the
indemnitee relating to any claim, but no later than ten (10) days
before the date on which any response to a complaint or summons is
due, the indemnitor shall notify the indemnitee in writing if the
indemnitor elects to assume control of the defense and settlement of
that claim (a "NOTICE OF ELECTION").
13.3.2 PROCEDURE FOLLOWING NOTICE OF ELECTION. If the indemnitor
delivers a Notice of Election relating to any claim within the
required notice period, the indemnitor shall be entitled to have sole
control over the defense and settlement of such claim; provided that,
(i) the indemnitee shall be entitled to participate in the defense of
such claim and to employ counsel at its own expense to assist in the
handling of
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such claim, and (ii) the indemnitor shall obtain the prior written
approval of the indemnitee before entering into any settlement of such
claim or ceasing to defend against such claim. After the indemnitor
has delivered a Notice of Election relating to any claim in accordance
with the subsection (a) above, the indemnitor shall not be liable to
the indemnitee for any legal expenses incurred by the indemnitee in
connection with the defense of that claim. In addition, the
indemnitor shall not be required to indemnify the indemnitee for any
amount paid or payable by the indemnitee in the settlement of any
claim for which the indemnitor has delivered a timely Notice of
Election if such amount was agreed to without the written consent of
the indemnitor.
13.3.3 PROCEDURE WHERE NO NOTICE OF ELECTION IS DELIVERED. If the
indemnitor does not deliver a Notice of Election relating to any claim
within the required notice period, the indemnitee shall have the right
to defend the claim in such manner as it may deem appropriate, at the
cost and expense of the indemnitor. The indemnitor shall promptly
reimburse the indemnitee for all such costs and expenses.
13.4 SUBROGATION
In the event that an indemnitor shall be obligated to indemnify an
indemnitee pursuant to Section 13.1 or Section 13.2, the indemnitor shall,
upon payment of such indemnity in full, be subrogated to all rights of the
indemnitee with respect to the claims to which such indemnification
relates.
14. LIABILITY
14.1 GENERAL INTENT
Subject to the specific provisions of this Article 14, it is the intent of
the Parties that each Party shall be liable to the other Party for any
actual damages incurred by the non-breaching Party as a result of the
breaching Party's failure to perform its obligations in the manner required
by this Maintenance Agreement.
14.2 LIABILITY RESTRICTIONS
14.2.1 SUBJECT TO SECTION 14.2.2 BELOW, IN NO EVENT, WHETHER IN
CONTRACT OR IN TORT (INCLUDING BREACH OF WARRANTY, NEGLIGENCE AND
STRICT LIABILITY IN TORT), SHALL A PARTY BE LIABLE TO THE OTHER PARTY
FOR INDIRECT, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR SPECIAL DAMAGES,
ARISING OUT OF OR IN CONJUNCTION WITH THIS MAINTENANCE AGREEMENT.
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14.2.2 The limitations set forth in Section 14.2.1 shall not apply
with respect to (i) damages occasioned by willful misconduct or gross
negligence of a Party or (ii) damages occasioned by a breach of
Section 16.7.
14.2.3 Pathnet agrees that all claims arising from and out of the
terms of this Agreement, shall be limited to the assets of Incumbent
and that all rights or remedies at law or in equity against
Incumbent's partners by Pathnet, its successor, assigns and
representatives are hereby expressly waived.
14.3 FORCE MAJEURE
14.3.1 No Party shall be liable for any default or delay in the
performance of its obligations under this Maintenance Agreement (i) if and
to the extent such default or delay is caused, directly or indirectly, by:
fire, flood, earthquake, elements of nature or acts of God, riots, civil
disorders, rebellions or revolutions in any country; or any other cause
beyond the reasonable control of such Party (a "Force Majeure" event), (ii)
provided the non-performing Party is without fault in causing such default
or delay, and such default or delay could not have been prevented by
reasonable precautions and can not reasonably be circumvented by the
non-performing Party through the use of alternate sources, workaround plans
or other means.
14.3.2 In such event, the non-performing Party shall be excused
from further performance or observance of the obligation(s) so affected for
as long as such circumstances prevail and such Party continues to use its
best efforts to recommence performance or observance whenever and to
whatever extent possible without delay. Any Party so delayed in its
performance shall immediately notify the Party to whom performance is due
by telephone (to be confirmed in writing within two (2) days of the
inception of such delay) and describe at a reasonable level of detail the
circumstances causing such delay.
15. DISPUTE RESOLUTION
15.1 ARBITRATION; RESOLUTION OF DISPUTES
Except as provided in Section 9, any and all disputes and controversies
between Incumbent and Pathnet concerning the negotiation, interpretation,
performance, breach or termination of this Agreement (each a "DISPUTE")
shall be subject to resolution as set forth in this Section 15.
15.2 SETTLEMENT DISCUSSIONS
Any Dispute shall be attempted to be resolved first through amicable
settlement discussions and each Party shall bear its own costs of such
settlement discussions. Each Party hereby
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agrees to use good faith efforts to reach a settlement through such
amicable settlement discussions.
15.3 REFERRAL TO BINDING ARBITRATION
In the event the Parties fail to reach a settlement of the Dispute pursuant
to settlement discussions in accordance with Section 15.2, each Party shall
have the right, but not the obligation, to refer such Dispute for final
resolution by binding arbitration in accordance with the Center for Public
Resources' (the "CENTER") Rules for Non-Administered Arbitration of
Business Disputes (the "ARBITRATION RULES").
15.4 BINDING EFFECT
The Parties acknowledge and agree that (i) the award in any arbitration
shall be final, conclusive and binding on the Parties and (ii) any such
arbitration award be a final resolution of the Dispute between the Parties
to the same extent as a final judgment of a court of competent
jurisdiction.
15.5 USE OF COURTS AND OTHER LEGAL REMEDIES
Each Party covenants and agrees that it shall not resort to any court for
legal remedies concerning any Dispute other than to enforce a final
decision by the arbitrators or for preliminary, interim or provisional
equitable relief in aid of arbitration.
15.6 ARBITRATION PROCESS
15.6.1 NOTICE. If the Parties cannot resolve a Dispute to their
mutual satisfaction pursuant to Section 15.2, either Party may deliver
to the other Party a written notice in accordance with the Arbitration
Rules.
15.6.2 SITE AND ARBITRATION TRIBUNAL. Absent agreement to the
contrary by the Parties, the arbitration will be conducted in Omaha,
NE, by a panel of three (3) arbitrators with expertise in the fields
of telecommunications engineering and construction, PROVIDED, HOWEVER,
in the case of particular witnesses not subject to subpoena at the
designated hearing site, hearings may be held at any place designated
by the arbitrators where such witnesses can be compelled to attend,
and, with the consent of the Parties, before a single member of the
arbitration tribunal. Within thirty (30) days after the filing of the
notice of arbitration, each Party must select one (1) arbitrator and a
third arbitrator will be selected by agreement of the two (2)
arbitrators selected by the Parties. If either Party fails to select
an arbitrator or there is no agreement on the selection of the third
arbitrator, the Center will select such arbitrators.
15.6.3 TRANSCRIPTS AND EVIDENCE. Both Parties shall cause a
written transcript of all proceedings and testimony to be kept and the
cost of such transcript shall be borne
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equally by the Parties pending the final award. All documents that
either Party proposes to offer in evidence, except for those objected
to by the other Party, shall be deemed to be self-authenticating.
15.6.4 APPLICABLE LAW. The arbitrator shall determine the claims
of the Parties and render their final award in accordance with the
governing law of this Agreement as set forth in Section 16.8.
15.6.5 SANCTIONS. The Parties acknowledge that, in addition to any
other remedy allowed or specified in or under the Arbitration Rules,
the failure of a Party to comply with any interim, partial or
interlocutory order, after due notice and opportunity to cure such
non-compliance, may be treated by the arbitrators as a default and all
or some of the claims or defenses of the defaulting party may be
stricken and partial or final award entered against such Party, as
determined by the arbitrators in their sole discretion, sanctions as
such arbitrators deem appropriate.
15.6.6 LIMITATION ON AWARDS. Notwithstanding anything set forth
herein or in the Arbitration Rules to the contrary, arbitrators may
not award incidental, consequential or punitive damages in the
resolutions of any Dispute and the Parties hereby waive all rights to
and claims for monetary awards other than compensatory damages.
15.6.7 PERIOD OF LIMITATIONS. In the event the Party claiming a
Dispute does not institute binding arbitration within one (1) year
after the commencement of settlement discussions pursuant to Section
15.2, such Party shall forever be barred from bringing a claim on the
specific subject matter of such Dispute.
15.6.8 ARBITRATION AWARD. Any arbitration award must be in writing
and must contain findings of fact and conclusions of law upon which
the arbitrators relied in making the decision relating to such award.
15.6.9 ATTORNEYS FEES. The arbitrator shall award the reasonable
cost, including attorneys fees, to the prevailing Party.
16. MISCELLANEOUS
16.1 NOTICE PROVISION
All notices pertaining to disputes arising from this Maintenance Agreement
shall be directed to a corporate or partnership entity or employee
designated by the signators as having full rights and responsibilities to
address such issues. Notices under this Maintenance Agreement shall be
sufficient only if personally delivered by a commercial prepaid delivery or
courier service or mailed by certified or registered mail, return receipt
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requested to a party at its address set forth in the signature block below
or as amended by notice pursuant to this subsection. If not received
sooner, notice by mail shall be deemed received five (5) business days
after deposit in the U.S. mail. All notices shall be delivered as follows:
If to Pathnet:
Michael A. Lubin, Esquire
Vice President and General Counsel
Pathnet, Inc.
1015 31st Street, NW
Washington, DC 20007
If to Incumbent:
Al Behrens
Director, Functional Strategies
Northern Border Pipeline Company
1111 South 103rd Street
Omaha, NE 68124-1000
16.2 BINDING NATURE; ENTIRE AGREEMENT
Pathnet and Incumbent acknowledges (i) that each has read and understands
the terms and conditions of this Maintenance Agreement and agrees to be
bound by such terms and conditions, (ii) that this Maintenance Agreement is
the complete and conclusive statement of the agreement between the Parties,
and (iii) that this Maintenance Agreement sets forth the entire agreement
and understanding between the Parties relating to the subject matter
hereof. All understandings and agreements, oral and written, heretofore
made between Incumbent and Pathnet relating to the subject matter hereof
are merged in this Maintenance Agreement which alone, fully and completely
expresses their agreement on the subject matter of maintenance service to
be provided by Incumbent. The provisions of this Maintenance Agreement are
separate and apart from the provisions of the Agreement and may not in any
way affect either Party's obligations with regard to the Agreement.
This Maintenance Agreement consists of the following, all of which are
included and by this reference made a part hereof:
Maintenance and Provisioning Services Agreement
Schedule A: Maintenance and Circuit Provisioning Services
Exhibit A-1: Incumbent Dispatch Procedures
Schedule B: Critical Service Levels
Schedule C: Charges
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Exhibit C-1: Incumbent Presumptive Labor and Mileage Rates
Schedule D: Intentionally Omitted
Schedule E: Spare Parts and Maintenance Test Equipment
Exhibit E-1: Maintenance and Provisioning Test Equipment
Schedule F: Incumbent Facilities and System
Schedule G: Customer Service and Training
16.3 AMENDMENT
No modification of, additions to or waiver of this Maintenance Agreement
shall be binding upon Incumbent and Pathnet unless such modification is in
writing and signed by an authorized representative of each Party.
16.4 SEVERABILITY
If any term or provision of this Maintenance Agreement shall to any extent
be held by a court or other tribunal to be invalid, void or unenforceable,
then that term or provision shall be inoperative and void insofar as it is
in conflict with law, but the remaining terms and provisions of this
Maintenance Agreement shall nevertheless continue in full force and effect
and the rights and obligations of the Parties shall be deemed to be
restated to reflect newly as possible the original intentions of the
Parties in accordance with applicable law.
16.5 HEADINGS
Section and paragraph headings used in this Maintenance Agreement are for
reference and convenience only and are not to be deemed or construed to be
part of this Maintenance Agreement.
16.6 CONSENTS AND APPROVAL
Except where expressly provided as being in the discretion of a Party,
where agreement, approval, acceptance, consent, or similar action by either
Party is required under this Maintenance Agreement, such action shall not
be unreasonably delayed or withheld. An approval or consent given by a
Party under this Maintenance Agreement shall not relieve the other Party
from responsibility for complying with the requirements of this Maintenance
Agreement, nor shall it be construed as a waiver of any rights under this
Maintenance Agreement, except as and to the extent otherwise expressly
provided in such approval or consent.
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16.7 COMPLIANCE WITH LAWS AND REGULATIONS
Each Party shall perform its obligations in a manner that complies with the
applicable Federal, state and local laws, regulations, ordinances and codes
(including identifying and procuring required permits, certificates,
approvals and inspections). If a charge of non-compliance by either Party
with any such laws, regulations, ordinances or codes occurs, the Party
charged with such non-compliance shall promptly notify the other Party of
such charges in writing.
16.8 GOVERNING LAW
This Maintenance Agreement and the rights and duties of the parties shall
be governed and interpreted in accordance with the laws of the State of
Nebraska, other than the choice of law rules thereof.
16.9 BINDING NATURE AND ASSIGNMENT
This Maintenance Agreement shall be binding on the Parties hereto and their
respective successors and assigns. Neither Party may or shall have the
power to assign this Maintenance Agreement without the prior written
consent of the other, except that either Party may assign its rights and
obligations under this Maintenance Agreement without the approval of the
other Party to an entity which acquires all or substantially all of the
assets of that Party to any subsidiary or Affiliate or successor in a
merger or acquisition of that Party; provided that in no event shall any
such assignment relieve that Party of its obligations under this
Maintenance Agreement.
16.10 WAIVER
Failure or delay on the part of Incumbent or Pathnet to exercise any right,
power or privilege under this Maintenance Agreement shall not constitute a
waiver of any right power or privilege of this Maintenance Agreement.
16.11 RELATIONSHIP OF PARTIES
Incumbent, in furnishing the services hereunder, is acting as an
independent contractor, and Incumbent has the sole right and obligation to
supervise, manage, contract, direct, procure, perform or cause to be
performed all work to be performed by Incumbent under this Maintenance
Agreement. Incumbent is not an agent of Pathnet and has no authority to
represent Pathnet as to any matters, except as expressly authorized in this
Maintenance Agreement.
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16.12 SURVIVAL
Any provision of this Maintenance Agreement which contemplates performance
or observance subsequent to any termination or expiration of this
Maintenance Agreement shall survive any termination or expiration of this
Maintenance Agreement and continue in full force and effect.
16.13 COVENANT OF GOOD FAITH
Each Party agrees that in its respective dealings with the other Party
under or in connection with this Maintenance Agreement, it shall act in
good faith.
[Signatures begin on following page.]
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IN WITNESS WHEREOF, the parties hereto have executed this Maintenance and
Provisioning Services Agreement, or caused it to be executed by a duly
authorized officer, as of the date first written above.
PATHNET, INC.
By: /s/ Dave Schaeffer
-------------------------------
Name: Dave Schaeffer
Title: Chairman
NORTHERN BORDER PIPELINE COMPANY
By: Northern Plains Natural Gas Company,
Operator
By: /s/ G. A. Rood
-------------------------------
Name: G. A. Rood
Title: Vice President
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Exhibit 10.11
MASTER AGREEMENT
This Agreement made this 8th day of August 1997 between NEC America, Inc., a
corporation organized and existing under the laws of the State of New York
(hereinafter "Seller") and PathNet, Inc. a corporation organized and existing
under the laws of the State of Maryland (hereinafter "Buyer").
Seller hereby agrees to sell to Buyer, and Buyer shall purchase from Seller
during the term of this Agreement Equipment, Services and licensed Software as
detailed in Appendix A attached hereto and made a part hereof, at the prices
specified herein and subject to the terms and conditions of this Agreement.
Article 1. Definitions
1.1 As issued herein:
(a) Agreement means this Agreement, all Appendices hereto and all
annexes, appendices or attachments to the Appendices.
(b) Buyer Company means any person, firm, partnership, corporation
or other entity ("Company") in which Buyer has, directly or
through a Subsidiary of Buyer, or in which an entity
majority-owned by Buyer and/or one or more Subsidiaries of
Buyer has, directly through a Subsidiary of such entity, an
interest as described below (any of Buyer, such a Subsidiary
of Buyer or such an entity being referred to as a "Buyer
Entity"). A Buyer Entity shall be deemed to have any interest
sufficient to qualify a Company as a Buyer Company if the
Buyer Entity (a) holds, or has a binding agreement or option
to acquire, at the time of any order placed under this
Agreement for such Company (the "Order Date"), an ownership
interest of at least thirty-three and one third (33 1/3 %)
percent of such Company and in which no other entity has more
than such ownership interest; or (b) on the Order Date holds,
or has a binding agreement or option to acquire, an ownership
interest of at least fifty (50%) percent of an entity which
holds an ownership interest of at least thirty-three and one
third (33 1/3%) percent of such Company. The term Buyer
Company further includes any entity that enters into an
agreement with Buyer to provide fixed point microwave services
and which is permitted by Buyer to submit orders directly to
Seller for Equipment to construct paths in addition to those
being constructed by Buyer as part of Buyer's microwave radio
network.
(c) Days means consecutive calendar days and not business days.
Such term is not exclusive of holidays.
(d) Equipment means the equipment specified in Appendix A to this
Agreement, and such other equipment as Seller or its
affiliates may hereafter manufacture, or have manufactured and
make available and sell to Buyer and which Buyer hereafter
orders from Seller under this Agreement. Equipment to be made
available to Buyer by Seller under this Agreement shall be all
Equipment now or hereafter generally made available by Seller
and its affiliates to its customers.
<PAGE>
(e) Commercial Service means the commercial use of Equipment or
Software, exclusive of operation for purposes of conducting
tests. The date that a given item of Equipment or Software is
actually placed in Commercial Service shall be referred to as
the Commercial Service Date for such item.
(f) Services means the services set forth in the Radio Division
Product Line Support Policy attached hereto as Appendix A.
(g) Software means all computer software furnished hereunder
including, but not limited to, computer programs contained on
a magnetic or optical storage medium, in a semiconductor
device, or in another memory device or system memory
consisting of (i) hardwired logic instructions which
manipulate data in central processors, control input-output
operations, and error diagnostic and recovery routines, and
(ii) instruction sequences in machine-readable code that
control call processing, peripheral equipment and
administration and maintenance functions. The term Software
shall include Software Updates and Software Enhancements.
(h) Software Enhancements means all modifications or improvements
to the Software which improve performance or capacity of the
Software, but shall not include Software Updates.
(i) Software Updates means periodic updates to the Software to
correct defects in the Software, but shall not include
Software Enhancements.
(j) Specifications means the specifications and performance
standards of Equipment and Software as set forth in Appendix A
and B and in any other document published by Seller which
contains specifications or performance standards for Seller's
Equipment and/or Software.
(k) Subsidiary of a company means a corporation or other entity
the majority of whose shares, securities or other evidence of
ownership entitled to vote for election of directors or
equivalent management is now or hereafter owned or controlled
by such company either directly or indirectly; but any such
corporation or other entity shall be deemed to be a Subsidiary
of such company only as long as such ownership or control
exists. As used in this Agreement, "control" shall mean
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a person
or entity, whether through the ownership of voting securities,
by contract or otherwise.
1.2 Whenever the words "include" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation".
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Article 2. Scope of Contract
2.1 Each of Buyer, any Buyer Company, or any Subsidiary of Buyer as
agent for or for resale to a Buyer Company shall have the right to
purchase, and Seller shall be obligated to sell, as ordered by
Buyer, any Buyer Subsidiary or a Buyer Company during the term of
this Agreement, Equipment, Software and Services and the terms and
conditions of this Agreement shall apply to such orders. Any Buyer
Company which submits an order for Equipment, Software or Services
under this Agreement, either directly to Seller or from Buyer or a
subsidiary of Buyer shall be considered the "Buyer" for all purposes
of this Agreement as if such Buyer Company had entered into a
separate contract with Seller solely with respect to the items
ordered. All rights, claims or defenses Seller has or may acquire
hereunder shall be asserted solely against the Buyer Company which
has received or is to ultimately receive the Equipment, Software or
Services pursuant to such an order and such Buyer Company shall have
and may enforce against Seller all of the rights, benefits and
obligations contained herein. In addition, Buyer or any Subsidiary
of Buyer ordering Equipment, Software and Services shall have the
right, in its sole discretion, to enforce or assert on behalf of
itself or any Buyer Company any right, claim or defense available to
it or any such Buyer Company hereunder.
Seller, however, reserves the right to reject any order from a Buyer
Company as described as any entity that enters into an Agreement
with Buyer to provide fixed point Microwave Services and which is
permitted by Buyer to submit orders at the prices stated herein,
Appendix A, directly to Seller for Equipment. Seller's rejection,
which shall be reasonably based, shall be dependent upon the
parties' failure to reach a mutually acceptable agreement. Such an
agreement shall be no more restrictive than Seller's then current
standard terms and conditions.
2.2 This Agreement is comprised of these terms and conditions and the
following Appendices, which are attached hereto and made a part
hereof:
(a) Appendix A -- Seller's Quotation, DCQ96-RI9238D, dated
2/27/97, excluding General Terms and Conditions.
(b) Appendix B -- Seller's Specifications.
Article 3. Prices
3.1 Subject to Section 3.2, the pricing stated in Appendix A is valid
for orders placed within three years from the signing of this
Agreement and is exclusive of any taxes or fees imposed upon, or
made payable by Seller, its agents, assignees, or subcontractors
arising out of performance under this Agreement.
Buyer shall pay all such taxes now or hereinafter due and owing or
arising under this Agreement including, but not limited to,
occupation, excise, sales or use taxes imposed upon the Buyer,
Seller of the Equipment. In the event any such taxes, duties, fees
or similar charges are imposed upon or made payable by Seller, Buyer
shall promptly reimburse Seller upon receipt of invoice.
Notwithstanding the foregoing, Buyer shall not
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be liable for the reimbursement to Seller of, and shall hold buyer
harmless in respect of any other taxes imposed upon or made payable
by Seller including, without limitation, franchise, net or gross
income or revenue, license, occupation, real or personal property.
All prices shown in Appendix A are United States Dollars, FOB United
States Port of Entry (USPOE) or United States domestic factory.
3.2 (a) Seller agrees that if at any time during the six (6) months
period prior to receipt and acceptance of, or the six months
following, an order from Buyer for any Equipment or Services, Seller
sells or has offered to sell such Equipment or Services to any third
party at a lower sales price than the sales price granted to Buyer,
then the sales price charged to Buyer for said Equipment or Services
shall be reduced to a sales price that is no less favorable to Buyer
than the sales price to such other party provided that Buyer
purchases such Equipment or Services under like terms and conditions
and similar quantities.
(b) Upon the request of Buyer, and no more often than once per
calendar quarter, Seller shall conduct a review of all sales or
offers made by it during the period commencing on the date of the
immediately preceding request (or, in the event the applicable
request is the first such request hereunder, the date three (3)
months prior to the date hereof) and ending on the date of the
applicable request in order to determine whether Buyer is entitled
to any rebates, lower purchase prices or more favorable payment
terms as a result of the provisions of this Section 3.2 and, if
Buyer is so entitled, Seller shall forthwith notify Buyer and make
any necessary rebates or price adjustments with such notice and
shall make more favorable payment terms available to Buyer effective
with such notice. Seller shall, as a result of a request made by
Buyer under this Section 3.2(b), make available for examination by
independent outside auditors (under appropriate confidentiality
obligations) information in a form reasonably sufficient to allow
such auditors to confirm the accuracy of any determination made by
Seller under this Section 3.2(b).
3.3 Prices for Equipment and Services not set forth in Appendix A, if
not otherwise set forth in this Agreement, shall be no greater than
the lesser of Seller's list prices in effect at the date of
introduction thereof or at the time of ordering by Buyer, subject in
each case to any discounts made available to Buyer or made available
to all of Seller's customers that are in effect at the time of
ordering by Buyer.
3.4 The unit prices of Equipment include use of applicable Software
without additional charge, except as otherwise expressly provided.
3.5 At the end of three (3) years or when the quantity ordered reaches
1,000, the Parties agree to have a good faith negotiation of
mutually beneficial prices for the balance of the term of the
Agreement. Nothing contained herein shall obligate Buyer to submit
any minimum amount of orders to Seller.
3.6 The pricing set forth in Appendix A is applicable to any orders
received prior to the date hereof.
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3.7 All Equipment and Software purchased by Buyer hereunder, including
Equipment provided in conjunction with repair or replacement
services, shall be new. For purposes of this Section 3.7, "new"
shall mean Equipment which has never been placed in Commercial
Service or been used for training or extended testing and shall
conform with the specifications set forth in Appendix B.
Article 4. Ordering Method
4.1 Purchase orders (hereinafter "Order(s)") placed by Buyer shall be
issued in writing by an authorized representative of Buyer.
4.2 Orders shall be delivered to the attention of Seller's Contracts
Department, setting forth the following items:
(a) Quantity and description of Equipment being ordered;
(b) Requested delivery date;
(c) Prices applicable to such Equipment;
(d) Buyer Order number; and
(e) Shipping method and destination/address;
(f) Invoicing address.
4.3 Subject to Article 4.4, Seller will review and acknowledge in
writing Buyer's written Order within fifteen (15) days from date of
receipt thereof. The actual delivery schedule shall be in accordance
with Seller's order acknowledgment letter, however, in no event will
delivery be later than the lead times set forth in Appendix A for
the particular Equipment ordered.
4.4 All orders that are within Seller's lead times (as set forth in
Appendix A), and which are otherwise in accordance with the terms of
this Agreement, shall be deemed automatically accepted upon receipt
by Seller. Should Seller receive an order with lead times that are
shorter than such lead times. Seller shall, within fifteen (15)
days, indicate in writing to Buyer whether such shortened lead times
are acceptable. If Seller shall deem a shortened lead time
unacceptable, the parties hereto shall endeavor to agree upon lead
times that are mutually acceptable. Should Seller fail to notify
Buyer of its non-acceptance of a shortened lead time within fifteen
(15) days of its receipt of the order containing the shortened lead
time, such order shall be deemed accepted without any further
confirmatory action by either party.
4.5 The terms and conditions of this Agreement are hereby deemed
incorporated into and made a part of each Order issued pursuant to
this Agreement and any orders made prior to execution of this
Agreement. Any terms and conditions appearing in an Order or in any
acknowledgment of an Order, that are in addition to or inconsistent
with or different from the terms and conditions of this Agreement,
shall be void and of no effect unless expressly agreed to by Seller
in writing.
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4.6 Any Order submitted to Seller by Buyer in accordance with this
Agreement may be amended by written notice by Buyer delivered to
Seller's Contracts Department and setting forth (a) the order number
being amended; and (b) a description of the change being requested.
Within ten (10) days of receipt of a change order, Seller shall
advise Buyer of the cost and schedule impact, if any, of
implementing such changes; it being understood and agreed that
Seller shall be entitled to reimbursement only for the reasonable
out-of-pocket costs it incurs with respect to any change orders. In
the event that Seller does not so advise Buyer of the cost and
schedule impact thereof within such ten (10) day period, the change
order shall be deemed accepted by Seller without cost to Buyer.
Article 5. Term and Option
This Agreement shall become effective on the date upon which the
last of the contracting parties signs and shall continue in effect
for a period of five years thereafter. This Agreement shall
thereafter be renewable annually for periods of one year thereafter
with mutual consent of Buyer and Seller as evidenced in writing
sixty days prior to the expiration date.
Article 6. Payment Terms
6.1 Invoices for Buyer's Orders which require Seller only to ship
specified Equipment (hereinafter "Furnish-Only Orders") shall be
issued by Seller upon shipment of the Equipment.
6.2 All payments will be due as follows: 75% of invoice amount net
thirty (30) days from invoice date, balance due ninety (90) days
thereafter or upon Final Acceptance whichever occurs first. Without
limiting any of Seller's remedies for nonpayment or late payment of
invoices, it is agreed that invoices which are not paid when due
shall be subject to a charge of one and one half percent (1.5%) per
month, to cover handling costs with a maximum ceiling often (10)
percent.
Article 7. Warranty
7.1 (a) Seller warrants that for a period of three (3) years from the
date of Final Acceptance of any item of Equipment (the "Warranty
Period"), such Equipment shall conform with and perform the
functions set forth in the Specifications and shall be free from
defects in design, materials or workmanship (the "Warranty"). If
defects in design, materials or workmanship or nonconformity with
the Specifications appear within the Warranty Period, Seller shall
promptly, at its own election and expense, repair or replace any
such defective Equipment. Such repair or replacement includes
material, labor and services. If any components comprising a part of
the Equipment are replaced or repaired during the Warranty Period,
the Warranty Period for such repaired or replaced components shall
extend to the longer of (i) the balance of the Warranty Period or
(ii) ninety (90) days from the date of repair or replacement.
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(b) Buyer invokes the Warranty under this Section 7.1, it shall
notify Seller promptly of the claimed fault or defect. Buyer will
return the Equipment to Seller's repair facility. For equipment
returned to Seller's repair facility pursuant to this Section 7.1
(b), Buyer shall be responsible for payment of all transportation
and freight costs to Seller's repair facility, and Seller shall be
responsible for all other transportation and freight costs incurred
in connection with its return to Buyer.
(c) During the Warranty Period, Equipment will be repaired on a
repair or replace basis, with Buyer responsible for fault isolation
(except to the extent that Buyer could not have reasonably been
expected to isolate such fault without the assistance of Seller),
removal of such Equipment, replacement from spare stock (except to
the extent that such removal and replacement requires the
specialized expertise of Seller), and packing and shipping to
Seller's repair facility. Buyer will maintain a reasonable stock of
spare Equipment as reasonably recommended by Seller for this
purpose. In the event that the quantity of spare parts proves to be
inadequate to maintain adequate stock levels of spare parts, Seller
will ship, by the most expeditious means available, adequate spare
parts of each type so depleted (until the problem creating the
inadequacy is cured), as promptly as possible after being notified
of such inadequacy.
(i) In the event that, during the Warranty Period, Buyer experiences
failure of Equipment which the Chief Technical Officer of Buyer
(hereinafter the "Buyer CTO") believes in good faith to be
excessive, the Buyer CTO shall bring such failures to the attention
of Seller by giving written notice to Seller under Article 15
hereof, and Seller shall give its highest priority to the remedy of
the cause of such failures.
(ii) Buyer may, at any time reasonably following an event described
in Section 7.1(c) (i) above, request that Seller make special
adjustments in warranties and freight payments relating to such
event, and Seller agrees to negotiate in good faith for adjustments
commensurate with the operational and/or financial effect upon Buyer
caused by such event.
(d) Subject to Section 7.1(c) above, freight charges incurred in
connection with Seller's obligations under this Section 7.1 shall be
borne by (i) Buyer with respect to the shipment of Equipment to
Seller's facility, and (ii) Seller with respect to all other
shipments of Equipment. All customs duties, levies, taxes and other
costs relating to the export or import of defective Equipment under
any warranty claim, and the export or import of repaired or replaced
Equipment under any warranty claim shall be the sole responsibility
of Seller. Subject to Section 7.2, Seller on a "best effort" basis
shall take no more than (i) if the Equipment is being replaced,
twenty (20) working days from the date the defective Equipment is
received by Seller, or (ii) if the Equipment is being repaired,
fifty (50) working days from the date the defective Equipment is
received by Seller, provided, however, that in either case Seller
shall use all reasonable efforts to reduce such time period.
7.2 Notwithstanding anything to the contrary contained in any provision
of this Article 7 or any other provision of this Agreement, if as a
result of any invocation of the Warranty, services to Buyer's
subscribers, microwave radio system performance, networking,
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billing administration or maintenance are materially and adversely
affected, Seller shall on a "best effort basis" and at its sole cost
and expense, commence work to correct such defect or replace such
defective Equipment as soon as practicable, no later than four (4)
hours after Buyer's notification of Seller of such defect, and shall
ship any required replacement Equipment (or components thereof) to
Buyer as soon thereafter as practicable no later than twenty-four
(24) hours after notice of such defect. Where the services of
Seller's service personnel at Buyer's sites are required hereunder,
then Seller shall, at its sole cost and expense, dispatch such
service personnel on a "best efforts" basis, as are required to
correct such defects as soon after receipt of notice as practicable
but no later than twenty-four (24) hours after notice of such
defect.
7.3 If any Equipment is rendered inoperative as a result of a natural or
other disaster, Seller will make all reasonable efforts to supply or
help locate backup or replacement Equipment for Buyer by using its
reasonable best efforts to obtain the waiver of any delivery
schedule priorities and by making replacement Equipment available
from the facility then producing such products, or from inventory.
7.4 It is the intention of the parties that any problem, defect or
failure in Equipment shall be corrected as promptly as practicable
regardless of fault, and in this regard, Seller agrees to use all
reasonable efforts to work and cooperate with Buyer and any other
manufacturer, contractor or vendor to correct any such problem,
defect or failure to the extent that Seller has the capability to do
so. Seller shall, at Buyer's request, assist Buyer in determining
the cause of such problem, defect or failure and recommend the
appropriate action. Seller shall, upon its receipt of a request from
Buyer, use all reasonable efforts to correct any problem, defect or
failure in Equipment or any other Equipment (whether or not such
problem, defect or failure is the responsibility of Seller) as
promptly as practicable and bill Buyer for such. If Buyer and Seller
disagree as to the cause of the problem, defect or failure or the
action to be taken, then, at Buyer's request, Seller shall
nevertheless correct any problem, defect or failure in the Equipment
(whether or not such problem, defect or failure is the
responsibility of Seller) as promptly as practicable and bill Buyer
for such; provided, however, that Seller shall not be required to
repair or modify any equipment purchased by Buyer from any third
party unless Seller has the ability to do so. The parties shall
thereafter negotiate in good faith to determine whether such
problem, defect or failure was the responsibility of Seller or any
other party and if they are unable to resolve such dispute, such
dispute shall be submitted to a Third Party Engineer pursuant to
Section 28.1 hereof. If determined (whether by agreement or
arbitration) that such problem, defect or failure was not the
responsibility of Seller, Buyer shall promptly reimburse Seller for
all costs and expenses incurred in connection with the correction of
such.
7.5 Buyer may at any time acquire equipment and software from a source
other than Seller and such Equipment may be installed in and become
part of Buyer's system without affecting the warranties contained in
this Agreement. Buyer agrees that Seller does not warrant any
Equipment provided by a source other than Seller.
7.6 In addition to the warranties set forth herein, if Seller purchases
or subcontracts for the manufacture of any Equipment from a third
party, the warranties given to Seller by such
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third party shall inure, to the extent applicable or permitted, to
the benefit of Buyer, and Buyer shall have the right to enforce such
warranties directly or through Seller. The warranties of such third
parties shall be in addition to and not in lieu of any warranties
given by Seller under this Agreement. If Seller subcontracts any
work under this Agreement, Seller shall be responsible for such
subcontractor's work.
7.7 Seller's limited warranty under this Article 7 shall not apply to:
(a) Damage or defects caused by Buyer's negligence, including,
but not limited to:
(i) Use by Buyer other than in accordance with instructions
furnished by Seller;
(ii) Material modifications by Buyer of Equipment without
Seller's consent; or
(b) Damage or defects to the extent caused by equipment or
software not manufactured by Seller and not purchased under
this Agreement;
(c) Any Equipment damaged by accident or disaster, including,
without limitation, fire, flood, wind, water, lighting or
power failure; or
(d) Hardware normally consumed in operation or which has a life
inherently shorter than the Equipment Warranty Period (e.g.,
fuses, lamps, magnetic tape).
7.8 Buyer shall reimburse Seller for Seller's out-of-pocket expenses
incurred, at Buyer's request, in responding to and/or remedying
Equipment or Service deficiencies not covered by the warranties set
forth herein or under a Services Supply Agreement between Seller and
Buyer.
7.9 THE WARRANTIES SET FORTH IN THIS ARTICLE 7, WARRANTIES, CONSTITUTE
THE ONLY WARRANTIES OF SELLER WITH RESPECT TO THE PERFORMANCE OF THE
EQUIPMENT. THEY ARE IN LIEU OF ALL OTHER WARRANTIES, WRITTEN OR
ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
Article 8. Title, Delivery and Shipment
8.1 All shipments of Equipment purchased by Buyer are FOB (USPOE or
domestic factory), inland freight prepaid and billed to Buyer.
Included in the prices set forth in Appendix A are the costs of
shipment to the USPOE, if applicable.
8.2 Title and risk of loss or damage to the Equipment shall pass to
Buyer upon the Seller's tender of delivery of the Equipment to
destination specified by Buyer.
8.3 Seller shall select the common carrier and method of shipment in the
absence of specific written routing instructions from the Buyer.
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8.4 Seller shall, at no additional charge, package Equipment in a
suitable manner in accordance with all applicable laws and
regulations and provide protection against damage during shipment
and handling. Seller shall store Equipment in dry, unheated quarters
and shall coordinate with the shippers and transporters regarding
the packing and handling of the goods in order to guarantee their
arrival in the manner required by the customs authorities of the
United States. At the request of Seller, Buyer shall, at Seller's
sole cost and expense, return all packaging materials used to ship
Equipment from Seller to Buyer in excess of the materials Buyer
reasonably requires for storage or other purposes.
8.5 Seller shall, in the performance of its obligations hereunder, grant
to Buyer its top priority in terms of (a) availability of supply and
delivery of Equipment and other materials, (b) provision of
Installation and all other Services to be provided hereunder, (c)
assignment of personnel, and (d) any other product, service or
support required to meet the commitments herein. In this regard, if
there are any delays in the performance by Seller of its obligations
under this Agreement or under any Order submitted in accordance with
the terms hereof, then, upon the written request of Buyer, Seller
shall use their best efforts to assign additional personnel,
reallocate resources, expedite Equipment deliveries and take all
such other actions as are required to eliminate such delay. Seller's
standard delivery schedules as quoted herein shall apply.
8.6 (a) If, due to the fault or negligence of Seller, Buyer's receipt of
a shipment of Equipment, or performance of Services, is delayed over
thirty (30) days beyond the date set forth in the applicable Order
(or such other date as shall have been agreed upon between Seller
and Buyer in accordance with Article 4), then Buyer shall be
entitled to and Seller shall pay to Buyer, liquidated damages in
accordance with this Section 8.6.
(b) The parties agree that damages for delay are difficult to
calculate accurately and, therefore, agree to fix as liquidated
damages, and not as a penalty, an amount equal to one percent (1%)
per week (or portion thereof) of the price of such delayed Equipment
or Services. Such damages shall not exceed ten (10%) percent of the
purchase price for the delayed equipment.
Article 9. Acceptance
9.1 With respect to each item of Equipment being purchased by Buyer
hereunder, Seller shall provide to Buyer, at the time of shipment of
such Equipment, evidence in form and substance reasonably
satisfactory to Buyer confirming that the Equipment has been tested
in accordance with Seller's standard testing procedures and that
such Equipment performed in accordance with the Specifications.
9.2 Unless otherwise agreed to by the Parties, for Equipment Orders
Final Acceptance shall be deemed to have occurred on the Commercial
Service Date for such Equipment.
9.3 Final Acceptance of the Equipment shall be final and shall relieve
Seller of all further responsibility relative to the Equipment
except as related to fraud, gross negligence, and
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any other obligations of this Agreement which specifically survive
Final Acceptance, including, without limitation, Article 7.
Article 10. Agency
Neither Buyer nor any person or business organization is authorized
to make any warranty or assume any obligation or liability on behalf
of Seller in connection with the sale or use of the Equipment.
Article 11. Excusable Delays
11.1 Neither Party shall be liable for delays or any failure to perform
under this Agreement due to unforeseen circumstances or causes
beyond its reasonable control, including, but not limited to, acts
of God; war (including civil war); riots, embargoes, acts (whether
sovereign or contractual) of civil or military authorities; acts of
any government, fires, floods, explosions, the elements, epidemics,
quarantine restrictions, strikes or lockouts which neither Seller
and its affiliates nor Buyer and its affiliates have any control,
plant shutdowns, slowdowns, accidents, materials, delays of
suppliers or subcontractors or acts or omissions with respect to
matters for which the other Party is responsible (a "Force Majeure
Event"). Notwithstanding the foregoing, no strike with respect to
Seller or any affiliate of Seller shall constitute a Force Majeure
Event unless (i) such strike is a nationwide strike affecting
multiple manufacturers, as opposed to a strike affecting only Seller
or such Affiliate, and (ii) neither Seller nor any Affiliate of
Seller is able to perform the obligations that Seller is precluded
from performing for Buyer as a result of such strike.
11.2 In the event of an excusable delay as defined above, Parties shall
promptly notify one another in writing of such delay and an
equitable adjustment shall be made in the delivery and/or completion
schedules and any affected terms of this Agreement.
Article 12. Customs Clearance
12.1 Should import or export certification or licensing be denied or
voided for a particular Order for any reason beyond the reasonable
control of Seller, both Seller and Buyer agree that such Order shall
become voidable.
12.2 Seller agrees to be Importer of Record for shipments made to the
United States and shall pay directly to the proper United States
authority any United States import duties required by law to be paid
on Equipment delivered to the United States under this agreement.
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Article 13. Patent Indemnity
13.1 Seller agrees that it will defend, at its own expense, all suits and
claims against Buyer for infringement or violation of any patent,
trademark, copyright, trade secret, or other tangible or intangible
property rights of any kind whatsoever, whether of the United States
or foreign (collectively, "Property Rights"), covering, or alleged
to cover, the Equipment or any component thereof, in the form
furnished or as subsequently modified, either by Seller or with
Seller's consent, and Seller agrees that it will pay all sums,
including, without limitation, attorneys' fees and other costs,
which, by final judgment or decree, or in settlement of any suit or
claim, may be assessed against Buyer on account of such infringement
or violation, provided that (a) Seller shall be given prompt written
notice of all claims of any such infringement or violation and of
any suits or claims brought or threatened against Buyer or Seller of
which Buyer has express knowledge, and Seller shall be given full
authority to assume control of the defense thereof through its own
counsel at its expense and to compromise or settle any suits or
claims so far as this may be done without prejudice to the right of
Buyer to continue the use, as contemplated, of the Equipment or
Software or any component thereof so furnished; and (b) Buyer shall
cooperate fully with Seller in the defense of such suit or claims
and provide Seller such assistance as Seller may reasonably require
in connection therewith, provided that Seller shall pay the actual
expenses of Buyer in providing such assistance. Buyer may in its
discretion and at its own expense participate directly or through
its own counsel in the defense of such suit or claims.
13.2 If any final judgment, all or any part of the Equipment or Software
or any component thereof is held to constitute any infringement or
violation of any other person's Property Rights and its use is
enjoined, or if in respect of any claim of infringement or violation
Seller deems it advisable to do so, Seller shall at its sole option
and cost take one or more of the following actions at no additional
cost to Buyer; (a) procure the right to continue the use of the same
without interruption for Buyer; (b) replace the same, without loss
of Buyer's use of same for more that twenty-four (24) hours, with
non-infringing Equipment or Software that meets the Specifications;
or (c) modify said Equipment or Software, without loss of Buyer's
use of same for more than twenty-four (24) hours, so as to be
non-infringing, provided that the Equipment or Software as modified
meets all of the Specifications. If Seller fails to perform its
obligations under this Section 13.2, Buyer may, at Seller's
reasonable expense, take any of the foregoing actions on behalf of
Seller or, if Buyer is unable to do so, Buyer may, at its option,
return to Seller freight collect all Equipment and Software
delivered, in which event Seller shall refund to Buyer all amounts
paid to it under this Agreement.
13.3 Seller's indemnity under this Article 13 shall not apply to any
infringement caused by (i) Buyer's material modification of the
Equipment and any infringement caused solely by Buyer's use of the
Equipment other than in accordance with the Specifications and the
purposes contemplated by this Agreement, except as expressly
authorized or permitted by Seller, or (ii) infringement arising out
of the use of Equipment or Software in combination or conjunction
with any item not supplied by Seller, and with respect to which
Seller did not have reason to know such item would be used in
combination with such Equipment or Software.
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Article 14. Limitation of Liability and Indemnification
14.1 (a) Seller agrees to indemnify and hold Buyer harmless from and
against all losses, claims, demands, damages (to person or
property), and causes of action (including reasonable legal fees)
resulting from the intentional or negligent acts or omissions, or
strict liability, of Seller, its officers, agents, employees or
subcontractors.
(b) Buyer agrees to indemnify and hold Seller harmless from and
against all losses, claims, demands, damages (to person or
property), and causes of action (including reasonable legal fees)
resulting from the intentional or negligent acts or omissions or
strict liability, of Buyer, its officers, agents, employees or
subcontractors.
(c) If Buyer and Seller jointly cause such losses, claims, demands,
damages, or causes of action, the parties shall share the liability
in proportion to their respective degree of casual responsibility.
14.2 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT, EXCEPT AS TO BUYER'S BREACH OF ITS OBLIGATIONS UNDER
ARTICLE 26 OR BUYER'S OR SELLER'S BREACH OF THEIR RESPECTIVE
OBLIGATIONS UNDER ARTICLE 16, IN NO EVENT, WHETHER AS A RESULT OF
BREACH OF CONTRACT, WARRANTY, TORT (INCLUDING BUT NOT LIMITED TO
NEGLIGENCE OR INFRINGEMENT), SHALL SELLER OR BUYER BE LIABLE UNDER
THIS AGREEMENT FOR ANY CONSEQUENTIAL OR INCIDENTAL DAMAGES OF ANY
NATURE WHATSOEVER, INCLUDING LOST PROFITS OF ANY OTHER PARTY HERETO,
BEFORE OR AFTER ACCEPTANCE.
Article 15. Notices
Any notices hereunder by one party to the other party shall be given
in writing by personal delivery or posted by certified mail with
proper postage, return receipt requested, to the parties at the
following addresses:
If to Seller, to:
NEC America, Inc.
Radio Communications Systems Division
1525 W. Walnut Hill Lane
Irving, Texas 75038-3797
Attn: Patrick Stewart
(972) 751-7202
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If to Buyer, to:
PathNet, Inc.
6715 Kenilworth Avenue
Suite 200
Riverdale, Maiyland 20737
Attn: David Schaeffer
(800) 209-7938
Article 16. Proprietary Information
16.1 Should proprietary information of either Buyer or Seller be required
by the other in the performance of this Agreement, the party
receiving such proprietary information ("Recipient" hereafter)
hereby agrees to receive and maintain same in confidence and to take
such precautions as may be reasonably necessary to protect same from
disclosure to others, or use by itself or others for any purpose
inconsistent with this Agreement without the prior written consent
of the other party. Precautions taken shall be deemed reasonable if
at least equivalent to Recipient's precautions with respect to its
own proprietary information. Proprietary information shall mean
technical or business information or data conveyed in written,
graphic or other permanent tangible form identified as being
proprietary or, in the case of oral conveyances, any such
information promptly reduced to some permanent tangible form. The
Recipient's obligations hereunder shall in any event cease entirely
five (5) years from the termination or expiration of this Agreement.
16.2 The foregoing confidentiality restrictions, however, shall not
extend to any part of the proprietary information which:
(a) was already known to Recipient at the time of disclosure under
this Agreement as can be established by written documentation;
(b) was known or was generally available to the public at the time
of disclosure hereunder;
(c) becomes known or generally available to the public (other than
by act of Recipient) subsequent to its disclosure hereunder;
(d) is disclosed or made available in writing to Recipient by a
third party having a bona fide right to do so;
(e) is independently developed by Recipient without the use of the
proprietary information as can be established by written
documentation; or
(f) is required by law to be released.
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Article 17. Governing Law
Except for laws relating to the Conflict of Laws, this Agreement,
its formation, construction and interpretation shall be governed by
the laws of the State of New York.
Article 18. Waivers
No failure of either party to exercise any power given to it
hereunder or to insist upon strict compliance by the other with any
obligation or provisions hereunder, and no custom or practice of the
parties at variance with the terms hereunder shall constitute a
waiver of the right to demand exact compliance with the terms
hereof. Waiver by a non-defaulting party of any right arising from a
default of the other party shall not effect or impair the rights of
the non-defaulting party with respect to any subsequent default by
the other party of the same or of a different nature.
Article 19. Design Changes
19.1 Seller may from time to time change or alter the design of the
Equipment, provided however, that no change or alteration shall be
made which deviates from the Specifications as detailed in Appendix
B unless consented to by Buyer, which consent shall not be
unreasonably withheld.
19.2 Notwithstanding Paragraph 19.1 above, Seller shall have the right,
with the prior written consent of Buyer, not to be unreasonably
withheld, to change or alter the design of or Specifications for the
Equipment in order to comply with the laws or regulations of any
United States government or agency.
19.3 Buyer may from time to time request in writing that Seller alter the
design of or Specifications for Equipment and Software. Seller shall
reply to Buyer's request within a mutually agreeable time.
Article 20. Availability of Equipment
20.1 Until ten years from the date of expiration of the initial term of
the Agreement, Seller shall make available for sale to Buyer, at
Seller's then current prices, the Equipment and Software to enable
Buyer to expand and repair its microwave radio network. Such
Equipment and Software shall provide equivalent functionality for
and shall be compatible with as to form and fit, and without the
requirement of significant modifications to, such microwave radio
network.
20.2 Seller may at any time cease production or purchase, as the case may
be, of any Equipment (or parts thereof) or Software so long as
Seller maintains a sufficient inventory of Equipment (or parts
thereof) and Software to meet its obligations pursuant to Section
20.1 above. In the event that such discontinuance of production or
purchase is in anticipation of migration to new generation Equipment
(or parts thereof) or Software which is not compatible with that
purchased by Buyer hereunder, Seller shall notify Buyer of its
intent to discontinue production or purchase, as the case may be,
specifying
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the approximate number of such items of Equipment (or parts thereof)
or Software Seller then has in inventory, sufficiently in advance of
the final production run or purchase to allow Buyer to purchase any
additional items of Equipment (or parts thereof) or Software or
other parts it may desire for inclusion in said final production run
or purchase.
20.3 Seller shall, upon Buyer's written request, deliver to Buyer such
drawings, specifications, special tooling and information as may be
necessary to manufacture or cause to be manufactured or procured any
items of Equipment (or parts thereof) or Software as to which Seller
has notified Buyer of cessation of manufacture or purchase pursuant
to Section 20.2 above, together with a worldwide, nonexelusive,
royalty-free license to make, use or have made for Buyer's intended
use, any such items of Equipment (or parts thereof or Software to
the extent Seller is able to grant such a license.
Article 21. Compliance with Applicable Law and Regulations
21.1 Seller represents that all items of Equipment provided under this
Agreement comply with applicable laws and regulations of the United
States, including, but not limited to, The Communications Act of
1934, as amended, and the Rules and Regulations of the Federal
Communications Commission ("FCC").
21.2 It shall be the responsibility of Buyer to obtain any and all
necessary licenses and permits including, but not limited to, FCC
licenses and approvals of waivers for the installation and operation
of the Equipment and Software at the site at which it is to be
installed or for any resale of the Equipment by Buyer. Buyer's
failure to obtain necessary licenses and/or permits shall not
relieve Buyer of its obligation for accepting equipment deliverable
hereunder, or paying for same.
21.3 Seller agrees to provide reasonable assistance to Buyer in obtaining
necessary FCC licenses and permits to operate the Equipment and
Software. Such assistance shall include providing the technical
information related to the Equipment and Software necessary to file
for such licenses or permits. Such assistance shall in no way imply
an obligation on the part of the Seller to file for such licenses or
permits on behalf of the Buyer.
Article 22. Trademark
22.1 Except as provided for in 22.2 below, all equipment furnished in
performance of this Agreement shall be marked in accordance with
Seller's then current standard marking policy.
22.2 Seller shall, upon mutual agreement of the parties, mark with Buyers
trademark certain pieces of the Equipment as agreed upon provided
Buyer agrees to:
a) Provide suitable samples;
16
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b) Indemnify Seller from any claims which are made against it as
a result of having followed Buyer's instructions in this
regard; and
c) Pay the reasonable cost of such markings.
Article 23. Assignments
23.1 Except as may be expressly authorized elsewhere herein, this
Agreement and the rights and duties granted hereunder may be sold,
assigned or transferred by Buyer or any Buyer Company in any manner
without the prior written consent of Seller; provided, that Seller
shall remain liable for all obligations hereunder. Either Party
shall have the right to subcontract work hereunder in the normal
course of business without obtaining the other's written consent,
but such subcontracting shall not relieve that Party of any
obligation or responsibilities under this Agreement.
23.2 Buyer shall have the right to lease or license the use of the
Equipment and Software, or any component thereof, to any other
entity on a time-sharing or other basis.
Article 24. Headings
The various headings in this Agreement are inserted for convenience
only and shall not affect the meaning or interpretation of this
Agreement or any Article or provision hereof. References in this
Agreement to any Article are to such Articles of this Agreements.
Article 25. Severability
If any provision of this Agreement or any portion or provision
hereof applicable to any particular situation or circumstance is
held invalid, the remainder of this Agreement or the remainder of
such provisions (as the case may be), and the application thereof to
other situations or circumstances shall not be affected thereby.
Article 26. Software License and Rights in Data
26.1 Except as limited by the terms of this Agreement, Seller grants
Buyer a perpetual, royalty-free, Right-to-Use ("RTU") license for
the Software delivered to Buyer under this Agreement for the sole
purpose of operating the Equipment as herein contemplated.
26.2 Buyer acknowledges that the Software is the property and
confidential proprietary information of Seller. Buyer may not sell,
assign, transfer, license, or otherwise make available the Software
to any third party, except as provided herein. In no event may
Buyer, other than as set forth in Sections 26.3 and 23.2 hereof,
sell, assign, transfer, license, or otherwise make available any of
the Software to any person not purchasing the Equipment. Except as
expressly permitted in this Article 26 and in Article 23 hereof,
Buyer agrees not to disclose or cause to be disclosed the Software
to any person other than employees of Buyer on a need-to-know basis
and who are duly authorized to use the Software unless such
disclosure is made subject to restrictions on further disclosure.
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26.3 Buyer may transfer or otherwise sublicense this RTU Software license
to any subsequent Buyers of individual items of Equipment from Buyer
without further approval of Seller provided the subsequent Buyers
are not direct competitors of Seller and further provided the
subsequent Buyers agree in writing delivered to Seller to assume
Buyer's obligations set forth in this Agreement relating to the
Software.
26.4 Software Updates shall be provided by Seller to Buyer on an RTU
license basis at no cost to Buyer. Software Enhancements shall be
provided by Seller to Buyer on an RTU license basis at Seller's then
current price therefore (subject to Section 3.2) and including any
discounts then in effect and which would otherwise be consistent
with the discounts received by Buyer pursuant to this Agreement.
26.5 Seller represents and warrants that the Software delivered to Buyer
with any Equipment is all of the Software reasonable necessary to
use, operate or maintain the Equipment.
26.6 The parties agree that Seller may enforce provisions of this Article
26 regarding restrictions on transfer and confidentiality of the
Software by an action for injunctive relief or other equitable
remedies.
26.7 Upon reasonable request of Buyer, Seller shall submit to Buyer the
most recent documentation in the case of any Software purchased by
Buyer. It is understood that such possession shall not constitute a
transfer of ownership or ownership rights in such documentation.
Upon a reasonable showing by Buyer that additional Software
documentation is required by Buyer for its full understanding of the
operation of the Equipment purchased hereunder, Seller shall provide
such additional documentation.
26.8 In addition to the rights and obligations described in this Article
26, Seller agrees that if the Software or any part thereof is lost
or damaged (other than due to the fault of Buyer) before being Final
Acceptance, Seller shall replace it at no additional cost to Buyer.
Any such Software lost or damaged after Final Acceptance or due to
the fault of Buyer, shall be replaced by Seller at a charge to Buyer
equal to Seller's actual cost for gathering such Software.
26.9 If Seller has not provided two (2) archival copies of the Software,
Buyer may make and maintain such archival copies of the Software for
so long as such Software is relevant to Buyer's operations.
Article 27. Product Support, Training and Other Support
Product Support and Training shall be performed as stated in the
Product Line Support Policy in Appendix A. In addition to this
Appendix, Seller shall provides Sales Engineering support to Buyer
on an "as needed" basis at no cost during the term of this
Agreement. Furthermore, training at Seller's Herndon, Virginia
facility for up to five (5) students for each microwave radio system
sold is available to Buyer at no cost. In the event that a system is
at a size where additional students may be required, Seller and
Buyer will mutually agree if additional free training is required
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Article 28. Arbitration
28.1 If there is a disagreement which, under the terms of this Agreement
shall be resolved in accordance with this Section 28.1, the parties
will attempt to negotiate a solution within fourteen (14) days of
notification of such disagreement. If no solution can be reached,
the parties shall select a third party engineer ("Third Party
Engineer") (whose fees and expenses will be shared equally by Buyer
and Seller) who shall, after conducting such examination or testing
as he/she deems necessary within fourteen (14) days, render a
decision in the matter. If the parties are unable to agree on the
selection of the Third Party Engineer, the Third Party Engineer will
be selected by the then President of the Institute of Electrical and
Electronic Engineers. The Third Party Engineer's decision shall be
final and binding and neither party shall appeal or otherwise
contest it. Once a Third Party Engineer is selected for resolving a
dispute hereunder, he/she shall be selected for the resolution of
any further disputes hereunder unless otherwise agreed to by both
parties or unless the Third Party Engineer refuses to continue to
serve in that function.
28.2 Any controversy or claim arising out of or relating to this
Agreement for the breach hereof which cannot be settled by the
parties, and except for disputes to be settled by the Third Party
Engineer pursuant to Section 28.1, shall be settled by arbitration
to be held in New York City in accordance with the commercial Rules
of the American Arbitration Association, by three (3) arbitrators
appointed in accordance with the said Rules.
28.3 The award of any arbitration shall be final, conclusive and binding
on the parties hereto.
28.4 The arbitrators may award any legal or equitable remedy. The
arbitration award may include an award of attorney's fees, in the
amount of such fees, to the prevailing party. Judgment upon any
arbitration award may be entered and enforced in any court of
competent jurisdiction.
28.5 Either party to an arbitration hereunder may bring an action for
injunctive relief against the other party if such action is
necessary to preserve jurisdiction of the arbitrators or to maintain
status quo pending the arbitrators' decision. Any such action called
pursuant to this Section 28.5 shall be discontinued upon assumption
of jurisdiction by the arbitrators and their opportunity to consider
the request for equitable relief pending final decision in the
arbitration.
Article 29. Entirety of Agreement
This Agreement consists only of this document upon which the Parties
have affixed their signatures and those documents specifically
incorporated herein by reference provided that if and to the extent
the terms and conditions of Appendix A or B attached hereto in any
way contradict the terms and conditions of this Agreement, the terms
and conditions of this Agreement shall supersede the terms and
conditions of Appendix A and B attached hereto. This Agreement as so
constituted is the entire Agreement between the parties with respect
to the subject matter hereof and supersedes all other previous
statements,
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communications or agreements, whether oral or written, including
press releases, advertising and sales literature. No modification,
alteration or waiver of any provision hereof shall be binding upon
the parties unless evidenced in writing and signed by both parties.
No oral quotation or statement shall be binding on Seller.
IN WITNESS WHEREOF, the Parties hereto, each by a duly authorized officer, have
caused this Agreement to be executed as of the date first written above.
NEC AMERICA, INC. PATHNET, INC.
By: Patrick Stewart By: David Schaeffer
--------------------------------- ---------------------------------
Title: Assistant General Manager Title: Chairman
------------------------------ ------------------------------
Radio Communications Sys. Div.
Date: August 8, 1997 Date: 8/12/97
------------------------------- -------------------------------
Sign: /s/ Patrick Stewart Sign: /s/ David Schaeffer
------------------------------- -------------------------------
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Amendment #1 to Master Agreement
Dated 8 August, 1997, between PathNet, Inc.
And NEC America, Inc.
Except as expressed herein, the terms and conditions of the Master Agreement
remain in full force and effect:
Article 6. Payment Terms
Add as paragraph 6.3: (a) For Equipment purchases made under the
PathNet, Inc., Credit Facility, payment terms for the initial base
system or initial installation system, in the event Buyer initially
builds beyond the initial base system, shall be: sixty percent (60%)
of invoice amount net thirty (30) days from Seller's tender of
delivery of the Equipment to the destination(s) specified by Buyer;
remaining balance due one hundred-eighty (180) days after original
invoice date. These terms shall be in effect until March 31, 1999,
and apply only to the purchase of the initial base system or the
initial installation system and are not applicable to channel
additions and/or overbuild systems.
b) For equipment purchases made under the PathNet, Inc., Credit
Facility, payment terms for overbuild systems shall be: one hundred
percent (100%) of invoice amount net thirty (30) days from seller's
tender of delivery of the Equipment to the destination(s) specified
by Buyer.
Article 8. Title, Delivery and Shipment
Add as paragraph 8.7: (a) Except as provided in Section 8.7(b), as a
condition precedent to shipment of Equipment financed under the
PathNet, Inc., Credit Facility, that being for the purpose of an
overbuild system, Seller shall be provided fully executed Capacity
Agreements, capacity exchange agreements, or purchase orders for
capacity with capacity users relevant to the system to which such
Equipment relates not less than seventy-five (75) calendar days
prior to the draw down of the associated loan. In the event Buyer
fails to provide such documentation, Seller has the right to hold
Equipment shipment until such time as this condition is satisfied.
(b) In the event PathNet requires an overbuild system as part of the
initial installation system, PathNet shall not be required to
demonstrate executed Capacity Agreements, purchase exchange
agreements, or purchase orders for capacity with capacity users
prior to the draw down of the associated loan.
[Signatures on the following page]
<PAGE>
NEC America, Inc.
By: /s/ Patrick Stewart
---------------------------------
Title: AGM
------------------------------
Date: 11/09/97
-------------------------------
PathNet, Inc.
By: /s/ David Schaeffer
---------------------------------
Title: Chairman
------------------------------
Date: 11/5/97
-------------------------------
<PAGE>
Amendment #2 to Master Agreement
Dated 8 August, 1997, between PathNet, Inc.
and NEC America, Inc.
Except as expressed herein, the terms and conditions of the Master Agreement
remain in full force and effect:
Article 26. Software License and Rights in Data
Add as paragraph 26.10:
(a) Seller hereby grants to Buyer the right to sublicense the RTU
Software and Software Enhancements required to upgrade and
maintain the Equipment, including the local craft terminal
software, pursuant to a sublicense agreement substantially in
the form attached hereto, to any third party provider, agent
or subcontractor of Buyer for the sole purpose of performing
services on, monitoring, maintaining or operating the
Equipment. Notwithstanding anything to the contrary contained
herein, Buyer shall pay a one-time royalty per Incumbent
System as set forth in Appendix A (for the purposes herein
"Incumbent System" shall be defined as the digital microwave
network under the control of an incumbent with which Buyer has
entered into an agreement) for the perpetual right to
sublicense the Software to such third party provider, agent or
subcontractor of Buyer for the sole purpose of performing
services on, monitoring, maintaining or operating the
Equipment on any such Incumbent System.
(b) Seller hereby represents and warrants that it has sufficient
rights (including, without limitation proprietary rights),
title and interest in the Software to grant to Buyer the right
to sublicense such Software and to enter into this Agreement.
Appendix A. PATHNET 6/11 GHZ SONET COMPATIBLE DIGITAL MICROWAVE RADIO
Add as new Section 3.2.2 (on page 18)
Item No. Description Basic Unit
Price
3.2.2 2000 SERIES LCT SOFTWARE (without computer) 1 $8,400
[Signatures on the following page]
<PAGE>
NEC America, Inc.
By: /s/ Patrick Stewart
---------------------------------
Title: AGM
------------------------------
Date: 3/28/98
-------------------------------
PathNet, Inc.
By: /s/ Richard A. Jalkut
---------------------------------
Title: CEO
------------------------------
Date: 4/2/98
-------------------------------
<PAGE>
Exhibit 10.12
[TCI LETTERHEAD]
December 15, 1997
William Cotta
Vice President, Network Operations
PathNet, Inc.
1015 31st Street, NW
Washington. DC 20007
LETTER AGREEMENT
Dear Mr. Cotta:
Pursuant to discussions to date, the following represents the
understanding of PathNet, Inc., a Delaware corporation ("Pathnet"), and TCI
Wireline, Inc., a Colorado corporation ("TCI Wireline"), regarding fault
surveillance monitoring services that TCI Wireline proposes to provide to
Pathnet. Pathnet and TCI Wireline have negotiated terms and conditions whereby
TCI Wireline will provide such services to Pathnet. By execution of this Letter
Agreement, the parties agree as follows:
1. Using Pathnet's web browser-based tool:
a. TCI Wireline will provide fault surveillance services on the portion of
Pathnet's Northern Border Pipeline Route originating at Ventura, Iowa and
terminating at Brookings, South Dakota, and including the following hops along
the Route at Crystal Lake, Iowa, East Chain, CS13, Jeffers, CS12, Marshall, Lake
Stay, and Lake Shaokatan, Minnesota, and CS11 South Dakota ("CS" in each
instance being "Compression Station").
b. TCI Wireline will report faults to Pathnet pursuant to outage
procedures and escalation guidelines provided by Pathnet.
c. TCI Wireline will begin providing services at the monthly rate of
$1410.00 for the 10 hops identified above, at 12:01 am, Central Time, on
December 22, 1997, and will continue until notified by Pathnet that Pathnet is
terminating the services.
2. Payment by Pathnet to TCI Wireline for the services will be made monthly, in
advance, and are due upon receipt of TCI Wireline's invoice therefor.
3. Pathnet agrees to indemnify and hold TCI Wireline and its affiliated
entities, their successors and assigns, including their respective officers,
directors, employees, agents, and representatives, from any and all losses,
claims, actions, damages, judgments, lawsuits, arbitration fees and expenses,
legal fees and costs, attorney's fees, and other liabilities incurred by TCI
Wireline relating in any way to claims against Pathnet relating to the fault
surveillance services provided under this Letter Agreement. This indemnification
shall survive the termination or expiration of this Letter Agreement.
4. Pathnet agrees that it will not assign this Letter Agreement, nor any of the
rights and obligations hereunder.
<PAGE>
William Cotta
Vice President, Network Operations
PathNet, Inc.
December 16, 1997
Page 2
5. The parties agree that, except as may be required by law, each party hereto
will keep in confidence all confidential and proprietary information of the
other party which may be learned in the course of the discussions held and the
services to be provided hereunder. The provisions of this paragraph will survive
this Letter Agreement.
6. The parties agree that this Letter Agreement constitutes a binding agreement
on the parties hereto and shall remain in full force and effect until a date
certain specified in a notice of intent to terminate delivered by either party
hereunder to the other, or until December 31,1998, whichever is earlier.
If this coincides with your understanding of the terms under which TCI
Wireline will provide fault surveillance services to Pathnet on the ten Pathnet
hops specified above, please indicate your approval and acceptance by executing
both copies where indicated below. Before commence of the services, one original
needs to be returned to my attention along with payment of the first month's
services, in the amount of $1410.00. The second original should be retained by
you for your files.
Very truly yours, TCI
WIRELINE, INC.
/s/ Edward V. Macatee
Edward ("Van") V. Macatee, III
Vice President, Managed Network Services
Evm/jm
THE TERMS AND CONDITIONS outlined herein
reflect the understanding of PathNet, Inc. as
relates to the fault surveillance services described.
DATED this 16th day of December, 1997.
PACNET, INC.
By: /s/ William Cotta
William Cotta
Vice President, Network Operations
cc: Robert J. Lemming
Jean Mueller
Marty Snella
<PAGE>
Exhibit 10.13
PATHNET, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the 4th day of
August, 1997 (hereinafter called the "Date of Grant"), between PathNet, Inc., a
Delaware corporation (hereinafter called the "Company"), and Richard A. Jalkut
(hereinafter called the "Participant"):
R E C I T A L S:
WHEREAS, the Company has adopted the PathNet, Inc. 1997 Stock Incentive
Plan (the "Plan"), which Plan is incorporated herein by reference and made a
part of this Agreement. Capitalized terms not otherwise defined herein shall
have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. GRANT OF THE OPTION. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of 296,122 Shares,
subject to adjustment as set forth in the Plan. The purchase price of the
Shares subject to the Option shall be $3.28 per Share (the "Exercise Price").
The Option is intended to be a non-qualified stock option, and is not intended
to be treated as an option that complies with Section 422 of the Internal
Revenue Code of 1986, as amended.
2. VESTING.
(a) Subject to the Participant's continued employment with the
Company and its Subsidiaries, the Option shall vest and become exercisable
with respect to one third (1/3) of the Shares initially covered by the
Option on each of the first, second, and third anniversaries of the Date of
Grant. At any given time, the portion of the Option which has become
vested and exercisable as described above (or pursuant to Sections 2(b) and
2(d) below) is hereinafter referred to as the "Vested Portion".
(b) If the Participant's employment with the Company and its
Subsidiaries is terminated (i) by the Company or its Subsidiary (as
applicable) without "Cause" (as defined in Section 3(a) below)including
Constructive Termination (as such term is defined in the Employment
Agreement by and between the Company and Participant, dated as of the date
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<PAGE>
hereof (the "Employment Agreement"), (ii) by the Company or its Subsidiary
(as applicable) due to the Participant's "Disability" (as defined in
Section 3(a) below), (iii) due to the Participant's death or (iv) due to
the expiration of the Term of Employment as set forth in the Employment
Agreement, then (x) the portion of the Option that would otherwise have
vested pursuant to Section 2(a) above in the calendar year in which such
termination of employment occurs shall vest and become exercisable, (y) the
Option, to the extent not then vested (after giving effect to clause (x)),
shall be canceled without consideration and (z) the Vested Portion of the
Option shall remain exercisable for the period set forth in Section 3(a).
(c) If the Participant's employment with the Company or its
Subsidiary (as applicable) is terminated for any reason not specified in
Section 2(b), the Option shall, to the extent not then vested, be canceled
without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a).
(d) Notwithstanding any other provision of this Agreement to the
contrary, in the event of a Change of Control or a Qualified Public
Offering the Option shall, to the extent not then vested and not previously
canceled, immediately become fully vested and exercisable as contemplated
by Section 13 of the Plan.
3. EXERCISE OF OPTION.
(a) PERIOD OF EXERCISE. Subject to the provisions of the Plan and
this Agreement, the Participant may exercise all or any part of the Vested
Portion of the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) two years following the date of the Participant's
termination of employment (w) by the Company or its Subsidiary
(as applicable) without Cause including Constructive Termination
(as such term is defined in the Employment Agreement) (PROVIDED,
HOWEVER, in the event Participant elects to exercise his
"cash-out" rights as set forth in Section 2(d)(iv) of the
Employment Agreement, the Vested Portion of the Option will be
"cashed-out" and will no longer be required to be exercised nor
will be exercisable) (x) by the Company or its Subsidiary (as
applicable) due to the Participant's Disability, (y) due to the
Participant's death or (z) upon expiration of the Term of
Employment (as such term is defined in the Employment Agreement);
(iii) three months following the date of the Participant's
termination of employment due to the Participant's resignation
(other than due to Disability or Constructive Termination);
(iv) the date of the Participant's termination of employment by
the Company or its Subsidiary (as applicable) for "Cause"; and
2
<PAGE>
(v) the date of any material breach of any confidentiality or
non-competition covenant or agreement entered into between the
Participant and the Company or its Subsidiary (as applicable)
whether during or following the Participant's employment with the
Company or its Subsidiary (as applicable).
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement or
other agreement then in effect between the Participant and the Company or its
Subsidiary (as applicable) or if not defined therein or, if there shall be no
such agreement, (i) the Participant's plea of guilty or NOLO CONTENDERE to, or
conviction of, the commission of a felony offense by the Participant, (ii) a
material breach by the Participant of the fiduciary duty owed to the Company or
its Subsidiary (as applicable), (iii) a material breach by the Participant of
any confidentiality or non-competition covenant or agreement entered into
between the Participant and the Company or its Subsidiary (as applicable) or
(iv) the Participant's failure to substantially perform his or her material
duties to the Company its Subsidiary (as applicable); PROVIDED, HOWEVER, that
any claim that "Cause" exists as a result of the actions described in clauses
(ii), (iii) or (iv) above may be asserted on behalf of the Company only by a
duly adopted resolution of the Board and only after thirty (30) days prior
written notice to the Participant during which period the Participant may cure
the breach or neglect that is the basis of any such claim, if curable (provided
that no such cure period shall be provided to the Participant if the acts or
omissions resulting in such termination for Cause have arisen in the past).
"Disability" shall mean "disability" as defined in any employment
agreement or other agreement then in effect between the Participant and the
Company or its Subsidiary (as applicable) or if not defined therein or if there
shall be no such agreement, as defined in the Company's long-term disability
plan as in effect from time to time, or if there shall be no plan or if not
defined therein, the Participant's becoming physically or mentally incapacitated
and consequent inability for a period of ninety (90) or more calendar days
during any fifty-two (52) week period during the Participant's term of
employment with the Company, to fully perform the Participant's duties to the
Company or its Subsidiary (as applicable); and
The term "employment" shall be deemed to refer to (i) a Participant's
employment if the Participant is an employee of the Company or its Subsidiaries
and (ii) to a Participant's service as a non-employee director or consultant if
the Participant is a non-employee director or consultant to the Company or its
Subsidiaries.
(b) METHOD OF EXERCISE.
(i) Subject to Section 3(a), the Vested Portion of the Option
may be exercised by delivering to the Company at its principal office
written notice of intent to so exercise; PROVIDED that, the Option may
be exercised with respect to whole Shares only. Such notice shall
specify the number of Shares for which the Option is being exercised
and shall be accompanied by payment in full of the Exercise Price.
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The payment of the Exercise Price may be made in cash, or its
equivalent, or (x) by exchanging Shares owned by the Participant
(which are not the subject of any pledge or other security interest
and which have been owned by the Participant for at least 6 months),
(y) if there shall be a public market for the Shares, subject to such
rules as may be established by the Committee, through delivery of
irrevocable instructions to a broker to sell the Shares otherwise
deliverable upon the exercise of the Option and to deliver promptly to
the Company an amount equal to the aggregate exercise price, or (z)
with the consent of the Committee in its sole discretion, by the
promissory note and agreement of the Participant providing for the
payment with interest of the unpaid balance accruing at a rate not
less than needed to avoid the imputation of income under Code section
7872 and upon such terms and conditions (including the security, if
any therefor) as the Committee may determine, or by a combination of
the foregoing, provided that the combined value of all cash and cash
equivalents and the Fair Market Value of any such Shares so tendered
to the Company as of the date of such tender is at least equal to such
aggregate Exercise Price.
(ii) Notwithstanding any other provision of the Plan or this
Agreement to the contrary, the Option may not be exercised prior to
the completion of any registration or qualification of the Option or
the Shares under applicable state and federal securities or other
laws, or under any ruling or regulation of any governmental body or
national securities exchange that the Committee shall in its sole
discretion determine to be necessary or advisable.
(iii) Upon the Company's determination that the Option has been
validly exercised as to any of the Shares, the Company shall issue
certificates in the Participant's name for such Shares. However, the
Company shall not be liable to the Participant for damages relating to
any delays in issuing the certificates to him, any loss of the
certificates, or any mistakes or errors in the issuance of the
certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Vested
Portion of the Option shall remain exercisable by the Participant's
executor or administrator, or the person or persons to whom the
Participant's rights under this Agreement shall pass by will or by the
laws of descent and distribution as the case may be, to the extent set
forth in Section 3(a). Any heir or legatee of the Participant shall
take rights herein granted subject to the terms and conditions hereof.
4. NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor this Agreement
shall be construed as giving the Participant the right to be retained in the
employ of, or in any consulting relationship to, the Company or any Affiliate.
Further, the Company or an Affiliate may at any time dismiss the Participant or
discontinue any consulting relationship, free from any liability or any claim
under the Plan or this Agreement, except as otherwise expressly provided herein.
4
<PAGE>
5. LEGEND ON CERTIFICATES. The certificates representing the Shares
purchased by exercise of the Option shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
6. TRANSFERABILITY. The Option may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Participant
otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
Notwithstanding the foregoing, the Participant may transfer the Option to a
Permitted Transferee as provided in Section 14 of the Plan. No such permitted
transfer of the Option to heirs or legatees of the Participant shall be
effective to bind the Company unless the Committee shall have been furnished
with written notice thereof and a copy of such evidence as the Committee may
deem necessary to establish the validity of the transfer and the acceptance by
the transferee or transferees of the terms and conditions hereof. During the
Participant's lifetime, the Option is exercisable only by the Participant.
7. WITHHOLDING.
(a) The Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is
hereby authorized to withhold from any payment due or transfer made under
the Option or under the Plan or from any compensation or other amount owing
to a Participant the amount (in cash, Shares, other securities, other
Awards or other property) of any applicable withholding taxes in respect of
the Option, its exercise, or any payment or transfer under the Option or
under the Plan and to take such other action as may be necessary in the
opinion of the Company to satisfy all obligations for the payment of such
taxes.
(b) Without limiting the generality of clause (i) above, the
Participant may satisfy, in whole or in part, the foregoing withholding
liability by delivery of Shares owned by the Participant (which are not
subject to any pledge or other security interest and which have been owned
by the Participant for at least 6 months) with a Fair Market Value equal to
such withholding liability or by having the Company withhold from the
number of Shares otherwise issuable pursuant to the exercise of the option
a number of Shares with a Fair Market Value equal to such withholding
liability.
8. SECURITIES LAWS. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
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<PAGE>
9. NOTICES. Any notice necessary under this Agreement shall be addressed
to the Company in care of its Secretary at the principal executive office of the
Company and to the Participant at the address appearing in the personnel records
of the Company for the Participant or to either party at such other address as
either party hereto may hereafter designate in writing to the other. Any such
notice shall be deemed effective upon receipt thereof by the addressee.
10. CHOICE OF LAW. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
11. OPTION SUBJECT TO PLAN.
(a) By entering into this Agreement the Participant agrees and
acknowledges that the Participant has received and read a copy of the Plan.
The Option is subject to the Plan. The terms and provisions of the Plan as
it may be amended from time to time are hereby incorporated herein by
reference. In the event of a conflict between any term or provision
contained herein and a term or provision of the Plan, the applicable terms
and provisions of the Plan will govern and prevail.
(b) Without limiting the generality of the foregoing, by entering
into this Agreement the Participant agrees and acknowledges that the Shares
which may be deliverable to the Participant hereunder upon the exercise of
the Option shall be subject to certain restrictions on transfer and other
limitations as set forth in Section 15 of the Plan.
12. SIGNATURE IN COUNTERPARTS. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PATHNET, INC.
By: /s/ Dave Schaeffer
-----------------------------
Name:
Title:
Agreed to and acknowledged
as of the date first above written.
/s/ Richard A. Jalkut
- --------------------------------
Richard A. Jalkut
6
<PAGE>
Exhibit 10.14
PATHNET, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT (the "Agreement"), is made effective as of the 31st day of
October, 1997 (hereinafter called the "Date of Grant"), between PathNet, Inc., a
Delaware corporation (hereinafter called the "Company"), and David Schaeffer
(hereinafter called the "Participant"):
RECITALS:
WHEREAS, the Company has adopted the PathNet, Inc. 1997 Stock Incentive
Plan (the "Plan"), which Plan is incorporated herein by reference and made a
part of this Agreement. Capitalized terms not otherwise defined herein shall
have the same meanings as in the Plan; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the option provided for
herein (the "Option") to the Participant pursuant to the Plan and the terms set
forth herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. Grant of the Option. The Company hereby grants to the Participant the
right and option (the "Option") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of 148,418 Shares,
subject to adjustment as set forth in the Plan. The purchase price of the Shares
subject to the Option shall be $10.64 per Share (the "Exercise Price"). The
Option is intended to be a non-qualified stock option, and is not intended to be
treated as an option that complies with Section 422 of the Internal Revenue Code
of 1986, as amended.
2. Vesting.
(a) Subject to the Participant's continued employment with the
Company and its Subsidiaries, the Option shall vest and become exercisable
with respect to one hundred percent (100%) of the Shares covered by the
Option on the seventh anniversary of the Date of Grant; provided, however,
(i) if the Company has met 80% of its revenue and EBITDA budget for the
fiscal year ending December 31, 1998 year, which budget is approved by the
Board of Directors of the Company, 50% of the Shares covered by the Option
shall vest and become exercisable on January 1, 1999, (ii) if the Company
has met 80% of its revenue and EBITDA budget for the fiscal year ending
December 31, 1999, which budget is approved by the Board of Directors of
the Company, the remaining 50% of the Shares covered by the Option shall
vest and become exercisable on January 1, 2000, and (iii) in the event
that the first 50% of the Shares covered by the Option did not vest on
January 1, 1999 as set forth in
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clause (i) above and the Company not only meets 80% of its revenue and
EBITDA budget for the year ending December 31, 1999 but exceeds 80% of its
revenue and EBITDA budget for the year ending December 31, 1999, which
budget is approved by the Board of Directors of the Company, in an amount
at least equal to the deficiency that occurred in the year ending December
31, 1998, 100% of the Shares covered by the Option shall vest and become
exercisable on January 1, 2000. At any given time, the portion of the
Option which has become vested and exercisable as described above (or
pursuant to Sections 2(b) and 2(d) below) is hereinafter referred to as
the "Vested Portion."
(b) If the Participant's employment with the Company and its
Subsidiaries is terminated (i) by the Company or its Subsidiary (as
applicable) without "Cause" (as defined in Section 3(a), (ii) by the
Company or its Subsidiary (as applicable) due to the Participant's
"Disability" (as defined in Section 3(a) below) or (iii) due to the
Participant's death, then (x) the portion of the Option that would
otherwise have vested pursuant to Section 2(a) above in the calendar year
in which such termination of employment occurs shall vest and become
exercisable, (y) the Option, to the extent not then vested (after giving
effect to clause (x)), shall be canceled without consideration and (z) the
Vested Portion of the Option shall remain exercisable for the period set
forth in Section 3(a).
(c) If the Participant's employment with the Company or its
Subsidiary (as applicable) is terminated for any reason not specified in
Section 2(b), the Option shall, to the extent not then vested, be canceled
without consideration and the Vested Portion of the Option shall remain
exercisable for the period set forth in Section 3(a).
(d) Notwithstanding any other provision of this Agreement to the
contrary, in the event of a Change of Control or a Qualified Public
Offering the Option shall, to the extent not then vested and not
previously canceled, immediately become fully vested and exercisable as
contemplated by Section 13 of the Plan.
3. Exercise of Option.
(a) Period of Exercise. Sub to the provisions of the Plan and this
Agreement, the Participant may exercise all or any part of the Vested
Portion of the Option at any time prior to the earliest to occur of:
(i) the tenth anniversary of the Date of Grant;
(ii) two years following the date of the Participant's
termination of employment (w) by the Company or its Subsidiary
(as applicable) without Cause (x) by the Company or its
Subsidiary (as applicable) due to the Participant's Disability
or (y) due to the Participant's death;
(iii) three months following the date of the Participant's
termination of employment due to the Participant's resignation
(other than due to Disability);
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<PAGE>
(iv) the date of the Participant's termination of employment
by the Company or its Subsidiary (as applicable) for "Cause";
and
(v) the date of any material breach of any confidentiality or
non-competition covenant or agreement entered into between the
Participant and the Company or its Subsidiary (as applicable)
whether during or following the Participant's employment with
the Company or its Subsidiary (as applicable).
For purposes of this Agreement:
"Cause" shall mean "cause" as defined in any employment agreement or
other agreement then in effect between the Participant and the Company or its
Subsidiary (as applicable) or if not defined therein or, if there shall be no
such agreement, (i) the Participant's plea of guilty or nolo contendere to, or
conviction of, the commission of a felony offense by the Participant, (ii) a
material breach by the Participant of the fiduciary duty owed to the Company or
its Subsidiary (as applicable), (iii) a material breach by the Participant of
any confidentiality or non-competition covenant or agreement entered into
between the Participant and the Company or its Subsidiary (as applicable) or
(iv) the Participant's failure to substantially perform his or her material
duties to the Company its Subsidiary (as applicable); provided, however, that
any claim that "Cause" exists as a result of the actions described in clauses
(ii), (iii) or (iv) above may be asserted on behalf of the Company only by a
duly adopted resolution of the Board voting without the Participant and only
after thirty (30) days prior written notice to the Participant during which
period the Participant may cure the breach or neglect that is the basis of any
such claim, if curable (provided that no such cure period shall be provided to
the Participant if the acts or omissions resulting in such termination for Cause
have arisen in the past).
Subject to applicable law, "Disability" shall mean "disability" as
defined in any employment agreement or other agreement then in effect between
the Participant and the Company or its Subsidiary (as applicable) or if not
defined therein or if there shall be no such agreement, as defined in the
Company's long-term disability plan as in effect from time to time, or if there
shall be no plan or if not defined therein, the Participant's becoming
physically or mentally incapacitated and consequent inability for a period of
ninety (90) or more calendar days during any fifty-two (52) week period during
the Participant's term of employment with the Company, to fully perform the
Participant's duties to the Company or its Subsidiary (as applicable); and
The term "employment" shall be deemed to refer to a Participant's
employment if the Participant is an employee of the Company or its Subsidiaries.
(b) Method of Exercise.
(i) Subject to Section 3(a), the Vested Portion of the Option
may be exercised by delivering to the Company at its principal
office written notice of intent to so exercise; provided that, the
Option may be exercised with respect to whole Shares only. Such
notice shall specify the number of Shares for which the Option is
being exercised and shall be accompanied by payment in full of the
Exercise Price.
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<PAGE>
The payment of the Exercise Price may be made in cash, or its
equivalent, or (x) by exchanging Shares owned by the Participant
(which are not the subject of any pledge or other security interest
and which have been owned by the Participant for at least 6 months),
(y) if there shall be a public market for the Shares, subject to
such rules as may be established by the Committee, through delivery
of irrevocable instructions to a broker to sell the Shares otherwise
deliverable upon the exercise of the Option and to deliver promptly
to the Company an amount equal to the aggregate exercise price, or
(z) with the consent of the Committee in its sole discretion, by the
promissory note and agreement of the Participant providing for the
payment with interest of the unpaid balance accruing at a rate not
less than needed to avoid the imputation of income under Code
section 7872 and upon such terms and conditions (including the
security, if any therefor) as the Committee may determine, or by a
combination of the foregoing, provided that the combined value of
all cash and cash equivalents and the Fair Market Value of any such
Shares so tendered to the Company as of the date of such tender is
at least equal to such aggregate Exercise Price.
(ii) Notwithstanding any other provision of the Plan or this
Agreement to the contrary, the Option may not be exercised prior to
the completion of any registration or qualification of the Option or
the Shares under applicable state and federal securities or other
laws, or under any ruling or regulation of any governmental body or
national securities exchange that the Committee shall in its sole
discretion determine to be necessary or advisable.
(iii) Upon the Company's determination that the Option has
been validly exercised as to any of the Shares, the Company shall
issue certificates in the Participant's name for such Shares.
However, the Company shall not be liable to the Participant for
damages relating to any delays in issuing the certificates to him,
any loss of the certificates, or any mistakes or errors in the
issuance of the certificates or in the certificates themselves.
(iv) In the event of the Participant's death, the Vested
Portion of the Option shall remain exercisable by the Participant's
executor or administrator, or the person or persons to whom the
Participant's rights under this Agreement shall pass by will or by
the laws of descent and distribution as the case may be, to the
extent set forth in Section 3(a). Any heir or legatee of the
Participant shall take rights herein granted subject to the terms
and conditions hereof.
4. No Right to Continued Employment. Neither the Plan nor this Agreement
shall be construed as giving the Participant the right to be retained in the
employ of, or in any consulting relationship to, the Company or any Affiliate.
Further, the Company or an Affiliate may at any time dismiss the Participant or
discontinue any consulting relationship, free from any liability or any claim
under the Plan or this Agreement, except as otherwise expressly provided herein.
4
<PAGE>
5. Legend on Certificates. The certificates representing the Shares
purchased by exercise of the Option shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
6. Transferability. The Option may not be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by the Participant
otherwise than by will or by the laws of descent and distribution, and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a beneficiary shall not constitute
an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
Notwithstanding the foregoing, the Participant may transfer the Option to a
Permitted Transferee as provided in Section 14 of the Plan. No such permitted
transfer of the Option to heirs or legatees of the Participant shall be
effective to bind the Company unless the Committee shall have been furnished
with written notice thereof and a copy of such evidence as the Committee may
deem necessary to establish the validity of the transfer and the acceptance by
the transferee or transferees of the terms and conditions hereof. During the
Participant's lifetime, the Option is exercisable only by the Participant.
7. Withholding.
(a) The Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is
hereby authorized to withhold from any payment due or transfer made under
the Option or under the Plan or from any compensation or other amount
owing to a Participant the amount (in cash, Shares, other securities,
other Awards or other property) of any applicable withholding taxes in
respect of the Option, its exercise, or any payment or transfer under the
Option or under the Plan and to take such other action as may be necessary
in the opinion of the Company to satisfy all obligations for the payment
of such taxes.
(b) Without limiting the generality of clause (i) above, the
Participant may satisfy, in whole or in part, the foregoing withholding
liability by delivery of Shares owned by the Participant (which are not
subject to any pledge or other security interest and which have been owned
by the Participant for at least 6 months) with a Fair Market Value equal
to such withholding liability or by having the Company withhold from the
number of Shares otherwise issuable pursuant to the exercise of the option
a number of Shares with a Fair Market Value equal to such withholding
liability.
8. Securities Laws. Upon the acquisition of any Shares pursuant to the
exercise of the Option, the Participant will make or enter into such written
representations, warranties and agreements as the Committee may reasonably
request in order to comply with applicable securities laws or with this
Agreement.
5
<PAGE>
9. Notices. Any notice necessary under this Agreement shall be addressed
to the Company in care of its Secretary at the principal executive office of the
Company and to the Participant at the address appearing in the personnel records
of the Company for the Participant or to either party at such other address as
either party hereto may hereafter designate in writing to the other. Any such
notice shall be deemed effective upon receipt thereof by the addressee.
10. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW.
11. Option Subject to Plan.
(a) By entering into this Agreement the Participant agrees and
acknowledges that the Participant has received and read a copy of the
Plan. The Option is subject to the Plan. The terms and provisions of the
Plan as it may be amended from time to time are hereby incorporated herein
by reference. In the event of a conflict between any term or provision
contained herein and a term or provision of the Plan, the applicable terms
and provisions of the Plan will govern and prevail.
(b) Without limiting the generality of the foregoing, by entering
into this Agreement the Participant agrees and acknowledges that the
Shares which may be deliverable to the Participant hereunder upon the
exercise of the Option shall be subject to certain restrictions on
transfer and other limitations as set forth in Section 15 of the Plan.
12. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
PATHNET, INC.
By: /s/ Richard Jalkut
-----------------------------
Name: Richard Jalkut
Title: President and Chief
Executive Officer
Agreed to and acknowledged
as of the date first above written
/s/ David Schaeffer
- ----------------------------------
David Schaeffer
7
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") made and entered into
effective as of August 4, 1997, by and between PathNet, Inc., a Delaware
corporation ("PathNet') and Richard A. Jalkut (the "Executive"). In
consideration of the mutual promises and agreements set forth herein, PathNet
and the Executive hereto agree as follows:
1. EMPLOYMENT. Subject to the provisions of SECTION 6, PathNet hereby
agrees to employ Executive as an employee of PathNet as the Chief Executive
Officer of PathNet commencing on August 4, 1997 and extending through August 4,
2000 and upon sixty (60) days prior written notice to Executive, and shall
thereafter renew automatically for one-year terms unless terminated by either
party by written notice to the other party to such effect within the sixty (60)
days prior to the end of any of such one year terms or before August 4, 2000
(collectively, the "Term of Employment").
2. COMPENSATION.
(a) BASE SALARY. PathNet shall pay the Executive during the Term of
Employment a base salary, of four hundred thousand dollars ($400,000) per
annum (the "Base Salary"), in bi-weekly installments. The Employer, in its
discretion, may increase (but may not decrease) the Executive's Base Salary
from time to time.
(b) BENEFITS AND INCENTIVE PLANS. During the Term of Employment, the
Executive shall be eligible to participate in (i) PathNet's employee
benefit plans, programs and practices on the same basis as other salaried
employees of PathNet and on the same basis as other senior executives of
PathNet and (ii) PathNet's incentive plans, programs and practices on the
same basis as other salaried employees of PathNet and on the same basis as
other senior executives of PathNet.
(c) VACATION. Executive shall be entitled to five (5) weeks of
vacation per year, which may be taken in accordance with PathNet's
generally applicable vacation policy.
(d) STOCK OPTIONS. Effective as of August 4, 1997, PathNet shall
grant Executive under the PathNet, Inc. 1997 Stock Incentive Plan (the
"1997 Plan"), nonqualified stock options on 296,122 shares of common stock,
par value $.01 per share of PathNet at an exercise price of $3.28 per
share. Such options shall have a ten-year term, shall vest over three
consecutive years with one-third of such shares vesting at the end of each
year. Such options shall be evidenced by an Option Agreement attached
hereto on EXHIBIT A that shall contain, among other terms and conditions
customary in option grants to senior executives of PathNet, the following
terms and conditions:
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(i) Upon expiration of the Term of Employment or the termination of
the Executive's employment with PathNet upon the death or disability of
Executive, the termination of Executive without cause by PathNet or the
Constructive Termination of Executive as described in SECTION 6(a), SECTION
6(b), SECTION 6(d) and SECTION 6(f), respectively, in the event that all or
any portion of the options granted pursuant to the Option Agreement are
still in force and unexpired, the portion of the unmatured options that
would have vested at the end of the year in which such termination occurs,
shall be accelerated and any remaining unvested portion of the options
shall be forfeited. Such acceleration shall be effective as of the date of
the termination of the employment of Executive with PathNet under the
circumstances described above. The vested portion of the options,
including any options which accelerate pursuant to this SECTION 2(d)(i),
may be exercised by Executive (or Executive's heirs and successors), during
the twenty-four (24) month period beginning on such date but shall
terminate at the end of such twenty-four (24) month period; and
(ii) Upon termination of the Executive's employment with PathNet
pursuant to SECTION 6(e), the options granted pursuant to the Option
Agreement shall terminate except to the extent that such options are
exercisable on the date of termination of Executive's employment with
PathNet and to the extent any options are exercisable on such date of
termination of the Executive's employment with PathNet, such options may be
exercised by Executive during the three (3) month period beginning on the
date of such termination of Executive's employment with PathNet but shall
terminate at the end of such period.
(iii) Upon termination of the Executive's employment with PathNet
pursuant to SECTION 6(c), the options granted whether or not vested shall
terminate and be forfeited.
(iv) Upon the election by Executive by written notice to such effect
delivered to PathNet within ten (10) business days after the date of the
termination of Executive's employment by PathNet, PathNet shall pay the
aggregate Fair Value of the option then vested or held by Executive as of
the date of the termination of Executive's employment with PathNet (the
"Cash Out Amount") to Executive over time (i) in the event any shares of
Series A Convertible Preferred Stock or the Series B Convertible Preferred
Stock of PathNet are still issued and outstanding or any time after a
Qualified Public Offering (as such term is defined in the 1997 Plan), in
installments which will become due and payable within thirty (30) days of
each date that a holder of preferred stock of PathNet (or of common stock
after conversion of such preferred stock) transfers, sells or disposes of
any such shares of preferred stock or common stock, as the case may be, to
an unaffiliated third party and each such installment shall be in an amount
equal to the proceeds received by such holder of preferred stock or
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common stock, respectively, pursuant to such transfer or sale, until
such time as PathNet has paid to Executive an aggregate amount equal
to the Cash Out Amount or (ii) in the event no shares of Series A
Convertible Preferred Stock or Series B Convertible Preferred Stock of
PathNet are issued and outstanding and a Qualified Public Offering has
not occurred, if PathNet has sufficient funds on hand, in a lump sum
payable as soon as practicable or in the event PathNet does not have
sufficient funds on hand, in equal monthly installments due and
payable on the last day of each month beginning on the last day of the
month in which the Executive's employment is terminated and ending
twelve (12) months thereafter. For purposes of this SECTION 2(d)(iv),
"Fair Value" shall mean the value of such option as determined by
PathNet and Executive, or if they are unable to agree, by an
independent appraiser to be mutually selected by PathNet and
Executive. If PathNet and Executive are unable to agree upon an
appraiser, each shall designate an appraiser and the two appraisers
shall select a third appraiser who shall be the appraiser. The
appraiser shall be a nationally recognized United States investment
banking firm which has not at any time within the two years preceding
its selection acted in any capacity on behalf of PathNet or Executive.
(e) EXPENSES. Executive shall be reimbursed by PathNet up to a total
of $50,000 per annum to cover the following expenses: (i) a company car,
(ii) an apartment in the Washington, D.C. - Baltimore Metropolitan Area,
(iii) three club memberships (as selected by Executive in his sole
discretion) and (iv) expenses incurred by Executive in commuting between
his Washington, D.C. and New York residences. In addition, PathNet shall
reimburse Executive for all reasonable out-of-pocket expenses incurred in
connection with the performance of his duties under this Agreement, in
accordance with the prevailing policies of PathNet, including legal
expenses incurred in the negotiation and documentation of this Agreement.
3. DUTIES AND RESPONSIBILITIES OF EXECUTIVE AS AN EMPLOYEE. During the
Term of Employment, the Executive, from the offices of PathNet in the
Washington, D.C. Metropolitan Area (except in the event of travel relating to
PathNet business) shall devote as much time and services as may be required in
order to perform his duties and responsibilities assigned to him by the Board of
Directors of PathNet and in consultation with the Chairman of PathNet, but in
any event substantially all of his business time, to the best of his abilities
and with reasonable diligence, which duties and responsibilities shall be
consistent with such matters normally assigned to the Chief Executive Officer of
a company and as set forth in the Amended and Restated Bylaws of PathNet.
PathNet and Executive contemplate that, while a substantial portion of PathNet's
business will be conducted in the Washington, D.C. - Baltimore Metropolitan
Area, Executive will maintain a permanent residence in the New York Metropolitan
Area and Executive shall pay for all costs of commuting between Washington, D.C.
and New York in performing services pursuant to this Agreement subject to such
reimbursement as may be provided pursuant to SECTION 2. PathNet acknowledges
that Executive has substantial involvement
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with benevolent, political, professional and civic affairs and as a director,
consultant or advisor to or partner or member. PathNet shall permit Executive
to continue his involvement with such entities and to engage in other such
activities with other entities in the future provided such involvement does not
materially interfere with Executive's performance of his duties and
responsibilities set forth in this SECTION 3 and does not violate the covenants
set forth in SECTION 4.
4. RESTRICTIVE COVENANTS.
(a) NON-COMPETE. Executive covenants and agrees with PathNet that,
during the Term of Employment and for a period of two years following any
termination event as set forth in SECTION 6(a), SECTION 6(b), SECTION 6(c)
or SECTION 6(e) below, he will not, directly or indirectly, in any manner
or capacity, as advisor, principal, agent, partner, officer, consultant,
director, stockholder, employee, member of any association or otherwise,
anywhere in the world engage in any business or activity which is, or may
be reasonably construed to be, competitive with the "PathNet Business".
For purposes of this Agreement, the "PathNet Business" shall mean the
business of installing, constructing aggregating and linking digital
capacity and marketing and selling the bulk telecommunications capacity and
services created by such systems. Nothing contained in this Agreement shall
be construed as denying Executive the right to own securities of any
corporation or entity which is listed on a national securities exchange or
quoted on an automatic quotation system to the extent of an aggregate of 5%
of the amount of such securities outstanding in any such corporation or
entity.
(b) CONFIDENTIALITY. The Executive shall hold in a fiduciary
capacity for the benefit of PathNet all secret or confidential information,
knowledge or data relating to the PathNet Business which shall have been
obtained by Executive during the hiring process with PathNet, during the
Term of Employment or during Executive's serving as member of the Board of
Directors of PathNet and which shall not be or become public knowledge
(other than by acts of the Executive or representatives of the Executive in
violation of this Agreement). After termination of the Executive's
employment under this Agreement, Executive shall not, without the prior
written consent of PathNet, or as otherwise may be required by law or legal
process, communicate or divulge any such confidential information,
knowledge or data to anyone other than PathNet and such persons designated
by PathNet.
(c) CUSTOMERS; EMPLOYEES. Executive agrees that he will not directly
or indirectly, during the Term of Employment and for a period of two years
thereafter, solicit any of PathNet's customers, including, but not limited
to, any private network operators or any purchasers of telecommunications
capacity, for purposes of obtaining their custom or trade in a business
that is competitive with the PathNet Business, or solicit or offer any
employment to any of PathNet's employees or officers for purposes of
obtaining their services for another
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business, whether or not such other business is competitive. For purposes
of this Agreement, "PathNet customers" shall mean customers of PathNet whom
Executive contacted, solicited or served while employed by PathNet.
(d) INVENTIONS. Executive hereby acknowledges and agrees that any
and all reports, designs, specifications, discoveries, modifications,
improvements, research, methods or other materials, know-how or
information, conceived, prepared or developed by Executive during the term
of Employment (collectively, "Inventions") shall be reported and fully
disclosed to PathNet and shall be and remain the sole and exclusive
property of PathNet. Executive further agrees to assist PathNet in all
reasonable ways deemed necessary by PathNet and at PathNet's expense to
protect such Inventions, including, but not limited to, executing all
documents for applications in the United States and foreign countries.
5. EFFECT OF TERMINATION.
(a) EFFECT OF TERMINATION UNDER SECTION 6(a) AND SECTION 6(b). If
Executive's employment by PathNet is terminated pursuant to SECTION 6(a) or
SECTION 6(b) of this Agreement, (i) all compensation pursuant to SECTION 2
(other than the compensation set forth in SECTION 2(d)) that has accrued in
favor of Executive as of the date of such termination, to the extent unpaid
or undelivered shall be paid or delivered to Executive on the date of
termination, or as soon as practicable thereafter, (ii) PathNet shall pay
to Executive severance in the amount equal to the Base Salary payable
bi-weekly during the year commencing on the termination date and
terminating on the first anniversary thereof and (iii) each of PathNet's
and Executive's rights and obligations under this Agreement shall terminate
PROVIDED, HOWEVER, Executive's obligations under SECTION 4 and PathNet's
obligations under this SECTION 5(a) and SECTION 2(d) of this Agreement
shall survive any such termination.
(b) EFFECT OF TERMINATION UNDER SECTION 6(d) OR SECTION 6(f). If
Executive's employment by PathNet is terminated pursuant to SECTION 6(d) or
SECTION 6(f) of this Agreement:
(i) all compensation pursuant to SECTION 2 (other than the
compensation set forth in SECTION 2(d)) that has accrued in favor of
Executive as of the date of such termination, to the extent unpaid or
undelivered shall be paid or delivered to Executive on the date of
termination;
(ii) PathNet shall pay to Executive severance in the amount
equal to the Base Salary payable bi-weekly during the year commencing
on the termination date and terminating on the first anniversary
thereof; and
(iii) each of PathNet's and Executive's rights and obligations
under this Agreement shall terminate; PROVIDED, HOWEVER, Executive's
obligations
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under SECTION 4 (other that Executive's obligations pursuant to
SECTION 4(a)) and PathNet's obligations under this SECTION 5(b) and
SECTION 2(d) of this Agreement shall survive any such termination.
(c) EFFECT OF TERMINATION UNDER SECTION 6(c) OR SECTION 6(e). If
Executive's employment by PathNet is terminated pursuant to SECTION 6(c) or
SECTION 6(e) of this Agreement, (i) all compensation pursuant to SECTION 2
(other than the compensation set forth in SECTION 2(d)) that has accrued in
favor of Executive as of the date of such termination, to the extent unpaid
or undelivered shall be paid or delivered to Executive on the date of
termination and (ii) each of PathNet's and Executive's rights and
obligations under this Agreement shall terminate PROVIDED, HOWEVER,
Executive's obligations under SECTION 4 and PathNet's obligations under
SECTION 2(d) hereof will survive any such termination.
(d) EFFECT OF TERMINATION FOLLOWING A CHANGE IN CONTROL. In the
event, following a Change in Control (as such term is defined in the 1997
Plan), Executive's Employment is terminated without Cause or there is a
Constructive Termination without Cause and the aggregate of all payments or
benefits made or provided to the Executive under this Agreement, the Option
Agreement and under all other plans and programs of PathNet (the "Aggregate
Payment") is determined to constitute a Parachute Payment, as such term is
defined in Section 280G(b)(2) of the Internal Revenue Code, PathNet shall
pay to Executive, prior to the time any excise tax imposed by Section 4999
of the Internal Revenue Code (an "Excise Tax") is payable with respect to
such Aggregate Payment, an additional amount which, after the imposition of
all income and excise taxes thereon, is equal to the Excise Tax on the
Aggregate Payment. The determination of whether the Aggregate Payment
constitutes a Parachute Payment and, if so, the amount to be paid to the
Executive and the time of the payment pursuant to this Section 5(d), shall
be made by an independent auditor (the "Auditor") jointly selected by
PathNet and Executive and paid by PathNet. The Auditor shall be a
nationally recognized United States public accounting firm which has not,
during the two years preceding the date of its selection, acted in any way
on behalf of PathNet or any affiliate thereof. If Executive and PathNet
cannot agree on the firm to serve as the Auditor, then Executive and
PathNet shall each select one accounting firm and those two firms shall
jointly select the accounting firm to serve as the Auditor.
(e) GENERAL. The remedies set forth in this SECTION 5 are the
exclusive remedies of the parties upon the termination of Executive's
employment with PathNet. Notwithstanding anything set forth herein to the
contrary, SECTION 7, SECTION 8, SECTION 9, SECTION 10 and SECTION 11 shall
survive any termination of the Executive's employment with PathNet.
6. TERMINATION.
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(a) TERMINATION UPON EXPIRATION OR DEATH. The employment of Executive
by PathNet shall terminate upon the occurrence of (i) the expiration of the
Term of Employment or (ii) the death of Executive. Unless otherwise agreed
in writing by PathNet and Executive, any continuation of the executive's
employment with PathNet after the expiration of the Term of Employment
shall be an employment at will and will not extend the terms of this
Agreement (other than the provisions of SECTION 4.)
(b) TERMINATION UPON DISABILITY. PathNet shall have the right, but
not the obligation to terminate this Agreement and Executive's employment
with PathNet upon the "disability" of the Executive. For purposes of this
Agreement "disability" shall mean such time at which Executive is unable to
perform his duties and responsibilities set forth in this Agreement due to
physical or mental "incapacity" for a period of (i) ninety (90) or more
calendar days during any fifty-two (52) week period during the Term of
Employment. For purposes of this Agreement, "incapacity" shall mean any
physical, mental or other inability rendering Executive incapable of fully
performing the services required to be performed under this Agreement.
(c) TERMINATION FOR "CAUSE". The employment of Executive by PathNet
shall terminate at any time for "cause", which for purposes of this
Agreement shall be deemed to have occurred only on the occurrence of any of
the following events: (i) the plea of guilty or NOLO CONTENDERE to, or
conviction for, the commission of a felony offense by Executive, (ii) a
material breach by Executive of the fiduciary duty owed to PathNet, (iii) a
material breach by Executive of the covenants set forth in SECTION 4 of
this Agreement or (iv) Executive's failure to substantially perform the
material duties contemplated by this Agreement; PROVIDED, HOWEVER, that any
claim that "cause" within the meaning of subsection (ii), (iii) or (iv)
above, exists for the termination of Executive's employment may be asserted
on behalf of PathNet only by a duly adopted resolution of the Board of
Directors of PathNet and only after thirty (30) days prior written notice
to Executive during which period he may cure the breach or neglect that is
the basis of any such claim, if curable (provided that no such cure period
shall be provided to Executive if Executive has previously taken the same
action or made the same omissions which resulted in written notice by
PathNet to Executive of termination for cause during the Term of
Employment.)
(d) TERMINATION WITHOUT CAUSE BY PATHNET. PathNet shall have the
right to terminate Executive's employment with PathNet without "cause" upon
sixty (60) business days' prior written notice to that effect.
(e) TERMINATION WITHOUT CAUSE BY EXECUTIVE. Executive shall have the
right to terminate Executive's employment with PathNet without "cause" upon
one hundred eighty (180) days' prior written notice to that effect.
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(f) CONSTRUCTIVE TERMINATION BY EXECUTIVE. Executive shall have the
right to terminate this Agreement and Executive's employment with PathNet
at his initiative following the occurrence, without Executive's prior
written consent, of one or more of the following events:
(i) a reduction in Executive's then current Base Salary or the
termination or material reduction of any employee benefit or
perquisite enjoyed by him (other than as part of an across-the-board
reduction applicable to all executive officers of PathNet.)
(ii) the failure to elect or reelect Executive to the position
of Chief Executive Officer or removal of him from such position;
(iii) a material diminution in Executive's duties or the
assignment to Executive of duties which are materially inconsistent
with his duties or which materially impair Executive's ability to
function as the Chief Executive Officer of PathNet;
(iv) except under the circumstances set forth in Section 2(d)
and the option Agreement attached hereto as EXHIBIT A, the failure to
continue Executive's participation in any incentive compensation plan
unless a plan providing a substantially similar opportunity is
substituted; and
(v) the relocation of PathNet's principal office, or Executive's
own office location as assigned to him by PathNet, to a location more
than fifty (50) miles from Washington, D.C.
7. SEVERABILITY. To the extent any provisions of this Agreement shall be
invalid or unenforceable, it shall be considered deleted herefrom and the
remainder of such provision of this Agreement shall remain in force. In
furtherance and not in limitation of the foregoing, should the duration or
geographical extent of, or the business activities covered by, any provision of
this Agreement be in excess of that which is enforceable under applicable law,
then such provision shall be construed to cover only that duration, extent or
activities which may validly and enforceably be covered.
8. INJUNCTIVE RELIEF. In view of the nature of the rights in goodwill,
business reputation and prospects of PathNet to be protected under this
Agreement, Executive understands, agrees and acknowledges that (i) PathNet will
not be reasonably or adequately compensated in damages in an action at law for
Executive's breach of his obligations hereunder and (ii) any breach by Executive
of the provisions of this Agreement will cause irreparable injury and damage to
PathNet. Accordingly, Executive specifically agrees that PathNet shall be
entitled to seek temporary and permanent injunctive relief to enforce the
provisions of this Agreement and that such relief may be granted without the
necessity of proving actual damages. This SECTION 8 shall not, however,
diminish the right of PathNet to seek a remedy at law and recover damages in
addition to, or in lieu of, injunctive relief in the event of any such breach.
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9. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES OF EXECUTIVE. Executive
represents and warrants to PathNet as of the date of this Agreement that
(i) Executive has the full legal right, capacity, power and authority to
execute and deliver this Agreement and to perform the transactions
contemplated hereby, (ii) the execution, delivery, performance of this
Agreement does not and will not during the Term of Employment constitute a
conflict with, breach or violation of, or default (or an event which with
notice or lapse of time or both would become a default) under any
agreement, instrument, license franchise or other arrangement to which
Executive is subject or by which Executive is bound and (iii) except as set
forth in SECTION 3, Executive has not entered into any arrangement or
agreement (other than this Agreement) relating to Executive's provision of
services, directly or indirectly, in any manner or capacity, as advisor,
principal, agent, partner, officer, consultant, director, stockholder,
employee, member of any association or otherwise (other than ownership of
securities of any corporation or entity which is listed on a national
securities exchange or quoted on an automatic quotation system to the
extent of an aggregate of 5% of the amount of such securities outstanding
in any such corporation or entity.)
(b) REPRESENTATIONS AND WARRANTIES OF PATHNET. PathNet represents
and warrants to Executive that as of the date of this Agreement (i) PathNet
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, (ii) PathNet has all of the
requisite corporate power and authority to perform its rights and
obligations set forth in this Agreement and (iii) the execution, delivery,
performance of this Agreement does not and will not during the Term of
Employment constitute a conflict with, breach or violation of, or default
(or an event which with notice or lapse of time or both would become a
default) under any agreement, instrument, license, franchise or other
arrangement to which PathNet is subject or by which PathNet is bound.
10. INDEMNIFICATION.
(a) INDEMNIFICATION BY EXECUTIVE. Executive agrees to indemnify and
hold harmless PathNet and its directors, officers, agents and employees, to
the full extent lawful, from and against any losses, claims, damages or
liabilities, and will reimburse PathNet and its directors, officers, agents
and employees for all costs and expenses (including reasonable attorneys'
fees) as they are incurred by PathNet or its directors, officers, agents or
employees in connection with investigating, preparing or defending any such
action or claim, whether or not in connection with pending or threatened
litigation in which PathNet or its directors, officers, agents or employees
are parties, relating to or arising out of a breach of the representation
and warranty of Executive set forth in SECTION 9(a)(iii) or a breach of the
covenants and agreements of Executive set forth in SECTION 4(a), SECTION
4(b) and SECTION 4(c).
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(b) INDEMNIFICATION BY PATHNET.
(i) PathNet agrees to indemnify and hold harmless Executive, to
the full extent lawful, from and against any losses, claims, damages
or liabilities, and will reimburse Executive for all costs and
expenses (including reasonable attorneys' fees) as they are incurred
by Executive in connection with investigating, preparing or defending
any such action or claim, whether or not in connection with pending or
threatened litigation in which Executive is a party, relating to or
arising out of a breach of a representation or warranty of PathNet
under this Agreement.
(ii) PathNet agrees that if Executive is made a party, or is
threatened to be made a party, to any action, suit or proceeding,
whether civil, criminal, administrative or investigative ( a
"Proceeding"), by reason of the fact that he is or was a director,
officer or employee of PathNet, PathNet shall defend Executive and
indemnify and hold him harmless with respect to any such Proceeding in
accordance with and to the fullest extent permitted under PathNet's
Restated Certificate of Incorporation and Bylaws.
(iii) PathNet agrees to maintain directors' and officers'
liability insurance for Executive to the extent PathNet provides such
coverage for its other executive officers.
11. ENTIRE AGREEMENT. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF PATHNET AND EXECUTIVE. THERE
ARE NO UNWRITTEN AGREEMENTS BETWEEN PATHNET AND EXECUTIVE. THIS AGREEMENT
SUPERCEDES ANY PRIOR EMPLOYMENT, SEVERANCE OR SIMILAR AGREEMENTS BETWEEN PATHNET
AND EXECUTIVE.
12. MISCELLANEOUS.
(a) ASSIGNMENT; BINDING EFFECT. This Agreement is personal to
Executive and shall not be assignable by the Executive otherwise than by
will or the laws of decent and the Executive's legal representatives and
permitted successors and assigns. The rights of PathNet under this
Agreement may be assigned or transferred by the Employer to any subsidiary
of PathNet, provided that the assignee or transferee assumes all of the
liabilities, obligations and duties of the assignor, as set forth in this
Agreement, either contractually or as a matter of law. This Agreement
shall inure to the benefit of and be binding on and enforceable by the
successors and assigns of PathNet.
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(b) NO ATTACHMENT. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, execution, attachment, levy or similar process or
assignment, voluntary or involuntary, by operation of law or otherwise, any
attempt, to effect such action shall be null, void and of no effect.
(c) NOTICES. All notices and other communications hereunder shall be
in writing and shall be given either by hand delivery to the other party or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Richard A. Jalkut
27 Captain Theale Road
Bedford, New York 10506
Tel: (914) 234-0090
If to PathNet:
PathNet, Inc.
1015 31st Street, N.W.
Washington, D.C. 20007
Tel: (202) 625-7284
Fax: (202) 625-7369
Attention: Michael A. Lubin,
Vice President and General Counsel.
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(d) AMENDMENT. This Agreement may not be modified or amended except
by an instrument in writing signed by Executive and PathNet.
(e) WAIVER. No term or condition of this Agreement shall be deemed
to have been waived, nor shall there by an estoppel against the enforcement
of any provision of this Agreement, except by written instrument of the
party charged with such waiver or estoppel. No such written waiver shall
be deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
or as to any act other than that specifically waived.
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(f) WITHHOLDING. PathNet may make such provisions as it deems
appropriate for the withholding of any taxes that it determines is requires
with the compensation to Executive set forth in SECTION 2 or which may
become payable pursuant to SECTION 5, including, without limitation,
requiring cash payment from the Executive or withholding compensation
otherwise deliverable to Executive, in either case to the extent necessary
to cover such withholding.
(g) GOVERNING LAW. This Agreement, its validity, interpretation,
performance and enforcement shall be governed by the laws of the State of
Maryland without regard to principles of conflicts of law.
(h) TERMS AND CONDITIONS. Except as may be required by law, PathNet
and Executive shall not disclose the terms and conditions of this Agreement
to any third party without the prior written consent of the other party,
which consent shall not be unreasonable withheld.
(i) TITLES; REFERENCES. The titles of the sections and subsections
of this Agreement are for the convenience of reference only and are not to
be considered in construing this Agreement. References herein to sections
or subsections are to sections and subsections of this Agreement unless
otherwise specified.
(j) RESOLUTION OF DISPUTES. Any disputes arising under or in
connection with this Agreement shall, at the election of Executive or
PathNet, be resolved by binding arbitration, to be held in Washington, D.C.
in accordance with the rules and procedures of the American Arbitration
Association. Judgement upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Costs of the arbitration
or litigation, including, without limitation, reasonable attorneys' fees of
both parties, shall be borne by the party as determined by such
arbitrator(s). Pending resolution of any arbitration or court proceeding,
PathNet shall continue payments or all amounts due Executive under this
Agreement and all benefits to which Executive may be entitled as set forth
herein.
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IN WITNESS WHEREOF, the Executive and PathNet have executed this Agreement as of
the date first above written.
PATHNET, INC.
By: /s/ Dave Schaeffer
--------------------------
Name:
Title:
Date:
/s/ Richard A. Jalkut
-------------------------------
Richard A. Jalkut
Date:
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AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment") is dated April 6,
1998 and is made and entered into by and between Richard A, Jalkut ("Executive")
and PATHNET, INC., a Delaware corporation (the "Company").
WHEREAS, the Company and Executive entered into an Employment Agreement,
dated August 4, 1997 (the "Employment Agreement");
WHEREAS, each of Executive and the Company desire to amend certain terms of
the Employment Agreement as more particularly set forth herein;
NOW THEREFORE, for the mutual consideration hereinafter set forth, the
parties hereto agree as follows:
1. Executive and the Company hereby agree that, effective as of the date
hereof, Section 2(d)(iv) of the Employment Agreement is hereby amended to read
in its entirety as follows:
"(iv) Upon the election by Executive by written notice to such effect
delivered to Pathnet within ten (10) business days after the date of
the termination of Executive's employment by Pathnet, Pathnet shall
pay the aggregate Fair Value of the option then vested or held by
Executive as of the date of the termination of Executive's employment
with Pathnet (the "Cash Out Amount") to Executive over time (i) in the
event any shares of Series A Convertible Preferred Stock or the Series
B Convertible Preferred Stock of Pathnet are still issued and
outstanding or any time after a Qualified Public Offering (as such
term is defined in the 1997 Plan), in installments which will become
due and payable within thirty (30) days of each date that a holder of
preferred stock of Pathnet (or of common stock after conversion of
such preferred stock) transfers, sells or disposes of any such shares
of preferred stock or common stock, as the case may be, to an
unaffiliated third party and each such installment shall be in an
amount equal to the proceeds received by such holder of preferred
stock or common stock, respectively, pursuant to such transfer or
sale, until such time as Pathnet has paid to Executive an aggregate
amount equal to the Cash Out Amount; PROVIDED, that any payment that
would violate the terms of the Indenture relating to Pathnet's Senior
Notes due 2008 (the "Indenture") shall be made only to the extent and
in an amount that would not violate the Indenture and the payment of
the remaining amount shall be deferred until such time as such payment
will not violate the terms of the Indenture or (ii) in the event no
shares of Series A Convertible Preferred Stock or Series B Convertible
Preferred Stock of Pathnet are issued and outstanding and a Qualified
Public Offering has not occurred, if Pathnet has sufficient funds on
hand, in a lump sum payable as soon as practicable or in the event
Pathnet does not have sufficient funds on hand
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or if such lump sum would violate the terms of the Indenture, to the
extent permitted under the Indenture in equal monthly installments due
and payable on the last day of each month beginning on the last day of
the month in which the Executive's employment is terminated and ending
twelve (12) months thereafter or on such later date as may be required
for such payments to comply with the terms of the Indenture. For
purposes of this SECTION 2(d)(iv), "Fair Value" shall mean the value
of such option as determined by Pathnet and Executive, or if they are
unable to agree, by an independent appraiser to be mutually selected
by Pathnet and Executive. If Pathnet and Executive are unable to
agree upon an appraiser, each shall designate an appraiser and the two
appraisers shall select a third appraiser who shall be the appraiser.
The appraiser shall be a nationally recognized United States
investment banking firm which has not at any time within the two years
preceding its selection acted in any capacity on behalf of Pathnet or
Executive.
2. The undersigned parties hereby acknowledge that the Employment
Agreement, as amended hereby, remains in full force and effect and is hereby
ratified and confirmed.
IN WITNESS WHEREOF, the undersigned parties have duly executed and
delivered this Amendment as of the date first above written.
/s/ Richard A. Jalkut
--------------------------------
Name: Richard A. Jalkut
PATHNET, INC.
By: /s/ Michael A. Lubin
-----------------------------
Name: Michael A. Lubin
Title: Vice President and General Counsel
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EXHIBIT 10.16
NON-DISCLOSURE, ASSIGNMENT OF
INVENTIONS AND NON-COMPETITION AGREEMENT
Employee Name: Kevin Bennis
Date: February 2, 1998
WHEREAS, certain investors have agreed to provide financing (the
"Financing") to Pathnet, Inc. (the "Company") subject to the terms of that
certain Investment and Stockholders' Agreement, dated October 31, 1997 (the
"Investment and Stockholders' Agreement"), by and among the Company, David
Schaeffer and the investors identified therein (the "Investors");
WHEREAS, such Financing will significantly benefit the Company and
indirectly benefit the above-named Employee, as a stockholder of the Company;
and
WHEREAS, this Non-Disclosure, Assignment of Inventions and Non-Competition
Agreement (this "Agreement") is a condition to the Investment and Stockholders'
Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
1. NON-DISCLOSURE OBLIGATION. I understand and agree that my employment
creates a relationship of confidence and trust between me and the Company with
respect to (a) all proprietary and confidential information of the Company, and
(b) the confidential information of others with which the Company has a business
relationship. The information referred to in clauses (a) and (b) of the
preceding sentence is referred to in this Agreement, collectively, as
"Confidential Information." I will not at any time, whether during or after the
termination of employment, for any reason whatsoever (other than to promote and
advance the business of the Company), reveal to any person or entity (both
commercial and non-commercial) or use for any purpose other than the furtherance
of the Company's business interests any of the trade secrets or Confidential
Information, including, but not limited to, the Company's research and
development activities, marketing plans and strategies, pricing and costing
policies, customer and supplier lists, and business or financial information of
the Company so far as they have come or may come to my knowledge, except as may
be required in the ordinary course of performing my duties as an employee of the
Company. This restriction shall not apply to: (i) information that may be
disclosed generally or is in the public domain through no fault of mine; (ii)
information received from a third party outside the Company that was disclosed
without a breach of any confidentiality obligation; or (iii) information that
may be required by law or an order of any court, agency or proceeding to be
disclosed, provided that such disclosure is subject to all applicable
governmental or judicial protection available for like material, and I agree to
provide the Company with prior notice of any such disclosure. I shall keep
secret all matters of such nature entrusted to me and shall not use or disclose
any such information in any manner.
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2. ASSIGNMENT OF INVENTIONS. I expressly understand and agree that any
and all right or interest I have or obtain in any designs, trade secrets,
technical specifications, technical data, know-how and show-how, internal
reports and memoranda, marketing plans, inventions, concepts, ideas,
expressions, discoveries, improvements, copyrights, and patent or patent rights
conceived, devised, developed, reduced to practice, or which I otherwise have or
obtain during the term of this Agreement which relates to the business of the
Company or arise out of my employment with the Company are expressly regarded as
"works for hire" (the "Inventions").
I hereby assign to the Company the sole and exclusive right to such
Inventions. I agree that I will promptly disclose to the Company any and all
such Inventions, and that, upon request of the Company, I will execute and
deliver any and all documents or instruments and take any other action which the
Company shall deem necessary to assign to and vest completely in the Company, to
perfect trademark, copyright and patent protection with respect to, or to
otherwise protect the Company's trade secrets and proprietary interest in such
Inventions. The obligations of this Section shall continue beyond the
termination of my employment with respect to such Inventions conceived of or
made by me during the term of this Agreement. The Company agrees to pay any and
all copyright, trademark and patent fees and expenses or other costs incurred by
me for any assistance rendered to the Company pursuant to this Section.
My obligation to assign Inventions shall not apply to any invention about
which I can prove that: (i) it was developed entirely on my own time and effort;
(ii) no equipment, supplies, facilities, trade secrets or confidential
information of the Company was used in its development; (iii) it does not relate
to the business of the Company or to the Company's actual or anticipated
research and development, and (iv) it does not result from any work performed by
me for the Company.
3. DOCUMENTS, RECORDS, ETC. All documents, records, apparatus, equipment
and other physical property, whether or not pertaining to Confidential
Information, which are furnished to me by the Company or are produced by me in
connection with my employment will be and remain the sole property of the
Company. I will return to the Company all such materials and property as and
when requested by the Company. In any event, I will return all such materials
and property immediately upon termination of my employment for any reason. I
will not take with me any such material or property or any copies thereof upon
such termination.
4. NON-COMPETITION COVENANT. While I am employed by the Company and for
a period of two (2) years after the termination or cessation of such employment
for any reason, I shall not, without the Company's prior written consent,
directly or indirectly, alone or as a partner, joint venturer, officer,
director, employee, consultant, agent, independent contractor or stockholder of
any company or business, engage in any business activity which is or may
reasonably be construed to be competitive with the "PathNet Business." For
purposes of this Agreement, the "PathNet Business" shall mean the business of
installing, constructing, aggregating and linking digital capacity and marketing
and selling the bulk
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telecommunications capacity and services created by such systems. My ownership
of not more than one(1%) percent of the shares of any class of stock of any
corporation which is actively traded on a national securities exchange or on
NASDAQ shall not be deemed, in and of itself, to violate the prohibitions of
this paragraph. I understand that the restrictions set forth in this Section
are intended to protect the Company's valid business interests and agree that
such restrictions are reasonable and appropriate for this purpose.
5. NON-SOLICITATION. During my employment with the Company and for a
period two (2) years thereafter, I will not encourage any employee of the
Company to terminate their employment with the Company, nor solicit nor hire any
employee of the Company for employment by any corporation or any other
commercial enterprise other than the Company, unless first approached in writing
by the Company employee. I understand that the restrictions set forth in this
Section are intended to protect the Company's valid business interests and agree
that such restrictions are reasonable and appropriate for this purpose.
6. RESTRICTIONS ON CORPORATE OPPORTUNITIES. During my employment with
the Company and for a period of two (2) years thereafter, I will not pursue,
engage in or have an interest in other business ventures or opportunities which
are or may reasonably be construed to be competitive with the "PathNet
Business." In addition, I will be obligated to present any telecommunications
business or investment opportunity arising out of the Company's operations to
the Company, and the Company shall have the exclusive right to pursue such
business or investment opportunity.
7. ABSENCE OF CONFLICTING AGREEMENTS. I understand the Company does not
desire to acquire from me any trade secrets, know-how or confidential business
information that I may have acquired from others. I represent that I am not
bound by any agreement or any other existing or previous business relationship
which conflicts with or prevents the full performance of my duties and
obligations to the Company under this Agreement or otherwise during the course
of my employment.
8. NO EMPLOYMENT OBLIGATION. Other than the provisions of Section 9
hereof, I understand that this Agreement does not create an obligation on the
part of the Company to continue my employment with the Company. I am employed
as an employee "at will".
9. SEVERANCE. If I am terminated for any reason, in consideration for
the Non-competition covenant and the other covenants and agreements set forth in
the Agreement, I will receive a salary of $275,000 per annum for one year after
such termination payable in bi-weekly installments in accordance with the
Company's payroll procedures.
10. REMEDIES UPON BREACH. I agree that it would be difficult to measure
any damages caused to the Company which might result from any breach by me of
the promises set forth in this Agreement, and that, in any event, money damages
would be an inadequate remedy for any such breach. Accordingly, I agree that if
I breach or propose to breach any portion of this Agreement, the Company shall
be entitled, in addition to all other remedies
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that it may have, to an injunction or other appropriate equitable relief to
restrain any such breach without showing or proving any actual damage to the
Company.
11. BINDING EFFECT. This Agreement will be binding upon me and my heirs,
executors, administrators and legal representatives and will inure to the
benefit of the Company, any subsidiary of the Company, and its and their
respective successors and assigns. My obligations under this Agreement shall
survive the termination of my relationship with the Company regardless of the
manner of such termination.
12. ENFORCEABILITY. If any portion or provision of this Agreement is to
any extent declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable will not be affected thereby, and each portion
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law. In the event that any provision of this Agreement is
determined by any court of competent jurisdiction to be unenforceable by reason
of excessive scope as to geographic, temporal or functional coverage, such
provision will be deemed to extend only over the maximum geographic, temporal
and functional scope as to which it may be enforceable.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Company and myself with respect to the subject matter hereof, and
supersedes all prior representations and agreements with respect to such subject
matter. This Agreement may not be amended, modified or waived except by a
written instrument duly executed by the person against whom enforcement of such
amendment, modification or waiver is sought. The failure of any party to
require the performance of any term or obligation of this Agreement or the
waiver by any party of any breach of this Agreement in any particular case will
not prevent any subsequent enforcement of such term or obligation or to be
deemed a waiver of any separate or subsequent breach.
14. THIRD-PARTY BENEFICIARIES. This Agreement is being entered into at
the request of the Investors and such Investors are intended to be third-party
beneficiaries hereunder with full power to enforce the terms hereof.
15. NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement will be sufficient if in writing and delivered in
person, or sent by registered or certified mail, postage prepaid, to me at the
last address which I have filed in writing with the Company or, in the case of
any notice to the Company, at its main offices to the attention of its Chief
Executive Officer.
16. GOVERNING LAW. This Agreement shall be construed under and be
governed in all respects by the laws of the District of Columbia.
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I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. I HAVE READ IT
CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.
/s/ Kevin Bennis
---------------------------
Kevin Bennis
Accepted and Agreed to by
PATHNET, INC.
By: /s/ Richard A. Jalkut
------------------------
Name:
Title:
5-
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Exhibit 10.17
THE PATHNET, INC.
1995 STOCK OPTION PLAN
The purpose of this Plan is to encourage and enable employees of PathNet,
Inc. (the "Company") and of any subsidiary corporation of which 50% or more of
the outstanding voting stock is owned by the Company (the "Subsidiary") to
acquire an interest in the Company through the granting of stock options, as
herein provided (the "Options"). By encouraging such individuals to acquire or
increase their ownership of its stock, the Company seeks to attract and retain
the services of persons of exceptional competence and to furnish an added
incentive for them to increase their efforts on behalf of the Company. The
Options that may be granted hereunder include both incentive stock options
("Incentive Stock Options") as provided under the Internal Revenue Code of 1986,
as amended (the "Code"), and Options that are not qualified under the Code
("Non-Qualified Options").
1. Shares of Stock Subject to the Plan
The stock that may be issued and sold pursuant to Options granted under
the Plan shall not exceed, in the aggregate, four hundred thirty-nine thousand
and twenty-four (439,024) shares of the common stock, $.01 par value, of the
Company (the "Common Stock"), which may be (i) either authorized but unissued
shares or treasury shares or (ii) shares previously reserved for issue upon
exercise of Options under the Plan, which Options have expired or been
terminated; provided, however, that the number of shares subject to the Plan
shall be subject to adjustment as provided in Section 8.
2. Eligibility
Incentive Stock Options may be granted to persons who are employees of the
Company or a Subsidiary and eligible to receive an Incentive Stock Option under
the Code. In addition, Non-Qualified Options may be granted under the Plan to
non-employee directors of the Company, to consultants to the Company and to such
other persons as the Board may select from time to time.
3. Administration
The Board of Directors of the Company (the "Board") acting through its
Compensation Committee, including a member designated by the holders of the
Series A Convertible Preferred Stock, shall determine the employees and other
persons to be granted Options ("Optionees") and, in each case, the number of
Options, the number of shares subject to each Option, the vesting schedule for
each Option and the form of each Option. The Board shall also determine,
interpret and construe any provision of the Plan and any Option and shall effect
the grant of Options under the Plan. The Board may appoint from its members a
committee of two or more persons who may exercise the powers of the Board in
granting Options and taking any other action under the Plan. Any of the
foregoing actions taken by the
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Board or the committee appointed by the Board shall be final and conclusive and
shall be binding on each Optionee.
4. Price
The purchase price of shares that may be purchased under each Incentive
Stock Option shall be at least equal to the fair market value (determined as of
the date of grant of the Option) per share or, in the case of a stockholder
owning (or deemed to own under Section 424(d) of the Code) more than ten percent
of the total combined voting power of all classes of stock of the Company, as
determined under the Code (a "greater-than ten percent stockholder"), 110% of
such fair market value.
5. Nature of Option and Certain Limitations on Amount of Grant
The aggregate fair market value (determined as of the date of grant of the
Option) of the shares of Common Stock as to which any Incentive Stock Option
granted under the Plan shall first become exercisable (i.e., shall "vest") in
any calendar year shall not exceed $100,000. To the extent that the shares of
Common Stock as to which any Option granted under the Plan shall vest in any
calendar year shall have a fair market value (determined as of the date of the
grant of the Option) in excess of $100,000, or to the extent that the Board
shall so specify upon the grant of any Option under the Plan, such Option shall
be a Non-Qualified Option with respect to such excess or specified shares of
Common Stock.
6. Period of Option and Certain Limitations on Right to Exercise
Each Option shall be exercisable at such time or times as the Board shall
from time to time determine but, with respect to an Incentive Stock Option, in
no event after the expiration of ten years (five years in the case of a
greater-than ten percent stockholder) from the date such Option is granted. The
delivery of certificates representing shares under any Option will be contingent
upon receipt by the Company from the Optionee (or a purchaser acting in his
stead in accordance with the provisions of the Option) of the full purchase
price for such shares and the fulfillment of any other requirements contained in
the Option or applicable provisions of law. No Optionee or person entitled to
exercise the Option shall be, or shall be deemed to be, a holder of any shares
subject to the Option for any purpose unless and until certificates for such
shares are issued to such Optionee under the terms of the Plan.
7. Non-transferability of Option
Options granted under the Plan shall not be transferable by the Optionee,
other than by will or the laws of descent and distribution, and are exercisable
during the Optionee's lifetime only by the Optionee.
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8. Dilution or Other Adjustments
If the Company effects a subdivision or consolidation of shares or other
capital readjustment, the payment of a stock dividend, or other increase or
reduction of the number of shares of the Common Stock outstanding, without
receiving compensation therefor in money, services or property, then (i) the
number, class, and per share price of shares of stock subject to outstanding
Options hereunder shall be appropriately adjusted in such a manner as to entitle
an Optionee to receive upon exercise of an Option, for the same aggregate cash
consideration, the same total number and class of shares the optionee would have
received as a result of the event requiring the adjustment had the Optionee
exercised the Option in full immediately prior to such event; and (ii) the
number and class of shares then reserved for issuance under the Plan shall be
adjusted by substituting for the total number of shares of Common Stock then
reserved that number and class of shares of stock that would have been received
by the owner of an equal number of outstanding shares of Common Stock as the
result of the event requiring the adjustment.
9. Tax Withholding
Each Optionee shall, no later than the date as of which the value of an
Option or of any Common Stock or other amount received thereunder first becomes
includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the Board
regarding payment of, any Federal, State, or local taxes of any kind required by
law to be withheld with respect to such income. The Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the Optionee. An Optionee may elect to have such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from shares of Common Stock to be issued pursuant to any
Option a number of shares with an aggregate fair market value that would satisfy
the withholding amount due, or (ii) transferring to the Company shares of Common
Stock owned by the Optionee with an aggregate fair market value that would
satisfy the withholding amount due.
10. Written Agreement
Each Option granted hereunder shall be embodied in a written Option
agreement, which shall be subject to the terms and conditions prescribed above
and shall be signed by the President or any Vice President of the Company for
and in the name of and on behalf of the Company. Such an Option agreement may
contain such other provisions as the Board in its discretion shall deem
advisable.
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11. Amendment of the Plan
The Board of Directors may discontinue the Plan or amend the Plan at any
time, and from time to time, subject to any required regulatory approval and the
limitation that, except as provided in Section 8 hereof, no amendment shall be
effective unless approved by the stockholders of the Company in accordance with
applicable law and regulations at an annual or special meeting held within
twelve months before or after the date of adoption of such amendment, where such
amendment will:
(a) increase the number of shares of Common Stock as to which options may
be granted under the Plan;
(b) change in substance Section 2 hereof relating to eligibility to
participate in the Plan; or
(c) otherwise materially increase the benefits accruing to participants
under the Plan.
Except as provided in Section 8 hereof, rights and obligations under any
option granted before any amendment of the Plan shall not be altered or impaired
by such amendment, except with the consent of the Optionee. Such action shall be
binding on all Options theretofore granted hereunder, except as otherwise
provided in the written agreement with respect to a particular Option.
12. Expiration and Termination of the Plan
Options may be granted under the Plan at any time, or from time to time,
prior to August 28, 2005. The Plan may be abandoned or terminated at any time by
the Board, except with respect to any Options then outstanding under the Plan.
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Exhibit 10.18
PATHNET, INC.
1997 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE. The purposes of this PathNet, Inc. 1997 Stock
Incentive Plan are to promote the interests of PathNet, Inc. and its
stockholders by (i) attracting and retaining exceptional officers and other
employees, consultants and directors of the Company and its Subsidiaries, as
defined below; (ii) motivating such individuals by means of performance-related
incentives to achieve performance goals; and (iii) enabling such individuals to
participate in the long-term growth and financial success of the Company.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall
have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or indirectly, is
controlled by, or controls or is under common control with, the Company and
(ii) any entity in which the Company has a significant equity interest, in
either case as determined by the Committee.
"Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock Award, Restricted Stock Unit Award, Performance Award, Other
Stock-Based Award or Performance Compensation Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition, in one or a
series of related transactions, of all or substantially all of the assets
of the Company to any "person" or "group" (as such terms are used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the
Permitted Holders, (ii) any person or group, other than the Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total voting power of the voting stock of the Company, including by way of
merger, consolidation or otherwise or (iii) during any period of two
consecutive years, individuals who at the beginning of such period
constituted the Board (together with any new directors whose election by
such Board or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the
Company, then still in office, who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board,
then in office.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
<PAGE>
"Committee" shall mean either (i) the Board or (ii) a committee of the
Board designated by the Board to administer the Plan and composed of not
less two directors, each of whom is expected, but not required, to be a
"Non-Employee Director" (within the meaning of Rule 16b-3) and an "outside
director" (within the meaning of Code section 162(m)) to the extent Rule
16b-3 and Code section 162(m), respectively, are at such time applicable to
the Company and the Plan. If at any time such a committee has not been so
designated, the Board shall constitute the Committee.
"Company" shall mean PathNet, Inc., together with any successor
thereto.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean, (A) with respect to any property other
than Shares, the fair market value of such property determined by such
methods or procedures as shall be established from time to time by the
Committee and (B) with respect to the Shares, as of any date, (i) the mean
between the high and low sales prices of the Shares as reported on the
composite tape for securities traded on the New York Stock Exchange for
such date (or if not then trading on the New York Stock Exchange, the mean
between the high and low sales price of the Shares on the stock exchange or
over-the-counter market on which the Shares are principally trading on such
date), or if, there were no sales on such date, on the closest preceding
date on which there were sales of Shares or (ii) in the event there shall
be no public market for the Shares on such date, the fair market value of
the Shares as determined in good faith by the Committee.
"Fully Diluted Shares" shall mean, as of any date, the number of
Shares outstanding as of such date (including any shares of Restricted
Stock) PLUS the aggregate number of Shares issuable upon the exercise of
all outstanding Options, and other options, warrants and rights to acquire
Shares (whether or not then exercisable) and the aggregate number of Shares
issuable upon the conversion of all outstanding securities that are
convertible into Shares.
"Incentive Stock Option" shall mean a right to purchase Shares from
the Company that is granted under Section 6 of the Plan and that is
intended to meet the requirements of Section 422 of the Code or any
successor provision thereto.
"Investment and Stockholders' Agreement" shall mean the PathNet, Inc.
Investment and Stockholders' Agreement dated as of December 23, 1996, as
the same may be amended from time to time.
"Investors" shall mean the "Investors" as defined in the Investment
and Stockholders' Agreement.
"Investor Directors" shall mean those members of the Board who
constitute Investor Directors as defined in the Investment and
Stockholders' Agreement.
"Negative Discretion" shall mean the discretion authorized by the Plan
to be applied by the Committee to eliminate or reduce the size of a
Performance Compensation Award; PROVIDED that the
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exercise of such discretion would not cause the Performance Compensation
Award to fail to qualify as Performance-based compensation under section
162(m) of the Code. By way of example and not by way of limitation, in no
event shall any discretionary authority granted to the Committee by the
Plan including, but not limited to, Negative Discretion, be used to (a)
grant or provide payment in respect of Performance Compensation Awards for
a Performance Period if the Performance Goals for such Performance Period
have not been attained; or (b) increase a Performance Compensation Award
above the maximum amount payable under Sections 4(a) or 11(d)(vi) of the
Plan. Notwithstanding anything herein to the contrary, in no event shall
Negative Discretion be exercised by the Committee with respect to any
Option or Stock Appreciation Right (other than an Option or Stock
Appreciation Right that is intended to be a Performance Compensation Award
under Section 11 of the Plan).
"Non-Qualified Stock Option" shall mean a right to purchase Shares
from the Company that is granted under Section 6 of the Plan and that is
not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean any right granted under Section
10 of the Plan.
"Participant" shall mean any officer or other employee, consultant or
director of the Company or its Subsidiaries eligible for an Award under
Section 5 and selected by the Committee to receive an Award under the Plan.
"Performance Award" shall mean any right granted under Section 9 of
the Plan.
"Performance Compensation Award" shall mean any Award designated by
the Committee as a Performance Compensation Award pursuant to Section 11 of
the Plan.
"Performance Criteria" shall mean the criterion or criteria that the
Committee shall select for purposes of establishing the Performance Goal(s)
for a Performance Period with respect to any Performance Compensation Award
under the Plan. The Performance Criteria that will be used to establish
the Performance Goal(s) shall be based on the attainment of specific levels
of performance of the Company (or Subsidiary, Affiliate, division or
operational unit of the Company) and shall be limited to the following:
Return on net assets, return on shareholders equity, return on assets,
return on capital, shareholder returns, profit margin, earnings per Share,
net earnings, operating earnings, Shares price per Share and sales or
market share. To the extent required under section 162(m) of the Code, the
Committee shall, within the first 90 days of a Performance Period (or, if
longer, within the maximum period allowed under section 162(m) of the
Code), define in an objective fashion the manner of calculating the
Performance Criteria it selects to use for such Performance Period.
"Performance Formula" shall mean, for a Performance Period, the one or
more objective formulas applied against the relevant Performance Goal to
determine, with regard to the Performance Compensation Award of a
particular Participant, whether all, some portion but less than all, or
none of the Performance Compensation Award has been earned for the
Performance Period.
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"Performance Goals" shall mean, for a Performance Period, the one or
more goals established by the Committee for the Performance Period based
upon the Performance Criteria. The Committee is authorized at any time
during the first 90 days of a Performance Period, or at any time thereafter
(but only to the extent the exercise of such authority after the first 90
days of a Performance Period would not cause the Performance Compensation
Awards granted to any Participant for the Performance Period to fail to
qualify as Performance-based compensation under section 162(m) of the
Code), in its sole and absolute discretion, to adjust or modify the
calculation of a Performance Goal for such Performance Period to the extent
permitted under section 162(m) of the Code in order to prevent the dilution
or enlargement of the rights of Participants, (a) in the event of, or in
anticipation of, any unusual or extraordinary corporate item, transaction,
event or development affecting the Company; or (b) in recognition of, or in
anticipation of, any other unusual or nonrecurring events affecting the
Company, or the financial statements of the Company, or in response to, or
in anticipation of, changes in applicable laws, regulations, accounting
principles, or business conditions.
"Performance Period" shall mean the one or more periods of time of at
least one year in duration, as the Committee may select, over which the
attainment of one or more Performance Goals will be measured for the
purpose of determining a Participants right to and the payment of a
Performance Compensation Award.
"Permitted Holders" shall mean, as of the date of determination, any
and all of (i) any of the Investors or their respective affiliates and (ii)
any of David Schaeffer, his spouse, his siblings and their spouses, and
descendants of any of them (whether natural or adopted) (collectively, the
"Schaeffer Group"), (iii) any of Richard A. Jalkut, his spouse, his
siblings and their spouses, and descendants of any of them (whether natural
or adopted) (collectively, the "Jalkut Group") and (iv) any trust
established and maintained primarily for the benefit of any member of the
Schaeffer Group or the Jalkut Group and any entity controlled by any member
of the Schaeffer Group or the Jalkut Group.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Plan" shall mean this PathNet, Inc. 1997 Stock Incentive Plan.
"Qualified Public Offering" shall mean the first firm commitment
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer
and sale of Shares to the public in which (i) the proceeds received by the
Company, net of underwriting discounts and commissions, equal or exceed
$20,000,000 and (ii) immediately prior to the consummation of which, the
Company is valued (without regard to any proceeds to be received by the
Company in connection with such public offering) at greater than
$50,000,000.
"Restricted Stock" shall mean any Share granted under Section 8 of the
Plan.
"Restricted Stock Unit" shall mean any unit granted under Section 8 of
the Plan.
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"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by
the SEC under the Exchange Act, or any successor rule or regulation thereto
as in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the Staff thereof.
"Shares" shall mean the shares of common stock of the Company, $.01
par value, or such other securities of the Company (i) into which such
shares of common stock shall be changed by reason of a recapitalization,
merger, consolidation, split-up, combination, exchange of shares or other
similar transaction or (ii) as may be determined by the Committee pursuant
to Section 4(b).
"Stock Appreciation Right" shall mean any right granted under Section
7 of the Plan.
"Subsidiary" shall mean (i) any entity that, directly or indirectly,
is controlled by the Company and (ii) any entity in which the Company has a
significant equity interest, in either case as determined by the Committee
"Substitute Awards" shall have the meaning specified in Section 4(c).
SECTION 3. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. Subject to the
terms of the Plan and applicable law, and in addition to other express
powers and authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to a
Participant and designate those Awards which shall constitute Performance
Compensation Awards; (iii) determine the number of Shares to be covered by,
or with respect to which payments, rights, or other matters are to be
calculated in connection with, Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under
what circumstances Awards may be settled or exercised in cash, Shares,
other securities, other Awards or other property, or canceled, forfeited,
or suspended and the method or methods by which Awards may be settled,
exercised, canceled, forfeited, or suspended; (vi) determine whether, to
what extent, and under what circumstances cash, Shares, other securities,
other Awards, other property, and other amounts payable with respect to an
Award (subject to section 162(m) of the Code with respect to Performance
Compensation Awards) shall be deferred either automatically or at the
election of the holder thereof or of the Committee; (vii) interpret,
administer reconcile any inconsistency, correct any default and/or supply
any omission in the Plan and any instrument or agreement relating to, or
Award made under, the Plan; (viii) establish, amend, suspend, or waive such
rules and regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan; (ix) establish and administer
Performance Goals and certify whether, and to what extent, they have been
attained; and (x) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of
the Plan.
(b) Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or
with respect to the Plan or any Award shall be within the sole discretion
of the Committee, may be made at any time and shall be final, conclusive,
and binding
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upon all Persons, including the Company, any Affiliate, any Participant,
any holder or beneficiary of any Award, and any shareholder.
(c) The mere fact that a Committee member shall fail to qualify as a
"Non-Employee Director" or "outside director" within the meaning of Rule
16b-3 and Code section 162(m), respectively, shall not invalidate any award
made by the Committee which award is otherwise validly made under the Plan.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award
hereunder.
(e) With respect to any Performance Compensation Award granted under
the Plan, the Plan shall be interpreted and construed in accordance with
section 162(m) of the Code.
(f) Notwithstanding the foregoing, the Committee may delegate to one
or more officers of the Company the authority to grant awards to
Participants who are not officers or directors of the Company subject to
Section 16 of the Exchange Act or "covered employees" within the meaning of
Code section 162(m).
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section
4(b), the aggregate number of Shares with respect to which Awards may be
granted under the Plan shall be 579,264; the maximum number of Shares with
respect to which Options and Stock Appreciation Rights may be granted to
any Participant in any fiscal year shall be 400,000 and the maximum number
of Shares which may be paid to a Participant in the Plan in connection with
the settlement of any Award(s) designated as Performance Compensation
Awards in respect of a single Performance Period shall be 400,000 or, in
the event such Performance Compensation Award is paid in cash, the
equivalent cash value thereof. If, after the effective date of the Plan,
any Shares covered by an Award granted under the Plan, or to which such an
Award relates, are forfeited, or if an Award has expired, terminated or
been canceled for any reason whatsoever (other than by reason of exercise,
or other settlement for consideration), then the Shares covered by such
Award shall again be, or shall become, Shares with respect to which Awards
may be granted hereunder.
(b) ADJUSTMENTS. Notwithstanding any provisions of the Plan to the
contrary, in the event that the Committee determines that any dividend or
other distribution (whether in the form of cash, Shares, other securities,
or other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company,
issuance of warrants or other rights to purchase Shares or other securities
of the Company, or other similar corporate transaction or event affects the
Shares such that an adjustment is determined by the Committee in its
discretion to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the
Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number of Shares or other securities of the
Company (or number and kind of other securities
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or property) with respect to which Awards may be granted, (ii) the number
of Shares or other securities of the Company (or number and kind of other
securities or property) subject to outstanding Awards, and (iii) the grant
or exercise price with respect to any Award or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award in
consideration for the cancellation of such Award, which, in the case of
Options and Stock Appreciation Rights shall equal the excess, if any, of
the Fair Market Value of the Shares subject to such Options or Stock
Appreciation Rights over the aggregate exercise price or grant price of
such Options or Stock Appreciation Rights.
(c) SUBSTITUTE AWARDS. Awards may, in the discretion of the
Committee, be made under the Plan in assumption of, or in substitution for,
outstanding awards previously granted by the Company or its Affiliates
under any other plan, agreement or arrangement or by a company acquired by
the Company or with which the Company combines ("Substitute Awards"). The
number of Shares underlying any Substitute Awards shall be counted against
the aggregate number of Shares available for Awards under the Plan.
(d) SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. ELIGIBILITY. Any officer or other employee, consultant or
director to the Company or any of its Subsidiaries (including any prospective
officer, employee, consultant or director) shall be eligible to be designated a
Participant.
SECTION 6. STOCK OPTIONS.
(a) GRANT. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Participants to
whom Options shall be granted, the number of Shares to be covered by each
Option, the exercise price therefor and the conditions and limitations
applicable to the exercise of the Option. The Committee shall have the
authority to grant Incentive Stock Options, or to grant Non-Qualified Stock
Options, or to grant both types of Options. In the case of Incentive Stock
Options, the terms and conditions of such grants shall be subject to and
comply with such rules as may be prescribed by Section 422 of the Code, as
from time to time amended, and any regulations implementing such statute.
All Options when granted under the Plan are intended to be Non-Qualified
Stock Options, unless the applicable Award Agreement expressly states that
the Option is intended to be an Incentive Stock Option. If an Option is
intended to be an Incentive Stock Option, and if for any reason such Option
(or any portion thereof) shall not qualify as an Incentive Stock Option,
then, to the extent of such nonqualification, such Option (or portion
thereof) shall be regarded as a Non-Qualified Stock Option appropriately
granted under the Plan; provided that such Option (or portion thereof)
otherwise complies with the Plan's requirements relating to Non-Qualified
Stock Options.
(b) EXERCISE PRICE. The Committee shall establish the exercise price
at the time each Option is granted, which exercise price shall be set forth
in the applicable Award Agreement.
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(c) EXERCISE. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter. The
Committee may impose such conditions with respect to the exercise of
Options, including without limitation, any relating to the application of
federal or state securities laws, as it may deem necessary or advisable.
Options with an exercise price equal to or greater than the Fair Market
Value per Share as of the date of grant are intended to qualify as
"performance-based compensation" under section 162(m) of the Code to the
extent section 162(m) of the Code is applicable to the Company and the
Plan. In the sole discretion of the Committee, Options may be granted with
an exercise price that is less than the Fair Market Value per Share and
such Options may, but need not, be intended to qualify as performance-based
compensation in accordance with Section 11 hereof.
(d) PAYMENT.
(i) No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the aggregate exercise price therefor is
received by the Company. Unless otherwise provided in an Award Agreement,
such payment may be made in cash, or its equivalent, or (x) by exchanging
Shares owned by the optionee (which are not the subject of any pledge or
other security interest and which have been owned by such optionee for at
least 6 months), (y) if there shall be a public market for the Shares,
subject to such rules as may be established by the Committee, through
delivery of irrevocable instructions to a broker to sell the Shares
otherwise deliverable upon the exercise of the Option and to deliver
promptly to the Company an amount equal to the aggregate exercise price, or
(z) with the consent of the Committee in its sole discretion, by the
promissory note and agreement of a Participant providing for the payment
with interest of the unpaid balance accruing at a rate not less than needed
to avoid the imputation of income under Code section 7872 and upon such
terms and conditions (including the security, if any therefor) as the
Committee may determine, or by a combination of the foregoing, provided
that the combined value of all cash and cash equivalents and the Fair
Market Value of any such Shares so tendered to the Company as of the date
of such tender is at least equal to such aggregate exercise price.
(ii) Wherever in this Plan or any Award Agreement a Participant is
permitted to pay the exercise price of an Option or taxes relating to the
exercise of an Option by delivering Shares, the Participant may, subject to
procedures satisfactory to the Committee, satisfy such delivery requirement
by presenting proof of beneficial ownership of such Shares, in which case
the Company shall treat the Option as exercised without further payment and
shall withhold such number of Shares from the Shares acquired by the
exercise of the Option.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) GRANT. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Participants to
whom Stock Appreciation Rights shall be granted, the number of Shares to be
covered by each Stock Appreciation Right Award, the grant price thereof and
the conditions and limitations applicable to the exercise thereof. Stock
Appreciation Rights with a grant price equal to or greater than the Fair
Market Value per Share as of the date of grant are intended to qualify as
"performance-based compensation" under section 162(m) of the Code to the
extent section 162(m) of the Code is applicable to the Company and the
Plan. In the sole discretion
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<PAGE>
of the Committee, Stock Appreciation Rights may be granted with an exercise
price that is less than the Fair Market Value per Share and such Stock
Appreciation Rights may, but need not, be intended to qualify as
performance-based compensation in accordance with Section 11 hereof. Stock
Appreciation Rights may be granted in tandem with another Award, in
addition to another Award, or freestanding and unrelated to another Award.
Stock Appreciation Rights granted in tandem with or in addition to an Award
may be granted either at the same time as the Award or at a later time.
(b) EXERCISE AND PAYMENT. A Stock Appreciation Right shall entitle
the Participant to receive an amount equal to the excess of the Fair Market
Value of a Share on the date of exercise of the Stock Appreciation Right
over the grant price thereof. The Committee shall determine whether a
Stock Appreciation Right shall be settled in cash, Shares or a combination
of cash and Shares.
(c) OTHER TERMS AND CONDITIONS. Subject to the terms of the Plan and
any applicable Award Agreement, the Committee shall determine, at or after
the grant of a Stock Appreciation Right, the term, methods of exercise,
methods and form of settlement, and any other terms and conditions of any
Stock Appreciation Right. The Committee may impose such conditions or
restrictions on the exercise of any Stock Appreciation Right as it shall
deem appropriate.
SECTION 8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS.
(a) GRANT. Subject to the provisions of the Plan, the Committee
shall have sole and complete authority to determine the Participants to
whom Shares of Restricted Stock and Restricted Stock Units shall be
granted, the number of Shares of Restricted Stock and/or the number of
Restricted Stock Units to be granted to each Participant, the duration of
the period during which, and the conditions, if any, under which, the
Restricted Stock and Restricted Stock Units may be forfeited to the
Company, and the other terms and conditions of such Awards.
(b) TRANSFER RESTRICTIONS. Shares of Restricted Stock and Restricted
Stock Units may not be sold, assigned, transferred, pledged or otherwise
encumbered, except, in the case of Restricted Stock, as provided in the
Plan or the applicable Award Agreements. Certificates issued in respect of
Shares of Restricted Stock shall be registered in the name of the
Participant and deposited by such Participant, together with a stock power
endorsed in blank, with the Company. Upon the lapse of the restrictions
applicable to such Shares of Restricted Stock, the Company shall deliver
such certificates to the Participant or the Participant's legal
representative.
(c) PAYMENT. Each Restricted Stock Unit shall have a value equal to
the Fair Market Value of a Share. Restricted Stock Units shall be paid in
cash, Shares, other securities or other property, as determined in the sole
discretion of the Committee, upon the lapse of the restrictions applicable
thereto, or otherwise in accordance with the applicable Award Agreement.
Dividends paid on any Shares of Restricted Stock may be paid directly to
the Participant, withheld by the Company subject to vesting of the
Restricted Shares pursuant to the terms of the applicable Award Agreement,
or may be reinvested in additional Shares of Restricted Stock or in
additional Restricted Stock Units, as determined by the Committee in its
sole discretion.
SECTION 9. PERFORMANCE AWARDS.
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(a) GRANT. The Committee shall have sole and complete authority to
determine the Participants who shall receive a "Performance Award", which
shall consist of a right which is (i) denominated in cash or Shares, (ii)
valued, as determined by the Committee, in accordance with the achievement
of such performance goals during such performance periods as the Committee
shall establish, and (iii) payable at such time and in such form as the
Committee shall determine.
(b) TERMS AND CONDITIONS. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance
goals to be achieved during any performance period, the length of any
performance period, the amount of any Performance Award and the amount and
kind of any payment or transfer to be made pursuant to any Performance
Award.
(c) PAYMENT OF PERFORMANCE AWARDS. Performance Awards may be paid in
a lump sum or in installments following the close of the performance period
or, in accordance with procedures established by the Committee, on a
deferred basis.
SECTION 10. OTHER STOCK-BASED AWARDS.
(a) GENERAL. The Committee shall have authority to grant to
Participants an "Other Stock-Based Award", which shall consist of any right
which is (i) not an Award described in Sections 6 through 9 above and (ii)
an Award of Shares or an Award denominated or payable in, valued in whole
or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares), as
deemed by the Committee to be consistent with the purposes of the Plan.
Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of any such Other
Stock-Based Award, including the price, if any, at which securities may be
purchased pursuant to any Other Stock-Based Award granted under this Plan.
(b) DIVIDEND EQUIVALENTS. In the sole and complete discretion of the
Committee, an Award, whether made as an Other Stock-Based Award under this
Section 10 or as an Award granted pursuant to Sections 6 through 9 hereof,
may provide the Participant with dividends or dividend equivalents, payable
in cash, Shares, other securities or other property on a current or
deferred basis.
SECTION 11. PERFORMANCE COMPENSATION AWARDS.
(a) GENERAL. The Committee shall have the authority, at the time of
grant of any Award described in Sections 6 through 10 (other than Options
and Stock Appreciation Rights granted with an exercise price or grant
price, as the case may be, equal to or greater than the Fair Market Value
per Share on the date of grant), to designate such Award as a Performance
Compensation Award in order to qualify such Award as Performance-based
compensation under section 162(m) of the Code.
(b) ELIGIBILITY. The Committee will, in its sole discretion,
designate within the first 90 days of a Performance Period (or, if longer,
within the maximum period allowed under section 162(m) of the Code) which
Participants will be eligible to receive Performance Compensation Awards in
respect of such Performance Period. However, designation of a Participant
eligible to receive an
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Award hereunder for a Performance Period shall not in any manner entitle
the Participant to receive payment in respect of any Performance
Compensation Award for such Performance Period. The determination as to
whether or not such Participant becomes entitled to payment in respect of
any Performance Compensation Award shall be decided solely in accordance
with the provisions of this Section 11. Moreover, designation of a
Participant eligible to receive an Award hereunder for a particular
Performance Period shall not require designation of such Participant
eligible to receive an Award hereunder in any subsequent Performance Period
and designation of one person as a Participant eligible to receive an Award
hereunder shall not require designation of any other person as a
Participant eligible to receive an Award hereunder in such period or in any
other period.
(c) DISCRETION OF COMMITTEE WITH RESPECT TO PERFORMANCE COMPENSATION
AWARDS. With regard to a particular Performance Period, the Committee
shall have full discretion to select the length of such Performance Period,
the type(s) of Performance Compensation Awards to be issued, the
Performance Criteria that will be used to establish the Performance
Goal(s), the kind(s) and/or level(s) of the Performance Goals(s) is(are) to
apply to the Company and the Performance Formula. Within the first 90 days
of a Performance Period (or, if longer, within the maximum period allowed
under section 162(m) of the Code), the Committee shall, with regard to the
Performance Compensation Awards to be issued for such Performance Period,
exercise its discretion with respect to each of the matters enumerated in
the immediately preceding sentence of this Section 11(c) and record the
same in writing.
(d) PAYMENT OF PERFORMANCE COMPENSATION AWARDS
(i) CONDITION TO RECEIPT OF PAYMENT. Unless otherwise provided in
the applicable Award Agreement, a Participant must be employed by the
Company on the last day of a Performance Period to be eligible for payment
in respect of a Performance Compensation Award for such Performance Period.
(ii) LIMITATION. A Participant shall be eligible to receive payment
in respect of a Performance Compensation Award only to the extent that: (1)
the Performance Goals for such period are achieved; and (2) the Performance
Formula as applied against such Performance Goals determines that all or
some portion of such Participant's Performance Award has been earned for
the Performance Period.
(iii) CERTIFICATION. Following the completion of a Performance
Period, the Committee shall meet to review and certify in writing whether,
and to what extent, the Performance Goals for the Performance Period have
been achieved and, if so, to calculate and certify in writing that amount
of the Performance Compensation Awards earned for the period based upon the
Performance Formula. The Committee shall then determine the actual size of
each Participant's Performance Compensation Award for the Performance
Period and, in so doing, may apply Negative Discretion, if and when it
deems appropriate.
(iv) NEGATIVE DISCRETION In determining the actual size of an
individual Performance Award for a Performance Period, the Committee may
reduce or eliminate the amount of the Performance
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Compensation Award earned under the Performance Formula in the Performance
Period through the use of Negative Discretion if, in its sole judgement,
such reduction or elimination is appropriate.
(v) TIMING OF AWARD PAYMENTS. The Awards granted for a Performance
Period shall be paid to Participants as soon as administratively possible
following completion of the certifications required by this Section 11.
(vi) MAXIMUM AWARD PAYABLE. Notwithstanding any provision contained
in this Plan to the contrary, the maximum Performance Compensation Award
payable to any one Participant under the Plan for a Performance Period is
400,000 Shares or, in the event the Performance Compensation Award is paid
in cash, the equivalent cash value thereof on the last day of the
Performance Period to which such Award relates. Furthermore, any
Performance Compensation Award that has been deferred shall not (between
the date as of which the Award is deferred and the payment date) increase
(i) with respect to Performance Compensation Award that is payable in cash,
by a measuring factor for each fiscal year greater than a reasonable rate
of interest set by the Committee or (ii) with respect to a Performance
Compensation Award that is payable in Shares, by an amount greater than the
appreciation of a Share from the date such Award is deferred to the payment
date.
SECTION 12. AMENDMENT AND TERMINATION.
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time;
provided that no such amendment, alteration, suspension, discontinuation or
termination shall be made without shareholder approval if such approval is
necessary to comply with any tax or regulatory requirement applicable to
the Plan and provided further that any such amendment, alteration,
suspension, discontinuance or termination that would impair the rights of
any Participant or any holder or beneficiary of any Award theretofore
granted shall not to that extent be effective without the consent of the
affected Participant, holder or beneficiary.
(b) AMENDMENTS TO AWARDS. The Committee may waive any conditions or
rights under, amend any terms of, or alter, suspend, discontinue, cancel or
terminate, any Award theretofore granted, prospectively or retroactively;
provided that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination that would impair the rights of
any Participant or any holder or beneficiary of any Award theretofore
granted shall not to that extent be effective without the consent of the
affected Participant, holder or beneficiary.
(c) ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(b) hereof) affecting the
Company, any Affiliate, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; PROVIDED
that no such adjustment shall be authorized to the extent that such
authority or adjustment would cause an Award designated by the Committee as
a Performance
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Compensation Award under Section 11 of the Plan to fail to qualify as
"performance-based compensation" under section 162(m) of the Code.
SECTION 13. CHANGE OF CONTROL AND QUALIFIED PUBLIC OFFERING. In the event
of a Change of Control or a Qualified Public Offering after the date of the
adoption of this Plan, any outstanding Awards then held by Participants which
are unexercisable or otherwise unvested shall automatically be deemed
exercisable or otherwise vested, as the case may be, as of immediately prior to
such Change of Control or Qualified Public Offering.
SECTION 14. GENERAL PROVISIONS.
(a) NONTRANSFERABILITY.
(i) Each Award, and each right under any Award, shall be
exercisable only by the Participant during the Participant's lifetime, or,
if permissible under applicable law, by the Participant's legal guardian or
representative.
(ii) No Award may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant otherwise than by will
or by the laws of descent and distribution, and any such purported
assignment, alienation, pledge, attachment, sale, transfer or encumbrance
shall be void and unenforceable against the Company or any Affiliate;
provided that the designation of a beneficiary shall not constitute an
assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(iii) Notwithstanding the foregoing, the Committee may in the
applicable Award Agreement evidencing an Option granted under the Plan or
at any time thereafter in an amendment to an Award Agreement provide that
Options granted hereunder which are not intended to qualify as Incentive
Options may be transferred by the Participant to whom such Option was
granted (the "Grantee") without consideration, subject to such rules as the
Committee may adopt to preserve the purposes of the Plan, to:
(A) the Grantee's spouse, children or grandchildren (including
adopted and stepchildren and grandchildren) (collectively,
the "Immediate Family");
(B) a trust solely for the benefit of the Grantee and his or her
Immediate Family; or
(C) a partnership or limited liability company whose only
partners or shareholders are the Grantee and his or her
Immediate Family members;
(each transferee described in clauses (A), (B) and (C) above is
hereinafter referred to as a "Permitted Transferee"); PROVIDED that
the Grantee gives the Committee advance written notice describing the
terms and conditions of the proposed transfer and the Committee
notifies the grantee in writing that such a transfer would comply with
the requirements of the Plan and any applicable Award Agreement
evidencing the Option.
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The terms of any Option transferred in accordance with the immediately
preceding sentence shall apply to the Permitted Transferee and any
reference in the Plan or in an Award Agreement to an optionee, Grantee
or Participant shall be deemed to refer to the Permitted Transferee,
except that (a) Permitted Transferees shall not be entitled to
transfer any Options, other than by will or the laws of descent and
distribution; (b) Permitted Transferees shall not be entitled to
exercise any transferred Options unless there shall be in effect a
registration statement on an appropriate form covering the shares to
be acquired pursuant to the exercise of such Option if the Committee
determines that such a registration statement is necessary or
appropriate, (c) the Committee or the Company shall not be required to
provide any notice to a Permitted Transferee, whether or not such
notice is or would otherwise have been required to be given to the
Grantee under the Plan or otherwise and (d) the consequences of
termination of the Grantee's employment by, or services to, the
Company under the terms of the Plan and the applicable Award Agreement
shall continue to be applied with respect to the Grantee, following
which the Options shall be exercisable by the Permitted Transferee
only to the extent, and for the periods, specified in the Plan and the
applicable Award Agreement.
(b) NO RIGHTS TO AWARDS. No Participant or other Person shall have
any claim to be granted any Award, and there is no obligation for
uniformity of treatment of Participants, or holders or beneficiaries of
Awards. The terms and conditions of Awards and the Committee's
determinations and interpretations with respect thereto need not be the
same with respect to each Participant (whether or not such Participants are
similarly situated).
(c) SHARE CERTIFICATES. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable
under the Plan or the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which such
Shares or other securities are then listed, and any applicable Federal or
state laws, and the Committee may cause a legend or legends to be put on
any such certificates to make appropriate reference to such restrictions.
(d) WITHHOLDING.
(i) A Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is
hereby authorized to withhold from any Award, from any payment due or
transfer made under any Award or under the Plan or from any compensation or
other amount owing to a Participant the amount (in cash, Shares, other
securities, other Awards or other property) of any applicable withholding
taxes in respect of an Award, its exercise, or any payment or transfer
under an Award or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. The Committee may provide for additional cash
payments to holders of Awards to defray or offset any tax arising from the
grant, vesting, exercise or payments of any Award.
(ii) Without limiting the generality of clause (i) above, a
Participant may satisfy, in whole or in part, the foregoing withholding
liability by delivery of Shares owned by the Participant (which
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are not subject to any pledge or other security interest and which have
been owned by the Participant for at least 6 months) with a Fair Market
Value equal to such withholding liability or by having the Company withhold
from the number of Shares otherwise issuable pursuant to the exercise of
the option a number of Shares with a Fair Market Value equal to such
withholding liability.
(iii) Notwithstanding any provision of this Plan to the contrary, in
connection with the transfer of an Option to a Permitted Transferee
pursuant to Section 14(a) of the Plan, the Grantee shall remain liable for
any withholding taxes required to be withheld upon the exercise of such
Option by the Permitted Transferee.
(e) AWARD AGREEMENTS. Each Award hereunder shall be evidenced by an
Award Agreement which shall be delivered to the Participant and shall
specify the terms and conditions of the Award and any rules applicable
thereto, including but not limited to the effect on such Award of the
death, disability or termination of employment or service of a Participant
and the effect, if any, of such other events as may be determined by the
Committee.
(f) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other compensation arrangements, which may, but need
not, provide for the grant of options, restricted stock, Shares and other
types of Awards provided for hereunder (subject to shareholder approval if
such approval is required), and such arrangements may be either generally
applicable or applicable only in specific cases.
(g) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ
of, or in any consulting relationship to, the Company or any Affiliate.
Further, the Company or an Affiliate may at any time dismiss a Participant
from employment or discontinue any consulting relationship, free from any
liability or any claim under the Plan, unless otherwise expressly provided
in the Plan or in any Award Agreement.
(h) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or holder or beneficiary of any Award
shall have any rights as a stockholder with respect to any Shares to be
distributed under the Plan until he or she has become the holder of such
Shares. Notwithstanding the foregoing, in connection with each grant of
Restricted Stock hereunder, the applicable Award shall specify if and to
what extent the Participant shall not be entitled to the rights of a
stockholder in respect of such Restricted Stock.
(i) GOVERNING LAW. The validity, construction, and effect of the
Plan and any rules and regulations relating to the Plan and any Award
Agreement shall be determined in accordance with the laws of the State of
Delaware.
(j) SEVERABILITY. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform the applicable laws, or if
it cannot be construed or deemed amended without, in the determination of
the Committee, materially altering the intent of the
15
<PAGE>
Plan or the Award, such provision shall be stricken as to such
jurisdiction, Person or Award and the remainder of the Plan and any such
Award shall remain in full force and effect.
(k) OTHER LAWS. The Committee may refuse to issue or transfer any
Shares or other consideration under an Award if, acting in its sole
discretion, it determines that the issuance or transfer of such Shares or
such other consideration might violate any applicable law or regulation or
entitle the Company to recover the same under Section 16(b) of the Exchange
Act, and any payment tendered to the Company by a Participant, other holder
or beneficiary in connection with the exercise of such Award shall be
promptly refunded to the relevant Participant, holder or beneficiary.
Without limiting the generality of the foregoing, no Award granted
hereunder shall be construed as an offer to sell securities of the Company,
and no such offer shall be outstanding, unless and until the Committee in
its sole discretion has determined that any such offer, if made, would be
in compliance with all applicable requirements of the U.S. federal
securities laws.
(l) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires a
right to receive payments from the Company or any Affiliate pursuant to an
Award, such right shall be no greater than the right of any unsecured
general creditor of the Company or any Affiliate.
(m) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid
or transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated, or otherwise
eliminated.
(n) HEADINGS. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
SECTION 15. CERTAIN RESTRICTIONS PRIOR TO A QUALIFIED PUBLIC OFFERING.
Notwithstanding any provision of the Plan or any Award Agreement to the
contrary, until the consummation of a Qualified Public Offering, any Shares
received by a Participant (or any permitted transferee under Section 14) in
connection with the grant, exercise, payment or other settlement in respect of
an Award ("Plan Shares") shall be subject to the following restrictions. The
restrictions set forth in this Section 15 shall lapse immediately upon the
occurrence of a Qualified Public Offering.
16
<PAGE>
(a) RESTRICTIONS ON TRANSFER.
(i) TRANSFER OF PLAN SHARES PRIOR TO A CHANGE OF CONTROL. Prior to
the occurrence of a Change of Control, the Participants (and any permitted
transferees under Section 14) shall not sell, assign, pledge or otherwise
transfer or enter into any agreement to sell, assign, pledge or transfer
any interest in (a "TRANSFER") any Plan Shares, other than (A) pursuant to
applicable laws of descent and distribution; (B) to the Company or the
Permitted Holders or (C) pursuant to Section 15(c); PROVIDED that the
restrictions contained in this Section 15 shall continue to be applicable
to the Plan Shares after any such permitted Transfer and the transferees of
such Plan Shares (other than the Company or the Permitted Holders or any
purchaser in a transaction described in Section 15(c)) must agree in
writing to be bound by the provisions of this Section 15 prior to any such
Transfer. Upon making any Transfer of Plan Shares pursuant to this Section
15(a)(i), the transferor shall deliver a written notice (a "Transfer
Notice") to the Company. The Transfer Notice shall disclose in reasonable
detail the identity of the prospective transferee(s) and the terms and
conditions of the proposed transfer.
(ii) TRANSFER OF PLAN SHARES AFTER A CHANGE OF CONTROL. At least 30
days prior to making any Transfer of any Plan Shares after a Change of
Control, a Participant (and any permitted transferee under Section 14)
shall deliver a written notice (the "SALE NOTICE") to the Company
disclosing in reasonable detail the identity of the prospective
transferee(s) and the terms and conditions of the proposed Transfer. No
Transfer may be consummated prior to 60 days after the Sale Notice has been
delivered to the Company (the "Authorization Date").
(b) FIRST REFUSAL RIGHTS. The Company may elect to purchase all or
any portion of the Plan Shares to be transferred pursuant to Section
15(a)(ii) at the same proportionate price for the Plan Shares to be
transferred as is specified in the Sale Notice by delivering a written
notice of such election to the Participant (or other transferor) within 30
days after the receipt of the Sale Notice by the Company. The Company
shall have up to 30 days after delivery of such notice to the Participant
(or other transferor) to consummate the purchase and sale of the Plan
Shares. A Participant (or other transferor) may, during the 60-day period
immediately following the Authorization Date, subject to the provisions of
this Section 15, transfer the Plan Shares specified in the Sale Notice at a
price and on terms no more favorable to the transferee(s) thereof than
specified in the Sale Notice; PROVIDED that the restrictions contained in
this Section 15 shall continue to be applicable to the Plan Shares after
any such transfer and the transferees of such Plan Shares must agree in
writing to be bound by the provisions of this Section 15 prior to any such
transfer. Any Plan Shares not transferred within such 60-day period shall
again be subject to the provisions of this Section 15(b) upon subsequent
transfer.
(c) DRAG-ALONG RIGHT. If at any time prior to a Qualified Public
Offering any of the Permitted Holders, singularly or in the aggregate,
proposes to sell 50% or more of the Fully Diluted Shares to any person(s)
or entity or entities other than a Permitted Holder, it or they may, but
shall not be obligated to, require the holders of the Plan Shares to sell
the same proportion and type of their Plan Shares as such Permitted Holders
in the aggregate are selling of their securities by setting forth such
requirement in a written notice to the holders of the Plan Shares at least
10 days prior to such sale. In such event, the holders of the Plan Shares
shall vote for, consent to and not raise any objections against such sale.
The holders of the Plan Shares shall take all necessary and reasonably
desirable actions in connection with the consummation of the sale, and
shall be entitled to participate
17
<PAGE>
in such sale on the same terms and conditions as other holders of the
Company's capital stock (including, without limitation, such Permitted
Holders) and to receive the same consideration with respect to the Plan
Shares as is received by other holders of the Company's capital stock
(including, without limitation, such Permitted Holders). Without limiting
the generality of the foregoing, if the sale is structured as a sale of
shares of the Company's capital stock, the holders of the Plan Shares shall
agree to sell to the purchaser or purchasers of such capital stock all Plan
Shares that such holder is required to sell pursuant to the preceding
sentence, on the same terms and conditions as such Permitted Holder(s) is
selling its or their shares of the Company's capital stock.
(d) TAG-ALONG RIGHT.
(i) If at any time prior to a Qualified Public Offering any of the
Permitted Holders, singularly or in the aggregate (other than the Company)
holding 50% or more of the Fully Diluted Shares, proposes to transfer
(other than a pledge, collateral assignment or similar action) any Shares
to any person(s) or entity or entities other than a Permitted Holder (a
"Disposition"), such Permitted Holder shall, at least ten (10) days prior
to the consummation of such Disposition, give notice (a "Disposition
Notice") to the Participants who hold Plan Shares describing the terms of
the Disposition in reasonable detail and stating that the Participants may
elect to participate in such Disposition on the same terms and conditions
as the Permitted Holders (including, without limitation, the price to be
paid for the Shares); PROVIDED that the provisions of this Section 15(d)
shall not apply to any transfers (x) pursuant to any registered public
offering or (y) by any Permitted Holder to any of the employees, directors
of, or consultants to, the Company or any of its Subsidiaries.
(ii) The election pursuant to clause (i) above shall be exercised by
written notice delivered to the Permitted Holders effecting such
Disposition within the time specified in the Disposition Notice, which
shall not be less than 10 business days after such Disposition Notice is
delivered. If a Participant delivers such notice of the Participant's
election to sell, the Participant shall be obligated to transfer the Plan
Shares specified in such notice upon the terms specified in clause (i)
above to the proposed transferee(s), conditional upon the closing of the
Disposition.
(iii) The maximum number of Plan Shares that a Participant may sell
to any transferee(s) pursuant to clause (i) above shall be the number of
Shares that is in the same proportion to the Participant's total ownership
of the Fully Diluted Shares as the number of Shares being sold by the
Permitted Holders, in the aggregate, (after giving effect to any other
co-sale, participation or similar rights to which the Permitted Holders may
be subject) is to such Permitted Holders' total ownership of the Fully
Diluted Shares.
SECTION 16. TERM OF THE PLAN.
(a) EFFECTIVE DATE. The Plan shall be effective as of the date of
its approval by the Board.
(b) EXPIRATION DATE. No Award shall be granted under the Plan after
July 31, 2007. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award granted hereunder may, and the
authority of the Board or the Committee to amend, alter, adjust, suspend,
18
<PAGE>
discontinue, or terminate any such Award or to waive any conditions or
rights under any such Award shall, continue after July 31, 2007.
19
<PAGE>
AMENDMENT NO. 1 TO 1997 STOCK INCENTIVE PLAN
AMENDMENT NO.1 dated as of March 24, 1998 to the Pathnet, Inc. 1997 Stock
Incentive Plan (the "Amendment").
W I T N E S S E T H:
WHEREAS, the Board of Directors of Pathnet, Inc. ("Pathnet") has heretofore
adopted the Pathnet, Inc. 1997 Stock Inventive Plan ("Plan"); and
WHEREAS, the Board of Directors of Pathnet desires to amend the Plan in
certain respects, all as set forth more fully below:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically
defined herein, each capitalized term used herein without definition shall have
the meaning assigned to such term in the Plan. Each reference to "hereof,"
"hereunder," "herein," and "hereby" and each other similar reference and each
reference to the "Plan" contained in the Plan shall from and after the date
hereof refer to the Plan as amended hereby.
SECTION 2. AMENDMENT TO SECTION 2 OF THE PLAN. Section 2 of the Plan is
hereby amended by adding the following definitions thereto:
"Cause" shall mean any of (i) a Participant's plea of guilty or NOLO
CONTENDERE to, or conviction for, the commission of a felony offense by the
Participant, (ii) a material breach by the Participant of the fiduciary
duty owed to the Company, (iii) a material breach by the Participant of the
provisions of the Company's Non-Disclosure, Assignment of Inventions and
Non-Competition Agreement or, if the Participant is not a party to such
Agreement, a material breach by the Participant of any other obligations to
the Company regarding non-competition, confidentiality, non-solicitation or
inventions to which the Participant is otherwise bound and (iv) the
Participant's failure to substantially perform the Participant's material
duties to the Company; PROVIDED that any claim that "Cause" within the
meaning of clauses (ii), (iii) or (iv) above exists for the termination of
a Participant's employment may be asserted on behalf of the Company only by
a duly adopted resolution of the Board and only after thirty days prior
written notice to the Participant during which period the Participant may
cure the breach or neglect that is the basis of any such claim, if curable
(provided that no such cure period shall be provided to the Participant if
the Participant has previously taken the same, or substantially similar,
action or made the same, or substantially similar, omissions which resulted
in written notice by the Company to the Participant of termination for
Cause).
1
<PAGE>
"Constructive Termination" shall mean a resignation by a Participant
following the occurrence of a Change of Control as a result of (i) a
reduction in the Participant's annual base salary as in effect immediately
prior to the Change of Control or a material reduction of any employee
benefit or perquisite enjoyed by the Participant immediately prior to the
Change of Control (other than as a result of an across the board reduction
applicable to all other employees of the Company of the same or similar
rank); (ii) a material diminution in the Participant's title, duties or
responsibilities from those in effect immediately prior to such Change of
Control or (iii) the relocation following such Change of Control of the
Company's principal office, or the Participant's own office location as
assigned to the Participant by the Company, to a location more than fifty
miles from the office location prior to such Change of Control; PROVIDED
that no such action or event shall constitute grounds for Constructive
Termination unless the Company shall have failed to cure such action or
event within thirty days after the Company's receipt of written notice from
the Participant describing such action or event.
SECTION 3. AMENDMENT TO SECTION 4 OF THE PLAN. Section 4 of the Plan is
hereby amended by replacing the reference to "579,264" that appears in the first
sentence of paragraph (a) of such Section, and inserting in lieu thereof the
number "1,153,667."
SECTION 4. AMENDMENT TO SECTION 13 OF THE PLAN. Section 13 of the Plan
is hereby amended and restated in its entirety to read as follows:
"SECTION 13. CHANGE OF CONTROL. In the event of a Change of Control
after the date of the adoption of this Plan, and, if a Participant's
employment with the Company or its subsidiaries shall thereafter be
terminated (a) by the Company without Cause or (b) by the Participant due
to a Constructive Termination, then the portion, if any, of any outstanding
Awards then held by such Participant which are unexercisable or otherwise
unvested and which would otherwise have become exercisable or otherwise
vested within one year after the date of such Participant's termination of
employment, shall automatically be deemed exercisable or otherwise vested,
as the case may be, as of immediately prior to such Participant's
termination of employment."
SECTION 5. AMENDMENT TO SECTION 15 AND 16 OF THE PLAN. Section 15 of
the Plan is hereby deleted in its entirety and Section 16 is hereby renumbered
as Section 15.
SECTION 6. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Delaware.
2
<PAGE>
Exhibit 10.19
EXECUTION COPY
================================================================================
PATHNET, INC.
TO
THE BANK OF NEW YORK,
Trustee
--------------------
Indenture
Dated as of April 8, 1998
---------------------
$350,000,000 Aggregate Principal Amount
12 1/4% Senior Notes due 2008
================================================================================
<PAGE>
PATHNET, INC.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of April 8, 1998
Trust Indenture
Act Section Indenture Section
ss. 310(a)(1) .......................................... 607
(a)(2) .......................................... 607
(b) .......................................... 608
ss. 312(c) .......................................... 701
ss. 314(a) .......................................... 703
(a)(4) .......................................... 1008(a)
(c)(1) .......................................... 102
(c)(2) .......................................... 102
(e) .......................................... 102
ss. 315(b) .......................................... 601
ss. 316(a)(last
sentence) .......................................... 101 ("Outstanding")
(a)(1)(A) .......................................... 502, 512
(a)(1)(B) .......................................... 513
(b) .......................................... 508
(c) .......................................... 104(d)
ss. 317(a)(1) .......................................... 503
(a)(2) .......................................... 504
(b) .......................................... 1003
ss. 318(a) .......................................... 111
- ----------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
RECITALS OF THE COMPANY..................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION................................................ 1
SECTION 101. Definitions............................................. 1
Accounts Receivable Subsidiary........................................ 2
Acquired Indebtedness................................................. 2
Act ................................................................ 2
Affiliate............................................................. 2
Asset Sale............................................................ 3
Board of Directors.................................................... 4
Board Resolution...................................................... 4
Business Day.......................................................... 4
Capital Stock......................................................... 4
Capitalized Lease Obligation.......................................... 4
Cash Equivalents...................................................... 5
Change of Control..................................................... 5
Commission............................................................ 6
Common Stock.......................................................... 6
Company............................................................... 6
Company Request....................................................... 6
Company Order......................................................... 6
Consolidated Adjusted Net Income...................................... 6
Consolidated Indebtedness............................................. 7
Consolidated Indebtedness to Consolidated Operating Cash Flow Ratio... 7
Consolidated Interest Expense......................................... 8
Consolidated Operating Cash Flow...................................... 8
Consolidated Tax Expense.............................................. 9
Corporate Trust Office................................................ 9
Corporation........................................................... 9
Credit Facilities..................................................... 9
Currency Agreement.................................................... 9
Debt Securities....................................................... 9
Default............................................................... 10
- ----------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
Page
Defaulted Interest.................................................... 10
Disinterested Director................................................ 10
Escrow Account........................................................ 10
Event of Default...................................................... 10
Exchange Act.......................................................... 10
Exchange Notes........................................................ 10
Exchange Offer........................................................ 10
Exchange Offer Registration Statement................................. 11
Fair Market Value..................................................... 11
Federal Bankruptcy Code............................................... 11
GAAP ................................................................ 11
Government Securities................................................. 11
Guarantee............................................................. 11
guarantee............................................................. 11
Holder................................................................ 11
Incumbent............................................................. 11
Incumbent Agreement................................................... 12
Incur ................................................................ 12
incur ................................................................ 12
Indebtedness.......................................................... 12
Indirect Participant.................................................. 13
Initial Notes......................................................... 13
Initial Purchasers.................................................... 13
Initial System........................................................ 13
Indenture............................................................. 14
Interest Payment Date................................................. 14
Interest Rate Agreement............................................... 14
Invested Capital...................................................... 14
Investment............................................................ 14
Issue Date............................................................ 14
Lien ................................................................ 15
Liquidated Damages.................................................... 15
Maturity.............................................................. 15
Moody's............................................................... 15
Net Cash Proceeds..................................................... 15
Note ................................................................ 16
Notes ................................................................ 16
Note Register......................................................... 16
Note Registrar........................................................ 16
Notes Registration Rights Agreement................................... 16
ii
<PAGE>
Page
Officers' Certificate................................................. 16
Offshore Note Exchange Date........................................... 16
Opinion of Counsel.................................................... 16
Outstanding........................................................... 16
Participant........................................................... 17
Paying Agent.......................................................... 17
Permitted Holder...................................................... 17
Permitted Indebtedness................................................ 17
Permitted Liens....................................................... 21
Permitted Telecommunications Asset Sale............................... 23
Permitted Telecommunications Joint Venture............................ 24
Person................................................................ 24
Pledge Agreement...................................................... 24
Pledged Securities.................................................... 24
Predecessor Note...................................................... 24
Preferred Stock....................................................... 24
Public Equity Offering................................................ 24
Qualified Capital Stock............................................... 24
Redeemable Capital Stock.............................................. 25
Redemption Date....................................................... 25
Redemption Price...................................................... 25
Regular Record Date................................................... 25
Responsible Officer................................................... 25
Restricted Subsidiary................................................. 25
S&P ................................................................ 25
Sale-Leaseback Transaction............................................ 26
Shelf Registration Statement.......................................... 26
Significant Subsidiary................................................ 26
Special Record Date................................................... 26
Stated Maturity....................................................... 26
Subsidiary............................................................ 27
Telecommunications Assets............................................. 27
Telecommunications Business........................................... 27
Telecommunications Indebtedness....................................... 27
Trust Indenture Act................................................... 28
TIA ................................................................ 28
Trustee............................................................... 28
Unrestricted Subsidiary............................................... 28
Vendor Credit Facility................................................ 28
Vice President........................................................ 29
iii
<PAGE>
Page
Voting Stock.......................................................... 29
Wholly Owned.......................................................... 29
SECTION 102. Compliance Certificates and Opinions.................... 29
SECTION 103. Form of Documents Delivered to Trustee.................. 30
SECTION 104. Acts of Holders......................................... 30
SECTION 105. Notices, etc., to Trustee, Company...................... 32
SECTION 106. Notice to Holders; Waiver............................... 32
SECTION 107. Effect of Headings and Table of Contents................ 32
SECTION 108. Successors and Assigns.................................. 33
SECTION 109. Separability Clause..................................... 33
SECTION 110. Benefits of Indenture................................... 33
SECTION 111. Governing Law........................................... 33
SECTION 112. Legal Holidays.......................................... 33
ARTICLE TWO
NOTE FORMS............................................................ 34
SECTION 201. Forms Generally......................................... 34
SECTION 202. Form of Face of Note.................................... 35
SECTION 203. Form of Reverse of Note................................. 37
SECTION 204. Form of Trustee's Certificate of Authentication......... 40
SECTION 205. Restrictive Legends..................................... 41
ARTICLE THREE
THE SECURITIES........................................................ 43
SECTION 301. Title and Terms......................................... 43
SECTION 302. Denominations........................................... 44
SECTION 303. Execution, Authentication, Delivery and Dating.......... 44
SECTION 304. Temporary Notes......................................... 45
SECTION 305. Registration, Registration of Transfer and Exchange..... 46
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes............. 47
SECTION 307. Payment of Interest; Interest Rights Preserved.......... 48
SECTION 308. Persons Deemed Owners................................... 49
SECTION 309. Cancellation............................................ 49
SECTION 310. Computation of Interest................................. 50
SECTION 311. Book-Entry Provisions for Global Notes.................. 50
SECTION 312. Transfer Provisions..................................... 51
iv
<PAGE>
Page
ARTICLE FOUR
SATISFACTION AND DISCHARGE............................................ 60
SECTION 401. Satisfaction and Discharge of Indenture................. 60
SECTION 402. Application of Trust Money.............................. 61
ARTICLE FIVE
REMEDIES.............................................................. 61
SECTION 501. Events of Default....................................... 61
SECTION 502. Acceleration of Maturity; Rescission and Annulment...... 63
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee ............................. 64
SECTION 504. Trustee May File Proofs of Claim........................ 65
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.. 66
SECTION 506. Application of Money Collected.......................... 66
SECTION 507. Limitation on Suits..................................... 67
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest................................ 67
SECTION 509. Restoration of Rights and Remedies...................... 68
SECTION 510. Rights and Remedies Cumulative.......................... 68
SECTION 511. Delay or Omission Not Waiver............................ 68
SECTION 512. Control by Holders...................................... 68
SECTION 513. Waiver of Past Defaults................................. 69
SECTION 514. Waiver of Stay or Extension Laws........................ 69
ARTICLE SIX
THE TRUSTEE........................................................... 69
SECTION 601. Notice of Defaults...................................... 69
SECTION 602. Certain Rights of Trustee............................... 70
SECTION 603. Trustee Not Responsible for Recitals or Issuance
of Notes ........................................... 71
SECTION 604. May Hold Notes.......................................... 72
SECTION 605. Money Held in Trust..................................... 72
SECTION 606. Compensation and Reimbursement.......................... 72
SECTION 607. Corporate Trustee Required; Eligibility................. 73
SECTION 608. Resignation and Removal; Appointment of Successor....... 73
SECTION 609. Acceptance of Appointment by Successor.................. 75
SECTION 610. Merger, Conversion, Consolidation or Succession
to Business ........................................ 75
v
<PAGE>
Page
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY...................... 76
SECTION 701. Disclosure of Names and Addresses of Holders............ 76
SECTION 702. Reports by Trustee...................................... 76
SECTION 703. Reports by Company...................................... 76
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.................. 77
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.... 77
SECTION 802. Successor Substituted................................... 78
SECTION 803. Notes to Be Secured in Certain Events................... 79
ARTICLE NINE
SUPPLEMENTAL INDENTURES............................................... 79
SECTION 901. Supplemental Indentures Without Consent of Holders...... 79
SECTION 902. Supplemental Indentures with Consent of Holders......... 80
SECTION 903. Execution of Supplemental Indentures.................... 81
SECTION 904. Effect of Supplemental Indentures....................... 82
SECTION 905. Conformity with Trust Indenture Act..................... 82
SECTION 906. Reference in Notes to Supplemental Indentures........... 82
SECTION 907. Notice of Supplemental Indentures....................... 82
ARTICLE TEN
COVENANTS............................................................. 82
SECTION 1001. Payment of Principal, Premium, if any, and Interest.... 82
SECTION 1002. Maintenance of Office or Agency........................ 83
SECTION 1003. Money for Note Payments to Be Held in Trust............ 83
SECTION 1004. Corporate Existence.................................... 85
SECTION 1005. Payment of Taxes and Other Claims...................... 85
SECTION 1006. Maintenance of Properties.............................. 85
SECTION 1008. Statement by Officers As to Default.................... 86
SECTION 1009. Provision of Financial Statements...................... 86
SECTION 1010. Purchase of Notes upon Change of Control............... 87
SECTION 1011. Limitation on Indebtedness............................. 88
SECTION 1012. Limitation on Restricted Payments...................... 88
SECTION 1013. Limitation on Issuances and Sales of Capital Stock
vi
<PAGE>
Page
of Restricted Subsidiaries......................... 92
SECTION 1014. Limitation on Transactions with Affiliates............. 92
SECTION 1015. Limitations on Liens................................... 93
SECTION 1016. Limitation on Issuances of Certain Guarantees by, and
Debt Securities of, Restricted Subsidiaries........ 94
SECTION 1017. Limitation on Sale of Assets........................... 94
SECTION 1018. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries..... 96
SECTION 1019. Waiver of Certain Covenants............................ 97
ARTICLE ELEVEN
REDEMPTION OF NOTES................................................... 97
SECTION 1101. Right of Redemption.................................... 97
SECTION 1102. Applicability of Article............................... 97
SECTION 1103. Election to Redeem; Notice to Trustee.................. 98
SECTION 1104. Selection by Trustee of Notes to Be Redeemed........... 98
SECTION 1105. Notice of Redemption................................... 98
SECTION 1106. Deposit of Redemption Price............................ 99
SECTION 1107. Notes Payable on Redemption Date....................... 99
SECTION 1108. Notes Redeemed in Part................................ 100
ARTICLE TWELVE
Security............................................................. 100
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE................................... 102
SECTION 1301. Company's Option to Effect Defeasance or Covenant
Defeasance........................................ 102
SECTION 1302. Defeasance and Discharge.............................. 102
SECTION 1303. Covenant Defeasance................................... 103
SECTION 1304. Conditions to Defeasance or Covenant Defeasance....... 103
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions..... 105
SECTION 1306. Reinstatement......................................... 105
vii
<PAGE>
EXHIBIT A -- Form of Rule 144A Certificate
EXHIBIT B -- Form of Regulation S Certificate
EXHIBIT C -- Form of Certificate to Be Delivered following Resale Restriction
Termination Date
viii
<PAGE>
INDENTURE, dated as of April 8, 1998 between PATHNET, INC., a
Delaware corporation (herein called the "Company"), having its principal office
at 1015 31st Street, N.W., Washington, D.C. 20007, and THE BANK OF NEW YORK, a
New York banking corporation, Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 12 1/4%
Senior Notes due 2008 (the "Initial Notes"), and its 12 1/4% Series B Senior
Notes due 2008 (the "Exchange Notes" and, together with the Initial Notes, the
"Notes"), of substantially the tenor and amount hereinafter set forth, and to
provide therefor the Company has duly authorized the execution and delivery of
this Indenture.
Upon the issuance of the Exchange Notes, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture shall be subject to, and shall be governed by the provisions of, the
Trust Indenture Act that are required to be part of or deemed to be part of and
to govern the indentures qualified thereunder.
All things necessary have been done to make the Notes, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
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(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under the
Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are in effect on the date hereof; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision and the word "including"
means "including without limitation.".
Certain terms, used principally in Article Ten, are defined in that
Article and certain terms, used principally in Articles Two and Three, are
defined in Article Two.
"Accounts Receivable Subsidiary" means any Restricted Subsidiary of
the Company that is, directly or indirectly, wholly owned by the Company (other
than directors' qualifying shares) and organized for the purpose of and engaged
in (i) purchasing, financing and collecting accounts receivable obligations of
customers of the Company or its Restricted Subsidiaries, (ii) the sale or
financing of accounts receivable or interests therein and (iii) other activities
directly related thereto.
"Acquired Indebtedness" means Indebtedness of a Person (a) existing
at the time such Person becomes a Restricted Subsidiary or (b) assumed in
connection with an acquisition of assets from such Person, in each case, other
than Indebtedness incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or such acquisition.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"Affiliate" means, with respect to any specified Person, (i) any
other Person directly or indirectly controlling or controlled by, or under
direct or indirect common control with, such specified Person or (ii) any other
Person that owns, directly or indirectly, 10% or more of such specified Person's
Voting Stock or any executive officer or director of any such specified Person
or other Person or, with respect to any natural Person, any other Person in such
Person's immediate family. For the purposes of this definition, "control," when
used
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with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate
of a Person solely by reason of (a) such Person being party to an Incumbent
Agreement or (b) such Person owning an interest in a Restricted Subsidiary
pursuant to, or as the result of, an Incumbent Agreement.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease
or other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of (i) any
Capital Stock of any Subsidiary; (ii) all or substantially all of the properties
and assets of the Company or any Subsidiary; or (iii) any other properties or
assets of the Company or any Subsidiary, other than in the ordinary course of
business (it being understood that the ordinary course of business includes, but
is not restricted to, any transfer or sale of, or the grant of a right to use,
an asset to an Incumbent pursuant to (x) an Incumbent Agreement, (y) applicable
law or (z) an agreement to which such Incumbent is a party which exists on the
date of, and is not entered into in contemplation of, such Incumbent Agreement).
For the purposes of this definition, the term "Asset Sale" shall not include any
transfer of properties or assets (A) that is governed by the provisions of
Article Eight of this Indenture (B) of the Company to any Restricted Subsidiary,
or of any Restricted Subsidiary to the Company or any other Restricted
Subsidiary in accordance with the terms of this Indenture, (C) having an
aggregate Fair Market Value of less than $2,000,000 in any given fiscal year,
(D) by the Company or a Restricted Subsidiary to a Person who is not an
Affiliate of the Company in exchange for Telecommunications Assets (or not less
than 66 2/3% of the outstanding Voting Stock of a Person that becomes a
Restricted Subsidiary, the assets of which consist primarily of
Telecommunications Assets) or related telecommunications services where, in the
good faith judgment of the board of directors of the Company evidenced by a
board resolution, the Fair Market Value of such Telecommunications Assets (or
such Voting Stock) or services so received is at least equal to the Fair Market
Value of the properties or assets disposed of or, if less, the difference is
received by the Company in cash in an amount at least equal to such difference,
(E) constituting Capital Stock of an Unrestricted Subsidiary or other Investment
that was permitted under Section 1012 when made, (F) constituting accounts
receivable of the Company or a Restricted Subsidiary to an Accounts Receivable
Subsidiary or in consideration of Fair Market Value thereof, to Persons that are
not Affiliates of the Company or any Subsidiary of the Company in the ordinary
course of business, including in connection with financing transactions, (G) in
connection with a Sale-Leaseback Transaction otherwise permitted to be incurred
under Section 1011, (H) to a Permitted Telecommunications Joint Venture if such
transfer of properties or assets is permitted under the definition of "Permitted
Investments", (I) in connection with a Permitted Telecommunications Asset Sale
or (J) to an Unrestricted Subsidiary if permitted under Section 1012.
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"Attributable Value" means, with respect to any lease at the time of
determination, the present value (discounted at the interest rate implicit in
the lease or, if not known, at the Company's incremental borrowing rate) of the
obligations of the lessee of the property subject to such lease for rental
payments during the remaining term of the lease included in such transaction,
including any period for which such lease has been extended or may, at the
option of the lessor, be extended, or until the earliest date on which the
lessee may terminate such lease without penalty or upon payment of penalty (in
which case the rental payments shall include such penalty), after excluding from
such rental payments all amounts required to be paid on account of maintenance
and repairs, insurance, taxes, assessments, water, utilities and similar
charges.
"Average Life" means, as of the date of determination with respect
to any Indebtedness, the quotient obtained by dividing (a) the sum of the
products of (i) the number of years from the date of determination to the date
or dates of each successive scheduled principal payment (including, without
limitation, any sinking fund requirements) of such Indebtedness multiplied by
(ii) the amount of each such principal payment by (b) the sum of all such
principal payments.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" shall mean any day on which (i) banks in the City of
New York, (ii) the principal U.S. securities exchange or market, if any, on
which any Common Stock is listed or admitted to trading and (iii) the principal
U.S. securities exchange or market, if any, on which the Warrants are listed or
admitted to trading are open for business.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or other
equivalents (however designated and whether voting or non-voting) in equity of
such Person, including, without limitation, all common stock or Preferred Stock,
and any rights (other than debt securities convertible into capital stock),
warrants or options exchangeable for or convertible into such capital stock,
whether now outstanding or issued after the Issue Date.
"Capitalized Lease Obligation" means, with respect to any Person,
any obligation of such Person under a lease of (or other agreement conveying the
right to use) any property (whether real, personal or mixed) that is required to
be classified and accounted for as a capital lease obligation under GAAP, and,
for the purposes of this Indenture, the
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amount of such obligation at any date shall be the capitalized amount thereof at
such date, determined in accordance with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with a
maturity of 180 days or less issued or directly and fully guaranteed or insured
by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (b) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of
the Federal Reserve System, in each case having combined capital and surplus and
undivided profits of not less than $500,000,000; (c) commercial paper with a
maturity of 180 days or less issued by a corporation that is not an Affiliate of
the Company and is organized under the laws of any state of the United States or
the District of Columbia and rated at least A-1 by S&P or at least P-l by
Moody's; and (d) money market mutual funds that invest substantially all of
their assets in securities of the type described in the preceding clauses.
"Change of Control" means any of the following events:
(a) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act), other than Permitted Holders, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and l3d-5 under
the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the total outstanding
Voting Stock of the Company;
(b) the Company consolidates with, or merges with or into, another
Person or conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is
converted into or exchanged for cash, securities or other property, other
than any such transaction (i) where the outstanding Voting Stock of the
Company is not converted or exchanged at all (except to the extent
necessary to reflect a change in the jurisdiction of incorporation of the
Company) or is converted into or exchanged for (A) Voting Stock (other
than Redeemable Capital Stock) of the surviving or transferee corporation
or (B) cash, securities and other property (other than Capital Stock of
the Surviving Entity) in an amount that could be paid by the Company as a
Restricted Payment as described in Section 1012 and (ii) immediately after
such transaction, no "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than Permitted
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of
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time), directly or indirectly, of more than 50% of the total outstanding
Voting Stock of the surviving or transferee corporation;
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of
Directors, or whose nomination for election by the stockholders of the
Company, was approved by a vote of 66 2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the
Company then in office; or
(d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which complies with
the provisions of Article Eight of this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all
shares, interests, participations and other equivalents (however designated,
whether voting or non-voting) of such Persons common stock, whether now
outstanding or issued after the date of this Indenture, and includes, without
limitation, all series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its Chairman, its Chief Executive
Officer ("CEO"), its President, any executive vice president or vice president
or the Treasurer and delivered to the Trustee.
"Consolidated Adjusted Net Income" means, for any period, the
consolidated net income (or loss) of the Company and all Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted by excluding,
without duplication, (a) any net after-tax extraordinary gains or losses (less
all fees and expenses relating thereto), (b) any net after-tax gains or losses
(less all fees and expenses relating thereto) attributable to asset
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dispositions other than in the ordinary course of business, (c) the portion of
net income (or loss) of any Person (other than the Company or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Company or any
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company or any
Restricted Subsidiary in cash dividends or distributions during such period, (d)
the net income (or loss) of any Person combined with the Company or any
Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination, (e) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary is not at the date of determination
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary or its
stockholders (except, for purposes of determining compliance with Section 1011,
any restriction permitted under clause (vii) or (viii) of Section 1018, and (f)
any net income (or loss) from any Restricted Subsidiary that was an Unrestricted
Subsidiary at any time during such period other than any amounts actually
received from such Restricted Subsidiary.
"Consolidated Indebtedness" means, with respect to any period, the
aggregate amount of Indebtedness of the Company and its Restricted Subsidiaries
outstanding at the date of determination as determined on a consolidated basis
in accordance with GAAP.
"Consolidated Indebtedness to Consolidated Operating Cash Flow
Ratio" means, at any date of determination, the ratio of (i) Consolidated
Indebtedness to (ii) Consolidated Operating Cash Flow for the two preceding
fiscal quarters for which financial information is available immediately prior
to the date of determination multiplied by two; provided that any Indebtedness
incurred or retired by the Company or any of its Restricted Subsidiaries during
the fiscal quarter in which the transaction date occurs shall be calculated as
if such Indebtedness were so incurred or retired on the first day of the fiscal
quarter in which the date of determination occurs (provided that, in making any
such computation, the aggregate amount of Indebtedness under any revolving
credit or similar facility shall be deemed to include an amount of funds equal
to the average daily balance of such Indebtedness during such two fiscal quarter
period); and provided further that (x) if the transaction giving rise to the
need to calculate the Consolidated Indebtedness to Consolidated Operating Cash
Flow Ratio would have the effect of increasing or decreasing Consolidated
Indebtedness or Consolidated Operating Cash Flow in the future, Consolidated
Indebtedness and Consolidated Operating Cash Flow shall be calculated on a pro
forma basis as if such transaction had occurred on the first day of such two
fiscal quarter period preceding the date of determination; (y) if during such
two fiscal quarter period, the Company or any of its Restricted Subsidiaries
shall have engaged in any Asset Sale in respect of any company, entity or
business, Consolidated Operating Cash Flow for such period shall be reduced by
an amount equal to the Consolidated Operating Cash Flow (if positive), or
increased by an amount equal to the Consolidated Operating Cash Flow (if
negative), directly attributable to
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the company, entity or business that is the subject of such Asset Sale and any
related retirement of Indebtedness as if such Asset Sale and any related
retirement of Indebtedness had occurred on the first day of such period; or (z)
if during such two fiscal quarter period the Company or any of its Restricted
Subsidiaries shall have acquired any company, entity or business, Consolidated
Operating Cash Flow shall be calculated on a pro forma basis as if such
acquisition and related financing had occurred on the first day of such period.
"Consolidated Interest Expense" means, for any period, without
duplication, the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, including, without limitation, (i)
amortization of debt discount, (ii) the net cost of Interest Rate Agreements
(including amortization of discounts), (iii) the interest portion of any
deferred payment obligation, (iv) accrued interest, (v) the consolidated amount
of any interest capitalized by the Company and (vi) amortization of debt
issuance costs, plus (b) the interest component of Capitalized Lease Obligations
of the Company and its Restricted Subsidiaries paid, accrued and/or scheduled to
be paid or accrued during such period; excluding, however, any amount of such
interest of any Restricted Subsidiary if the net income of such Restricted
Subsidiary is excluded in the calculation of Consolidated Adjusted Net Income
pursuant to clause (e) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded from the
calculation of Consolidated Adjusted Net Income pursuant to clause (e) of the
definition thereof); provided that in making such computation, (x) the
Consolidated Interest Expense attributable to interest on any Indebtedness
computed on a pro forma basis and (A) bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period and (B) which was not outstanding during
the period for which the computation is being made but which bears, at the
option of the Company, a fixed or floating rate of interest, shall be computed
by applying, at the option of the Company, either the fixed or floating rate,
(y) the Consolidated Interest Expense attributable to interest on any
Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period and (z) the interest rate with respect to any
Indebtedness covered by an Interest Rate Agreement shall be deemed to be the
effective interest rate with respect to such Indebtedness after taking into
account such Interest Rate Agreement.
"Consolidated Operating Cash Flow" means, with respect to any
period, the Consolidated Adjusted Net Income for such period (a) increased by
(to the extent deducted in computing Consolidated Adjusted Net Income) the sum
of (i) the Consolidated Tax Expense for such period (other than taxes
attributable to extraordinary, unusual or non-recurring gains or losses); (ii)
Consolidated Interest Expense for such period; (iii) depreciation of the Company
and the Restricted Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP; (iv) amortization of the Company and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; and (v) any other non-cash charges that were deducted in
computing Consolidated Adjusted Net Income
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(excluding any non-cash charge which requires an accrual or reserve for cash
charges for any future period) of the Company and its Restricted Subsidiaries
for such period in accordance with GAAP and (b) decreased by any non-cash gains
that were included in computing Consolidated Adjusted Net Income.
"Consolidated Tax Expense" means, for any period, the provision for
U.S. federal, state, provincial, local and foreign income taxes of the Company
and all Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Corporate Trust Office" means the principal corporate trust office
of the Trustee, at which at any particular time its corporate trust business
shall be administered, which office at the date of execution of this Indenture
is located at 101 Barclay Street, Floor 21 West, New York, New York 10286,
except that with respect to presentation of Notes for payment or for
registration of transfer or exchange, such term shall mean the office or agency
of the Trustee at which, at any particular time, its corporate agency business
shall be conducted.
"Corporation" or "corporation" includes corporations, associations,
companies and business trusts.
"Credit Facilities" means, with respect to the Company or its
Restricted Subsidiaries, one or more debt facilities or commercial paper
facilities with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Currency Agreement" means any spot or forward foreign exchange
agreements and currency swap, currency option or other similar financial
agreements or arrangements entered into by the Company or any of its Restricted
Subsidiaries.
"Debt Securities" means any debt securities (including any Guarantee
of such securities) issued by the Company and/or any Restricted Subsidiary in
connection with a public offering (whether or not underwritten) or a private
placement (provided that such private placement is underwritten for resale
pursuant to Rule 144A, Regulation S or otherwise under the Securities Act or
sold on an agency basis by a broker-dealer or one of its Affiliates to 10 or
more non-affiliated beneficial holders); it being understood that the term "Debt
Securities" shall not include any evidence of indebtedness under the Vendor
Credit Facility, any financing by a Restricted Subsidiary similar to the Vendor
Credit Facility or any Credit Facility or other commercial bank borrowings, any
vendor equipment financing
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facility or any similar financings, recourse transfers of financial assets,
capital leases or other types of borrowings incurred in a manner not customarily
viewed as a "securities offering".
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the board of directors of the Company
is required to deliver a resolution thereof under this Indenture, a member of
the board of directors of the Company who does not have any material direct or
indirect financial interest in or with respect to such transaction or series of
transactions. For purposes of this definition, no Person shall be deemed not to
be a Disinterested Director solely because such Person or an Affiliate of such
Person holds or beneficially owns Capital Stock of the Company or any of its
Restricted Subsidiaries.
"Escrow Account" means an account established with the Trustee in
its name as Trustee pursuant to the terms of the Pledge Agreement for the
deposit of the Pledged Securities purchased by the Company with a portion of the
net proceeds from the offering of the initial offer and sale by the Company of
the Initial Notes.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that such Exchange Notes shall not
contain terms with respect to transfer restrictions and Liquidated Damages and
shall be registered under the Securities Act) that are issued and exchanged for
the Initial Notes in accordance with the Exchange Offer, as provided for in
theNotes Registration Rights Agreement and this Indenture.
"Exchange Offer" means the offer by the Company to the Holders of
the Initial Notes to exchange all of the Initial Notes for Exchange Notes as
provided for in the Notes Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Notes Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's length transaction between an
informed and willing
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seller under no compulsion to sell and an informed and willing buyer under no
compulsion to buy. Unless otherwise specified in this Indenture, Fair Market
Value shall be determined by the Board of Directors of the Company acting in
good faith and as of the date on which such determination is made.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of
the United States Code, as amended from time to time.
"GAAP" means generally accepted accounting principles in the United
States that are in effect on the Issue Date.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantees the full faith and credit of the United States of America is
pledged which, in any case, are not callable or redeemable at the option of the
issuer of the issuer thereof.
"Guarantee" or "guarantee" means, as applied to any obligation, (a)
a guarantee (other than by endorsement of negotiable instruments for collection
in the ordinary course of business), direct or indirect, in any manner, of any
part or all of such obligation and (b) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of credit.
When used as a verb, "Guarantee" or "guarantee" shall have a corresponding
meaning.
"Holder" means a Person in whose name a Note is registered in the
Note Register.
"Incumbent" means any railroad, utility, governmental entity,
pipeline or other licensed owner (which ownership is determined immediately
prior to any transaction with the Company or a Restricted Subsidiary) of
Telecommunications Assets to be used in the Company's network pursuant to an
Incumbent Agreement (and any subsidiary or affiliate of such Person that is a
party to an Incumbent Agreement for the sole purpose of receiving payments from
the Company or a Restricted Subsidiary pursuant to such agreement).
"Incumbent Agreement" means an agreement between an Incumbent and
the Company or a Restricted Subsidiary pursuant to which, among other things,
such Incumbent receives a payment equal to a percentage of the Company's or such
Restricted Subsidiary's revenues, if any, attributable, in whole or in part, to
Telecommunications Assets transferred or leased, or with respect to which a
right of use has been granted, by such Incumbent to the Company or such
Restricted Subsidiary and upon or with respect to which the Company or such
Restricted Subsidiary has constructed or intends to construct a portion of its
network.
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"Incur" or "incur" means, with respect to any Indebtedness, to
incur, create, issue, assume, guarantee or otherwise become directly or
indirectly liable or responsible for the payment of, or otherwise incur, such
Indebtedness, contingently or otherwise; provided that neither the accrual of
interest nor the accretion of original issue discount shall be considered an
incurrence of Indebtedness. With respect to Indebtedness to be borrowed under a
binding commitment previously entered into that provides for the Company to
Incur Indebtedness on a revolving basis, the Company shall be deemed to have
Incurred the greater of (a) the Indebtedness actually Incurred or (b) all or a
portion of the amount of such unborrowed commitment that the Company shall have
so designated to be Incurred in an Officer's Certificate delivered to the
Trustee (in which case the Company shall not be deemed to incur such unborrowed
amount at the time or times it is actually borrowed).
"Indebtedness" means, with respect to any Person at any date of
determination, without duplication: (a) all liabilities, contingent or
otherwise, of such Person: (i) for borrowed money (including overdrafts), (ii)
in connection with any letters of credit and acceptances issued under letter of
credit facilities, acceptance facilities or other similar facilities (including
reimbursement obligations with respect thereto), (iii) evidenced by bonds,
notes, debentures or other similar instruments, (iv) for the deferred and unpaid
purchase price of property or services or created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person or (v) for Capitalized Lease Obligations (including any
Sale-Leaseback Transaction); (b) all obligations of such Person under or in
respect of Interest Rate Agreements and Currency Agreements; (c) all
Indebtedness referred to in (but not excluded from) the preceding clauses of
other Persons and all dividends of other Persons, the payment of which is
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or with respect to any
property (including, without limitation, accounts and contract rights) owned by
such Person, whether or not such Person has assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of (i) the Fair Market Value of such property or asset and (ii) the
amount of such obligation so secured); (d) all guarantees by such Person of
Indebtedness referred to in this definition of any other Person; and (e) all
Redeemable Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price, plus accrued and unpaid dividends.
The amount of Indebtedness of any Person at any date will be the
outstanding balance at such date (or, in the case of a revolving credit or other
similar facility, the total amount of funds outstanding and/or designated as
incurred and certified by an officer of the Company to have been Incurred on
such date pursuant to clause (b) of the last sentence of the definition of
"Incur") of all unconditional obligations as described above and, with respect
to contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation; provided (i) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
equals the face amount of such Indebtedness less the
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13
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP and (ii) that
Indebtedness shall not include any liability for U.S. federal, state, local or
other taxes owed by such Person. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
this Indenture, and if such price is based upon, or measured by, the Fair Market
Value of such Redeemable Capital Stock, such Fair Market Value will be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. Notwithstanding the foregoing, trade accounts and
accrued liabilities arising in the ordinary course of business will not be
considered Indebtedness for purposes of this definition.
"Independent financial expert" means a nationally or regionally
recognized investment banking or public accounting firm or, if the Company
believes that an investment banking or public accounting firm is generally not
qualified to give a particular opinion, a nationally or regionally recognized
appraisal firm.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Initial Notes" has the meaning stated in the first recital of this
Indenture.
"Initial Purchasers" means Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith, Incorporated, Bear, Stearns & Co., TD Securities (US),
Inc. and Salomon Brothers Inc.
"Initial System" means all property, rights and assets necessary to
own and operate an Incumbent's base microwave network system and shall include,
without limitation, the initial microwave radio and protect microwave radio,
software, antennae, waveguide, multiplexors, towers, shelters, licenses
(including Federal Communications Commission and Federal Aviation Administration
licenses), permits, leases, rights-of-way, easements and other related assets.
An Initial System shall not include any additional microwave radios and related
equipment installed as part of an expansion of an Initial System.
"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Notes.
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14
"Interest Rate Agreement" means any interest rate protection
agreements and other types of interest rate hedging agreements or arrangements
(including, without limitation, interest rate swaps, caps, floors, collars and
other similar agreements).
"Invested Capital" means the sum of (a) 75% of the aggregate net
cash proceeds received by the Company from the issuance of (or capital
contributions with respect to) any Qualified Capital Stock subsequent to the
Issue Date, other than the issuance of Qualified Capital Stock to a Restricted
Subsidiary of the Company, and (b) 75% of the aggregate net cash proceeds from
sales of Redeemable Capital Stock of the Company or Indebtedness of the Company
convertible into Qualified Capital Stock of the Company, in each case upon such
redemption or conversion thereof into Qualified Capital Stock.
"Investment" means, with respect to any Person, any direct or
indirect advance, loan or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase,
acquisition or ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued or owned by,
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP. In addition, the portion
(proportionate to the Company's equity interest in such Subsidiary) of the Fair
Market Value of the net assets of any Subsidiary at the time that such
Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an
"Investment" made by the Company in such Unrestricted Subsidiary at such time
and the portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of any Subsidiary at the
time that such Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments. "Investments" shall exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices.
"Issue Date" means the date of this Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired. A Person shall be deemed to own subject to a Lien
any property which such Person has acquired or holds subject to the interest of
a vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 2 of the Notes Registration Rights Agreement.
<PAGE>
15
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as provided therein or in this
Indenture, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means: (a) with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents, including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed of for, cash or Cash Equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary), net of (i) brokerage commissions and other fees
and expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties which are the subject
of such Asset Sale, (iv) amounts required to be paid to any Person (other than
the Company or any Restricted Subsidiary) owning a beneficial interest in the
assets subject to the Asset Sale and (v) appropriate amounts to be provided by
the Company or any Restricted Subsidiary, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee; and (b) with respect to any issuance or sale of Capital Stock or
options, warrants or rights to purchase Capital Stock, or debt securities or
Redeemable Capital Stock that has been converted into or exchanged for Qualified
Capital Stock, as referred to in Section 1012, the proceeds of such issuance or
sale in the form of cash or Cash Equivalents, including payments in respect of
deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or Cash Equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Subsidiary of the Company), net of fees, commissions and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Note" or "Notes" has the meaning stated in the first recital of
this Indenture and more particularly means any Notes authenticated and delivered
under this Indenture.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 305.
"Notes Registration Rights Agreement" means the Notes Registration
Rights Agreement dated as of the Issue Date, by and between the Initial
Purchasers and the
<PAGE>
16
Company, concerning the registration and exchange of the Notes, a conformed copy
of which has been delivered to the Trustee.
"Officers' Certificate" means a certificate signed by the Chairman,
the CEO, the President or any executive vice president or vice president, and by
the Treasurer, an assistant treasurer, the Secretary or an assistant secretary
of the Company, and delivered to the Trustee.
"Offshore Note Exchange Date" means the 40th day after the Issue
Date.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company.
"Outstanding", when used with respect to Notes, means, as of the
date of determination, all Notes theretofore authenticated and delivered under
this Indenture, except: (i) Notes theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation; (ii) Notes, or portions thereof, for
whose payment or redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company shall act as
its own Paying Agent) for the Holders of such Notes; provided that, if such
Notes are to be redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the Trustee has been
made; (iii) Notes, except to the extent provided in Sections 1302 and 1303, with
respect to which the Company has effected defeasance and/or covenant defeasance
as provided in Article Thirteen; and (iv) Notes which have been paid pursuant to
Section 306 or in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture, other than any such
Notes in respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in whose
hands the Notes are valid obligations of the Company; provided, however, that in
determining whether the Holders of the requisite principal amount of Outstanding
Notes have given any request, demand, authorization, direction, consent, notice
or waiver hereunder, and for the purpose of making the calculations required by
TIA Section 313, Notes owned by the Company or any other obligor upon the Notes
or any Affiliate of the Company or such other obligor shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in making such calculation or in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only Notes
which a Responsible Officer of the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgees right so to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or such other obligor.
<PAGE>
17
"Participant" means, with respect to the Depositary Trust Company
(the "Depository") or its nominee, an institution that has an account therewith.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Notes on behalf of the Company.
"Permitted Holder" means Spectrum Equity Investors, L.P., New
Enterprise Associates VI, Limited Partnership, Onset Enterprise Associates II,
L.P., FBR Technology Venture Partners L.P., Toronto Dominion Capital (USA), Inc.
and Grotech Partners IV, L.P., any general partner of any such Person on the
Issue Date, any Person controlled by any such general partner, David Schaeffer
or Richard A. Jalkut.
"Permitted Indebtedness" means:
(a) Indebtedness of the Company pursuant to the Notes or of any
Restricted Subsidiary pursuant to a Guarantee of the Notes;
(b) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date;
(c) Indebtedness of the Company owing to any Restricted Subsidiary
(but only so long as such Indebtedness is held by such Restricted
Subsidiary); provided that any Indebtedness of the Company owing to any
such Restricted Subsidiary is subordinated in right of payment from and
after such time as the Notes shall become due and payable (whether at
Stated Maturity, by acceleration or otherwise) to the payment and
performance of the Company's obligations under the Notes; and provided
further that any transaction pursuant to which any Restricted Subsidiary
to which such Indebtedness is owed ceases to be a Restricted Subsidiary
shall be deemed to be an incurrence of Indebtedness by the Company that is
not permitted by this clause (c);
(d) Indebtedness of any Restricted Subsidiary to the Company or of
any Restricted Subsidiary to another Restricted Subsidiary;
(e) Indebtedness of the Company or any Restricted Subsidiary in
respect of performance, surety or appeal bonds or under letter of credit
facilities provided in the ordinary course of business and, in the case of
letters of credit, under which recourse to the Company is limited to the
cash securing such letters of credit;
(f) Indebtedness of the Company under Currency Agreements and
Interest Rate Agreements entered into in the ordinary course of business;
provided that such agreements are designed to protect the Company or any
Restricted Subsidiary against, or manage exposure to, fluctuations in
currency exchange rates and interest rates,
<PAGE>
18
respectively, and that such agreements do not increase the Indebtedness of
the obligor outstanding at any time other than as a result of fluctuations
in foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder;
(g) Telecommunications Indebtedness and any Indebtedness issued in
exchange for, or the net proceeds of which are used to refinance or refund
such Telecommunications Indebtedness in an amount not to exceed the amount
so refinanced or refunded (plus premiums, accrued interest, and reasonable
fees and expenses);
(h) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in connection with
Telecommunications Indebtedness, Indebtedness permitted under clause (j)
or (m) of this "Permitted Indebtedness" definition or in respect of
purchase price adjustments in connection with the acquisition of or
disposition of assets, including, without limitation, shares of Capital
Stock;
(i) Indebtedness of the Company not to exceed, at any time
outstanding, 2.0 times the Net Cash Proceeds from the issuance and sale
after the Issue Date, other than to a Restricted Subsidiary, of Qualified
Capital Stock of the Company, to the extent such Net Cash Proceeds have
not been used to make Restricted Payments pursuant to clause (a)(3)(B) or
clauses (b)(ii) and (iii) of Section 1012 to make a Restricted Payment or
to make any Permitted Investments under clause (h) of the definition of
Permitted Investments; provided that such Indebtedness does not mature
prior to the Stated Maturity of the Notes and has an Average Life longer
than the Notes;
(j) Indebtedness of the Company or any Restricted Subsidiary under
one or more Credit Facilities; provided that the aggregate principal
amount of any Indebtedness incurred pursuant to this clause (j) (including
any amounts refinanced or refunded under this clause (j)) does not exceed
at any time outstanding the greater of (x) 80% of eligible accounts
receivable of the Company as of the last fiscal quarter for which
financial statements are prepared or (y) $50,000,000; and any Indebtedness
issued in exchange for, or the net proceeds of which are used to refinance
or refund, Indebtedness issued under this clause (j) in an amount not to
exceed the amount so refinanced or refunded (plus premiums, accrued
interest, and reasonable fees and expenses);
(k) Indebtedness of the Company or a Restricted Subsidiary issued in
exchange for, or the net proceeds of which are used to refinance or
refund, then outstanding Indebtedness of the Company or a Restricted
Subsidiary, incurred under the ratio test set forth in clause (i) or (ii)
of Section 1011 or under clauses (b) through (f), (h), (i) and (m) of this
definition of "Permitted Indebtedness," and any refinancings thereof in an
amount not to exceed the amount so refinanced or refunded (plus premiums,
accrued interest, and reasonable fees and expenses); provided that such
new
<PAGE>
19
Indebtedness shall only be permitted under this clause (k) if (A) in case
the Notes are refinanced in part, or the Indebtedness to be refinanced
ranks equally with the Notes, such new Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made to rank
equally with, or subordinate in right of payment to, the remaining Notes,
(B) in case the Indebtedness to be refinanced is subordinated in right of
payment to the Notes, such new Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
issued or remains outstanding, is expressly made subordinate in right of
payment to the Notes at least to the same extent that the Indebtedness to
be refinanced is subordinated to the Notes and (C) such new Indebtedness,
determined as of the date of incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be refinanced
or refunded, and the Average Life of such new Indebtedness is at least
equal to the remaining Average Life of the Indebtedness being refinanced
or refunded; provided further that no Indebtedness incurred under this
clause (k) in exchange for, or the proceeds of which refinance or refund
any Indebtedness incurred under the ratio test set forth under clause (i)
or (ii) of Section 1011 will mature prior to the Stated Maturity of the
Notes or have an Average Life shorter than the Notes; provided further
that in no event may Indebtedness of the Company be refinanced by means of
any Indebtedness of any Restricted Subsidiary issued pursuant to this
clause (k);
(l) Indebtedness arising by reason of the recharacterization of a
sale of accounts receivable to an Accounts Receivable Subsidiary; and
(m) Indebtedness of the Company or any Restricted Subsidiary in
addition to that permitted to be incurred pursuant to clauses (a) through
(l) above in an aggregate principal amount not in excess of $30,000,000 at
any time outstanding.
"Permitted Investment" means any of the following:
(a) Investments in Cash Equivalents; provided that the term "with a
maturity of 180 days or less" in clauses (a), (b) and (c) of the
definition of "Cash Equivalents" is changed to "with a maturity of one
year or less" for the purposes of this definition of "Permitted
Investments" only;
(b) Investments in the Company or any Restricted Subsidiary;
(c) Investments by the Company or any Restricted Subsidiary in
another Person if, as a result of such Investment, (i) such other Person becomes
a Restricted Subsidiary or (ii) such other Person is merged or consolidated with
or into, or transfers or conveys all or substantially all of its assets to, the
Company or a Restricted Subsidiary;
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20
(d) Investments in the form of intercompany Indebtedness to the
extent permitted under clauses (c) and (d) of the definition of "Permitted
Indebtedness;"
(e) Investments in existence on the Issue Date;
(f) Investments in the Pledged Securities to the extent required by
the Pledge Agreement;
(g) Investments in an amount not to exceed $1,000,000 at any one
time outstanding;
(h) Investments in an aggregate amount not to exceed the sum of (1)
Invested Capital, (2) the Fair Market Value of Qualified Capital Stock of the
Company, Redeemable Capital Stock of the Company, or Indebtedness of the Company
convertible into Qualified Capital Stock of the Company, in the latter two cases
upon such redemption or conversion thereof into Qualified Capital Stock of the
Company, issued by the Company or any Restricted Subsidiary of the Company as
consideration for any such Investments made pursuant to this clause (h), and (3)
in the case of the disposition or repayment of any Investment made pursuant to
this clause (h) after the Issue Date (including by redesignation of an
Unrestricted Subsidiary of the Company to a Restricted Subsidiary of the
Company), an amount equal to the lesser of the return of capital with respect to
such Investment and the initial amount of such Investment, in either case, less
the cost of the disposition of such Investment; provided, however, that the
amount of any Permitted Investments under this clause (h) shall be excluded from
the computation of the amount of any Restricted Payment under Section 1012;
(i) Investments in trade receivables, prepaid expenses, negotiable
instruments held for collection and lease, utility and worker's compensation,
performance and other similar deposits or escrow;
(j) Loans, advances and extensions of credit to employees made in
the ordinary course of business of the Company not in excess of $500,000 in any
fiscal year;
(k) Bonds, notes, debentures or other securities received as a
result of Asset Sales permitted under Section 1017;
(l) Endorsements for collection or deposit in the ordinary course of
business by such Person of bank drafts and similar negotiable instruments of
such other person received as payment for ordinary course of business trade
receivables;
(m) Investments deemed to have been made as a result of the
acquisition of a Person that at the time of such acquisition held instruments
constituting Investments that were not acquired in contemplation of, or in
connection with, the acquisition of such Person;
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21
(n) Investments in or acquisitions of Capital Stock, indebtedness,
securities or other property of Persons (other than Affiliates of the Company)
received by the Company or any of its Restricted Subsidiaries in the bankruptcy
or reorganization of or by such Person or any exchange of such Investment with
the issuer thereof or taken in settlement of or other resolution of claim or
disputes, and, in each case, extensions, modifications and renewals thereof;
(o) Investments in any Person to which Telecommunications Assets
used in an Initial System have been transferred and which person has provided to
the Company or a Restricted Subsidiary the right to use such assets pursuant to
an Incumbent Agreement; provided that, in the good faith determination of the
Board of Directors, the present value of the future payments expected to be
received by the Company in respect of any such Investment plus the Fair Market
Value of any capital stock or other securities received in connection therewith
shall be at least equal to the Fair Market Value of such Investment; and
(p) Investments in one or more Permitted Telecommunications Joint
Ventures; provided that the total original cost of all such Permitted
Telecommunications Joint Ventures plus the cost or Fair Market Value, as
applicable, of all additions thereto less the sum of all amounts received as
returns thereon shall not exceed $20,000,000.
"Permitted Liens" means: (a) Liens existing on the Issue Date;
(b) Liens on any property or assets of a Restricted Subsidiary
granted in favor of the Company or any Restricted Subsidiary;
(c) Liens on any property or assets of the Company or any Restricted
Subsidiary securing the Notes or any Guarantees thereof;
(d) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease permitted by this Indenture;
(e) Liens securing Indebtedness incurred under clauses (g), (j) or
(m) of the definition of "Permitted Indebtedness";
(f) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in the
ordinary course of business of the Company or any Restricted Subsidiary and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceeding, if a reserve or other appropriate provision, if any, as
required in conformity with GAAP shall have been made therefor;
(g) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly instituted
and diligently
<PAGE>
22
conducted and if a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor;
(h) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds, escrows and other obligations of a like
nature incurred in the ordinary course of business (other than contracts for the
payment of money);
(i) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any Restricted Subsidiary incurred in the ordinary course of
business;
(j) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
(k) Liens securing Acquired Indebtedness created prior to (and not
in connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or any Restricted Subsidiary; provided that such Lien does not
extend to any property or assets of the Company or any Restricted Subsidiary
other than the assets acquired in connection with the incurrence of such
Acquired Indebtedness;
(l) Liens securing obligations of the Company under Interest Rate
Agreements or Currency Agreements permitted to be incurred under clause (f) of
the definition of "Permitted Indebtedness" or any collateral for the
Indebtedness to which such Interest Rate Agreements or Currency Agreements
relate;
(m) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security;
(n) Liens securing reimbursement obligations of the Company or any
Restricted Subsidiary with respect to letters of credit that encumber documents
and other property relating to such letters of credit and the products and
proceeds thereof;
(o) Liens arising from purchase money mortgages and purchase money
security interests; provided that (i) the related Indebtedness shall not be
secured by any property or assets of the Company or of any Restricted Subsidiary
other than the property and assets so acquired and (ii) the Lien securing such
Indebtedness shall be created within 60 days of such acquisition;
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23
(p) Liens securing the Escrow Account, the Pledged Securities and
the proceeds thereof and the security interest created by the Pledge Agreement;
(q) any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (a) through (o); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall not
extend to any additional property or assets;
(r) Liens with respect to the equipment and related assets of the
Company installed on its network in favor of Persons that have licensed, leased,
transferred or granted to the Company or any Restricted Subsidiary a right to
use Telecommunications Assets or financed the purchase of Telecommunications
Assets or securing the obligations of the Company or such Restricted Subsidiary
under an Incumbent Agreement; provided that such Liens will (1) be created on
terms that the Company reasonably believes to be no less favorable to the
Company than Liens granted under clause (e) of this definition and (2) not
secure any Indebtedness in excess of the Fair Market Value of the equipment and
assets so secured;
(s) Liens relating to revenues of the Company or any Restricted
Subsidiary arising as a result of obligations under an Incumbent Agreement; and
(t) Liens on the property or assets or Capital Stock of Accounts
Receivable Subsidiaries and Liens arising out of any sale of Accounts Receivable
in the ordinary course of business (including in connection with a financing
transaction) to or by an Accounts Receivable Subsidiary or to Persons that are
not Affiliates of the Company.
"Permitted Telecommunications Asset Sale" means any transfer,
conveyance, sale, lease or other disposition of a capital asset that is a
Telecommunications Asset, the proceeds of which are treated as revenues
(including deferred revenues) by the Company in accordance with GAAP.
"Permitted Telecommunications Joint Venture" means a corporation,
partnership or other entity engaged in one or more Telecommunications Businesses
in which the Company owns, directly or indirectly, an equity interest.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
business trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Pledge Agreement" means the Pledge Agreement dated as of the Issue
Date, by and between the Trustee and the Company, governing the disbursement of
funds from the Escrow Account.
<PAGE>
24
"Pledged Securities" means the securities purchased by the Company
with a portion of the net proceeds from the initial offer and sale by the
Company of the Initial Notes, which shall consist of Government Securities, to
be deposited in the Escrow Account.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations, rights or other equivalents (however
designated, whether voting or non-voting) of such Person's preferred or
preference stock, whether now outstanding or issued after the Issue Date,
including, without limitation, all series and classes of such preferred or
preference stock of such Person.
"Public Equity Offering" means an offer and sale of Common Stock
(which is Qualified Capital Stock) of the Company pursuant to a registration
statement that has been declared effective by the Commission pursuant to the
Securities Act (other than a registration statement on Form S-8 or otherwise
relating to equity securities issuable under any employee benefit plan of the
Company) and resulting in Net Cash Proceeds to the Company of not less than
$45,000,000.
"Qualified Capital Stock" means, with respect to any Person, any and
all Capital Stock of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital
Stock that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is or, upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Notes or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity; provided that any Capital Stock that would not otherwise
constitute Redeemable Capital Stock but for provisions giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Notes shall not constitute Redeemable Capital Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable in any material respect to holders of such Capital
Stock than the provisions contained in Section 1017 and Section 1010 are to
holders of the Notes, and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such Capital Stock pursuant to any such
provision prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to Section 1017 and Section 1010.
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25
"Redemption Date", when used with respect to any Note to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the April 1 or October 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers, and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"S&P" means Standard and Poor's Ratings Services, a division of
McGraw-Hill, Inc., and its successors.
"Sale-Leaseback Transaction" means any direct or indirect
arrangement, or series of related arrangements, with any Person (other than the
Company or a Restricted Subsidiary) or to which any Person (other than the
Company or a Restricted Subsidiary) is a party, providing for the leasing to the
Company or to a Restricted Subsidiary of any property for an aggregate term
exceeding three years, whether owned by the Company or by any Subsidiary of the
Company at the Issue Date or later acquired, which has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such Person or to
any other Person from whom funds have been or are to be advanced by such Person
on the security of such property; provided that the transfer by the Company or
any Restricted Subsidiary of Telecommunications Assets to, and the leasing by
the Company or any Restricted Subsidiary of such assets from, a Permitted
Telecommunications Joint Venture shall not constitute a Sale-Leaseback
Transaction.
"Separability Date" shall mean the earliest to occur of: (i) October
5, 1998, (ii) the date on which a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to a registered
exchange offer for the Notes or covering the sale by holders of the Notes is
declared effective under the Securities Act, (iii) the
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26
occurrence of an Exercise Event (as defined in the Warrant Agreement, (iv) the
occurrence of an Event of Default (as defined herein), or (v) such date as may
be determined by Merrill Lynch, Pierce, Fenner & Smith Incorporated in its sole
discretion and specified to the Company, the Trustee and the Warrant Agent in
writing. The separation of the Warrants and the Notes is herein referred to as
the "Separation."
"Shelf Registration Statement" means the Shelf Registration as
defined in the Notes Registration Rights Agreement.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries, (ii) as of
the end of such fiscal year, was the owner of more than 10% of the consolidated
assets of the Company and its Restricted Subsidiaries, or (iii) owns one or more
FCC licenses the aggregate cost or Fair Market Value of which represents 5% or
more of the net asset value of the Company and its Restricted Subsidiaries on a
consolidated basis as of the end of such fiscal year, in the case of (i), (ii)
or (iii) as set forth on the most recently available consolidated financial
statements of the Company for such fiscal year.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subsidiary" means any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries or by the Company and one or more
other Subsidiaries.
"Telecommunications Assets" means, with respect to any Person,
assets (including, without limitation, rights of way, trademarks and licenses)
other than current assets that are utilized by such Person, directly or
indirectly, for the design, development, construction, installation, integration
or provision of the Company's network, including, without limitation, any
businesses or services in which the Company is currently engaged and including
any computer systems used in a Telecommunications Business. Telecommunications
Assets shall also include 66 2/3% of the Voting Stock of another Person,
provided that substantially all of the assets of such other Person consist of
Telecommunications Assets, and provided further such Voting Stock shall be held
by the Company or a Restricted Subsidiary, such other Person either is, or
immediately following the relevant transaction shall become, a
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27
Restricted Subsidiary of the Company pursuant to this Indenture or a Permitted
Telecommunications Joint Venture subject to the limitations set forth under
clause (p) of the definition of "Permitted Investment." The determination of
what constitutes Telecommunications Assets shall be made by the Board of
Directors and evidenced by a Board Resolution delivered to the Trustee.
"Telecommunications Business" means, the business of (i)
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii)
constructing, creating, developing, acquiring or marketing Telecommunication
Assets or other communications related network equipment, software and other
devices for use in a telecommunications business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in clause (i) or (ii) above; provided that the
determination of what constitutes a Telecommunications Business shall be made in
good faith by the board of directors of the Company.
"Telecommunications Indebtedness" means Indebtedness of the Company
or any Restricted Subsidiary incurred at any time within 315 days of, and for
the purpose of financing all or any part of the cost of, the construction,
expansion, installation, acquisition or improvement by the Company or any
Restricted Subsidiary of any new Telecommunications Assets; provided that the
proceeds of such Indebtedness are expended for such purposes within such 315-day
period; and provided further that the Net Cash Proceeds from the issuance of
such Indebtedness does not exceed, as of the date of incurrence thereof, 100% of
the lesser of the cost or Fair Market Value of such Telecommunications Assets;
provided further that, to the extent an Incumbent Agreement is characterized as
a Capitalized Lease Obligation, it shall be considered Telecommunications
Indebtedness.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time
of determination shall be an Unrestricted Subsidiary (as designated by the Board
of Directors as provided below) and (b) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so
long as (i) neither the Company nor any other Subsidiary is directly or
indirectly liable for any Indebtedness of such Subsidiary, (ii) no default with
respect to any Indebtedness of such Subsidiary would permit (upon notice, lapse
of time or otherwise) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its Stated Maturity,
(iii) any Investment in such Subsidiary made as a
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28
result of designating such Subsidiary an Unrestricted Subsidiary will not
violate the provisions of Section 1012, (iv) neither the Company nor any
Restricted Subsidiary has a contract, agreement, arrangement, understanding or
obligation of any kind, whether written or oral, with such Subsidiary other than
those that might be obtained at the time from persons who are not Affiliates of
the Company, and (v) neither the Company nor any other Subsidiary has any
obligation (1) to subscribe for additional shares of Capital Stock or other
equity interest in such Subsidiary, or (2) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the board of directors of
the Company shall be evidenced to the Trustee by filing a board resolution with
the Trustee giving effect to such designation. The Board of Directors may
designate any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately
after giving effect to such designation, there would be no Default or Event of
Default under this Indenture and the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 1011.
"Vendor Credit Facility" means, collectively, (i) the revolving
credit facility to be entered into by and among the Company, a finance
subsidiary of the Company and NEC Industries, Inc. (or any of its affiliates,
including NEC Corporation and NEC America, Inc.), substantially in the form
outlined by the commitment letter dated October 14, 1997; (ii) the revolving
credit facility to be entered into by and among the Company, a finance
subsidiary of the Company and Andrew Corporation (or its affiliates),
substantially in the form outlined by the commitment letter dated December 8,
1997; and (iii) the takeout credit facility substantially in the form of the
Commitment Letters dated October 7, 1997 and October 8, 1997, among the Company,
a finance subsidiary of the Company and each of the financial institutions party
thereto.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means, with respect to any Person, any class or
classes of Capital Stock pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of any Person (irrespective of whether
or not, at the time, stock of any other class or classes shall have, or might
have, voting power by reason of the happening of any contingency).
"Wholly Owned" means, with respect to the Subsidiary of any Person,
the ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
SECTION 102. Compliance Certificates and Opinions.
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29
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee an Officers' Certificate stating that all conditions precedent,
if any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by,
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30
an officer or officers of the Company, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than
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31
the date such solicitation is completed. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other Act
may be given before or after such record date, but only the Holders of record at
the close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Notes shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on such
record date shall be deemed effective unless it shall become effective pursuant
to the provisions of this Indenture not later than eleven months after the
record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
SECTION 105. Notices, etc., to Trustee, Company
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee
by any Holder or by the Company shall be sufficient for every purpose hereunder
if made, given, furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, Attention: Corporate Trust Administration Division, or
(2) the Company by the Trustee or by any Holder shall be sufficient for every
purpose hereunder (unless otherwise herein expressly provided) if in writing and
mailed, first-class postage prepaid, to the Company addressed to it at the
address of its principal office, Attention: Corporate Secretary, specified in
the first paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at its address as it
appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for
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32
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any Notes
Registrar and their successors hereunder, the Holders any benefit or any legal
or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Upon the issuance of Exchange
Notes, if any, or the effectiveness of the Shelf Registration Statement, this
Indenture shall be subject to the provisions of the Trust Indenture Act that are
required to be part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
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33
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or
Stated Maturity or Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of principal (or premium, if any) or interest need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the Interest Payment Date, Redemption Date or sinking fund payment
date, or at the Stated Maturity or Maturity; provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption
Date, Stated Maturity or Maturity, as the case may be.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
The Initial Notes shall be known and designated as the "12 1/4%
Senior Notes due 2008" of the Company and the Exchange Notes shall be known and
designated as the "12 1/4% Series B Senior Notes due 2008" of the Company. The
Notes and the Trustee's certificate of authentication shall be in substantially
the forms set forth in this Article, with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes. Any portion of the text of any Note
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Note.
The definitive Notes shall be printed, typewritten, photocopied,
lithographed or engraved on steel-engraved borders or may be produced in any
other manner, all as determined by the officers of the Company executing such
Notes, as evidenced by their execution of such Notes.
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34
Initial Notes offered and sold to qualified institutional buyers
("Qualified Institutional Buyers" or "QIBs") in reliance on Rule 144A under the
Securities Act shall contain each of the legends set forth in Section 205 and
shall be issued in the form of one or more permanent global Notes (the "Rule
144A Global Notes"), registered in the name of the Depositary or the nominee of
the Depositary, deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Rule 144A Global Notes may from
time to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Initial Notes offered and sold in offshore transactions in reliance
on Regulation S under the Securities Act shall be issued initially in the form
of a single permanent global Note (the "Offshore Global Note"), registered in
the name of the Depositary or the nominee of the Depositary, deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Offshore Global Note may from time to time be increased or
decreased by adjustments made in the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
Initial Notes issued pursuant to Section 305 in exchange for or upon
transfer of beneficial interests in the U.S. Global Note or the Offshore Global
Note may be in the form of either (i) U.S. permanent certificated Notes (the
"U.S. Physical Notes") or (ii) offshore permanent certificated Notes (the
"Offshore Physical Notes") containing the Private Placement Legend (as defined
in Section 205) as set forth in Section 205 until such time as the conditions
set forth in Section 205 are satisfied, respectively, as provided in Section
312.
The Offshore Physical Notes and the U.S. Physical Notes are
sometimes collectively referred to herein as the "Physical Notes". The U.S.
Global Note and the Offshore Global Note are sometimes collectively referred to
herein as the "Global Notes".
The Exchange Notes shall be issued in substantially the form set
forth in Sections 202 and 203.
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35
SECTION 202. Form of Face of Note.
PATHNET, INC.
12 1/4% Senior Note due 2008
[CUSIP] ______________
[ISIN] ______________
No. __________ $________
Pathnet, Inc., a Delaware corporation (herein called the "Company",
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to ____________________
or registered assigns, the principal sum of ____________________ Dollars on
April 15, 2008, at the office or agency of the Company referred to below, and to
pay interest thereon on October 15, 1998 and semi-annually thereafter, on April
15 and October 15 in each year, from April 8, 1998, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for, at
the rate of 12 1/4% per annum, until the principal hereof is paid or duly
provided for, and (to the extent lawful) to pay on demand interest on any
overdue interest at the rate borne by the Notes from the date on which such
overdue interest becomes payable to the date payment of such interest has been
made or duly provided for. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date, as provided in such Indenture, shall
be paid to the Person in whose name this Note (or one or more Predecessor Notes)
is registered at the close of business on the Regular Record Date for such
interest, which shall be the April 1 or October 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. This Note
has been issued with original issue discount for U.S. federal income tax
purposes.
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36
The following information is supplied for purposes of Sections 1273 and 1275 of
the Internal Revenue Code:
Issue Date: April 8, 1998
Issue Price: $988.29
Original issue discount under
Section 1273 of the Internal
Revenue Code (for each $1,000
principal amount): $11.71
Yield Maturity 12.46%
Any such interest not so punctually paid or duly provided for shall forthwith
cease to be payable to the Holder on such Regular Record Date, and such
defaulted interest, and (to the extent lawful) interest on such defaulted
interest at the rate borne by the Notes, may be paid to the Person in whose name
this Note (or one or more Predecessor Notes) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any, on) and interest on this Note
will be made to the Depositary or its nominee, as the case may be, as the
registered owner thereof, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company (i) by its check mailed to the address of the Person
entitled thereto as such address shall appear on the Note Register or (ii) by
wire transfer to an account maintained by the payee located in the United
States.
The Holder of this Note is entitled to the benefits of the Notes
Registration Rights Agreement, dated as of April 8, 1998 (the "Notes
Registration Rights Agreement"), between the Company and the Initial Purchasers
named therein. In the event that either (i) the Company fails to file with the
Commission the Exchange Offer Registration Statement required by the Notes
Registration Rights Agreement on or before the 60th day following the Issue
Date, (ii) the Exchange Offer Registration Statement is not declared effective
by the Commission on or prior to the 150th day following the Issue Date, (iii)
the Exchange Offer has not been consummated or, if required, a Shelf
Registration Statement with respect to the Notes is not declared effective on or
prior to the 180th day following the Issue Date or (iv) the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared effective
but thereafter ceases to be effective or usable except under certain
circumstances (each event referred to in clauses (i) through (iv) above, a
"Registration Default"), additional
<PAGE>
37
cash interest ("Liquidated Damages") shall accrue to each Holder of the Notes
commencing upon the occurrence of such Registration Default in an amount equal
to 0.50% per annum of the principal amount of Notes held by such Holder. The
amount of Liquidated Damages will increase by an additional 0.50% per annum of
the principal amount of Notes with respect to each subsequent 90-day period (or
portion thereof) until all Registration Defaults have been cured, up to a
maximum rate of Liquidated Damages of 1.50% per annum of the principal amount of
Notes. All accrued Liquidated Damages will be paid to Holders by the Company in
the same manner as interest is paid pursuant to the Indenture. Following the
cure of all Registration Defaults, the accrual of Liquidated Damages with
respect to such Transfer Restricted Notes will cease.*
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed.
Dated: PATHNET, INC.
By
-------------------------------
Attest:
- ----------------------------------
Authorized Signature
SECTION 203. Form of Reverse of Note.
This Note is one of a duly authorized issue of securities of the
Company designated as its 12 1/4% Senior Notes due 2008 (herein called the
"Notes"), limited (except as otherwise provided in the Indenture) in aggregate
principal amount to $350,000,000, which may be issued under an indenture dated
as of April 8, 1998 (herein called the "Indenture")
- ----------
* Paragraph to be included in Initial Notes only.
<PAGE>
38
between the Company and The Bank of New York, trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Notes, and of the terms upon which the Notes are, and are to be,
authenticated and delivered.
The Notes are subject to redemption upon not less than 30 nor more
than 60 days notice, at any time after April 15, 2003 as a whole or in part, at
the election of the Company, at a Redemption Price (expressed as percentages of
the principal amount) set forth below if redeemed during the 12-month period
beginning April 15, of the years indicated (subject to the right of Holders of
record on the relevant Regular Record Dates to receive interest due on an
interest payment date):
Redemption
Year Price
---- ----------
2003 106.125%
2004 104.083%
2005 102.042%
2006 and thereafter 100.00%
together in the case of any such redemption with accrued interest, if any, to
the Redemption Date, all as provided in the Indenture.
Notwithstanding the foregoing, at any time on or prior to April 15,
2001, the Company may redeem within 60 days of one or more Public Equity
Offerings up to 35% of the aggregate principal amount of the Notes issued on the
Issue Date at a redemption price equal to 112.25% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date to receive interest due on an Interest Payment
Date) with the Net Cash Proceeds of one or more Public Equity Offerings;
provided that at least 65% of the principal amount of the Notes issued on the
Issue Date remain Outstanding.
If less than all the Notes are to be redeemed, the Trustee will
select the particular Notes to be redeemed not more than 60 days prior to the
redemption date by such method as the Trustee deems fair and appropriate;
provided that no such partial redemption will reduce the principal amount of a
Note not redeemed to less than $1,000. Notice of redemption will be mailed,
first-class postage prepaid, at least 30 but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at its registered
address.
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39
On and after the date of redemption, interest will cease to accrue on Notes or
portions thereof called for redemption and accepted for payment
Upon the occurrence of a Change of Control, the Holder of this Note
may require the Company, subject to certain limitations provided in Section 1010
of the Indenture and otherwise in this Indenture, to repurchase this Note at a
purchase price in cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest thereon to the Change of Control
Purchase Date (as defined in Section 1010 of the Indenture).
In the case of any redemption of Notes, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of record of such Notes, or one or more Predecessor Notes, at the close
of business on the relevant Record Date referred to on the face hereof. Notes
(or portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption of this Note in part only, a new Note or
Notes for the unredeemed portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
of all the Notes may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Notes at the time Outstanding. The Indenture
also contains provisions permitting the Holders of specified percentages in
aggregate principal amount of the Notes at the time Outstanding, on behalf of
the Holders of all the Notes, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by or on behalf of the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
<PAGE>
40
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium and
Liquidated Damages, if any) and interest on this Note at the times, place, and
rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registerable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Note for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Company, the Trustee nor any agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the following form:
<PAGE>
41
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated: ____________________
This is one of the Notes referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK, Trustee
By
----------------------------------
Authorized Signatory
SECTION 205. Restrictive Legends.
Unless and until (i) an Initial Note is sold pursuant to an
effective Shelf Registration Statement or (ii) an Initial Note is exchanged for
an Exchange Note in an Exchange Offer pursuant to an effective Exchange Offer
Registration Statement, in either case pursuant to the Notes Registration Rights
Agreement, (A) each U.S. Global Note and U.S. Physical Note shall bear the
following legend set forth below (the "Private Placement Legend") on the face
thereof and (B) the Offshore Global Note shall bear the Private Placement Legend
on the face thereof until (x) the later of the 40th day after the Issue Date and
the Separability Date (the "Offshore Note Exchange Date") and (y) receipt by the
Company and the Trustee of a certificate substantially in the form of Exhibit A:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. HEDGING TRANSACTIONS
INVOLVING THIS SECURITY MAY NOT BE CONDUCTED UNLESS SUCH TRANSACTIONS ARE
CONDUCTED IN COMPLIANCE WITH THE SECURITIES ACT. THE HOLDER OF THIS
SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING ITS NOTE
IN AN "OFFSHORE TRANSACTION" PURSUANT TO REGULATION S UNDER THE SECURITIES
ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS
(OR SUCH SHORTER PERIOD AS PERMITTED BY RULE 144(K) (OR ANY SUCCESSOR
PROVISION THEREOF) UNDER THE SECURITIES ACT) AFTER THE LATER OF THE
ORIGINAL ISSUE
<PAGE>
42
DATE HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON
WHICH THE COMPANY OR AN AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS
SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH LATER DATE, IF
ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE RESTRICTION
TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT
(A) TO PATHNET, INC. OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO
RULE 904 OF REGULATION S OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES
THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE
COMPANY AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM. IN CONNECTION WITH ANY TRANSFER OF THESE SECURITIES WITHIN THE TIME
PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET
FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
<PAGE>
43
Each Global Note, whether or not an Initial Note, shall also bear
the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED, BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER HEREOF, CEDE
& CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 311 AND 312 OF THE INDENTURE.
Each Note issued prior to the Separability Date shall bear the
following legend (the "Unit Legend") on the face thereof:
THE NOTES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT OF
THE 12 1/4% SENIOR NOTES DUE 2008 OF PATHNET, INC. (THE "NOTES") AND ONE
WARRANT (A "WARRANT"), EACH INITIALLY ENTITLING THE HOLDER THEREOF TO
PURCHASE 1.1 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE (THE
"COMMON STOCK"), OF PATHNET, INC. PRIOR TO THE CLOSE OF BUSINESS UPON THE
EARLIEST TO OCCUR OF (i) OCTOBER 5, 1998; (ii) THE DATE ON WHICH A
REGISTRATION STATEMENT WITH RESPECT TO AN EXCHANGE OFFER FOR THE NOTES OR
COVERING THE SALE BY HOLDERS OF THE NOTES IS DECLARED EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED; (iii) THE OCCURRENCE OF AN EXERCISE
EVENT (AS DEFINED IN THE WARRANT AGREEMENT); (iv) THE OCCURRENCE OF AN
EVENT OF DEFAULT (AS DEFINED IN THE INDENTURE); OR (v) SUCH EARLIER DATE
<PAGE>
44
AS DETERMINED BY MERRILL LYNCH (AS DEFINED IN THE WARRANT AGREEMENT) IN
ITS SOLE DISCRETION, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR
EXCHANGED ONLY TOGETHER WITH, THE WARRANTS.
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount of Notes which may be authenticated
and delivered under this Indenture is limited to $350,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to the Exchange Offer or Section 304,
305, 306, 906, 1010, 1017 or 1108.
The Stated Maturity of the Notes shall be April 15, 2008, and they
shall bear interest at the rate of 12 1/4% per annum from April 8, 1998, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, payable on October 15, 1998 and semi-annually thereafter on April
15 and October 15 of each year and at said Stated Maturity, until the principal
thereof is paid or duly provided for.
The principal of (and premium and Liquidated Damages, if any) and
interest on the Notes shall be payable to the Depositary or its nominee, as the
case may be, as the registered owner thereof provided, however, that, at the
option of the Company, interest may be paid (i) by its check mailed to addresses
of the Persons entitled thereto as such addresses shall appear on the Note
Register or (ii) by wire transfer to an account maintained by the payee located
in the United States.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its
Chairman, its CEO, its President or any executive vice president or vice
president, under its corporate seal reproduced thereon and attested by its
Secretary or an assistant secretary. The signature of
<PAGE>
45
any of these officers on the Notes may be manual or facsimile signatures of the
present or any future such authorized officer and may be imprinted or otherwise
reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
On Company Order, the Trustee shall manually authenticate for
original issue Initial Notes in an aggregate principal amount not to exceed
$350,000,000. On Company Order, the Trustee shall authenticate for original
issue Exchange Notes in an aggregate principal amount at Maturity not to exceed
$350,000,000; provided that such Exchange Notes shall be issuable only upon the
valid surrender for cancellation of Initial Notes of a like aggregate principal
amount at Maturity in accordance with an Exchange Offer pursuant to the Notes
Registration Rights Agreement. In each case, the Trustee shall receive an
Officers' Certificate and an Opinion of Counsel of the Company in connection
with such authentication of Notes. Such order shall specify the amount of Notes
to be authenticated and the date on which the original issue of Notes is to be
authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article Eight, any of the Notes
authenticated or delivered prior to such consolidation, merger, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other Notes executed in the name of the
successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Notes surrendered
for such exchange and of like principal amount; and the Trustee, upon Company
Request of the successor Person, shall authenticate and deliver Notes as
specified in such request for the purpose of such exchange. If Notes shall at
any time be authenticated and delivered in any new name of a successor Person
pursuant to this Section 303 in exchange or substitution for
<PAGE>
46
or upon registration of transfer of any Notes, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Notes at the time Outstanding for Notes authenticated and
delivered in such new name.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, photocopied or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Notes may determine, as conclusively evidenced by their
execution of such Notes.
If temporary Notes are issued, the Company will cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive Notes
upon surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute, and the Trustee shall authenticate and deliver in
exchange therefor, a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. The Note Register shall be in written form
or any other form capable of being converted into written form within a
reasonable time. At all reasonable times, the Note Register shall be open to
inspection by the Trustee. The Trustee is hereby initially appointed as security
registrar (the "Note Registrar") for the purpose of registering Notes and
transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denomination or denominations of a like aggregate principal amount.
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47
At the option of the Holder, Notes may be exchanged for other Notes
of any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive; provided that no exchange of Initial Notes for
Exchange Notes shall occur until an Exchange Offer Registration Statement shall
have been declared effective by the Commission, the Trustee shall have received
an Officer's Certificate confirming that the Exchange Offer Registration
Statement has been declared effective by the Commission and the Initial Notes to
be exchanged for the Exchange Notes shall be cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 304, 906, 1010, 1017 or 1108 not involving any
transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the selection of Notes to be redeemed under Section 1104
and ending at the close of business on the day of such mailing of the relevant
notice of redemption, or (ii) to register the transfer of or exchange any Note
so selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company
and the Trustee such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Note has been acquired by a bona fide purchaser, the Company
shall execute and upon Company Order the Trustee shall authenticate and deliver,
<PAGE>
48
in exchange for any such mutilated Note or in lieu of any such destroyed, lost
or stolen Note, a new Note of like tenor and principal amount, bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 1002;
provided, however, that each installment of interest may at the Company's option
be paid by (i) mailing a check for such interest, payable to or upon the written
order of the Person entitled thereto pursuant to Section 308, to the address of
such Person as it appears in the Note Register or (ii) transfer to an account
located in the United States maintained by the payee.
Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Notes (such defaulted interest
and interest thereon herein collectively called "Defaulted Interest") may be
paid by the Company, at its election in each case, as provided in clause (1) or
(2) below:
<PAGE>
49
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date
of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted Interest
as in this clause provided. Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which shall be not
more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date, and in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be given in the
manner provided for in Section 106, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so given, such
Defaulted Interest shall be paid to the Persons in whose names the Notes
(or their respective Predecessor Notes) are registered at the close of
business on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company
to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 308. Persons Deemed Owners.
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Note is registered as the owner of such Note for
the purpose of receiving payment of principal of (and premium and Liquidated
Damages, if any) and (subject to Sections 305 and 307) interest on such Note and
for all other purposes whatsoever, whether or
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50
not such Note be overdue, and none of the Company, the Trustee or any agent of
the Company or the Trustee shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold, and all Notes so delivered
shall be promptly cancelled by the Trustee. If the Company shall so acquire any
of the Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of by the Trustee in accordance with
its customary procedures and certification of their disposal delivered to the
Company unless by Company Order the Company shall direct that cancelled Notes be
returned to it.
SECTION 310. Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 311. Book-Entry Provisions for Global Notes.
(a) Each Global Note initially shall (i) be registered in the name
of the Depositary for such Global Notes or the nominee of such Depositary, (ii)
be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 203.
Except as provided in Section 311(b), owners of beneficial interests
in the Global Notes will not have Notes registered in their names, will not
receive physical delivery of Notes in certificated form and will not be
considered the registered owner or Holder thereof under this Indenture for any
purpose.
Members of, or Participants in, the Depositary shall have no rights
under this Indenture with respect to any Global Note, and the Depositary may be
treated by the Company, the Trustee and any agent of the Company or the Trustee
as the absolute owner of such Global Note for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent
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51
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Participants, the
operation of customary practices governing the exercise of the rights of a
beneficial owner of any Note. The registered Holder of a Global Note may grant
proxies and otherwise authorize any person, including Participants and persons
that may hold interests through Participants, to take any action which a Holder
is entitled to take under this Indenture or the Notes.
(b) Interests of beneficial owners in a Global Note may be
transferred in accordance with the applicable rules and procedures of the
Depositary and the provisions of Section 312. Transfers of a Global Note shall
be limited to transfers of such Global Note in whole, but not in part, to the
Depositary, a nominee of the Depositary, its successors or their respective
nominees, except (i) as otherwise set forth in Section 312 and (ii) U.S.
Physical Notes or Offshore Physical Notes shall be transferred to beneficial
owners in exchange for their beneficial interests in the U.S. Global Note or the
Offshore Global Note, as the case may be, if the Depositary (1) notifies the
Company that it is unwilling or unable to continue as depository for the
applicable Global Note and the Company thereupon fails to appoint a successor
depository or (2) has ceased to be a clearing agency registered under the
Exchange Act. In connection with a transfer of an entire Global Note to
beneficial owners pursuant to clause (ii) of this paragraph (b), the applicable
Global Note shall be deemed to be surrendered to the Trustee for cancellation,
and the Company shall execute, and the Trustee shall authenticate and deliver,
to each beneficial owner identified by the Depositary in exchange for its
beneficial interest in the applicable Global Note, an equal aggregate principal
amount of U.S. Physical Notes (in the case of the U.S. Global Note) or Offshore
Physical Notes (in the case of the Offshore Global Note), as the case may be, of
authorized denominations.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a Person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) Any U.S. Physical Note delivered in exchange for an interest in
the U.S. Global Note pursuant to paragraph (b) of this Section shall, unless
such exchange is made on or after (i) an Initial Note is sold pursuant to an
effective Shelf Registration Statement, pursuant to the Notes Registration
Rights Agreement, (ii) an Initial Note is exchanged for an Exchange Note in an
Exchange Offer pursuant to an effective Exchange Offer Registration Statement,
pursuant to the Notes Registration Rights Agreement, or (iii) two years after
the later of the Issue Date and the last date on which the Company or any
affiliate of the Company was the owner of the Initial Note (the "Resale
Restriction Termination Date") evidenced by an opinion of counsel to such Holder
reasonably satisfactory to the Company and except as otherwise provided in
Section 312, bear the Private Placement Legend.
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52
SECTION 312. Transfer Provisions.
Unless and until (i) an Initial Note is sold pursuant to an
effective Registration Statement, or (ii) an Initial Note is exchanged for an
Exchange Note in connection with an effective Registration Statement pursuant to
the Notes Registration Rights Agreement, the following provisions shall apply:
(a) General. The provisions of this Section 312 shall apply to all
transfers involving any Physical Note and any beneficial interest in any Global
Note.
(b) Certain Definitions. As used in this Section 312 only,
"delivery" of a certificate by a transferee or transferor means the delivery to
the Note Registrar by such transferee or transferor of the applicable
certificate duly completed; "holding" includes both possession of a Physical
Note and ownership of a beneficial interest in a Global Note, as the context
requires; "transferring" a Global Note means transferring that portion of the
principal amount of the transferor's beneficial interest therein that the
transferor has notified the Note Registrar that it has agreed to transfer; and
"transferring" a Physical Note means transferring that portion of the principal
amount thereof that the transferor has notified the Note Registrar that it has
agreed to transfer.
As used in this Indenture, "Regulation S Certificate" means a
certificate substantially in the form set forth as Exhibit B; "Rule 144A
Certificate" means a certificate substantially in the form set forth as Exhibit
A; and "Non-Registration Opinion and Supporting Evidence" means a written
opinion of counsel reasonably acceptable to the Company to the effect that, and
such other certification or information as the Company may reasonably require to
confirm that, the proposed transfer is being made pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act.
(c) [Intentionally Omitted]
(d) Deemed Delivery of a Rule 144A Certificate in Certain
Circumstances. A Rule 144A Certificate, if not actually delivered, will be
deemed delivered if (i) (A) the transferor advises the Company and the Trustee
in writing that the relevant offer and sale were made in accordance with the
provisions of Rule 144A (or, in the case of a transfer of a Physical Note, the
transferor checks the box provided on the Physical Note to that effect) and (B)
the transferee advises the Company and the Trustee in writing that (x) it and,
if applicable, each account for which it is acting in connection with the
relevant transfer, is a QIB within the meaning of Rule 144A, (y) it is aware
that the transfer of Notes to it is being made in reliance on the exemption from
the provisions of Section 5 of the Securities Act provided by Rule 144A
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53
and (z) prior to the proposed date of transfer it has been given the opportunity
to obtain from the Company the information referred to in Rule 144A(d)(4), and
has either declined such opportunity or has received such information (or, in
the case of a transfer of a Physical Note, the transferee signs the
certification provided on the Physical Note to that effect); or (ii) the
transferor holds the U.S. Global Note and is transferring to a transferee that
will take delivery in the form of the U.S. Global Note.
(e) Procedures and Requirements.
1. If the proposed transfer occurs prior to the Offshore Note
Exchange Date, and the proposed transferor holds:
(A) a U.S. Physical Note which is surrendered to the Note Registrar,
and the proposed transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee requests delivery in the form of a U.S. Physical Note,
then the Note Registrar shall (x) register such transfer in the name
of such transferee and record the date thereof in its books and
records, (y) cancel such surrendered U.S. Physical Note and (z)
deliver a new U.S. Physical Note to such transferee duly registered
in the name of such transferee in principal amount equal to the
principal amount being transferred of such surrendered U.S. Physical
Note;
(ii) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through a Participant and requests that
the proposed transferee receive a beneficial interest in the U.S.
Global Note, then the Note Registrar shall (x) cancel such
surrendered U.S. Physical Note, (y) record an increase in the
principal amount of the U.S. Global Note equal to the principal
amount being transferred of such surrendered U.S. Physical Note and
(z) notify the Depositary in accordance with the procedures of the
Depositary that it has effected such transfer; or
(iii) delivers a Regulation S Certificate and the proposed
transferee is or is acting through a Participant and requests that
the proposed transferee receive a beneficial interest in the
Offshore Global Note, then the Note Registrar shall (x) cancel such
surrendered U.S. Physical Note, (y) record an increase in the
principal amount of the Offshore Global Note equal to the principal
amount being transferred of such surrendered U.S. Physical Note and
(z) notify the Depositary in accordance with the procedures of the
Depositary that it has effected such transfer; provided, however,
that until the Offshore Note Exchange
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54
Date occurs, beneficial interests in the Offshore Global Note may be
held only in or through accounts maintained at the Depositary by
Euroclear or Cedel (or by Participants acting for the account
thereof), and no person shall be entitled to effect any transfer or
exchange that would result in any such interest being held otherwise
than in or through such an account.
In any of the cases described in this Section 312(e)(1)(A), the Note
Registrar shall deliver to the transferor a new U.S. Physical Note in
principal amount equal to the principal amount not being transferred of
such surrendered U.S. Physical Note, as applicable.
(B) a beneficial interest in the U.S. Global Note, and the proposed
transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee requests delivery in the form of a U.S. Physical Note,
then the Note Registrar shall (w) register such transfer in the name
of such transferee and record the date thereof in its books and
records, (x) record a decrease in the principal amount of the U.S.
Global Note in an amount equal to the beneficial interest therein
being transferred, (y) deliver a new U.S. Physical Note to such
transferee duly registered in the name of such transferee in
principal amount equal to the amount of such decrease and (z) notify
the Depositary in accordance with the procedures of the Depositary
that it has effected such transfer;
(ii) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through a Participant and requests that
the proposed transferee receive a beneficial interest in the U.S.
Global Note, then the transfer shall be effected in accordance with
the procedures of the Depositary therefor; or
(iii) delivers a Regulation S Certificate and the proposed
transferee is or is acting through a Participant and requests that
the proposed transferee receive a beneficial interest in the
Offshore Global Note, then the Note Registrar shall (w) register
such transfer in the name of such transferee and record the date
thereof in its books and records, (x) record a decrease in the
principal amount of the U.S. Global Note in an amount equal to the
beneficial interest therein being transferred, (y) record an
increase in the principal amount of the Offshore Global Note equal
to the amount of such decrease and (z) notify the Depositary in
accordance with the procedures of the Depositary that it has
effected such transfer; provided, however, that until the Offshore
Note Exchange Date occurs, beneficial interests in the Offshore
Global Note may be held only in or through accounts maintained at
the Depositary by Euroclear or Cedel (or by Participants acting for
the account thereof), and no person shall be entitled to effect any
transfer or exchange that would result in any such interest being
held otherwise than in or through such an account.
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55
(C) a beneficial interest in the Offshore Global Note, and the
proposed transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee requests delivery in the form of a U.S. Physical Note,
then the Note Registrar shall (w) register such transfer in the name
of such transferee and record the date thereof in its books and
records, (x) record a decrease in the principal amount of the
Offshore Global Note in an amount equal to the beneficial interest
therein being transferred, (y) deliver a new U.S. Physical Note to
such transferee duly registered in the name of such transferee in
principal amount equal to the amount of such decrease and (z) notify
the Depositary in accordance with the procedures of the Depositary
that it has effected such transfer;
(ii) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through a Participant and requests that
the proposed transferee receive a beneficial interest in the U.S.
Global Note, then the Note Registrar shall (x) record a decrease in
the principal amount of the Offshore Global Note in an amount equal
to the beneficial interest therein being transferred, (y) record an
increase in the principal amount of the U.S. Global Note equal to
the amount of such decrease and (z) notify the Depositary in
accordance with the procedures of the Depositary that it has
effected such transfer; or
(iii) delivers a Regulation S Certificate and the proposed
transferee is or is acting through a Participant and requests that
the proposed transferee receive a beneficial interest in the
Offshore Global Note, then the transfer shall be effected in
accordance with the procedures of the Depositary therefor; provided,
however, that until the Offshore Note Exchange Date occurs,
beneficial interests in the Offshore Global Note may be held only in
or through accounts maintained at the Depositary by Euroclear or
Cedel (or by Participants acting for the account thereof), and no
person shall be entitled to effect any transfer or exchange that
would result in any such interest being held otherwise than in or
through such an account.
2. If the proposed transfer occurs on or after the Offshore Note
Exchange Date and the proposed transferor holds:
(A) a U.S. Physical Note which is surrendered to the Note Registrar,
and the proposed transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee requests delivery in
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56
the form of a U.S. Physical Note, then the procedures set forth in
Section 312(e)(1)(A)(i) shall apply;
(ii) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through a Participant and requests that
the proposed transferee receive a beneficial interest in the U.S.
Global Note, then the procedures set forth in Section
312(e)(1)(A)(ii) shall apply; or
(iii) delivers a Regulation S Certificate, then the Note
Registrar shall cancel such surrendered U.S. Physical Note and at
the direction of the transferee, either:
(x) register such transfer in the name of such
transferee, record the date thereof in its books and records
and deliver a new Offshore Physical Note to such transferee in
principal amount equal to the principal amount being
transferred of such surrendered U.S. Physical Note, or
(y) if the proposed transferee is or is acting through
an Participant, record an increase in the principal amount of
the Offshore Global Note equal to the principal amount being
transferred of such surrendered U.S. Physical Note and notify
the Depositary in accordance with the procedures of the
Depositary that it has effected such transfer.
In any of the cases described in this Section 312(e)(2)(A), the Note
Registrar shall deliver to the transferor a new U.S. Physical Note in
principal amount equal to the principal amount not being transferred of
such surrendered U.S. Physical Note, as applicable.
(B) a beneficial interest in the U.S. Global Note, and the proposed
transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee requests delivery in the form of a U.S. Physical Note,
then the procedures set forth in Section 312(e)(1)(B)(i) shall
apply; or
(ii) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through a Participant and requests that
the proposed transferee receive a beneficial interest in the U.S.
Global Note, then the procedures set forth in Section
312(e)(1)(B)(ii) shall apply; or
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57
(iii) delivers a Regulation S Certificate, then the Note
Registrar shall (x) record a decrease in the principal amount of the
U.S. Global Note in an amount equal to the beneficial interest
therein being transferred, (y) notify the Depositary in accordance
with the procedures of the Depositary that it has effected such
transfer and (z) at the direction of the transferee, either:
(x) register such transfer in the name of such
transferee, record the date thereof in its books and records
and deliver a new Offshore Physical Note to such transferee in
principal amount equal to the amount of such decrease in the
principal amount of the U.S. Global Note, or
(y) if the proposed transferee is or is acting through a
Participant, record an increase in the principal amount of the
Offshore Global Note equal to the amount of such decrease in
the principal amount of the U.S. Global Note.
(C) an Offshore Physical Note which is surrendered to the Note
Registrar, and the proposed transferee or transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through a Participant and requests
delivery in the form of the U.S. Global Note, then the Note
Registrar shall (x) cancel such surrendered Offshore Physical Note,
(y) record an increase in the principal amount of the U.S. Global
Note equal to the principal amount being transferred of such
surrendered Offshore Physical Note and (z) notify the Depositary in
accordance with the procedures of the Depositary that it has
effected such transfer;
(ii) where the proposed transferee is or is acting through a
Participant, requests that the proposed transferee receive a
beneficial interest in the Offshore Global Note, then the Note
Registrar shall (x) cancel such surrendered Offshore Physical Note,
(y) record an increase in the principal amount of the Offshore
Global Note equal to the principal amount being transferred of such
surrendered Offshore Physical Note and (z) notify the Depositary in
accordance with the procedures of the Depositary that it has
effected such transfer; or
(iii) does not make a request covered by Section
312(e)(2)(C)(i) or Section 312(e)(2)(C)(ii), then the Note Registrar
shall (x) register such transfer in the name of such transferee and
record the date thereof in its books and records, (y) cancel such
surrendered Offshore Physical Note and (z) deliver a new Offshore
Physical Note to such transferee duly registered in the name of
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58
such transferee in principal amount equal to the principal amount
being transferred of such surrendered Offshore Physical Note.
In any of the cases described in this Section 312(e)(2)(C), the Note
Registrar shall deliver to the transferor a new U.S. Physical Note in
principal amount equal to the principal amount not being transferred of
such surrendered U.S. Physical Note, as applicable.
(D) the Offshore Global Note, and the proposed transferee or
transferor, as applicable:
(i) delivers (or is deemed to have delivered pursuant to
clause (d) above) a Rule 144A Certificate and the proposed
transferee is or is acting through a Participant and requests
delivery in the form of the U.S. Global Note, then the Note
Registrar shall (x) record a decrease in the principal amount of the
Offshore Global Note in an amount equal to the beneficial interest
therein being transferred, (y) record an increase in the principal
amount of the U.S. Global Note equal to the amount of such decrease
and (z) notify the Depositary in accordance with the procedures of
the Depositary that it has effected such transfer;
(ii) where the proposed transferee is or is acting through a
Participant, requests that the proposed transferee receive a
beneficial interest in the Offshore Global Note, then the transfer
shall be effected in accordance with the procedures of the
Depositary therefor; or
(iii) does not make a request covered by Section
312(e)(2)(D)(i) or Section 312(e)(2)(D)(ii), then the Note Registrar
shall (w) register such transfer in the name of such transferee and
record the date thereof in its books and records, (x) record a
decrease in the principal amount of the Offshore Global Note in an
amount equal to the beneficial interest therein being transferred,
(y) deliver a new Offshore Physical Note to such transferee duly
registered in the name of such transferee in principal amount equal
to the amount of such decrease and (z) notify the Depositary in
accordance with the procedures of the Depositary that it has
effected such transfer.
(f) Execution, Authentication and Delivery of Physical Notes. In any
case in which the Note Registrar is required to deliver a Physical Note to a
transferee or transferor, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, such Physical Note.
(g) Certain Additional Terms Applicable to Physical Notes. Any
transferee entitled to receive a Physical Note may request that the principal
amount thereof be evidenced
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59
by one or more Physical Notes in any authorized denomination or denominations
and the Note Registrar shall comply with such request if all other transfer
restrictions are satisfied.
(h) Transfers Not Covered by Section 312(e). The Note Registrar
shall effect and record, upon receipt of a written request from the Company so
to do, a transfer not otherwise permitted by Section 312(e), such recording to
be done in accordance with the otherwise applicable provisions of Section
312(e), upon the furnishing by the proposed transferor or transferee of a
Non-Registration Opinion and Supporting Evidence.
(i) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Note Registrar shall not register a transfer of any Note unless
such transfer complies with the restrictions with respect thereto set forth in
this Indenture. The Note Registrar shall not be required to determine (but may
rely upon a determination made by the Company) the sufficiency of any such
certifications, legal opinions or other information.
(j) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Note
Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Note Registrar shall deliver only Notes that bear the
Private Placement Legend unless (i) the circumstances exist contemplated by the
fourth paragraph of Section 201 (with respect to an Offshore Physical Note) or
the requested transfer is at least two years after the original issue date of
the Initial Note (with respect to any Physical Note), (ii) there is delivered to
the Note Registrar an Opinion of Counsel reasonably satisfactory to the Company
and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act or (iii) such Notes are exchanged for Exchange
Notes pursuant to an Exchange Offer.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture upon Company Request shall cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
the Notes as expressly provided for herein or pursuant hereto), and the Trustee,
at the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Notes theretofore authenticated and delivered (other
than (i) Notes which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 306 and (ii) Notes
for whose payment money has theretofore been deposited in trust with
the Trustee or any Paying Agent or segregated and held in trust by
the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 1003) have been delivered to the
Trustee for cancellation; or
(b) all Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (b)(i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay
and discharge the entire Indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and
premium and Liquidated Damages, if any) and interest to the date of
such deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case
may be;
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(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 606 and, if money
shall have been deposited with the Trustee pursuant to subclause (B) of clause
(1) of this Section, the obligations of the Trustee under Section 402 and the
last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of any interest or Liquidated Damages, if
any, on any Note when it becomes due and payable, and continuance of such
default for a period of 30 days or more (provided that such 30-day grace
period shall not be applicable to the first four interest payments due on
the Notes);
(2) default in the payment of the principal of (or premium, if any,
on) any Note at its Maturity (upon acceleration, optional redemption,
required purchase or otherwise);
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(3) (A) default in the performance, or breach, of any covenant or
agreement of the Company contained in this Indenture (other than a default
in the performance, or breach, of a covenant or agreement which is
specifically dealt with in the immediately preceding clause (1) or (2) or
in clause (B), (C) or (D) of this clause (3)) and continuance of such
default or breach for a period of 30 days after written notice shall have
been given to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in aggregate principal amount of the Notes
then Outstanding; (B) default in the performance or breach of the
provisions of Section 1017; (C) default in the performance or breach of
the provisions of Article Eight; and (D) default in the performance or
breach of Section 1010;
(4) (A) one or more defaults in the payment of principal of or
premium, if any, or interest on Indebtedness of the Company or any
Significant Subsidiary aggregating $7,500,000 or more, when the same
becomes due and payable at the Stated Maturity thereof, and such default
or defaults shall have continued after any applicable grace period and
shall not have been cured or waived or (B) Indebtedness of the Company or
any Significant Subsidiary aggregating $7,500,000 or more shall have been
accelerated or otherwise declared due and payable, or required to be
prepaid or repurchased (other than by regularly scheduled required
prepayment), prior to the Stated Maturity thereof);
(5) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against the Company or any Significant
Subsidiary or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $7,500,000 and either
(A) an enforcement proceeding shall have been commenced by any creditor
upon such judgment or order or (B) there shall have been a period of 30
days during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, was not in effect;
(6) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Significant Subsidiary as
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the Federal Bankruptcy
Code or any other applicable federal or state law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Significant Subsidiary or of any
substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 90 consecutive days;
(7) the institution by the Company or any Significant Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it,
or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal
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Bankruptcy Code or any other applicable federal or state law, or the
consent by it to the filing of any such petition or to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or any Significant Subsidiary or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due; or
(8) the Pledge Agreement ceases to be in full force and effect
before payment in full of the obligations thereunder.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 501(6) or 501(7)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in aggregate principal amount of
the Notes then Outstanding by written notice to the Company (and to the Trustee,
if such notice is given by the Holders) may, and the Trustee upon the written
request of such Holders shall, declare the principal amount, premium if any and
accrued and unpaid interest and Liquidated Damages, if any, on all of the
Outstanding Notes to be due and payable immediately, and upon any such
declaration all such amounts payable in respect of the Notes shall become
immediately due and payable. If an Event of Default specified in Section 501(6)
or 501(7) occurs and is continuing, then the principal of, premium, if any,
accrued interest and Liquidated Damages, if any, on all of the Notes shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made but
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article, the holders of a majority
in aggregate principal amount of the Outstanding Notes, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(i) all overdue interest on all Outstanding Notes,
(ii) all unpaid principal of (and premium, if any, on) any
Outstanding Notes that have become due otherwise than by such
declaration of acceleration, together with interest on such unpaid
principal at the rate borne by the Notes,
(iii) to the extent that payment of such interest is lawful,
interest upon overdue interest and Liquidated Damages, if any, and
overdue principal at the rate borne by the Notes, and
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(iv) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel; and
(b) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest and Liquidated Damages,
if any, on the Notes that have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513. No
such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a
declaration of acceleration in respect of the Notes because of an Event of
Default specified in Section 501(4) shall have occurred and be continuing, such
declaration of acceleration shall be automatically annulled if the Indebtedness
that is the subject of such Event of Default has been discharged or the holders
thereof have rescinded their declaration of acceleration in respect of such
Indebtedness, and written notice of such discharge or rescission, as the case
may be, shall have been given to the Trustee by the Company and countersigned by
the holders of such Indebtedness or a trustee, fiduciary or agent for such
holders, within 30 days after such declaration of acceleration in respect of the
Notes, and no other Event of Default has occurred during such 30-day period
which has not been cured or waived during such period.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(a) default is made in the payment of any installment of interest
and Liquidated Damages, if any, on any Note when such interest becomes due
and payable and such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium,
if any, on) any Note at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Notes, the whole amount then due and payable on such
Notes for principal (and premium and Liquidated Damages, if any) and interest,
and interest on any overdue principal (and premium, if any) and, to the extent
that payment of such interest shall be legally enforceable, upon any overdue
installment of interest and Liquidated Damages, if any, at the rate borne by the
Notes, and, in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
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If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Notes shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal, premium, if any, or interest or Liquidated
Damages, if any) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes and
to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
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Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes
may be prosecuted and enforced by the Trustee without the possession of any of
the Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name and
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium or
Liquidated Damages, if any) or interest, upon presentation of the Notes and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
first: To the payment of all amounts due to the Trustee under
Section 606;
second: To the payment of the amounts then due and unpaid for
principal of (and premium and Liquidated Damages, if any) and interest on
the Notes in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Notes for principal (and
premium and Liquidated Damages, if any) and interest, respectively;
third: To the payment of any and all amounts due to the Person or
Persons entitled thereto; and
fourth: The balance, if any, to the Company.
SECTION 507. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
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(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount
of the Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against the costs, expenses and liabilities to
be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article Thirteen) and in
such Note of the principal of (and premium and Liquidated Damages, if any) and
(subject to Section 307) interest on such Note on the respective Stated
Maturities expressed in such Note (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions
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hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount of the
Outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
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SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Notes may on behalf of the Holders of all the Notes
waive any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium and Liquidated
Damages, if any) or interest on any Note, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Note.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within five days after the earlier of receipt from the Company of
notice of the occurrence of a Default or Event of Default hereunder or the date
when such occurrence hereunder actually becomes known to a Responsible Officer
of the Trustee, the Trustee shall transmit in the manner and to the extent
provided in TIA Section 313(c), notice of such Default hereunder known to the
Trustee, unless such Default shall have been cured or waived; provided, however,
that, except in the case of a Default in the payment of the principal of (or
premium or Liquidated Damages, if any) or interest on any Note or in the payment
of any
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sinking fund installment, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders; and provided further that in the case of any Default of the character
specified in Section 501(4) no such notice to Holders shall be given until at
least 30 days after the occurrence thereof.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely conclusively and shall be protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee security or indemnity
satisfactory to the Trustee against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or
direction;
(6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if
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the Trustee shall determine to make such further inquiry or investigation,
it shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture; and
(9) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
Notes.
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall not
be accountable for the use or application by the Company of Notes or the
proceeds thereof.
SECTION 604. May Hold Notes.
The Trustee, any Paying Agent, any Note Registrar or any other agent
of the Company or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Note Registrar or such other agent.
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SECTION 605. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 606. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation for
all services rendered by it hereunder as the parties shall agree from time
to time (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Company, the Trustee shall have a claim prior to the Notes upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any) or interest on
particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(6) or (7), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
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SECTION 607. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 609 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the Outstanding Notes, delivered
to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 607 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
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then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) The Trustee may be removed at any time by Act of Holders of not
less than a majority in principal amount of the Outstanding Notes. If the
instrument of acceptance by a successor Trustee required by Section 609 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of removal, the Trustee being removed may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(g) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in the manner provided for in Section 106. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
SECTION 609. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
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certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Notes, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
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SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the first
May 15 after the first issuance of Notes, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such May 15 if required by TIA Section 313(a).
SECTION 703. Reports by Company.
The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may from time to
time by rules and regulations prescribe) which the Company may be required
to file with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required to
file information, documents or reports pursuant to either of said
Sections, then it shall file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents
and reports which may be required pursuant to Section 13 of the Securities
Exchange Act of 1934 in respect of a security listed and registered on a
national securities exchange as may be prescribed from time to time in
such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance
by the Company with the conditions and covenants of this Indenture as may
be required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of
this Section as may be required by rules and regulations prescribed from
time to time by the Commission.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.
The Company will not, in a single transaction or a series of
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any other Person or Persons, and the Company
will not permit any Restricted Subsidiary to enter into any such transaction or
series of transactions, if such transaction or series of transactions, in the
aggregate, would result in the sale, assignment, conveyance, transfer, lease or
other disposition of all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries on a consolidated basis to any other
Person or Persons, unless at the time and immediately after giving effect
thereto:
(1) either (A) the Company shall be the continuing corporation or
(B) the Person (if other than the Company) formed by such consolidation or
into which the Company or such Restricted Subsidiary is merged or the
Person that acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all the properties and assets of the
Company and its Restricted Subsidiaries on a consolidated basis, as the
case may be (the "Surviving Entity"), (i) shall be a corporation organized
and validly existing under the laws of the United States of America, any
state thereof or the District of Columbia and (ii) shall expressly assume,
by a supplemental indenture to this Indenture in form satisfactory to the
Trustee, the Company's obligations pursuant to the Notes for the due and
punctual payment of the principal of, premium, if any, and interest on all
the Notes and the performance and observance of every covenant herein on
the part of the Company to be performed or observed;
(2) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating
any obligation of the Company or any Restricted Subsidiary incurred in
connection with or as a result of such transaction or series of
transactions as having been incurred at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (on the assumption that the transaction
or series of transactions occurred on the first day of the two fiscal
quarter period ending immediately prior to the consummation of such
transaction or series of transactions, with the appropriate adjustments
with respect to the transaction or series of transactions being included
in such pro forma calculation), the Company (or the Surviving Entity if
the Company is not the continuing obligor hereunder) could incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
Section 1011; and
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(4) the Company or such Person shall have delivered to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an Officers'
Certificate (attaching the computations to demonstrate compliance with
clause (3) above) and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, conveyance, transfer or lease or
other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture, comply with
this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
Any merger or consolidation of a Restricted Subsidiary with and into
the Company (with the Company being the surviving entity) or another Restricted
Subsidiary need only comply with clauses (3) and (4) above. Further, this
section shall not apply to any reincorporation of the Company or any Restricted
Subsidiary under the laws of the United States of America, any state thereof or
the District of Columbia.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with or merger of the Company
with or into any other corporation or any sale, assignment, conveyance,
transfer, lease or disposition of the properties and assets of the Company
substantially as an entirety to any Person in accordance with Section 801 in
which the Company is not the continuing obligor hereunder, the Surviving Entity
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company hereunder with the same effect as if such successor Person had
been named as the Company herein. When a successor assumes all of the
obligations of its predecessor under the Indenture, the predecessor shall be
released from such obligations; provided that, in the case of a transfer by
lease, the predecessor shall not be released from the payment of principal of,
premium and Liquidated Damages, if any, and interest on the Notes. (Section 802)
SECTION 803. Notes to Be Secured in Certain Events.
If, upon any such consolidation of the Company with or merger of the
Company into any other corporation, or upon any sale, assignment, conveyance,
lease or transfer of the property of the Company substantially as an entirety to
any other Person, any property or assets of the Company would thereupon become
subject to any Lien, then unless such Lien could be created pursuant to Section
1015 without equally and ratably securing the Notes, the Company, prior to or
simultaneously with such consolidation, merger, sale, assignment, conveyance,
lease or transfer, shall as to such property or assets, secure the Notes
Outstanding (together with, if the Company shall so determine any other
Indebtedness of the Company now existing or hereinafter created which is not
subordinate in right of payment to the Notes) equally and ratably with (or prior
to) the Indebtedness which upon such consolidation, merger, conveyance, lease or
transfer is to become secured as to such property or assets by such Lien, or
shall cause such Notes to be so secured.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by
a Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company or
any other obligor on the Notes, and the assumption by any such successor
of the covenants of the Company or such obligor contained herein and in
the Notes in accordance with Article Eight of this Indenture;
(2) to add to the covenants of the Company or any other obligor upon
the Notes for the benefit of the Holders or to surrender any right or
power herein conferred upon the Company or any other obligor upon the
Notes, as applicable, in this Indenture or the Notes;
(3) to cure any ambiguity, to correct or supplement any provision
herein or in the Notes that may be defective or inconsistent with any
other provision herein or in the Notes, or to make any other provisions
with respect to matters or questions arising under this Indenture or the
Notes; provided that, in each case, such action shall not adversely affect
the interests of the Holders;
(4) to comply with the requirements of the Commission in order to
effect or maintain the qualification, if any, of the Indenture under the
Trust Indenture Act;
(5) to evidence and provide the acceptance of the appointment of a
successor Trustee under this Indenture;
(6) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the Holders as additional security
for the payment and performance of the Company's obligations hereunder, in
any property or assets, including any of which are required to be
mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Trustee pursuant to this Indenture or
otherwise;
(7) to add a guarantor of the Notes under the Indenture;
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(8) to secure the Notes pursuant to the requirements of Section 803
or Section 1015 or otherwise;
(9) to add any additional Events of Default; or
(10) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
609.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Notes, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby:
(1) change the Stated Maturity of the principal of or any
installment of interest on, any Note, or reduce the principal amount
thereof (or premium or Liquidated Damages, if any) or the rate of interest
thereon, alter any redemption provision with respect to any Note or change
the coin or currency in which any Note or any premium or Liquidated
Damages or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
(2) amend, change or modify the obligation of the Company to make
and consummate an Excess Proceeds Offer with respect to any Asset Sale in
accordance with Section 1017 or the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control
in accordance with Section 1010, including, in each case amending,
changing or modifying any definition relating thereto;
(3) reduce the percentage of the principal amount of the Outstanding
Notes, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver of
compliance with certain provisions and defaults of this Indenture and
their consequences provided for in this Indenture;
(4) modify any of the provisions of this Section or Sections 513 and
Section 1019, except to increase the percentage of the aggregate principal
amount of Outstanding Notes required for such actions thereunder or to
provide that certain other provisions of
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this Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Note affected thereby;
(5) except as otherwise permitted under Article Eight consent to the
assignment or transfer by the Company of any of their rights or
obligations under the Indenture; or
(6) release any Lien created by the Pledge Agreement, except in
accordance with the terms of the Pledge Agreement.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of
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the Company, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
The Company covenants and agrees for the benefit of the Holders that
it shall duly and punctually pay the principal of (and premium and Liquidated
Damages, if any) and interest on the Notes in accordance with the terms of the
Notes and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company shall maintain in The City of New York, an office or
agency where Notes may be presented or surrendered for payment, where Notes may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Corporate Trust Office of the Trustee shall be such office or agency
of the Company, unless the Company shall designate and maintain some other
office or agency for one or more of such purposes. The Company will give prompt
written notice to the Trustee of any change in the location of any such office
or agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Administration office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all such purposes and may from time to
time rescind any such designation; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York for such purposes. The
Company will give prompt written notice to the Trustee of
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any such designation or rescission and any change in the location of any such
other office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the principal of (or premium and Liquidated
Damages, if any) or interest on any of the Notes, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal of (or premium and Liquidated Damages, if any) or interest so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided and will promptly notify the Trustee of its action or failure so
to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before 10:00 a.m. on each due date of the principal of (or
premium and Liquidated Damages, if any) or interest on any Notes, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium and Liquidated
Damages, if any) or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of such action or any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee)
to execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium and Liquidated Damages, if any) or interest on Notes in trust
for the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium and Liquidated Damages, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any
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Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (or premium
and Liquidated Damages, if any) or interest on any Note and remaining unclaimed
for two years after such principal, premium, interest or Liquidated Damages has
become due and payable shall be paid to the Company on Company Request, or (if
then held by the Company) shall be discharged from such trust. The Holder of
such Note, as an unsecured general creditor, shall look thereafter only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole.
SECTION 1005. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (b) all material lawful claims for labor, materials
and supplies, which, if unpaid, might by law become a lien upon the property of
the Company or any Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
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SECTION 1006. Maintenance of Properties.
The Company shall, or shall cause its Restricted Subsidiaries to,
cause all material properties owned by the Company or any Restricted Subsidiary
or used or held for use in the conduct of its business or the business of any
Restricted Subsidiary to be maintained and kept in good condition, repair and
working order (reasonable wear and tear excepted) and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 1006 shall prevent the Company or a
Restricted Subsidiary from discontinuing the maintenance of any of such
properties or disposing of them as otherwise permitted herein if such
discontinuance or disposition is, in the judgment of the Company, desirable in
the conduct of its business or the business of the Company or such Restricted
Subsidiary and not disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
The Company shall at all times keep all of its and its Restricted
Subsidiaries properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by corporations
similarly situated and owning like properties.
SECTION 1008. Statement by Officers As to Default.
(a) The Company shall deliver to the Trustee, within 50 days after
the end of each fiscal quarter and within 120 days after the end of each fiscal
year, a brief certificate from the principal executive officer, principal
financial officer or principal accounting officer as to his or her knowledge of
the Company's compliance with all conditions and covenants under this Indenture
since beginning of such quarter or year, as the case may be. For purposes of
this Section 1008(a), such compliance shall be determined without regard to any
period of grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $7,500,000), the Company shall
deliver to the Trustee by registered or certified mail or by facsimile
transmission an Officers' Certificate specifying such event, notice or other
action within five Business Days of an officer of the Company becoming aware of
its occurrence.
(c) When any Registration Default (as defined in the Notes
Registration Rights Agreement) occurs, the Company shall deliver to the Trustee
by registered or certified
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mail or by facsimile transmission an Officers' Certificate specifying the nature
of such Registration Default within 10 days of its occurence. In addition, the
Company shall deliver to the Trustee on each Interest Payment Date during the
continuance of a Registration Default and on the Interest Payment Date following
the cure of a Registration Default, an Officers' Certificate specifying the
amount of Liquidated Damages which have accrued and which are then owing under
the Notes Registration Rights Agreement.
SECTION 1009. Provision of Financial Statements.
(a) The Company shall file on a timely basis with the Commission, to
the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15(d) of the Exchange Act.
(b) The Company shall also be required (i) to file with the Trustee,
and provide to each Holder of Notes, without cost to such Holder, copies of such
reports and documents within 15 days after the date on which the Company files
such reports and documents with the Commission or the date on which the Company
would be required to file such reports and documents if the Company were so
required, and (ii) if filing such reports and documents with the Commission is
not accepted by the Commission or is prohibited under the Exchange Act, to
supply at the Company's cost copies of such reports and documents to any
prospective holder promptly upon request. Delivery of such reports, information
and documents to the Trustee is for informational purposes only and the
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
SECTION 1010. Purchase of Notes upon Change of Control.
(a) Upon the occurrence of a Change of Control at any time and
subject to the compliance by the Company with the requirements of paragraph (b)
of this Section 1010, each Holder shall have the right to require that the
Company repurchase all of such Holder's Notes, in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of purchase, in accordance with the procedures set forth in paragraphs (b) and
(c) of this Section 1010 (the "Change of Control Offer").
(b) Within 15 days following any Change of Control, the Company
shall notify the Trustee thereof and give to each Holder of the Notes in the
manner provided in Section 105 a notice stating:
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(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to repurchase such Holder's Notes at the
Purchase Price;
(2) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro
forma historical income, cash flow and capitalization after giving effect
to such Change of Control);
(3) the Change of Control purchase price and a purchase date (the
"Change of Control Purchase Date") which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is
mailed, or such later date as is necessary to comply with requirements
under the Exchange Act or any applicable securities laws or regulations;
(4) that any Note not tendered will continue to accrue interest;
(5) that, unless the Company defaults in the payment of the Change
of Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest and Liquidated
Damages, if any, on and after the Change of Control Purchase Date; and
(6) the instructions a Holder must follow in order to have its Notes
repurchased in accordance with paragraph (d) of this Section.
(d) Holders electing to have Notes purchased shall be required to
surrender such Notes to the Company at the address specified in the notice at
least five Business Days prior to the Change of Control Purchase Date. Holders
shall be entitled to withdraw their election if the Company receives, not later
than three Business Days prior to the Change of Control Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Notes delivered for purchase by the Holder as to which
his election is to be withdrawn and a statement that such Holder is withdrawing
his election to have such Notes purchased. Holders whose Notes are purchased
only in part shall be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which unpurchased portion shall be
equal to $1,000 in principal amount or integral multiples thereof.
SECTION 1011. Limitation on Indebtedness.
The Company shall not, and shall not permit any Restricted
Subsidiary to Incur any Indebtedness (including any Acquired Indebtedness) other
than Permitted Indebtedness; provided that the Company may Incur Indebtedness
if, at the time of such incurrence, the Consolidated Indebtedness to
Consolidated Operating Cash Flow Ratio would have been less than or equal to (i)
6.0 to 1.0 but greater than zero, for Indebtedness incurred on or prior to
December 31, 2001, or (ii) 5.0 to 1.0 but greater than zero, for Indebtedness
incurred
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thereafter. For the purposes of determining compliance with this Section 1011,
in the event that an item of Indebtedness or any portion thereof meets the
criteria of more than one of the type of Indebtedness that the Company and the
Restricted Subsidiaries are permitted to Incur, the Company will have the right,
in its sole discretion, to classify such item of Indebtedness or portion thereof
at the time of its incurrence and will only be required to include the amount
and type of such Indebtedness or portion thereof under the clause permitting the
Indebtedness as so classified.
SECTION 1012. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to take, directly or indirectly, any of the following actions:
(1) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company (other than
dividends or distributions payable solely in shares of its Qualified
Capital Stock or in options, warrants or other rights to acquire such
shares of Qualified Capital Stock);
(2) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock of the Company or any
Capital Stock of any of its Affiliates (other than Capital Stock of any
Wholly Owned Restricted Subsidiary) or any options, warrants or other
rights to acquire such shares of Capital Stock;
(3) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to the Stated Maturity of any
principal payment or any sinking fund payment, any Indebtedness of the
Company that is expressly subordinated in right of payment to the Notes;
or
(4) make any Investment (other than any Permitted Investment) in any
Person;
(such payments or other actions described in (but not excluded from) clauses (1)
through (4) are collectively referred to as "Restricted Payments"); unless at
the time of, and immediately after giving effect to, the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than cash, as
determined by the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a Board Resolution), (A) no Default or Event of
Default shall have occurred and be continuing, (B) the Company could incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to Section 1011 and (C) the aggregate amount of all Restricted Payments
declared or made after the Issue Date shall not exceed the sum of:
(i)(a) 100% of Consolidated Operating Cash Flow less 1.5 times
Consolidated Interest Expense or (ii) if Consolidated Operating Cash Flow
is a negative, minus 100%
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of such negative amount, in each case on a cumulative basis for the period
beginning on the first day of the Company's first fiscal quarter after the
Issue Date and ending on the last day of the Company's last fiscal quarter
ending prior to the date of such proposed Restricted Payment; plus
(ii) the aggregate Net Cash Proceeds and the Fair Market Value of
Telecommunications Assets or Voting Stock of a Person that becomes a
Restricted Subsidiary, the assets of which consist primarily of
Telecommunications Assets, received by the Company after the Issue Date as
capital contributions or from the issuance or sale (other than to any
Subsidiary) of shares of Qualified Capital Stock of the Company (including
upon the exercise of options, warrants or rights) or warrants, options or
rights to purchase shares of Qualified Capital Stock of the Company; plus
(iii) the aggregate Net Cash Proceeds and the Fair Market Value of
Telecommunications Assets or Voting Stock of a Person that becomes a
Restricted Subsidiary, the assets of which consist primarily of
Telecommunications Assets, received by the Company after the Issue Date
from the issuance or sale (other than to any Subsidiary) of debt
securities or Redeemable Capital Stock that have been converted into or
exchanged for Qualified Capital Stock of the Company, together with the
aggregate Net Cash Proceeds and the Fair Market Value of
Telecommunications Assets or Voting Stock of a Person that becomes a
Restricted Subsidiary, the assets of which consist primarily of
Telecommunications Assets, received by the Company at the time of such
conversion or exchange; plus
(iv) to the extent not otherwise included in Consolidated Operating
Cash Flow, an amount equal to the sum of (a) the net reduction in
Investments (other than Permitted Investments) in any Person (other than a
Restricted Subsidiary) resulting from the payment in cash of dividends,
repayments of loans or advances or other transfers of assets, in each case
to the Company or any Restricted Subsidiary after the Issue Date from such
Person and (b) the amount of any net reduction in Investments resulting
from the redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary (valued as provided in the definition of "Investment") at the
time of such redesignation; provided that, in the case of (a) or (b)
above, the foregoing sum shall not exceed the total amount of Investments
(other than Permitted Investments) previously made in such Person or
Unrestricted Subsidiary by the Company and its Restricted Subsidiaries.
(b) Notwithstanding paragraph (a) above, the Company and any
Restricted Subsidiary may take the following actions so long as (with respect to
clauses (2) through (6) below) no Default or Event of Default shall have
occurred and be continuing:
(1) the payment of any dividend within 60 days after the date
of declaration thereof, if at such date of declaration the payment
of such dividend would have complied with the provisions of
paragraph (a) above and such
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payment will be deemed to have been paid on such date of declaration
for purposes of the calculation required by paragraph (a) above;
(2) the purchase, redemption or other acquisition or
retirement for value of any shares of Capital Stock of the Company
(x) in exchange for, or out of the Net Cash Proceeds of a
substantially concurrent issuance and sale (other than to a
Subsidiary) of, shares of Qualified Capital Stock of the Company;
(y) that are held by former officers, employees or directors (or
their estates or beneficiaries under their estates) of the Company
or any of its Subsidiaries; provided that the aggregate amount of
such purchase, redemption or other acquisition or retirement for
value under this clause (y) will not exceed $250,000 in any given
fiscal year; or (z) pursuant to the employment agreement dated
August 4, 1997, between the Company and Richard Jalkut, as amended
and as in effect on the Issue Date (and any extensions or renewals
thereof); provided that the amount of such purchase, redemption or
other acquisition or retirement for value under this clause (z) will
not exceed $1,000,000 in any given fiscal year;
(3) the purchase, redemption, defeasance or other acquisition
or retirement for value of any Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes in exchange
for, or out of the Net Cash Proceeds of a substantially concurrent
issuance and sale (other than to a Subsidiary) of, shares of
Qualified Capital Stock of the Company;
(4) the purchase of any Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes at a
purchase price not greater than 101% of the principal amount thereof
in the event of a Change of Control in accordance with provisions
similar to Section 1010; provided that prior to such purchase the
Company has made the Change of Control Offer as provided in such
covenant with respect to the Notes and has purchased all Notes
validly tendered for payment in connection with such Change of
Control Offer;
(5) the purchase, redemption, defeasance or other acquisition
or retirement for value of Indebtedness (other than Redeemable
Capital Stock) of the Company that is expressly subordinated in
right of payment to the Notes in exchange for, or out of the Net
Cash Proceeds of a substantially concurrent incurrence (other than
to a Subsidiary) of, new Indebtedness of the Company that is
expressly subordinated in right of payment to the Notes, so long as
(A) the principal amount of such new Indebtedness does not exceed
the principal amount (or, if such Indebtedness being refinanced
provides for an amount less than the principal amount thereof to be
due and payable upon a declaration of acceleration thereof, such
lesser amount as of the date of
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determination) of the Indebtedness being so purchased, redeemed,
defeased, acquired or retired, plus the lesser of (x) the amount of
any premium required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness being refinanced or (y)
the amount of any premium reasonably determined by the Company as
necessary to accomplish such refinancing, plus, in either case, the
amount of expenses of the Company incurred in connection with such
refinancing; (B) such new Indebtedness is subordinated to the Notes
to the same extent as such Indebtedness so purchased, redeemed,
defeased, acquired or retired; and (C) such new Indebtedness has an
Average Life longer than the Average Life of the Indebtedness being
refinanced and a final Stated Maturity of principal later than the
final Stated Maturity of the Indebtedness being refinanced; and
(6) the payment of cash in lieu of fractional shares of Common
Stock pursuant to the Warrant Agreement.
The actions described in clauses (1) through (4) and (6) of this
paragraph (b) shall be Restricted Payments that shall be permitted in accordance
with this paragraph (b) but shall reduce the amount that would otherwise be
available for Restricted Payments under clause (C) of paragraph (a) above. The
actions described in clause (5) of this paragraph (b) shall be Restricted
Payments that shall be permitted in accordance with this paragraph (b) and shall
not reduce the amount that would otherwise be available for Restricted Payments
under clause (C) of paragraph (a).
SECTION 1013. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted
Subsidiary to, issue or sell any Capital Stock of a Restricted Subsidiary (other
than to the Company or to a Restricted Subsidiary); provided, however, that this
covenant shall not prohibit (i) issuances or sales of Capital Stock of a
Restricted Subsidiary if, immediately after giving effect to such issuance or
sale, such Restricted Subsidiary would no longer be a Restricted Subsidiary and
any Investment in such Person remaining after giving effect to such issuance or
sale would have been permitted to be made under Section 1012 if made on the date
of such issuance and sale, (ii) the ownership by directors of director's
qualifying shares or the ownership by foreign nationals of Capital Stock of any
Restricted Subsidiary, to the extent mandated by applicable law, (iii) the
issuance and sale of Capital Stock of any Restricted Subsidiary owned by the
Company and the Restricted Subsidiaries in compliance with Section 1017;
provided that such Restricted Subsidiary would remain a Restricted Subsidiary
after such transaction or (iv) the issuance and sale of Capital Stock of any
Restricted Subsidiary to any Person that transfers, leases, licenses or grants a
right to use Telecommunications Assets to the Company pursuant to an Incumbent
Agreement; provided that, after such issuance and sale, such subsidiary remains
a Restricted Subsidiary and, in the good faith determination of the Board
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of Directors of the Company, the Fair Market Value of any such transfer, lease,
license or grant is not less than the Fair Market Value of the Capital Stock of
such Restricted Subsidiary issued and sold in respect thereof.
SECTION 1014. Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any Restricted
Subsidiary to, enter into or suffer to exist, directly or indirectly, any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with, or
for the benefit of, any Affiliate of the Company or any Restricted Subsidiary
(other than the Company or a Restricted Subsidiary so long as no Affiliate of
the Company (other than a Restricted Subsidiary) shall beneficially own Capital
Stock in such Restricted Subsidiary) unless (i) such transaction or series of
related transactions are on terms, taken as a whole, that are no less favorable
to the Company or such Restricted Subsidiary, as the case may be, than those
that could have been obtained in an arm's length transaction with unrelated
third parties that are not Affiliates; (ii) with respect to any transaction or
series of related transactions involving aggregate consideration equal to or
greater than $5,000,000, the Company will deliver an Officers' Certificate to
the Trustee certifying that such transaction or series of related transactions
complies with clause (i) above; and (iii) with respect to any transaction or
series of related transactions involving aggregate consideration in excess of
$10,000,000, the Company will deliver the Officers' Certificate described in
clause (ii) above which will also certify that such transaction or series of
related transactions has been approved by a majority of the Disinterested
Directors of the Board of Directors of the Company or that the Company has
obtained a written opinion from an independent financial expert, certifying that
the financial terms of such transaction or series of related transactions, taken
as a whole, are fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view; provided, however, that this covenant
shall not restrict (1) any transaction or series of related transactions among
the Company and one or more of its Restricted Subsidiaries or among its
Restricted Subsidiaries, (2) the Company from paying reasonable and customary
regular compensation and fees to directors of the Company or any Restricted
Subsidiary who are not employees of the Company or any Restricted Subsidiary,
(3) the performance of the Company's obligations under the Investment and
Stockholders' Agreement, dated as of October 31, 1997, among the Company, David
Schaeffer and the Investors named therein, as amended; the Investment and
Stockholders' Agreement, dated as of August 28, 1995, by and among the Company
and the Investors named therein; the Investment and Stockholders' Agreement,
dated as of December 23, 1996, by and among the Company and the Investors named
therein; the Non-Qualified Stock Option Agreement, dated August 4, 1997, between
the Company and Richard Jalkut; and the Employment Agreement, dated August 4,
1997, between the Company and Richard Jalkut, in each case as amended through
the Issue Date; provided that any amendments or modifications to the terms of
transactions described in this clause (3) will be (x) no less favorable to the
Company than those that could have been obtained in an arm's length transaction
with unrelated third parties who are not Affiliates and (y) approved by the
Board of Directors of the Company (including
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a majority of the Disinterested Directors), (4) the making of any Restricted
Payment not prohibited by Section 1012 and (5) loans or advances made to
directors, officers or employees of the Company or any Restricted Subsidiary, or
guarantees in respect thereof or otherwise made on their behalf, in respect of
expenses incurred in the ordinary course of business, in an aggregate principal
amount not to exceed $500,000 in any calendar year.
SECTION 1015. Limitations on Liens.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien (other than Permitted Liens) on or with respect to any of its property
or assets (including, without limitation, any shares of Capital Stock or
Indebtedness of any Restricted Subsidiary) whether owned at the Issue Date or
thereafter acquired, or any income, profits or proceeds therefrom, or assign or
otherwise convey any right to receive income thereon, unless (x) in the case of
any Lien securing Indebtedness of the Company that is expressly subordinated in
right of payment to the Notes, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien and (y) in the case
of any other Lien, the Notes are secured by a Lien on such property, assets or
proceeds that is senior in priority to, or equally and ratably secured with, the
obligation or liability secured by such Lien.
SECTION 1016. Limitation on Issuances of Certain Guarantees by, and
Debt Securities of, Restricted Subsidiaries.
The Company shall not permit any Restricted Subsidiary to (i)
directly or indirectly guarantee, assume or in any other manner become liable
with respect to any Debt Securities ("Guaranteed Indebtedness") or (ii) issue
any Debt Securities, unless, in either such case, such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for the
guarantee (a "Subsidiary Guarantee") of payment of the Notes. If the Guaranteed
Indebtedness (A) ranks equally in right of payment with the Notes, then the
guarantee of such Guaranteed Indebtedness will rank equally in right of payment
with, or be subordinated in right of payment to, the Subsidiary Guarantee or (B)
is subordinated in right of payment to the Notes, then the guarantee of such
Guaranteed Indebtedness will be subordinated in right of payment to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated in right of payment to the Notes. The obligations of each
Restricted Subsidiary under a Subsidiary Guarantee will be limited to the
maximum amount, as will, after giving effect to all other contingent and fixed
liabilities of such Restricted Subsidiary, result in the obligations of such
Restricted Subsidiary under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under applicable law.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon (i) the sale or
other disposition, by way of
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merger or otherwise, to any Person not an Affiliate of the Company, of all of
the Company's and its Restricted Subsidiaries' Capital Stock in such Restricted
Subsidiary, (ii) the merger or consolidation of the applicable Restricted
Subsidiary with and into the Company or another Restricted Subsidiary that has
guaranteed the Notes and that is the surviving Person in such merger or
consolidation and (iii) the release by all of the holders of Debt Securities of
the Company of such Restricted Subsidiary's obligations under all of its
Guarantees in respect thereof and the release by all of the holders of Debt
Securities of such Restricted Subsidiary of its obligations thereunder.
SECTION 1017. Limitation on Sale of Assets.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the Fair Market Value of the shares or other assets
sold (as determined by the board of directors of the Company, whose
determination shall be conclusive and evidenced by a resolution thereof) and
(ii) the consideration received by the Company or the relevant Restricted
Subsidiary in respect of such Asset Sale consists of at least 75% cash or Cash
Equivalents; provided, however, that for purposes of this Section 1017, "Cash
Equivalents" shall include (i) the amount of any liabilities (other than
liabilities that are by their terms subordinated to the Notes) of the Company or
such Restricted Subsidiary (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto) that are assumed
by the transferee of any such assets or other property in such Asset Sale or are
no longer a liability of the Company or any Restricted Subsidiary (and excluding
any liabilities that are incurred in connection with or in anticipation of such
Asset Sale), but only to the extent that such assumption is effected on a basis
under which there is no further recourse to the Company or any of its Restricted
Subsidiaries with respect to such liabilities and (ii) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary in
connection with such Asset Sale that are converted by the Company or such
Restricted Subsidiary into cash within 60 days of receipt.
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may use the Net Cash Proceeds thereof, within 12 months after
such Asset Sale, to (i) permanently repay or prepay the Notes or any then
outstanding Indebtedness of the Company that ranks equally with the Notes or
Indebtedness of any Restricted Subsidiary or permanently reduce (without making
any prepayment) the amount that is at the time available to be borrowed under
the Notes or any Indebtedness of the Company ranking equally with the Notes or
any Indebtedness of a Restricted Subsidiary or (ii) invest (or enter into a
legally binding agreement to invest) in properties and assets to replace the
properties and assets that were the subject of the Asset Sale or in properties
and assets that are or will be used in the Telecommunications Business of the
Company or a Restricted Subsidiary, as the case may be. If any such legally
binding agreement to invest such Net Cash Proceeds is terminated, then the
Company may, within 60 days of such termination or within 12 months of such
Asset
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Sale, whichever is later, apply or invest such Net Cash Proceeds as provided in
clause (i) or (ii) (without regard to the parenthetical contained in such clause
(ii)) above. The amount of such Net Cash Proceeds not so used as set forth above
in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds
$10,000,000, the Company shall, within 15 business days, make an offer to
purchase (an "Excess Proceeds Offer"), on a proportional basis, the Notes and
Indebtedness described in the second succeeding sentence, in accordance with the
procedures set forth below, the maximum principal amount of Notes (expressed as
a multiple of $1,000) and such other Indebtedness that may be purchased with the
Excess Proceeds. Any Excess Proceeds Offer shall include a pro rata offer under
similar circumstances to purchase all other Indebtedness of the Company ranking
equally with the Notes which Indebtedness contains similar provisions requiring
the Company to purchase such Indebtedness. The offer price as to each Note (the
"Excess Proceeds Offer Price") will be payable in cash in an amount equal to
100% of the principal amount of such Note, plus accrued and unpaid interest, if
any, thereon to the date of purchase. To the extent that the aggregate principal
amount of Notes validly tendered and not withdrawn by holders thereof pursuant
to an Excess Proceeds Offer is less than the Excess Proceeds, the Company may
use such deficiency for general corporate purposes. If the aggregate principal
amount of Notes validly tendered and not withdrawn by holders thereof pursuant
to an Excess Proceeds Offer exceeds the Excess Proceeds, Notes to be purchased
will be selected on a proportional basis. Upon completion of such Exceeds
Proceeds Offer, the amount of Excess Proceeds shall be reset to zero.
SECTION 1018. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions on or in respect of any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary,
(c) make Investments in the Company or any other Restricted Subsidiary, (d)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary or (e) guarantee any Indebtedness of the Company or any other
Restricted Subsidiary, except for such encumbrances or restrictions existing
under or by reason of (i) any agreement in effect on the Issue Date, (ii)
applicable law, (iii) customary non-assignment provisions in leases entered into
in the ordinary course of business and other agreements of the Company or any
Restricted Subsidiary, (iv) any agreement or other instrument of a Person
acquired by the Company or any Restricted Subsidiary in existence at the time of
such acquisition (but not created in contemplation thereof), which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or
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assets of the Person, so acquired, (v) customary restrictions on transfers of
property contained in any security agreement (including a capital lease
obligation) securing Indebtedness of the Company or a Restricted Subsidiary
otherwise permitted hereunder, (vi) any encumbrance or restriction with respect
to a Restricted Subsidiary of the Company entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary permitted under Section 1017, (vii) any agreement or
instrument governing or relating to Indebtedness under any senior financing
facility permitted to be incurred under clause (g), (j) or (m) of the definition
of "Permitted Indebtedness" if such encumbrance or restriction applies only (A)
to amounts which at any point in time (other than during such periods as are
described in the following clause (B)) (1) exceed scheduled amounts due and
payable (or which are to become due and payable within 30 days) in respect of
the Notes or this Indenture for interest, premium, and Liquidated Damages, if
any, and principal less the amount of cash that is otherwise available to the
Company at such time for the payment of interest, premium and Liquidated
Damages, if any, and principal due and payable in respect of the Notes or this
Indenture or (2) if paid, would result in an event described in the following
clause (B) of this sentence, or (B) during the pendency of any event that
causes, permits or, after notice or lapse of time, would cause or permit the
holder or holders of such Indebtedness to declare such Indebtedness to be
immediately due and payable or to require cash collateralization or cash cover
for such Indebtedness for so long as such cash collateralization or cash cover
has not been provided; (viii) any encumbrance or restriction under the Vendor
Credit Facility; (ix) any encumbrance or restriction relating to transfer of
property or assets comprising an Initial System pursuant to an Incumbent
Agreement, and (x) any encumbrance or restriction under any agreement that
extends, renews, refinances or replaces agreements containing the encumbrances
or restrictions in the foregoing clauses (i) through (vi) and (viii), so long as
the Board of Directors of the Company determines in good faith that the terms
and conditions of any such encumbrances or restrictions, taken as a whole, are
no less favorable to the Company, any Restricted Subsidiary and the holders of
the Notes than those so extended, renewed, refinanced or replaced.
SECTION 1019. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 803 or Sections 1005 through
1018, inclusive, if before or after the time for such compliance the Holders of
at least a majority in aggregate principal amount of the Outstanding Notes, by
Act of such Holders, waive such compliance in such instance with such term,
provision or condition, but no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect.
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ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
The Notes may be redeemed at the option of the Company, as a whole
or from time to time in part, at any time after April 15, 2003, subject to the
conditions and at the Redemption Prices specified in the form of Note, together
with accrued and unpaid interest and Liquidated Damages, if any, to the
Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the Trustee shall
select the particular Notes to be redeemed from the Outstanding Notes not
previously called for redemption not more than 60 days prior to the Redemption
Date, by lot or by such method as the Trustee shall deem fair and appropriate
and which may provide for the selection for redemption of portions of the
principal of Notes; provided, however, that no such partial redemption shall
reduce the portion of the principal amount of a Note not redeemed to less than
$1,000.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to
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be redeemed only in part, to the portion of the principal amount of such Note
which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Notes to be redeemed.
All notices of redemption shall include a description of the Notes, including a
CUSIP number, and shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued and unpaid
interest and Liquidated Damages, if any, to the Redemption Date payable as
provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the notice
which relates to such Note shall state that on and after the Redemption
Date, upon surrender of such Note, the holder will receive, without
charge, a new Note or Notes of authorized denominations for the principal
amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
and unpaid interest, and Liquidated Damages, if any, to the Redemption
Date payable as provided in Section 1107) will become due and payable upon
each such Note, or the portion thereof, to be redeemed, and that interest
thereon will cease to accrue on and after said date, and
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
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SECTION 1106. Deposit of Redemption Price.
Prior to 10:00 a.m. on any Redemption Date, the Company shall
deposit with the Trustee or with a Paying Agent (or, if the Company is acting as
its own Paying Agent, segregate and hold in trust as provided in Section 1003)
an amount of money sufficient to pay the Redemption Price of, and Liquidated
Damages, if any, and accrued and unpaid interest on, all the Notes which are to
be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with Liquidated Damages and accrued
and unpaid interest, if any, to the Redemption Date), and from and after such
date (unless the Company shall default in the payment of the Redemption Price
and accrued interest) such Notes shall cease to bear interest; provided,
however, that if any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
Upon surrender of any such Note for redemption in accordance with
said notice, such Note shall be paid by the Company at the Redemption Price,
together with Liquidated Damages and accrued and unpaid interest, if any, to the
Redemption Date; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Notes, or one or more Predecessor Notes, registered as such at the close
of business on the relevant Record Dates according to their terms and the
provisions of Section 307.
SECTION 1108. Notes Redeemed in Part.
Any Note which is to be redeemed only in part (pursuant to the
provisions of this Article) shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holders attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Note so surrendered.
<PAGE>
100
ARTICLE TWELVE
Security
SECTION 1201. Security.
(a) On the Issue Date, the Company shall purchase, and at all times,
subject to the Pledge Agreement, pledge to the Trustee the Pledged Securities as
security for the benefit of the Holders. The Pledged Securities must be in such
amount as will be sufficient upon receipt of scheduled interest on and principal
payments of such Pledged Securities, in the opinion of a nationally recognized
firm of independent public accountants selected by the Company, to provide for
payment in full of the first four scheduled interest payments due on the
Outstanding Notes. The Pledged Securities shall be pledged by the Company to the
Trustee for the benefit of the Holders pursuant to the Pledge Agreement and
shall be held by the Trustee in the Escrow Account pending disposition pursuant
to the Pledge Agreement.
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Pledge Agreement (including, without limitation, the provisions
providing for foreclosure and release of the Pledged Securities) as the same may
be in effect or may be amended from time to time in accordance with its terms,
and authorizes and directs the Trustee to enter into the Pledge Agreement and to
perform its respective obligations and exercise its respective rights thereunder
in accordance therewith. The Company shall do or cause to be done all such acts
and things as may be reasonably necessary or proper, or as may be required by
the provisions of the Pledge Agreement, to assure and confirm to the Trustee the
security interest in the Pledged Securities contemplated hereby, by the Pledge
Agreement or any part thereof, as from time to time constituted, so as to render
the same available for the security and benefit of this Indenture and of the
Notes secured hereby, according to the intent and purposes herein expressed. The
Company shall take, or shall cause to be taken, any and all actions reasonably
required (and any action reasonably requested by the Trustee) to cause the
Pledge Agreement to create and maintain, as security for the obligations of the
Company under this Indenture and the Notes, valid and enforceable first priority
liens in and on all the Pledged Securities, in favor of the Trustee, superior to
and prior to the rights of third Persons and subject to no other Liens.
(c) The release of any Pledged Securities pursuant to the Pledge
Agreement will not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Pledged
Securities are released pursuant to this Indenture and the Pledge Agreement. To
the extent applicable, the Company shall cause TIA Section 314(d), relating to
the release of property or securities from the Lien and security interest of the
Pledge Agreement and relating to the substitution therefor of any property or
securities to be subjected to the Lien and security interest of the Pledge
Agreement, to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an officer of the Company, except in cases where
TIA Section 314(d) requires that such
<PAGE>
101
certificate or opinion be made by an independent Person, which Person shall be
an independent appraiser or other expert selected or approved by the Company in
the exercise of reasonable care.
(d) The Company shall cause TIA Section 314(b), relating to opinions
of counsel regarding the Lien under the Pledge Agreement, to be complied with.
The Trustee may, to the extent permitted by Section 602 hereof, accept as
conclusive evidence of compliance with the foregoing provisions the appropriate
statements contained in such instruments.
(e) The Trustee, in its sole discretion and without the consent of
the Holders, may, and at the request of the Holders of at least 25% in aggregate
principal amount of Notes then Outstanding shall, on behalf of the Holders, take
all actions it deems necessary or appropriate in order to (i) enforce any of the
terms of the Pledge Agreement and (ii) collect and receive any an all amounts
payable in respect of the obligations of the Company thereunder. The Trustee
shall have power to institute and to maintain such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders in the Pledged Securities (including power to institute
and maintain suits or proceedings to restrain the enforcement of or compliance
with any legislative or other governmental enactment, rule or order that may be
unconstitutional or otherwise invalid if the enforcement of, or compliance with,
such enactment, rule or order would impair the security interest hereunder or be
prejudicial to the interest of the Holders or of the Trustee).
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time,
with respect to the Notes, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Notes on the
date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by
<PAGE>
102
the Outstanding Notes, which shall thereafter be deemed to be "Outstanding" only
for the purposes of Section 1305 and the other Sections of this Indenture
referred to in (A) and (B) below, and to have satisfied all its other
obligations under such Notes and this Indenture insofar as such Notes are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Notes to receive, solely from the trust fund described in
Section 1304 and as more fully set forth in such Section, payments in respect of
the principal of (and premium, if any, on) and interest and Liquidated Damages,
if any, on such Notes when such payments are due, (B) the Company's obligations
with respect to such Notes under Sections 304, 305, 306, 1002 and 1003, (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and (D)
this Article Thirteen. Subject to compliance with this Article Thirteen, the
Company may exercise its option under this Section 1302 notwithstanding the
prior exercise of its option under Section 1303 with respect to the Notes.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801(2) and (3) and Section
803 and in Sections 1007 through 1018 with respect to the Outstanding Notes on
and after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Notes shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section
501(4), but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Notes:
(1) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee (or another trustee satisfying the
requirements of Section 607 who shall agree to comply with the provisions
of this Article Thirteen applicable to it) as trust funds in trust for the
purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such Notes,
(A) cash
<PAGE>
103
in United States dollars, (B) U.S. Government Obligations which through
the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before
the due date of any payment, money in an amount, or (C) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall be
applied by the Trustee (or other qualifying trustee) to pay and discharge,
(i) the principal of (and premium, if any) and interest and Liquidated
Damages, if any, on, Outstanding Notes on the Stated Maturity (or
Redemption Date, if applicable) of such principal (and premium, if any) or
installment of interest and Liquidated Damages, if any, and (ii) any
payments applicable to the Outstanding Notes on the day on which such
payments are due and payable in accordance with the terms of this
Indenture and of such Notes; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Notes. Before
such a deposit, the Company may give to the Trustee, in accordance with
Section 1103 hereof, a notice of its election to redeem all of the
Outstanding Notes at a future date in accordance with Article Eleven
hereof, which notice shall be irrevocable. Such irrevocable redemption
notice, if given, shall be given effect in applying the foregoing. For
this purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the timely payment
of which its full faith and credit is pledged or (y) obligations of a
Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation
by the United States of America, which, in either case, are not callable
or redeemable at the option of the issuer thereof, and shall also include
a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended), as custodian with respect to any
such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for
the account of the holder of such depository receipt, provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt
from any amount received by the custodian in respect of the U.S.
Government Obligation or the specific payment of principal of or interest
on the U.S. Government Obligation evidenced by such depository receipt.
(2) No Default or Event of Default with respect to the Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (6) and (7) of Section 501 hereof are concerned, at any time
during the period ending on the 123rd day after the date of such deposit
(it being understood that this condition shall not be deemed satisfied
until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company is
a party or by which it is bound.
<PAGE>
104
(4) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since April 1, 1998, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred.
(5) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or loss
for U.S. federal income tax purposes as a result of such covenant
defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred.
(6) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section
1302 or the covenant defeasance under Section 1303 (as the case may be)
have been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal (and premium, if
any) and interest, but such money need not be segregated from other funds except
to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.
Anything in this Article Thirteen to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or
<PAGE>
105
U.S. Government Obligations held by it as provided in Section 1304 which, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited to
effect an equivalent defeasance or covenant defeasance, as applicable, in
accordance with this Article.
SECTION 1306. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1302 or 1303, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1305; provided, however, that if the Company makes any payment of principal of
(or premium, if any) or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
<PAGE>
106
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
PATHNET, INC.
By /s/ David Schaeffer
------------------------------
Name: David Schaeffer
Title: Chairman
THE BANK OF NEW YORK,
Trustee
By /s/ Mary Beth A. Lewicki
------------------------------
Name: Mary Beth A. Lewicki
Title: Assistant Vice President
<PAGE>
EXHIBIT A
Form of Rule 144A Certificate
To: The Bank of New York,
Trustee (the "Trustee")
101 Barclay Street, 21W
New York, New York 10286
Attention: Corporate Trust Administration
Re: Pathnet, Inc. (The "Company")
12 1/4% Senior Notes due 2008 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $350,000,000 aggregate principal
amount at Maturity of Notes, we confirm that such sale has been effected
pursuant to and in accordance with Rule 144A ("Rule 144A") under the Securities
Act of 1933, as amended (the "Securities Act"). We are aware that the transfer
of Notes to us is being made in reliance on the exemption from the provisions of
Section 5 of the Securities Act provided by rule 144A. Prior to the date of this
Certificate we have been given the opportunity to obtain from the Company the
information referred to in Rule 144A(d)(4), and have either declined such
opportunity or have received such information.
You and the company are entitled to rely upon this Certificate and are
irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[NAME OF PURCHASER]
By:______________________________________
Name:
Title:
Address:
Date of this Certificate:_______________
A-1
<PAGE>
EXHIBIT B
Form of Regulation S Certificate
[DATE]
The Bank of New York, Trustee (the "Trustee")
101 Barclay Street, 21W
New York, New York 10286
Attention: Corporate Trust Administration
Re: Pathnet, Inc. (the "Company")
12 1/4% Senior Notes due 2008 (the "Notes")
Ladies and Gentlemen:
This Certificate relates to our proposed transfer of $1,000
principal amount of Notes issued under the Indenture dated as of April 8, 1998
relating to the Notes. Terms are used in this Certificate as defined in
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"). We hereby certify as follows:
1. The offer of the Notes was not made to a person in the United
States (unless such person or the account held by it for which it is
acting is excluded from the definition of "U.S. person" pursuant to Rule
902(o) of Regulation S under the circumstances described in Rule 902(i)(3)
of Regulation S) or specifically targeted at an identifiable group of U.S.
citizens abroad.
2. Either (a) at the time the buy order was originated, the buyer
was outside the United States or we and any person acting on our behalf
reasonably believed that the buyer was outside the United States or (b)
the transaction was executed in, on or through the facilities of a
designated offshore securities market, and neither we nor any person
acting on our behalf knows that the transaction was pre-arranged with a
buyer in the United States.
3. Neither we, any of our affiliates, nor any person acting on our
or their behalf, has made any directed selling efforts in the United
States.
4. The proposed transfer of Notes is not part of a plan or scheme to
evade the registration requirements of the Securities Act.
5. If we are a dealer or a person receiving a selling concession or
other fee or remuneration in respect of the Notes, and the proposed
transfer takes place before
B-1
<PAGE>
the Offshore Date referred to in the Indenture, or we are an officer or
director of the Company or a distributor, we certify that the proposed
transfer is being made in accordance with the provisions of Rule 904(c) of
Regulation S.
You and the Company are entitled to rely upon this Certificate and
are irrevocably authorized to produce this Certificate or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[NAME OF SELLER]
By______________________________________
Authorized Signature
B-2
<PAGE>
EXHIBIT C
Form of Certificate
to Be Delivered following
Resale Restriction Termination Date
[DATE]
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Attention: Corporate Trust Administration
Re: Pathnet, Inc. (the "Company")
12 1/4% Senior Notes due 2008 (the "Notes")
Ladies and Gentlemen:
This letter relates to $1,000 principal amount of Notes represented
by the offshore global note certificate (the "Regulation S Global Note").
Pursuant to Section 201 of the Indenture dated as of April 8, 1998 relating to
the Notes (the "Indenture"), we hereby certify that (1) we are the beneficial
owner of such principal amount of Notes represented by the Regulation S Global
Note and (2) we are a Non-U.S. Person to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the Securities Act of
1933, as amended ("Regulation S"). Accordingly, you are hereby requested to
issue a Regulation S Permanent Global Note representing the undersigned's
interest in the principal amount of Notes represented by the Global Note, all in
the manner provided by the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By______________________________________
Authorized Signature
C-1
<PAGE>
Exhibit 10.20
EXECUTION COPY
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "PLEDGE AGREEMENT") is made and
entered into as of April 8, 1998 by PATHNET, INC., a Delaware corporation (the
"PLEDGOR"), THE BANK OF NEW YORK, a New York banking corporation, having an
office at 101 Barclay Street, Floor 21 West, New York, New York 10286, as
trustee (the "TRUSTEE") for the holders from time to time (the "HOLDERS") of the
Notes (as defined herein) issued by the Pledgor under the Indenture referred to
below and THE BANK OF NEW YORK, as securities intermediary (the "PATHNET
SECURITIES INTERMEDIARY").
W I T N E S S E T H
WHEREAS, the Pledgor and the Trustee have entered into that
certain indenture dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the "INDENTURE"), pursuant
to which the Pledgor is issuing on the date hereof $350,000,000 in aggregate
principal amount of 12 1/4% Senior Notes due 2008 (and along with such notes
that may from time to time be issued in substitution therefor, the "NOTES"); and
WHEREAS, the Pledgor has agreed, pursuant to the Indenture, to
(i) purchase or cause the purchase of Pledged Securities (as defined herein) in
an amount that will be sufficient upon receipt of scheduled interest and
principal payments in respect thereof to provide for the payment of the first
four scheduled interest payments due on the Notes and (ii) place such Pledged
Securities (or cause them to be placed) in an account maintained by the Trustee
with the Pathnet Securities Intermediary for the benefit of Holders of the
Notes; and
WHEREAS, the Pledgor has agreed to purchase United States
Treasury securities in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants selected by the Pledgor and
delivered to the Trustee, upon receipt of scheduled interest and principal
payments of such securities, to provide for payment in full of each of the first
four scheduled interest payment due on the Notes and interest on the Notes in
the event that the Notes become due and payable prior to such time as the first
four scheduled interest payments thereon shall have been paid in full (the
"OBLIGATIONS"); and
WHEREAS, the Pledgor has agreed to (i) pledge to the Trustee for
its benefit and the ratable benefit of the Holders of the Notes a security
interest in the Pledged
<PAGE>
2
Securities and related collateral and (ii) execute and deliver this Pledge
Agreement in order to secure the payment and performance by the Pledgor of all
the Obligations; and
WHEREAS, the Trustee has opened an account (the "ESCROW ACCOUNT")
with the Pathnet Securities Intermediary, at its office at 101 Barclay Street,
New York, New York 10286, Account No. 281251, in the name of The Bank of New
York, as Trustee, for the benefit of the Holders of the 12 1/4% Senior Notes due
2008 of Pathnet, Inc. (along with such notes that may from time to time be
issued in substitution therefor), with respect to which the Trustee is the sole
entitlement holder and which is under the sole dominion and control of the
Trustee but subject to the terms of this Pledge Agreement. Capitalized terms
used herein and not otherwise defined herein shall have the meanings given to
such terms in the Indenture. Unless otherwise defined herein or in the
Indenture, terms used in Articles 8 or 9 of the Uniform Commercial Code as in
effect in the State of New York (the "UCC") are used herein as therein defined.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and in order to induce the Holders of the Notes to purchase the Notes,
the Pledgor hereby agrees with the Trustee, for the benefit of the Trustee and
for the ratable benefit of the Holders of the Notes, as follows:
SECTION 1. PLEDGE AND GRANT OF SECURITY INTEREST. As security for
the prompt and complete payment and performance when due of the Obligations
(whether at the stated maturity or otherwise), the Pledgor hereby pledges to the
Trustee for its benefit and for the ratable benefit of the Holders of the Notes,
and grants to the Trustee for its benefit and for the ratable benefit of the
Holders of the Notes, a continuing first priority security interest in and to
all of the Pledgor's right, title and interest in, to and under the following
(wherever located), whether investment property, general intangibles, other
rights, interests, claims and remedies or proceeds or otherwise (collectively,
the "PLEDGED COLLATERAL"): (a) the United States Treasury securities identified
by CUSIP Number in Exhibit A to this Pledge Agreement (the "PLEDGED
SECURITIES"), (b) any and all applicable Security Entitlements to the Pledged
Securities, (c) the Escrow Account and all funds, certificates, instruments,
assets and properties, if any, from time to time carried therein or representing
or evidencing the Escrow Account (d) any and all related accounts in which
Security Entitlements to the Pledged Securities are carried and (e) all proceeds
of any and all of the Pledged Collateral (including, without limitation,
proceeds that constitute property of the types described in clauses (a) - (d) of
this Section 1).
SECTION 2. SECURITY FOR OBLIGATION. This Pledge Agreement secures
the prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Obligations.
<PAGE>
3
SECTION 3. DELIVERY OF PLEDGED SECURITIES; ESCROW ACCOUNT;
INTEREST. (a) The Pledged Securities shall be pledged and transferred to the
Trustee and the Trustee shall become the holder of a Security Entitlement to the
Pledged Securities through action by the Pathnet Securities Intermediary, as
confirmed (in writing or electronically or otherwise in accordance with standard
industry practice) to the Trustee by the Pathnet Securities Intermediary (i)
indicating by book-entry that the Pledged Securities and all Security
Entitlements thereto has been credited to the Escrow Account, or (ii) acquiring
the Pledged Securities or a Security Entitlement thereto for the Trustee and
accepting the same for credit to the Escrow Account.
(b) Prior to or concurrently with the execution and delivery
hereof and prior to the transfer to the Trustee of the Pledged Securities (or
acquisition by the Trustee of any Security Entitlement thereto) as provided in
subsection (a) of this Section 3, the Trustee shall establish with the Pathnet
Securities Intermediary the Escrow Account on the books of the Pathnet
Securities Intermediary as a Securities Account segregated from all other
custodial or collateral accounts, such Escrow Account to be maintained at the
offices of the Pathnet Securities Intermediary at 101 Barclay Street, Floor 21
West, New York, New York 10286, and the Pathnet Securities Intermediary shall
maintain a Securities Account at the Federal Reserve Bank of New York ("FRBNY").
Upon transfer of the Pledged Securities to the Pathnet Securities Intermediary
(or the Pathnet Securities Intermediary's acquisition of the Security
Entitlements thereto), as confirmed to the Pathnet Securities Intermediary by
FRBNY or another securities intermediary, the Pathnet Securities Intermediary
shall make appropriate book entries indicating that the Pledged Securities
and/or such Security Entitlement have been credited to the Trustee and the
Escrow Account. Subject to the other terms and conditions of this Pledge
Agreement, all funds or other property held by the Trustee pursuant to this
Pledge Agreement shall be held in the Escrow Account subject (except as
expressly provided in Section 4(a), (b) and (c) hereof) to the exclusive
dominion and control (including "control" as defined in ss. 9-115(1)(e) of the
UCC) of the Trustee and exclusively for the benefit of the Trustee and for the
ratable benefit of the Holders of the Notes and segregated from all other funds
or other property otherwise held by the Trustee.
(c) The Trustee shall, in accordance with all applicable laws,
have sole dominion and control (including "control" as defined in UCC ss.
9-115(1)(e)) over the Escrow Account, and it shall be a term and condition of
the Escrow Account and the Pledgor irrevocably instructs the Trustee,
notwithstanding any other term or condition to the contrary in any other
agreement, that no Pledged Collateral shall be released to or for the account
of, or withdrawn by or for the account of, the Pledgor or any other Person
except as expressly provided in this Pledge Agreement.
(d) The Trustee shall, in accordance with and subject to all
applicable laws, be the sole entitlement holder of, and have the sole power to
originate "ENTITLEMENT ORDERS" (as defined in UCC ss. 8-102(a)(8)) with respect
to, the Escrow Account and all
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4
United States Treasury securities held therein, and it shall be a term and
condition of the Escrow Account that the Trustee shall have the right to issue
such Entitlement Orders with respect to the Escrow Account and all assets and
properties from time to time carried in the Escrow Account, including such
securities, Security Entitlements and other "FINANCIAL ASSETS" (as defined in
UCC ss. 8-102(a)(9)) without further consent of the Pledgor or any other Person
(except, to the extent required under the Indenture, of the Holders), and that
no Pledged Collateral shall be released to or for the account of, or withdrawn
by or for the account of, the Pledgor or any other Person except as expressly
provided in this Pledge Agreement.
(e) All Pledged Collateral shall be retained in the Escrow
Account pending disbursement pursuant to the terms hereof.
(f) Concurrently with the execution and delivery of this Pledge
Agreement the Trustee and the Pathnet Securities Intermediary are delivering to
the Pledgor and to Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Bear, Stearns & Co., Inc., TD Securities (USA) Inc. and Salomon
Brothers Inc, as the initial purchasers of the Notes, a duly executed
certificate, in the form of Exhibit A hereto, of an officer of the Trustee,
confirming the Trustee's establishment and maintenance of the Escrow Account and
its receipt and holding of the Pledged Securities or a Security Entitlement
thereto and the crediting of the Pledged Securities or such Security Entitlement
to the Escrow Account, all in accordance with this Pledge Agreement.
(g) Concurrently with the execution and delivery of this Pledge
Agreement, the Pledgor shall deliver to the Trustee acknowledgement copies or
stamped receipt copies of proper financing statements, duly filed under the UCC
of the State of New York, covering the Pledged Collateral described in this
Pledge Agreement.
(h) Concurrently with the execution and delivery of this Pledge
Agreement, the Pledgor shall deliver to the Trustee an opinion of a nationally
recognized firm of independent public accountants, selected by the Pledgor,
substantially in the form of Exhibit B hereto.
SECTION 4. DISBURSEMENTS. (a) At least three Business Days prior
to the due date of any of the first four scheduled interest payments on the
Notes, the Pledgor may, pursuant to written instructions given by the Pledgor to
the Trustee (a "COMPANY ORDER"), direct the Trustee to release from the Escrow
Account and pay to the Holders of the Notes on behalf of the Issuer proceeds
sufficient to provide for payment in full of such interest then due on the
Notes. Upon receipt of a Company Order, the Trustee will take any action
necessary to provide for the payment of the interest on the Notes in accordance
with the Company Order and the payment provisions of the Indenture to the
Holders of the Notes from (and to the extent of) proceeds of the Pledged
Securities in the Escrow Account.
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5
Nothing in this Section 4 shall affect the Trustee's rights to apply the Pledged
Collateral to the payments of amounts due on the Notes upon acceleration
thereof.
(b) If the Pledgor makes any interest payment or portion of an
interest payment for which the Pledged Collateral is security from a source of
funds other than the Escrow Account ("OTHER FUNDS"), the Pledgor may, after
payment in full of such interest payment, direct the Trustee pursuant to a
Company Order to release to the Pledgor or to another party at the direction of
the Pledgor (the "PLEDGOR'S DESIGNEE") proceeds from the Escrow Account in an
amount less than or equal to the amount of Other Funds applied to such interest
payment. Upon receipt by the Trustee of such Company Order and provided the
Trustee has received such interest payment, if no Default or Event of Default
(as defined in the Indenture) shall have occurred and be continuing, the Trustee
shall pay over to the Pledgor or the Pledgor's Designee, as the case may be, the
requested amount from proceeds in the Escrow Account as soon as practicable.
Concurrently with any release of funds to the Pledgor pursuant to this Section
4(b), the Pledgor shall deliver to the Trustee a certificate signed by an
officer of the Pledgor stating that the Pledgor has made the interest payment
from a source of funds other than the Escrow Account, and that such release has
been duly authorized by the Pledgor and will not contravene any provision of
applicable law or the Certificate of Incorporation or the By-laws of the Pledgor
or any material agreement or other material instrument binding upon the Pledgor
or any of its subsidiaries or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Pledgor or any of its
subsidiaries or result in the creation or imposition of any Lien on any assets
of the Pledgor, except for the security interest granted under the Pledge
Agreement.
(c) If at any time the principal of and interest on the Pledged
Securities exceeds 100% of the amount sufficient, in the written opinion of a
nationally recognized firm of independent accountants selected by the Pledgor
and delivered to the Trustee, to provide for payment in full of the remaining
first four scheduled interest payments due on all of the outstanding Notes, the
Pledgor may direct the Trustee to release any such excess amount to the Pledgor
or to any Pledgor's Designee. Upon receipt of a Company Order (which shall
include a certificate from such nationally recognized firm of independent
accountants stating the amount by which the Pledged Securities exceed the amount
required to be held in the Escrow Account), if no Default or Event of Default
(as defined in the Indenture) shall have occurred and be continuing, the Trustee
shall pay over to the Pledgor or the Pledgor's Designee, as the case may be, any
such excess amount.
(d) Upon payment in full of the Obligations, or if the Company
shall become obligated under the Indenture to redeem all of the outstanding
Notes and such Notes shall have been redeemed, then, if no Default or Event of
Default (as defined in the Indenture) shall have occurred and be continuing, the
security interest in the Pledged Collateral evidenced by this Pledge Agreement
will automatically terminate and be of no further force and effect and the
Pledged Collateral shall promptly be paid over and
<PAGE>
6
transferred to the Pledgor. Furthermore, upon the release of any Pledged
Collateral from the Escrow Account in accordance with the terms of this Pledge
Agreement, whether upon release of Pledged Collateral to Holders as payment of
interest or otherwise, the security interest evidenced by this Pledge Agreement
in such released Pledged Collateral will automatically terminate and be of no
further force and effect.
(e) At least three Business Days prior to the due date of each of
the first four scheduled interest payments on the Notes, the Pledgor shall give
the Trustee notice (by Company Order) as to whether such interest payment will
be made pursuant to Section 4(a) or 4(b) and the respective amounts of interest
that will be paid from the Escrow Account and from Other Funds. Any Other Funds
to be used to make any interest payment shall be delivered to the Trustee, in
immediately available funds, prior to 10:00 a.m. (New York City time) on such
interest payment date. If no such notice is given or such Other Funds have not
been so delivered, the Trustee will act pursuant to Section 4(a) as if it had
received a Company Order pursuant thereto for the payment in full of the
interest then due from the Escrow Account.
(f) The Trustee shall liquidate Pledged Collateral in the Escrow
Account (pursuant to written instructions from Pledgor) in order to make any
scheduled payment of interest unless there are sufficient funds in the Escrow
Account on such interest payment date.
(g) Nothing contained in Section 1, Section 3, this Section 4,
Section 11 or any other provision of this Pledge Agreement shall (i) afford the
Pledgor any right to issue Entitlement Orders with respect to any Security
Entitlement to the Pledged Securities or any Securities Account in which any
such Security Entitlement may be carried, or otherwise afford the Pledgor rights
to of any such Security Entitlement or (ii) except as otherwise specified under
this Agreement (or required by applicable law) give rise to any other rights of
the Pledgor with respect to the Pledged Securities, any Security Entitlement
thereto or any Securities Account in which any such Security Entitlement may be
carried (except as expressly provided in Sections 4(a), (b) and (c) hereof) of
the Trustee in its capacity as such (and not as a securities intermediary).
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Pledgor hereby
represents and warrants that, as of the date hereof:
(a) The execution and delivery by the Pledgor of, and the
performance by the Pledgor of its obligations under, this Pledge
Agreement will not contravene any provision of applicable law or statute
or the organization documents of the Pledgor or any material agreement
or other material instrument binding upon the Pledgor or any of its
subsidiaries or
<PAGE>
7
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Pledgor or any of its subsidiaries, or
result in the creation or imposition of any Lien on any assets of the
Pledgor, except for the security interests granted under this Pledge
Agreement; no consent, approval, authorization or order of, or
qualification with, or other action by, any governmental or regulatory
body or agency or any third party is required (i) for the execution,
delivery or performance by the Pledgor of this Pledge Agreement, (ii)
for the grant by the Pledgor of the security interest granted hereby,
for the pledge by the Pledgor of the Pledged Collateral pursuant to this
Pledge Agreement, (iii) for the perfection and maintenance of the pledge
and security interest created hereby (including the first- priority
nature of such pledge and security interest, assuming compliance by the
Pathnet Securities Intermediary with all obligations contained in this
Pledge Agreement or (iv) except for any such consents, approvals,
authorizations or orders required to be obtained by the Trustee (or the
Holders) for reasons other than the consummation of this transaction,
for the exercise by the Trustee of the rights provided for in this
Pledge Agreement or the remedies in respect of the Pledged Collateral
pursuant to this Pledge Agreement.
(b) Immediately before the depositing the Pledged Securities into
the Escrow Account, the Pledgor is the legal and beneficial owner of the
Pledged Collateral free and clear of any Lien or claims of any person or
entity (except for the security interests granted under this Pledge
Agreement). No financing statement or other instrument similar in effect
covering the Pledgor's interest in the Pledged Securities is on file in
any public office, other than any financing statements filed pursuant to
this Pledge Agreement.
(c) This Pledge Agreement has been duly authorized, validly
executed and delivered by the Pledgor and assuming the due
authorization, execution and delivery thereof by the Trustee,
constitutes a valid and binding agreement of the Pledgor, enforceable
against the Pledgor in accordance with its terms, except as (i) the
enforceability hereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, preference, reorganization, moratorium or similar
laws now or hereafter in effect relating to or affecting creditors'
rights or remedies generally, (ii) the availability of equitable
remedies may be limited by equitable principles of general
applicability, (iii) the exculpation provisions and rights to
indemnification hereunder may be limited by U.S. federal and state
securities laws and public policy considerations and (iv) the waiver of
rights and defenses contained in Section 11(b), Section 15.11 and
Section 15.15 hereof may be limited by applicable law.
(d) Upon the transfer to the Trustee of the Pledged Securities
and the acquisition by the Trustee of a Security Entitlement thereto in
accordance with Section 3, and the compliance by the Pathnet Securities
Intermediary with the provisions of this Pledge Agreement, the pledge of
and grant of a security interest in the Pledged Collateral securing the
payment of the Obligations for the benefit of the Trustee and
<PAGE>
8
the Holders of the Notes will constitute a valid first priority
perfected security interest in such Pledged Collateral, enforceable as
such against all creditors of the Pledgor (and any persons purporting to
purchase any of the Pledged Collateral from the Pledgor) and all filings
and actions (other than the transfer to the Trustee of the Pledged
Securities) necessary or desirable to perfect and protect such security
interest have been duly taken.
(e) There are no legal or governmental proceedings pending or, to
the best of the Pledgor's knowledge, threatened to which the Pledgor or
any of its subsidiaries is a party or to which any of the properties of
the Pledgor or any such subsidiary is subject that would materially
adversely affect the power or ability of the Pledgor to perform its
obligations under this Pledge Agreement or to consummate the
transactions contemplated hereby.
(f) The pledge of the Pledged Collateral pursuant to this Pledge
Agreement is not prohibited by law or governmental regulation
(including, without limitation, Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System) applicable to the Pledgor.
(g) No Event of Default (as defined herein) exists.
SECTION 6. FURTHER ASSURANCES. The Pledgor will, promptly upon
request by the Trustee, execute and deliver or cause to be executed and
delivered, or use its reasonable best efforts to procure, all assignments,
instruments and other documents, all in form and substance reasonably
satisfactory to the Trustee, execute and deliver any instruments to the Trustee
and take any other actions that are necessary or desirable, to perfect, continue
the perfection of, or protect the first priority of the Trustee's security
interest in and to the Pledged Collateral, to protect the Pledged Collateral
against the rights, claims, or interests of third persons (other than any such
rights, claims or interests created by or arising through the Trustee), to
enable the Trustee to enforce its rights and remedies hereunder, or to effect
the purposes of this Pledge Agreement. A photocopy or other reproduction of this
Agreement or any financing statement covering the Pledged Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law. The
Pledgor will promptly pay all reasonable costs incurred in connection with any
of the foregoing. The Pledgor also agrees to take all actions that are necessary
to perfect or continue the perfection of, or to protect the first priority of,
the Trustee's security interest in and to the Pledged Collateral, including the
filing of all necessary financing and continuation statements, and to protect
the Pledged Collateral against the rights, claims or interests of third persons
(other than any such rights, claims or interests created by or arising through
the Trustee).
<PAGE>
9
SECTION 7. COVENANTS. The Pledgor covenants and agrees with the
Trustee and the Holders of the Notes that from and after the date of this Pledge
Agreement until the payment in full in cash of the Obligations:
(a) that (i) it will not (and will not purport to) sell or
otherwise dispose of, or grant any option or warrant with respect to,
any of the Pledged Collateral or its beneficial interest therein, and
(ii) it will not create or permit to exist any Lien or other adverse
interest in or with respect to its beneficial interest in any of the
Pledged Collateral (except for the security interests granted under this
Pledge Agreement) and at all times will be the sole beneficial owner of
the Pledged Collateral; and
(b) that it will not (i) enter into any agreement or
understanding that restricts or inhibits or purports to restrict or
inhibit the Trustee's rights or remedies hereunder, including, without
limitation, the Trustee's right to sell or otherwise dispose of the
Pledged Collateral or (ii) fail to pay or discharge any tax, assessment
or levy of any nature with respect to its beneficial interest in the
Pledged Collateral not later than five days prior to the date of any
proposed sale under any judgment, writ or warrant of attachment with
respect to such beneficial interest.
SECTION 8. POWER OF ATTORNEY. Upon the occurrence of an Event of
Default, in addition to all of the powers granted to the Trustee pursuant to the
Indenture, the Pledgor hereby appoints and constitutes the Trustee as the
Pledgor's attorney-in-fact, with full authority in the place and stead of the
Pledgor and in the name of the Pledgor or otherwise, from time to time in the
Trustee's discretion, to take any action and to execute any instrument that the
Trustee may deem necessary or advisable to accomplish the purposes of this
Pledge Agreement, including, without limitation, the following powers: (a)
collection of proceeds of any Pledged Collateral; (b) conveyance of any item of
Pledged Collateral to any purchaser thereof; (c) giving of any notices or
recording of any Liens under Section 6 hereof; and (d) paying or discharging
taxes or Liens levied or placed upon the Pledged Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by the Trustee in its sole reasonable discretion, and such payments
made by the Trustee to become part of the Obligations of the Pledgor to the
Trustee, due and payable immediately upon demand. The Trustee's authority under
this Section 8 shall include, without limitation, the authority to endorse and
negotiate any checks or instruments representing proceeds of Pledged Collateral
in the name of the Pledgor, execute and give receipt for any certificate of
ownership or any document constituting Pledged Collateral, transfer title to any
item of Pledged Collateral, sign the Pledgor's name on all financing statements
(to the extent permitted by applicable law) or any other documents deemed
necessary or appropriate by the Trustee to preserve, protect or perfect the
security interest in the Pledged Collateral and to file the same, prepare, file
and sign the Pledgor's name on any notice of Lien, and to take any other actions
arising from or incident to the powers granted to the Trustee in this Pledge
Agreement. This power of attorney is coupled with an interest
<PAGE>
10
and is irrevocable by the Pledgor. Notwithstanding anything to the contrary
stated herein, the Trustee has no duty or obligation to exercise any of the
powers stated in this Section 8.
SECTION 9. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights
and powers granted to the Trustee hereunder are being granted in order to
preserve and protect the security interest of the Trustee and the Holders of the
Notes in and to the Pledged Collateral granted hereby and shall not be
interpreted to, and shall not impose any duties on the Trustee in connection
therewith other than those expressly provided herein or imposed under applicable
law. Except as provided by applicable law or by the Indenture, the Trustee shall
be deemed to have exercised reasonable care in the custody and preservation of
the Pledged Collateral in its possession if the Pledged Collateral is accorded
treatment substantially equal to that which the Trustee accords similar property
held by the Trustee for similar accounts, it being understood that the Trustee
in its capacity as such shall not have any responsibility for (a) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities or
other matters relative to any Pledged Collateral, whether or not the Trustee has
or is deemed to have knowledge of such matters or (b) investing or reinvesting
any of the Pledged Collateral or any loss on any investment; PROVIDED, HOWEVER,
that nothing contained in this Pledge Agreement shall relieve the Trustee of any
responsibilities as a securities intermediary under applicable law.
SECTION 10. INDEMNITY. The Pledgor shall indemnify, hold harmless
and defend the Trustee and its directors, officers, agents and employees from
and against any and all claims, actions, obligations, liabilities and expenses,
including reasonable defense costs, reasonable investigative fees and costs and
reasonable legal fees and expenses and damages arising from the Trustee's
performance as Trustee under this Pledge Agreement, except to the extent that
such claim, action, obligation, liability or expense is directly attributable to
the gross negligence or wilful misconduct of such indemnified person.
SECTION 11. REMEDIES UPON EVENT OF DEFAULT. If any Event of
Default under the Indenture (any such Event of Default being referred to in this
Pledge Agreement as an "EVENT OF DEFAULT") shall have occurred and be
continuing:
(a) The Trustee and the Holders of the Notes shall have, in
addition to all other rights given by law or by this Pledge Agreement or
the Indenture, all of the rights and remedies with respect to the
Pledged Collateral of a secured party under the UCC. In addition, with
respect to any Pledged Collateral that shall then be in or shall
thereafter come into the possession or custody of the Trustee, the
Trustee may sell or cause the same to be sold at any broker's board or
at public or private sale, in one or more sales or lots, at such price
or prices as the Trustee may deem best, for cash or on credit or for
future delivery, without assumption of any credit risk. The purchaser of
any or all Pledged Collateral so sold shall thereafter hold the same
absolutely, free from any claim, encumbrance or right of any kind
whatsoever created
<PAGE>
11
by or through the Pledgor. Unless any of the Pledged Collateral
threatens, in the reasonable judgment of the Trustee, to decline
speedily in value or is or becomes of a type sold on a recognized
market, the Trustee will give the Pledgor reasonable notice of the time
and place of any public sale thereof, or of the time after which any
private sale or other intended disposition is to be made. To the extent
permitted by applicable law, any sale of the Pledged Collateral
conducted in conformity with reasonable commercial practices of banks,
insurance companies, commercial finance companies, or other financial
institutions disposing of property similar to the Pledged Collateral
shall be deemed to be commercially reasonable. Any requirements of
reasonable notice shall be met if such notice is mailed to the Pledgor
as provided in Section 15.1 hereof at least 10 days before the time of
the sale or disposition. The Trustee or any Holder of Notes may, in its
own name or in the name of a designee or nominee, buy any of the Pledged
Collateral at any public sale and, if permitted by applicable law, at
any private sale. All expenses (including court costs and reasonable
attorneys' fees, expenses and disbursements) of, or incident to, the
enforcement of any of the provisions hereof shall be recoverable from
the proceeds of the sale or other disposition of the Pledged Collateral.
(b) The Pledgor further agrees to use its reasonable best efforts
to do or cause to be done all such other acts as may be necessary to
make such sale or sales of all or any portion of the Pledged Collateral
pursuant to this Section 11 valid and binding and in compliance with any
and all other applicable requirements of law. The Pledgor further agrees
that a breach of any of the covenants contained in this Section 11 will
cause irreparable injury to the Trustee and the Holders of the Notes,
that the Trustee and the Holders of the Notes have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 11 shall be specifically enforceable
against the Pledgor, and the Pledgor hereby waives and agrees not to
assert any defenses against an action for specific performance of such
covenants except for a defense that no Event of Default has occurred.
(c) The Trustee may, without notice to the Pledgor except as
required by law and at any time or from time to time, charge, set-off
and otherwise apply all or any part of the Obligations against the
Escrow Account or any part thereof.
SECTION 12. EXPENSES. The Pledgor will upon demand pay to the
Trustee the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees, expenses and disbursements of its counsel,
experts and agents retained by the Trustee that the Trustee may incur in
connection with (a) the review, negotiation and administration of this Pledge
Agreement, (b) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Pledged Collateral, (c) the exercise or
enforcement of
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12
any of the rights of the Trustee and the Holders of the Notes hereunder or (d)
the failure by the Pledgor to perform or observe any of the provisions hereof.
SECTION 13. SECURITY INTEREST ABSOLUTE. All rights of the Trustee
and the Holders of the Notes and security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to any departure from the Indenture;
(c) any taking, exchange, surrender, release or non-perfection of
any other collateral or any taking, release or amendment or waiver from
any guaranty for all or any of the Obligations;
(d) any change, restructuring or termination of the corporate
structure or the existence of the Pledgor or any of its subsidiaries; or
(e) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to, or
a discharge of, the Pledgor in respect of the Obligations or of this
Pledge Agreement.
SECTION 14. PATHNET SECURITIES INTERMEDIARY'S REPRESENTATIONS,
WARRANTIES AND COVENANTS. The Pathnet Securities Intermediary represents and
warrants that it is as of the date hereof, and it agrees that for so long as it
maintains the Escrow Account and acts as securities intermediary pursuant to
this Pledge Agreement it shall be a "Securities Intermediary" (as defined in the
UCC and in 31 C.F.R. ss.357.2) and shall be eligible to maintain, and does
maintain, a Participant's Securities Account (as defined in 31 C.F.R. ss.357.2)
in the name of the Pathnet Securities Intermediary with the FRBNY (a "FRBNY
MEMBER SECURITIES ACCOUNT"). In furtherance of the foregoing, the Pathnet
Securities Intermediary hereby:
(a) represents and warrants that it is a corporation that in the
ordinary course of its business maintains Securities Accounts for others
and is acting in that capacity hereunder and with respect to the Escrow
Account;
(b) represents and warrants that it maintains the FRBNY Member
Securities Account with the FRBNY and that the United Stated Treasury
securities constituting the Pledged Securities transferred to the
Pathnet Securities Intermediary
<PAGE>
13
pursuant to Section 3(b) have been credited to the FRBNY Member
Securities Account;
(c) agrees that the Escrow Account shall be an account to which
Financial Assets may be credited, and the Pathnet Securities
Intermediary undertakes to treat the Trustee as the sole person entitled
to exercise rights that comprise (and entitled to the benefits of) such
Financial Assets, and entitled to exercise the rights of an entitlement
holder and control in the manner contemplated by the UCC, and further
agrees to identify the Trustee in the records of the Pathnet Securities
Intermediary as the sole person having a Securities Entitlement against
the Pathnet Securities Intermediary with respect to the Escrow Account
and all Financial Assets credited thereto;
(d) hereby represents that it has not granted, and covenants that
so long as it acts as Pathnet Securities Intermediary hereunder it shall
not grant, control (including without limitation, "control" as defined
in UCC ss. 9-115(1)(e)) over or with respect to any Pledged Collateral
credited to the Escrow Account from time to time to any other Person
other than the Trustee;
(e) covenants that in its capacity as Pathnet Securities
Intermediary hereunder and with respect to the Escrow Account, it shall
not take any action inconsistent with, and represents and covenants that
it is not and so long as this Pledge Agreement remains in effect will
not become party to any agreement, the terms of which are inconsistent
with the provisions of this Pledge Agreement;
(f) agrees, with the other parties to this Pledge Agreement, that
any item of property credited to the Escrow Account shall be treated as
a Financial Asset;
(g) agrees, with the other parties to this Pledge Agreement, so
long as it serves as Pathnet Securities Intermediary pursuant to this
Pledge Agreement, to maintain the Escrow Account as a Securities Account
and maintain appropriate books and records in respect thereof in
accordance with its usual procedures and subject to the terms of this
Pledge Agreement;
(h) agrees, with the other parties to this Pledge Agreement, that
the Pathnet Securities Intermediary's jurisdiction, for purposes of UCC
ss. 8-110(e) and 31 C.F.R. 357.11(b) as it pertains to this Pledge
Agreement, the Escrow Account and Security Entitlements relating
thereto, shall be the State of New York.
<PAGE>
14
SECTION 15. MISCELLANEOUS PROVISIONS.
Section 15.1. NOTICES. Any notice or communication given
hereunder shall be sufficiently given if in writing and delivered in person or
mailed by first class mail, commercial courier service or telecopier
communication, addressed as follows:
IF TO THE PLEDGOR:
PathNet, Inc.
1015 31st Street, N.W.
Washington, D.C. 20007
Telecopier: (202) 625-7369
Attention: General Counsel
WITH A COPY TO:
Paul Ginsberg
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
IF TO THE TRUSTEE:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Telecopier: (212) 815-5915
Attention: Corporate Trust Administration
Section 15.2. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This
Pledge Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor or any subsidiary thereof. No such pledge, security or
debt agreement (other than the Indenture) may be used to interpret this Pledge
Agreement.
Section 15.3. SEVERABILITY. The provisions of this Pledge
Agreement are severable, and if any clause or provision shall be held invalid,
illegal or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect in that jurisdiction only such
clause or provision, or part thereof, and shall not in any manner affect such
clause or provision in any other jurisdiction or any other clause or provision
of this Pledge Agreement in any jurisdiction.
<PAGE>
15
Section 15.4. HEADINGS. The headings in this Pledge Agreement
have been inserted for convenience of reference only, are not to be considered a
part hereof and shall in no way modify or restrict any of the terms or
provisions hereof.
Section 15.5. COUNTERPART ORIGINALS. This Pledge Agreement may be
signed in two or more counterparts, each of which shall be deemed an original,
but all of which shall together constitute one and the same agreement.
Section 15.6. BENEFITS OF PLEDGE AGREEMENT. Nothing in this
Pledge Agreement, express or implied, shall give to any person, other than the
parties hereto and their successors hereunder, and the Holders of the Notes, any
benefit or any legal or equitable right, remedy or claim under this Pledge
Agreement.
Section 15.7. AMENDMENTS, WAIVERS AND CONSENTS. Any amendment or
waiver of any provision of this Pledge Agreement and any consent to any
departure by the Pledgor from any provision of this Pledge Agreement shall be
effective only if made or duly given in compliance with all of the terms and
provisions of the Indenture, and neither the Trustee nor any Holder of Notes
shall be deemed, by any act, delay, indulgence, omission or otherwise, to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default (as defined herein) or in any breach of any of the terms and
conditions hereof. Consistent with the foregoing, this Pledge Agreement may be
amended, its provisions may be waived and departures from its provisions may be
consented to by action of the Pledgor and the Trustee, and (if applicable) the
Holders of the Notes, as provided in the Indenture, and no such amendment,
waiver or consent shall require any action or approval by the Initial
Purchasers. Failure of the Trustee or any Holder of Notes to exercise, or delay
in exercising, any right, power or privilege hereunder shall not preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Trustee or any Holder of Notes of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy that the Trustee or such Holder of Notes would otherwise have on any
future occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
Section 15.8. INTERPRETATION OF AGREEMENT. All terms not defined
herein or in the Indenture shall have the meaning set forth in the UCC, except
where the context otherwise requires. Acceptance of or acquiescence in a course
of performance rendered under this Pledge Agreement shall not be relevant to
determine the meaning of this Pledge Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
<PAGE>
16
Section 15.9. CONTINUING SECURITY INTEREST; TERMINATION. (a) This
Pledge Agreement shall create a continuing security interest in and to the
Pledged Collateral and shall, unless otherwise provided in this Pledge
Agreement, remain in full force and effect until the payment in full in cash of
the Obligations. This Pledge Agreement shall be binding upon the Pledgor, its
transferees, successors and assigns, and shall inure, together with the rights
and remedies of the Trustee hereunder, to the benefit of the Trustee, the
Holders of the Notes and their respective successors, transferees and assigns.
(b) This Pledge Agreement (other than the Pledgor's obligations
under Sections 10 and 12) shall terminate upon the payment in full in cash of
the Obligations or if the Company shall become obligated under the Indenture to
redeem all of the outstanding Notes and such Notes shall have been redeemed, and
if no Default or Event of Default (as defined in the Indenture) shall have
occurred and be continuing. At such time, the Trustee shall, pursuant to a
Company Order, reassign and redeliver to the Pledgor all of the Pledged
Collateral hereunder that has not been sold, disposed of, retained or applied by
the Trustee in accordance with the terms of this Pledge Agreement and the
Indenture and take all actions that are necessary to release the security
interest created by this Pledge Agreement in and to the Pledged Collateral,
including the execution and delivery of all termination statements necessary to
terminate any financing or continuation statements filed with respect to the
Pledged Collateral. Such reassignment and redelivery shall be without warranty
by or recourse to the Trustee in its capacity as such, except as to the absence
of any Liens on the Pledged Collateral created by or arising through the
Trustee, and shall be at the reasonable expense of the Pledgor.
Section 15.10. SURVIVAL OF REPRESENTATIONS AND COVENANTS. All
representations, warranties and covenants of the Pledgor contained herein shall
survive the execution and delivery of this Pledge Agreement, and shall terminate
only upon the termination of this Pledge Agreement.
Section 15.11. WAIVERS. The Pledgor waives presentment and demand
for payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
Section 15.12. AUTHORITY OF THE TRUSTEE. (a) The Trustee shall
have the right to exercise all powers hereunder that are specifically granted to
the Trustee by the terms hereof, together with such powers as are reasonably
incident hereto. The Trustee may perform any of its duties hereunder or in
connection with the Pledged Collateral by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon the advice of
counsel concerning all such matters. Except as otherwise expressly provided in
this Pledge Agreement or the Indenture, neither the Trustee nor any director,
officer, employee, attorney or agent of the Trustee shall be liable to the
Pledgor for any
<PAGE>
17
action taken or omitted to be taken by the Trustee, in its capacity as Trustee,
hereunder, except for its own gross negligence or willful misconduct, and the
Trustee shall not be responsible for the validity, effectiveness or sufficiency
hereof or of any document or security furnished pursuant hereto. The Trustee and
its directors, officers, employees, attorneys and agents may conclusively rely
on any communication, instrument or document believed by it or them to be
genuine and correct and to have been signed or sent by the proper person or
persons.
(b) The Pledgor acknowledges that the rights and responsibilities
of the Trustee under this Pledge Agreement with respect to any action taken by
the Trustee or the exercise or non-exercise by the Trustee of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Pledge Agreement shall, as between the Trustee and the
Holders of the Notes, be governed by the Indenture and by such other agreements
with respect thereto as may exist from time to time among them, but, as between
the Trustee and the Pledgor, the Trustee shall be conclusively presumed to be
acting as agent for the Holders of the Notes with full and valid authority so to
act or refrain from acting, and the Pledgor shall not be obligated or entitled
to make any inquiry respecting such authority.
(c) The Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Pledge Agreement, and no implied
covenants or obligations shall be read into this Pledge Agreement against the
Trustee or the Pathnet Securities Intermediary.
(d) No provision of this Pledge Agreement shall require the
Trustee or the Pathnet Securities Intermediary to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights and powers.
(e) The Trustee and the Pathnet Securities Intermediary may
consult with counsel of its selection and the advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(f) The Trustee and the Pathnet Securities Intermediary may
execute any of the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents or attorneys and the Trustee and the
Pathnet Securities Intermediary shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 15.13 FINAL EXPRESSION. This Pledge Agreement, together
with the Indenture and any other agreement executed in connection herewith, is
intended by the
<PAGE>
18
parties as a final expression of this Pledge Agreement and is intended as
a complete and exclusive statement of the terms and conditions thereof.
Section 15.14. RIGHTS OF HOLDERS OF THE NOTES. No Holder of Notes
shall have any independent rights hereunder other than those rights granted to
individual Holders of the Notes pursuant to Section 508 of the Indenture;
PROVIDED that nothing in this subsection shall limit any rights granted to the
Trustee under the Notes or the Indenture.
Section 15.15. GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL; WAIVER OF DAMAGES. (a) THIS PLEDGE
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. ANY DISPUTE ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THE RELATIONSHIP
ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND THE HOLDERS OF
THE NOTES IN CONNECTION WITH THIS PLEDGE AGREEMENT AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK. NOTWITHSTANDING THE FOREGOING, THE MATTERS IDENTIFIED
IN 31 C.F.R. PART 357, 61 FED. REG. 43626 (AUG. 23, 1996) SHALL BE GOVERNED
SOLELY BY THE LAWS SPECIFIED THEREIN.
(b) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY AS
TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE PLEDGOR OR THE
PLEDGED COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH
(AND HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR THE PLEDGED
COLLATERAL, AS THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH PLEDGED
COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
THE TRUSTEE. THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SET
OFFS OR CROSSCLAIMS IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON SUCH
PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE TRUSTEE,
EXCEPT FOR SUCH COUNTERCLAIMS, SET OFFS OR CROSSCLAIMS WHICH, IF NOT ASSERTED IN
ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. THE PLEDGOR
WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN THE CITY
OF NEW YORK ONCE THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS
PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
<PAGE>
19
(c) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR
(EXCEPT AS OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT OR THE INDENTURE) THE
TRUSTEE IN ITS CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR
(WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE
PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS PLEDGE
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS
BINDING ON THE TRUSTEE OR SUCH HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH
LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH
HOLDERS OF NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT.
(d) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR WAIVES
THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY HOLDER OF NOTES
IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY JUDGMENT OR
OTHER COURT ORDER PERTAINING TO THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT
OR DOCUMENT ENTERED IN FAVOR OF THE TRUSTEE OR ANY HOLDER OF NOTES, OR TO
ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR
PERMANENT INJUNCTION, THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT
BETWEEN THE PLEDGOR ON THE ONE HAND AND THE TRUSTEE AND/OR THE HOLDERS OF THE
NOTES ON THE OTHER HAND.
<PAGE>
20
IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused
this Pledge Agreement to be duly executed and delivered as of the date first
above written.
Pledgor:
PATHNET, INC.
By: /s/ David Schaeffer
---------------------------
Name: David Schaeffer
Title: Chairman
Trustee:
THE BANK OF NEW YORK,
Trustee
By: /s/ Mary Beth A. Lewicki
---------------------------
Name: Mary Beth A. Lewicki
Title: Assistant Vice President
THE BANK OF NEW YORK,
as Pathnet Securities
Intermediary
By: /s/ Mary Beth A. Lewicki
---------------------------
Name: Mary Beth A. Lewicki
Title: Assistant Vice President
<PAGE>
CERTIFICATE
Pursuant to Section 3(f) of the Pledge Agreement (the "PLEDGE
AGREEMENT") dated as of April 8, 1998 between Pathnet, Inc. (the "PLEDGOR") and
The Bank of New York, trustee (the "TRUSTEE") for the holders of the 12 1/4%
Senior Notes due 2008 (the "NOTES") of the Pledgor, and The Bank of New York, as
securities intermediary (the "PATHNET SECURITIES INTERMEDIARY"), the undersigned
officer of the Trustee, on behalf of the Trustee, and the undersigned officer of
the Pathnet Securities Intermediary, on behalf of the Pathnet Securities
Intermediary, make the following certifications to the Pledgor and the initial
purchasers of the Notes. Capitalized terms used and not defined in this
Certificate have the meanings set forth or referred to in the Pledge Agreement.
1. Substantially contemporaneously with the execution and
delivery of this Certificate, the Trustee has established with the Pathnet
Securities Intermediary, as Securities Intermediary, the Escrow Account. The
Pathnet Securities Intermediary has acquired a Security Entitlement to the
United States Treasury securities identified in ANNEX 1 to this Certificate (the
"PLEDGED SECURITIES") from the FRBNY and holds a Security Entitlement thereto in
the FRBNY's Security Account. The Pathnet Securities Intermediary has made
appropriate book entries in its records establishing that the Pledged Securities
and the Trustee's Securities Entitlement thereto have been credited to and are
held in the Escrow Account.
2. The Trustee has established and maintained and will maintain
the Escrow Account and all Securities Entitlements and other positions carried
in the Escrow Account solely in its capacity as Trustee and has not asserted and
will not assert any claim to or interest in the Escrow Account or any such
Securities Entitlements or other positions except in such capacity.
3. The Trustee and the Pathnet Securities Intermediary have
acquired their Security Entitlements to the Pledged Securities for value and
without notice of any adverse claim thereto. Without limiting the generality of
the foregoing, the Pledged Securities are not and the Pathnet Securities
Intermediary's and the Trustee's Security Entitlements to the Pledged Securities
are not, to their knowledge, subject to any Lien granted by either of them in
favor of any Securities Intermediary (including, without limitation, NFSC or the
FRBNY) through which the Trustee derives its Security Entitlement to the Pledged
Securities.
4. Neither the Pathnet Securities Intermediary nor the Trustee
has caused or permitted the Pledged Securities or any Security Entitlement
thereto to become subject to any Lien created by or arising through either of
the Trustee or the Pathnet Securities Intermediary.
<PAGE>
2
IN WITNESS WHEREOF, the undersigned officers have executed this
Certificate on behalf of The Bank of New York, Trustee, and on behalf of the
Pathnet Securities Intermediary, respectively, this 8th day of April, 1998.
THE BANK OF NEW YORK,
Trustee
------------------------------
Name:
Title:
THE BANK OF NEW YORK,
As Pathnet Securities
Intermediary
-----------------------------
Name:
Title:
<PAGE>
3
EXHIBIT A
<PAGE>
4
EXHIBIT B
REPORT OF COOPERS & LYBRAND LLP
[To come.]
<PAGE>
ANNEX 1
to
OFFICER'S CERTIFICATE
Schedule of U.S. Government Obligations
Pledged under the Pledge Agreement
Designation by Name, Series, Maturity Date and CUSIP Number
<TABLE>
<CAPTION>
NAME CUSIP NO. AMOUNT (AT MATURITY) MATURITY DATE
<S> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit 10.21
EXECUTION COPY
NOTES REGISTRATION RIGHTS AGREEMENT
Dated as of April 8, 1998
among
PATHNET, INC.
and
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED,
BEAR, STEARNS & CO., INC.
TD SECURITIES (USA) INC. and
SALOMON BROTHERS INC
as Initial Purchasers
<PAGE>
NOTES REGISTRATION RIGHTS AGREEMENT
THIS NOTES REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of April 8, 1998, by and among PATHNET, INC., a Delaware
corporation (the "Company"), and MERRILL LYNCH & CO., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), BEAR, STEARNS & CO. INC., TD
SECURITIES (USA) INC. and SALOMON BROTHERS INC (collectively, the "Initial
Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated
April 1, 1998, among the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of 350,000 Units (the "Units"), each Unit consisting of $1,000
principal amount of the Company's 12.25% Senior Notes due 2008 (the "Notes") and
one warrant (a "Warrant"), each initially entitling the holder thereof to
purchase 1.1 shares of common stock, par value $0.01 per share (the "Common
Stock"). Capitalized terms used but not specifically defined herein shall have
the same meanings herein as in the Purchase Agreement. In order to induce the
Initial Purchasers to enter into the Purchase Agreement and in satisfaction of a
condition to the Initial Purchasers' obligations thereunder, the Company agrees
to provide to the Initial Purchasers and their respective direct and indirect
transferees and assigns, for the benefit of the holders of the Notes, the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations of the SEC promulgated
thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the SEC
promulgated thereunder.
"Broker-Dealer" shall mean any broker or dealer registered under the
Exchange Act.
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Company; provided, however, that any such
depositary must have an address in the Borough of Manhattan, in the City
of New York.
"Exchange Notes" shall mean the 12.25% Senior Notes due 2008 of the
Company issued under the Indenture, containing terms identical to the
respective
<PAGE>
2
Notes (except that (i) interest on the Exchange Notes shall accrue from
the last date on which interest was paid on the Notes or, if no such
interest has been paid, from April 8, 1998, (ii) the transfer restrictions
thereon shall be eliminated and (iii) certain provisions relating to
payment of Liquidated Damages shall be eliminated) to be offered to
Holders of Notes in exchange for Notes pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Notes for Registrable Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form) under the 1933 Act, and all amendments and supplements
to such registration statement, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Holders" shall mean the Initial Purchasers, for so long as they own
any Registrable Notes, and each of their respective successors, assigns
and direct and indirect transferees who become registered owners of
Registrable Notes under the Indenture for so long as they own Registrable
Notes.
"Indenture" shall mean the Indenture relating to the Notes and the
Exchange Notes dated as of April 8, 1998, between the Company and The Bank
of New York, trustee (the "Trustee"), and as the same may be amended from
time to time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the
preamble of this Agreement.
"Liquidated Damages" shall have the meaning set forth in Section
2(e) hereof.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of Registrable Notes outstanding; provided that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the
Company or any of its affiliates (as such term is defined in Rule 405
under the 1933 Act) shall be disregarded in determining whether such
consent or approval was given by the Holders of such required percentage
or amount.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
<PAGE>
3
"Original Issue Date" shall mean the date of original issuance of
the Notes.
"Participating Broker-Dealer" shall have the meaning set forth in
Section 3(f).
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, or a
government or agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Notes covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble of this Agreement.
"Registrable Notes" shall mean the Notes; provided, however, that
the Notes shall cease to be Registrable Notes when (i) a Registration
Statement with respect to such Notes shall have been declared effective
under the 1933 Act and such Notes shall have been disposed of (including
by a Broker-Dealer) pursuant to such Registration Statement, (ii) such
Notes shall have been sold to the public pursuant to Rule 144 (or any
similar provision then in force, but not Rule 144A) under the 1933 Act,
(iii) such Notes shall have ceased to be outstanding or (iv) such Notes
have been exchanged for Exchange Notes upon consummation of the Exchange
Offer.
"Registration Default" shall have the meaning set forth in Section
2(e) of this Agreement.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or NASD registration and
filing fees, (ii) all fees and expenses incurred in connection with
compliance with state or other securities or blue sky laws and compliance
with the rules of the NASD (including reasonable fees and disbursements of
United States and local counsel for any underwriters and Holders in
connection with state or other securities or blue sky qualification of any
of the Exchange Notes or Registrable Notes), such counsel fees not to
exceed $5,000 per registration, (iii) all expenses of any Persons in
preparing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements,
<PAGE>
4
certificates representing the Exchange Notes and other documents relating
to the performance of and compliance with this Agreement, (iv) all rating
agency fees, (v) all fees and expenses incurred in connection with the
listing, if any, of any of the Registrable Notes on any securities
exchange or exchanges, (vi) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vii) the
reasonable fees and disbursements of counsel for the Company and of the
independent public accountants of the Company, including the expenses of
any special audits or "cold comfort" letters required by or incident to
such performance and compliance, (viii) the fees and expenses of a
"qualified independent underwriter" as defined by Conduct Rule 2720 of the
NASD, if required by the NASD rules, in connection with the offering of
the Registrable Notes, and (ix) the reasonable fees and expenses of the
Trustee, including its counsel, and any escrow agent or custodian.
Notwithstanding the foregoing, the holders of the Registrable Notes being
registered shall (i) pay all agency or brokerage fees and commissions and
underwriting discounts and commissions attributable to the sale of such
Registrable Notes, (ii) the fees and disbursements of any counsel or other
advisors or experts retained by such holders (severally or jointly), other
than, in the case of a Shelf Registration Statement under Section 2(b)
hereof, the reasonable fees and disbursements of one counsel (in addition
to any local counsel) for the Holders or the Initial Purchasers (which
counsel shall be selected by a majority of the Holders and may be counsel
for the Initial Purchasers) up to $5,000, (iii) transfer taxes on resale
of any of the Securities by such holders and (iv) any advertising expenses
customarily required to be paid by issuers or sellers of securities.
"Registration Statement" shall mean any registration statement of
the Company relating to any offering of the Exchange Notes or Registrable
Notes pursuant to the provisions of this Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of
this Agreement which covers all of the Registrable Notes on an appropriate
form under Rule 415 under the 1933 Act, or
any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments,
<PAGE>
5
in each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Trustee" shall mean the Trustee under the Indenture.
2. Registration Under the 1933 Act. (a) Exchange Offer Registration.
To the extent not prohibited by any applicable law or applicable interpretation
of the staff of the SEC, the Company shall (A) file or cause to be filed an
Exchange Offer Registration Statement within 60 days after the Original Issue
Date with the SEC covering the offer by the Company to the Holders to exchange
Exchange Notes for all of their Registrable Notes, (B) use its best efforts to
cause such Exchange Offer Registration Statement to be declared effective under
the 1933 Act within 150 days after the Original Issue Date (C) use their best
efforts to consummate the Exchange Offer within 180 days after the Original
Issue Date. Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Exchange Offer, it being the objective
of such Exchange Offer to enable each Holder (other than Participating
Broker-Dealers (as defined in Section 3(f)) eligible and electing to exchange
Registrable Notes for Exchange Notes (assuming that such Holder is not an
affiliate of the Company within the meaning of Rule 405 under the 1933 Act,
acquires the Exchange Notes in the ordinary course of such Holder's business and
has no arrangements or understandings with any person to participate in the
Exchange Offer for the purpose of distributing the Exchange Notes) to trade such
Exchange Notes from and after their receipt without any limitations or
restrictions under the 1933 Act and without material restrictions under the
securities laws of a substantial proportion of the several states of the United
States.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 20 business days
(or longer if required by applicable federal and state securities laws)
after the date notice thereof is mailed to the Holders;
(iii) use the services of the Depositary for the Exchange Offer with
respect to Notes evidenced by global certificates;
(iv) permit Holders to withdraw tendered Registrable Notes at any
time prior to the close of business, New York City time, on the last
business day on which the
Exchange Offer shall remain open, by sending to the institution specified
in the notice, a telegram, telex, facsimile transmission or letter setting
forth the name of
<PAGE>
6
such Holder, the principal amount of Registrable Notes delivered for
exchange, and a statement that such Holder is withdrawing its election to
have such Notes exchanged;
(v) otherwise comply with all applicable federal and state
securities laws relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the
Company shall:
(i) accept for exchange Registrable Notes duly tendered and not
validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the Exchange Offer Registration Statement and the letter of
transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes so accepted for exchange by the
Company; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Notes to each Holder of Registrable Notes equal in principal
amount at maturity to the principal amount at maturity of the Registrable
Notes of such Holder so accepted for exchange.
Interest on each Exchange Note exchanged for a Note will accrue from
the last date on which interest was paid on the Notes surrendered in exchange
therefor or, if no interest has been paid on the Notes, from April 8, 1998. The
Exchange Offer shall not be subject to any conditions, other than (i) that the
Exchange Offer, or the making of any exchange by a Holder, does not violate
applicable law or any applicable interpretation of the staff of the SEC and (ii)
the tendering of Registrable Notes in accordance with the Exchange Offer. Each
Holder of Registrable Notes (other than Participating Broker-Dealers) who wishes
to exchange such Registrable Notes for Exchange Notes in the Exchange Offer (a)
shall have represented that (i) it is not an affiliate (as defined in Rule 405
under the 1933 Act) of the Company, (ii) any Exchange Notes to be received by it
were acquired in the ordinary course of its business, (iii) at the time of the
commencement of the Exchange Offer, it has no arrangement with any person to
participate in the distribution (within the meaning of the 1933 Act) of the
Exchange Notes and (b) shall have made such other representations as may be
reasonably necessary under applicable SEC rules, regulations or interpretations
to render the use of Form S-4 or another appropriate form under the 1933 Act
available. To the extent permitted by law, the Company shall inform the Initial
Purchasers of the names and addresses of the Holders to whom the Exchange Offer
is made, and the Initial Purchasers shall have the right to contact
such Holders and otherwise facilitate the tender of Registrable Notes in the
Exchange Offer. Upon consumation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement will continue to apply solely with
respect to
<PAGE>
7
Registrable Notes referred to in Section 2(b)(iii) and (iv), and the Company
shall have no further obligation to register any other Registrable Notes
pursuant to this Agreement.
(b) Shelf Registration. (i) If, because of any change in law or
applicable interpretations thereof by the staff of the SEC, the Company is not
permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof,
(ii) if for any other reason the Exchange Offer is not declared effective by the
SEC within 150 days or the Exchange Offer is not consummated within 180 days
following the Original Issue Date, (iii) if any Holder (other than an Initial
Purchaser) is not eligible to participate in the Exchange Offer or elects to
participate in the Exchange Offer but does not receive fully tradeable Exchange
Notes pursuant to the Exchange Offer or (iv) upon the request of any of the
Initial Purchasers following the consummation of the Exchange Offer (provided
that such Initial Purchaser shall hold Registrable Notes that it acquired
directly from the Company and that such Initial Purchaser is not permitted, in
the opinion of counsel to such Initial Purchaser, pursuant to applicable law or
applicable interpretation of the staff of the SEC, to participate in the
Exchange Offer), the Company shall, at its cost:
(A) as promptly as practicable, file with the SEC a Shelf
Registration Statement relating to the offer and sale of the Registrable
Notes by the Holders from time to time in accordance with the methods of
distribution elected by the Majority Holders of such Registrable Notes and
set forth in such Shelf Registration Statement; provided however, that no
Holder (other than an Initial Purchaser) shall be entitled to have the
Registrable Notes held by it covered by such Shelf Registration Statement
unless such Holder agrees to be bound by all of the provisions of this
Agreement applicable to such Holder,
(B) use its best efforts to cause such Shelf Registration Statement
to be declared effective under the Securities Act within 150 days after
the Original Issue Date (or within 30 days of the request of any Initial
Purchaser); provided that, with respect to Exchange Notes received by a
Broker-Dealer in exchange for any securities that were acquired by such
Broker-Dealer as a result of market making or other trading activities,
the Company may, if permitted by current interpretations by the
Commission's staff, file a post-effective amendment to the Exchange Offer
Registration Statement containing the information required by Regulation
S-K Items 507 and/or 508, as applicable, in satisfaction of its
obligations under this paragraph (A) solely with respect to broker-dealers
who acquired their Securities as a result of market making or other
trading activities, and any such Exchange Offer Registration Statement, as
so amended, shall be referred to herein as, and governed by the provisions
herein applicable to, a Shelf Registration Statement. In the event that
the Company is required to file a Shelf Registration Statement upon the
request of any Holder (other than an Initial Purchaser) not eligible to
participate in the Exchange Offer pursuant to clause (iii) above or upon
the request of any Initial Purchaser
<PAGE>
8
pursuant to clause (iv) above, the Company shall file and use its best
efforts to have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2(a) with respect to all
Registrable Notes and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration
Statement) with respect to offers and sales of Registrable Notes held by
such Holder or such Initial Purchaser, as applicable, after completion of
the Exchange Offer;
(C) use its best efforts to keep the Shelf Registration Statement
continuously effective, supplemented and amended as required, in order to
permit the Prospectus forming part thereof to be usable by Holders for a
period of two years after its effective date or such shorter period which
will terminate when all of the Registrable Notes covered by the Shelf
Registration Statement have been sold pursuant thereto or otherwise cease
to be Registrable Securities; and
(D) notwithstanding any other provisions hereof, use its best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof and any
supplement thereto complies in all material respects with the 1933 Act and
the rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (iii) any Prospectus forming part of any Shelf
Registration Statement, and any supplement to such Prospectus (as amended
or supplemented from time to time), does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement if reasonably requested by the Majority Holders
with respect to information relating to the Holders and otherwise as required by
Section 3(b) below, to use all reasonable efforts to cause any such amendment to
become effective and such Shelf Registration to become usable as soon as
practicable thereafter and to furnish to the Holders of Registrable Notes copies
of any such supplement or amendment promptly after its being used or filed with
the SEC.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) and 2(b), including,
in the case of any Shelf Registration Statement, reimbursement of the Holders or
the Initial Purchasers in an amount up to $5,000 for the reasonable fees and
disbursements of one counsel (in addition to any local counsel) designated in
writing by the Majority Holders to act as counsel for the Holders of the
Registrable Notes in connection therewith. Each Holder shall pay all
<PAGE>
9
expenses of its counsel other than as set forth in the preceding sentence,
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Notes pursuant to the Shelf
Registration Statement.
(d) Effective Registration Statement. (i) The Company will be deemed
not to have used its best efforts to cause a Registration Statement to become,
or to remain, effective during the requisite periods set forth herein if the
Company voluntarily takes any action that could reasonably be expected to result
in any such Registration Statement not being declared effective or in the
Holders of Registrable Notes covered thereby not being able to exchange or offer
and sell such Registrable Notes during that period unless (A) such action is
required by applicable law or (B) such action is taken by the Company in good
faith and for valid business reasons (but not including avoidance of the
Company's obligations hereunder), including a material corporate transaction, so
long as the Company promptly complies with the requirements of Section 3(k)
hereof, if applicable.
(ii) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
effective, the offering of Registrable Notes pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable Notes pursuant to
such Registration Statement may legally resume.
(iii) During any 365-day period, the Company may suspend the
availability of a Shelf Registration Statement and the use of the related
Prospectus, as provided in Section 3(e)(vi) and the last paragraph of Section 3
hereof, for up to two periods of up to 45 consecutive days (except for the
consecutive 45-day period immediately prior to maturity of the Notes), but no
more than an aggregate 60 days during any 365-day period, if any event shall
occur as a result of which it shall be necessary, in the good faith
determination of the board of directors of the Company, to amend the Shelf
Registration Statement or amend or supplement any prospectus or prospectus
supplement thereunder in order that each such document not include any untrue
statement of fact or omit to state a material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made.
(e) Accrual and Payment of Liquidated Damages. In the event that (i)
the Exchange Offer Registration Statement is not filed with the SEC on or prior
to the 60th calendar day following the Original Issue Date, (ii) the Exchange
Offer Registration Statement is not declared effective on or prior to the 150th
calendar day following the Original Issue Date, (iii) the Exchange Offer is not
consummated or, if required, a Shelf
<PAGE>
10
Registration Statement with respect to the Notes is not declared effective on or
prior to the 180th calendar day following the Original Issue Date or (iv) the
Exchange Offer Registration Statement or the Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable except in
accordance with Section 2(d)(iii) hereof (each event referred to in clauses (i)
through (iv) above, a "Registration Default"), then the Company shall pay
additional interest ("Liquidated Damages") on the Registrable Notes (in addition
to the interest otherwise due on the Registrable Notes) in cash in arrears on
each semiannual interest payment date (as set forth in the Indenture) of each
year in an amount equal to one-half of one percent (0.5%) per annum of the
principal amount of the Notes with respect to the first 90-day period following
such Registration Default. The amount of such additional interest will increase
by an additional one-half of one percent (0.5%) to a maximum of one and one-half
percent (1.5%) per annum for each subsequent 90-day period until such
Registration Default has been cured. Upon (w) the filing of the Exchange Offer
Registration Statement after the 60-day period described in clause (i) above,
(x) the effectiveness of the Exchange Offer Registration Statement after the
150-day period described in clause (ii) above, (y) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 180-day period described in clause (iii) above, or (z)
the cure of any Registration Default described in clause (iv) above, such
additional interest shall cease to accrue on the Notes from the date of such
filing, effectiveness, consummation or cure, as the case may be, if the Company
is otherwise in compliance with this paragraph; provided, however, that if,
after any such Liquidated Damages cease to accrue, a different event specified
in clause (i), (ii), (iii) or (iv) above occurs, such Liquidated Damages shall
begin to accrue again pursuant to the foregoing provisions.
(f) Specific Enforcement. Without limiting the remedies available to
the Initial Purchasers and the Holders, the Company acknowledges that any
failure by it to comply with its obligations under Sections 2(a) and 2(b) hereof
may result in material irreparable injury to the Initial Purchasers or the
Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the Company's obligations under
Sections 2(a) and 2(b).
3. Registration Procedures. In connection with the obligations of
the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement, within
the time periods specified in Section 2, on the appropriate form under the
1933 Act, which form (i) shall be selected by the Company, (ii) shall, in
the case of a Shelf Registration, be available for the sale of the
Registrable Notes by the selling Holders
<PAGE>
11
thereof and (iii) shall comply as to form in all material respects with
the requirements of the applicable form and include or incorporate by
reference all financial statements required by the SEC to be filed
therewith, and use their best efforts to cause such Registration Statement
to become effective and remain effective in accordance with Section 2
hereof;
(b) subject to Section 2(d)(iii) prepare and file with the SEC such
amendments and post-effective amendments to each Registration Statement as
may be necessary under applicable law to keep such Registration Statement
effective for the applicable period; cause each Prospectus to be
supplemented by any required prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the 1933 Act; and comply with the
provisions of the 1933 Act with respect to the disposition of all
securities covered by each Registration Statement during the applicable
period in accordance with the intended method or methods of distribution
by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Notes, at least ten days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Notes is being
filed and advising such Holders that the distribution of Registrable Notes
will be made in accordance with the method elected by the Majority
Holders; and (ii) furnish to each Holder of Registrable Notes, to counsel
for the Initial Purchasers, to counsel for the Holders and to each
underwriter of an underwritten offering of Registrable Notes, if any,
without charge, as many copies of each Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto and such
other documents as such Holder or underwriter may reasonably request,
including financial statements and schedules and, if the Holder so
requests, all exhibits reasonably requested (including those incorporated
by reference) in order to facilitate the public sale or other disposition
of the Registrable Notes; and (iii) subject to the last paragraph of this
Section 3, hereby consent to the use of the Prospectus, including each
preliminary Prospectus, or any amendment or supplement thereto by each of
the selling Holders of Registrable Notes in connection with the offering
and sale of the Registrable Notes covered by the Prospectus or any
amendment or supplement thereto;
(d) use its reasonable best efforts to register or qualify the
Registrable Notes under all applicable state securities or "blue sky" laws
of such jurisdictions as any Holder of Registrable Notes covered by a
Registration Statement and each underwriter of an underwritten offering of
Registrable Notes shall reasonably request by the time the Registration
Statement is declared effective by the SEC, to cooperate with the Holders
in connection with any filings required to be made with the NASD and do
any and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
<PAGE>
12
jurisdiction of such Registrable Notes owned by such Holder; provided,
however, that the Company shall not be required to (i) qualify as a
foreign corporation or as a dealer in securities in any jurisdiction where
it would not otherwise be required to qualify but for this Section 3(d) or
(ii) take any action which would subject it to general service of process
or taxation in any such jurisdiction if it is not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes and counsel for such Holders promptly and, if requested
by such Holder or counsel, confirm such advice in writing promptly (i)
when a Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective, (ii)
of any request by the SEC or any state securities authority for
post-effective amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, during the period a Registration Statement is effective,
the representations and warranties of the Company contained in any
underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to such offering cease to be true and correct
in all material respects, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Notes for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (vi) of the happening of
any event or the discovery of any facts during the period a Shelf
Registration Statement is effective (including as contemplated in Section
2(d)(iii) hereof) which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or
which requires the making of any changes in such Registration Statement or
Prospectus in order to make the statements therein not misleading and
(vii) of any determination by the Company that a post-effective amendment
to a Registration Statement would be appropriate;
(f) (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Exchange Offer
Registration Statement by Broker-Dealers who hold Registrable Notes and
who have exchanged their Registrable Notes for Exchange Notes for the
resale of such Exchange Notes, (ii) furnish to each Broker- Dealer who
desires to participate in the Exchange Offer, without charge, as many
copies of each Prospectus included in the Exchange Offer Registration
Statement, including any preliminary prospectus, and any amendment or
supplement thereto, as such Broker-Dealer may reasonably request, (iii)
include in the Exchange Offer Registration Statement a statement that any
Broker-Dealer who holds Registrable Notes acquired for its own account as
a result of market-making activities or other
<PAGE>
13
trading activities (a "Participating Broker-Dealer"), and who receives
Exchange Notes for Registrable Notes pursuant to the Exchange Offer, may
be a statutory underwriter and must deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of such
Exchange Notes, (iv) subject to the last paragraph of Section 3, hereby
consent to the use of the Prospectus forming part of the Exchange Offer
Registration Statement or any amendment or supplement thereto, by any
Broker-Dealer in connection with the sale or transfer of the Exchange
Notes covered by the Prospectus or any amendment or supplement thereto,
and (v) include in the transmittal letter or similar documentation to be
executed by an exchange offeree in order to participate in the Exchange
Offer the following provision:
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account
in exchange for Registrable Notes, it represents that the
Registrable Notes to be exchanged for Exchange Notes were acquired
by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus
meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Notes pursuant to the Exchange Offer;
however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter"
within the meaning of the 1933 Act;"
(B) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to cause to be
delivered at the request of an entity representing the Participating
Broker-Dealers (which entity shall be one of the Initial Purchasers,
unless it elects not to act as such representative) one "cold comfort"
letter with respect to the Prospectus in the form existing on the last
date for which exchanges are accepted pursuant to the Exchange Offer and
with respect to each subsequent amendment or supplement, if any, effected
during the period specified in clause (C) below; and
(C) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to maintain the
effectiveness of the Exchange Offer Registration Statement for a period
extending to the sooner of the 180th day from the date on which the
Exchange Offer is declared effective or the date on which all
participating Broker-Dealers and the Initial Purchasers have sold all
Exchange Notes held by them; and
(D) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement as would
otherwise be contemplated by Section 3(b) hereof, or take any other action
as a result
<PAGE>
14
of this Section 3(f), for a period extending beyond the sooner of either
the 180th day after the last date for which exchanges are accepted
pursuant to the Exchange Offer, or the date on which all Participating
Broker-Dealers and the Initial Purchasers have sold all Exchange Notes
held by them (as such period may be extended by the Company) and
Participating Broker-Dealers shall not be authorized by the Company to,
and shall not, deliver such Prospectus after such period in connection
with resales contemplated by this Section 3.
(g) (A) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (B) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable Notes copies of any request by the
SEC or any state securities authority for amendments or supplements to a
Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement as soon as
practicable and provide immediate notice to each Holder of the withdrawal
of any such order;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
reasonably requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold and not
bearing any restrictive legends; and cause such Registrable Notes to be in
such denominations (consistent with the provisions of the Indenture) in a
form eligible for deposit with the Depositary and registered in such names
as the selling Holders or the underwriters, if any, may reasonably request
in writing at least one business day prior to the closing of any sale of
Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section
3(e)(vi) hereof, subject to section 2(d)(iii) use their best efforts to
prepare a supplement or post-effective amendment to a Registration
Statement or the related Prospectus or any document incorporated therein
by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Notes, such Prospectus will
not contain at the time of such delivery any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The Company agrees to notify each Holder to suspend
use of the Prospectus as promptly as practicable after
<PAGE>
15
the occurrence of such an event, and each Holder hereby agrees to suspend
use of the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission. At such time as such
public disclosure is otherwise made or the Company determines that such
disclosure is not necessary, in each case to correct any misstatement of a
material fact or to include any omitted material fact, the Company agrees
promptly to notify each Holder of such determination and to furnish each
Holder such numbers of copies of the Prospectus, as amended or
supplemented, as such Holder may reasonably request;
(l) obtain CUSIP numbers for all Exchange Notes, or Registrable
Notes, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates
for the Exchange Notes in a form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Notes, or Registrable Notes, as the case may
be, (ii) cooperate with the Trustee and the Holders to effect such changes
to the Indenture as may be required for the Indenture to be so qualified
in accordance with the terms of the TIA and (iii) execute, and use its
best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions (including those reasonably requested by the holders
of a majority in principal amount of the Registrable Notes being sold) in
order to expedite or facilitate the disposition of such Registrable Notes
and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the Holders of
such Registrable Notes and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if
any, and the Holders of a majority in principal amount of the
Registrable Notes being sold) addressed to each selling Holder and
the underwriters, if any, covering the matters customarily covered
in opinions requested in sales of securities or
<PAGE>
16
underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to
the underwriters, if any, and will use best efforts to have such
letters addressed to the selling Holders of Registrable Notes, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in
connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Notes, which agreement shall be
in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into in the case
of an underwritten offering, cause the same to set forth
indemnification provisions and procedures substantially equivalent
to the indemnification provisions and procedures set forth in
Section 5 hereof with respect to the underwriters and all other
parties to be indemnified pursuant to Section 5 hereof; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings.
The above shall be done at (i) the effectiveness of such Registration
Statement (and, if appropriate, each post-effective amendment thereto) and
(ii) each closing under any underwriting or similar agreement as and to
the extent required thereunder. In the case of any underwritten offering,
the Company shall provide written notice to the Holders of all Registrable
Notes of such underwritten offering at least 30 days prior to the filing
of a prospectus supplement for such underwritten offering. Such notice
shall (x) offer each such Holder the right to participate in such
underwritten offering, (y) specify a date, which shall be no earlier than
10 days following the date of such notice, by which such Holder must
inform the Company of its intent to participate in such underwritten
offering and (z) include the instructions such Holder must follow in order
to participate in such underwritten offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any U.S. counsel or accountant retained by such
Holders or underwriters, all financial and other records, pertinent
corporate documents and properties of the Company
<PAGE>
17
reasonably requested by any such Persons, and cause the respective
officers, directors, employees, and any other agents of the Company to
supply all information reasonably requested by any such representative,
underwriter, special counsel or accountant in connection with a
Registration Statement;
(p) (i) in the case of an Exchange Offer, a reasonable time prior to
the filing of any Exchange Offer Registration Statement, any Prospectus
forming a part thereof, any amendment to an Exchange Offer Registration
Statement or amendment or supplement to a Prospectus, provide copies of
such document to the Initial Purchasers, and make such changes in any such
document prior to the filing thereof as the Initial Purchasers or their
counsel may reasonably request; (ii) in the case of a Shelf Registration,
a reasonable time prior to filing any Shelf Registration Statement, any
Prospectus forming a part thereof, any amendment to such Shelf
Registration Statement or amendment or supplement to such Prospectus,
provide copies of such document to the Holders of Registrable Notes, to
the Initial Purchasers, to counsel on behalf of the Holders and to the
underwriter or underwriters of an underwritten offering of Registrable
Notes, if any, and make such changes in any such document prior to the
filing thereof as counsel to the Initial Purchasers or any underwriter may
reasonably request; and (iii) cause the representatives of the Company to
be available for discussion of such document as shall be reasonably
requested by the Holders of Registrable Notes, the Initial Purchasers on
behalf of such Holders or any underwriter, and shall not at any time make
any filing of any such document of which such Holders, the Initial
Purchasers on behalf of such Holders, their counsel or any underwriter
shall not have previously been advised and furnished a copy or to which
such Holders, the Initial Purchasers on behalf of such Holders, their
counsel or any underwriter shall reasonably object within a reasonable
time period;
(q) in the case of a Shelf Registration, use its reasonable efforts
to cause all Registrable Notes to be listed on any securities exchange on
which similar debt securities issued by the Company are then listed if
requested by the Majority Holders or by the underwriter or underwriters of
an underwritten offering of Registrable Notes, if any;
(r) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC and make available to their
security holders, as soon as reasonably practicable (but not until the end
of the first full fiscal quarter following effectiveness), an earnings
statement covering at least 12 months which shall satisfy the provisions
of Section 11(a) of the 1933 Act and Rule 158 thereunder; and
(s) cooperate and assist in any filings required to be made with the
NASD and in the performance of any due diligence investigation by any
underwriter and its counsel.
<PAGE>
18
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Notes to furnish to the Company such information regarding
such Holder and the proposed distribution by such Holder of such Registrable
Notes as the Company may from time to time reasonably request.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
or the discovery of any facts, each of the kind described in Section
3(e)(ii)-(vii) hereof, such Holder will forthwith discontinue disposition of
Registrable Notes pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(k) hereof, or until such Holder is advised in writing by the Company
that the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus. If so directed by the Company, such Holder will deliver to the
Company (at the Company's expense) all copies in its possession, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Notes current at the time of receipt of such notice.
Each Holder agrees to keep confidential the cause of any such notice of
suspension or other information provided to them by the Company with respect
thereto or any other event which would materially adversely affect the Company.
If the Company shall give any such notice to suspend the disposition of
Registrable Notes pursuant to a Shelf Registration Statement as a result of the
happening of any event or the discovery of any facts, each of the kind described
in Section 3(e)(vi) hereof, the Company shall be deemed to have used its best
efforts to keep the Shelf Registration Statement effective during such period of
suspension; provided that (i) such period of suspension shall not exceed the
time periods provided in Section 2(d)(iii) hereof and (ii) the Company shall use
its best efforts to file and have declared effective (if an amendment) as soon
as practicable an amendment or supplement to the Shelf Registration Statement
and shall extend the period during which the Registration Statement shall be
maintained effective pursuant to this Agreement by the number of days during the
period from and including the date of the giving of such notice to and including
the date when the Holders shall have received copies of the supplemented or
amended Prospectus necessary to resume such dispositions.
4. Underwritten Registrations. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected among nationally recognized investment
bankers and managers by the Company, subject to the approval (not to be
unreasonably withheld) of the Majority Holders of such Registrable Notes
included in such offering.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes
<PAGE>
19
on the basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
5. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser, each Holder, including
Participating Broker-Dealers, each underwriter who participates in an offering
of Registrable Notes, their respective affiliates, and their respective
directors, officers, employees, agents and each Person, if any, who controls any
of such parties within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Exchange Notes or
Registrable Notes were registered under the 1933 Act, including all
documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever, in each case, based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided that
(subject to Section 5(d) below) any such settlement is effected with the
written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including the reasonable fees and disbursements of one counsel chosen by
any indemnified party), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any court or governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under subparagraph (i) or (ii) of this Section 5(a);
<PAGE>
20
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent (i) arising out of an untrue
statement or omission or alleged untrue statement or omission (A) made in or
omitted from a preliminary Prospectus or Registration Statement and corrected or
included in a subsequent Prospectus or Registration Statement or any amendment
or supplement thereto made in reliance upon and in conformity with written
information furnished to the Company by the Initial Purchasers, any Holder,
including Participating Broker-Dealers, or any underwriter expressly for use in
the Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) or (B) resulting from the use of the Prospectus
during a period when the use of the Prospectus has been suspended in accordance
with Section 2(d)(iii) Section 3(e)(vi) and the last paragraph of Section 3
hereof, provided, in each case, that Holders received prior notice of such
suspension. The foregoing indemnity with respect to any untrue statement
contained in or any omission from a Prospectus shall not inure to the benefit of
any Initial Purchaser, Holder (in its capacity as a Holder), or any person who
controls such party within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act from whom the person asserting any such loss, liability,
claim, damage or expense purchased any of the Registrable Notes that are the
subject thereof, was not sent or given a copy of such Prospectus (as amended or
supplemented) by such Initial Purchaser or such Holder (in its capacity as
Holder) to the extent such Initial Purchaser or such Holder (in its capacity as
Holder) was required by law to deliver such Prospectus as amended or
supplemented, at or prior to the written confirmation of the sale of such
Registrable Notes and the untrue statement contained in or the omission from
such Prospectus was corrected in such amended or supplemented Prospectus, unless
such failure resulted from noncompliance by the Company with its obligations
hereunder to furnish such Initial Purchase or such Holder (in its capacity as
Holder), as the case may be, with copies of such Prospectus as amended or
supplemented.
(b) In the case of a Shelf Registration, each Holder agrees,
severally and not jointly, to indemnify and hold harmless the Company, each
Initial Purchaser, each underwriter who participates in an offering of
Registrable Notes and the other selling Holders and each of their respective
directors and officers (including each officer of the Company who signed the
Registration Statement) and each Person, if any, who controls the Company, any
Initial Purchaser, any underwriter or any other selling Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any
and all loss, liability, claim, damage and expense whatsoever described in the
indemnity contained in Section 5(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Holder expressly for use in
the Registration Statement (or any amendment thereto), or the Prospectus (or any
amendment or supplement thereto); provided, however, that no such Holder shall
be liable
<PAGE>
21
for any claims hereunder in excess of the amount of net proceeds received by
such Holder from the sale of Registrable Notes pursuant to such Shelf
Registration Statement.
(c) In case any action shall be commenced involving any Person in
respect of which indemnity may be sought pursuant to either paragraph (a) or (b)
above, such Person (the "indemnified party") shall give notice as promptly as
reasonably practicable to each Person against whom such indemnity may be sought
(the "indemnifying party"), but failure to so notify an indemnifying party shall
not relieve such indemnifying party from any liability hereunder to the extent
it is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. In the case of parties indemnified pursuant to Section
5(a) above, counsel for such indemnified parties shall be chosen by such
indemnified parties, and, in the case of parties indemnified pursuant to Section
5(b) above, counsel to such indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the defense
of such action; provided, however, that counsel to the indemnifying party shall
not (except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying party or parties be liable
for the fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 5 (whether or not the indemnified parties are actual or
potential parties thereof), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
Notwithstanding the immediately preceding sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, an indemnifying party shall
not be liable for any
<PAGE>
22
settlement of the nature contemplated by Section 5(a)(ii) effected without its
consent if such indemnifying party (i) reimburses such indemnified party in
accordance with such request to the extent it considers such request to be
reasonable and (ii) provides written notice to the indemnified party
substantiating the unpaid balance as unreasonable, in each case prior to the
date of such settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by such indemnifying party or parties on the one hand, and
such indemnified party or parties on the other and from the offering of the
Registrable Notes included in such offering; or (ii) if the allocation provided
by clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of such indemnifying party or parties on the
one hand, and such indemnified party or parties on the other hand, in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party or parties on the
one hand, and such indemnified party or parties on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by such indemnifying party
or parties or such indemnified party or parties and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Initial Purchasers and the Holders
of the Registrable Notes agree that it would not be just and equitable if
contribution pursuant to this Section 5 were determined by pro rata allocation
(even if the Initial Purchasers were treated as one entity, and the Holders were
treated as one entity, for such purpose) or by another method of allocation
which does not take account of the equitable considerations referred to above in
Section 5. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
5 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by an governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1993 Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 5,
each Person, if any, who controls an Initial Purchaser or Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have
the same rights to contribution as such Initial Purchaser or Holder, and each
director of the Company, each officer of the Company who
<PAGE>
23
signed the Registration Statement, and each Person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The parties
hereto agree that any underwriting discount or commission or reimbursement of
fees paid to any Initial Purchaser pursuant to the Purchase Agreement shall not
be deemed to be a benefit received by any Initial Purchaser in connection with
the offering of the Registrable Notes in such offering.
6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the
Company is subject to the reporting requirements of Section 13 or 15 of the 1934
Act, the Company covenants that it will file the reports required to be filed by
it under Section 13(a) or 15(d) of the 1934 Act and the rules and regulations
adopted by the SEC thereunder, that if it ceases to be so required to file such
reports, it will upon the request of any Holder of Registrable Notes that are
restricted securities within the meaning of Rule 144 and are not saleable in
full under paragraph (k) of Rule 144 (i) make publicly available such
information as is necessary to permit sales pursuant to Rule 144 under the 1933
Act, (ii) deliver such information to a prospective purchaser as is necessary to
permit sales pursuant to Rule 144A under the 1933 Act and it will take such
further action as any Holder of Registrable Notes may reasonably request, and
(iii) take such further action that is reasonable in the circumstances, in each
case, to the extent required from time to time to enable such Holder to sell its
Registrable Notes without registration under the 1933 Act within the limitation
of the exemptions provided by (x) Rule 144 under the 1933 Act, as such Rule may
be amended from time to time, (y) Rule 144A under the 1933 Act, as such Rule may
be amended from time to time, or (z) any similar rules or regulations hereafter
adopted by the SEC. Upon the written request of any Holder of Registrable Notes,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
(b) No Inconsistent Agreements. The Company has not entered into nor
will it on or after the date of this Agreement enter into any agreement which is
inconsistent with the rights granted to the Holders of Registrable Notes in this
Agreement or otherwise conflicts with the provisions hereof. The rights granted
to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's other
issued and outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount at maturity of the
outstanding Registrable Notes affected by such amendment, modification,
supplement, waiver or departure; provided, however, that no amendment,
modification, supplement or waiver or consent to any departure from the
provisions of Section 5 hereof shall be effective as against any Holder of
Registrable Notes unless consented to in writing by such Holder.
<PAGE>
24
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telecopier, or any courier guaranteeing overnight delivery (i)
if to a Holder (other than an Initial Purchaser), at the most current address
set forth on the records of the Registrar under the Indenture, (ii) if to an
Initial Purchaser, at the most current address given by such Initial Purchaser
to the Company by means of a notice given in accordance with the provisions of
this Section 6(d), which address initially is the address set forth in the
Purchase Agreement; and (iii) if to the Company, initially at the address set
forth in the Purchase Agreement and thereafter at such other address, notice of
which is given in accordance with the provisions of this Section 6(d).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged, if telecopied; and on the next business day if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall
be concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Notes in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Registrable Notes, in
any manner, whether by operation of law or otherwise, such Registrable Notes
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Notes, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so
<PAGE>
25
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
PATHNET, INC.
By /s/ David Schaeffer
_____________________________________
Name: David Schaeffer
Title: Chairman
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO., INC.
TD SECURITIES
SALOMON BROTHERS INC
By: MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Lisa Craig
______________________________________
Authorized Signatory
<PAGE>
Exhibit 10.22
EXECUTION COPY
================================================================================
WARRANT AGREEMENT
Dated as of April 8, 1998
By and Between
PATHNET, INC.
and
The Bank of New York,
Warrant Agent
--------------------
Warrants to Purchase Common Stock
Par Value $0.01 Per Share
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. Issuance of Warrants...................................... 2
SECTION 1.02. Form of Warrant Certificates.............................. 2
SECTION 1.03. Execution of Warrant Certificates......................... 3
SECTION 1.04. Authentication and Delivery............................... 3
SECTION 1.05. Temporary Warrant Certificates............................ 4
SECTION 1.06. Separation of Warrants and Notes.......................... 5
SECTION 1.07. Registration.............................................. 5
SECTION 1.08. Registration of Transfers or Exchanges................... 11
SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated
Warrant Certificates..................................... 11
SECTION 1.10. Offices for Exercise, etc................................ 12
ARTICLE II
DURATION, EXERCISE OF WARRANTS; EXERCISE PRICE
AND REPURCHASE OF WARRANTS
SECTION 2.01. Duration of Warrants..................................... 12
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery........ 13
SECTION 2.03. Cancellation of Warrant Certificates..................... 16
SECTION 2.04. Notice of an Exercise Event.............................. 16
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. Enforcement of Rights.................................... 17
SECTION 3.02. Obtaining Stock Exchange Listings........................ 17
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes......................................... 17
SECTION 4.02. Rules 144 and 144A....................................... 18
-i-
<PAGE>
SECTION 4.03. Form of Initial Public Equity Offering................... 18
SECTION 4.04. Securities Act and Applicable State Securities Laws...... 18
SECTION 4.05. Resolution of Preemptive Rights, If Any.................. 18
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices..................... 19
SECTION 5.02. Fractional Shares........................................ 26
SECTION 5.03. Certain Distributions.................................... 27
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent............................................ 27
SECTION 6.02. Conditions of Warrant Agent's Obligations................ 27
SECTION 6.03. Resignation and Appointment of Successor................. 32
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment................................................ 34
SECTION 7.02. Notices and Demands to the Company and Warrant Agent..... 34
SECTION 7.03. Addresses for Notices to Parties and for Transmission of
Documents................................................ 35
SECTION 7.04. Notices to Holders....................................... 35
SECTION 7.05. APPLICABLE LAW........................................... 35
SECTION 7.06. Persons Having Rights Under Agreement.................... 35
SECTION 7.07. Headings................................................. 35
SECTION 7.08. Counterparts............................................. 35
SECTION 7.09. Inspection of Agreement.................................. 35
SECTION 7.10. Availability of Equitable Remedies....................... 35
SECTION 7.11. Obtaining of Governmental Approvals...................... 36
-ii-
<PAGE>
EXHIBIT A - Form of Warrant Certificate
EXHIBIT B - Form of Legend for Global Warrant
EXHIBIT C - Certificate To Be Delivered upon Exchange or Registration
of Transfer of Warrants
EXHIBIT D - Form of Certificate to be Delivered in Connection with Regulation S
Transfers
-iii-
<PAGE>
INDEX OF DEFINED TERMS
Defined Term Page
- ------------ ----
Affiliate................................................... 21
Agreement................................................... Preamble
Business Day................................................ 13
Capital Stock............................................... 24
Cashless Exercise........................................... 14
Cashless Exercise Ratio..................................... 14
Cedel Bank.................................................. 4
Common Stock................................................ 2
Company..................................................... Preamble
Convertible Preferred Stock................................. 24
Current Market Value........................................ 24
Definitive Warrants......................................... 2
Depositary.................................................. 2
Distribution................................................ 26
Distribution Rights......................................... 26
DTC......................................................... 4
Election to Exercise........................................ 14
Euroclear................................................... 4
Exercisability Date......................................... 13
Exercise Date............................................... 15
Exercise Event.............................................. 13
Exercise Price.............................................. 13
Exercise Rate............................................... 13
Expiration Date............................................. 12
Fundamental Transaction..................................... 22
Global Shares............................................... 16
Global Warrants............................................. 2
Indenture................................................... Recitals
Independent Financial Expert................................ 25
Initial Public Equity Offering.............................. 13
Initial Purchasers.......................................... Recitals
Legended Regulation S Global Warrant........................ 4
Merrill Lynch............................................... Recitals
Notes....................................................... Recitals
Notice Date................................................. 2.05(b)
Officers' Certificate....................................... 9
Person...................................................... 13
Private Placement Legend.................................... 10
Prospectus.................................................. 18
Purchase Agreement.......................................... Recitals
-iv-
<PAGE>
Defined Term Page
- ------------ ----
QIB......................................................... 6
Registrar................................................... 5
Regulation S................................................ 4
Related Parties............................................. 28
Requisite Warrant Holders................................... 33
Resale Restriction Termination Date......................... 6
Triggering Date............................................. 14
Securities Act.............................................. 5
Separability Date........................................... 4
Separation.................................................. 5
Shares......................................................
Subject Class............................................... 18
Surviving Person............................................ 22
Time of Determination....................................... 26
Trustee..................................................... Recitals
Units....................................................... Recitals
Warrant..................................................... Recitals
Warrant Agent............................................... Preamble
Warrant Agent Office........................................ 12
Warrant Certificates........................................ Recitals
Warrant Exercise Office..................................... 14
Warrant Register............................................ 5
Warrant Registration Rights Agreement....................... Recitals
Warrant Shares.............................................. Recitals
-v-
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of April 8, 1998 ("Agreement"), by and
between PATHNET, INC. (the "Company"), a Delaware corporation, and THE BANK OF
NEW YORK, warrant agent (with any successor warrant agent, the "Warrant Agent").
WHEREAS, the Company has entered into a purchase agreement (the
"Purchase Agreement") dated April 1, 1998, with Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns &
Co. Inc., TD Securities (USA) Inc. and Salomon Brothers Inc (collectively, the
"Initial Purchasers"), in which the Company has agreed to sell to the Initial
Purchasers an aggregate of 350,000 units (the "Units"), each consisting of (i)
$1,000 principal amount of 12 1/4% Senior Notes due 2008 (the "Notes") of the
Company to be issued under an indenture dated as of April 8, 1998 (the
"Indenture"), between the Company and the Bank of New York, trustee (the
"Trustee") and (ii) one Warrant (a "Warrant"), initially entitling the holder
thereof to purchase 1.1 shares of Common Stock (as defined herein), (the
"Warrant Shares"), of the Company. The certificates evidencing the Warrants are
herein referred to collectively as the "Warrant Certificates"; and
WHEREAS, the Notes and the Warrants comprising the Units shall not
be separately transferable until the Separability Date (as defined herein); and
WHEREAS, the holders of the Warrants are entitled to the benefits of
a Warrant Registration Rights Agreement dated as of April 8, 1998 (the "Warrant
Registration Rights Agreement"), between the Company and the Initial Purchasers;
and
WHEREAS, the Company desires the Warrant Agent to assist the Company
in connection with the issuance, exchange, cancellation, replacement and
exercise of the Warrants, and in this Agreement wishes to set forth, among other
things, the terms and conditions on which the Warrants may be issued, exchanged,
cancelled, replaced and exercised;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
2
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.01. Issuance of Warrants. Warrants comprising part of the
Units shall be originally issued in connection with the issuance of the Units
and such Warrants shall not be separately transferable from the Notes until on
or after the Separability Date as provided in Section 1.06 hereof.
Each Warrant Certificate shall evidence the number of Warrants
specified therein. Each Warrant evidenced by a Warrant Certificate, when it
becomes exercisable as provided herein and therein, shall represent the right,
subject to the provisions contained herein and therein, to purchase from the
Company (and the Company shall issue and sell to the holder of such Warrant) 1.1
fully paid, registered and non-assessable Warrant Shares at an exercise price of
$0.01 per share. The number of Warrant Shares issuable upon exercise of a
Warrant is subject to adjustment as provided herein and in the Warrant. The
number of shares of the Company's common stock, par value $0.01 per share, and
any other class or series of common equity equivalent shares of the Company into
which such common stock may be reclassified and sold to the Public in an Initial
Public Equity Offering (the "Common Stock") issuable upon exercise of a Warrant
is subject to adjustment as provided herein and in the Warrant. Unless the
context otherwise requires, the term "Warrant Shares" shall also include any
other securities or property issuable and deliverable upon exercise of a Warrant
as provided in Article V, subject to adjustment as provided herein and in the
Warrant.
SECTION 1.02. Form of Warrant Certificates. The Warrant Certificates
will initially be issued either in global form (the "Global Warrants") or in
registered form as definitive Warrant Certificates (the "Definitive Warrants"),
in either case substantially in the form of Exhibit A attached hereto. Any
Global Warrants to be delivered pursuant to this Agreement shall bear the legend
set forth in Exhibit B attached hereto. Such Global Warrants shall represent
such of the outstanding Warrants as shall be specified therein and each shall
provide that it shall represent the aggregate amount of outstanding Warrants
from time to time endorsed thereon and that the aggregate amount of outstanding
Warrants represented thereby may from time to time be reduced or increased, as
appropriate. Any endorsement of a Global Warrant to reflect the amount of any
increase or decrease in the amount of outstanding Warrants represented thereby
shall be made by the Warrant Agent and the Depositary (as defined below) in
accordance with instructions given by the holder thereof. The Depository Trust
Company shall act as the depositary (with any successor depositary, the
"Depositary") with respect to the Global Warrants until a successor shall be
appointed by the Company and the Warrant Agent. Under the circumstances set
forth in Section 1.08 hereof, a holder of Warrants may receive from the Warrant
Agent or the Depository Definitive Warrants upon written request.
<PAGE>
3
SECTION 1.03. Execution of Warrant Certificates. The Warrant
Certificates shall be executed on behalf of the Company by the Chairman of its
Board of Directors, its Chief Executive Officer ("CEO"), its President, its
Chief Financial Officer or any executive vice president or vice president and
attested by its Secretary or any Assistant Secretary. Such signatures may be the
manual or facsimile signatures of the present or any future such officers. The
seal of the Company may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates. Typographical and other minor errors or defects in any such
reproduction of any such signature shall not affect the validity or
enforceability of any Warrant Certificate that has been duly countersigned and
delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be authenticated and delivered by the Warrant Agent
or disposed of by the Company, such Warrant Certificate nevertheless may be
countersigned and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company. Any
Warrant Certificate may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Warrant Certificate, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Agreement any such person was not such an officer.
SECTION 1.04. Authentication and Delivery. Subject to the
immediately following paragraph, Warrant Certificates shall be authenticated by
manual signature and dated the date of authentication by the Warrant Agent and
shall not be valid for any purpose unless so authenticated and dated. The
Warrant Certificates shall be numbered and shall be registered in the Warrant
Register (as defined in Section 1.07 hereof).
Upon the receipt by the Warrant Agent of a written order of the
Company, which order shall be signed by the Chairman of its Board of Directors,
its President, its CEO, its Chief Financial Officer or any executive vice
president or vice president and attested by its Secretary or any Assistant
Secretary, and shall specify the amount of Warrants to be authenticated, whether
the Warrants are to be Global Warrants or Definitive Warrants, the date of such
Warrants and such other information as the Warrant Agent may reasonably request,
without any further action by the Company, the Warrant Agent is authorized, upon
receipt from the Company at any time and from time to time of the Warrant
Certificates, duly executed as provided in Section 1.03 hereof, to authenticate
the Warrant Certificates and deliver them upon the Company's request. Such
authentication shall be by a duly authorized signatory of the Warrant Agent
(although it shall not be necessary for the same signatory to sign all Warrant
Certificates).
In case any authorized signatory of the Warrant Agent who shall have
authenticated any of the Warrant Certificates shall cease to be an authorized
signatory before
<PAGE>
4
the Warrant Certificate shall be disposed of by the Company or the Warrant
Agent, such Warrant Certificate nevertheless may be delivered or disposed of as
though the person who authenticated an Warrant Certificate had not ceased to be
an authorized signatory of the Warrant Agent. Any Warrant Certificate may be
authenticated on behalf of the Warrant Agent by such persons as, at the actual
time of authentication of such Warrant Certificates, shall be the duly
authorized signatories of the Warrant Agent, although at the time of the
execution and delivery of this Agreement any such person is not an authorized
signatory.
The Warrant Agent's authentication on all Warrant Certificates shall
be in substantially the form set forth in Exhibit A hereto.
SECTION 1.05. Temporary Warrant Certificates. Warrants sold in
offshore transactions in reliance on Regulation S ("Regulation S") under the
Securities Act of 1993, as amended (the Securities Act") will initially be
represented by one or more permanent legended global Warrants in definitive,
fully registered form (each a "Legended Regulation S Global Warrant"). The
Company may execute, and the Warrant Agent shall authenticate and deliver
Legended Regulation S Global Warrant Certificates, which are printed,
lithographed, typewritten or otherwise produced, substantially of the tenor of
the definitive Warrant Certificates in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as of
the officers executing such Warrant Certificates may determine, as evidenced by
their execution of such Warrant Certificates.
The Legended Regulation S Global Warrants will be exchangeable for
one or more unlegended permanent global Warrants on or after one year following
the Issue Date upon certification that the beneficial interests in such global
Warrants are owned by non-U.S. persons at any office or agency maintained by the
Company for that purpose pursuant to Section 1.10 hereof. Subject to the
provisions of Section 4.01 hereof, such exchange shall be without charge to the
holder. Upon surrender for cancellation of any one or more Legended Regulation S
Global Warrant Certificates, the Company shall execute, and the Warrant Agent
shall authenticate and deliver in exchange therefor, one or more unlegended
permanent global Warrant Certificates representing in the aggregate a like
number of Warrants. Until so exchanged, the holder of a Legended Regulation S
Global Warrant Certificate shall in all respects be entitled to the same
benefits under this Agreement as a holder of an unlegended permanent global
Warrant Certificate; provided that prior to one year after the Issue Date,
beneficial interests in the Legended Regulation S Global Warrant may be only
held through Euroclear or Cedel Bank. Cedel Bank and Euroclear will hold
interests in the Global Warrant on behalf of the participants through the
Depositary.
SECTION 1.06. Separation of Warrants and Notes. The Notes and the
Warrants will not be separately transferable until the Separability Date.
"Separability Date" shall mean the earliest to occur of: (i) October 5, 1998,
(ii) the date on which a registration statement under the Securities Act, with
respect to a registered exchange offer for the Notes
<PAGE>
5
or covering the sale by holders of the Notes is declared effective under the
Securities Act, (iii) the occurrence of an Exercise Event (as defined in Section
2.02 hereof), (iv) the occurrence of an Event of Default (as defined in the
Indenture), or (v) such date as may be determined by Merrill Lynch in its sole
discretion and specified to the Company, the Trustee and the Warrant Agent in
writing. The separation of the Warrants and the Notes is herein referred to as a
"Separation."
SECTION 1.07. Registration. The Company will keep, at the office or
agency maintained by the Company for such purpose, a register or registers in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of, and registration of transfer and exchange
of, Warrants as provided in this Article. Each person designated by the Company
from time to time as a person authorized to register the transfer and exchange
of the Warrants is hereinafter called, individually and collectively, the
"Registrar." The Company hereby initially appoints the Warrant Agent as
Registrar. Upon written notice to the Warrant Agent and any acting Registrar,
the Company may appoint a successor Registrar for such purposes.
The Company will at all times designate one person (who may be the
Company and who need not be a Registrar) to act as repository of a master list
of names and addresses of the holders of Warrants (the "Warrant Register"). The
Warrant Agent will act as such repository unless and until some other person is,
by written notice from the Company to the Warrant Agent and the Registrar,
designated by the Company to act as such. The Company shall cause each Registrar
to furnish to such repository, on a current basis, such information as to all
registrations of transfer and exchanges effected by such Registrar, as may be
necessary to enable such repository to maintain the Warrant Register on as
current a basis as is practicable.
SECTION 1.08. Registration of Transfers or Exchanges.
(a) Transfer or Exchange of Definitive Warrants. When Definitive
Warrants are presented to the Warrant Agent with a request from the holder:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of
Definitive Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if the requirements for such transactions set forth in this Section 1.08 are
met; provided, however, that the Definitive Warrants presented or surrendered by
a holder for registration of transfer or exchange:
<PAGE>
6
(x) shall be duly endorsed or accompanied by a written instruction of
transfer or exchange in form satisfactory to the Company and the
Warrant Agent, duly executed by such holder or by his attorney, duly
authorized in writing; and
(y) in the case of Warrants the offer and sale of which have not been
registered under the Securities Act and are presented for transfer
or exchange prior to (1) the date which is two years (or such
shorter period as may be permitted by Rule 144(k) under the
Securities Act (or any successor provision thereto)) after the later
of the date of original issuance of the Warrants and the last date
on which the Company or any affiliate of the Company (or any
predecessor thereto) was the owner of such Warrants, or (2) such
later date, if any, as may be required by any applicable law (the
"Resale Restriction Termination Date"), such Warrants shall be
accompanied by the following additional information and documents,
as applicable:
(A) if such Warrants are being delivered to the Warrant Agent by a
holder for registration in the name of such holder, without
transfer, a certification from such holder to that effect (in
substantially the form of Exhibit C hereto); or
(B) if such Warrants are being transferred to a qualified
institutional buyer (as defined in Rule 144A under the
Securities Act), (a "QIB") in accordance with Rule 144A under
the Securities Act, a certification from the transferor to
that effect (in substantially the form of Exhibit C hereto);
(C) if such Warrants are being transferred in reliance on
Regulation S under the Securities Act, delivery by the
transferor of a certification to that effect (in substantially
the form of Exhibit C hereto), and a Certificate for
Regulation S Transfers in the form of Exhibit D hereto; or
(D) if such Warrants are being transferred in reliance on Rule 144
under the Securities Act, delivery by the transferor of (i) a
certification from the transferor to that effect (in
substantially the form of Exhibit C hereto), and (ii) an
opinion of counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(E) if such Warrants are being transferred in reliance on another
exemption from the registration requirements of the Securities
Act, a certification from the transferor to that effect (in
substantially the form of Exhibit C
<PAGE>
7
hereto) and an opinion of counsel reasonably satisfactory to
the Company to the effect that such transfer is in compliance
with the Securities Act; provided that the Company may, based
upon the views of its own counsel, instruct the Warrant Agent
not to register such transfer in any case where the proposed
transferee is not a QIB or Non-U.S. Person.
(b) Restrictions on Transfer of a Definitive Warrant for a
Beneficial Interest in a Global Warrant. A Definitive Warrant may not be
transferred by a holder for a beneficial interest in a Global Warrant except
upon satisfaction of the requirements set forth below. Upon receipt by the
Warrant Agent of a Definitive Warrant, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Warrant Agent,
together with:
(A) certification from such holder (in substantially the form of
Exhibit C hereto) that such Definitive Warrant is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act; and
(B) written instructions directing the Warrant Agent to make, or
to direct the Depositary to make, an endorsement on the Global
Warrant to reflect an increase in the aggregate amount of the
Warrants represented by the Global Warrant,
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrants represented by the Global Warrant to be increased accordingly. If no
Global Warrant is then outstanding, the Company shall issue, and the Warrant
Agent upon written instructions from the Company shall authenticate a new Global
Warrant in the appropriate amount.
(c) Transfer or Exchange of Global Warrants. The transfer or
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Section 1.08, the Private
Placement Legend (as defined herein), this Agreement (including the restrictions
on transfer set forth herein) and the procedures of the Depositary therefor.
(d) Transfer or Exchange of a Beneficial Interest in a Global
Warrant for a Definitive Warrant.
(i) Any person having a beneficial interest in a Global Warrant may
transfer or exchange such beneficial interest for a Definitive
Warrant upon receipt by the Warrant Agent of written instructions or
such other form of instructions as is
<PAGE>
8
customary for the Depositary from the Depositary or its nominee on
behalf of any person having a beneficial interest in a Global
Warrant, including a written order containing registration
instructions and, in the case of any such transfer or exchange prior
to the Resale Restriction Termination Date, the following additional
information and documents:
(A) if such beneficial interest is being transferred to the person
designated by the Depositary as being the beneficial owner, a
certification from such person to that effect (in
substantially the form of Exhibit C hereto); or
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a
certification from the transferor to that effect (in
substantially the form of Exhibit C hereto); or
(C) if such beneficial interest is being transferred in reliance
on Regulation S under the Securities Act, delivery by the
transferor if (i) a certification to that effect (in
substantially in the form of Exhibit C hereto), and (ii) a
Certificate for Regulation S Transfers (in substantially the
form of Exhibit D hereto); or
(D) if such beneficial interest is being transferred in reliance
on Rule 144 under the Securities Act, delivery by the
transferor of (i) a certification to that effect (in
substantially the form of Exhibit C hereto) and (ii) an
opinion of counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; or
(E) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of the
Securities Act, a certification from the transferor to that
effect (in substantially the form of Exhibit C hereto) and an
opinion of counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the
Securities Act; provided that the Company may instruct the
Warrant Agent not to register such transfer in any case where
the proposed transferee is not a QIB or Non-U.S. Person,
then the Warrant Agent will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Warrant Agent, the aggregate amount of the Global Warrant to be
reduced and, following such reduction, the Company will execute and,
upon receipt of an authentication
<PAGE>
9
order in the form of an officers' certificate (a certificate signed
by two officers of such company, one of whom must be the principal
executive officer, principal financial officer or principal
accounting officer) (an "Officers' Certificate"), the Warrant Agent
will authenticate and deliver to the transferee a Definitive
Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial interest in
a Global Warrant pursuant to this Section 1.08(d) shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Warrant Agent in
writing. The Warrant Agent shall deliver such Definitive Warrants to
the persons in whose names such Warrants are so registered and
adjust the Global Warrant pursuant to paragraph (h) of this Section
1.08.
(e) Restrictions on Transfer or Exchange of Global Warrants.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 1.08), a Global Warrant
may not be transferred or exchanged as a whole except by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Warrants in Absence of Depositary.
If at any time:
(i) the Depositary for the Global Warrants notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the
Global Warrant and a successor Depositary for the Global Warrant is
not appointed by the Company within 90 days after delivery of such
notice; or
(ii) the Company, at its sole discretion, notifies the Warrant Agent in
writing that it elects to cause the issuance of Definitive Warrants
for all Global Warrants under this Agreement,
then the Company will execute, and the Warrant Agent will, upon receipt of an
Officers' Certificate requesting the authentication and delivery of Definitive
Warrants, authenticate and deliver Definitive Warrants, in an aggregate number
equal to the aggregate number of warrants represented by the Global Warrant, in
exchange for such Global Warrant.
(g) Private Placement Legend. Upon the transfer or exchange of
Warrant Certificates not bearing the legend set forth in the second paragraph of
Exhibit A attached hereto (the "Private Placement Legend"), the Warrant Agent
shall deliver Warrant Certificates that do not bear the Private Placement
Legend. Upon the transfer, exchange or
<PAGE>
10
replacement of Warrant Certificates bearing the Private Placement Legend, the
Warrant Agent shall deliver Warrant Certificates that bear the Private Placement
Legend unless, and the Warrant Agent is hereby authorized to deliver Warrant
Certificates without the Private Placement Legend if, (i) there is delivered to
the Warrant Agent an opinion of counsel reasonably satisfactory to the Company
and the Warrant Agent to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act or (ii) the Warrants to be transferred or
exchanged represented by such Warrant Certificates are being transferred or
exchanged pursuant to an effective registration statement under the Securities
Act.
(h) Cancellation or Adjustment of a Global Warrant. At such time as
all beneficial interests in a Global Warrant have either been exchanged for
Definitive Warrants, redeemed, repurchased or canceled, such Global Warrant
shall be returned to the Company or, upon written order to the Warrant Agent in
the form of an Officers' Certificate from the Company, retained and canceled by
the Warrant Agent. At any time prior to such cancellation, if any beneficial
interest in a Global Warrant is exchanged for Definitive Warrants, redeemed,
repurchased or canceled, the number of Warrants represented by such Global
Warrant shall be reduced and an endorsement shall be made on such Global Warrant
by the Warrant Agent to reflect such reduction.
(i) Obligations with Respect to Transfers or Exchanges of Definitive
Warrants.
(i) To permit registrations of transfers or exchanges, the Company shall
execute, and the Warrant Agent shall authenticate, Definitive
Warrants and Global Warrants.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration, transfer or exchange of Definitive Warrants or Global
Warrants shall be the valid obligations of the Company, entitled to
the same benefits under this Warrant Agreement as the Definitive
Warrants or Global Warrants surrendered upon the registration of
transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Agent and the Company may deem and treat the
person in whose name any Warrant is registered as the absolute owner
of such Warrant, and neither the Warrant Agent nor the Company shall
be affected by notice to the contrary.
SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant
Certificates. Upon receipt by the Company and the Warrant Agent (or any agent of
the Company or the Warrant Agent, if requested by the Company) of evidence
satisfactory to
<PAGE>
11
them of the loss, theft, destruction, defacement, or mutilation of any Warrant
Certificate and of indemnity satisfactory to them and, in the case of mutilation
or defacement, upon surrender of such Warrant Certificate to the Warrant Agent
for cancellation, then, in the absence of notice to the Company or the Warrant
Agent that such Warrant Certificate has been acquired by a bona fide purchaser
or holder in due course, the Company shall execute, and an authorized signatory
of the Warrant Agent shall manually authenticate and deliver, in exchange for or
in lieu of the lost, stolen, destroyed, defaced or mutilated Warrant
Certificate, a new Warrant Certificate representing a like number of Warrants,
bearing a number or other distinguishing symbol not contemporaneously
outstanding. Upon the issuance of any new Warrant Certificate under this Section
in a name other than the prior registered holder of the lost, stolen, destroyed,
defaced or mutilated Warrant Certificate, the Company may require the payment
from the holder of such Warrant Certificate of a sum sufficient to cover any
tax, stamp tax or other governmental charges that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Warrant
Agent and the Registrar) in connection therewith.
Every substitute Warrant Certificate executed and delivered pursuant
to this Section in lieu of any lost, stolen or destroyed Warrant Certificate
shall constitute an additional contractual obligation of the Company, whether or
not the lost, stolen or destroyed Warrant Certificate shall be at any time
enforceable by anyone, and shall be entitled to the benefits of (but shall be
subject to all the limitations of rights set forth in) this Agreement equally
and proportionately with any and all other Warrant Certificates duly executed
and delivered hereunder. The provisions of this Section 1.09 are exclusive with
respect to the replacement of lost, stolen, destroyed, defaced or mutilated
Warrant Certificates and shall preclude (to the extent lawful) any and all other
rights or remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of lost, stolen,
destroyed, defaced or mutilated Warrant Certificates.
The Warrant Agent is hereby authorized to authenticate in accordance
with the provisions of this Agreement, and deliver the new Warrant Certificates
required pursuant to the provisions of this Section.
SECTION 1.10. Offices for Exercise, etc. So long as any of the
Warrants remain outstanding, the Company will designate and maintain in the
Borough of Manhattan, The City of New York: (a) an office or agency where the
Warrant Certificates may be presented for exercise, (b) an office or agency
where the Warrant Certificates may be presented for registration of transfer and
for exchange (including the exchange of temporary Warrant Certificates for
definitive Warrant Certificates pursuant to Section 1.05 hereof), and
(c) an office or agency where notices and demands to or upon the Company in
respect of the Warrants or of this Agreement may be served. The Company may from
time to time change or rescind such designation, as it may deem desirable or
expedient; provided, however, that an office or agency shall at all times be
maintained in the Borough of Manhattan, The City
<PAGE>
12
of New York, as provided in the first sentence of this Section. In addition to
such office or offices or agency or agencies, the Company may from time to time
designate and maintain one or more additional offices or agencies within or
outside The City of New York, where Warrant Certificates may be presented for
exercise or for registration of transfer or for exchange, and the Company may
from time to time change or rescind such designation, as it may deem desirable
or expedient. The Company will give to the Warrant Agent written notice of the
location of any such office or agency and of any change of location thereof. The
Company hereby designates the Warrant Agent at its principal corporate trust
office identified in Section 7.03 in the Borough of Manhattan, The City of New
York (the "Warrant Agent Office"), as the initial agency maintained for each
such purpose. In case the Company shall fail to maintain any such office or
agency or shall fail to give such notice of the location or of any change in the
location thereof, presentations and demands may be made and notice may be served
at the Warrant Agent Office and the Company appoints the Warrant Agent as its
agent to receive all such presentations, surrenders, notices and demands.
ARTICLE II
DURATION, EXERCISE OF WARRANTS; EXERCISE PRICE
AND REPURCHASE OF WARRANTS
SECTION 2.01. Duration of Warrants. Subject to the terms and
conditions established herein, the Warrants shall expire at 5:00 p.m., New York
City time, on April 15, 2008. The applicable date of expiration of a particular
Warrant is referred to herein as the "Expiration Date" of such Warrant. Each
Warrant may be exercised on any Business Day (as defined below) on or after the
Exercisability Date (as defined in Section 2.02) and on or prior to the close of
business on the Expiration Date.
Any Warrant not exercised before the close of business on the
Expiration Date shall become void, and all rights of the holder under the
Warrant Certificate evidencing such Warrant and under this Agreement shall
cease.
"Business Day" shall mean any day on which (i) banks in The City of
New York, (ii) the principal U.S. securities exchange or market, if any, on
which any Common Stock is listed or admitted to trading and (iii) the principal
U.S. securities exchange or market, if any, on which the Warrants are listed or
admitted to trading are open for business.
SECTION 2.02. Exercise, Exercise Price, Settlement and Delivery. (a)
Subject to the provisions of this Agreement, each holder of a Warrant shall have
the right to purchase from the Company on or after the Exercisability Date and
on or prior to the close of business on the Expiration Date the number of fully
paid, registered and non-assessable
<PAGE>
13
Warrant Shares (and any other securities or property purchasable or deliverable
upon exercise of such Warrant as provided in Article V) which the holder may at
the time be entitled to receive on exercise of such Warrant, subject to
adjustment in accordance with Article V hereof, at the purchase price of $0.01
for each Warrant Share purchased (the "Exercise Price"). The number and amount
of Warrant Shares for which a particular Warrant may be exercised (the "Exercise
Rate") shall be subject to adjustment from time to time as set forth in Article
V hereof.
"Exercisability Date" means the first day on or after the
Separability Date on which there will have occurred an Exercise Event.
"Exercise Event" means the date of the occurrence of the earliest
of: (i) the time immediately prior to the occurrence of a Change of Control (as
defined in the Indenture), (ii) (a) the 180th day (or such earlier date as
determined by the Company in its sole discretion) following the closing of an
Initial Public Equity Offering (as defined herein) or (b) upon the closing of an
Initial Public Equity Offering but only in respect of Warrants, if any, required
to be exercised to permit the holders thereof to sell Warrant Shares pursuant to
their respective registration rights, (iii) the time when a class of equity
securities of the Company is listed on a national securities exchange or
authorized for quotation on the Nasdaq National Market or is otherwise subject
to registration under the Exchange Act, or (iv) April 8, 2000.
"Initial Public Equity Offering" means a primary public offering
(whether or not underwritten, but excluding any offering pursuant to Form S-8
under the Securities Act or any other publicly registered offering pursuant to
the Securities Act pertaining to an issuance of shares of Common Stock or
securities exercisable therefor under any benefit plan, employee compensation
plan, or employee or director stock purchase plan) of Common Stock pursuant to
an effective registration statement under the Securities Act.
"Person" means any individual, corporation, partnership, limited
liability company, partnership, joint venture, association, joint-stock company,
trust, business trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity, including any predecessor of
any such entity.
"Triggering Date" means the date of the consummation of a bona fide
underwritten public offering of Common Stock, as a result of which at least 20%
of the outstanding shares of Common Stock are listed on a United States national
securities exchange or the Nasdaq National Market.
(b) Warrants may be exercised on or after the date they are
exercisable hereunder by (i) surrendering at any office or agency maintained for
that purpose by the Company pursuant to Section 1.10 (each a "Warrant Exercise
Office") the Warrant
<PAGE>
14
Certificate evidencing such Warrants with the form of election to purchase
Warrant Shares set forth on the reverse side of the Warrant Certificate (the
"Election to Exercise") duly completed and signed by the registered holder or
holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney, and in the case of a transfer, such signature shall be
guaranteed by an eligible guarantor institution, and (ii) paying in full the
Exercise Price for each such Warrant exercised. Each Warrant may be exercised
only in whole.
(c) Simultaneously with the exercise of each Warrant, payment in
full of the aggregate Exercise Price may be made, at the option of the holder,
(i) in cash in United States dollars or by certified or official bank check,
(ii) by a Cashless Exercise (as defined below) or (iii) by any combination of
(i) and (ii), to the Warrant Exercise Office where the Warrant Certificate is
being surrendered. A "Cashless Exercise" shall mean an exercise of a Warrant in
accordance with the immediately following two sentences. To effect a Cashless
Exercise, the holder may exercise a Warrant or Warrants without payment of the
Exercise Price in cash by surrendering such Warrant or Warrants (represented by
one or more Warrant Certificates ) and, in exchange therefor, receiving such
number of shares of Common Stock equal to the product of (1) that number of
shares of Common Stock for which such Warrant are exercisable and which would be
issuable in the event of an exercise with payment in cash of the Exercise Price
and (2) the Cashless Exercise Ratio (as defined below). The "Cashless Exercise
Ratio" shall equal a fraction, the numerator of which is the excess of the
Current Market Value (calculated as set forth in this Agreement) per share of
Common Stock on the date of exercise over the Exercise Price per share of Common
Stock as of the date of exercise and the denominator of which is the Current
Market Value per share of Common Stock on the date of exercise. Upon surrender
of a Warrant Certificate representing more than one Warrant in connection with a
holder's option to elect a Cashless Exercise, such holder must specify the
number of Warrants for which such Warrant Certificate is to be exercised
(without giving effect to such Cashless Exercise). All provisions of this
Agreement shall be applicable with respect to a Cashless Exercise of a Warrant
Certificate for less than the full number of Warrants represented thereby. No
payment or adjustment shall be made on account of any distributions of dividends
on the Common Stock issued upon exercise of a Warrant.
If the Company has not effected the registration under the
Securities Act of the offer and sale of the Warrant Shares by the Company to the
holders of the Warrants on or prior to the Exercise Date (as defined herein),
the Company may elect to require that the holders of the Warrants effect the
exercise thereof solely pursuant to the Cashless Exercise option and may amend
the Warrants and this Agreement to eliminate the option to pay the Exercise
Price in cash. The Company shall calculate and transmit to the Warrant Agent,
and the Warrant Agent shall have no obligation under this section to calculate,
the Cashless Exercise Ratio.
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15
(d) Upon surrender of a Warrant Certificate and payment and
collection of the Exercise Price at any Warrant Exercise Office (other than any
Warrant Exercise Office that also is an office of the Warrant Agent), such
Warrant Certificate and payment shall be promptly delivered to the Warrant
Agent. The "Exercise Date" shall be the date when all of the items referred to
in the first sentence of each of paragraphs (b) and (c) of this Section 2.02 are
received by the Warrant Agent at or prior to 11:00 a.m., New York City time, on
a Business Day and the exercise of the Warrants will be effective as of such
Exercise Date. If any items referred to in the first sentence of each of
paragraphs (b) and (c) are received after 11:00 a.m., New York City time, on a
Business Day, the exercise of the Warrants to which such item relates will be
effective on the next succeeding Business Day. Notwithstanding the foregoing, in
the case of an exercise of Warrants on the Expiration Date, if all of the items
referred to in the first sentence of each of paragraphs (b) and (c) are received
by the Warrant Agent at or prior to 5:00 p.m., New York City time, on the
Expiration Date, the exercise of the Warrants to which such items relate will be
effective on the Expiration Date.
(e) Upon the exercise of a Warrant in accordance with the terms
hereof, the receipt of a Warrant Certificate and payment of the Exercise Price
(or election of the Cashless Exercise option), the Warrant Agent shall: (i)
except to the extent exercise of the Warrant has been effected through Cashless
Exercise, cause an amount equal to the aggregate Exercise Price to be paid to
the Company by crediting the same to the account designated by the Company in
writing to the Warrant Agent for that purpose; (ii) advise the Company promptly
by telephone of the amount so deposited to the Company's account and promptly
confirm such telephonic advice in writing; and (iii) as soon as practicable,
advise the Company in writing of the number of Warrants exercised in accordance
with the terms and conditions of this Agreement and the Warrant Certificates,
the instructions of each exercising holder of the Warrant Certificates with
respect to delivery of the Warrant Shares to which such holder in entitled upon
such exercise, and such other information as the Company shall reasonably
request.
(f) Subject to Section 5.02 hereof, as soon as practicable after the
exercise of any Warrant or Warrants in accordance with the terms hereof, the
Company shall issue or cause to be issued to, or upon the written order of, the
registered holder of the Warrant Certificate evidencing such exercised Warrant
or Warrants, a certificate or certificates evidencing the Warrant Shares to
which such holder is entitled, in fully registered form, registered in such name
or names as may be directed by such holder pursuant to the Election to Exercise,
as set forth on the reverse of the Warrant Certificate. Such certificate or
certificates evidencing the Warrant Shares shall be deemed to have been issued
and any persons who are designated to be named therein shall be deemed to have
become the holder of record of such Warrant Shares as of the close of business
on the Exercise Date, the Warrant Shares may initially be issued in global form
(the "Global Shares"). Such Global Shares shall represent such of the
outstanding Warrant
<PAGE>
16
Shares as shall be specified therein and each shall provide that it shall
represent the aggregate amount of outstanding Warrant Shares from time to time
endorsed thereon and that the aggregate amount of outstanding Warrant Shares
represented thereby may from time to time be reduced or increased, as
appropriate. Any endorsement of a Global Share to reflect the amount of any
increase or decrease in the amount of outstanding Shares represented thereby
shall be made by the registrar for the Warrant Shares and the Depositary in
accordance with instructions given by the holder thereof. The Depository Trust
Company (or its nominee) shall (if possible) act as the Depositary with respect
to the Global Shares until a successor shall be appointed by the Company and the
registrar for the Warrant Shares. After such exercise of any Warrant or Warrant
Shares, the Company shall also issue or cause to be issued to or upon the
written order of the registered holder of such Warrant Certificate, a new
Warrant Certificate, countersigned by the Warrant Agent pursuant to written
instruction, evidencing the number of Warrants, if any, remaining unexercised
unless such Warrants shall have expired.
SECTION 2.03. Cancellation of Warrant Certificates. In the event the
Company shall purchase or otherwise acquire Warrants, the Warrant Certificates
evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if
so delivered, shall at the Company's written instruction be canceled by it and
retired. The Warrant Agent shall cancel all Warrant Certificates properly
surrendered for exchange, substitution, transfer or exercise. Upon the Company's
written request, the Warrant Agent shall deliver such canceled Warrant
Certificates to the Company.
SECTION 2.04. Notice of an Exercise Event. As soon as practicable
after the occurrence of an Exercise Event, the Company shall, send or cause to
be sent to each holder of Warrants with respect to which such Exercise Event has
occurred, to the extent that the Warrants are held of record by a depositary or
other agent (with a copy to the Warrant Agent), by first-class mail, at the
addresses appearing on the Warrant Register, a notice prepared by the Company
advising such holder of the Exercise Event which has occurred, which notice
shall describe the type of Exercise Event and the date of the occurrence
thereof, as applicable, and, in either case, the date of expiration of the right
to exercise the Warrants prominently set forth in the face of such notice.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.01. Enforcement of Rights. (a) Notwithstanding any of the
provisions of this Agreement, any holder of any Warrant Certificate, without the
consent of the Warrant Agent, the holder of any Warrant Shares or the holder of
any other Warrant Certificate, may, in and for his own behalf, enforce, and may
institute and maintain any suit, action or proceeding against the Company
suitable to enforce, his right to exercise the
<PAGE>
17
Warrant or Warrants evidenced by his Warrant Certificate in the manner provided
in such Warrant Certificate and in this Agreement.
(b) Neither the Warrants nor any Warrant Certificate shall entitle
the holders thereof to any of the rights of a holder of shares of Common Stock,
including, without limitation, the right to vote or to receive any dividends or
other payments or to consent or to receive notice as stockholders in respect of
the meetings of stockholders or for the election of directors of the Company or
any other matter, or any rights whatsoever as a holder of shares of Common
Stock, except as expressly provided herein (including Section 5.03 hereof).
SECTION 3.02. Obtaining Stock Exchange Listings. The Company will
from time to time take all action which may be necessary so that the Warrant
Shares, immediately upon their issuance upon the exercise of Warrants, will be
listed on the principal securities exchanges and markets within the United
States or Canada (including the Nasdaq National Market), if any, on which other
shares of Common Stock are then listed or quoted.
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.01. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrants and of the Warrant
Shares upon the exercise of Warrants; provided, however, that the Company shall
not be required to pay any tax or other governmental charge which may be payable
in respect of any transfer or exchange of any Warrant Certificates or any
certificates for Warrant Shares in a name other than the registered holder of a
Warrant Certificate surrendered upon the exercise of a Warrant. In any such
case, no transfer or exchange shall be made unless or until the person or
persons requesting issuance thereof shall have paid to the Company the amount of
such tax or other governmental charge or shall have established to the
satisfaction of the Company that such tax or other governmental charge has been
paid or an exemption is available therefrom.
SECTION 4.02. Rules 144 and 144A. While any Warrants remain
outstanding, the Company covenants that it shall file the reports required to be
filed by it under the Exchange Act, and the rules and regulations adopted by the
Securities and Exchange Commission thereunder, in a timely manner in accordance
with the requirements of the Exchange Act. If at any time the Company is not
required to file such reports, it will distribute to each holder or beneficial
owner of Warrants that are "restricted securities" within the meaning of Rule
144 and are not saleable in full under paragraph (k) of Rule 144,
<PAGE>
18
such information as is necessary to permit sales pursuant to Rule 144A under the
Securities Act.
SECTION 4.03. Form of Initial Public Equity Offering. The Company
agrees that it shall not make an Initial Public Equity Offering of any class of
its Capital Stock (other than the class of Capital Stock into which the Warrants
are exercisable) without adopting such amendments to the terms of the Company's
Articles of Incorporation as may be necessary to provide that the Warrant Shares
are convertible into the class of Capital Stock subject to the Initial Public
Equity Offering (the "Subject Class") on a share-for-share or other equitable
basis; provided that the rights, conditions and privileges attaching to the
Subject Class as compared to the rights, conditions and privileges attaching to
the Common Stock into which such Warrants would be convertible on the date
hereof (if the Warrants were immediately exercisable) would not adversely affect
holders of the Warrant Shares; it being understood that the Capital Stock into
which the Warrants shall be convertible (a) shall represent the same economic
interests, but may not have the same voting rights, in the Company as the Common
Stock outstanding on the date hereof and (b) shall be identical to the class of
Capital Stock issued and sold by the Company in the Initial Public Equity
Offering, if any.
SECTION 4.04. Securities Act and Applicable State Securities Laws.
The Company shall to comply with all applicable laws, including the Securities
Act and any applicable state securities laws, in connection with the offer and
sale of Common Stock (and other securities and property deliverable ) upon
exercise of the Warrants.
SECTION 4.05. Resolution of Preemptive Rights, If Any. Neither the
Warrants or the Warrant Shares shall be subject to any preemptive or similar
rights.
ARTICLE V
ADJUSTMENTS
SECTION 5.01. Adjustment of Exercise Rate; Notices. The Exercise
Rate is subject to adjustment from time to time as provided in this Section.
(a) Adjustment for Change in Capital Stock. If, after the date
hereof, the Company:
(i) pays a dividend or makes a distribution on shares of Common
Stock in shares of Common Stock (other than any such dividend to the
extent covered by Section 5.03);
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19
(ii) subdivides any of its outstanding shares of Common Stock into a
greater number of shares;
(iii) combines any of its outstanding shares of Common Stock into a
smaller number of shares;
(iv) pays a dividend or makes a distribution on shares of Common
Stock in shares of Capital Stock (as defined below) (other than Common
Stock or rights, warrants, or options for its Common Stock to the extent
such issuance or distribution is covered by Section 5.03); or
(v) issues by reclassification of any of its Common Stock or any
shares of any of its Capital Stock;
then the Company shall adjust the Exercise Rate in effect immediately prior to
such action for each Warrant then outstanding so that the holder of a Warrant
thereafter exercised may receive the number of shares of Capital Stock of the
Company which such holder would have owned immediately following such action if
such holder had exercised the Warrant immediately prior to such action or
immediately prior to the record date applicable thereto, if any (regardless of
whether the Warrants then outstanding are then exercisable and without giving
effect to the Cashless Exercise option). If there are no outstanding shares of
Common Stock that are of the same class as the Warrant Shares at the time of any
such action and such action has therefore been taken only in respect of Common
Stock, the adjustment shall relate to the Warrant Shares in their same form (and
not in the form of Common Shares) if it would not frustrate the intent and
purposes of this Section 5.01.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification. In
the event that such dividend or distribution is not so paid or made or such
subdivision, combination or reclassification is not effected, the Exercise Rate
shall again be adjusted to be the Exercise Rate which would then be in effect if
such record date or effective date had not been so fixed.
If after an adjustment a holder of a Warrant upon exercise of such
Warrant may receive shares of two or more classes of Capital Stock of the
Company, the Exercise Rate shall thereafter be subject to adjustment upon the
occurrence of an action taken with respect to any such class of Capital Stock as
is contemplated by this Article V with respect to the Common Stock, on terms
comparable to those applicable to Common Stock in this Article V.
Nothing in this Section 5.01(a) shall require any adjustment in the
Exercise Rate upon (i) the issuance, conversion, exchange or exercise of options
to acquire shares of Common
<PAGE>
20
Stock by, or the issuance of restricted stock or other similar equity-based
payments to, officers, directors or employees of the Company; provided that the
exercise price of such options or the purchase price of such restricted stock,
as the case may be, at the time of issuance thereof, is at least equal to the
then Current Market Value of the Common Stock underlying such options or
restricted stock or (ii) the reclassification of the Company's Common Stock into
two or more series of common stock with different voting powers but otherwise
representing the same economic interests; provided that such series of common
stock will automatically convert into shares of Common Stock when the holder
sells, exchanges or otherwise transfers such shares to any person other than an
affiliate of the holder.
(b) Adjustment for Sale of Common Stock Below Current Market Value.
If, after the date hereof, the Company grants or sells to an Affiliate of the
Company (other than a wholly-owned subsidiary) any shares of Common Stock or of
securities convertible into or exchangeable or exercisable for any shares of
Common Stock at a price below the then Current Market Value (other than (1)
pursuant to the exercise of the Warrants, (2) upon the conversion, exchange or
exercise of any security convertible, exchangeable or exercisable for, shares of
Common Stock outstanding on the date hereof, (3) upon conversion, exchange or
exercise of convertible, exchangeable or exercisable security as to which, upon
the issuance thereof, has previously been the subject of any required adjustment
pursuant to this Section 5 or (4) upon the conversion, exchange or exercise of
convertible, exchangeable or exercisable securities of the Company outstanding
on the date hereof (to the extent permitted by the terms of such securities as
in effect on the date of this Agreement)) (calculated as set forth in Section
5.01(o) hereof), the Exercise Rate for each Warrant then outstanding shall be
adjusted in accordance with the formula:
E^1 = E (O + N)
-------------------------
(O + (N x P/M))
where:
E^1 = the adjusted Exercise Rate for each Warrant then outstanding;
E = the then current Exercise Rate for each Warrant then outstanding;
O = the number of shares of Common Stock outstanding immediately prior
to the sale of Common Stock or issuance of securities convertible,
exchangeable or exercisable for Common Stock;
N = the number of shares of Common Stock so sold or the maximum stated
number of shares of Common Stock issuable upon the conversion,
exchange or
<PAGE>
21
exercise of any such convertible, exchangeable or exercisable
securities, as the case may be;
P = the proceeds per share of Common Stock received by the Company,
which (i) in the case of shares of Common Stock is the amount
received by the Company in consideration for the sale and issuance
of such shares; and (ii) in the case of securities convertible into
or exchangeable or exercisable for shares of Common Stock is the
amount received by the Company in consideration for the sale and
issuance of such convertible or exchangeable or exercisable
securities, plus the minimum aggregate amount of additional
consideration, other than the surrender of such convertible or
exchangeable securities, payable to the Company upon exercise,
conversion or exchange thereof; and
M = the Current Market Value as of the Time of Determination or at the
time of sale, as the case may be (calculated as set forth in Section
5.01(n) hereof.
The adjustment shall become effective immediately after the record
date for the determination of stockholders entitled to receive the rights,
warrants or options to which this paragraph (b) applies or upon consummation of
the sale of Common Stock, as the case may be. To the extent that shares of
Common Stock are not delivered after the expiration of such rights or warrants,
the Exercise Rate for each Warrant then outstanding shall be readjusted to the
Exercise Rate which would otherwise be in effect had the adjustment made upon
the issuance of such rights or warrants been made on the basis of delivery of
only the number of shares of Common Stock actually delivered. In the event that
such rights or warrants are not so issued, the Exercise Rate for each Warrant
then outstanding shall again be adjusted to be the Exercise Rate which would
then be in effect if such date fixed for determination of stockholders entitled
to receive such rights or warrants had not been so fixed.
No adjustment shall be made under this paragraph (b) if the
application of the formula stated above in this paragraph (b) would result in a
value of E1 that is lower than the value of E.
No adjustment shall be made under this paragraph (b) for any
adjustment which is the subject of paragraph (c), (d) or (e) of this Section
5.01.
"Affiliate" means, with respect to any specified Person, (i) any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person or (ii) any other Person
that owns, directly or indirectly, 10% or more of such specified Person's Voting
Stock or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any other Person in such Person's
immediate family. For the purposes of this definition, "control," when used
<PAGE>
22
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate
of a Person solely by reason of (a) such Person being a party to an Incumbent
Agreement (as defined in the Indenture) or (b) such Person owning an interest in
a Restricted Subsidiary (as defined in the Indenture) pursuant to, or as a
result of, an Incumbent Agreement (as defined in the Indenture).
(c) Notice of Adjustment. Whenever the Exercise Rate is adjusted,
the Company shall promptly mail to holders of Warrants then outstanding at the
addresses appearing on the Warrant Register a notice of the adjustment. The
Company shall file with the Warrant Agent and any other Registrar such notice
and a certificate from the Company's independent public accountants briefly
stating the facts requiring the adjustment and the manner of computing it. The
certificate shall be conclusive evidence that the adjustment is correct. Neither
the Warrant Agent nor any such Registrar shall be under any duty or
responsibility with respect to any such certificate except to exhibit the same
during normal business hours to any holder desiring inspection thereof.
(d) Reorganization of Company; Special Distributions. (i) If the
Company, in a single transaction or through a series of related transactions,
consolidates with or merges with or into any other person or sells, assigns,
transfers, leases, conveys or otherwise disposes of all or substantially all of
its properties and assets to another person or group of affiliated persons or is
a party to a merger or binding share exchange which reclassifies or changes its
outstanding Common Stock (a "Fundamental Transaction"), as a condition to
consummating any such transaction the person formed by or surviving any such
consolidation or merger if other than the Company or the person to whom such
transfer has been made (the "Surviving Person") shall enter into a supplemental
warrant agreement. The supplemental warrant agreement shall provide (a) that the
holder of a Warrant then outstanding may exercise it for the kind and amount of
securities, cash or other assets which such holder would have received
immediately after the Fundamental Transaction if such holder had exercised the
Warrant immediately before the effective date of the transaction (whether or not
the Warrants were then exercisable and without giving effect to the Cashless
Exercise option) (it being understood that the Warrants will remain exercisable
only in accordance with their terms and that conditions to exercise, such as
payment of Exercise Price, will remain applicable), assuming (to the extent
applicable) that such holder (i) was not a constituent person or an affiliate of
a constituent person to such transaction, (ii) made no election with respect
thereto, and (iii) was treated alike with the plurality of non-electing holders,
and (b) that the Surviving Person shall succeed to and be substituted to every
right and obligation of the Company in respect of this Agreement and the
Warrants. The supplemental warrant agreement shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Article V. The
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23
Surviving Person shall mail to holders of Warrants at the addresses appearing on
the Warrant Register a notice briefly describing the supplemental warrant
agreement. If the issuer of securities deliverable upon exercise of Warrants is
an affiliate of the Surviving Person, that issuer shall join in the supplemental
warrant agreement.
(ii) Notwithstanding the foregoing, if the Company enters into a
Fundamental Transaction with another Person (other than a subsidiary of the
Company) and consideration is payable to holders of the shares of Capital Stock
(or other securities or property) issuable or deliverable upon exercise of the
Warrants in exchange for such shares of Capital Stock in connection with such
Fundamental Transaction which consists solely of cash, then the holders of
Warrants shall be entitled to receive distributions on the date of such event on
an equal basis with holders of such shares of Capital Stock (or other securities
issuable upon exercise of the Warrants) as if the Warrants had been exercised
immediately prior to such event, less the aggregate Exercise Price. Upon receipt
of such payment, if any, the rights of a holder of a Warrant shall terminate and
cease and such holder's Warrants shall expire.
(iii) If this paragraph (d) applies, it shall supersede the
application of paragraph (a) of this Section 5.01.
(e) Company Determination Final. Any determination that the Company
or the board of directors of the Company must make pursuant to this Article V is
conclusive.
(f) Warrant Agent's Adjustment Disclaimer. The Warrant Agent shall
have no duty to determine when an adjustment under this Article V should be
made, how it should be made or what it should be. The Warrant Agent shall have
no duty to determine whether a supplemental warrant agreement under paragraph
(d) need be entered into or whether any provisions of any supplemental warrant
agreement are correct. The Warrant Agent shall not be accountable for and makes
no representation as to the validity or value of any securities or assets issued
upon exercise of Warrants. The Warrant Agent shall not be responsible for the
Company's failure to comply with this Article V.
(g) Adjustment for Tax Purposes. In the event of a taxable
distribution to holders of shares of Common Stock which results in an adjustment
to the number of shares of Common Stock or other consideration for which a
Warrant may be exercised, the holders of the Warrants may, in certain
circumstances, be deemed to have received a distribution subject to United
States federal income tax as a dividend. The Company may make such increases in
the Exercise Rate, in addition to those otherwise required by this Section, as
it considers to be advisable in order that any event treated for federal income
tax purposes as a dividend of stock or stock rights shall not be taxable to the
recipients.
<PAGE>
24
(h) Underlying Shares. The Company shall at all times reserve and
keep available, free from preemptive rights, out of its authorized but unissued
Common Stock or Common Stock held in the treasury of the Company, for the
purpose of effecting the exercise of Warrants, the full number of Warrant Shares
then deliverable upon the exercise of all Warrants then outstanding and payment
of the exercise price, and the shares so deliverable shall be fully paid and
nonassessable and free from all liens and security interests.
(i) Specificity of Adjustment. Regardless of any adjustments in the
number or kind of shares purchasable upon the exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the same
number and kind of Shares per Warrant as are stated on the Warrant Certificates
initially issuable pursuant to this Agreement.
(j) Voluntary Adjustment. The Company from time to time may increase
the Exercise Rate by any number and for any period of time (provided that such
period shall not be less than 20 Business Days). Whenever the Exercise Rate is
so increased, the Company shall mail to holders at the addresses appearing on
the Warrant Register and file with the Warrant Agent a notice of the increase.
The Company shall give the notice at least 15 days before the date the increased
Exercise Rate takes effect. The notice shall state the increased Exercise Rate
and the period it will be in effect. A voluntary increase in the Exercise Rate
does not change or adjust the Exercise Rate otherwise in effect as determined by
this Section 5.01.
(k) Multiple Adjustments. After an adjustment to the Exercise Rate
for outstanding Warrants under this Article V, any subsequent event requiring an
adjustment under this Article V shall cause an adjustment to the Exercise Rate
for outstanding Warrants as so adjusted.
(l) Definitions.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or other
equivalents (however designated and whether voting or non-voting) of, such
Person's capital stock, and any rights (other than debt securities convertible
into Capital Stock), warrants or options exchangeable for or convertible into
such capital stock, whether outstanding on the date hereof or issued hereafter.
"Convertible Preferred Stock" means any securities convertible or
exercisable or exchangeable into Common Stock, whether outstanding on the date
hereof or hereafter issued.
"Current Market Value" per share of Common Stock or any other
security at any date means (i) if the security is not registered under the
Exchange Act, (a) the value of
<PAGE>
25
the security, determined in good faith by the board of directors of the Company
and certified in a board resolution, based on the most recently completed
arm's-length transaction between the Company and a person other than an
Affiliate of the Company and the closing of which occurs on such date or shall
have occurred within the six-month period preceding such date, or (b) if no such
transaction shall have occurred on such date or within such six-month period or
if the board of directors of the Company otherwise elects, the Fair Market Value
of the security as determined by a nationally or regionally recognized
independent financial expert (provided that, in the case of the calculation of
Current Market Value for determining the cash value of fractional shares, any
such determination within six months that is, in the good faith judgment of the
board or directors of the Company, a reasonable determination of value, may be
utilized) or (ii) (a) if the security is registered under the Exchange Act, the
average of the daily closing sales prices of the securities for the 20
consecutive trading days immediately preceding such date, or (b) if the security
has been registered under the Exchange Act for less than 20 consecutive trading
days before such date, then the average daily closing sales prices for all of
the trading days before such date for which closing sales prices are available,
in the case of each of (ii) (a) and (ii) (b), as certified to the Warrant Agent
by the President or any vice president or the Chief Financial Officer of the
Company. The closing sales price for each such trading day shall be: (A) in the
case of a security listed or admitted to trading on any United States national
securities exchange or quotation system, the closing sales price, regular way,
on such day, or if no sale takes place on such day, the average of the closing
bid and asked prices on such day, (B) in the case of a security not then listed
or admitted to trading on any national securities exchange or quotation system,
the last reported sale price on such day, or if no sale takes place on such day,
the average of the closing bid and asked prices on such day, as reported by a
reputable quotation source designated by the Company, (C) in the case of a
security not then listed or admitted to trading on any national securities
exchange or quotation system and as to which no such reported sale price or bid
and asked prices are available, the average of the reported high bid and low
asked prices on such day, as reported by a reputable quotation service, or a
newspaper of general circulation in the Borough of Manhattan, The City and State
of New York, customarily published on each business day, designated by the
Company, or, if there shall be no bid and asked prices on such day, the average
of the high bid and low asked prices, as so reported, on the most recent day
(not more than 30 days prior to the date in question) for which prices have been
so reported and (D) if there are not bid and asked prices reported during the 30
days prior to the date in question, the Current Market Value shall be determined
as if the securities were not registered under the Exchange Act.
"Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Unless otherwise specified in this
Agreement, Fair Market Value shall be determined by the board of directors of
the Company acting in good faith and as of the date on which such determination
is made.
<PAGE>
26
"Independent Financial Expert" means a nationally or regionally
recognized investment banking or public accounting firm in the United States or,
if the Company believes that an investment banking or public accounting firm is
generally not qualified to give such an opinion, a nationally recognized
appraisal firm, in any case (i) which does not, and whose directors, officers
and employees or Affiliates do not, have a direct or indirect material financial
interest for its proprietary account in the Company or any of its Affiliates and
(ii) which, in the judgment of the Board of Directors of the Company, is
otherwise independent with respect to the Company and its Affiliates and
qualified to perform the task for which it is to be engaged.
"Time of Determination" means, (i) in the case of any distribution
of securities or other property to existing stockholders to which paragraph (b)
applies, the time and date of the determination of stockholders entitled to
receive such securities or property or (ii) in the case of any other issuance
and sale to which paragraph (b) applies, the time and date of such issuance or
sale.
(m) When De Minimis Adjustment May be Deferred. No Adjustment in the
Exercise Rate need be made unless the adjustment would require an increase of at
least 1% in the Exercise Rate. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustments. All
calculations under this Section 5 shall be made to the nearest 1/1000th of a
share, as the case may be.
SECTION 5.02. Fractional Shares. The Company will not be required to
issue fractional Warrant Shares upon exercise of the Warrants or distribute
Warrant Share certificates that evidence fractional Warrant Shares. In the event
a holder is required by Section 2.02(c) to make a Cashless Exercise, the number
of Warrant Shares issuable shall be rounded up to the nearest whole number. In
addition, in no event shall any holder of Warrants be required to make any
payment of a fractional cent. In lieu of fractional Warrant Shares, there shall
be paid to the registered holders of Warrant Certificates at the time Warrants
evidenced thereby are exercised as herein provided an amount in cash equal to
the same fraction of the Current Market Value, as defined in paragraph (l) of
Section 5.01 of this Agreement per Warrant Share on the Business Day preceding
the date the Warrant Certificates evidencing such Warrants are surrendered for
exercise. Such payments will be made by check or by transfer to an account
maintained by such registered holder with a bank in The City of New York. If any
holder surrenders for exercise more than one Warrant Certificate, the number of
Warrant Shares deliverable to such holder may, at the option of the Company, be
computed on the basis of the aggregate amount of all the Warrants exercised by
such holder.
SECTION 5.03. Certain Distributions. If at any time after the
Exercisability Date, the Company grants, issues or sells options, convertible
securities, or rights to purchase Capital Stock, warrants or other securities
pro rata to the record holders of any
<PAGE>
27
Common Stock ("Distribution Rights") or, without duplication, makes any dividend
or otherwise makes any distribution, including (subject to applicable law)
pursuant to any plan of liquidation (each, a "Distribution"), on the Common
Stock (whether in cash, property, evidences of indebtedness or otherwise), then
the Company shall grant, issue, sell or make to each registered holder of
Warrants then outstanding the aggregate Distribution Rights or Distribution, as
the case may be, which such holder would have acquired if such holder had held
the maximum number of shares of Common Stock acquirable upon complete exercise
of such holder's Warrants (regardless of whether the exercise of the Warrants is
then suspended and without giving effect to the Cashless Exercise option)
immediately before the record date for the grant, issuance or sale of such
Distribution Rights or Distribution, as the case may be, or, if there is no such
record date, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Distribution Rights or
Distribution, as the case may be.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.01. Warrant Agent. The Company hereby appoints The Bank of
New York as Warrant Agent of the Company in respect of the Warrants and the
Warrant Certificates upon the terms and subject to the conditions set forth
herein and in the Warrant Certificates; and The Bank of New York hereby accepts
such appointment. The Warrant Agent shall have the powers and authority
specifically granted to and conferred upon it in the Warrant Certificates and
hereby and such further powers and authority to act on behalf of the Company as
the Company may hereafter grant to or confer upon it and it shall accept in
writing. All of the terms and provisions with respect to such powers and
authority contained in the Warrant Certificates are subject to and governed by
the terms and provisions hereof. The Warrant Agent may act through agents and
shall not be responsible for the misconduct or negligence of any such agent
appointed with due care.
SECTION 6.02. Conditions of Warrant Agent's Obligations. The Warrant
Agent accepts its obligations set forth herein upon the terms and conditions
hereof and in the Warrant Certificates, including the following, to all of which
the Company agrees and to all of which the rights hereunder of the holders from
time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be agreed
upon with the Company in writing for all services rendered by it and the
Company agrees promptly to pay such compensation and to reimburse the
Warrant Agent for its reasonable out-of-pocket expenses (including
reasonable fees and expenses of counsel) incurred without gross negligence
or willful misconduct on its part in connection with
<PAGE>
28
the services rendered by it hereunder. The Company also agrees to
indemnify the Warrant Agent and any predecessor Warrant Agent, their
directors, officers, affiliates, agents and employees for, and to hold
them and their directors, officers, affiliates, agents and employees
harmless against, any loss, liability or expense of any nature whatsoever
(including, without limitation, reasonable fees and expenses of counsel)
incurred without gross negligence or willful misconduct on the part of the
Warrant Agent, arising out of or in connection with its acting as such
Warrant Agent hereunder and its exercise of its rights and performance of
its obligations hereunder. The obligations of the Company under this
Section 6.02 shall survive the exercise and the expiration of the Warrant
Certificates and the resignation and removal of the Warrant Agent.
(b) In acting under this Agreement and in connection with the
Warrant Certificates, the Warrant Agent is acting solely as agent of the
Company and does not assume any obligation or relationship of agency or
trust for or with any of the owners or holders of the Warrant
Certificates.
(c) The Warrant Agent may consult with counsel of its selection and
any advice or written opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with such advice
or opinion.
(d) The Warrant Agent shall be fully protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or
thing suffered by it in reliance upon any Warrant Certificate, notice,
direction, consent, certificate, affidavit, opinion of counsel,
instruction, statement or other paper or document reasonably believed by
it to be genuine and to have been presented or signed by the proper
parties.
(e) The Warrant Agent, and its officers, directors, affiliates and
employees ("Related Parties"), may become the owners of, or acquire any
interest in, Warrant Certificates, shares or other obligations of the
Company with the same rights that it or they would have if it were not the
Warrant Agent hereunder and, to the extent permitted by applicable law, it
or they may engage or be interested in any financial or other transaction
with the Company and may act on, or as depositary, trustee or agent for,
any committee or body of holders of shares or other obligations of the
Company as freely as if it were not the Warrant Agent hereunder. Nothing
in this Agreement shall be deemed to prevent the Warrant Agent or such
Related Parties from acting in any other capacity for the Company.
<PAGE>
29
(f) The Warrant Agent shall not be under any liability for interest
on, and shall not be required to invest, any monies at any time received
by it pursuant to any of the provisions of this Agreement or of the
Warrant Certificates.
(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement (or any term or provision
hereof) or the execution and delivery hereof (except the due execution and
delivery hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant Certificate (except its authentication thereof).
(h) The recitals and other statements contained herein and in the
Warrant Certificates (except as to the Warrant Agent's authentication
thereon) shall be taken as the statements of the Company and the Warrant
Agent assumes no responsibility for the correctness of the same. The
Warrant Agent does not make any representation as to the validity or
sufficiency of this Agreement or the Warrant Certificates, except for its
due execution and delivery of this Agreement; provided, however, that the
Warrant Agent shall not be relieved of its duty to authenticate the
Warrant Certificates as authorized by this Agreement. The Warrant Agent
shall not be accountable for the use or application by the Company of the
proceeds of the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrains from acting with
respect to any matter contemplated by this Warrant Agreement, it may
require:
(1) an Officers' Certificate (as defined in the Indenture)
stating on behalf of the Company that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Warrant Agreement relating to the proposed action have been complied
with; and
(2) if reasonably necessary in the sole judgment of the
Warrant Agent, an opinion of counsel for the Company stating that,
in the opinion of such counsel, all such conditions precedent have
been complied with provided that such matter is one customarily
opined on by counsel.
Each Officers' Certificate or, if requested, an opinion of counsel
with respect to compliance with a condition or covenant provided for in
this Warrant Agreement shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
<PAGE>
30
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she
has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
(j) The Warrant Agent shall be obligated to perform such duties as
are specifically set forth herein and in the Warrant Certificates, and no
implied duties or obligations shall be read into this Agreement or the
Warrant Certificates against the Warrant Agent. The Warrant Agent shall
not be accountable or be under any duty or responsibility for the use by
the Company of any of the Warrant Certificates authenticated by the
Warrant Agent and delivered by it to the Company pursuant to this
Agreement. The Warrant Agent shall have no duty or responsibility in case
of any default by the Company in the performance of its covenants or
agreements contained in the Warrant Certificates or in the case of the
receipt of any written demand from a holder of a Warrant Certificate with
respect to such default, including, without limiting the generality of the
foregoing, any duty or responsibility to initiate or attempt to initiate
any proceedings at law or otherwise or, except as provided in Section 7.02
hereof, to make any demand upon the Company.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the
Company made or given under any provision of this Agreement shall be
sufficient if signed by its chairman of the board of directors, its
president, its treasurer, its controller or any vice president or its
secretary or any assistant secretary.
(l) The Warrant Agent shall have no responsibility in respect of any
adjustment pursuant to Article V hereof.
(m) The Company agrees that it will perform, execute, acknowledge
and deliver, or cause to be performed, executed, acknowledged and
delivered, all such further and other acts, instruments and assurances as
may reasonably be required by the Warrant Agent for the carrying out or
performing by the Warrant Agent of the provisions of this Agreement.
<PAGE>
31
(n) The Warrant Agent is hereby authorized and directed to accept
written instructions with respect to the performance of its duties
hereunder from any one of the chairman of the board of directors, the
president, the treasurer, the controller, any vice president or the
secretary or assistant secretary of the Company or any other officer or
official of the Company reasonably believed to be authorized to give such
instructions and to apply to such officers or officials for advice or
instructions in connection with its duties, and it shall not be liable for
any action taken or suffered to be taken by it in good faith in accordance
with instructions with respect to any matter arising in connection with
the Warrant Agent's duties and obligations arising under this Agreement.
Such application by the Warrant Agent for written instructions from the
Company may, at the option of the Warrant Agent, set forth in writing any
action proposed to be taken or omitted by the Warrant Agent with respect
to its duties or obligations under this Agreement and the date on or after
which such action shall be taken and the Warrant Agent shall not be liable
for any action taken or omitted in accordance with a proposal included in
any such application on or after the date specified therein (which date
shall be not less than 10 Business Days after the Company receives such
application unless the Company consents to a shorter period), provided
that (i) such application includes a statement to the effect that it is
being made pursuant to this paragraph (n) and that unless objected to
prior to such date specified in the application, the Warrant Agent will
not be liable for any such action or omission to the extent set forth in
this paragraph (n) and (ii) prior to taking or omitting any such action,
the Warrant Agent has not received written instructions objecting to such
proposed action or omission.
(o) Whenever in the performance of its duties under this Agreement
the Warrant Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence
in respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed on behalf of
the Company by any one of the chairman of the board of directors, CEO, the
president, the treasurer, the controller, any executive vice president,
any vice president or the secretary or any assistant secretary of the
Company or any other officer or official of the Company reasonably
believed to be authorized to give such instructions and delivered to the
Warrant Agent; and such certificate shall be full authorization to the
Warrant Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend its
own funds in the performance of its obligations and duties hereunder.
<PAGE>
32
SECTION 6.03. Resignation and Appointment of Successor. (a) The
Company agrees, for the benefit of the holders from time to time of the Warrant
Certificates, that there shall at all times be a Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent by
giving written notice to the Company of such intention on its part, specifying
the date on which its desired resignation shall become effective; provided,
however, that such date shall be at least 60 days after the date on which such
notice is given unless the Company agrees to accept less notice. Upon receiving
such notice of resignation, the Company shall promptly appoint a successor
Warrant Agent, qualified as provided in Section 6.03(d) hereof, by written
instrument in duplicate signed on behalf of the Company, one copy of which shall
be delivered to the resigning Warrant Agent and one copy to the successor
Warrant Agent. As provided in Section 6.03(d) hereof, such resignation shall
become effective upon the earlier of (x) the acceptance of the appointment by
the successor Warrant Agent or (y) 60 days after receipt by the Company of
notice of such resignation. The Company may, at any time and for any reason, and
shall, upon any event set forth in the next succeeding sentence, remove the
Warrant Agent and appoint a successor Warrant Agent by written instrument in
duplicate, specifying such removal and the date on which it is intended to
become effective, signed on behalf of the Company, one copy of which shall be
delivered to the Warrant Agent being removed and one copy to the successor
Warrant Agent. The Warrant Agent shall be removed as aforesaid if it shall
become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Warrant Agent or of its property shall be appointed, or any
public officer shall take charge or control of it or of its property or affairs
for the purpose of rehabilitation, conservation or liquidation. Any removal of
the Warrant Agent and any appointment of a successor Warrant Agent shall become
effective upon acceptance of appointment by the successor Warrant Agent as
provided in Section 6.03(d). As soon as practicable after appointment of the
successor Warrant Agent, the Company shall cause written notice of the change in
the Warrant Agent to be given to each of the registered holders of the Warrants
in the manner provided for in Section 7.04 hereof.
(c) Upon resignation or removal of the Warrant Agent, if the Company
shall fail to appoint a successor Warrant Agent within a period of 60 days after
receipt of such notice of resignation or removal, then the holder of any Warrant
Certificate or the retiring Warrant Agent may apply to a court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to the Warrant Agent, either by the Company or by
such a court, the duties of the Warrant Agent shall be carried out by the
Company.
(d) Any successor Warrant Agent, whether appointed by the Company or
by a court, shall be a bank or trust company in good standing, incorporated
under the laws of the United States of America or any State thereof and having,
at the time of its appointment, a combined capital surplus of at least $50
million. Such successor Warrant
<PAGE>
33
Agent shall execute and deliver to its predecessor and to the Company an
instrument accepting such appointment hereunder and all the provisions of this
Agreement, and thereupon such successor Warrant Agent, without any further act,
deed or conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Warrant Agent hereunder, and such predecessor shall thereupon become
obligated to (i) transfer and deliver, and such successor Warrant Agent shall be
entitled to receive, all securities, records or other property on deposit with
or held by such predecessor as Warrant Agent hereunder and (ii) upon payment of
the amounts then due it pursuant to Section 6.02(a) hereof, pay over, and such
successor Warrant Agent shall be entitled to receive, all monies deposited with
or held by any predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent hereunder
may be merged or converted, or any corporation or bank with which the Warrant
Agent may be consolidated, or any corporation or bank resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation or bank to which the Warrant Agent shall sell or otherwise transfer
all or substantially all of its corporate trust business, shall be the successor
to the Warrant Agent under this Agreement (provided that such corporation or
bank shall be qualified as aforesaid) without the execution or filing of any
document or any further act on the part of any of the parties hereto.
(f) No Warrant Agent under this Warrant Agreement shall be
personally liable for any action or omission of any successor Warrant Agent.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment. This Agreement and the terms of the
Warrants may be amended by the Company and the Warrant Agent, without the
consent of the holder of any Warrant Certificate, for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective or
inconsistent provision contained herein or therein, or to effect any assumptions
of the Company's obligations hereunder and thereunder by a successor corporation
under the circumstances described in Section 5.01(d) hereof or in any other
manner which the Company may deem necessary or desirable and which shall not
adversely affect the interests of the holders of the Warrant Certificates.
The Company and the Warrant Agent may amend, modify or supplement
this Agreement and the terms of the Warrants, and waivers to departures from the
terms hereof and thereof may be given, with the consent of the Requisite Warrant
Holders (as defined below) for the purpose of adding any provision to or
changing in any manner or eliminating
<PAGE>
34
any of the provisions of this Agreement or modifying in any manner the rights of
the holders of the outstanding Warrants. "Requisite Warrant Holders" means (i)
in the case of any amendment, modification, supplement or waiver affecting only
Warrant Holders as such, holders of a majority in number of the outstanding
Warrants, voting separately as a class, or (ii) in the case of any amendment,
modification, supplement or waiver affecting Warrant Holders, a majority in
number of Warrant Shares represented by the Warrants that would be issuable
assuming exercise thereof at the time such amendment, modification, supplement
or waiver is voted upon. Notwithstanding any other provision of this Agreement,
the Warrant Agent's consent must be obtained regarding any supplement or
amendment which alters the Warrant Agent's rights or duties (it being expressly
understood that the foregoing shall not be in derogation of the right of the
Company to remove the Warrant Agent in accordance with Section 6.03 hereof). For
purposes of any amendment, modification or waiver hereunder, Warrants held by
the Company or any of its Affiliates shall be disregarded.
Any modification or amendment made in accordance with this Agreement
will be conclusive and binding on all present and future holders of Warrant
Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment will be conclusive and binding on all subsequent
holders of such Warrant Certificate.
SECTION 7.02. Notices and Demands to the Company and Warrant Agent.
If the Warrant Agent shall receive any notice or demand addressed to the Company
by the holder of a Warrant Certificate pursuant to the provisions hereof or of
the Warrant Certificates, the Warrant Agent shall promptly forward such notice
or demand to the Company.
SECTION 7.03. Addresses for Notices to Parties and for Transmission
of Documents. All notices hereunder to the parties hereto shall be deemed to
have been given when sent by certified or registered mail, postage prepaid, or
by facsimile transmission, confirmed by first class mail, postage prepaid,
addressed to any party hereto as follows:
To the Company:
Pathnet, Inc.
1015 31st Street, N.W.
Washington, D.C. 20007
Facsimile: (202) 625-7369
Attention: General Counsel
<PAGE>
35
with copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, N.Y. 10019-6064
Facsimile: (212) 757-3990
Attention: Paul D. Ginsberg
To the Warrant Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile No.: (212) 815-5915
Attention: Corporate Trust Administration
or at any other address of which either of the foregoing shall have notified the
other in writing.
SECTION 7.04. Notices to Holders. Notices to holders of Warrants
shall be mailed to such holders at the addresses of such holders as they appear
in the Warrant Register. Any such notice shall be sufficiently given if sent by
first-class mail, postage prepaid.
SECTION 7.05. APPLICABLE LAW. THIS AGREEMENT AND EACH WARRANT
CERTIFICATE ISSUED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.06. Persons Having Rights Under Agreement. Nothing in this
Agreement expressed or implied and nothing that may be inferred from any of the
provisions hereof is intended, or shall be construed, to confer upon, or give
to, any person or corporation other than the Company, the Warrant Agent, the
holders of the Warrant Certificates and, with respect to Sections 4.03, 4.04 and
4.05, the holders of Warrant Shares issued pursuant to Warrants, any right,
remedy or claim under or by reason of this Agreement or of any covenant,
condition, stipulation, promise or agreement hereof; and all covenants (except
for Section 4.03 which shall be for the benefit of all holders of Warrant Shares
issued pursuant to Warrants), conditions, stipulations, promises and agreements
in this Agreement contained shall be for the sole and exclusive benefit of the
Company and the Warrant Agent and their successors and of the holders of the
Warrant Certificates.
<PAGE>
36
SECTION 7.07. Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
SECTION 7.08. Counterparts. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original; but such counterparts shall together constitute but one and the same
instrument.
SECTION 7.09. Inspection of Agreement. A copy of this Agreement
shall be available during regular business hours at the principal corporate
trust office of the Warrant Agent, for inspection by the holder of any Warrant
Certificate. The Warrant Agent may require such holder to submit his Warrant
Certificate for inspection by it.
SECTION 7.10. Availability of Equitable Remedies. Since a breach of
the provisions of this Agreement could not adequately be compensated by money
damages, holders of Warrants shall be entitled, in addition to any other right
or remedy available to them, to an injunction restraining such breach or a
threatened breach and to specific performance of any such provision of this
Agreement, and in either case no bond or other security shall be required in
connection therewith, and the parties hereby consent to such injunction and to
the ordering of specific performance.
SECTION 7.11. Obtaining of Governmental Approvals. The Company will
from time to time take all action required to be taken by it which may be
necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities acts filings
under United States Federal and state laws, if applicable, and the rules and
regulations of all stock exchanges on which the Warrants are listed which may be
or become requisite in connection with (i) the issuance, sale, transfer, and
delivery to the Company of the Warrant Certificates, (ii) the exercise of the
Warrants or (iii) the issuance, sale, transfer and delivery by the Company of
the Warrant Shares issued to the holders of the Warrants, each upon the exercise
of the Warrants by the holders of Warrants.
[Signature Page Follows]
<PAGE>
37
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
PATHNET, INC.
By: /s/ David Schaeffer
----------------------------
Name: David Schaeffer
Title: Chairman of the Board
THE BANK OF NEW YORK,
Warrant Agent
By: /s/ Mary Beth A. Lewicki
----------------------------
Name: Mary Beth A. Lewicki
Title: Assitant Vice President
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
[THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT OF 12 1/4%
SENIOR NOTES DUE 2008 OF PATHNET, INC. (THE "NOTES") AND ONE WARRANTS, EACH
INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE 1.1 SHARES OF COMMON STOCK,
PAR VALUE $0.01 PER SHARES OF PATHNET, INC. PRIOR TO THE CLOSE OF BUSINESS UPON
THE EARLIEST TO OCCUR OF (i) OCTOBER 5, 1998; (ii) THE DATE ON WHICH A
REGISTRATION STATEMENT WITH RESPECT TO AN EXCHANGE OFFER FOR THE NOTES OR
COVERING THE SALE BY HOLDERS OF THE NOTES IS DECLARED EFFECTIVE UNDER THE
SECURITIES ACT; (iii) THE OCCURRENCE OF AN EXERCISE EVENT (AS DEFINED HEREIN),
(iv) THE OCCURRENCE OF AN EVENT OF DEFAULT (AS DEFINED IN THE INDENTURE); OR (v)
SUCH EARLIER DATE AS DETERMINED BY MERRILL LYNCH (AS DEFINED IN THE WARRANT
AGREEMENT) IN ITS SOLE DISCRETION, THE WARRANTS EVIDENCED BY THIS CERTIFICATE
MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR
EXCHANGED ONLY TOGETHER WITH, THE NOTES.]*
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. HEDGING TRANSACTIONS INVOLVING THIS SECURITY MAY NOT BE CONDUCTED UNLESS
SUCH TRANSACTIONS ARE CONDUCTED IN COMPLIANCE WITH THE SECURITIES ACT. THE
HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
"OFFSHORE TRANSACTION" PURSUANT TO REGULATION S UNDER THE SECURITIES ACT, (2)
AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR A SHORTER
PERIOD AS MAY BE PRESCRIBED BY
- ----------
* To be included on Warrant Certificates issued prior to the Separation
Date.
A-1
<PAGE>
RULE 144(K) (OR ANY SUCCESSOR PROVISION THEREOF) UNDER THE SECURITIES ACT) AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS
SECURITY) OR THE LAST DAY ON WHICH PATHNET, INC. OR ANY OF ITS AFFILIATES WAS
THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY AND (Y) SUCH
LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE
RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO PATHNET, INC. OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF
REGULATION S, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE
TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY AND THE WARRANT AGENT SHALL
HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (E)
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM. IN CONNECTION WITH ANY TRANSFER OF
THESE SECURITIES WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK
THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE WARRANT AGENT. THIS LEGEND WILL
BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.
A-2
<PAGE>
CUSIP #[ ]
No. [ ] [ ] Warrants
WARRANT CERTIFICATE
PATHNET, INC.
This Warrant Certificate certifies that [ ], or registered
assigns, is the registered holder of [ ] Warrants (the "Warrants") to purchase
shares of Common Stock, par value $0.01 per share, issuable upon exercise of the
Warrants (the "Warrant Shares") of PATHNET, INC., a Delaware corporation (the
"Company," which term includes its successors and assigns). Each Warrant
entitles the holder to purchase from the Company at any time from 9:00 a.m. New
York City time on or after the Exercisability Date until 5:00 p.m., New York
City time, on April 15, 2008 (the "Expiration Date"), 1.1 fully paid, registered
and non-assessable Warrant Shares, subject to adjustment as provided in Article
V of the Warrant Agreement, at an exercise price of $0.01 for each share
purchased (the "Exercise Price"); upon surrender of this Warrant Certificate and
payment of the Exercise Price (i) in cash or by certified or official bank
check, (ii) by a Cashless Exercise or (iii) by any combination of (i) and (ii),
at any office or agency maintained for that purpose by the Company (the "Warrant
Exercise Office"), subject to the conditions set forth herein and in the Warrant
Agreement. For purposes of this Warrant, a "Cashless Exercise" shall mean an
exercise of a Warrant in accordance with the immediately following two
sentences. To effect a Cashless Exercise, the holder may exercise a Warrant or
Warrants without payment of the Exercise Price in cash by surrendering such
Warrant or Warrants (represented by one or more Warrant Certificates) and in
exchange therefor, receiving such number of shares of Common Stock equal to the
product of (1) that number of shares of Common Stock for which such Warrant or
Warrants are exercisable and which would be issuable in the event of an exercise
with payment of the Exercise Price and (2) the Cashless Exercise Ratio. The
"Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the
excess of the Current Market Value (calculated as set forth in this Warrant) per
share of Common Stock on the date of exercise over the Exercise Price per share
of Common Stock as of the date of exercise and the denominator of which is the
Current Market Value per share of Common Stock on the date of exercise. Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the holder's option to elect a Cashless Exercise, the holder
must specify the number of Warrants for which such Warrant Certificate is to be
exercised (without giving effect to the Cashless Exercise). All provisions of
the Warrant Agreement shall be applicable with respect to a Cashless Exercise of
a Warrant Certificate for less than the full number of Warrants represented
thereby. Capitalized terms used herein without being defined herein shall have
the definitions ascribed to such terms in the Warrant Agreement.
A-3
<PAGE>
"Current Market Value" per share of Common Stock or any other
security at any date means (i) if the security is not registered under the
Exchange Act, (a) the value of the security, determined in good faith by the
board of directors of the Company and certified in a board resolution, based on
the most recently completed arm's-length transaction between the Company and a
person other than an Affiliate of the Company and the closing of which occurs on
such date or shall have occurred within the six-month period preceding such
date, or (b) if no such transaction shall have occurred on such date or within
such six-month period or if the board of directors of the Company otherwise
elects, the Fair Market Value of the security as determined by a nationally or
regionally recognized Independent Financial Expert (as defined herein) (provided
that, in the case of the calculation of Current Market Value for determining the
cash value of fractional shares, any such determination within six months that
is, in the good faith judgment of the board of directors of the Company, a
reasonable determination of value, may be utilized) or (ii) (a) if the security
is registered under the Exchange Act, the average of the daily closing sales
prices of the securities for the 20 consecutive trading days immediately
preceding such date, or (b) if the security has been registered under the
Exchange Act for less than 20 consecutive trading days before such date, then
the average daily closing sales prices for all of the trading days before such
date for which closing sales prices are available, in the case of each of (ii)
(a) and (ii) (b), as certified to the Warrant Agent by the President or any vice
president or the Chief Financial Officer of the Company. The closing sales price
for each such trading day shall be: (A) in the case of a security listed or
admitted to trading on any United States national securities exchange or
quotation system, the closing sales price, regular way, on such day, or if no
sale takes place on such day, the average of the closing bid and asked prices on
such day, (B) in the case of a security not then listed or admitted to trading
on any national securities exchange or quotation system, the last reported sale
price on such day, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a reputable quotation
source designated by the Company, (C) in the case of a security not then listed
or admitted to trading on any national securities exchange or quotation system
and as to which no such reported sale price or bid and asked prices are
available, the average of the reported high bid and low asked prices on such
day, as reported by a reputable quotation service, or a newspaper of general
circulation in the Borough of Manhattan, The City and State of New York,
customarily published on each Business Day, designated by the Company, or, if
there shall be no bid and asked prices on such day, the average of the high bid
and low asked prices, as so reported, on the most recent day (not more than 30
days prior to the date in question) for which prices have been so reported and
(D) if there are not bid and asked prices reported during the 30 days prior to
the date in question, the Current Market Value shall be determined as if the
securities were not registered under the Exchange Act.
"Exercise Event" means, with respect to each Warrant, the date of
the occurrence of the earliest of: (i) the time immediately prior to a Change of
Control (as such term is defined in the Indenture); (ii)(a) the 180th day (or
such earlier date as determined by the Company in its sole discretion) following
the closing of an Initial Public Equity Offering (as defined herein) or (b) upon
the closing of an Initial Public Equity Offering, but only in
A-4
<PAGE>
respect of Warrants, if any, required to be exercised to permit the holders
thereof to sell Warrant Shares pursuant to their respective registration rights,
(iii) a class of equity securities of the Company is listed on a national
securities exchange or authorized for quotation on the Nasdaq National Market or
is otherwise subject to registration under the Exchange Act, or (iv) April 8,
2000.
"Independent Financial Expert" means a nationally or regionally
recognized investment banking or public accounting firm in the United States or,
if the Company believes that an investment banking or public accounting firm is
generally not qualified to give such an opinion, a nationally recognized
appraisal firm, in any case (i) which does not, and whose directors, officers
and employees or Affiliates do not, have a direct or indirect material financial
interest for its proprietary account in the Company or any of its Affiliates and
(ii) which, in the judgment of the Board of Directors of the Company, is
otherwise independent with respect to the Company and its Affiliates and
qualified to perform the task for which it is to be engaged.
"Separability Date" shall mean the earliest to occur of: (i)
October, 1998, (ii) the date on which a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to an
exchange offer for the Notes or covering the sale by holders of the Notes is
declared effective under the Securities Act, (iii) the occurrence of an Exercise
Event, (iv) the occurrence of an Event of Default (as defined in the Indenture)
or (v) such earlier date as determined by Merrill Lynch in its sole discretion
and specified to the Company and the Warrant Agent in writing.
The Company has initially designated the principal corporate trust
office of the Warrant Agent in the Borough of Manhattan, The City of New York,
as the initial Warrant Agent Office. The number of shares of Common Stock
issuable upon exercise of the Warrants ("Exercise Rate") is subject to
adjustment upon the occurrence of certain events set forth in the Warrant
Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City
time, on April 15, 2008 shall thereafter be void.
If the Company, in a single transaction or through a series of
related transactions, consolidates with or merges with or into, or sells all or
substantially all of its property and assets to, another Person (other than a
subsidiary of the Company) solely for cash, the holders of Warrants which are
then exercisable shall be entitled to receive distributions on the date of such
event on an equal basis with holders of shares of Capital Stock (or other
securities issuable upon exercise of the Warrants) as if the Warrants had been
exercised immediately prior to such event less the aggregate Exercise Price
therefor.
Reference is hereby made to the further provisions on the reverse
hereof which provisions shall for all purposes have the same effect as though
fully set forth at this place.
A-5
<PAGE>
This Warrant Certificate shall not be valid unless authenticated by
the Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
WITNESS the facsimile seal of the Company and facsimile signatures
of its duly authorized officers.
PATHNET, INC.
By:
------------------------------
Name:
Title:
Attest:
By:
-------------------------------
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within
mentioned Warrant Agreement:
Dated:
THE BANK OF NEW YORK,
Warrant Agent
By:
-------------------------------
Authorized Signatory
A-6
<PAGE>
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
PATHNET, INC.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants expiring at 5:00 p.m., New York City time, on
April 15, 2008 (the "Expiration Date"), each of which represents the right to
purchase at any time on or after the Exercisability Date (as defined in the
Warrant Agreement) and on or prior to the Expiration Date 1.1 Shares, subject to
adjustment as set forth in the Warrant Agreement. The Warrants are issued
pursuant to a Warrant Agreement dated as of April 8, 1998 (the "Warrant
Agreement"), duly executed and delivered by the Company to The Bank of New York,
Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
Warrants may be exercised by (i) surrendering at any Warrant Agent
Office this Warrant Certificate with the form of Election to Exercise set forth
hereon duly completed and executed and (ii) to the extent such exercise is not
being effected through a Cashless Exercise by paying in full the Warrant
Exercise Price for each such Warrant exercised and any other amounts required to
be paid pursuant to the Warrant Agreement.
If all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 11:00 a.m.,
New York City time, on a Business Day, the exercise of the Warrant to which such
items relate will be effective on such Business Day. If any items referred to in
the last sentence of the preceding paragraph are received after 11:00 a.m., New
York City time, on a Business Day, the exercise of the Warrants to which such
item relates will be deemed to be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on April
15, 2008, if all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 5:00 p.m., New York
City time, on such Expiration Date, the exercise of the Warrants to which such
items relate will be effective on the Expiration Date.
As soon as practicable after the exercise of any Warrant or
Warrants, the Company shall issue or cause to be issued to or upon the written
order of the registered holder of this Warrant Certificate, a certificate or
certificates evidencing the Warrant Share or Warrant Shares to which such holder
is entitled, in fully registered form, registered in such name or names as may
be directed by such holder pursuant to the Election to Exercise, as set forth on
the face of this Warrant Certificate. Such certificate or certificates
evidencing
A-7
<PAGE>
the Warrant Share or Warrant Shares shall be deemed to have been issued and any
persons who are designated to be named therein shall be deemed to have become
the holder of record of such Warrant Share or Warrant Shares as of the close of
business on the date upon which the exercise of this Warrant was deemed to be
effective as provided in the preceding paragraph.
The Company will not be required to issue fractional Shares upon
exercise of the Warrants or distribute Warrant Certificates that evidence
fractional Warrant Shares. In lieu of fractional Warrant Shares, there shall be
paid to the registered Holder of this Warrant Certificate at the time such
Warrant Certificate is exercised an amount in cash equal to the same fraction of
the Current Market Value per share of Common Stock on the Business Day preceding
the date this Warrant Certificate is surrendered for exercise.
Warrant Certificates, when surrendered at any office or agency
maintained by the Company for that purpose by the registered holder thereof in
person or by legal representative or attorney duly authorized in writing, may be
exchanged for a new Warrant Certificate or new Warrant Certificates evidencing
in the aggregate a like number of Warrants, in the manner and subject to the
limitations provided in the Warrant Agreement, without charge except for any tax
or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone) for the
purpose of any exercise hereof and for all other purposes, and neither the
Company nor the Warrant Agent shall be affected by any notice to the contrary.
The term "Business Day" shall mean any day on which (i) banks in The
City of New York, (ii) the principal U.S. securities exchange or market, if any,
on which the Common Stock is listed or admitted to trading and (iii) the
principal U.S. securities exchange or market, if any, on which the Warrants are
listed or admitted to trading are open for business.
The Warrants,Warrant Shares and Registrable Securities (as defined
in the Warrant Registration Rights Agreement) are entitled to the benefits of a
registration rights agreement relating to the Warrants and the Warrant Shares
(the "Warrant Registration Rights Agreement"), pursuant to which the holders
representing not less than 50% of Warrant
A-8
<PAGE>
Shares and Registrable Securities have, at any time and from time to time on or
after (i) the time immediately prior to a Change of Control (as such term is
defined in the Indenture); (ii)(a) the180th day (or such earlier date as
determined by the Company in its sole discretion) following the consummation of
an Initial Public Equity Offering (as defined herein) or (b) upon the
consummation of an Initial Public Equity Offering, but only in respect of
Warrants, if any, required to be exercised to permit the holders thereof to sell
Warrant Shares pursuant to their respective registration rights, (iii) a class
of equity securities of the Company is listed on a national securities exchange
or authorized for quotation on the Nasdaq National Market or is otherwise
subject to registration under the Exchange Act, or (iv) April 8, 2000, the right
to require the Company to effect one demand registration of the Warrant Shares
and Registrable Securities. The Warrant Registration Rights Agreement also
provides the holders of Registrable Securities with the right, subject to the
conditions and limitations contained therein, to include the Registrable
Securities in certain registration statements filed by the Company for its
account or for the account of any of its securityholders.
A-9
<PAGE>
[FORM OF ELECTION TO EXERCISE]
(To be executed upon exercise of Warrants on the Exercise Date)
The undersigned hereby irrevocably elects to exercise [ ] of the
Warrants represented by this Warrant Certificate and purchase the whole number
of Shares issuable upon the exercise of such Warrants and herewith tenders
payment for such Shares as follows:
$[ ] in cash or by certified or official bank check; or by
surrender of Warrants pursuant to a Cashless Exercise (as defined in the Warrant
Agreement) for [ ] shares of Stock at the current Cashless Exercise Ratio.
The undersigned requests that a certificate representing such Shares
be registered in the name of _______________ whose address is ________________
and that such shares be delivered to _____________________ whose address is
________________. Any cash payments to be paid in lieu of a fractional Share
should be delivered to _________ whose address is ________________ and the check
representing payment thereof should be delivered to _____________ whose address
is _____________________.
Dated ___________, ____
Name of holder of
Warrant Certificate:_______________________________________________
(Please Print)
Tax Identification or
Social Security Number:_____________________________________________
Address: __________________________________________________________
__________________________________________________________
Signature:_________________________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement
or any change whatever and if the certificate
representing the Shares or any Warrant Certificate
representing Warrants not exercised is to be
registered in a name other than that in which this
Warrant Certificate is registered, or if any cash
payment to be paid in lieu of a fractional share is
to be made to a person other than the registered
holder of this Warrant Certificate, the signature of
the holder hereof
A-10
<PAGE>
must be guaranteed as provided in the Warrant
Agreement.
Dated ______________, ____
Signature:___________________________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement or
any change whatever.
Signature Guaranteed:________________________________________________
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the
[Registrar], which requirements include membership or
participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee
program" as may be determined by the [Registrar] in
addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as
amended.
[FORM OF ASSIGNMENT]
For value received __________________________ hereby sells, assigns
and transfers unto _____________________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ___________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated ________________, ____
Signature:___________________________________________________________
Note: The above signature must correspond with the name as
written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement or
any change whatever.
Signature Guaranteed:________________________________________________
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the
[Registrar], which requirements include membership or
participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee
program" as may be determined by the [Registrar] in
addition to,
A-11
<PAGE>
or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as
amended.
A-12
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS**
The following exchanges of a part of this Global Warrant for certificated
Warrants have been made:
Number of
Amount of Amount of Warrants of this
decrease in increase in Global Warrant Signature of
Number of Number of following authorized
Date of Warrants of this Warrants of this such decrease officer of
Exchange Global Warrant Global Warrant (or increase) Warrant Agent
- --------------------------------------------------------------------------------
- --------
** This is to be included only if the Warrant is in global form.
A-13
<PAGE>
EXHIBIT B
FORM OF LEGEND FOR GLOBAL WARRANT
Any Global Warrant authenticated and delivered hereunder shall bear
a legend in substantially the following form:
THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT
AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE
FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE WARRANT AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A
TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
B-1
<PAGE>
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of PATHNET, INC.
This Certificate relates to ____ Warrants held ino ___ book-entry
oro _______ certificated form by ______ (the "Transferor").
The Transferor:*
|_| has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrant held by the
Depositary a Warrant or Warrants in definitive, registered form of authorized
denominations and an aggregate number equal to its beneficial interest in such
Global Warrant (or the portion thereof indicated above); or
|_| has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant,
the Transferor does hereby certify that the Transferor is familiar with the
Warrant Agreement relating to the above captioned Warrants and the restrictions
on transfers thereof as provided in Section 1.08 of such Warrant Agreement, and
that the transfer of this Warrant does not require registration under the
Securities Act of 1933, as amended (the "Act") because:
|_| Such Warrant is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 1.08 (a)(y)(A) or Section 1.08
(d)(i)(A) of the Warrant Agreement).
|_| Such Warrant is being transferred to a qualified institutional buyer
(as defined in Rule 144A under the Act), in reliance on Rule 144A.
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<PAGE>
|_| Such Warrant is being transferred in reliance on Regulation S under
the Act.
|_| Such Warrant is being transferred in accordance with Rule 144 under
the Act.
|_| Such Warrant is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act.
------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
--------------------------------
Date:_____________________
*Check applicable box.
Signature Guaranteed:_________________________
Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the
[Registrar], which requirements include membership or
participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee
program" as may be determined by the [Registrar] in
addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as
amended.
C-2
<PAGE>
EXHIBIT D
Form of Certificate to be
Delivered in Connection
with Regulation S Transfers
__________________________, ________
________________
________________
________________
Attention: __________________
Ladies and Gentlemen:
In connection with our proposed sale of Warrants of Pathnet, Inc
(the "Company"), we confirm that such sale has been effected pursuant to and in
accordance with Regulation S under the Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, we represent that:
(1) the offer of the Warrants was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S under the Securities Act, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act;
(5) if the circumstances set forth in Rule 904(c) under the
Securities Act are applicable, we have complied with the additional
conditions therein, including (if applicable) sending a confirmation or
other notice stating that the Warrants may be offered and sold during the
restricted period specified in Rule 903(c)(2) or (3), as
D-1
<PAGE>
applicable, in accordance with the provisions of Regulation S; pursuant
to registration of the Warrants under the Securities Act; or pursuant to
an available exemption from the registration requirements under the Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S under the
Securities Act.
Very truly yours,
[Name of Transferor]
By:
-------------------------
[Authorized Signature]
Upon transfer the Warrants would be registered in the name of the
new beneficial owner as follows:
Name:
---------------------------------
Address:
------------------------------
Taxpayer ID Number:
--------------------
D-2
<PAGE>
Exhibit 10.23
EXECUTION COPY
================================================================================
WARRANT
REGISTRATION RIGHTS AGREEMENT
Dated as of April 8, 1998
Between
PATHNET, INC.,
SPECTRUM EQUITY INVESTORS, L.P.,
NEW ENTERPRISE ASSOCIATES VI, LIMITED PARTNERSHIP,
ONSET ENTERPRISE ASSOCIATES II, L.P.,
FBR TECHNOLOGY VENTURE PARTNERS, L.P.,
TORONTO DOMINION CAPITAL (USA) INC.,
GROTECH PARTNERS IV, L.P.,
RICHARD A. JALKUT,
DAVID SCHAEFFER
and
MERRILL LYNCH & CO.,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED,
BEAR, STEARNS & CO. INC.,
TD SECURITIES (USA) INC.,
SALOMON BROTHERS INC
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Definitions......................................................1
Section 2. Registration Rights..............................................7
2.1 (a)Demand Registration...........................................7
(b)Effective Registration........................................8
(c)Selection of Underwriter......................................8
(d)Expenses......................................................9
2.2 (a)Piggy-Back Registration.......................................9
(b)Priority in Piggy-Back Registration..........................10
2.3 Limitations, Conditions and Qualifications to
Obligations Under Registration Covenants........................11
2.4 Restrictions on Sale by the Company and Others..................12
2.5 Rule 144 and Rule 144A..........................................13
2.6 Underwritten Registrations......................................13
Section 3. Transfers.......................................................14
3.1 Generally.......................................................14
3.2 Tag-Along Rights................................................14
3.3 Drag-Along Rights...............................................16
Section 4. Registration Procedures.........................................16
Section 5. Indemnification and Contribution................................23
Section 6. Miscellaneous...................................................27
(a) Remedies........................................................27
(b) No Inconsistent Agreements......................................27
(c) No Piggy-Back on Demand Registrations...........................28
(d) Amendments and Waivers..........................................28
(e) Notices.........................................................28
(f) Successors and Assigns..........................................28
(g) Counterparts....................................................29
(h) GOVERNING LAW...................................................29
(j) Severability....................................................29
(k) Headings........................................................29
(l) Entire Agreement................................................29
(m) Securities Held by the Company or Its Affiliates................29
<PAGE>
WARRANT REGISTRATION RIGHTS AGREEMENT
This WARRANT REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
made and entered into as of April 8, 1998, between PATHNET, INC. (the
"Company"), a Delaware corporation, SPECTRUM EQUITY INVESTORS, L.P., NEW
ENTERPRISE ASSOCIATES VI, LIMITED PARTNERSHIP, ONSET ENTERPRISE ASSOCIATES II,
L.P., FBR TECHNOLOGY VENTURE PARTNERS, L.P., TORONTO DOMINION CAPITAL (USA)
INC., GROTECH PARTNERS IV, L.P., RICHARD A. JALKUT and DAVID SCHAEFFER (the
"Permitted Holders") and MERRILL LYNCH & CO., MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED ("Merrill Lynch"), BEAR, STEARNS & CO. INC., TD SECURITIES
(USA) INC. and SALOMON BROTHERS INC (together with Merrill Lynch, the "Initial
Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated as
of April 8, 1998, among the Company and the Initial Purchasers (the "Purchase
Agreement"), with respect to the issue and sale by the Company and the purchase
by the Initial Purchasers, severally, of the respective number of the Company's
Units (the "Units"), each Unit consisting of $1,000 principal amount of the
Company's 12.25% Senior Notes due 2008 (the "Notes") and one warrant (each, a
"Warrant"), each initially entitling the holder thereof to purchase 1.1 shares
of common stock, par value $0.01 per share (the "Common Stock"), of the Company,
set forth opposite such Initial Purchaser's name on Schedule I to the Purchase
Agreement. In order to induce the Initial Purchasers to enter into the Purchase
Agreement, the Company has agreed to provide to the Holders (as defined herein)
the registration rights for the Registrable Securities (as defined herein) set
forth in this Agreement and the Permitted Holders have agreed to provide the
Holders, among other things, the tag-along rights for the Warrants and the
Registrable Securities set forth herein. The execution of this Agreement is a
condition to the obligations of the Initial Purchasers under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
Section 1. Definitions. As used in this Agreement, the following
defined terms shall have the following meanings:
"Advice" shall have the meaning ascribed to such term in Section 4
hereof.
"Affiliate" shall have the meaning ascribed to such term in the
Indenture.
"Agreement" shall have the meaning ascribed to such term in the
preamble hereto.
"Business Day" shall mean a day that is not a Legal Holiday.
<PAGE>
2
"Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, partnership interests, participations, rights in or
other equivalents (however designated and whether voting or non-voting)
of, such Person's capital stock, and any rights (other than debt
securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock whether
outstanding on the Issue Date or thereafter issued.
"Change of Control" shall have the meaning ascribed to such term in
the Indenture.
"Company" shall have the meaning ascribed to such term in the
preamble of this Agreement and shall also include the Company's permitted
successors and assigns.
"Common Stock" shall have the meaning ascribed to such term in the
preamble of this Agreement and any other class or series of common equity
equivalent shares of the Company into which such Common Stock may be
reclassified and sold to the public in an Initial Public Equity Offering.
"Convertible Preferred Stock" shall mean the Series Preferred Stock
(as defined in the Indenture) of the Company and any other series of
preferred stock convertible or exchangeable into Common Stock, whether
outstanding on the date hereof or thereafter issued.
"Current Market Value" shall have the meaning ascribed to such term
in the Warrant Agreement.
"Demand Registration" shall have the meaning ascribed to such term
in Section 2.1(a) hereof.
"Drag-Along Right" shall have the meaning ascribed to such term in
Section 3.3 hereof.
"DTC" shall have the meaning ascribed to such term in Section 4(i)
hereof.
"Effectiveness Period" shall have the meaning ascribed to such term
in Section 2.1(a) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
<PAGE>
3
"Fair Market Value" shall mean the value of any securities as
determined (without any discount for lack of liquidity, the amount of such
securities proposed to be sold or the fact that such securities held by
any Holder of such security may represent a minority interest in a private
company) by a nationally or regionally recognized independent financial
expert selected by the Company for the determination of such value.
"Holder" shall mean each holder (including the Initial Purchasers)
of any Warrants, Warrant Shares or Registrable Securities, and each of
their successors, assigns and direct and indirect transferees who become
registered owners of such Warrants, Warrant Shares or Registrable
Securities for so long as such Person continues to hold such Warrants,
Warrant Shares or Registrable Securities.
"Included Securities" shall have the meaning ascribed to such term
in Section 2.1(a) hereof.
"Indemnified Person" shall have the meaning ascribed to such term in
Section 5(a).
"Indenture" shall mean the Indenture, dated as of the date hereof,
between the Company and The Bank of New York, Trustee, pursuant to which
the Notes are issued.
"Independent financial expert " shall have the meaning ascribed to
such term in the Indenture.
"Initial Public Equity Offering" shall mean a primary public
offering (whether or not underwritten, but excluding any offering pursuant
to Form S-8 under the Securities Act or any other publicly registered
offering pursuant to the Securities Act pertaining to an issuance of
Common Stock or securities exercisable therefor under any benefit plan,
employee compensation plan, or employee or director stock purchase plan)
of Common Stock pursuant to an effective registration statement under the
Securities Act.
"Initial Purchasers" shall have the meaning ascribed to such term in
the preamble hereof.
"Inspectors" shall have the meaning ascribed to such term in Section
4(m) hereof.
"Legal Holiday" shall mean a Saturday, a Sunday or a day on which
(i) banking institutions in The City of New York are required or
authorized by law or
<PAGE>
4
other government action to be closed and (ii) the principal U.S.
securities exchange or market, if any, on which any Common Stock is listed
or admitted to trading and the principal U.S. securities exchange or
market, if any, on which the Warrants are listed or admitted to trading
are closed for business.
"Merrill Lynch" shall have the meaning ascribed to such term in the
preamble hereof.
"Notes" shall have the meaning ascribed to such term in the preamble
hereof.
"Participating Holder" shall have the meaning ascribed to such term
in Section 3.2(c).
"Permitted Holder" shall have the meaning ascribed to such term in
the preamble hereof.
"Person" shall mean any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company,
trust, business trust, unincorporated organization or government or any
agency or political subdivision thereof, including any entity that is a
predecessor of any such entity.
"Piggy-Back Registration" shall have the meaning ascribed to such
term in Section 2.2(a) hereof.
"Proposed Purchaser" shall have the meaning ascribed to such term in
Section 3.2(a) hereof.
"Prospectus" shall mean the prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to
completion and a prospectus that includes any information previously
omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities
Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"Purchase Agreement" shall have the meaning ascribed to such term in
the preamble hereof.
"Registrable Securities" shall mean any of (i) the Common Stock
issued and issuable upon exercise of the Warrants and (ii) any other
securities issued or issuable
<PAGE>
5
with respect to the Warrants or Warrant Shares by way of stock dividend or
stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or
otherwise. As to any particular Registrable Securities, such securities
shall cease to be Registrable Securities when (a) a registration statement
with respect to the offering of such securities by the holder thereof
shall have been declared effective under the Securities Act and such
securities shall have been disposed of by such holder pursuant to such
registration statement, (b) such securities have been sold to the public
pursuant to, or are eligible (or would have been eligible if the holder of
Warrants had elected cashless exercise of the Warrant or Warrants) for
sale to the public without volume or manner of sale restrictions under,
Rule 144(k) (or any similar provision then in force, but not Rule 144A)
promulgated under the Securities Act, (c) such securities shall have been
otherwise transferred and new certificates for such securities not bearing
a legend restricting further transfer shall have been delivered by the
Company or its transfer agent and subsequent disposition of such
securities shall not require registration or qualification under the
Securities Act or any similar state law then in force or (d) such
securities shall have ceased to be outstanding.
"Registration Expenses" shall mean all expenses incident to the
Company's performance of or compliance with this Agreement, including,
without limitation, all SEC and stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees and expenses, fees
and expenses of compliance with securities or blue sky laws (including,
without limitation, reasonable fees and disbursements of counsel for the
underwriters and the Holders in connection with blue sky qualifications of
the Registrable Securities, such counsel fees not to exceed $5,000 per
registration), rating agency fees, printing expenses, messenger, telephone
and delivery expenses, fees and disbursements of counsel for the Company
and all independent certified public accountants and fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (but not including underwriting discounts or commissions, fees
of counsel to the Holders or transfer taxes, if any, attributable to the
sale of Subject Equity by Holders of such Subject Equity).
"Registration Statement" shall mean any appropriate registration
statement of the Company filed with the SEC pursuant to the Securities Act
which covers any of the Subject Equity pursuant to the provisions of this
Agreement and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all materials
incorporated by reference therein.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other
than Rule 144A) or regulation hereafter adopted by the SEC providing for
offers and sales of securities
<PAGE>
6
made in compliance therewith resulting in offers and sales by subsequent
holders that are not affiliates of an issuer of such securities being free
of the registration and prospectus delivery requirements of the Securities
Act.
"Rule 144A" shall mean Rule 144A promulgated under the Securities
Act, as such Rule may be amended from time to time, or any similar rule
(other than Rule 144) or regulation hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
"Selling Holder" shall mean a Holder who is selling Subject Equity
or Registrable Securities in accordance with the provisions of Section 2.1
or 2.2, respectively.
"Subject Equity" shall have the meaning ascribed to such term in
Section 2.1(a) hereof.
"Suspension Period" shall have the meaning ascribed to such term in
Section 2.3(a).
"Tag-Along Notice" shall have the meaning ascribed to such term in
Section 3.2(c) hereof.
"Tag-Along Right" shall have the meaning ascribed to such term in
Section 3.2(a) hereof.
"Transfer" shall have the meaning ascribed to such term in Section
3.2(a) hereof.
"Transfer Notice" shall have the meaning ascribed to such term in
Section 3.2(c) hereof.
"Triggering Date" shall mean the date of the consummation of a bona
fide underwritten public offering of Common Stock, as a result of which at
least 20% of the outstanding shares of Common Stock are listed on a U.S.
national securities exchange or the Nasdaq National Market.
"Units" shall have the meaning ascribed to such term in the preamble
of this Agreement.
<PAGE>
7
"Warrant Agent" shall mean The Bank of New York and any successor
warrant agent for the Warrants pursuant to the Warrant Agreement.
"Warrant Agreement" shall mean the Warrant Agreement dated as of the
date hereof, between the Company and the Warrant Agent, as amended or
supplemented from time to time in accordance with the terms thereof.
"Warrant Shares" shall mean shares of Common Stock issued or
issuable upon exercise of the Warrants at an exercise price of $0.01 per
share or any other securities issued or issuable with respect to the
Warrants by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"Warrants" shall have the meaning ascribed to such term in the
preamble hereof.
Section 2. Registration Rights.
2.1 (a) Demand Registration. After the occurrence of an Exercise
Event (as such term is defined in the Warrant Agreement) and the completion of
an Initial Public Equity Offering, the holders of a number of Warrants, Warrant
Shares and Registrable Securities (collectively, the "Subject Equity")
equivalent to at least a majority of the Warrant Shares subject to the Warrants
originally issued on the Issue Date, from time to time, may make a written
request to the Company to effect one registration (the "Demand Registration")
under the Securities Act of the Subject Equity. Any such request will specify
the number of shares of Subject Equity proposed to be sold and will also specify
the intended method of disposition thereof. Within 10 days after the receipt of
such written request for a Demand Registration, the Company shall notify the
Holders of all Subject Equity that a Demand Registration has been requested.
Within 45 days after receipt by any Holder of Subject Equity of such notice from
the Company, such Holder may request in writing that such Holder's Subject
Equity be included in such Registration Statement and the Company shall include
in such Registration Statement the Subject Equity of such Holder requested to be
so included (the "Included Securities"). Each such request by such other Holders
shall specify the number of Included Securities proposed to be sold and the
intended method of disposition thereof. Furthermore, the Company shall prepare,
file with the SEC and use its best efforts to cause to become effective under
the Securities Act within 150 days of such demand a Registration Statement in
respect of all of the Subject Equity which the Holders request and keep such
registration statement continuously effective until the earlier to occur of (i)
the date that is 180 days after such effectiveness (the "Effectiveness Period"),
(ii) such period of time as all of the Subject Equity included in such
registration statement shall have been sold thereunder and (iii) the Subject
Equity included in such registration becomes fully saleable under paragraph (K)
of Rule 144.
<PAGE>
8
If a Demand Registration occurs during the "lock up" or "black out"
period (not to exceed 180 days) imposed on the Company pursuant to or in
connection with any underwriting or purchase agreement relating to an
underwritten Rule 144A or registered public offering of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock, the
Company shall not be required to so notify Holders of Subject Equity and file
such Registration Statement with respect to the Subject Equity which the Holders
request prior to the end of such "lock up" or "black out" period, in which event
the Company will use its best efforts to cause such registration statement to
become effective no later than the later of (i) 150 days after such demand or
(ii) 30 days after the end of such "lock up" or "black out" period. In the event
of any "lock up" or "black out" period or any underwriting or other purchase
agreement, the Company shall so notify the holders of Registrable Securities.
Notwithstanding the foregoing, in lieu of filing and causing to
become effective the Demand Registration, the Company may satisfy its obligation
with respect thereto by making and consummating (or having its designee make and
consummate) an offer to purchase all Subject Equity at a price at least equal to
Current Market Value (as defined in the Warrant Agreement, but without the
inclusion of clause (i)(a) thereof), less any applicable Exercise Price.
(b) Effective Registration. A Registration Statement shall not be
deemed to have been effected as a Demand Registration unless it shall have been
declared effective by the SEC, and the Company has complied in all material
respects with its obligations under this Agreement with respect thereto, no
later than the later of (i) 150 days after the request for a Demand Registration
or (ii) 30 days after the end of any "lock up" or "black out" period described
in Section 2.1(a) hereof; provided, however, that if, after such Registration
Statement has become effective, the offering of Subject Equity pursuant to such
Registration Statement is or becomes the subject of any stop order, injunction
or other order or requirement of the SEC or any similar governmental, judicial
or administrative order or requirement that prevents, restrains or otherwise
limits the sale of Subject Equity pursuant to such Registration Statement, and
such Registration Statement has not become effective within a reasonable time
period thereafter, such Registration Statement shall be deemed not to have been
effected. If (i) the registration requested pursuant to this Section 2.1 shall
be deemed not to have been effected or (ii) the Demand Registration does not
remain effective under the Securities Act until at least the earlier of (A) the
end of the Effectiveness Period or (B) the consummation of the distribution by
the Holders of all of the Subject Equity covered thereby, then such Demand
Registration shall not count towards determining if the Company has satisfied
its obligation to effect a Demand Registration pursuant to this Section 2.1. The
Holders of Subject Equity shall be permitted to withdraw all or any part of the
Registrable Securities from the Demand Registration. Notwithstanding any such
withdrawal by a Holder of Subject Equity, if the Company has complied with all
of its obligations hereunder and has effected a Demand Registration within 150
days after the request for such Demand
<PAGE>
9
Registration, such withdrawal shall not require the Company to effect an
additional Demand Registration.
(c) Selection of Underwriter. If the Holders so elect, the offering
of such Subject Equity pursuant to such Demand Registration shall be in the form
of an underwritten offering. The Holders making such Demand Registration shall
select one or more nationally recognized firms of investment bankers, who shall
be reasonably acceptable to the Company, to act as the managing underwriter or
underwriters in connection with such offering and shall select any additional
investment bankers and managers to be used in connection with the offering.
(d) Expenses. The Company will pay all Registration Expenses in
connection with the registrations requested pursuant to Section 2.1(a) hereof.
Each Holder of Subject Equity shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Subject Equity pursuant to a Registration Statement requested
pursuant to this Section 2.1.
2.2 (a) Piggy-Back Registration. If at any time the Company proposes
to file a Registration Statement under the Securities Act with respect to an
offering by the Company for its own account or for the account of any of its
securityholders of any class of its common equity securities (other than (i) a
registration statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the SEC) or any other publicly registered offering pursuant to the
Securities Act pertaining to the issuance of shares of Capital Stock or
securities exercisable therefor under any benefit plan, employee compensation
plan, or employee or director stock purchase plan, (ii) a registration statement
filed in connection with an offer of securities solely to the Company's existing
securityholders or (iii) a Demand Registration), then the Company shall give
written notice of such proposed filing to the Holders of Registrable Securities
as soon as practicable (but in no event fewer than 15 days before the
anticipated filing date or 10 days if the Company is subject to filing reports
under the Exchange Act and able to use Form S-3 under the Securities Act), and
such notice shall offer such Holders the opportunity to register such number of
shares of Registrable Securities as each such Holder may request in writing
within 12 days (or eight days if the Company is subject to filing reports under
the Exchange Act and able to use Form S-3 under the Securities Act) after
receipt of such written notice from the Company (which request shall specify the
Registrable Securities intended to be disposed of by such Selling Holder and the
intended method of distribution thereof) (a "Piggy-Back Registration"). In such
case where the intended method of distribution thereof is on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, or any similar
rule that may be adopted by the SEC, the Company shall use its best efforts to
keep such Piggy-Back Registration continuously effective under the Securities
Act in the qualifying jurisdictions until at least the earlier of (A) 60 days
after the effective date thereof or (B) the consummation of the distribution by
the Holders of all of the Registrable Securities covered thereby. The Company
shall use its
<PAGE>
10
reasonable efforts to cause the managing underwriter or underwriters, if any, of
such proposed offering to permit the Registrable Securities requested to be
included in a Piggy-Back Registration to be included on the same terms and
conditions as any similar securities of the Company or any other securityholder
included therein and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof. Any
Selling Holder shall have the right to withdraw its request for inclusion of its
Registrable Securities in any Registration Statement pursuant to this Section
2.2 by giving written notice to the Company of its request to withdraw. The
Company may withdraw a Piggy-Back Registration at any time prior to the time it
becomes effective or the Company may elect to delay the registration; provided,
however, that the Company shall give prompt written notice thereof to
participating Selling Holders.
The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to this Section
2.2, and each Holder of Registrable Securities shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to a Registration
Statement effected pursuant to this Section 2.2.
No registration effected under this Section 2.2, and no failure to
effect a registration under this Section 2.2, shall relieve the Company of its
obligation to effect a registration upon the request of Holders of Registrable
Securities pursuant to Section 2.1 hereof, and no failure to effect a
registration under this Section 2.2 and to complete the sale of securities
registered thereunder in connection therewith shall relieve the Company of any
other obligation under this Agreement.
(b) Priority in Piggy-Back Registration. In a registration pursuant
to Section 2.2 hereof involving an underwritten offering, if the managing
underwriter or underwriters of such underwritten offering shall have informed
the Company and the Selling Holders requesting inclusion in such offering, in
writing, that in such underwriter's or underwriters' reasonable opinion the
total number or type of Registrable Securities which the Company, the Selling
Holders and any other persons desiring to participate in such registration
intend to include in such offering is such as to materially and adversely affect
the success of such offering, including the price at which such securities can
be sold, then the Company shall be required to include in such registration only
the amount of securities which it is so advised should be included in such
registration. In such event, securities shall be registered in such offering in
the following order of priority: (i) first, the securities which the Company
proposes to register (a) in the Initial Public Equity Offering or (b) pursuant
to an exercise of "demand" registration rights pursuant to a contractual
commitment of the Company and (ii) second, provided that no securities sought to
be included by the Company or any such Person under the immediately preceding
clause (i) have been excluded from such registration, securities which have been
requested to be included in such registration by the Company (other than those
covered by clause (i)) and by the Holders of Registrable
<PAGE>
11
Securities pursuant to this Agreement, and the securities of other Persons
entitled to exercise "piggy-back" registration rights pursuant to contractual
commitments of the Company (pro rata based on the amount of securities sought to
be registered by the Company and such Persons).
If, as a result of the provisions of this Section 2.2(b), any
Selling Holder shall not be entitled to include all Registrable Securities in a
Piggy-Back Registration that such Selling Holder has requested to be included,
such Selling Holder may elect to withdraw his request to include Registrable
Securities in such registration.
2.3 Limitations, Conditions and Qualifications to Obligations Under
Registration Covenants. The obligations of the Company set forth in Sections 2.1
and 2.2 hereof are subject to each of the following limitations, conditions and
qualifications:
(a) The Company may postpone the filing of, or suspend the
effectiveness of, any registration statement or amendment thereto, suspend
the use of any Prospectus and shall not be required to amend or supplement
the Registration Statement, any related Prospectus or any document
incorporated therein by reference (other than an effective registration
statement being used for an underwritten offering) in the event that, and
for a period (a "Suspension Period") not to exceed an aggregate of 60
days. A Suspension Period used in respect of Sections 2.1 and 2.2 may be
effected only if (i) an event or circumstance occurs and is continuing as
a result of which the registration statement, any related prospectus or
any document incorporated therein by reference as then amended or
supplemented or proposed to be filed would, in the Company's good faith
judgement, contain an untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
(ii) (A) the Company determines in its good faith judgement that the
disclosure of such an event at such time would have a material adverse
effect on the business, operations or prospects of the Company or (B) the
disclosure otherwise relates to a material business transaction which has
not yet been publicly disclosed; provided that the Effectiveness Period
shall be extended by the number of days in any Suspension Period; provided
further that the Company shall not be entitled to the postponement or
suspension more than once in any 12-month period; provided further that
the Company may suspend the effectiveness for a period not in excess of
five Business Days to allow for the updating of the financial statements
included in a Registration Statement to the extent required by law, not to
exceed 45 days in the aggregate in any 12-month period. If the Company
shall so postpone the filing of a Registration Statement it shall, as
promptly as possible, deliver a certificate signed by the chief executive
officer of the Company to the Selling Holders as to such determination,
and the Selling Holders shall (1) have the right, in the case of a
postponement of the filing or effectiveness of a Registration Statement,
upon the affirmative vote of the Holders
<PAGE>
12
of not less than a majority of the Subject Equity to be included in such
Registration Statement, to withdraw the request for registration by giving
written notice to the Company within 10 days after receipt of such notice
or (2) in the case of a suspension of the right to make sales, receive an
extension of the registration period equal to the number of days of the
suspension. Any Demand Registration as to which the withdrawal election
referred to in the preceding sentence has been effected shall not be
counted for purposes of the Demand Registration the Company is required to
effect pursuant to Section 2.1 hereof.
(b) The Company's obligations under this Agreement shall be subject
to the obligations of the Selling Holders, which the Selling Holders
acknowledge, to furnish all information and materials and to take any and
all actions as may be required under applicable federal and state
securities laws and regulations to permit the Company to comply with such
laws and regulations and all applicable requirements of the SEC and to
obtain any acceleration of the effective date of such Registration
Statement.
2.4 Restrictions on Sale by the Company and Others. The Company
covenants and agrees that (i) it shall not, and that it shall not cause or
permit any of its subsidiaries to, effect any public sale or public distribution
of any securities of the same class as any of the Warrants or Registrable
Securities or any securities convertible into or exchangeable or exercisable for
such securities (or any option or other right for such securities) during the
30-day period prior to, and during the 180-day period beginning on, the
commencement of any underwritten offering of Warrants or Registrable Securities
pursuant to a Demand Registration which has been requested pursuant to this
Agreement, or a Piggy-Back Registration which has been scheduled, prior to the
Company or any of its subsidiaries publically announcing its intention to effect
any such public sale or public distribution; (ii) the Company will not, and the
Company will not cause or permit any subsidiary of the Company to, after the
date hereof, enter into any agreement or contract that conflicts with or limits
or prohibits the full and timely exercise by the Holders of Warrants or
Registrable Securities of the rights herein to request a Demand Registration or
to join in any Piggy-Back Registration subject to the other terms and provisions
hereof; and (iii) upon request of the Holders of not less than a majority of the
Warrants or Registrable Securities to be included in such Registration Statement
or any underwriter, it shall use its reasonable best efforts to secure the
written agreement of each of its officers and directors to not effect any public
sale or public distribution of any securities of the same class as the Warrants
or Registrable Securities (or any securities convertible into or exchangeable or
exercisable for an such securities) or any option or other right for such
securities during the period described in clause (i) of this Section 2.4.
2.5 Rule 144 and Rule 144A. While any Warrants or Registrable
Securities remain outstanding, the Company covenants that it shall file the
reports required to be filed by it under the Exchange Act and the rules,
regulations and policies adopted by the SEC
<PAGE>
13
thereunder in a timely manner and in accordance with the requirements of the
Exchange Act. If at any time the Company is not required to file such reports,
it will distribute to each Holder or beneficial owner of Warrants that are
"restricted securities" within the meaning of Rule 144 and are not saleable in
full under paragraph (k) of Rule 144 or Registrable Securities such information
as is necessary to permit sales pursuant to Rule 144A under the Securities Act.
The Company further covenants that it will take such further action as any
Holder of Warrants or Registrable Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell Warrants or
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the
Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of any
Holder of Warrants or Registrable Securities, the Company will in a timely
manner deliver to such Holder a written statement as to whether it has complied
with such information requirements.
2.6 Underwritten Registrations. No Holder of Registrable Securities
may participate in any underwritten registration pursuant to a Registration
Statement filed under this Agreement unless such Holder (a) agrees to (i) sell
such Holder's Registrable Securities on the basis provided in and in compliance
with any underwriting arrangements approved by the Holders of not less than a
majority of the Registrable Securities to be sold thereunder and (ii) comply
with Rules 101, 102 and 104 of Regulation M under the Exchange Act and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
Each Holder of Warrants and Registrable Securities whose Warrants
and Registrable Securities are covered by a Registration Statement filed
pursuant to Sections 2.1 and 2.2 and are to be sold thereunder agrees, if and to
the extent reasonably requested by the managing underwriter or underwriters with
respect to an underwritten public offering (including any underwritten public
offering with respect to which registration rights are not available to holders
of the Warrants), not to effect any public sale or distribution of Warrants and
Registrable Securities or of securities of the Company of the same class as any
securities included in such Registration Statement, including a sale pursuant to
Rule 144 (except as part of such underwritten offering), during the 30-day
period prior to, and during the 180-day period beginning on, the closing date of
each underwritten offering made pursuant to such Registration Statement, to the
extent timely notified in writing by the Company or such managing underwriter or
underwriters.
The provisions of the foregoing paragraph shall not apply to any
Holders of Warrants and Registrable Securities if such Holder is prevented by
applicable statute or regulation from entering into any such agreement;
provided, however, that any such Holder shall undertake, in its request to
participate in any such underwritten offering, not to effect
<PAGE>
14
any public sale or distribution of any Warrants and Registrable Securities
commencing on the date of sale of such Warrants and Registrable Securities
unless it has provided 45 days' prior written notice of such sale or
distribution to the managing underwriter or underwriters.
Section 3. Transfers.
3.1 Generally. All Subject Equity at any time and from time to time
outstanding shall be held subject to the conditions and restrictions set forth
in this Section 3. All shares of Capital Stock now or hereafter held by the
Permitted Holders shall be held subject to the conditions and restrictions set
forth in this Section 3. Each Holder of Subject Equity and the Permitted Holders
by executing this Agreement or by accepting a certificate representing Capital
Stock or other indicia of ownership therefor from the Company agree with the
Company and with each other stockholder to such conditions and restrictions.
3.2 Tag-Along Rights. (a) Prior to the Triggering Date, each of the
Holders of Subject Equity shall have the right (the "Tag-Along Right") to
require the Proposed Purchaser (as defined below) to purchase from each of them
all Subject Equity owned by such Holder in the event of any proposed direct or
indirect sale or other disposition (collectively, a "Transfer") of Common Stock
or Convertible Preferred Stock (whether now or hereafter issued) to any Person
or Persons (such other Person or Persons being hereinafter referred to as the
"Proposed Purchaser") by any Permitted Holder or Permitted Holders or any of
their Affiliates in any transaction or a series of related transactions
resulting in a Change of Control; provided that no such Tag-Along Right shall
exist as a result of sales pursuant to one or more underwritten offerings
registered under the Securities Act which result in a Change of Control.
(b) Any Subject Equity purchased from the Participating Holders
pursuant to this Section 3.2 shall be paid for in the same type of consideration
and at the same price per share of Common Stock and upon the same terms and
conditions of such proposed Transfer of Common Stock by any Permitted Holder or
any of its Affiliates; provided that the price per Warrant to be paid by the
Proposed Purchaser shall be less the aggregate Exercise Price of such Warrant.
If the Subject Equity to be purchased from the Permitted Holders or the
Participating Holders includes securities or property other than Common Stock,
the price to be paid for such securities or property shall be the same price per
share or other denomination paid by the Proposed Purchaser for like securities
purchased from any Permitted Holder or any of its Affiliates or, if like
securities are not purchased from any Permitted Holder or any of its Affiliates,
the Fair Market Value of such securities determined by an independent financial
expert selected by the Company.
(c) Each Permitted Holder shall notify, or cause to be notified,
each Holder of Subject Equity in writing (a "Transfer Notice") of each such
proposed Transfer at least 30 days prior to the date thereof. Such notice shall
set forth: (a) the name and address
<PAGE>
15
of the Proposed Purchaser and the number of shares of Common Stock and other
securities, if any, proposed to be transferred, (b) the proposed amount of
consideration and terms and conditions of payment offered by such Proposed
Purchaser (if the proposed consideration is not cash, the Transfer Notice shall
describe the terms of the proposed consideration) and (c) that either the
Proposed Purchaser has been informed of the "Tag-Along Right" and has agreed to
purchase Subject Equity in accordance with the terms hereof or that the
Permitted Holder or any of its Affiliates shall make such purchase. The
Tag-Along Right may be exercised by any Holder of Subject Equity (a
"Participating Holder") by delivery of a written notice to the Company and the
Permitted Holder that gave the Transfer Notice ("Tag-Along Notice"), within 10
days following such Holder's receipt of the Transfer Notice, indicating its
election to exercise the Tag-Along Right. The Tag-Along Notice shall state the
amount of Subject Equity that such Holder proposes to include in such Transfer
to the Proposed Purchaser. Failure by any Holder to provide a Tag-Along Notice
within the 10-day notice period shall be deemed to constitute an election by
such Holder not to exercise its Tag-Along Right. The closing with respect to any
sale to a Proposed Purchaser pursuant to this Section shall be held at the time
and place specified in the Transfer Notice but in any event within 60 days of
the date such Transfer Notice is given; provided that if through the exercise of
reasonable efforts the Company is unable to cause such transaction to close
within 60 days, such period may be extended for such reasonable period of time
as may be necessary to close such transaction. Consummation of the sale of
Common Stock or Convertible Preferred Stock by any Permitted Holder or any of
its Affiliates to a Proposed Purchaser shall be conditioned upon consummation of
the sale by each participating Holder to such Proposed Purchaser (or the
Permitted Holder) of the Subject Equity entitled to be transferred as described
above, if any.
(d) [reserved]
(e) If the Proposed Purchaser does not purchase the Subject Equity
entitled to be transferred as described in this Section 3.2 on the same terms
and conditions as purchased from the Permitted Holders or any of their
Affiliates, then the Permitted Holders or their Affiliates shall purchase such
Subject Equity if the Transfer occurs. If any Subject Equity shall be sold by a
Holder pursuant to this Section 3.2 upon the occurrence of a Change of Control
triggered by the sale of Common Stock by a Permitted Holder, then the other
Permitted Holders shall have the right to purchase up to 50% of such Subject
Equity.
(f) If at the end of 60 days following the date on which a Transfer
Notice was given, or as otherwise extended pursuant to the provisions of Section
3.2(a), the sale of Common Stock by the Permitted Holders or their Affiliates
and the sale of the Subject Equity entitled to be transferred as provided above
have not been completed in accordance with the terms of the Proposed Purchaser's
offer, all certificates representing such Subject Equity shall be returned to
the Participating Holders, and all the restrictions on Transfer contained
<PAGE>
16
in this Agreement with respect to Common Stock owned by the Permitted Holders
and their Affiliates shall remain in effect.
3.3 Drag-Along Rights. If at any time prior to the Triggering Date,
one or more Permitted Holders or any of their respective Affiliates determines
to sell all of the Capital Stock of the Company owned by them to a Person other
than a Permitted Holder or its Affiliate in a transaction resulting in a Change
of Control, the transferring Permitted Holder or Permitted Holders (whether
directly or through an Affiliate) shall have the right (the "Drag- Along Right")
to require the Holders of Subject Equity to sell such Subject Equity to such
transferee; provided that (i) the consideration to be received by the Holders of
Subject Equity shall be the same type of consideration received by the Permitted
Holders and their Affiliates and, in any event, shall be cash or freely
transferable marketable securities, and (ii) after giving effect to such
transaction, the Permitted Holder or Permitted Holders making the transfers and
their Affiliates shall not own, directly or indirectly, any Capital Stock or
rights to purchase Capital Stock of the Company (excluding successors for
purposes of this section 3.3). Any Warrants or Registrable Securities, or both,
purchased from the Holders thereof pursuant to this Section 3.3 shall be paid
for at the same price per share of Common Stock and upon the same terms and
conditions as such proposed transfer of Common Stock by the Permitted Holders
and their Affiliates. The price per Warrant to be paid by the Proposed Purchaser
shall be less the aggregate Exercise Price of such Warrant per share. If the
Subject Equity to be purchased includes securities other than Common Stock, the
price to be paid for such securities shall be the same price per share or other
denomination paid by the proposed purchaser for like securities purchased from
the Permitted Holders and their Affiliates or, if like securities are not
purchased from the Permitted Holders and their Affiliates, the Fair Market Value
of such securities determined by an independent financial expert selected by the
Company.
Section 4. Registration Procedures. In connection with the
obligations of the Company with respect to any Registration Statement pursuant
to Sections 2.1 and 2.2 hereof, the Company shall, except as otherwise provided:
(a) A reasonable period of time prior to the initial filing of a
Registration Statement or Prospectus and a reasonable period of time prior
to the filing of any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein
by reference), furnish to the Holders and the managing underwriters, if
any, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference)
shall be subject to the review of such Holders, and such underwriters, if
any, and cause the officers and directors of the Company, counsel to the
Company and independent certified public accountants to the Company to
respond to such reasonable inquiries as shall be necessary, in the opinion
of counsel to such underwriters, to conduct a reasonable investigation
within the meaning of the
<PAGE>
17
Securities Act; provided that the foregoing inspection and information
gathering shall be coordinated on behalf of the Holders by Merrill Lynch.
The Company shall not file any such Registration Statement or related
Prospectus or any amendments or supplements thereto which the Holders of a
majority of the Registrable Securities included in such Registration
Statement shall reasonably object to a timely basis.
(b) Subject to Section 2.3, prepare and file with the SEC such
amendments, including post-effective amendments, to each Registration
Statement as may be necessary to keep such Registration Statement
continuously effective for the applicable time period required hereunder;
cause the related Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 (or
any similar provisions then in force) promulgated under the Securities
Act; and comply with the provisions of the Securities Act and the Exchange
Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such
Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) Notify the Holders of Registrable Securities to be sold and the
managing underwriters, if any, promptly, and (if requested by any such
person) confirm such notice in writing, (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment is proposed to be filed,
and (B) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
SEC or any other Federal or state governmental authority for amendments or
supplements to a Registration Statement or related Prospectus or for
additional information, (iii) of the issuance by the SEC, any state
securities commission, any other governmental agency or any court of any
stop order suspending the effectiveness of such Registration Statement or
of any order or injunction suspending or enjoining the use of a Prospectus
or the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction, or the initiation or threatening of any proceeding
for such purpose, and (v) of the happening of any event, the existence of
any information becoming known that makes any statement made in a
Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material
respect or omit to state any material fact required to be stated therein
or necessary to make the statements therein, not misleading, and that in
the case of the Prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
<PAGE>
18
(d) Use its reasonable efforts to avoid the issuance of or, if
issued, obtain the withdrawal of any order enjoining or suspending the
effectiveness of the Registration Statement or the use of a Prospectus or
the lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities covered thereby for
sale in any jurisdiction described in Section 4(h) at the earliest
practicable moment.
(e) If requested by the managing underwriters, if any, or if none,
by the Holders of a majority of the Registrable Securities being sold
pursuant to such Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, or if none, such Holders reasonably
believe, upon advice of counsel, which need not be in writing should be
included therein, and (ii) subject to Section 2.3, make all required
filings of such Prospectus supplement or such post-effective amendment
under the Securities Act as soon as practicable after the Company has
received notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment; provided, however, that the
Company shall not be required to take any action pursuant to this Section
4(e) that would, in the opinion of counsel for the Company, violate
applicable law.
(f) Upon written request to the Company, furnish to each Holder of
Registrable Securities to be sold pursuant to a Registration Statement and
each managing underwriter, if any, without charge, at least one conformed
copy of the Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed
to be incorporated therein by reference, and all exhibits to the extent
reasonably requested (including those previously furnished or incorporated
by reference) as soon as practicable after the filing of such documents
with the SEC.
(g) Deliver to each Holder of Registrable Securities to be sold
pursuant to a Registration Statement and each managing underwriter, if
any, without charge, as many copies of each Prospectus (including each
form of prospectus) and each amendment or supplement thereto as such
Persons may reasonably request; and the Company hereby consents to use of
such Prospectus and each amendment or supplement thereto and each
document supplemental thereto by each of the selling Holders of
Registrable Securities and the underwriters or agents, if any, in
connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any offering of Registrable Securities, use its
reasonable efforts to register or qualify or cooperate with the Holders of
Registrable Securities to be sold, the managing underwriter or
underwriters, if any, and their respective counsel
<PAGE>
19
in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for
offer and sale under the securities or Blue Sky laws of such jurisdictions
as any such Holder or underwriter reasonably requests in writing; keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept
effective hereunder and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it is not then so
qualified or (ii) take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or to
taxation in any jurisdiction where it is not so subject.
(i) In connection with any sale or transfer of Registrable
Securities that will result in such securities no longer being Registrable
Securities, cooperate with the Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold,
which certificates shall not bear any restrictive legends whatsoever and
shall be in a form eligible for deposit with The Depository Trust Company
("DTC"); and to enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or such Holders may reasonably request at least two
business days prior to any sale of Registrable Securities.
(j) Subject to Section 2.3, upon the occurrence of any event
contemplated by Section 4(c)(v) above, as promptly as practicable prepare
a supplement or amendment, including if appropriate a post-effective
amendment to each Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, such Prospectus will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(k) Prior to the effective date of a Registration Statement, (i)
provide the registrar for the Registrable Securities with certificates for
such securities in a form eligible for deposit with DTC and (ii) provide a
CUSIP number for such securities.
(l) Enter into such agreement (including an underwriting agreement
in such form, scope and substance as is customary in underwritten
offerings) and take all such other reasonable actions in connection
therewith (including those reasonably requested by the managing
underwriters, if any, or the Holders of a majority of the Registrable
<PAGE>
20
Securities being sold) in order to expedite or facilitate the disposition
of such Registrable Securities, and, whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration, (i) make such representations and warranties to
the Holders of such Registrable Securities and the underwriter or
underwriters, if any, with respect to the business of the Company and the
subsidiaries of the Company (including with respect to businesses or
assets acquired or to be acquired by any of them), and the Registration
Statement, Prospectus and documents, if any, incorporated or deemed to be
incorporated by reference therein, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings, and confirm the same if any when requested; (ii) obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory
to the managing underwriters, if any, addressed to each selling Holder of
Registrable Securities and each of the underwriters, if any), covering the
matters customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such
underwriters; (iii) use their reasonable efforts to obtain customary "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed (where reasonably possible) to each Selling Holder
of Registrable Securities and each of the underwriters, if any, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings; (iv) if an underwriting agreement is entered into,
the same shall contain customary indemnification provisions and procedures
no less favorable to the Selling Holder and the underwriters, if any, than
those set forth in Section 5 hereof (or such other provisions and
procedures acceptable to Holders of a majority of Registrable Securities
covered by such Registration Statement and the managing underwriter, if
any); and (v) deliver such documents and certificates as may be reasonably
requested by the Holders of a majority of the Registrable Securities being
sold and the managing underwriters or underwriters to evidence the
continued validity of the representations and warranties made pursuant to
clause (i) above and evidence compliance with any customary conditions
contained in the underwriting agreement or other agreements entered into
by the Company. The above shall be done at each closing under such
underwriting agreement or other agreements, or as and to the extent
required thereunder.
(m) Make available for inspection by a representative of the selling
Holders of Registrable Securities, any underwriter participating in any
such disposition of Registrable Securities, if any, and any attorney,
consultant or accountant retained by such representative of the selling
Holders of Registrable Securities or underwriter
<PAGE>
21
(collectively, the "Inspectors"), at the offices where normally kept,
during the reasonable business hours, all financial and other records,
pertinent corporate documents and properties of the Company and the
subsidiaries of the Company (including with respect to businesses and
assets acquired or to be acquired to the extent that such information is
available to the Company), and cause the officers, directors, agents and
employees of the Company and its subsidiaries of the Company (including
with respect to businesses and assets acquired or to be acquired to the
extent that such information is available to the Company) to supply all
information in each case reasonably requested by any such Inspector in
connection with such Registration Statement; provided, however, that such
persons shall first agree in writing with the Company that any information
that is reasonably and in good faith designated by the Company in writing
as confidential at the time of delivery of such information shall be kept
confidential by such Persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities, (ii) disclosure of such information
is required by law (including any disclosure requirements pursuant to U.S.
securities laws in connection with the filing of the Registration
Statement or the use of any Prospectus), (iii) such information becomes
generally available to the public other than as a result of a disclosure
or failure to safeguard such information by such person or (iv) such
information becomes available to such person from a source other than the
Company and its subsidiaries and such source is not bound by a
confidentiality agreement; and provided further that the foregoing
investigation shall be coordinated on behalf of the selling Holders of
Registrable Securities by Merrill Lynch.
(n) Comply with all applicable rules, regulations and policies of
the SEC and make generally available to its securityholders earnings
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder no later than 60 days after the end of any
12-month period (or 135 days after the end of any 12-month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter
in which Registrable Securities are sold to an underwriter or to
underwriters in a firm commitment or reasonable efforts underwritten
offering and (ii) if not sold to an underwriter or to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of
the Company after the effective date of the relevant Registration
Statement, which statements shall cover such period, consistent with the
requirements of Rule 158 under the Securities Act.
(o) Use its reasonable efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on each securities
exchange, if any, on which similar securities issued by the Company are
then listed.
(p) Cooperate with each seller of Registrable Securities to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be
<PAGE>
22
sold and not bearing any restrictive legends and registered in such names
as the Selling Holders may reasonably request at least two business days
prior to the closing of any sale of Registrable Securities.
(q) Cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in
the disposition of such Registrable Securities and its respective counsel
in connection with any filings required to be made with the National
Association of Securities Dealers, Inc.
The Company may require a Holder of Registrable Securities to be
included in a Registration Statement to furnish to the Company such information
regarding (i) the intended method of distribution of such Registrable Securities
(ii) such Holder and (iii) the Registrable Securities held by such Holder as is
required by law to be disclosed in such Registrable Statement and the Company
may exclude from such Registration Statement the Registrable Securities of any
Holder who fails to furnish such information within a reasonable time after
receiving such request.
If any such Registration Statement refers to any Holder by name or
otherwise as the Holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Holder by name or otherwise is not required by the
Securities Act, the deletion of the reference to such Holder in such amendment
or supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder of Registrable Securities agrees by acquisition of such
Subject Equity that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(c)(ii), 4(c)(iv) or
4(c)(v) hereof, such Holder will forthwith discontinue disposition of such
Subject Equity covered by the Registration Statement or Prospectus until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(j) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and in either case has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus. If the Company shall give any such notice, the
Effectiveness Period shall be extended by the number of days during such periods
from and including the date of the giving of such notice to and including the
date when each seller of Subject Equity covered by such Registration Statement
shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 4(j) hereof or (y) the Advice, and, in either case, has
received copies of any additional or
<PAGE>
23
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.
Holders of the Subject Equity shall be obligated to keep
confidential the existence of a Suspension Period or any confidential
information communicated by the Company to the Holder with respect thereto.
Section 5. Indemnification and Contribution. (a) The Company shall
indemnify and hold harmless each Initial Purchaser, each Selling Holder (in its
capacity as Selling Holder), each underwriter, if any, who participates in an
offering of Registrable Securities, their respective affiliates, and their
respective directors, officers, employees, agents and each Person, if any, who
controls any of such parties within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Registrable
Securities were registered under the 1933 Act, including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever, in each case, based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided that
(subject to Section 5(d) below) any such settlement is effected with the
written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including fees and disbursements of counsel chosen by any indemnified
party), reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any court or
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under subparagraph (i) or (ii) of this Section 5(a);
<PAGE>
24
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent (i) arising out of an untrue
statement or omission or alleged untrue statement or omission (A) made in or
omitted from a preliminary Prospectus or Registration Statement and corrected or
included in a subsequent Prospectus or Registration Statement or any amendment
or supplement thereto made in reliance upon and in conformity with written
information furnished to the Company by the Selling Holders of Registrable
Securities, any Holder, or any underwriter expressly for use in the Registration
Statement (or any amendment thereto) or the Prospectus (or any amendment or
supplement thereto) or (B) resulting from the use of the Prospectus during a
period when the use of the Prospectus has been suspended or is otherwise
unavailable for sales thereunder in accordance with Sections 2.1(b), 2.1(c),
2.2(a), 2.3(a), 2.4, 2.6 or 4(c) hereof, provided, in each case, that Holders
received prior notice of such suspension or other unavailability. The foregoing
indemnity with respect to any untrue statement contained in or any omission from
a Prospectus shall not inure to the benefit of any Initial Purchaser, Selling
Holder (in its capacity as Selling Holder), or any person who controls such
party within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act from whom the person asserting any such loss, liability, claim, damage or
expense purchased any of the Registrable Securities that are the subject
thereof, was not sent or given a copy of such Prospectus (as amended or
supplemented) by such Initial Purchaser or such Selling Holder (in its capacity
as Selling Holder) to the extent such Initial Purchaser or such Selling Holder
(in its capacity as Selling Holder) was required by law to deliver such
Prospectus as amended or supplemented, at or prior to the written confirmation
of the sale of such Registrable Securities and the untrue statement contained in
or the omission from such Prospectus was corrected in such amended or
supplemented Prospectus, unless such failure resulted from noncompliance by the
Company with its obligations hereunder to furnish such Initial Purchaser or such
Selling Holder (in its capacity as Selling Holder), as the case may be, with
copies of such Prospectus as amended or supplemented.
(b) In the case of any registration of Registrable Securities, each
Selling Holder agrees, severally and not jointly, to indemnify and hold harmless
the Company, each Initial Purchaser, each underwriter, if any, who participates
in an offering of Registrable Securities and the other Selling Holders and each
of their respective directors and officers (including each officer of the
Company who signed the Registration Statement) and each Person, if any, who
controls the Company, any Initial Purchaser, any underwriter or any other
Selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act, against any and all loss, liability, claim, damage and expense
whatsoever described in the indemnity contained in Section 5(a) hereof, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in the Registration Statement (or any
amendment thereto), or the Prospectus (or any amendment or supplement thereto);
provided,
<PAGE>
25
however, that no such Holder shall be liable for any claims hereunder in excess
of the amount of net proceeds received by such Holder from the sale of
Registrable Securities pursuant to such Registration Statement.
(c) In case any action shall be commenced involving any Person in
respect of which indemnity may be sought pursuant to either paragraph (a) or (b)
above, such Person (the "indemnified party") shall give notice as promptly as
reasonably practicable to each Person against whom such indemnity may be sought
(the "indemnifying party"), but failure to so notify an indemnifying party shall
not relieve such indemnifying party from any liability hereunder to the extent
it is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. In the case of parties indemnified pursuant to Section
5(a) above, counsel for such indemnified parties shall be chosen by such
indemnified parties, and, in the case of parties indemnified pursuant to Section
5(b) above, counsel to such indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the defense
of such action; provided, however, that counsel to the indemnifying party shall
not (except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying party or parties be liable
for the fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 5 (whether or not the indemnified parties are actual or
potential parties thereof), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
Notwithstanding the immediately preceding sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified
<PAGE>
26
party for fees and expenses of counsel, an indemnifying party shall not be
liable for any settlement of the nature contemplated by Section 5(a)(ii)
effected without its consent if such indemnifying party (i) reimburses such
indemnified party in accordance with such request to the extent it considers
such request to be reasonable and (ii) provides written notice to the
indemnified party substantiating the unpaid balance as unreasonable, in each
case prior to the date of such settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by such indemnifying party or parties on the one hand, and
such indemnified party or parties on the other and from the offering of the
Registrable Securities included in such offering; or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of such indemnifying party or parties on
the one hand, and such indemnified party or parties on the other hand, in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party or
parties on the one hand, and such indemnified party or parties on the other hand
shall be determined by reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by such indemnifying
party or parties and such indemnified party or parties and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Initial Purchasers and the Holders
of the Registrable Securities agree that it would not be just and equitable if
contribution pursuant to this Section 5 were determined by pro rata allocation
(even if the Selling Holders of Registrable Securities were treated as one
entity, and the Holders were treated as one entity, for such purpose) or by
another method of allocation which does not take account of the equitable
considerations referred to above in Section 5. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an indemnified party and
referred to above in this Section 5 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by a governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1993 Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 5, each Person, if any, who
controls an Initial Purchaser or Holder within the meaning of this Section 15 of
the 1933 Act or Section 20 of the 1934 Act shall
<PAGE>
27
have the same rights to contribution as such Initial Purchaser or Holder, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each Person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The parties hereto agree
that any underwriting discount or commission or reimbursement of fees paid to
any Initial Purchaser pursuant to the Purchase Agreement shall not be deemed to
be a benefit received by any Initial Purchaser in connection with the offering
of the Registrable Securities in such offering.
Section 6. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of any of its
obligations under this Agreement, each Holder and Permitted Holders, in addition
to being entitled to exercise all rights provided herein, in the Purchase
Agreement or granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of any of the provisions of this Agreement and hereby
further agrees that in the event of any action for specific performance in
respect of such breach, it shall waive the defense that a remedy at large would
be adequate.
(b) No Inconsistent Agreements. The Company and the Permitted
Holders will not enter into any agreement which is inconsistent with the rights
granted to the Holders of Warrants and Registrable Securities in this Agreement
or otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's other issued and outstanding
securities, if any, under any such agreements.
(c) No Piggy-Back on Demand Registrations. The Company shall not
grant to any of its securityholders (other than the Holders in such capacity)
the right to include any of their securities in any Registration Statement filed
pursuant to a Demand Registration.
(d) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the Holders
and Permitted Holders of not less than a majority of the then outstanding
Warrants and each class and series of Registrable Securities and with respect to
Sections affecting the rights or obligations of the Permitted Holders hereunder,
the Permitted Holders who hold not less than a majority of shares of the capital
stock held by the Permitted Holders; provided, however, that, for the purposes
of this Agreement, Warrants and Registrable Securities that are owned, directly
or indirectly, by the
<PAGE>
28
Company or any of their Affiliates are not deemed to be outstanding.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of one or
more Holders and Permitted Holders and that does not directly or indirectly
affect the rights of other Holders and other Permitted Holders may be given by a
majority of the Holders and Permitted Holders so affected; provided, however,
that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the immediately
preceding sentence. Notwithstanding the foregoing, no amendment, modification,
supplement, waiver or consent with respect to Section 5 shall be made or given
otherwise than the prior written consent of each Person affected thereby.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telecopier, or any courier guaranteeing overnight delivery (i)
if to a Holder or a Permitted Holder, at the most current address of such Holder
or such Permitted Holder as set forth in the register for the Warrants or the
Registrable Securities or the securities owned by the Permitted Holders, (ii) if
to the Initial Purchasers, as provided in the Purchase Agreement and (iii) if to
the Company, as provided in the Purchase Agreement.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. If any transferee of
any Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Warrants, Warrants Shares or securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such securities such Person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this Agreement
and such Person shall be entitled to receive the benefits hereof. The Company
may not assign any of its rights or obligations hereunder without the prior
written consent of each Holder of Registrable Securities and each indemnified
party under Section 5(a). Notwithstanding the foregoing, no successor or
assignee of the Company shall have any rights granted under the Agreement until
such person shall acknowledge its rights and obligations hereunder by a signed
written statement of such person's acceptance of such rights and obligations.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so
<PAGE>
29
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Agreement.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(k) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Warrant Agreement, is intended by the parties as a final
expression of their agreement, and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. This Agreement, the Purchase
Agreement and the Warrant Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
(m) Securities Held by the Company or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities or Warrants is required hereunder, Registrable Securities or Warrants
held by the Company or by any of its affiliates (as such term is defined in Rule
405 under the Securities Act) shall not be counted (in either the numerator or
the denominator) in determining whether such consent or approval was given by
the Holders of such required percentage.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
PATHNET, INC.
By: /s/ David Schaeffer
______________________________________
Name: David Schaeffer
Title: Chairman
SPECTRUM EQUITY INVESTORS, L.P.,
In its Capacity as a Permitted Holder
By: /s/ Kevin J. Maroni
______________________________________
Name: Kevin J. Maroni
Title: General Partner
NEW ENTERPRISE ASSOCIATES VI, Limited
Partnership,
In its Capacity as a Permitted Holder
By: /s/ Peter J. Barris
______________________________________
Name: Peter J. Barris
Title:
<PAGE>
ONSET ENTERPRISE ASSOCIATES II, L.P.,
In its Capacity as a Permitted Holder
By: OEA II Management, L.P.
By: /s/ Thomas E. Winter
______________________________________
Name: Thomas E. Winter
Title: General Partner
FBR TECHNOLOGY VENTURE PARTNERS,
L.P.,
In its Capacity as a Permitted Holder
By: /s/ Gene Riechers
______________________________________
Name: Gene Riechers
TORONTO DOMINION CAPITAL (USA) INC.,
In its Capacity as a Permitted Holder
By: /s/ Martha L. Gariepy
______________________________________
Name: Martha L. Gariepy
GROTECH PARTNERS IV, L.P.,
In its Capacity as a Permitted Holder
By: /s/ Patrick J. Kerins
______________________________________
Name: Patrick J. Kerins
Title: Managing Director
<PAGE>
/s/ Richard A. Jalkut
__________________________________
Richard A. Jalkut
/s/ David Schaeffer
_____________________________________
David Schaeffer
<PAGE>
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. INC.
TD SECURITIES (USA) INC.
SALOMON BROTHERS INC
By: MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Lisa Craig
________________________________
Name: Lisa Craig
Title: Authorized Signatory
<PAGE>
Exhibit 10.25
PURCHASE AGREEMENT
between
ANDREW CORPORATION
and
PATH TEL, INC.
Path Tel. Inc. - 16 May 1995
<PAGE>
PURCHASE AGREEMENT
between
ANDREW CORPORATION
and
PATH TEL, INC.
This Agreement is made this 1st day of July 1995, by and between Andrew
Corporation, a Delaware corporation, with its offices located at 10500 West
153rd Street, Orland Park, Illinois 60462, hereinafter referred to as "Seller",
and Path Tel, Inc., with its offices located at 6715 Kenilworth Avenue,
Riverdale, Maryland 20737, hereinafter referred to as "Buyer".
Buyer is engaged in the business of providing turnkey negotiation and relocation
services to operators ("Incumbents") of microwave facilities on certain radio
frequency bands referred to as the "2 GHz Band". Seller is in the business of
manufacturing and selling certain telecommunications products that Buyer would
like to purchase on a "reseller type" basis. Buyer would issue Purchase Orders
to Seller for products to be delivered to various Incumbent sites around the
United States. These Purchase Orders would be governed by the terms and
conditions contained in this Agreement. In addition, Seller agrees to sell
certain telecommunications products to Incumbent's when these products
(specially coded or otherwise readily identifiable) have been specifically
recommended by Buyer. These purchases, while not a part of this Agreement, will
be considered part of the Buyer's net volume of orders when determining the
discount levels in this Agreement.
1. DEFINITIONS
A. Products. The "Products" to be purchased and sold pursuant to this
Agreement are the HELIAX(R) cable, connectors, accessories,
HELIAX(R) elliptical waveguide, Microwave Antennas, Pressurization
Products, Towers and Shelters Products, identified in Andrew Catalog
36, or in such subsequent version of the Catalog as may be published
during the term of this Agreement. All Seller's Products will be new
and unused. No refurbished, reconditioned or reused Products will be
provided without the prior written consent of Buyer. Seller reserves
the right to add, delete or revise any Product offered herein upon
sixty (60) days prior written notice to Buyer. Any purchase order
for deleted or revised Products accepted by Seller during this 60
day notice period shall be completed in accordance with all order
requirements, provided such order is scheduled to ship within 60
days after order placement.
B. Preconfigured/Coded Products. In order to simplify Product design,
order entry, and the aggregate order volume tracking of orders by
Incumbents to determine Buyer discount levels, the parties shall
jointly develop coding for standard products packaged in kits
("Kit") and preconfigured non-standard Products. Kits are packages
of standard products that will encompass a complete antenna system
including waveguide and accessories as listed in Exhibit A-3.
Preconfigured nonstandard Products can be added to Exhibit A-3 as
they are developed. Seller may offer Kits and these other jointly
developed products only to Buyer and Incumbents.
C. Ship to Address. The "Ship to Address" shall mean any location
designated by Buyer for the delivery of Products in accordance with
the terms and conditions in this Agreement.
D. Site. The "Site" shall mean Incumbent's installation site.
Path Tel, Inc. - 16 May 1995
<PAGE>
Purchase Agreement
between Andrew Corporation
and Path Tel, Inc.
May 1995
Page 2 of 10
2. EXCLUSIVITY
Buyer will exclusively recommend Seller's Products. Buyer will reengineer
each Incumbent's microwave link with a replacement system utilizing the
Seller's Products, unless another manufacturer's products are specified by
the Incumbent.
3. PRODUCT PRICING
A. Standard Products. The purchase price of all standard Products sold
under this Agreement are the prices set forth in the then-current
Andrew U.S. and International Price List attached hereto as Exhibit
A-1, less the applicable discount set forth in the Discount Schedule
in Exhibit B except for VALULINE(R) Antennas which are shown at net
prices in Exhibit A-2. The initial discount is based on a forecast
of the total "Net Volume" of Product orders projected to be issued
by Buyer plus Kits and other specially preconfigured or otherwise
readily identifiable products ordered by Incumbents, and accepted
and paid for during an average year during the first three years of
this Agreement. "Net Volume" shall mean the total price of standard
and non-standard Product orders, less freight charges, taxes and
insurance costs, that Buyer purchases from Seller including any Kits
and other specially preconfigured or otherwise readily identifiable
Products that Incumbents purchase from Seller.
The initial discount for the two option years of this Agreement will
be based upon a projection of the average annual net volume of
orders to be placed and paid for during these two years. This
forecast shall be prepared six months prior to the commencement of
this two year period.
The three year and the two year forecasts shall be broken down into
semi-annual periods. These forecasts shall be updated semi-annually
in a separate letter signed by a corporate officer of Buyer and
shall be reviewed with the Seller. In the event Seller makes a
reasonable determination that projected volumes will not be
achieved, Seller shall have the right, upon sixty (60) days written
notice to Buyer, to adjust the Discount Schedule accordingly.
B. Non-Standard Products. Prices for non-standard Products, including,
but not limited to, towers and shelters, shall be quoted in writing
by Seller, based on the Product specifications requested by Buyer.
Quoted prices for such non-standard Products shall remain valid for
a period of sixty (60) days after the quotation date, unless
otherwise agreed to in writing by Seller.
C. Preconfigured/Coded Products. Net prices for Kits shall be
determined by the then current Andrew U.S. Price List for the
specific standard products comprising the Kit less the applicable
discount shown in Exhibit B. Standard and Non-standard products that
are specially preconfigured shall be coded, described and priced at
net as set forth in Exhibit A-3. Seller reserves the right to offer
these Products at the net prices in Exhibit A-3 only to Incumbents
which agree to mutually acceptable terms and conditions within a
reasonable period of time.
D. Product Support. Seller will provide the following product support
to assist Buyer in familiarizing Incumbents in use of Seller's
Products when appropriate:
Path Tel, Inc. - 16 May 1995
<PAGE>
Purchase Agreement
between Andrew Corporation
and Path Tel, Inc.
May 1995
Page 3 of 10
1. Telephone support from the Seller's Technical Services
Departments.
2. Seller's literature, publications and catalogs.
E. Price List. Seller agrees to notify Buyer in writing of any change,
modification or revision to the Price List at least sixty (60) days
prior to the effective date of the price change. Buyer orders
accepted by Seller during this 60 day notice period shall be exempt
from the price change, provided such orders are scheduled to ship no
later than 90 days after the effective date of the price change.
F. Taxes. Product prices do not include sales, use, privilege, excise
or any other tax, duty, tariff or assessment that may arise from the
sale of the Products pursuant to this Agreement. In the event Seller
becomes liable to pay or bear the burden of any such tax, the amount
shall be added to the purchase price of the Products and shall be
paid for by Buyer. All applicable taxes charged to Buyer shall be
listed as a separate line item on Seller's invoice. A request for
sales tax exemption must be accompanied by a tax exemption
certificate prior to Product shipment.
4. INVOICING AND PAYMENT TERMS
A. Invoicing. Seller shall invoice Buyer for Products upon shipment.
Seller agrees that all invoices shall be submitted in duplicate to
the address designated by Buyer on its purchase order. Each invoice
shall include: (i) Buyer's purchase order number; (ii) Seller's
invoice number; (iii) the quantity and price of Products shipped;
(iv) applicable sales or other tax; (v) applicable freight charges;
and (vi) the total invoice cost.
B. Net Payment Terms. Payment for Products purchased under this
Agreement shall be due within thirty (30) days after date of
Seller's invoice. If Seller deems necessary in its sole discretion,
Seller may require a reasonable down payment concurrent with the
issuance of Buyer's Purchase Orders.
C. Credit Limit. Seller reserves the right in its sole discretion to
establish a credit limit based on financial information provided by
Buyer, as well as other information. This credit limit will place a
ceiling on the amount of the Seller's outstanding order backlog with
Buyer and the amount of payments due from Buyer. In such event,
Seller shall notify Buyer in writing of the amount of the credit
limit. Credit limits may be changed from time to time to reflect
changes in Buyer's financial status.
D. Late Payment Fees. Undisputed invoices that are more than 30 days
past due shall be assessed a service charge of 1.5% per month or the
maximum legal rate permitted by Illinois law, whichever is lower.
Seller reserves the right to reject Buyer's purchase orders or to
withhold shipment of Products if Buyer's account is in arrears, and
Buyer fails to issue payment to bring its account current and/or in
compliance with its credit limits within five (5) days after
Seller's written request for payment. Buyer acknowledges that Seller
retains full security interest in all Products until Buyer renders
payment in full, and upon request, agrees to execute any documents
necessary to perfect Seller's security interest.
Path Tel, Inc. - 16 May 1995
<PAGE>
Purchase Agreement
between Andrew Corporation
and Path Tel, Inc.
May 1995
Page 4 of 10
5. FORECAST OF TOTAL PCS/PCN MARKET
Within sixty (60) days after the execution of this Agreement, Buyer agrees
to provide Seller forecasts which shall address an overall estimate of the
number of PCS/PCN sites awarded in the total PCS/PCN market, the number of
existing private microwave hops to be relocated and the new frequency, and
the potential elliptical waveguide requirements including quantity and
size.
6. ORDER PROCEDURES
A. Placement. Buyer shall issue a written purchase order referencing
this Agreement for all Products purchased under this Agreement. Each
order shall be signed by Buyer's authorized representative and shall
contain the following information: (i) Buyer's billing address; (ii)
the type and quantity of Products ordered; (iii) the requested
delivery date by line item; (iv) Buyer's ship to address, and (v)
any other information as may reasonably be requested by Seller. All
orders shall be mailed, faxed, or electronically submitted to Seller
at the address stated on page 1 of this Agreement, or to such other
address as Seller may designate in writing to Buyer. Orders for
non-standard Products shall also reference Seller's quotation number
and be accompanied by the written Product specifications requested
by Buyer.
B. Acceptance. Seller shall notify Buyer in writing of its acceptance,
rejection or proposed modification of an order within ten (10) days
after Seller's receipt of the purchase order. In the event Seller
fails to notify Buyer within this time period, the order shall be
deemed to be accepted by Seller and shall be performed in accordance
with the terms of this Agreement.
C. Conditions of Sale. All orders for Products arising herefrom shall
be governed by the terms and conditions set forth in this Agreement.
No preprinted term or condition stated on any Buyer purchase order
or solicitation shall be binding on Seller or become part of any
order, unless expressly agreed to in writing by an authorized
representative of Seller.
D. Change Orders. When any change order causes an increase or decrease
in the purchase order price or the time required for the performance
of any obligation, Seller and Buyer shall negotiate as soon as
possible an equitable adjustment in the purchase order price and/or
delivery schedule. Buyer change orders shall be in writing and
signed by its authorized representative.
7. CANCELLATION OF ORDERS
Buyer may cancel orders for standard Products without penalty, provided
Buyer notifies Seller not less than thirty (30) days prior to the
scheduled delivery date. Orders for standard Products canceled by Buyer
within 30 days of the scheduled delivery date shall be subject to a 20%
cancellation charge. Orders for non-standard Products may be canceled at
any time prior to shipment upon written notice to Seller. Buyer and Seller
agree to promptly negotiate a reasonable cancellation charge for any
non-standard Product order canceled by Buyer. The cancellation charge
shall reimburse Seller for all actual costs incurred by Seller on the
order prior to receipt of the cancellation notice, plus a reasonable
Path Tel, Inc. - 16 May 1995
<PAGE>
Purchase Agreement
between Andrew Corporation
and Path Tel, Inc.
May 1995
Page 5 of 10
profit. All cancellation charges shall be promptly negotiated and paid by
Buyer within sixty (60) days after the effective cancellation date.
8. SHIPMENT AND DELIVERY
A. Shipping Terms. All Products purchased under this Agreement shall be
packed, packaged and crated in accordance with Seller's standard
commercial practices. Products shall be shipped F.O.B. Seller's
plant, Freight Prepaid and Billed. All transportation charges shall
be billed to Buyer at actual cost and shall be listed as a separate
line item on Seller's invoice. Buyer agrees to pay all such
transportation costs. Title to and risk of loss of the Products sold
to Buyer under Buyer's purchase order shall pass to Buyer upon
delivery of the Products to the common carrier at Seller's plant.
(Title to and risk of loss of products, including Kits, sold to
Incumbents and Clients under their purchase orders shall pass to
them as stated in the Seller's contract with such Incumbents or
Clients.) Adequate access to the Ship to Address and proper
facilities for offloading, staging, moving and handling of items
shall be the responsibility of the Buyer.
B. Delivery Dates. Buyer will endeavor to minimize the different types
of Antennas used. This will allow Andrew to produce larger volumes
of similar antennas that will enhance their availability and
delivery dates. Seller shall make every reasonable effort to comply
with the delivery dates specified in Buyer's purchase orders.
C. Buyer Delayed Shipments. Any request by Buyer to delay shipment of a
completed order for more than thirty (30) days shall result in the
assessment of a storage charge of 1.5% of the invoice price per
month. In addition, on the 31st day of a delayed shipment, title to
the completed Products shall automatically pass to Buyer and Seller
shall invoice Buyer in full for the completed order. Buyer agrees to
pay the invoice in accordance with the payment terms set forth in
Section 4 of this Agreement. Seller shall insure the Products
against risk of loss until the Products are delivered to the Ship to
Address.
9. FORCE MAJEURE
Seller shall not be liable for any delivery delays due to causes beyond
its reasonable control, including, but not limited to, acts of God, acts
of the public enemy, fires, floods, acts of any government, strikes,
embargoes, acts of Buyer, its employees or agents, unusually severe
weather conditions, inability to obtain raw products used in the Products
or any other condition beyond the control and without the fault of Seller.
In the event of any such contingency, Seller shall be given a reasonable
period of time in which to complete the performance of its obligations. If
such contingency continues in effect for a period in excess of ninety (90)
days, either party may cancel the purchase order, or any undelivered
portion thereof, without liability to the other party.
10. FINAL ACCEPTANCE
Buyer shall inspect the Products within thirty (30) days after delivery
and shall notify Seller in writing of any nonconforming Products. Buyer's
failure to notify Seller within this time period or its use of the
Products shall constitute final acceptance of the Products and shall
Path Tel, Inc. - 16 May 1995
<PAGE>
Purchase Agreement
between Andrew Corporation
and Path Tel. Inc.
May 1995
Page 6 of 10
waive all claims of non-conformity of the products, except such claims
governed by the terms of the applicable Product Warranty set forth in
Exhibit C herein.
Any Product rejected by Buyer within the 30 day inspection period shall be
returned to Seller at Seller's sole expense. Buyer agrees to obtain
Seller's written Return Goods Authorization Number prior to returning any
Product purchased under this Agreement. Seller shall replace the rejected
Product in a prompt and reasonable time period and shall pay all
transportation charges to ship the Product replacement to Buyer at the
Site location.
11. WARRANTY
Seller warrants the Products to the Buyer and the Incumbent in accordance
with the terms of the Andrew Limited Warranty applicable to that specific
Product. Copies of the Limited Warranties governing specific Products are
set forth herein in Exhibit C as follows:
A. Seller warrants the structural integrity of its Shelter Products in
accordance with the terms of the Andrew Ten Year Limited Concrete
Shelter Warranty set forth in Exhibit C-1 herein.
B. Seller warrants its Tower Products in accordance with the terms of
the Andrew Limited Lifetime Tower Warranty set forth in Exhibit C-2
herein.
C. Andrew warrants its Microwave Antenna Products in accordance with
the terms of the Andrew Three Year Limited Microwave Antenna
Warranty set forth in Exhibit C-3 herein.
D. Andrew warrants all other Products provided under this Agreement in
accordance with the terms of the Andrew Standard Warranty set forth
herein in Exhibit C-4.
E. Andrew agrees that all warranty repairs shall be performed within a
reasonable time period at Andrew's plant or at such other location
as may be mutually agreed upon by the parties.
F. ANDREW PROVIDES NO PRODUCT WARRANTY OTHER THAN THOSE SET FORTH IN
EXHIBIT C EXCEPT AS TO PATENT INFRINGEMENT. ALL OTHER WARRANTIES,
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR PURPOSE, ARE EXPRESSLY EXCLUDED.
12. PATENT INFRINGEMENT ASSURANCE
Seller shall, at its own expense, settle or defend any claim, suit or
action which may be brought against Buyer and/or the Incumbent for
infringement of United States patents arising out of Buyer's or the
Incumbent's use of Seller's Products. Seller shall pay any final judgement
for damages and costs which may be awarded against Buyer and/or the
lncumbent, provided that Buyer promptly notifies Seller of any such claim,
suit or action and affords Seller complete control of the conduct of such
settlement or defense. Buyer agrees to provide Seller with all available
information regarding such claim, suit or action. Seller may, at its own
expense, elect to procure for Buyer or the Incumbent the right to continue
using the allegedly infringing Products, or replace it with non-infringing
Product,
Path Tel. Inc. - 16 May 1995
<PAGE>
Purchase Agreement
between Andrew Corporation
and Path Tel, Inc.
May 1995
Page 7 of 10
or modify it so that it becomes a non-infringing Product, or remove it and
repay the purchase price applicable thereto, as well as transportation
costs. This paragraph shall not apply to any infringement arising out of
any feature incorporated into the Product at the request of Buyer or from
the use of the Product for purposes other than as advertised, sold or
intended by Seller. In no event shall Seller's total liability to Buyer
and / or Incumbent under the provisions of this article exceed the
aggregate sum paid to Seller by Buyer for the allegedly infringing
product. The foregoing states the entire warranty by Seller for patent
infringement of the Product and any part of it.
13. LIMITATION OF LIABILITY
Neither Seller nor Buyer shall be liable to the other party, its agents,
employees, subcontractors or customers, for any indirect, exemplary,
incidental, special or consequential damages arising from any action for
breach of contract, breach of warranty, or for any action based on the
tortious acts or omissions of Seller or Buyer. The parties acknowledge
that such lack of liability includes, but is not limited to, loss of
actual or anticipated revenue or profits, loss of actual or anticipated
value of any business, or damage to the business reputation or goodwill of
Buyer or Seller. The protection provided to Seller by this Section 13 will
be incorporated into any Product or Service Agreements between Buyer and
Client/Incumbent.
14. TERM
This Agreement shall commence on the date designated on page 1 of this
Agreement and shall remain in effect for a period of three (3) years from
that date. Two one year option periods are hereby established and Buyer
may exercise each option period by providing Seller with written notice at
least thirty (30) days prior to the start of each option period.
15. TERMINATION OF AGREEMENT
A. Termination for Convenience. Seller or Buyer may terminate this
Agreement for convenience at any time prior to the expiration date
upon six (6) months prior written notice to the other party by
registered or certified mail.
The parties agree that any purchase order accepted by Seller prior
to the effective termination date shall be completed by Seller and
paid for by Buyer in accordance with the terms of this Agreement.
B. Termination for Default. Notwithstanding the foregoing, Seller or
Buyer may immediately terminate this Agreement for default if the
other party:
1) fails to cure a material breach of this Agreement within
thirty (30) days after receipt of written notice describing
such breach;
2) undergoes a substantial change in management, ownership or
controlling interest unless approved in writing by Seller in
advance, which approval will not be unreasonably withheld; or
3) becomes insolvent, files a petition in bankruptcy, is placed
in control of a receiver or makes an assignment for the
benefit of creditors.
Path Tel. Inc. - 16 May 1995
<PAGE>
Purchase Agreement
between Andrew Corporation
and Path Tel, Inc.
May 1995
Page 8 of 10
4) expresses an intent not to pay Seller's invoices according to
the terms of this Agreement.
Upon termination of this Agreement for default, the non-breaching
party shall have the right to pursue all rights and remedies
available at law or in equity subject to the limitations in this
Agreement. The prevailing party shall be entitled to recover
reasonable attorneys' fees and any other costs incurred in
initiating any legal action or proceeding to enforce the provisions
of this Agreement.
16. CONFIDENTIAL INFORMATION
All data or information provided by Seller to Buyer, or by buyer to
Seller, which the disclosing party identifies as confidential or
proprietary shall be conspicuously marked with a legend affixed to the
front page of the document. Such confidential or proprietary information,
including, but not limited to, technical data or pricing information,
shall be used only in connection with the performance of obligations under
this Agreement and shall not be revealed to any third party without the
express written consent of the disclosing party. The receiving party shall
protect such confidential or proprietary information in accordance with
the terms of a non-disclosure agreement, if applicable, or in accordance
with the safeguards used to protect its own confidential information. All
copies of such information in written, graphic or other tangible form
shall be returned to the disclosing party upon the expiration or
termination of this Agreement.
17. COMPLIANCE WITH LAW
Seller and Buyer agree to fully comply with all applicable laws,
ordinances, codes, rules and regulations governing the performance of any
obligation under this Agreement. Each party shall indemnify and hold the
other party harmless from any liability arising from its breach of this
provision.
18. CORRESPONDENCE
All official notices required under this Agreement shall be deemed validly
delivered when sent by registered or certified mail, postage prepaid, to
the party's principal place of business stated on Page 1 herein, or to
such other address as the party may designate in writing to the other. In
the case of official notices sent by Buyer to Seller, a copy shall be
forwarded to:
Andrew Corporation
10500 West 153rd Street
Orland Park, Illinois 60462
Attn: Director, Corporate Contracts
19. ASSIGNMENT
Neither Seller nor Buyer shall assign, delegate or otherwise transfer by
operation of law this Agreement, or any obligation hereunder, in whole or
in part, without the prior written consent of the other party, such
consent not to be unreasonably withheld.
Path Tel. Inc. - 16 May 1995
<PAGE>
Purchase Agreement
between Andrew Corporation
and Path Tel, Inc.
May 1995
Page 9 of 10
20. WAIVER OF RIGHTS
The failure of Buyer or Seller to assert any right or remedy upon the
breach of any provision of this Agreement shall not be deemed to be a
waiver of any present or future right hereunder, unless said waiver is
made in writing by an authorized representative of the party.
21. SEVERABILITY OF AGREEMENT
If any clause, paragraph or provision of this Agreement is held to be
illegal, invalid or unenforceable by any court of competent jurisdiction,
such clause, paragraph or provision shall be deemed severed from the
Agreement and shall not affect the validity of the remaining provisions of
the Agreement.
22. GOVERNING LAW
This Agreement shall be interpreted, construed and enforced in accordance
with the laws of the State of Illinois.
23. DISPUTES AND ARBITRATION
Any controversy or claim arising out of or relating to this Agreement,
including the construction, application and termination of this Agreement
which cannot be amicably resolved between the parties, shall be settled by
mandatory arbitration in accordance with the rules of the American
Arbitration Association ("AAA"). The arbitration shall be held in Chicago
and conducted by a panel of three neutral arbitrators each of whom is
knowledgeable of the wireless industry and is appointed in accordance with
AAA rules. The parties acknowledge that the decision of the panel shall be
final and binding with respect to findings of both law and fact, and shall
not be appealable to any court in any jurisdiction. The cost of any
arbitration shall be allocated by the panel.
24. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties and
supersedes all previous oral and written communications, agreements and
understandings between the parties with respect to the subject matter
herein. No change, modification or amendment of this Agreement shall be
binding unless made in writing and signed by authorized representatives of
both parties.
Path Tel, Inc. - 16 May 15 1995
<PAGE>
Purchase Agreement
between Andrew Corporation
and Path Tel, Inc.
May 1995
Page 10 of 10
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate
through their authorized corporate representatives.
ANDREW CORPORATION PATH TEL, INC.
/s/ William R. Currer /s/ David Schaeffer
- ------------------------------ ------------------------------
Signature Signature
William R. Currer David Schaeffer
- ------------------------------ ------------------------------
Name Name
Vice President Andrew Systems President
- ------------------------------ ------------------------------
Title Title
7-25-95 5/18/95
- ------------------------------ ------------------------------
Date Date
Path Tel, Inc. - 16 May 1995
<PAGE>
Amendment One
To Purchase Agreement between
Andrew Corporation and Path Tel, Inc.
Dated 16 September 1996
Whereas, Andrew Corporation and Path Tel, Inc. entered into a Purchase Agreement
on 1 July 1995; and
Whereas, Andrew Corporation and Path Tel, Inc. desire to amend such Agreement to
reflect the name change of Path Tel, Inc. to Path Net Incorporated and to revise
the Discount Schedule, Exhibit B of the Agreement;
Now, Therefore, Andrew Corporation and Path Tel, Inc. agree as follows:
1. Replace the Discount Schedule, Exhibit B of the Agreement, with the attached
Discount Schedule whenever products are purchased for 2 Ghz relocation projects.
2. Change name of the Buyer in the Agreement from Path Tel, Inc. to Path Net
Incorporated, a Delaware Corporation.
3. All other items of the Agreement remain unchanged.
In witness whereof, the parties hereto have executed this Amendment One as of
the date indicated below.
ANDREW CORPORATION PATH TEL, INC.
Signed Signed /s/ David Schaeffer
------------------------ ------------------------
Name Name
------------------------ ------------------------
Title Title
------------------------ ------------------------
Date Date
------------------------ ------------------------
PATH NET INCORPORATED
Signed /s/ David Schaeffer
------------------------
Name
------------------------
Title
------------------------
Date
------------------------
<PAGE>
Amendment Two
To Purchase Agreement between
Andrew Corporation and Path Tel, Inc.
Dated 1 July 1995
Whereas, Andrew Corporation and Path Tel, Inc. entered into a Purchase Agreement
on 1 July 1995; and
Whereas, Andrew Corporation and Path Tel, Inc. desire to amend such Agreement by
revising the Discount Schedule, Exhibit B of the Agreement;
Now, Therefore, Andrew Corporation and Path Tel, Inc. agree as follows:
1. Replace Section 3A of the Agreement with the following effective July 1,
1997. The purchase price of all standard Products sold under this Agreement are
the prices set forth in the then-current Andrew Price List attached hereto as
Exhibit A-l, less the applicable discount set forth in the Discount Schedule in
Exhibit B. The initial discount is based on a forecast of the total "Net Volume"
of Product orders projected to be issued by Buyer plus Kits and other specially
preconfigured or otherwise readily identifiable products ordered by Incumbents,
and accepted and paid for during an average year during the next three years of
this Agreement beginning 1 July 1997 (assumes that Agreement shall be extended
two additional years by Buyer according to Section 14). "Net Volume" shall mean
the total price of standard and non-standard Product orders, less freight
charges, taxes and insurance costs, that Buyer purchases from Seller including
any Kits and other specially preconfigured or otherwise readily identifiable
Products that Incumbents purchase from Seller.
The three year forecast shall be broken down into semi-annual periods. This
forecast shall be updated semi-annually in a separate letter signed by a
corporate officer of Buyer and shall be reviewed with the Seller. In the event
Seller makes a reasonable determination that the three year forecast will not be
achieved, Seller shall have the right, upon sixty (60) days written notice to
Buyer, to adjust the Discount Schedule accordingly.
2. Replace the Discount Schedule, Exhibit B of the Agreement, with the attached
Discount Schedule, effective 1 July 1997, whenever products are purchased for 2
Ghz relocation projects.
3. Delete the old ValuLine(R) Antenna Price List, Exhibit A-2. It is now
included in Exhibit A-l.
4. All other items of the Agreement remain unchanged.
In witness whereof, the parties hereto have executed this Amendment One as of
the date indicated below.
ANDREW CORPORATION PATH NET INCORPORATED
/s/ Donn R. Peterson /s/ David Schaeffer
- ------------------------------ ------------------------------
Signature Signature
Donn Peterson David Schaeffer
- ------------------------------ ------------------------------
Name Name
Business Unit Manager President & CEO
- ------------------------------ ------------------------------
Title Title
3 July 1997 7/7/97
- ------------------------------ ------------------------------
Date Date
<PAGE>
Exhibit 10.26
LEASE AGREEMENT
THIS LEASE AGREEMENT made this 9th day of August, 1997, by and between
6715 Kenilworth Avenue General Partnership (herein called "Landlord") and
PathNet, Inc. (herein called "Tenant").
WITNESSETH:
1. Leased Premises. Landlord hereby demises unto Tenant, and Tenant hereby
leases from Landlord, upon the terms and conditions set forth in this Lease, in
the building located at 1015 31st Street NW, Washington, D.C., 20002, containing
approximately 10,195 square feet of space (herein called the "Premises").
2. Term. Subject to Paragraph 36, the term of the Lease shall be for a
period of One( 1) year commencing on the 1st day of September, 1997, and ending
on August 31, 1998.
3. Rent. The Tenant shall pay to the Landlord an annual minimal rental
(herein called "Minimum Rent"), in the amount of $203,920.00 (which is
approximately $20 per square foot), subject to adjustment as hereinafter set
forth, payable without deduction or set off in equal monthly installments of
$16,993.33 in advance, the first installment of which is due and payable upon
the commencement date of this Lease, with subsequent installments due and
payable on the first day of each calendar month thereafter until the total rent
provided for herein is fully paid. If the commencement date is a day other than
the first day of the month, all rent shall be adjusted to the first day of the
month.
If any installment of rent accruing hereunder or other sums payable
hereunder shall not be paid within ten (10) days of the due date, the rental and
such other sums shall be increased, without affecting any of the Landlord's
other rights under this Lease, by a late rental charge equal to five percent
(5%) of the delinquent installment.
No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly installment of rent herein stipulated shall be deemed to be other
than on account of the earlier stipulated rent, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord may accept such check without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy provided in this Lease.
4. Expiration. The term "Lease Year" shall mean twelve (12) successive
month periods during the term of this Lease, each period commencing on the first
day of that month in which this Lease commences. At any expiration or
cancellation of this lease, should lessee hold over for any reason, it is hereby
agreed that, in the absence of a written agreement to the contrary, such tenancy
shall be from month to month only and subject to all the other terms,
conditions, and provisions therefore in effect with respect to said lease.
<PAGE>
5. Real Estate Taxes and Insurance Premiums. In addition to the payment of
the Minimum Rent, Tenant shall also pay to Landlord its proportionate share of
all taxes and assessments which are levied each year during the term of this
Lease on the land and building in which the Premises are located which shall be
deemed additional rent, and its proportionate share of all insurance premiums
paid by Landlord for the comprehensive (package) insurance policy or policies
maintained by Landlord on said land and building which shall also be deemed
additional rent. The Tenant's share of such taxes and insurance premiums is
hereby determined to be zero percent of the total cost of the real estate taxes
and insurance premiums. Any reasonable expense incurred by the Landlord in
contesting any tax increase shall be included as an item of taxes for the
purpose of computing additional rent due Landlord. The Landlord, however, shall
have no obligation to contest any tax increase. If the Landlord takes advantage
of any provisions allowing any assessment to be paid in installments, Tenant
shall be obliged to pay only his proportionate share of such installment. In no
event shall the rent herein reserved be reduced below the minimum rent.
The term "real estate taxes" shall mean all state, county and city
taxes, rates and assessments, general and special, levied or imposed with
respect to the land, building and improvements constructed thereon. If the
present system of real estate taxes is changed and a new tax or levy is added to
or substituted therefore, then such new tax or levy shall be included in the
term "real estate taxes".
The term "tax year" shall mean the period from October 1 of any tax
year through September 30 of the following year, unless a different tax year is
adopted for real estate taxes by any taxing authority, in which event the tax
year shall mean the tax year so adopted for tax purposes.
6. Utilities. Tenant will, during the term of this Lease, pay for its own
telephone; Landlord shall pay for gas, water, electricity, sewer, refuse
disposal, and all other utility services used by the Tenant on the Premises.
Landlord shall in no event be liable for any interruption or failure of utility
services on the Premises.
7. Common Area Maintenance. Tenant shall pay to Landlord its proportionate
share of all costs incurred by Landlord in maintaining, repairing and operating
the parking lot and the common areas of the building and land upon which the
building is located, including but not limited to, trash removal, snow removal,
lighting, cleaning, paving, repairing, painting and striping, which
proportionate share is hereby determined to be zero percent (0.00%) of the total
cost of said common area expense which shall be deemed additional rent.
Landlord shall have the absolute right at any time to modify or
relocate the existing driveways and parking areas.
Tenant's use of the parking spaces on the parking lot shall be
limited to zero spaces.
<PAGE>
8. Repairs and Maintenance. Tenant shall repair and pay for any
damage caused by the negligence of the Tenant, its agents, servants or employees
or caused by Tenant's default hereunder. Tenant shall immediately give the
Landlord written notice of any defect in the areas for which landlord is
responsible for repairs, after which Landlord shall have a reasonable
opportunity to repair same. Landlord's liability with respect to any defects or
repairs for which it is responsible hereunder shall be limited to the cost of
such repairs or maintenance, or the cost of curing such defect.
9. Security Deposit. Tenant shall deposit with Landlord on the date
hereof the sum of $ 16,993.33 which shall be held by Landlord, without
obligation for interest, as security for the performance of Tenant's covenants
and obligations under this Lease. It is agreed that such deposit shall not be an
advance rental deposit or a measure of Landlord's damages in the event of
default. Upon the occurrence of an event of default by Tenant, Landlord may,
from time to time, without prejudice to any other remedy herein or provided by
law, use such fund to the extent necessary to make good any arrears of rent or
other payments due Landlord hereunder, or other damage or expense caused by an
event of default. Upon demand, Tenant shall pay to Landlord the amount so
applied in order to restore the security deposit to its original amount. The
security deposit shall be returned to Tenant at the termination of this Lease
provided that all Tenant's obligations under this Lease have been fulfilled.
10. Use. Tenant shall use the Premises only for the following
purposes:
General office use, network management and operations center,
engineering and other uses related to or in conjunction with
Tenant's business.
Outside storage, including without limitation trucks and other
vehicles, is prohibited without Landlord's prior written consent except private
automobiles.
Tenant shall at its own cost and expense obtain any and all licenses
or permits necessary to use the Premises. Tenant shall comply with all
governmental laws, ordinances and regulations applicable to the use of the
Premises.
Tenant shall not permit any objectionable or unpleasant odors,
smoke, dust, gas, noise or vibrations to emanate from the Premises or take any
other action which would constitute a nuisance or disturb or endanger other
tenants in the building of which the Premises are located, or unreasonably
interfere with the use of adjoining Premises.
Tenant shall not receive, store, or otherwise handle any material or
merchandise which is explosive or highly inflammable. Tenant will not permit the
Premises to be used for any purpose or in any manner which would render the
insurance thereon void or the insurance risk more hazardous which would cause an
increase in the insurance premiums paid by Landlord.
<PAGE>
Tenant shall not perform or permit any activity on the Premises, the
performance of which will result in the discharge, seepage, or spillage of oil,
petroleum or chemical liquids or any hazardous waste or hazardous substance, as
those terms are defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or in any other federal,
state or local law governing hazardous substances.
11. Alterations. Tenant shall not make any structural alterations,
improvements or additions to the Premises without first obtaining the written
consent of the Landlord, which consent shall not be unreasonably withheld or
delayed. All alterations and improvements made by Tenant shall remain upon the
Premises at the expiration or earlier termination of this Lease and shall become
the property of the Landlord.
12. Subordination. This Lease shall be subject to and subordinate at
all times to the lien of any mortgage and/or deed of trust and all land leases
now or hereafter made on any portion of the Premises, and to all advances
thereunder. This subordination shall be self-operative and no further instrument
of subordination shall be required.
If any proceeding are commenced to foreclose any mortgage or deed of
trust encumbering the Premises, Tenant agrees to attorn to the purchaser at the
foreclosure sale, if requested to do so by such purchaser, and to recognize such
purchaser as landlord under this Lease.
13. Assignment and Subletting. Tenant shall not have the right to
assign this Lease or sublet the whole or any part of the Premises without the
prior written consent of the Landlord, which consent shall not be unreasonably
withheld. Notwithstanding any such written consent from the Landlord, Tenant
shall at all times remain primarily liable for the payment of the rent and for
compliance with all other obligations of this Lease. Upon the occurrence of a
default hereunder and if the Premises or any part thereof have been assigned or
sublet, the Landlord, in addition to its other remedies may, at its option,
collect directly from such assignee or subtenant all rents becoming due to
Tenant under such assignment or sublease, and apply such rent against any sums
due Landlord from the Tenant hereunder. The collection of such rents shall not
constitute a novation or release to Tenant from its obligation hereunder.
14. Trade Fixtures. All trade fixtures and apparatus installed by
Tenant in the Premises shall remain the Property of Tenant and shall be
removable at the expiration or earlier termination of this Lease, provided
Tenant shall not, at such time, be in default of any covenant or agreement
contained in this Lease, and provided further that in the event of such removal,
Tenant shall promptly restore the Premises to their good order and condition.
Any such trade fixture not removed at or prior to such termination shall become
the property of the Landlord.
15. Condition of Premises. Except as otherwise provided in this
Lease, Tenant hereby accepts the Premises in its condition existing on the
commencement date of the
<PAGE>
Lease, subject to all applicable zoning, municipal, county and state laws,
ordinances, rules and regulations governing and regulating the use of the
Premises. Property is leased in "AS-IS" condition.
16. Waiver of Subrogation. If either party is paid any proceeds
under any policy of insurance naming such party as an insured, on account of any
loss, damage or liability, then such party hereby releases the other party, to
the extent of the amount of such proceeds, from any and all liability for such
loss, damage or liability, notwithstanding of such loss, damage or liability may
arise out of the negligent or intentionally tortious act or omission of the
other party; provided that such release shall be effective only with respect to
loss or damage occurring during such time as the appropriate policy of insurance
of the releasing party provides that such release shall not impair the
effectiveness of such policy of the insured's ability to recover thereunder.
Each party hereto shall use reasonable efforts to have a clause to such effect
included in its insurance policies, and shall promptly notify the other if such
clause cannot be included in any such policy.
17. Condemnation.
(A) If the whole of the demised Premises shall be taken by any
governmental or quasi-governmental authority under the power of condemnation,
eminent domain or expropriation, or in the event of conveyance in lieu thereof,
the term of the Lease shall cease as of the day possession shall be taken by the
governmental authority, and the entire award shall be the property of the
Landlord, except for the value of any fixtures or equipment installed by Tenant.
(B) In the event there in any taking by governmental or
quasi-governmental authority of a portion of the Premises which does not
seriously and adversely affect the ability of the Tenant to conduct its business
on the Premises, the Lease shall remain in full force and effect, and the
Tenant's rent shall be equitably adjusted based on the reduction in area of the
Premises.
(C) In the event of any such taking or conveyance of the
Premises or any portion thereof, Tenant shall pay rent to the date when
possession thereof shall be taken by the governmental authority with an
appropriate refund by Landlord of such rent as may have been paid in advance for
a period subsequent to such date. If this Lease shall continue in effect as to
any portion of the demised Premises not so taken or conveyed, the rent shall be
reduced to an amount computed according to the floor space remaining. If this
Lease shall so continue, Landlord, at its expense, shall make all necessary
repairs or alterations so as to constitute the remaining demised areas a
complete architectural and tenantable unit, but only to the extent of an
equitable proportion of the award for the portion taken to the remainder not
taken (excluding any award for the land).
(D) Tenant shall be entitled to such award as may be given to
it by the condemning authority for the value of its fixtures and equipment (if
separate awards are given), or if only one award is given by the condemning
authority for all interests, said award shall be
<PAGE>
apportioned between the parties as their respective interests shall appear. In
the event the Landlord and Tenant are unable to agree as to the amount of rental
reduction which may be made by the condemning authority for the value of
Tenant's fixtures, such matter shall be submitted to arbitration under the rules
of the American Arbitration Association then in effect.
18. Liability Insurance. At all times during the term hereof, or any
extension thereof, Tenant, at its own expense, shall maintain and keep in force
for the mutual benefit of Landlord and Tenant, general public liability
insurance against claims for personal injury, death or property damage occurring
in or about the Premises or sidewalks or areas adjacent to the Premises to
afford protection to the limit of not less than One Million Dollars and NO/100
($1,000,000.00) with respect to injury or death of a single person, or any
accident, and to the limit of not less than One Million Dollars and NO/100
($1,000,000.00) with respect to property damage. The policy or policies shall
name the Landlord as an additional insured. In order to evidence the coverage in
effect, the Tenant shall provide the Landlord with a Certificate of Insurance,
and will obtain a written obligation from the insurer to notify Landlord in
writing at least ten (10) days prior to cancellation or refusal to renew any
such policies.
19. Indemnification. Except for the intentional or negligent acts of
the Landlord or of the Landlord's partners, officers, agents, servants,
employees or contractors, Landlord shall not be responsible or liable for any
damage or injury to the Premises or to any person(s) at any time on the
Premises, including any damage or injury to Tenant or to any of Tenant's
partners, officers, agents, servants, employees, contractors, customers or
sublessee's.
Except for such intentional or negligent acts, Tenant shall
indemnify and save Landlord harmless from and against any and all liability,
claims, damages, penalties or judgments arising from or in any way connected
with injury to person or property sustained by action, in and about the
Premises, in custody and control of Tenant during the term of this Lease. If
Landlord shall, without fault of its own, be made a part of any litigation
commenced by or against Tenant, Tenant shall protect and hold Landlord harmless
and pay all costs, expenses and reasonable attorneys' fees that may be incurred
or paid by Landlord in enforcing the covenants and agreements of this Lease.
20. Damage or Destruction of Improvements. In the event the Premises
shall be rendered untenantable by fire or other casualty, Landlord shall, within
thirty (30) days from receipt of the insurance proceeds for said damage or
destruction, commence the repair or replacement of said improvements to
substantially the same condition as prior to the damage or destruction. If the
Landlord fails to commence repair or replacement of the damage or destruction
within said thirty (30) days, or if the Premises have not been replaced or
repaired to such condition within one hundred eighty (180) days, Tenant may, at
its option (to be exercised by written notice to Landlord), terminate this Lease
on the date specified in the notice and thereafter neither Tenant nor Landlord
shall have any further rights, duties or obligations under this Lease and the
rents and other sums payable by Tenant for the remainder of the term shall
wholly abate. The rent herein required to be paid, shall abate during the period
of such untenantability.
<PAGE>
If the improvements shall be partially damaged by fire or other
casualty, but still remain tenantable, the Landlord shall repair said
improvements to substantially the same condition as prior to the damage.
Landlord shall commence repair of the damage or destruction within thirty (30)
days from the date of occurrence. During the period of such repairs and
restorations, the lease shall continue in full force and effect, but the rent
shall be equitably abated to pay for the basis of the portion of the Premises
that are untenantable.
Notwithstanding the foregoing, if more than fifty percent (50%) of
the improvements shall be destroyed or damaged by any cause so as to be unfit
for Tenant's occupancy as provided herein and repair thereof is incapable of
being substantially completed within one hundred eighty (180) days after the
date of the destruction or damage, Landlord and Tenant may elect to terminate
this Lease as of the date of destruction or damage, by giving notice of such
election to the other within thirty (30) days after such damage or destruction.
In such event, Landlord shall receive the proceeds of the insurance policies
without obligation to rebuild or restore the Premises, and Tenant shall execute
any waiver which may be required of it by any insurer or Landlord and thereafter
neither Tenant nor Landlord shall have any further rights, duties or obligations
under this Lease and the rents and other sums payable by Tenant for the
remainder of the term shall wholly abate.
21. Events of Default. The occurrence of any of the following shall
constitute an event of default hereunder:
(A) Failure of Tenant to pay, within ten (10) days any installment
of rent hereunder or any other sum herein required to be paid by Tenant.
(B) Vacation or desertion of the Premises or permitting the same to
be empty and unoccupied for more than thirty (30) days.
(C) Tenant's failure to perform any other covenant or condition of
this Lease within thirty (30) days after written notice and demand, unless the
failure is of such a character as to require more than thirty (30) days to cure,
in which event Tenant's failure to proceed diligently to cure such failure shall
constitute an event of default.
(D) Tenant shall become insolvent, make an assignment for benefit of
creditors, make a transfer in fraud or creditors, file a petition of bankruptcy
under the National Bankruptcy Act, or if an involuntary petition under said Act
is filed against Tenant or if a receiver or trustee is appointed for
substantially all of Tenant's assets.
22. Landlord's Remedies. Upon the occurrence of any event of
default, Landlord may, at Landlord's sole option, exercise any or all of the
following remedies, together with any such other remedies as may be available to
Landlord at law or in equity:
(A) Landlord may terminate this Lease by giving Tenant written
notice of its
<PAGE>
election to do so, as of a specified date not less than fifteen (15) days after
the date of the giving of such notice and this Lease shall then expire on the
date so specified and Landlord shall be then entitled to immediately regain
possession of the demised Premises as if the date had been originally fixed as
the expiration date of the terms of this Lease. Landlord may then re-enter upon
the leased Premises either with or without process of law and remove all persons
therefrom, the statutory notice to quit or any other notice to quit being hereby
expressly waived by Tenant. Tenant expressly agrees that the exercise by
Landlord of the right of re-entry shall not be a bar to or prejudice in any way
other legal remedies available to Landlord. In that event, Landlord shall be
entitled to recover from Tenant as and for liquidated damages an amount equal to
the difference between the rent and additional rent reserved in this Lease for
the entire unexpired portion of the term thereof and the fair rental value of
the demised Premises for the same period of time. Nothing herein contained,
however, shall limit or prejudice the right of Landlord to prove for an obtain
as liquidated damages, by reason of such termination, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, such damages are to be proved, whether or
not such amount be greater, equal to, or less than the amount of the difference
referred to above, and Landlord may in its own name but as agent for Tenant
re-let the demised Premises for any period equal to or greater or less than the
remainder of the original term of this Lease, for any such which it may deem
reasonable, to any other lessee which Landlord may select, and for any purpose
which Landlord may designate. Landlord will make reasonable efforts to re-let
the Premises, and will allow Tenant to find a new tenant. Any recovery by the
Landlord shall be limited to the difference in rent hereunder (plus any costs
incurred in re-letting) and the rent actually paid by the new tenant.
(B) No termination of this Lease nor any taking or recovery of
possession of the demised Premises shall deprive Landlord of any of his remedies
or actions against Tenant for past or future rent, nor shall the bringing of any
action for rent or breach of covenant, or the resort to any other remedy herein
provided for the recovery of rent be construed as a waiver of the right to
obtain possession of the Premises.
(C) In addition to any damages becoming due under subparagraph (A)
hereof, Landlord shall be entitled to recover from Tenant and Tenant shall pay
to Landlord an amount equal to all expenses, if any, incurred by the Landlord in
recovering possession of the demised Premises, and all reasonable costs and
charges for the care of said Premises while vacant, which damages shall be due
and payable by Tenant to Landlord at such time or times as such expenses are
incurred by the Landlord.
(D) In the event of a default or threatened default by Tenant of any
of the terms or conditions of this Lease, Landlord shall have the right of
injunction and the right to invoke any remedy allowed by law or in equity as if
no specific remedies of Landlord were set forth in this Lease.
(E) It is further provided that if, under the provisions of this
Lease, default be made and a compromise and settlement shall be had thereupon,
it shall not constitute a waiver of any covenant herein contained, nor of the
Lease itself; and it is hereby specifically agreed that
<PAGE>
this Lease shall not merge in any judgment had upon the same if compromise or
settlement be made upon said judgment prior to termination of Tenant's
possession, the Lease in such event to continue by the payment of rent herein
reserved, and the further performance of the covenants herein contained on the
part of Tenant.
23. Rights of Landlord. Landlord reserves the following rights with
respect to the demised Premises:
(A) During normal business hours, upon reasonable notice, by it or
its duly authorized agents to go upon and inspect the demised Premises and every
part thereof, and at Landlord's option, to make repairs, alterations and
additions to the Premises or the Improvements of which the Premises are a part.
An agent of Tenant must be present for inspection, however.
(B) To display after notice from either party of intention to
terminate this Lease, or at any time within three (3) months prior to the
expiration of this Lease, a "For Rent" sign, and all of said signs which shall
be placed upon such part of the demised Premises as Landlord shall require,
except on display windows or doors or doors leading into the demised Premises.
Prospective purchasers or tenants authorized by Landlord may inspect the
Premises during normal business hours following adequate notice to Tenant.
(C) To install or place upon, or affix to, the roof and exterior
walls of the demises Premises, equipment, signs, displays, antennae, and any
other object; provided such object does not interfere with Tenant's occupancy.
(D) To display a "For Sale" sign at any time in the event Landlord
decides to sell the Premises.
24. Binding Effect. It is agreed that this Lease shall be binding
upon and inure to the benefits of the Landlord and Tenant and their successors
and assigns. Subject to any provisions hereof, restricting assignment or
subletting by Tenant, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the District of Columbia.
25. Rights of Mortgagee. Mortgagee shall have the following rights:
(A) Any notice required to be given to the Landlord by the Tenant
shall be given as well, in the same manner to the Mortgagee.
(B) In the event that Tenant shall have any excuse from paying rent
or right to set off its expenses from the rent as a result of any default by the
Landlord or shall have any expense from the performance of any obligation
imposed upon Tenant by the terms of this Lease, then and in such event the
Tenant shall give notice of its intended exercise of such right in the manner
provided for herein to the Mortgagee and thereafter the Mortgagee shall have the
right but not the obligation to cure said defaults within the time provided for
cure of the same as set
<PAGE>
forth in this Lease.
(C) Upon the request of the Mortgagee, the Tenant will furnish an
Estoppel Certificate certifying to the rent paid and to be paid the remaining
term of the Lease, the existence of defaults of the Landlord, if any, and such
other information concerning this tenancy as Mortgagee may from time to time
require.
26. Legal Fees. If either party named herein brings an action to
enforce the terms hereof or declare rights hereunder, the prevailing party and
any such action on trial or appeal, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the Court.
27. Estoppel Certificates. Landlord and Tenant will, from time to
time, upon request by the other, execute and deliver to the requesting party,
for the benefit of the requesting party or any third party, a statement
certifying in writing that (subject to exceptions set forth in the statement)
this Lease is unmodified and in full force and effect, that the other party is,
to the knowledge of the certifying party, not in default under the Lease, that
no rentals have been paid more than one month in advance, and such other matters
as may be reasonably required by the requesting party.
28. Tenant Improvements. Landlord hereby grants unto Tenant the
right to install the improvements as previously agreed by Landlord and Tenant,
all of which shall be installed at the sole cost and expense of Tenant. All such
improvements shall be installed in a good workmanlike manner, and Tenant shall
indemnify and save harmless Landlord from any liability of any kind in
connection with the installation of said improvements.
29. Improvements by Landlord. Landlord shall install, at its cost
and expense, the improvements to the common areas as previously agreed by
Landlord and Tenant. All such improvements shall be installed in a good and
workmanlike manner.
30. Signs. Tenant shall not install or place any signs, lights or
advertising matter of any kind on the exterior of the building in which the
Premises are located or paint or make any change in the exterior of said
Premises or building without in each instance receiving the prior written
consent of the Landlord. In the event the Landlord grants such permission to
Tenant, the Tenant shall maintain said advertising matter in good condition and
repair.
31. Loading Capacity. Tenant covenants and agrees not to load the
Premises beyond its present carrying or loading capacity.
32. Final and Entire Agreement. This Lease contains the final and
entire agreement between the parties, and they shall not be bound by any terms,
conditions or representations not contained herein.
33. Addendum. The provisions of any Addendum hereto attached and
signed
<PAGE>
by the parties shall be considered a part of this Lease.
34. Notices. All notices required under this Lease shall be given in
writing and shall be deemed to be properly served if sent by certified or
registered mail to the following addresses:
TO LANDLORD: 6715 Kenilworth Avenue
General Partnership
1015 31st Street NW
Washington, D.C. 20007
TO TENANT: PathNet, Inc.
1015 31st Street NW
Washington, D.C. 20007
35. Termination of Lease. Landlord may at his sole option, terminate
this lease, in its' entirety, by giving the tenant ninety (90) days written
notice at which time this lease shall become null and void. Tenant shall than
vacate said premise and leave in broom clean condition.
36. Additional Provisions. Tenant is granted two renewal options.
Each for one year. The Minimum Rent shall remain the same during these option
periods.
IN WITNESS WHEREOF, the parties have signed this Lease Agreement on
the date first hereinabove written.
WITNESS: LANDLORD
By: /s/ Kristin G. Ronhovde By: /s/ David Schaeffer
- -------------------------------- ----------------------------
Name: Kristin G. Ronhovde Name:
Title:
WITNESS: TENANT:
By: /s/ Kristin G. Ronhovde By: /s/ Richard A. Jalkut
- -------------------------------- ----------------------------
Name: Kristen G. Ronhovde Name:
Title:
<PAGE>
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE (the "Amendment") is dated March 5, 1998 and is
made and entered into by and between 6715 Kenilworth Avenue General Partnership
("Landlord") and PATHNET, INC., a Delaware corporation ("Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement, dated August
9, 1997 (the "Lease");
WHEREAS, each of Landlord and Tenant desire to amend certain terms of the
Lease as more particularly set forth herein;
NOW THEREFORE, for the mutual consideration hereinafter set forth, the
parties hereto agree as follows:
1. The Landlord and the Tenant hereby agree that, effective as of the date
hereof, Paragraph 35 of the Lease is hereby amended to read in its entirety as
follows:
"35. Intentionally Omitted."
2. The undersigned parties hereby acknowledge that the Lease, as amended
hereby, remains in full force and effect and is hereby ratified and confirmed.
IN WITNESS WHEREOF, the undersigned parties have duly executed and
delivered this Amendment as of the date first above written.
LANDLORD: 6715 KENILWORTH AVENUE
GENERAL PARTNERSHIP
By: /s/ David Schaeffer
---------------------------
Name:
Title:
TENANT: PATHNET, INC.
By: /s/ W. R. Smedberg
---------------------------
Name: William R. Smedberg
Title: V.P. Corporate
Development
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Pathnet Finance I, LLC, a Delaware limited liability company.
Pathnet/Idaho Power License LLC, a Delaware limited liability company.
Pathnet/Idaho Power Equipment, LLC, a Delaware limited liaiblity company.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333- ) of our report dated February 20, 1998, except for the information
presented in Note 9 to the financial statements for which the dates are April 8,
1998 and May 4, 1998, on our audits of the consolidated financial statements of
Pathnet, Inc. and its subsidiary as of December 31, 1996 and 1997, and for the
period August 25, 1995 (date of inception) to December 31, 1995, the years ended
December 31, 1996 and 1997 and the period August 25, 1995 (date of inception) to
December 31, 1997. We also consent to the references to our firm under the
captions "Experts" and "Selected Consolidated Financial Data".
/s/ COOPERS & LYBRAND L.L.P.
McLean, Virginia
May 7, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Company's balance sheets as of December 31, 1997 and March 31, 1998 and the
Statements of Operations for the year ended December 31, 1997 and the three
months ended March 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 7,831 4,857
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,880 5,004
<PP&E> 7,263 10,058
<DEPRECIATION> 56 93
<TOTAL-ASSETS> 16,098 15,258
<CURRENT-LIABILITIES> 5,893 7,738
<BONDS> 0 0
15,970 15,970
0 0
<COMMON> 50 50
<OTHER-SE> (5,806) (8,491)
<TOTAL-LIABILITY-AND-EQUITY> 16,098 15,258
<SALES> 163 100
<TOTAL-REVENUES> 163 100
<CGS> 0 715
<TOTAL-COSTS> 4,294 2,863
<OTHER-EXPENSES> (154) (78)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (3,977) (2,685)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,977) (2,685)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,977) (2,685)
<EPS-PRIMARY> 0.80 0.54
<EPS-DILUTED> 0.80 0.54
</TABLE>
